<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, 1999

            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 10, 1999
was 7,824,513.

<PAGE>

                             AMERICAN WAGERING, INC.
                      UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                           July 31,      January 31,
                                                                            1999            1999
ASSETS                                                                  ------------    ------------
<S>                                                                           <C>            <C>
CURRENT ASSETS:
  Cash                                                                  $  1,876,117     $ 3,076,563
  Short-term investments                                                     276,428         483,671
  Accounts receivable, net of allowance for doubtful accounts
   of $139,157 and $78,295                                                   978,605         172,046
  Inventories, net of obsolescence reserve of $81,825 and $56,825            551,312         724,386
  Prepaid expenses and other current assets                                  683,247         544,212
                                                                        ------------     -----------
TOTAL CURRENT ASSETS                                                       4,365,709       5,000,878

PROPERTY AND EQUIPMENT, net                                                3,993,347       4,063,042

INTANGIBLE ASSETS, net                                                     1,128,519       1,238,890

DEPOSITS AND OTHER ASSETS                                                    348,037         388,765

NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS                                    -       1,074,295
                                                                         -----------     -----------
TOTAL ASSETS                                                            $  9,835,612     $11,765,870
                                                                        ============     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt                                     $     60,268     $    57,913
  Accounts payable                                                         1,601,931         678,067
  Accrued expenses                                                           834,976         718,932
  Unpaid winning tickets                                                     376,838       2,548,181
  Other current liabilities                                                  981,984         707,612
  Net current liabilities of discontinued operations                               -         616,644
                                                                        ------------     -----------
TOTAL CURRENT LIABILITIES                                                  3,855,997       5,327,349
                                                                        ------------     -----------
LONG-TERM DEBT:
  Long-term debt, less current portion                                     1,848,502       1,879,237
                                                                        ------------     -----------
TOTAL LONG-TERM DEBT                                                       1,848,502       1,879,237
                                                                        ------------     -----------

MINORITY INTEREST                                                             (7,049)         (3,380)

STOCKHOLDERS' EQUITY:
  Series A Preferred stock - 10% cumulative;$.01 par value; authorized
   25,000,000 shares;issued and outstanding: 17,424 and 18,924 shares      1,742,400       1,892,400
  Common stock -- $.01 par value; authorized
   25,000,000 shares; issued and outstanding: 7,885,613 shares                78,857          78,857
  Additional paid-in capital                                              14,296,848      14,296,848
  Accumulated deficit                                                    (11,652,450)    (11,377,948)
   Less: treasury stock; at cost: 61,100 shares                             (327,493)       (327,493)
                                                                        ------------     -----------
TOTAL STOCKHOLDERS' EQUITY                                                 4,138,162       4,562,664
                                                                        ------------     -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              $  9,835,612     $11,765,870
                                                                        ============     ===========
</TABLE>
    Note: The consolidated balance sheet at January 31, 1999 has been derived
                     from the audited financial statements.

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

<PAGE>

                             AMERICAN WAGERING, INC
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE THREE MONTHS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
                                                                    1999            1998
                                                                 ----------     -----------
<S>                                                               <C>             <C>
REVENUES                                                         $2,256,484     $ 1,633,413

OPERATING COSTS AND EXPENSES:
  Direct costs                                                    2,037,817       1,269,424
  Research and development                                          191,862         139,388
  Selling, general and administrative                               768,941       1,136,254
  Depreciation and amortization                                     207,306         167,261
                                                                 ----------     -----------
TOTAL OPERATING COSTS AND EXPENSES                                3,205,926       2,712,327
                                                                 ----------     -----------
OPERATING INCOME                                                   (949,442)     (1,078,914)

OTHER INCOME (EXPENSE):
  Interest income                                                     3,023          34,692
  Other income                                                        1,319          78,593
  Minority Interest                                                  (1,354)             --
  Equity Loss from joint venture                                         --         (86,866)
  Interest expense                                                  (39,974)        (82,139)
                                                                 ----------     -----------
TOTAL OTHER EXPENSE                                                 (36,986)        (55,720)
                                                                 ----------     -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE PROVISION (BENEFIT) FOR INCOME TAXES                        (986,428)     (1,134,634)

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

LOSS FROM CONTINUING OPERATIONS                                    (986,428)     (1,134,634)

DISCONTINUED OPERATIONS:

         GAIN ON SALE OF HOTEL, FOOD AND BEVERAGE
          OPERATIONS, NET OF INCOME TAX                             341,403              --

         EXCESS RESERVE - LOSS ON DISPOSAL                          213,465              --
                                                                 ----------     -----------
INCOME FROM DISCONTINUED OPERATIONS                                 554,868              --
                                                                 ----------     -----------
NET LOSS                                                           (431,560)     (1,134,634)

PREFERRED STOCK DIVIDEND REQUIREMENTS                               (47,570)             --
                                                                 ----------     -----------

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS                      $ (479,130)    $(1,134,634)
                                                                ===========     ===========

INCOME (LOSS) PER SHARE OF COMMON STOCK

  Loss from continuing operations
    Basic                                                        $    (0.13)    $     (0.15)
    Diluted                                                      $    (0.13)    $     (0.15)

  Income from discontinued operations
    Basic                                                        $     0.07              --
    Diluted                                                      $     0.07              --

  Net loss
    Basic                                                        $    (0.06)    $     (0.15)
    Diluted                                                      $    (0.06)    $     (0.15)
</TABLE>
        The accompanying notes are an integral part of these consolidated
                              financial statements.

<PAGE>

                             AMERICAN WAGERING, INC
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE SIX MONTHS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
                                                                  1999                    1998
                                                               ----------              -----------
<S>                                                            <C>                     <C>
REVENUES                                                       $5,266,607              $ 3,968,781

OPERATING COSTS AND EXPENSES:
         Direct costs                                           3,803,402                2,634,422
         Research and development                                 343,242                  278,660
         Selling, general and administrative                    1,395,606                1,440,812
         Depreciation and amortization                            395,451                  331,557
                                                               ----------              -----------
       TOTAL OPERATING COSTS AND EXPENSES                       5,937,701                4,685,451
                                                               ----------              -----------
OPERATING LOSS                                                   (671,094)                (716,670)

OTHER INCOME (EXPENSE):
         Interest income                                           10,542                  100,443
         Other income                                               1,319                  161,702
         Minority interest                                          3,669                      ---
         Equity in loss from joint venture                            ---                 (384,068)
         Interest expense                                         (79,452)                (183,264)
                                                               ----------              -----------
TOTAL OTHER EXPENSE                                               (63,922)                (305,187)
                                                               ----------              -----------
LOSS FROM CONTINUING OPERATIONS
       BEFORE PROVISION (BENEFIT) FOR INCOME TAXES               (735,016)              (1,021,857)

PROVISION (BENEFIT) FOR INCOME TAXES                                  ---                      ---
                                                               ----------              -----------
LOSS FROM CONTINUING OPERATIONS                                  (735,016)              (1,021,857)

DISCONTINUED OPERATIONS:

       GAIN ON SALE OF HOTEL, FOOD AND BEVERAGE
        OPERATIONS, NET OF INCOME TAX                             341,403                      ---

       EXCESS RESERVE - LOSS ON DISPOSAL                          213,465                      ---
                                                               ----------              -----------
INCOME FROM DISCONTINUED OPERATIONS                               554,868                      ---
                                                               ----------              -----------

NET LOSS                                                         (180,148)              (1,021,857)

PREFERRED STOCK DIVIDEND REQUIREMENTS                             (94,354)                     ---
                                                               ----------              -----------

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS                      $ (274,502)             $(1,021,857)
                                                               ==========              ===========

INCOME PER SHARE OF COMMON STOCK

    Loss from continuing operations
         Basic                                                 $    (0.11)             $     (0.13)
         Diluted                                               $    (0.11)             $     (0.13)

    Income from discontinued operations
         Basic                                                 $     0.07              $      0.00
         Diluted                                               $     0.07              $      0.00

    Net (loss)
         Basic                                                 $    (0.04)             $     (0.13)
         Diluted                                               $    (0.04)             $     (0.13)
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.
<PAGE>


                             AMERICAN WAGERING, INC.
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
                                                                  1999            1998
                                                              -----------     -----------
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                    $  (274,502)   $ (1,021,857)

  Adjustments to reconcile net income to cash
   used in operating activities:
  Depreciation and amortization                                   474,633         424,598
  Equity in loss from investment in
   joint venture                                                       --         197,181
  Gain on sale of discontinued operations                        (341,403)             --
  Discontinued operations                                        (342,482)       (424,459)
Minority interest                                                  (3,669)             --
  Provision for doubtful accounts                                 (60,862)       (256,460)
  Decrease (increase) in assets:
    Accounts receivable                                          (503,966)        432,041
    Inventories                                                   194,396          42,054
    Prepaid expenses and other current assets                     (80,329)       (100,211)
  Increase (decrease) in liabilities:
    Accounts payable                                              336,287        (920,683)
    Accrued expenses                                              313,399        (294,588)
    Unpaid winning tickets                                     (2,171,343)     (1,073,391)
    Other current liabilities                                      53,613         372,346
                                                              -----------     -----------
Total adjustments                                              (2,131,726)     (1,601,572)
                                                              -----------     -----------

  Net cash used in operating activities                        (2,406,228)     (2,623,429)
                                                              -----------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Net proceeds from sale of assets                              3,809,392              --
  Capital expenditures                                           (143,083)       (159,876)
  Purchase of assets of affiliate                                                (524,404)
  Deposits and other assets                                         2,374        (163,112)
  Proceeds from sale of assets                                         --              --
  Increase in investment in joint venture                              --        (195,117)
  Decrease in short-term investments                              207,243       4,288,289
                                                              -----------     -----------
  Net cash provided by investing activities                     3,875,926       3,245,780
                                                              -----------     -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Decrease in long-term debt                                   (2,412,408)     (1,095,701)
  Purchase of treasury stock                                           --        (295,710)
  Redemption of preferred stock                                  (150,000)             --
  Preferred stock dividends                                      (107,736)             --
                                                              -----------     -----------
    Net cash used in financing activities                      (2,670,144)     (1,391,411)
                                                              -----------     -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS                      (1,200,446)       (769,060)

CASH AND CASH EQUIVALENTS, beginning of period                $ 3,076,563     $ 2,092,894
                                                              -----------     -----------
CASH AND CASH EQUIVALENTS, end of period                      $ 1,876,117     $ 1,323,834
                                                              ===========     ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest                                        $   200,825     $   308,439
                                                              ===========     ===========
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

<PAGE>

                             AMERICAN WAGERING, INC
                UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED JULY 31, 1999 AND 1998

                                  (Continued)

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:

Six Months Ended July 31, 1999 Transactions--

     On February 1, 1999 the Mega$ports joint venture agreement terminated. The
termination agreement allows the Company to receive IGT's 50% interest in the
joint venture and the Mega$ports(R) trademark. The Company has agreed under the
terms of the agreement to indemnify IGT for all presently due and future
obligations of Mega$ports. The transfer of IGT's shares in the joint venture is
subject to the approval of the Nevada Gaming Commission. The assets acquired and
the assumption of debt were as follows:

                   Cash                                $   4,262
                   Other current assets                  168,463
                   Property and equipment                 70,290
                   Current liabilities                  (243,015)
                                                       ---------
                                                       $    ----
                                                       =========


Six Months ended July 31, 1998 Transactions--None












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


<PAGE>

                             AMERICAN WAGERING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     FOR THE SIX MONTHS ENDED JULY 31, 1999


1. Summary of Business and Significant Accounting Policies

The accompanying unaudited consolidated financial statements do not include all
information and disclosures required 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.
The financial statements as of and for the years ended January 31, 1999 and 1998
and the notes thereto included in the Company's Annual Report on Form 10-KSB
should be read in conjunction with these interim financial statements.

Summary of Business

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

Leroy's was incorporated under the laws of the State of Nevada on November 14,
1977. Through a central computer system located at its Las Vegas, Nevada
headquarters, Leroy's operates a statewide network of 46 sports and race
wagering facilities by leasing the square footage necessary to conduct its
operations from non-Company owned gaming establishments. Leroy's operates its
main race and sports book and a 5,600 square foot casino with approximately 65
electronic gaming devices including slot machines, video poker machines and
multi-game video machines at the Howard Johnson Hotel on 3111 West Tropicana
Boulevard in Las Vegas, Nevada.

The Company also owns and operates Mega$ports (ACT) Pty Ltd. ("Mega$ports(ACT)")
located in Canberra, Australia. Mega$ports(ACT) is the Company's international
wagering hub licensed to accept fixed odds and pari-mutuel telephone and sports
wagers on the Internet from patrons around the world except the United States.
In November 1998, the Company was issued a 15 year Sports Betting license from
the Bookmakers Licensing Committee in the Australian Capital Territory ("ACT").
The Company began accepting wagers from patrons within Australia in January
1999. The Company received regulatory approval for its Internet operations from
the ACT and began accepting wagers on the Internet in March 1999. The Company
believes it is the first Nevada licensed company to start an online gaming site.

The Company owns AWI Keno, Inc. ("AWIK") which designs, installs, operates and
maintains computerized keno systems and plans to offer keno players the first
state wide progressive keno game. On April 29, 1999 the Company received
licensing approval from the Nevada Gaming Commission to operate a statewide
inter-casino linked system keno game. The Company began operations at two
locations in August 1999 and must successfully complete a 30 day trial period
before receiving final approval from the Nevada Gaming Commission.

<PAGE>

The Company also owns and operates Computerized Bookmaking Systems, Inc.
("CBS"). CBS designs, installs and maintains sports and race book equipment,
software and computer systems for the sports betting industry. In 1994, CBS
signed a joint venture agreement with International Game Technology ("IGT") for
the purpose of developing and marketing a pari-mutuel sports system, known as
MEGA$PORTS(R). MEGA$PORTS(R) offers opportunities to wager on the outcome of
individual sports contests, events occurring within or during the contests, and
outcomes of groups of sports contests. On February 1, 1999, the Mega$ports joint
venture agreement terminated. (See Note 2).

On July 28, 1998, the Company acquired certain assets from Advanced Computer
Services, Inc. ("ACS"). Two new subsidiaries, AWI Sports Systems, Inc. and AWI
Hotel Systems, Inc. were formed to hold the assets acquired from ACS.

On April 22, 1998, the Company determined it would concentrate its business
efforts on its core competency, sports wagering, and began seeking a qualified
buyer for the hotel, food and beverage segment of American Wagering, Inc. On
June 30, 1999, the Company finalized the sale of these operations and has
entered into a lease with the new owner to continue to operate the casino for up
to two years. The casino serves as the Company's principal gaming location. In
the Company's accompanying consolidated financial statements for and as of the
Three and Six Months ended July 31, 1999 and 1998, the results of the hotel,
food and beverage operations have been accounted for as discontinued operations.
The Company recognized a gain on sale of these operations of $341,000 and an
excess reserve - loss on disposal of $213,000 during the Second Quarter of
Fiscal 2000. (See Note 3).

Cash and Short Term Investments

The Company has segregated approximately $165,000 in cash to meet certain
regulatory requirements. Short-term investments consist of liquid investments
carried at cost and accrued interest.

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. The Company recorded a charge for depreciation expense of
$285,687 and $263,555 and amortization expense of $109,764 and $68,002 for the
six months ended July 31, 1999 and 1998, respectively.

Intangible Assets

Intangible assets include the excess of the cost over the fair market value of
net assets of acquired companies. Such costs are being amortized over the
periods expected to be benefited or approximately 25 years. Other intangible
assets acquired including software and rights for manufacturing and distribution
are being amortized over 7 years. Accumulated amortization was $481,171 and
$371,407 at July 31, 1999 and January 31, 1999, 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 three months and six months ended July 31,
1999 and 1998 are not necessarily indicative of the results to be expected for
the full fiscal year.


<PAGE>

Revenue Recognition

With respect to the Wagering segment, which includes sports book and Internet
operations, in accordance with industry practice, the Company recognizes fixed
odds 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. The Company
recognizes pari-mutuel race and sports wagering revenues as commissions earned
as a percentage of the total amount wagered. Wagering revenues are recognized
based on the results of a completed 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", or undiluted, 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.

In accordance with SFAS No. 128, if potential shares outstanding would have an
anti-dilutive effect on the diluted earnings per share calculation, then the
shares are not included in the diluted earnings per share calculation. Options
outstanding during the three and six months ended July 31, 1999 and 1998 under
the Company's Employee stock option plan and its Directors stock option plan
were not included in the computation of diluted earnings per share because they
were anti-dilutive with regard to the loss incurred by the Company during the
three and six months ended July 31, 1999 and 1998.

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:
<TABLE>
<CAPTION>
                                                          Three Months                          Six Months
                                                          Ended July 31,                      Ended July 31,
                                                   ---------------------------         ---------------------------
                                                     1999              1998              1999               1998
                                                   ---------         ---------         ---------         ---------
<S>                                                <C>               <C>               <C>               <C>
   Weighted-average common shares
   outstanding (used in the computation
   of basic earnings per share)..........          7,824,513         7,792,330         7,824,513         7,812,547

   Potential dilution from the assumed
   exercise of common stock options......            252,967           223,358           252,967           221,887
                                                   ---------         ---------         ---------         ---------
   Weighted-average common and common
   stock equivalent shares (used in the
   computation of diluted earnings per
   share)................................          8,077,480         8,015,688         8,077,480         8,034,434
                                                   =========         =========         =========         =========
</TABLE>

<PAGE>

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 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 1998 consolidated financial statements have been
reclassified to conform to the 1999 presentation. These reclassifications had no
effect on the Company's net income (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 apply to taxable
income in the years in which these temporary differences are expected to be
recovered or settled.

Concentration of Risk

The Company derives a substantial portion of its revenues from a limited number
of licensed race and sports books in the State of Nevada. Limitations on the
scope of operations at such licensed race and sports books due to statutory or
regulatory changes or deterioration in the general economic conditions which
impact the gaming industry in Nevada could adversely affect the Company's
operating results. The Company also derives a portion of its revenues from
Australia, which is susceptible to statutory, regulatory or economic changes,
which may impact the Internet or the gaming industry outside of the United
States.

The Company has expanded its sports wagering activities to Australia and is
exploring other jurisdictions outside of the United States to expand its sports
wagering and keno business lines. The level of customer acceptance for the
Company's sports wagering and keno products in these new jurisdictions is
undetermined. Establishing these operations may require initial investments of
several hundred thousand dollars. If the required investments cannot be funded
through current operations, the Company would have to obtain additional debt or
equity funding. There can be no assurance that the Company would be able to
complete such debt or equity funding or do so on terms satisfactory to the
Company.

<PAGE>
2. Investment in Joint Venture

The Company, through its wholly owned subsidiary CBS, was involved in a joint
venture with IGT. CBS and IGT each owned a fifty percent interest in the joint
venture company named Mega$ports, Inc., a Nevada corporation ("Mega$ports
(US)"). On February 1, 1999, Mega$ports joint venture agreement terminated. The
termination agreement allows the Company to receive IGT's 50% interest in the
joint venture and the Mega$ports(R) trademark. The Company has agreed under the
terms of the agreement to indemnify IGT for all presently due or future
obligations of Mega$ports(US). The transfer of IGT's shares in the joint venture
is subject to the approval of the Nevada Gaming Commission. In the Company's
accompanying consolidated financial statements for and as of the six months
ended July 31, 1999, the results of Mega$ports(US) operations have been
accounted for as a wholly owned subsidiary. Mega$ports (US), which began
operations in July 1997, is engaged in the design, manufacture and distribution
of a pari-mutuel sport wagering system. The Company's original investment in
joint venture balance consisted of contributions of property and equipment,
programming services and cash contributions for operations.

3. Discontinued Operations

On April 22, 1998, the Company determined it would concentrate its business
efforts on its core competency, sports wagering, and began seeking a qualified
buyer for the hotel, food and beverage segment of American Wagering, Inc. On
June 30, 1999, the Company finalized the sale of these operations and has
entered into a lease with the new owner to continue to operate the casino for up
to two years. The casino serves as the Company's principal gaming location.
In the Company's accompanying consolidated financial statements for and as of
the Three and Six Months ended July 31, 1999 and 1998, the results of the hotel,
food and beverage operations have been accounted for as discontinued operations.

The Company recorded a reserve during fiscal year ended January 31, 1998 for the
estimated losses on the disposal of this segment, which was comprised of an
estimated loss on the sale of the hotel of $246,000 and a provision for
anticipated losses during the phase out period of $616,000.

The components of assets and liabilities of discontinued operations included in
the accompanying consolidated balance sheets are as follows:

                                                July 31,       January 31,
                                                  1999            1999
                                                --------       ----------
Current assets                                  $    ---       $  274,119
Accounts payable, accrued expenses and other         ---         (890,763)
                                                --------       ----------
Net current liabilities                         $    ---       $ (616,644)
                                                ========       ==========
Property, plant and equipment, net              $    ---       $3,383,376
Non-current liabilities                              ---       (2,309,081)
                                                --------       ----------
Net long term assets                            $    ---       $1,074,295
                                                ========       ==========

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

<TABLE>
<CAPTION>
                                   Three months ended July 31,     Six months ended July 31,
                                         1999         1998            1999          1998
                                      ---------     ---------      ---------      ---------
<S>                                      <C>            <C>            <C>          <C>
Revenues                              $ 553,698     $ 795,406      $1,433,639     $1,570,261
Costs and expenses                      852,342       961,330       1,808,627      1,961,354
                                      ---------     ---------      ----------     ----------
Loss before income taxes               (298,644)     (165,924)       (374,988)      (391,093)
Provision (benefit)
  for income taxes                          --            --              --             --
                                      ---------     ---------      ----------     ----------
Net (loss)                            $(298,644)    $(165,924)     $ (374,988)    $ (391,093)
                                      =========     =========      ==========     ==========
</TABLE>
During the three months ended July 31, 1999, the Company realized a gain of
$341,000 from the sale of this segment. Additionally, the Company no longer
required the initial estimated loss from discontinued operations of $246,000.
The Company incurred losses from operations in excess of its initial reserve for
losses of $33,000. This excess amount was charged against the estimated loss on
the sale reserve, which reduced that reserve to $213,000.

The sale of the segment did not result in an income tax liability. Accordingly,
the Company did not make a provision for income tax.

4. Business Segments

The Company's primary operations are reported in the following four segments:

Wagering, Casino, Systems, and Keno. The Hotel, Food and Beverage business
segment has been presented as discontinued operations in the accompanying
consolidated financial statements.
<PAGE>
The Wagering segment consists of Leroy's, the licensed bookmaking operations
with the largest number of sports books in the state of Nevada. As at July 31,
1999, in addition to its main location, the Company operated 45 race and sports
books located within licensed gaming establishments owned by other companies
throughout the state of Nevada. Leroy's leases the square footage necessary to
conduct its operations at non-Company owned establishments. Additionally, the
Wagering segment consists of Mega$ports (ACT) Australia operations, the
Company's international wagering hub for Internet sports wagering and
Mega$ports, Inc., a Nevada Corporation, ("Mega$ports (US)") which offers a
pari-mutuel sports wagering system in the state of Nevada.

The Casino segment includes a 5,600 square foot casino within the Howard Johnson
Hotel containing approximately 65 electronic gaming devices including slot
machines, video poker machines and multi-game video machines.

The Systems segment designs, sells, installs and maintains equipment, software
and computer systems to the sports betting and hotel industries.

The Keno segment develops, sells, operates and services stand alone linked
progressive keno games using state-of-the-art graphical interfaces. Keno is
currently in its start-up phase and has primarily incurred labor and marketing
expenses.

The following summarizes the segment information for the Company:
<TABLE>
<CAPTION>
                Three Months
                   Ended                                                                     .
                  July 31,     Wagering     Casino      Systems       Keno       Corporate       Total
                -----------   ----------   --------    ----------   ---------    ----------   -----------
<S>                 <C>       <C>          <C>         <C>          <C>          <C>          <C>
  Revenues          1999      $  726,817   $167,884    $1,361,783   $     ---    $      ---   $ 2,256,484
                    1998         810,729    153,573       669,111         ---           ---     1,633,413

  Research and      1999             ---        ---       191,862         ---           ---       191,862
  Development       1998             ---        ---       139,388         ---           ---       139,388

  Operating         1999        (662,620)    48,107       205,010     (95,578)     (444,361)     (949,442)
  Income (Loss)*    1998        (199,313)    26,553      (346,614)        ---      (559,540)   (1,078,914)

  Capital           1999          94,190      2,712       (15,250)     42,480        10,000       134,132
  Expenditures      1998          89,961        ---         4,518         ---        13,989       108,468

  Depreciation and  1999          95,300       (433)      104,525         ---         7,914       207,306
  Amortization      1998          77,436      5,624        71,604         ---        12,597       167,261

  Identifiable      1999       2,468,393    286,910     5,529,536     398,018     1,152,755     9,835,612
 Assets January 31, 1999       4,052,879    301,738     5,343,561     317,067       676,330    10,691,575


                 Six Months
                   Ended                                                                     .
                  July 31,     Wagering     Casino      Systems       Keno       Corporate       Total
                -----------   ----------   --------    ----------   ---------    ----------   -----------
  Revenues          1999      $2,524,079   $366,964    $2,375,564   $     ---    $      ---   $ 5,266,607
                    1998       2,124,819    300,636     1,543,326         ---           ---     3,968,781

  Research and      1999             591        ---       342,651         ---           ---       343,242
  Development       1998             ---        ---       278,660         ---           ---       278,660

  Operating         1999        (178,753)   125,094       402,054    (162,502)     (856,987)     (671,094)
  Income (Loss)*    1998          58,227     49,838        77,590         ---      (902,325)     (716,670)

  Capital           1999          98,715      2,712       (13,927)     42,480        13,103       143,083
  Expenditures      1998          96,028      ---          13,452         ---        30,623       140,103

  Depreciation and  1999         163,558      3,643       202,239         ---        26,011       395,451
  Amortization      1998         152,128     11,249       143,893         ---        24,287       331,557

  Identifiable      1999       2,468,393    286,910     5,529,536     398,018     1,152,755     9,835,612
 Assets January 31, 1999       4,052,879    301,738     5,343,561     317,067       676,330    10,691,575
</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.

<PAGE>

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

Results of Operations

Fiscal Quarter ended July 31, 1999 compared to the Fiscal Quarter ended July 31,
1998

         Revenues for the Fiscal Quarter ended July 31, 1999 ("Second Quarter of
Fiscal 2000") were $2,256,000, an increase of $623,000 or 38.2% from revenues of
$1,633,000 for the Fiscal Quarter ended July 31, 1998 ("Second Quarter of Fiscal
1999"). The increase was principally attributed to an increase in Systems
revenues of $693,000 and Casino revenues of $14,000 offset by a decrease in
Wagering revenues of $84,000. Operating loss of $949,000 for the Fiscal Quarter
ended July 31, 1999, varied favorably by $129,000 or 12.0% from an operating
loss of $1,079,000 for the Fiscal Quarter ended July 31,1998. The favorable
variance was principally attributed to additional Systems and Casino revenues in
addition to a decrease in corporate expenses. Offsetting the improvement in
operating loss between fiscal quarters was operating losses at our new Wagering
entities, Mega$ports (US), which became a wholly owned subsidiary during the
First Quarter of Fiscal 2000 and Mega$ports(ACT), which began operations in
January 1999 and start up costs related to AWI Keno, Inc. which began operations
in August 1999.

Wagering Operations

         Revenues from Wagering operations were $727,000 for the Second Quarter
of Fiscal 2000, a decrease of $84,000 or 10.4% from revenues of $811,000 for the
Second Quarter of Fiscal 1999. The decrease was principally due to Mega$ports
(ACT) which incurred wagering losses of $251,000 for the Second Quarter of
Fiscal 2000. Wagering revenues derived from U.S. operations increased by
$167,000 between fiscal quarters. The increase is attributed to an increase in
U.S. Handle (the total amount wagered at the Company's sports and race books) of
5.1% and an increase in U.S. net win percentage (revenues divided by handle) of
15.4% between fiscal quarters. Handle from U.S. operations of $21,773,000 for
the Second Quarter of Fiscal 2000 increased by $1,066,000 from Handle of
$20,707,000 for the Second Quarter of Fiscal 1999. The increase in Handle was
due to an increased level of wagering at our current sports book locations
compared to the prior fiscal quarter's sports book locations. An increase or
decrease in handle is not necessarily indicative of an increase or decrease in
revenues or profits. The net win percentage from U.S. operations was 4.5% for
the Second Quarter of Fiscal 2000 compared to 3.9% for the Second Quarter of
Fiscal 1999. Operating costs from all Wagering operations of $1,389,000 for the
Second Quarter of Fiscal 2000 increased by $379,000 or 37.5% from operating
costs of $1,010,000 for the Second Quarter of Fiscal 1999. The increase in
operating costs are principally attributed to the addition of Mega$ports(ACT)
which began operations in January, 1999 and Mega$ports (US), which became a
wholly owned subsidiary during the First Quarter of Fiscal 2000. These new
operations did not have corresponding revenues in direct relation to their
expenses.

Casino Operations

         Revenues from Casino operations were $168,000 for the Second Quarter of
Fiscal 2000, an increase of $14,000 or 9.1% from revenues of $154,000 for the
Second Quarter of Fiscal 1999. The increase was principally attributed to
increased slot play of local customers. Operating costs were approximately the
same between fiscal quarters.

<PAGE>

Systems Operations

         Revenues from Systems operations were $1,362,000 for the Second Quarter
of Fiscal 2000, an increase of $693,000 or 103.6% from revenues of $669,000 for
the Second Quarter of Fiscal 1999. CBS operations revenues of $1,305,000 for the
Second Quarter of Fiscal 2000 increased by $636,000 or 95.1% from revenues of
$669,000 for the Second Quarter of Fiscal 1999. The increase was attributed to
increased equipment and ticket paper sales. Sports Systems and Hotel Systems,
which began operations in July 1998 and are partly owned, generated revenues of
$57,000 for the Second Quarter of Fiscal 2000 primarily from monthly maintenance
billings. Operating costs for all Systems operations of $1,157,000 for the
Second Quarter of Fiscal 2000 increased by $141,000 or 13.9% from operating
costs of $1,016,000 for the Second Quarter of Fiscal 1999. The increase in
operating costs is principally due to equipment costs associated with the
increase in CBS system sales.

Keno Operations

         Keno was formed in June 1998 and began operations in August 1999.
During the Second Quarter of Fiscal 2000, Keno incurred costs of $96,000
including labor and fringes, marketing, professional services, travel and legal
expenses.

Direct Costs

         Direct costs of $2,038,000 for the Second Quarter of Fiscal 2000
increased by $769,000 or 60.6% from direct costs of $1,269,000 for the Second
Quarter of Fiscal 1999. The increase is due principally to equipment costs
associated with the increase in CBS system sales and the expenses associated
with the new companies, which were not operating during the prior fiscal
quarter.

Research and Development Costs

         Research and development costs of $192,000 for the Second Quarter of
Fiscal 2000 increased by $53,000 or 38.1% from research and development costs of
$139,000 for the Second Quarter of Fiscal 1999 due principally to increased
labor costs associated with new product development.

Selling, General and Administrative Costs

         Selling, general and administrative costs of $769,000 for the Second
Quarter of Fiscal 2000 decreased by $367,000 or 32.3% from selling, general and
administrative costs of $1,136,000 for the Second Quarter of Fiscal 1999. The
decrease is due principally to a reduction in legal expenses associated with the
Company's litigation and licensing.

Depreciation and Amortization

         Depreciation and amortization was $207,000 for the Second Quarter of
Fiscal 2000, an increase of $40,000 or 23.9% from depreciation and amortization
of $167,000 for the Second Quarter of Fiscal 1999. Amortization expense
increased by $16,000 due to the acquisition of intangible assets of ACS. The
increase in depreciation expense of $24,000 is associated with the assets of our
new companies.

<PAGE>

Interest and Other Income

         Interest and Other Income of $3,000 for Second Quarter of Fiscal 2000,
decreased by $110,000 or 97.3% from interest and other income of $113,000 for
the Second Quarter of Fiscal 1999. The reduction is principally due to a
decrease in short-term investments.

Interest Expense

         Interest Expense of $40,000 for Second Quarter of Fiscal 2000 decreased
by $42,000 or 51.2% from interest expense of $82,000 in the Second Quarter of
Fiscal 1999. The decrease is principally due to the interest paid in connection
with the shareholder notes during the Second Quarter of Fiscal 1999.

Equity in Loss from Joint Venture

         The equity in loss from Mega$ports (US) joint venture was $87,000 for
the Second Quarter of Fiscal 1999. On February 1, 1999, the Mega$ports joint
venture agreement terminated (See Note 2). In the Company's accompanying
consolidated financial statements for and as of the Three and Six Months ended
July 31, 1999, the results of Mega$ports, Inc. operations have been accounted
for as a wholly owned subsidiary.

Net Loss from Continuing Operations

         The net loss from continuing operations of $986,000 for Second Quarter
of Fiscal 2000, varied favorably by $149,000 or 13.1% from $1,135,000 in the
Second Quarter of Fiscal 1999. The favorable variance between fiscal quarters
was principally due to the increased revenues by the Systems operations.

Discontinued Operations

On April 22, 1998, the Company determined it would concentrate its business
efforts on its core competency, sports wagering, and began seeking a qualified
buyer for the hotel, food and beverage segment of American Wagering, Inc. On
June 30, 1999, the Company finalized the sale of these operations and has
entered into a lease with the new owner to continue to operate the casino for up
to two years. The casino serves as the Company's principal gaming location.
In the Company's accompanying consolidated financial statements for and as of
the Three and Six Months ended July 31, 1999 and 1998, the results of the hotel,
food and beverage operations have been accounted for as discontinued operations.

The Company recorded a reserve during fiscal year ended January 31, 1998 for the
estimated losses on the disposal of this segment, which was comprised of an
estimated loss on the sale of the hotel of $246,000 and a provision for
anticipated losses during the phase out period of $616,000.

During the three months ended July 31, 1999, the Company realized a gain of
$341,000 from the sale of this segment. Additionally, the Company no longer
required the initial estimated loss from discontinued operations of $246,000.
The Company incurred losses from operations in excess of its initial reserve for
losses of $33,000. This excess amount was charged against the estimated loss on
the sale reserve, which reduced that reserve to $213,000.

The sale of the segment did not result in an income tax liability. Accordingly,
the Company did not make a provision for income tax.

<PAGE>

Six Months ended July 31, 1999 compared to the Six Months ended July 31, 1998

         Revenues for the Six Months ended July 31, 1999 were $5,267,000, an
increase of $1,298,000 or 32.7% from revenues of $3,969,000 for the Six Months
ended July 31, 1998. The increase was attributed to an increase in Systems
revenues of $832,000, Wagering revenues of $399,000 and Casino revenues of
$66,000. Operating loss of $671,000 for the Six Months ended July 31, 1999,
varied favorably by $46,000 or 6.4% from an operating loss of $717,000 for the
Six Months ended July 31,1998. The favorable variance was principally attributed
to additional Systems and Casino revenues in addition to a decrease in corporate
expenses. Offsetting the improvement in operating loss between fiscal years was
operating losses at our new Wagering entities, Mega$ports (US), which became a
wholly owned subsidiary during the Six Months ended July 31, 1999 and Mega$ports
(ACT), which began operations in January, 1999 and AWI Keno start up costs of
$163,000.

Wagering Operations

         Revenues from Wagering operations were $2,524,000 for the Six Months
ended July 31, 1999, an increase of $399,000 or 18.8% from revenues of
$2,125,000 for the Six Months ended July 31, 1998. Revenues from U.S. operations
were $2,773,000 for the Six Months ended July 31, 1999, an increase of $648,000
or 30.5% from revenues of $2,125,000 for the Six Months ended July 31, 1998. The
increase is attributed to an increase in Handle (the total amount wagered at the
Company's sports and race books) of 7.5% and an increase in U.S. net win
percentage (revenues divided by handle) of 21.2% between fiscal years. Handle
from U.S. operations of $43,930,000 for the Six Months ended July 31, 1999
increased by $3,054,000 from Handle of $40,876,000 for the Six Months ended July
31, 1998. The increase in Handle was due to an increased level of wagering at
our current sports book location offerings compared to the prior fiscal
quarter's sports book offerings. An increase or decrease in handle is not
necessarily indicative of an increase or decrease in revenues or profits. The
net win percentage from U.S. operations was 6.3% for the Six Months ended July
31, 1999 compared to 5.2% for the Six Months ended July 31, 1998. Increased
revenues were offset by Mega$ports (ACT) which incurred wagering losses of
$249,000 for the Six Months ended July 31, 1999. Operating costs from all
Wagering operations of $2,703,000 for the Six Months ended July 31, 1999
increased by $636,000 or 30.8% from operating costs of $2,067,000 for the Six
Months ended July 31, 1998. The increase in operating costs are principally
attributed to the addition of Mega$ports (ACT) which began operations in
January, 1999 and Mega$ports (US), which became a wholly owned subsidiary during
the First Quarter of Fiscal 2000. These operations did not have corresponding
increases in revenues.

Casino Operations

         Revenues from Casino operations were $367,000 for the Six Months ended
July 31, 1999, an increase of $66,000 or 21.9% from revenues of $301,000 for the
Six Months ended July 31, 1998. The increase was principally attributed to
increased slot play of local customers. Operating costs were approximately the
same between fiscal years.

Systems Operations

         Revenues from Systems operations were $2,376,000 for the Six Months
ended July 31, 1999, an increase of $833,000 or 54.0% from revenues of
$1,543,000 for the Six Months ended July 31, 1998. CBS operations revenues of
$2,233,000 for the Six Months ended July 31, 1999 increased by $690,000 or 44.7%
from revenues of $1,543,000 for the Six Months ended July 31, 1998. The increase
was attributed to increased equipment sales due to new casino openings. Sports
Systems and Hotel Systems, which began operations in July 1998 and are partly
owned, generated revenues of $143,000 for the Six Months ended July 31, 1999

<PAGE>

primarily from recurring maintenance billings. Operating costs for all Systems
operations of $1,974,000 for the Six Months ended July 31, 1999 increased by
$508,000 or 34.7% from operating costs of $1,466,000 for the Six Months ended
July 31, 1998. The increase in operating costs is principally due to equipment
costs associated with the increase in CBS system sales.

Keno Operations

         Keno was formed in June 1998 and began operations in August 1999.
During the Six Months ended July 31, 1999, Keno incurred costs of $163,000
including labor and fringes, marketing, professional services, travel and legal
expenses.

Direct Costs

         Direct costs of $3,803,000 for the Six Months ended July 31, 1999
increased by $1,169,000 or 44.4% from direct costs of $2,634,000 for the Six
Months ended July 31, 1998. The increase is due principally to equipment costs
associated with the increase in CBS system sales and the expenses associated
with the new companies, which were not operating during the prior fiscal
quarter.

Research and Development Costs

         Research and development costs of $343,000 for the Six Months ended
July 31, 1999 increased by $64,000 or 22.9% from research and development costs
of $279,000 for the Six Months ended July 31, 1998 due principally to increased
labor costs associated with new product development.

Selling, General and Administrative Costs

         Selling, general and administrative costs of $1,396,000 for the Six
Months ended July 31, 1999 decreased by $45,000 or 3.1% from selling, general
and administrative costs of $1,441,000 for the Six Months ended July 31, 1998.
The decrease is due principally to a reduction in legal expenses associated with
the Company's litigation and licensing offset by an increase in expenses
associated with new companies.

Depreciation and Amortization

         Depreciation and amortization was $395,000 for the Six Months ended
July 31, 1999, an increase of $63,000 or 19.0% from depreciation and
amortization of $332,000 for the Six Months ended July 31, 1998. Amortization
expense increased by $42,000 due to the acquisition of intangible assets of ACS.
An increase in depreciation expense of $22,000 is associated with the assets of
our new companies.

Interest and Other Income

         Interest and Other Income of $16,000 for Six Months ended July 31,
1999, decreased by $246,000 or 93.9% from interest and other income of $262,000
for the Six Months ended July 31, 1998. The reduction is principally due to a
decrease in income derived from short-term investments.

<PAGE>

Interest Expense

         Interest Expense of $79,000 for Six Months ended July 31, 1999
decreased by $104,000 or 56.9% from interest expense of $183,000 in the Six
Months ended July 31, 1998. The decrease is principally due to the interest paid
in connection with the shareholder notes during the Six Months ended July 31,
1998.

Equity in Loss from Joint Venture

         The equity in loss from Mega$ports (US) joint venture was $384,000 for
the Six Months ended July 31, 1998. On February 1, 1999 Mega$ports joint venture
terminated. In the Company's accompanying consolidated financial statements for
and as of the Three and Six Months ended July 31, 1999, the results of
Mega$ports, Inc. operations have been accounted for as a wholly owned
subsidiary.

Net Loss from Continuing Operations

         The net loss from continuing operations of $735,000 for Six Months
ended July 31, 1999, varied favorably by $287,000 or 28.1% from $1,022,000 in
the Six Months ended July 31, 1998. The favorable variance between fiscal years
was principally due to the increased revenues by the Systems and Casino
operations.

Discontinued Operations

On April 22, 1998, the Company determined it would concentrate its business
efforts on its core competency, sports wagering, and began seeking a qualified
buyer for the hotel, food and beverage segment of American Wagering, Inc. On
June 30, 1999, the Company finalized the sale of these operations and has
entered into a lease with the new owner to continue to operate the casino for up
to two years. The casino serves as the Company's principal gaming location.
In the Company's accompanying consolidated financial statements for and as of
the Three and Six Months ended July 31, 1999 and 1998, the results of the hotel,
food and beverage operations have been accounted for as discontinued operations.

The Company recorded a reserve during fiscal year ended January 31, 1998 for the
estimated losses on the disposal of this segment, which was comprised of an
estimated loss on the sale of the hotel of $246,000 and a provision for
anticipated losses during the phase out period of $616,000.

During the three months ended July 31, 1999, the Company realized a gain of
$341,000 from the sale of this segment. Additionally, the Company no longer
required the initial estimated loss from discontinued operations of $246,000.
The Company incurred losses from operations in excess of its initial reserve for
losses of $33,000. This excess amount was charged against the estimated loss on
the sale reserve, which reduced that reserve to $213,000.

The sale of the segment did not result in an income tax liability. Accordingly,
the Company did not make a provision for income tax.

Liquidity and Capital Resources

         As of July 31, 1999, working capital was $510,000. Cash used in
operating activities was $2,406,000 for the Six Months ended July 31, 1999
compared to cash used in operating activities of $2,623,000 for the Six Months
ended July 31, 1998. Net cash provided by investing activities was $3,876,000
for the Six Months ended July 31, 1999 compared to cash provided by investing
activities of $3,246,000 for the Six Months ended July 31, 1998. This increase
is principally due to the proceeds generated from the sale of assets of the
Hotel, food and beverage operations offset by a decrease in income derived from
short-term investments . Net cash used in financing activities was $2,670,000
for the Six Months ended July 31, 1999 compared to net cash used in financing
activities of $1,391,000 for the Six Months ended July 31, 1998. This increase
is principally due to the repayment of long-term debt during the Six Months

<PAGE>

ended July 31, 1999 associated with the sale of the Hotel, food and beverage
operations.

         Management believes that the Company will be able to satisfy its
operating cash requirements through the end of its current fiscal year from
existing cash balances and anticipated cash flows. Management believes that the
future profitability is based on the ability to continue to improve the
profitability of Megasport (US), Megasports (ACT) and Keno. However, if there is
no improvement in these operations and the next quarter is not profitable, the
Company will need to seek additional equity or debt funding. There is no
assurance that the Company can complete such equity or debt funding or do so on
terms satisfactory to the Company.

         The Company has expanded its sports wagering activities to the
international Internet market. The Company is exploring other jurisdictions
outside of the United States to expand its sports wagering and keno business
lines. The level of customer acceptance for the Company's sports wagering and
keno products in these new jurisdictions is undetermined. Establishing these
operations may require initial investments of several hundred thousand dollars.
If the required investments cannot be funded through current operations, the
Company would have to obtain additional debt or equity funding. There can be no
assurance that the Company would be able to complete such debt or equity funding
or do so on terms satisfactory to the Company.

National Gambling Impact Study Commission

         Congress has created the National Gambling Impact Study Commission
comprised of nine individuals appointed by the President. The general duty of
the Commission is to conduct a comprehensive legal and factual study of the
gambling industry in the United States, to review existing Federal, State and
local policy and practices with respect to the legalization or prohibition of
gambling activities, to formulate and propose changes in such policies and
practices and to recommend legislation and administrative actions for such
changes. On July 18, 1999 the Commission issued its report. It contained a
number of recommendations including the prohibition of Internet wagering. It is
not possible to predict the future impact of the Commission on the Company and
its operations as there could be legislation and actions that may materially
adversely affect the Company's business.

Recently Issued Accounting Standards

         The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." ("SFAS 131")

Year 2000

         In the past, many computer software programs were written using two
digits rather than four to define the applicable year. As a result,
date-sensitive computer software may recognize a date using "00" as the year
1900 rather than the year 2000. This is generally referred to as the Year 2000
issue. If this situation occurs, the potential exists for computer system
failures or miscalculations by computer programs, which could disrupt
operations.

         The Company utilizes computer systems in virtually all aspects of its
business. In particular, Year 2000 problems in wagering systems at the
properties in which the Company or its customers utilize computer systems could
disrupt operations at the affected properties and may have a material adverse
impact on the Company's operating results. The Company is also exposed to the
risk that one or more of its suppliers could experience Year 2000 problems that
impact the ability of such suppliers to provide goods and services. Though this
is not considered as significant a risk with respect to the suppliers of goods,
due to the availability of alternative suppliers, the disruption of certain
services, such as utilities or telephone communications, could, depending on the
extent of the disruption, have a material adverse impact on the Company's

<PAGE>

operations. Computers on occasion fail, irrespective of the Year 2000 issue. For
this reason, where appropriate, the Company maintains paper and magnetic
back-ups daily and the Company's employees are trained in the restoration and
use of these back-ups.

         The Company has established a compliance program to assess the impact
and formulate corrective actions regarding the Year 2000 issue. Where important
to the Company's business, inquiries are continuing to be made of the third
parties with whom the Company does significant business, such as vendors and
suppliers, as to their Year 2000 readiness, and if a third party Year 2000
problem is detected, alternatives are being developed. The Company believes that
a substantial majority of its systems are currently Year 2000 compliant. The
Company has completed the process of assessing both the internal readiness of
its computer systems and the compliance of its currently offered computer
products and software to customers for handling the year 2000 problem. The
Company has started installations of customer upgrades to address the compliance
of its computer products and software. It is the Company's goal to have all
currently offered systems Year 2000 compliant by the end of the third quarter.
All existing installations of currently offered systems will be upgraded, if
necessary, to meet Year 2000 compliance as part of the existing maintenance
contract requirements. The Company does not intend to assess the readiness of
non-current products that are not currently offered to customers. The Company
has contacted its customers that are operating non-current systems and
communicated to them that the systems they are using are not Year 2000 compliant
and that the Company does not intend to upgrade these systems. The Company has
offered these customers solutions, which include the purchase of a new system,
which is Year 2000 compliant. The Company has not yet developed a comprehensive
contingency plan, although as previously mentioned all critical systems are
currently backed up daily and can be restored if necessary. The Company will
continue to assess the need for a comprehensive contingency plan as
implementation of its corrective action plan continues.

         The Company expects the entire process will cost no more than $100,000.
The Company does not believe that the cost of such actions will have a material
effect on the Company's results of operations or financial condition. However,
there can be no assurance 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.

Forward-Looking Statements

         Certain information included in this report and other materials filed
or to be filed by the Company with the Securities and Exchange Commission (as
well as information included in oral statements or written statements made or to
be made by the Company) contains statements that are forward-looking within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements include
information relating to current expansion projects, plans for future expansion
projects and other business development activities as well as other capital
spending, financing sources, Year 2000 compliance and the effects of regulation
(including gaming and tax regulation) and competition. Such forward-looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and, accordingly, such results may
differ from those expressed in any forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to the Company taking financial risks on the outcome
of sports events as a principal betting against its patrons, domestic or global
economic conditions, changes in federal or state tax laws or the administration

<PAGE>

of such laws, changes in gaming laws or regulations (including the legalization
of gaming in certain jurisdictions) and applications for licenses and approvals
under applicable laws and regulations (including gaming laws and regulations).


PART II  OTHER INFORMATION

Item 1.           LEGAL PROCEEDINGS - See the description of these legal
                  proceedings set forth in the Registrant's Form 10-KSB for the
                  year ended January 31, 1999.

                  On June 30, 1999, pursuant to the sale of the hotel, food and
                  beverage segment, the Company entered into a settlement
                  agreement with James A. Rissler and Patricia R. Rissler
                  ("Landlord"). As consideration, AWI agreed to dismiss its'
                  Appeal of the Civil Action entered into as of March 17, 1998
                  filed in the Nevada Supreme Court. AWI also agreed to pay the
                  Landlord $135,680, which included certain rents due under the
                  lease which were in dispute and license fees, interest and
                  attorneys fees incurred by the Landlord. The payment of the
                  sums pursuant to the Agreement was not considered an admission
                  of liability by AWI for the Lease Claims asserted against them
                  in the Civil Action. The Landlord agreed to fully release
                  and discharge AWI of any litigation or action or claim against
                  them. In addition, the Landlord waived its rights of first
                  refusal contained in the lease and fully released AWI from any
                  and all obligations as tenant under the lease. Of the amount
                  paid by AWI, $52,000 had been accrued as of April 30, 1999.

Item 2.           CHANGES IN SECURITIES - NON APPLICABLE

Item.3.           DEFAULTS UPON SENIOR SECURITIES - NON APPLICABLE

Item 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -

                  On July 28, 1999, 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,
                  2000.

                  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>
                  Name                  Votes For      Votes Against      Abstentions
                  ----                  ---------      -------------      -----------
                  <S>                   <C>                 <C>             <C>
                  Victor J. Salerno      7,671,448           0               10,400
                  Robert D. Ciunci       7,671,448           0               10,400
                  Michael Merillat       7,671,448           0               10,400
                  Robert R. Barengo      7,671,448           0               10,400
                  Philip P. Hannifin     7,671,448           0               10,400
</TABLE>

                  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, 2000, the outcome of
                  the voting was: 7,663,148 For, 900 Against and 17,800
                  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,
1999:

              NONE

<PAGE>

                                   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, 1999                By: /s/ Robert D. Ciunci
                                                    ----------------------------
                                                    Robert D. Ciunci
                                                    Executive Vice President and
                                                    Chief Financial Officer