United
      States


Securities
      & Exchange Commission


Washington,
      D.C. 20549





FORM
      10-QSB/A








(Mark
      One)


x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934For
                the quarterly period ended March 31, 2006o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934





Commission
      file number 0-25764





Spectre
      Gaming, Inc.


(Exact
      name of small business issuer as specified in its charter)





Minnesota
            41-1675041(State
                or other jurisdiction
            (IRS
                Employerof
                incorporation or organization)
            Identification
                No.)





14200
      23 rd Avenue
      N.


Minneapolis,
      MN 55447


(Address
      of principal executive offices)





763-553-7601


(Issuer’s
      telephone number)







(Former
      Name, Former Address and Former Fiscal Year, if Changed Since Last
      Report)





Check
      whether the issuer (1) filed all 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 o





Indicate
      by check mark as to whether the Registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act): YES o
      NO x





APPLICABLE
      TO CORPORATE ISSUERS




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: 13,838,024 shares of common stock outstanding
      as  of
      June
      18, 2006, par value $.01 per share.





Transitional
      Small Business Disclosure Format (check one): YES o
      NO x







Spectre
      Gaming, Inc.


Form
      10-QSB/A


Quarter
      Ended March 31, 2006








Table
      of
      Contents





Page
                No.PART
                I
            Financial
                Information
            2Item
                1.
            Financial
                StatementsBalance
                Sheets at March 31, 2006 (unaudited) and December 31, 2005
                (audited)
            2Statements
                of Operations for the three months ended March 31, 2006 and 2005
                (unaudited)
            3Statements
                of Cash Flows for three months ended March 31, 2006 and 2005
                (unaudited)
            4Notes
                to Financial Statements
            5Item
                2.
            Management’s
                Discussion and Analysis or Plan of Operation
            15Item
                3.
            Controls
                and Procedures
            27PART
                II
            Other
                Information
            27Item
                2.
            Unregistered
                Sales of Equity Securities
            27Item
                6.
            Exhibits
            27SIGNATURES
            
            28





Explanatory
        Note
  This
        Amendment No. 1 to the Company's Form 10-QSB/A
        for the quarter ended March 31, 2006 which amends the Company’s Form 10-QSB
        originally filed on May 12, 2006 is being filed in response to comments received
        from the Securities and Exchange Commission in connection with its review
        of the
        Company’s Form 10-KSB filing.
  As
        a result of the comment process, the Company has
        restated its preferred stock dividends for the year ended December 31, 2005
        to
        recognize a beneficial conversion feature associated with the Series B Variable
        Rate Convertible Preferred Stock issued on October 27, 2005. The restatement
        increased additional paid-in capital and the accumulated deficit by $3,412,860
        at December 31, 2005 and March 31, 2006. The restatement affected the balance
        sheet only and had no impact on the statement of operations for the three
        months
        ended March 31, 2006.





**PART
                I - Financial Information****Item
                1. Financial Statements**


**Spectre
      Gaming, Inc.**


**Balance
      Sheets**




As
                of
              March
                31, 2006
            
            As
                of
              December
                31, 2005***ASSETS***
            
            Unaudited
            
            AuditedCURRENT
                ASSETS:
            
            Restated
            
            RestatedCash
                and cash equivalents
            
            $
            419,186
            
            $
            1,656,831Other
                receivables
            
            
            6,532
            
            
            9,722Inventory
            
            
            179,984
            
            
            300,009Deposits
            
            
            20,000
            
            
            20,050Current
                assets of discontinued operations
            
            
            532,967
            
            
            536,217Prepaid
                expenses
            
            
            101,567
            
            
            57,566*Total
                current assets:*
            
            
            1,260,236
            
            
            2,580,395Property,
                equipment and leasehold improvements, net
            
            
            112,098
            
            
            66,231Leased
                gaming equipment, net
            
            
            185,272
            
            
            109,629Long-term
                technology and distribution rights, net
            
            
            4,147,849
            
            
            4,397,849Prepaid
                license fees
            
            
            -
            
            
            187,500Prepaid
                royalties
            
            
            187,500
            
            
            -Other
                assets of discontinued operations
            
            
            139,821
            
            
            163,500Other
                assets
            
            
            11,436
            
            
            11,436*Total
                Assets:*
            
            $
            6,044,212
            
            $
            7,516,540





***LIABILITIES
                AND SHAREHOLDERS’ EQUITY***CURRENT
                LIABILITIES:


Current
                portion of long-term debt
            
            $
            2,250,000
            
            $
            1,500,000Short-term
                debt, net
            
            
            1,500,000
            
            
            1,500,000Accounts
                payable
            
            
            81,883
            
            
            69,635Accrued
                expenses
            
            
            449,889
            
            
            467,870Liabilities
                of discontinued operations
            
            
            93,210
            
            
            303,228*Total
                current liabilities:*
            
            
            4,374,982
            
            
            3,840,733Long-term
                debt, less current portion
            
            
            -
            
            
            750,000*Total
                liabilities*
            
            
            4,374,982
            
            
            4,590,733





SHAREHOLDERS’
                EQUITY:Capital
                stock, par value $.01 per share, 100,000,000 shares
                authorized:Series
                A Convertible Preferred Stock, par value $.01 per share:Authorized
                shares -- 466,666Issued
                and outstanding shares: 43,334 shares at March 31, 2006 and
              December
                31, 2005 ($65,001 liquidation preference)
            
            
            433
            
            
            433Series
                B Variable Rate Convertible Preferred Stock, par value $.01 shares:
              Authorized
                shares -- 30,000
              Issued
                and outstanding shares: 7,170 and 7,420 shares at March 31, 2006
                and
                December 31, 2005 and , respectively ($7,170,000 and $7,420,000
                liquidation preference at March 31, 2006 and December 31, 2005,
                respectively)
            
            
            72
            
            
            74Common
                stock, par value $.01 per share: Authorized shares - 99,503,334Issued
                and outstanding shares, 13,710,537 and 13,520,439 at March 31, 2006
                and
                December 31, 2005, respectively
            
            
            137,105
            
            
            135,204Additional
                paid-in capital
            
            
            37,361,672
            
            
            37,208,067Accumulated
                deficit
            
            
            (35,764,615
            )
            
            (34,253,490
            )Deferred
                equity compensation
            
            
            (65,437
            )
            
            (164,481
            )*Total
                shareholders’ equity:*
            
            
            1,669,230
            
            
            2,925,807*Total
                liabilities and shareholders’ equity:*
            
            $
            6,044,212
            
            $
            7,516,540




See
      accompanying notes to financial statements.


2


**Spectre
      Gaming, Inc.**


**Statements
      of Operations**


**(Unaudited)**


For
                the three months ended March 31,2006
            
            2005REVENUE:Sales
            
            $
            -
            
            $
            -Cost
                of revenues
            
            
            -
            
            
            -*Gross
                loss*
            
            
            -
            
            
            -OPERATING
                EXPENSES:Research
                and development
            
            
            540,779
            
            
            -Sales
                and marketing
            
            
            50,127
            
            
            -General
                and administrative
            
            
            604,618
            
            
            233,395*Total
                Operating Expenses:*
            
            
            1,195,524
            
            
            233,395Operating
                loss
            
            
            (1,195,524
            )
            
            (233,395
            )OTHER
                INCOME (EXPENSE):Interest
                income
            
            
            11,742
            
            
            9,984Interest
                expense
            
            
            (105,250
            )
            
            (399,204
            )*Loss
                from continuing operations:*
            
            
            (1,289,032
            )
            
            (622,615
            )Loss
                from discontinued operations
            
            
            (58,920
            )
            
            (616,323
            )*Net
                Loss*
            
            
            (1,347,952
            )
            
            (1,238,938
            )Preferred
                Stock Dividends
            
            
            163,173
            
            
            -*Net
                Loss attributable to common shareholders*
            
            $
            (1,511,125
            )
            $
            (1,238,938
            )NET
                LOSS PER COMMON SHARE BASIC AND DILUTED:Loss
                from continuing operations
            
            $
            (0.09
            )
            $
            (0.05
            )Loss
                from discontinued operations
            
            
            (0.00
            )
            
            (0.05
            )Net
                Loss
            
            
            (0.10
            )
            
            (0.10
            )NET
                LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
            
            
            (0.11
            )
            
            (0.10
            )WEIGHTED-AVERAGE
                NUMBER OF SHARES OUTSTANDING:Basic
                and diluted
            
            
            13,641,006
            
            
            12,941,308




See
      accompanying notes to financial statements.


3





**Spectre
      Gaming, Inc.**


**Statements
      of Cash Flows**


**(Unaudited)**


For
                the three months ended March 31,2006
            
            2005**Operating
                activities**Net
                loss
            
            $
            (1,347,952
            )
            $
            (1,238,938
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            28,784
            
            
            59,387Stock
                options and warrants issued for services
            
            
            250,573
            
            
            (6,582
            )Gain
                on sale of property and equipment
            
            
            (4,000
            )
            
            -Amortization
                of original issue discount
            
            
            -
            
            
            258,055Amortization
                of debt issuance costs
            
            
            -
            
            
            86,334Amortization
                of long-term technology and distribution rights
            
            
            250,000
            
            
            -Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            -
            
            
            (49,126
            )Other
                receivables
            
            
            3,190
            
            
            -Inventory
            
            
            23,345
            
            
            (149,615
            )Deposits
            
            
            -
            
            
            28,394Prepaid
                expenses
            
            
            (40,701
            )
            
            (17,593
            )Accounts
                payable and accrued expenses
            
            
            (267,639
            )
            
            (58,183
            )*Net
                cash used in operating activities:*
            
            
            (1,104,400
            )
            
            (1,087,867
            )**Investing
                activities**Net
                proceeds from
                sale of property and equipment
            
            
            24,000
            
            
            -Purchases
                of property, equipment and leasehold improvements
            
            
            (49,936
            )
            
            (65,366
            )*Net
                cash used in investing activities*:
            
            
            (25,936
            )
            
            (65,366
            )**Financing
                activities**Debt
                financing costs
            
            
            -
            
            
            (37,500
            )Exercise
                of stock options
            
            
            3,975
            
            
            -Payments
                on notes payable
            
            
            -
            
            
            (140,517
            )Preferred
                stock dividend
            
            
            (111,284
            )
            
            -*Net
                cash used by financing activities:*
            
            
            (107,309
            )
            
            (178,017
            )Decreasein
                cash and cash equivalents
            
            
            (1,237,645
            )
            
            (1,331,250
            )Cash
                and cash equivalents at beginning of year
            
            
            1,656,831
            
            
            2,431,280*Cash
                and cash equivalents at end of period:*
            
            $
            419,186
            
            $
            1,100,030**Supplemental
                cash flow information**Cash
                paid for interest
            
            $
            172,500
            
            $
            75,890**Non-cash
                Investing and Financing Activities:**Common
                stock issued for payment on convertible notes payable
            
            
            -
            
            
            75,727Conversion
                of Series B convertible preferred stock to common stock
            
            
            1,562
            
            
            -Inventory
                transferred to leased gaming equipment
            
            
            96,680
            
            
            316,769Preferred
                stock dividends accrued
            
            
            163,173
            
            
            -




See
      accompanying notes to financial
      statements.


4








Spectre
      Gaming, Inc.


Notes
      to
      Financial Statements


March
      31,
      2006 and 2005


(unaudited)








**Note
      1. Business Description.**





Spectre
      Gaming, Inc. (the “Company” or “Spectre,” “we,” “us” or “ours”) was incorporated
      in Minnesota in June 1990 under the name MarketLink, Inc. At that time, the
      Company provided telecommunications-based business-intelligence services to
      client end users. In January 1997, the Company changed its name to OneLink
      Communications, Inc., and later in June 2000, changed its name to OneLink,
      Inc.
      In July 2002, the Company ceased operating its telecommunications-based
      business, and in December 2002 sold substantially all of its assets. In
      September 2003, the Company adopted a new business plan focused on providing
      interactive electronic games to the Native American and charitable gaming
      markets, and in January 2004 changed its name to Spectre Gaming, Inc. In early
      2005, the Company began placing its gaming machines on casino
      floors.





In
      May
      2005 the Company acquired the exclusive license to a proprietary technology
      (Alpha-AWP) for the development and deployment of casino-style redemption or
      amusement-with-prize (AWP) games. The Company has begun the development of
      AWP
      games and plans to distribute the games to operators at various retail,
      commercial and entertainment venues in the United States which allow for such
      devices. In December 2005, the Company made the decision to focus its efforts
      exclusively in the AWP market.





The
      accompanying financial statements have been prepared on the basis that the
      Company will continue as a going concern. The Company had net losses for the
      quarter ended March 31, 2006 and the year ended December 31, 2005, had an
      accumulated deficit at March 31, 2006 and does not have adequate liquidity
      to
      fund its operations through fiscal 2006. The financial statements do not include
      any adjustments that might result from the outcome of this
      condition.





The
      Company, as noted above, is now pursuing business opportunities in the AWP
      market. To fund these business opportunities, the Company has engaged in debt
      and equity financing. The Company anticipates engaging in additional debt and
      equity financing in the future. Nevertheless, there can be no assurance the
      Company will raise the necessary capital to fund its business. In addition,
      the
      Company is negotiating to extend the maturity dates of significant debt
      obligations. There can be no assurance extensions will be granted.





**Note
      2. Summary of Significant Accounting Policies.**





*Interim
      Financial Information* .
      The
      accompanying unaudited financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America
      and pursuant to the rules and regulations of the U. S. Securities and Exchange
      Commission (the “SEC”) for interim financial information. Accordingly, certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with accounting principles generally accepted in the
      United States of America have been omitted pursuant to such rules and
      regulations. Operating results for the three months ended March 31, 2006 are
      not
      necessarily indicative of the results that may be expected for the year ending
      December 31, 2006. The accompanying financial statements and related notes
      should be read in conjunction with the Company’s audited financial statements,
      and notes thereto, for the fiscal year ended December 31, 2005, contained in
      its
      Annual Report on Form 10-KSB/A for the year ended December 31,
      2005.


5





The
      financial information furnished reflects, in the opinion of management, all
      adjustments, consisting of normal recurring accruals, necessary for a fair
      presentation of the results of the interim periods presented.





*Discontinued
      Operations.* In
      December 2005, the Company made the decision to exit the markets for its Class
      II and Class III gaming equipment. The Company began efforts to close its
      facilities in Tulsa, Oklahoma and El Cajon, California, terminate its employees
      and dispose of its remaining inventory and fixed assets in those markets. In
      accordance with appropriate accounting rules, the Company has reclassified
      its
      previously reported financial results to exclude the results of the discontinued
      operations and these results are presented on a historical basis as a separate
      line item in the Company’s statement of operations and balance sheets entitled
“Discontinued Operations.” All of the financial information in the financial
      statements and notes to the financial statements has been revised to reflect
      the
      results of continuing operations.





Based
      on
      discussions with potential buyers, industry operators, sales efforts and limited
      sales results, the Company determined that the assets of discontinued operations
      were impaired. The Company recognized impairment charges in 2005 of $1,361,594
      on its gaming equipment in inventory and $907,058 on its previously leased
      gaming equipment and other fixed assets. The remaining assets of discontinued
      operations are classified as “Current assets of discontinued operations” and
“Other assets of discontinued operations” on the balance sheet. Since the
      remaining value of those assets was estimated based on limited actual sales
      data
      and management’s best estimate, the Company cannot assure that it will realize
      the remaining carrying value of those assets upon their
      disposition.





In
      accordance with the provisions of SFAS 144, the Company has not included the
      results of operations of its Class II and Class III business in the results
      from
      continuing operations. The results of operations for this business have been
      reflected as discontinued operations. The loss from discontinued operations
      for
      the three months ended March 31, 2006 and 2005, respectively, consist of the
      following:


For
                the three months
              ended
                March 31,2006
            
            2005REVENUE:Sales
            
            $
            4,710
            
            $
            89,100Cost
                of revenues
            
            
            13,216
            
            
            43,093*Gross
                profit*
            
            
            (8,506
            )
            
            46,007OPERATING
                EXPENSES:Research
                and development
            
            
            -
            
            
            94,932Sales
                and marketing
            
            
            19,376
            
            
            404,217General
                and administrative
            
            
            35,038
            
            
            163,181*Total
                Operating Expenses:*
            
            
            54,414
            
            
            662,330*Operating
                loss*:
            
            
            (62,920
            )
            
            (616,323
            )Gain
                on sale of equipment
            
            
            4,000
            
            
            -Net
                loss from discontinued operations
            
            $
            (58,920
            )
            $
            (616,323
            )





6


Operating
      expenses included in discontinued operations are those costs which directly
      relate to Class II and Class III operations that will not be incurred in
      connection with continuing operations.





*Revenue
      Recognition.* The
      Company derives its revenues primarily in two ways, through fixed rate leasing
      and participation arrangements with its customers. Under both arrangements,
      the
      Company retains ownership of the equipment installed at a customer site and
      under the participation arrangements receives revenue based on a percentage
      of
      the hold per day generated by each gaming system, which is generally considered
      both realizable and earned at the end of each gaming day. The Company accounts
      for both types of agreements as operating leases.





In
      December 2003, the SEC issued Staff Accounting Bulletin (“SAB”) No. 104,
“Revenue Recognition.” SAB No. 104 sets forth the SEC Staff’s position regarding
      the point at which it is appropriate for a registrant to recognize revenue.
      The
      Staff believes that revenue is realizable and earned when all of the following
      criteria are met: persuasive evidence of an arrangement exists, delivery has
      occurred or service has been rendered, the seller’s price to the buyer is fixed
      or determinable, and collectibility is reasonably assured. The Company used
      the
      above criteria to determine whether revenue could be recognized, and is
      recognizing revenue in accordance with SAB 104.





*Cash
      and Cash Equivalents* .
      The
      Company includes as cash and cash equivalents highly liquid, short-term
      investments with maturity of three months or less when purchased, which are
      readily convertible into known amounts of cash. The Company maintains its cash
      in high quality financial institutions. The balances, at times, may exceed
      federally insured limits.





*Accounts
      Receivable.* The
      Company reviews customers’ credit history before extending unsecured credit and
      establishes an allowance for uncollectible accounts based upon factors
      surrounding the credit risk of specific customers and other information.
      Accounts receivable over 30 days are considered past due. The Company does
      not
      accrue interest on past due accounts receivable. Receivables are written off
      only after all collection attempts have failed and are based on individual
      credit evaluation and specific circumstances of the customer. No allowance
      was
      considered necessary at March 31, 2006 and December 31, 2005,
      respectively.





The
      Company extended unsecured credit to customers in the normal course of
      business.





*Use
      of Estimates.* The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions affecting the amounts reported in the financial
      statements and accompanying notes. Actual results could differ from these
      estimates.





*Inventory.* Inventory,
      which consists principally of gaming products and related materials, is stated
      at the lower of cost (determined on the specific identification method) or
      market. At March 31, 2006, the Company had no finished goods inventory and
      $179,984 of spare parts. At December 31, 2005 the Company had $120,516 of
      finished goods inventory and $179,493 of spare parts and gaming cabinets.


7





*Prepaid
      License Fees.* Prepaid
      license fees originally related to licenses associated with the themes of
      certain gaming machines which were to be licensed from Bally Gaming, Inc.
      Effective March 29, 2006, the Company entered into an agreement with Bally
      to
      apply these prepaid license fees to future royalty payments, relating to AWP,
      which will become due in 2007 and 2008 under the Redemption Technology and
      Supply Agreement, as amended (Note 5).





*Deposits.* Deposits
      primarily relate to deposits with utility companies and landlords, and deposits
      placed on corporate credit cards.





*Leased
      Gaming Equipment and Property, Equipment and Leasehold
      Improvements* .
      Leased
      gaming equipment and property, equipment and leasehold improvements are stated
      at cost. Gaming machines placed with customers under participation arrangements
      are included in leased gaming equipment. Depreciation of an asset is recognized
      on the straight-line basis over the asset’s estimated useful life ranging from
      three to five years. Leasehold improvements were amortized using the
      straight-line method over the shorter of the lease term or the estimated useful
      life. Maintenance, repairs and minor renewals are expensed when incurred. Sales
      and retirements of depreciable property were recorded by removing the related
      cost and accumulated depreciation from the accounts. Gains or losses on sales
      and retirements of property are reflected in the Company’s results of
      operations. Depreciation and amortization expense on leased gaming equipment
      and
      property, equipment and leasehold improvements was $25,108 and $3,501 for the
      three months ended March 31, 2006 and 2005, respectively.





Management
      reviews long-lived assets for impairment whenever events or changes in
      circumstances indicate that the carrying amount of an asset may not be
      recoverable. Recoverability of assets to be held and used is measured by a
      comparison of the carrying amount of an asset to its fair value, which considers
      the future undiscounted cash flows expected to be generated by the asset. If
      such assets are considered to be impaired, the impairment recognized is measured
      by the amount by which the carrying amount of the assets exceeds their fair
      value. Assets to be disposed of are reported at the lower of the carrying amount
      or the fair value less costs of disposal. In connection with the change to
      focus
      the business on the AWP market, the Company recorded an impairment of $907,058
      for the year ended December 31, 2005. There was not an adjustment to the value
      of the long-lived assets at March 31, 2006.





*Technology
      and Distribution Rights.* The
      Company’s technology and distribution rights relate to a $5,000,000 fee for
      redemption technology licensed from Bally Gaming, Inc. The technology and
      distribution rights are being amortized over the five-year term of the
      agreement. (Note 5).





Management
      reviews the technology and distribution rights for impairment in accordance
      with
      FAS 144 whenever events or changes in circumstances indicate that the carrying
      amount of an asset may not be recoverable. There was not an adjustment to the
      value of the technology and distribution rights at March 31, 2006 and December
      31, 2005.


8




*Fair
      Value of Financial Instruments* .
      The
      carrying amounts for all financial instruments approximate fair value. The
      carrying amounts for cash, accounts receivable, accounts payable, accrued
      expenses and short-term debt approximate fair value because of the short
      maturity of these instruments.





*Research
      and Development Costs.* Costs
      related to research, design and development of products are charged to research
      and development expense as incurred. Software development costs are capitalized
      beginning when a product’s technological feasibility has been established and
      ending when a product is available for general release to customers. The Company
      uses the working model approach to determine technological feasibility.
      Generally, the Company’s products are released soon after technological
      feasibility has been established. As a result, the Company has not capitalized
      any internal software development costs, since such costs have not been
      significant and the products are released shortly after technological
      feasibility. Research and development expense for continuing operations was
      $487,450 and $0 for the three months ended March 31, 2006 and 2005,
      respectively.





*Net
      Loss Per Common Share* .
      Basic
      and diluted loss per common share is computed by dividing net loss by the
      weighted-average number of common shares outstanding for the reporting period.
      Dilutive common-equivalent shares have not been included in the computation
      of
      diluted net loss per share because their inclusion would be antidilutive.
      Antidilutive common-equivalent shares issuable based on future exercise of
      stock
      options, warrants or convertible preferred stock totaling 18,435,505 and
      5,745,245 shares for the three months ended March 31, 2006 and 2005
      respectively, could potentially dilute basic loss per common share in subsequent
      years. All options and warrants outstanding were antidilutive for the three
      months ended March 31, 2006 and 2005.





Employees





*Stock-Based
      Compensation* .
      On
      December 16, 2004, the Financial Accounting Standards Board, or FASB, issued
      Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based
      Payment”, which is a revision of SFAS No. 123 and supercedes APB Opinion No. 25.
      SFAS No. 123(R) requires all share-based payments to employees, including grants
      of employee stock options, to be valued at fair value on the date of grant,
      and
      to be expensed over the applicable vesting period. Pro forma disclosure of
      the
      income statement effects of share-based payments is no longer an alternative.
      For the Company, SFAS No. 123(R) is effective for all share-based awards granted
      on or after January 1, 2006. In addition, companies must also recognize
      compensation expense related to any awards that are not fully vested as of
      the
      effective date. Compensation expense for the unvested awards will be measured
      based on the fair value of the awards previously calculated in developing the
      pro forma disclosures in accordance with the provisions of SFAS No. 123. We
      implemented SFAS No. 123(R) on January 1, 2006 using the modified prospective
      method. The amount of expense recorded for the three months ended March 31,
      2006
      was $263,947. Based on options outstanding at March 31, 2006, the Company
      estimates the expense to be $1,051,000 for the year ending December 31, 2006
      with an estimated amount of $2,079,000 from 2007 through 2014.





In
      accordance with Accounting Principles Board (“APB”) Opinion No. 25 and related
      interpretations, the Company uses the intrinsic value-based method for measuring
      stock-based compensation cost which measures compensation cost as the excess,
      if
      any, of the quoted market price of the Company's common stock at the grant
      date
      over the amount the employee must pay for the stock. The Company's general
      policy is to grant stock options and warrants at fair value at the date of
      grant. Options and warrants issued to employees are recorded at fair value,
      as
      required by Statement of Financial Accounting Standards (“SFAS”) No. 123
      "Accounting for Stock Based Compensation", using the Black-Scholes pricing
      model. The Company has adopted the disclosure only provision of SFAS No. 148,
      “Accounting for Stock Based Compensation.”


9




In
      prior
      years, we applied the intrinsic-value method prescribed in Accounting Principles
      Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” to
      account for the issuance of stock incentives to employees and directors. No
      compensation expense related to employees’ and directors’ stock incentives were
      recognized in the prior year financial statements, as all options granted under
      the stock incentive plans had an exercise price equal to the market value of
      the
      underlying common stock on the date of grant. Had we applied the fair value
      recognition provisions of “SFAS” No. 123, “Accounting for Stock-Based
      Compensation,” to stock based employee compensation for the periods prior to
      Fiscal 2006, our net loss per share would have increased to the pro forma
      amounts indicated below:


Three
                Months Ended
              March
                31, 2005Net
                loss:As
                reported
            
            $
            (1,238,938
            )Pro
                forma
            
            
            (1,470,713
            )Basic
                and diluted net loss per common shareAs
                reported
            
            
            $(0.10
            )Pro
                forma
            
            
            (0.11
            )Stock-based
                compensationAs
                reported
            
            $
            -Pro
                forma
            
            
            231,775





The
      following significant assumptions were utilized to calculate the fair value
      information presented utilizing the Black-Scholes pricing model:





Three
                Months Ended March 31,2006
            
            2005Risk
                Free interest rate
            
            
            4.31
            %
            
            3.71
            %Expected
                life
            
            
            5.0
                years
            
            4.7
                yearsExpected
                volatility
            
            
            169
            %
            
            145
            %Expected
                dividends
            
            
            0
            %
            
            0
            %





The
      volatility factor is based on the Company’s historical stock price fluctuations
      for a period of approximately 2.25 years. This period is shorter than the
      expected life of the options but was deemed more relevant given the significant
      change in the Company’s business model and strategy. The Company has not issued
      and does not intend to issue, dividends; therefore, the dividend yield
      assumption is 0. The Company applied the risk-free interest rate based on the
      U.S. Treasury yield in effect at the time of the grant. The expected term of
      the
      option is based on the contractual period of the options granted. Based on
      the
      lack of history to calculate a forfeiture rate, the Company has not adjusted
      the
      calculated value of the options for the three months ended March 31,
      2006.


10





Non-employees





Through
      March 31, 2006, the Company has outstanding options and warrants to purchase
      1,516,666 shares of the Company’s common stock to non-employees, mostly
      consultants, with exercise prices ranging from $0.75 per share to $3.00 per
      share and expiring at various times through June 2014. Pursuant to Emerging
      Issues Task Force 96-18 (EITF 96-18), “Accounting for Equity Instruments that
      are Issued to Other Than Employees for Acquiring, or in Conjunction with
      Selling, Goods or Services,” the Company will value related to the options on
      the earlier of the date a performance commitment is met or the date the
      performance is complete and recognizes the estimated value of the awards over
      the service performance period. The Company recorded a reduction of expense,
      due
      to a change in the fair value of the options and warrants, of $13,373 and $6,582
      for the three months ended March 31, 2006 and 2005, respectively, in accordance
      with EITF 96-18.





**Note
      3. Shareholder’s Equity**





**Preferred
      Stock**





The
      Company has Series A Convertible Preferred Stock that has voting rights
      identical to common stock. In the event of liquidation, the Series A Preferred
      Shareholders receive a liquidation preference. Although no dividends are
      required with respect to the Series A Preferred Stock, no dividend shall be
      paid
      on any shares of common stock unless comparable dividends are paid on the Series
      A Preferred Stock.





The
      holders of Series A Convertible Preferred Stock may elect to convert all or
      a
      portion of such shares into shares of the Company’s common stock in the manner
      set forth in the Series A Convertible Preferred Stock Certificate of Designation
      on file with the Minnesota Secretary of State. After adjustment pursuant to
      the
      terms of the Certificate of Designation, each share of Series A Convertible
      Preferred Stock currently converts into 2.257 shares of the Company’s common
      stock.





During
      2005, holders of 163,333 shares of the Company’s Series A Convertible Preferred
      Stock converted their preferred shares into 368,617 shares of the Company’s $.01
      par value common stock.
      At March 31, 2006 and December 31, 2005, there were outstanding 43,334 shares
      of
      Series A Convertible Preferred Stock which were convertible into an aggregate
      of
      97,799 shares of the Company’s common stock with a liquidation preference of
      $65,001.





On
      October 27, 2005, the Company sold an aggregate of 7,420 shares of Series B
      Variable Rate Convertible Preferred Stock, together with five-year warrants
      to
      purchase an aggregate of 4,637,500 shares of common stock at $1.84 per share.
      In
      the event of liquidation, the Series B Variable Rate Convertible Preferred
      Shareholders receive a liquidation preference. The Series B Variable Rate
      Convertible Preferred shareholders are entitled to cash dividends, payable
      quarterly. Under certain circumstances, the Company can pay the dividends with
      its common stock.


11





The
      Company is obligated to pay dividends on the Series B Variable Rate Convertible
      Preferred Stock on a quarterly basis, based on a rate per annum equal to the
      6-month LIBOR on the day before the quarterly interest period, plus 4%. Under
      certain circumstances specified in the Certificate of Designation, the Company
      may pay the dividends with its common stock.





The
      holders of Series B Variable Rate Convertible Preferred Stock may elect to
      convert all or a portion of such shares into shares of the Company’s common
      stock in the manner set forth in the Series B Variable Rate Convertible
      Preferred Stock Certificate of Designation on file with the Minnesota Secretary
      of State. After adjustment pursuant to the terms of the Certificate of
      Designation, the preferred shares are convertible into an aggregate of 4,637,500
      of common stock at a conversion price of $1.60 per share.





Of
      the
      7,420 shares of Series B Variable Rate Convertible Preferred Stock sold,
      subscriptions for an aggregate of 1,230 shares were accepted, in lieu of cash,
      upon conversion of $1,230,000 of the principal amounts of nine unsecured
      short-term promissory notes made to the Company. Sales of the Series B Variable
      Rate Convertible Preferred Stock and warrants raised an aggregate of $7,420,000
      in gross proceeds (which figure includes the conversion of $1,230,000 of
      principal amount of loans made to the Company) less approximately $615,000
      in
      sales commissions payable in cash. In addition to cash compensation, selling
      agents received five-year warrants to purchase an aggregate of 695,624 shares
      of
      the Company’s common stock at an exercise price of $1.84 per share.




The
        Company used the Black-Scholes pricing model to determine the value of the
        4,637,500 warrants and the conversion feature of the Series B Variable Rate
        Convertible Preferred Stock. The value of the preferred stock itself was
        assumed
        to be the face value because we were unable to obtain a comparable marked
        based
        value for the stock. The Company allocated the proceeds received based on
        the
        relative fair values. Therefore, pursuant to EITF 00-27, “Application of Issue
        No. 98-5 to Certain Convertible Instruments”, the Company recognized a deemed
        dividend in the embedded conversion feature of the preferred stock of $
        3,412,860.





As
      a
      condition of the Series B Variable Rate Convertible Preferred Stock offering,
      the Company was required to reserve $75,000 of the gross proceeds to make
      regularly scheduled interest payments on the Pandora Select Partners, L.P.
      and
      Whitebox Intermarket Partners, L.P. notes payable (see note 11). An additional
      condition of the Series B Variable Rate Convertible Preferred Stock offering
      is
      that the Company agreed to sell its Class II and Class III gaming machines
      to an
      unaffiliated person on or before March 31, 2006. The Company was unable to
      dispose of the machines on or before March 31, 2006, which did not have an
      effect on the financial statements.





If
      a
      purchaser of the Series B Variable Rate Convertible Preferred Stock still owns
      such stock on the 36-month anniversary of the closing date, the Company shall
      issue such purchaser additional warrants to purchase up to a number of shares
      of
      common stock equal to 100% of the stated value of the Series B Variable Rate
      Convertible Preferred Stock then held by such purchaser divided by the lesser
      of
      then applicable conversion price or the average of the closing prices for the
      five trading days immediately prior to the additional warrant issuance date,
      with an exercise price equal to the lesser of (i) the then applicable conversion
      price, (ii) the then applicable exercise price of any warrants held by such
      purchaser or (iii) 50% of the average of the closing prices for the five trading
      days immediately prior to the additional warrant issuance date, subject to
      adjustment therein.


12





In
      February 2006 D. Bradly Olah, President and a director of the Company, converted
      250 shares of Series B Preferred stock held by him into 156,250 shares of common
      stock.





**Note
      4. Short-term Debt**





On
      September 10, 2004, the Company issued two $750,000 promissory notes bearing
      interest at the rate of 10% per annum. One note was issued to Pandora and the
      other note was issued to Whitebox. The notes were payable interest only through
      March 10, 2005, at which time the principal was due. In connection with the
      financing, Spectre paid a 3% origination fee, issued five-year warrants for
      the
      purchase of 50,000 shares of Spectre’s common stock at $3.00 per share to both
      Pandora and Whitebox, and granted Pandora and Whitebox security interests in
      the
      Company’s assets. The warrants contain provisions that provide for the exercise
      price to be adjusted downward if the Company issues additional common stock
      or
      common stock equivalents with a lower exercise price. The gross proceeds of
      $1,500,000 were allocated between the notes and the common stock warrants based
      on the relative fair values of the securities at the time of issuance. The
      common stock warrants were valued using the Black-Scholes pricing model. The
      resulting original issue discount and the fair value of the warrants will be
      amortized over the life of the promissory notes using the straight-line method,
      which approximates the interest method. The value of the warrants was fully
      expensed during the year ended December 31, 2005. In addition, Spectre agreed
      to
      file a registration statement by February 1, 2005 with the SEC, covering the
      issuance or resale of the shares of Spectre’s common stock which may be issued
      in connection with the warrants issued to Pandora and Whitebox. The Company
      filed the registration statement on November 30, 2004 and the registration
      statement was declared effective on January 24, 2005.





On
      March
      10, 2005, the Company signed amendments to the two $750,000 secured promissory
      notes issued to Pandora and Whitebox. The amendments extend the due date of
      the
      notes to June 10, 2005, which date was further extended by the Company to
      September 10, 2005. As part of the amendments the Company agreed to maintain
      assets whose value equals or exceeds the principal and interest amounts then
      owned under the notes. For purposes of valuing the assets for compliance under
      this provision, the Company’s cash shall be valued at 100%, the Company’s
      accounts receivable shall be valued at 80% and the Company’s inventory and fixed
      assets shall be valued at 50% of their respective book values. As consideration
      for the amendments, the Company paid Pandora and Whitebox each $18,750 and
      amortized the expense over the first extension period. In June 2005, the Company
      elected to extend the notes to September 10, 2005, and paid Pandora and Whitebox
      each $18,750 and amortized the expense over the second extension period. On
      September 28, 2005 the Company entered into Forbearance and Extension Agreements
      with both Pandora and Whitebox extending the maturity dates of the two notes
      until September 30, 2006. Pursuant to the agreements, beginning October 10,
      2005
      and on the 10 th day of
      each month thereafter, the Company is required to pay the accrued interest
      on
      the notes.


13





**Note
      5. Redemption Technology and Supply Agreement**





On
      May
      24, 2005, the Company entered into a Redemption Technology and Supply Agreement
      (the “Agreement”) with Bally Gaming, Inc., a Nevada corporation.





Under
      the
      Agreement Bally granted to the Company: (i) an exclusive license to market
      and
      distribute redemption games using equipment containing certain proprietary
      technology of Bally; (ii) an exclusive license to utilize the technology to
      develop redemption games and gaming systems; and (iii) a non-exclusive license
      to use the technology for purposes ancillary to the foregoing (collectively,
      the
“License”). In addition to obtaining the License, the Agreement provides that
      the Company shall have the right to exclusively license Bally-owned game themes
      for use with the Company’s redemption games and systems.





The
      Agreement and the License last for an initial term of five years, but may be
      extended if the Company meets certain performance targets. Under the Agreement,
      the Company will pay an upfront License fee of $5 million, payable as follows:
      $1 million was due on or prior to June 23, 2005; $1 million was due no later
      than August 15, 2005; and the remaining $3 million was payable pursuant to
      an
      unsecured two-year promissory note providing payments in four equal installments
      on each successive six-month anniversary of the Agreement. The note bears
      interest at 12% per annum. The Agreement and note were subsequently amended
      and
      Spectre paid Bally a total of $2,750,000, plus interest, in 2005.





Effective
      March 29, 2006 the Company entered into another amendment with Bally whereby
      the
      principal payment of $750,000 due March 31, 2006 was deferred until June 30,
      2006, with an additional one-month extension option. Under the amendment, if
      the
      Company achieves certain milestones, the $750,000 principal payment as well
      as
      the $750,000 payment due September 29, 2006 will be deferred until December
      31,
      2006. At that time, the deferred payments totaling $1,500,000 will be amortized
      and due over the following 18 month period. Additionally, Bally agreed to apply
      $187,500 previously paid by the Company for licenses to game titles against
      future royalty payments that will be due in 2007 and 2008. Spectre further
      agreed to purchase 175 machines from Bally by April 30, 2006 and will purchase
      the next 1,825 new units from Bally for an agreed upon price. As of the date
      of
      this report, the Company has not completed the purchase of the 175
      machines.




In
      addition, beginning in January 2007 the Agreement as amended requires the
      Company to pay royalties monthly based on the number of in-service redemption
      games during each day of the Agreement’s term or based on a preset annual fee at
      the Company’s election.





The
      Company had $2,250,000 remaining due under the amended note at March 31, 2006
      and December 31, 2005.





Under
      the
      Agreement, the Company will have the right to have Bally provide transition
      training services so that Company employees may become familiar with the
      licensed technology. The Agreement also provides fixed pricing for the Company’s
      (i) purchase of electronic components containing the licensed technology, (ii)
      purchase of gaming cabinets in which to house redemption games employing the
      licensed technology, (iii) purchase of materials to convert the redemption
      games
      into video lottery terminals and/or Class III gaming machines (i.e., slot
      machines), and (iv) acquisition from Bally of other services on an hourly basis.
      The Company recognized an intangible asset representing it rights under the
      Agreement, which it is amortizing over five years.


14





**Note
      6. Related Party Transactions**





The
      Company incurred expenses from a corporation, owned by a former director of
      the
      Company and employing another former director and officer of the Company, for
      rent and consulting services of approximately $11,000 and $28,000 during the
      three months ended March 31, 2006 and 2005, respectively.





The
      Company incurred expenses from a corporation, partially owned by the CEO and
      director of the Company, for consulting services and expense reimbursements
      of
      approximately $0 and $25,000 during the three months ended March 31, 2006 and
      2005, respectively. The Company’s CEO also serves as a director of the
      corporation.





**Note
      7. Significant Customers**





Revenues
      to one customer accounted for 100% of total revenues of discontinued operations
      during the three months ended March 31, 2006 and revenues to three customers
      accounted for 74% of total revenues of discontinued operations during the three
      months ended March 31, 2005.





**Note
      8. Subsequent Events**





Pursuant
      to the rights included in the Certificate of Designation (as amended), the
      Company elected to offer shares of the Company’s common stock in lieu of a cash
      payment for dividends payable on April 1, 2006 to Series B Variable Rate
      Preferred shareholders. The Company’s board of directors approved a conversion
      rate of $1.10 per share. As of the date of this report, shareholders
      representing 86% of the outstanding shares have elected to receive common shares
      in lieu of cash.





Between
      May 5 and May 9, 2006, the Company closed on a total of $600,000 of short-term
      loans. In connection with the borrowings, the Company issued 1,200,000 five
      year
      warrants at $1.84 per share. The proceeds of the loans will be used for
      operating capital.




Note
      9. Restatement
      Reconciliation




The
      following table reconciles the previously reported amounts to the restated
      amounts as of and for the year ended December 31, 2005 and March 31, 2006.
      The
      Company restated its preferred stock dividends for the year ended December
      31,
      2005 to recognize a beneficial conversion feature associated with the Series
      B
      Variable Rate Convertible Preferred Stock issued on October 27, 2005. The
      restatement increased additional paid-in capital and increased the accumulated
      deficit by $3,412,860 at December 31, 2005 and March 31, 2006. The restatement
      affected the balance sheet only and had no impact on the statement of operations
      for the quarter (or three months) ended March 31, 2006.




As
                Originally Reported
            
            As
                Restated
            
            Effect
                of Restatement**December
              31, 2005:**Additional
                paid-in capital
            
            $
            33,795,207
            
            $
            37,208,067
            
            $
            3,412,860Accumulated
                Deficit
            
            
            (30,840,630
            )
            
            (34,253,490
            )
            
            (3,412,860
            )**March
              31, 2006:**Additional
                paid-in capital
            
            $
            33,948,812
            
            $
            37,361,672
            
            $
            3,412,860Accumulated
                Deficit
            
            
            (32,351,755
            )
            
            (35,764,615
            )
            
            (3,412,860
            )





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





The
      accompanying management’s discussion and analysis of the Company’s financial
      condition and results of operations should be read in conjunction with
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations and the Company’s audited financial statements, and notes thereto,
      for the fiscal year ended December 31, 2005, included in our Annual Report
      on
      Form 10-KSB for the year ended December 31, 2005.






**Results
      of Operations**





**Three
      Months Ended March 31, 2006 Compared to the Three Months Ended March 31,
      2005**





*Revenues
      and Cost of Revenues.* The
      Company’s revenues and cost of revenues from continuing operations for the three
      months ended March 31, 2006 and 2005 were $0 due to the fact that the Company
      is
      new to the AWP business and had no revenue producing sales. The Company expects
      to generate revenues and cost of revenues beginning in the three month period
      ending June 30, 2006.


15





*Research
      and Product Development Expenses* .
      Research and product development expenses for continuing operations for the
      three months ended March 31, 2006 was $540,779, compared to $0 for the three
      months ended March 31, 2005. The increase was due to the Company beginning
      development of its AWP products after the first quarter of 2005 and $250,000
      of
      amortization of the long-term technology and distribution rights acquired from
      Bally Gaming. Management expects that expenditures for research and product
      development may increase in future quarters as the Company begins placing its
      AWP machines in the market an continues to develop its products.





*Sales
      and Marketing Expenses* .
      Sales
      and marketing expenses for the three months ended March 31, 2006 was $50,127,
      compared to $0 for the three months ended March 31, 2005. The **** increases
      in expense primarily resulted from the Company commencing operations in
      the **** AWP
      market after the first quarter of 2005.




*General
      and Administrative Expenses* .
      General
      and administrative expenses from continuing operations for the three months
      ended March 31, 2006 was $604,618, compared to $233,395 for the three months
      ended March 31, 2005. The increase was due primarily to the addition of
      corporate staff, increased professional fees and other corporate expenses.
      In
      addition the three months ended March 31, 2006 includes $263,947 of expense
      related to employee stock options in connection with the adoption of FASB
      123(R).





*Other
      Expense.* Other
      expense for the three months ended March 31, 2006 was $93,508, compared to
      $389,220 for the three months ended March 31, 2005. The decrease in other
      expense is primarily due to $344,389 of amortization of debt issuance costs
      and
      the amortization of the original issue discount related to the Company’s
      convertible note payable outstanding in 2005 and short-term debt, for the 2005
      quarter and none in 2006. This is offset in part due to increased interest
      expense between the comparable quarters.





*Loss
      From Discontinued Operations.* The
      loss
      from discontinued operations was $58,920 and $616,323 for the three months
      ended
      March 31, 2006 and 2005, respectively. The decrease in loss was due to the
      Company’s decision to discontinue its Class II and Class III business in
      December, 2005, which resulted in very little activity in the 2006
      quarter.





*Net
      Loss* .
      The
      Company incurred a net loss of $1,347,952 for the three months ended March
      31,
      2006, compared to a net loss of $1,238,938 for the three months ended March
      31,
      2005. The increased net loss is due primarily to the Company commencing AWP
      operations, offset by the losses the Company incurred from its discontinued
      operations in the prior period.





*Liquidity
      and Capital Resources* .
      The
      Company had negative working capital of $3,114,746 and $1,260,338 at March
      31,
      2006 and December 31, 2005, respectively. During the three months ended March
      31, 2006, cash used in operations was $1,104,400, and the primary uses of cash
      were to fund the Company’s net loss associated with developing AWP products, and
      the payment of payables and accrued expenses. For the three months ended March
      31, 2005, the cash used in operations was $1,087,867 and the primary use of
      cash
      was to fund the Company’s net loss, and acquire inventory for the Class II and
      Class III markets. These uses were partially offset by non-cash charges related
      to stock options and warrants issued for services for both periods and
      amortization of debt issuance costs for the 2005 period.


16





Cash
      used
      in investing activities was $25,936 and $65,366 for the three months ended
      March
      31, 2006 and 2005, respectively, primarily to purchase property, equipment
      and
      leasehold improvements.





Cash
      used
      in financing activities was $107,309 and $178,017 for the three months ended March
      31, 2006 and 2005, respectively. The 2006 amount included $111,284 of dividends
      paid on the Company’s Series B Variable Rate Convertible Preferred Stock. The
      2005 amount included $140,517 of payments on notes payable.





On
      September 10, 2004, the Company issued two $750,000 promissory notes bearing
      interest at the rate of 10% per annum. One note was issued to Pandora and the
      other note was issued to Whitebox. The notes were payable interest only through
      March 10, 2005, at which time the principal was due. The notes were subsequently
      amended and balance of $750,000 on each note is due on September 29,
      2006.





On
      September 23, 2005, the Company signed a term sheet with PDS Gaming for a $20
      million credit facility to finance its AWP gaming equipment. The term sheet
      is
      not a definitive agreement. As currently contemplated, terms of the facility
      will provide that the Company may make draws in increments of a minimum of
      $650,000 up to $10 million. Each loan under the facility will be amortized
      over
      36 months with interest at 13% and will be subject to the Company meeting
      certain financial covenants and other conditions. A 1% fee will be required
      to
      be paid at closing of the facility and a 4% fee will be required on each draw.
      The Company is required to pay the expenses of the lender and paid an expense
      advance of $22,500 in September 2005. As of May 12, 2006, the Company had not
      closed on the credit facility.





On
      May
      24, 2005, the Company entered into a Redemption Technology and Supply Agreement
      with Bally Gaming pursuant to which the Company acquired a license for certain
      AWP technology from Bally Gaming, including exclusive distribution rights to
      that technology and follow-on exclusive distribution rights for Video Lottery
      Terminals (“VLT”), if VLT becomes legal. This agreement and the license last for
      an initial term of five years, but may be extended if the Company meets certain
      performance targets. Under the agreement, the Company is obligated to pay an
      upfront fee of $5 million. Of this amount, $2 million was paid, and the Company
      delivered an unsecured two-year promissory note for the remaining $3 million.
      The balance on the note was $2,250,000 at March 31, 2006.





Effective
      March 29, 2006, the Company entered into an amendment to the Redemption
      Technology and Supply Agreement with Bally. Under the terms of the agreement,
      Bally agreed to defer the $750,000 principal payment due March 29, 2006 until
      June 30, 2006 (subject to a 30 day extension). Subject to certain performance
      criteria, the $750,000 payment can be further extended along with the $750,000
      payment due September 29, 2006 until December 31, 2006, at which time the total
      due of $1,500,000 will be due in monthly payments, including interest, over
      18
      months beginning January 31, 2007. Additionally, Bally agreed to apply $187,500
      previously paid by the Company for game titles against future royalty payments
      that will be due in 2007 and 2008. Spectre further agreed to purchase 175
      machines from Bally by April 30, 2006 and will purchase the next 1,825 new
      units
      from Bally for an agreed upon price . As
      of the
      date of this 10QSB/A, the Company has not completed the purchase of the 175
      machines.


17





Pursuant
      to the rights included in the Certificate of Designation (as amended), the
      Company elected to offer shares of the Company’s common stock in lieu of a cash
      payment for dividends payable on April 1, 2006 to Series B Variable Rate
      Preferred shareholders. The Company’s board of directors approved a conversion
      rate of $1.10 per share. Shareholders representing 86% of the outstanding shares
      have elected to receive common shares in lieu of cash.




Over
      the
      next 12 months, the Company expects to spend a significant amount on capital
      equipment purchases primarily for AWP machines, and for such purpose expects
      to
      seek financing to purchase such equipment.





The
      Company anticipates that it will expend significant resources in 2006 acquiring
      machines to be placed in amusement centers on either a fixed lease or a
      participation basis. Once placed in service these machines are transferred
      to
      fixed assets. In addition, the Company expects that research and product
      development, sales and marketing, and general and administrative expenses will
      also increase as the Company adds additional personnel and incurs
      other costs associated with placing and marketing its AWP products and for
      other
      corporate purposes.





Management
      believes that its cash should be sufficient to satisfy its cash
      requirements at least through June 2006. Beyond that point, the Company
      will need to obtain additional cash to meet its needs, including repaying the
      Bally, Pandora and Whitebox notes described above and has been actively pursuing
      additional debt and equity financing.




On
        May 5
        and May 9, 2006, the Company borrowed an aggregate of $600,000 from accredited
        investors and issued convertible promissory notes in that principal amount
        in
        exchange therefor. The promissory notes are fully due and payable on July
        31,
        2006 and bear interest through such date at the per annum rate of prime plus
        one. As inducement to loan funds to the Company, the Company issued the lenders
        five-year warrants to purchase an aggregate of up to 1,200,000 shares of
        common
        stock at the purchase price of $1.84 per share (subject to adjustment). The
        promissory notes provide the lenders with the right to convert their notes
        into:
        (i) Company securities issued in any private offering of equity securities
        of
        the Company (or its successor or parent) consummated prior to the July 31,
        2006
        maturity date, upon the terms and conditions of such offering, and at a
        conversion price equal to the purchase price paid by such investors in such
        offering; and/or (ii) common stock of the Company, at a conversion price
        equal
        initially to $1.84 per share, subject to adjustment. For these transactions,
        the
        Company relied on Section 4(2) of the Securities Act, including Rule 506
        promulgated thereunder, based on the fact that there were only five investors,
        all of whom, either alone or through a purchaser representative, had knowledge
        and experience in financial and business matters such that each was capable
        of
        evaluating the risks of the investment, and all such investors were “accredited
        investors” as defined in rules promulgated under the Securities
        Act.
 
 On
        May
        25, 2006, the Company issued a five-year warrant to purchase up to 500,000
        shares of common stock at a per-share price of $1.84 to Parklane Associates,
        LLC, a Minnesota limited liability company, and a similar warrant to purchase
        up
        to 200,000 shares of common stock to PDS Gaming Corporation. For these
        transactions, the Company relied on Section 4(2) of the Securities Act,
        including Rule 506 promulgated thereunder, based on the fact that all warrant
        recipients, either alone or through a purchaser representative, had knowledge
        and experience in financial and business matters such that each was capable
        of
        evaluating the risks of the investment, and all such investors were “accredited
        investors” as defined in rules promulgated under the Securities
        Act.
  On
        May
        25, 2006, the Company entered into a Master Loan Agreement with PDS Gaming
        Corporation, a Minnesota corporation, providing for purchase-money
        amusement-with-prize machine financing in an amount aggregating up to $20
        million. Under the Master Loan Agreement, Spectre Gaming has the right to
        request advances, from time to time, in amounts not to exceed $10 million
        or be
        less than $650,000. Advance requests are subject to certain funding
        contingencies set forth in the agreement, and the discretion of PDS Gaming.
        On
        May 25, 2006, PDS Gaming advanced $1,464,104 to Spectre under the Master
        Loan
        Agreement. The Master Loan Agreement provides for interest on advanced funds
        in
        an amount equal to 13%. Upon each advance under the Master Loan Agreement,
        Spectre Gaming will deliver a promissory note in agreed form to PDS Gaming,
        providing for payments of interest first, and then principal, over a 36-month
        period. Promissory notes may not be prepaid for a period of 12 months after
        their issuance.
 
 In
        connection with the Master Loan Agreement, the Company entered into a Security
        Agreement granting a security interest in amusement-with-prize equipment
        purchased with funds advanced under the Master Loan Agreement, revenue
        agreements that the Company enters into with location operators, a bank account
        opened to receive funds from the revenue agreements, and substantially all
        of
        its other assets, including the Redemption Technology and Supply Agreement
        entered into with Bally Gaming, Inc., as amended.


**Risk
      Factors**





**We
      have no operating history and our business plan is currently being tested.**  **We
      anticipate incurring future losses.**





We
      are in
      the early stages of developing and distributing AWP games. We are therefore
      subject to all of the risks and uncertainties inherent in establishing a new
      business. We have no prior operating history for these products from which
      to
      evaluate our success, or our likelihood of success in operating our business,
      generating any revenues or achieving profitability. In sum, we have very limited
      assets, very little operating revenue and uncertain prospects of future
      profitable operations. Our operations may not be successful and the likelihood
      of our success must be considered in light of the problems, expenses,
      difficulties, complications and delays frequently encountered in connection
      with
      the formation of a new business, development of technology and the competitive
      environment in which we operate. We anticipate that we will incur losses in
      the
      near future.


18





**We
      will need additional financing in the future and any such financing will likely
      dilute our existing shareholders.**





We
      require additional sources of financing before we can generate revenues to
      sustain operations. In particular, management believes the Company’s current
      cash is sufficient to continue operations only through June 2006. If we are
      unable to capitalize on existing opportunities or locate and act on other
      business opportunities, or if expenditures exceed our current expectations,
      we
      may be required to find additional sources of financing prior to July
      2006.





Additional
      financing could be sought from a number of sources, including but not limited
      to
      additional sales of equity or debt securities (including equity-linked or
      convertible debt securities), loans from banks, loans from affiliates of the
      Company or other financial institutions. We may not, however, be able to sell
      any securities or obtain any such additional financing when needed, or do so
      on
      terms and conditions acceptable or favorable to the Company, if at all. If
      financing is not available, we may be forced to abandon our business plans
      or
      our entire business, discontinue our preparation and filing of public disclosure
      reports with the SEC, or dissolve the Company. If we successfully enter into
      a
      financing transaction, any additional equity or equity-linked financing would
      be
      dilutive to shareholders, and additional debt financing, if available, may
      involve restrictive covenants.





**Our
      independent auditors have substantial doubt about our ability to continue as
      a
      going concern.**





We
      have
      had net losses for the three months ended March 31, 2006, and the year ended
      December 31, 2005, and we had an accumulated deficit as of March 31, 2006.
      Since
      the financial statements for each of these periods were prepared assuming that
      we would continue as a going concern, in the view of our independent auditors,
      these conditions raise substantial doubt about our ability to continue as a
      going concern.





Furthermore,
      since we are pursuing a new line of business, this diminishes our ability to
      accurately forecast our revenues and expenses. We expect that our ability to
      continue as a going concern depends, in large part, on our ability to raise
      sufficient capital through subsequent equity or debt financing transactions.
      If
      we are unable to raise additional capital, we may be forced to discontinue
      our
      business.





**Our
      redemption gaming products have not been, and may never be, fully developed.**





Pursuant
      to our Redemption Technology and Supply Agreement with Bally Gaming, Inc.,
      we
      are enhancing Bally’s AWP redemption gaming technology. The development process
      has not yet been completed and we cannot be certain that the operating system
      will work as anticipated and required for use in a regulated marketplace. To
      date, we have had to make refinements, edits and other changes to the technology
      which has delayed our ability to get machines into the market. The completion
      of
      the development of our proposed AWP system remains subject to all the risks
      associated with the development and manufacture of new products, including
      unanticipated technical or other problems, failures to meet regulatory
      requirements or performance objectives, and the possible insufficiency of the
      funds allocated for the completion of such development, which could result
      in a
      change in the design, delay in the development, or abandonment of such system
      and its products. It is possible that our AWP system may never be fully
      developed or successfully distributed.




**If
      the Redemption Technology and Supply
      Agreement, as amended, is terminated, then the Company would be required to
      write off significant amounts spent on the acquisition of licensed technology
      pursuant thereto, would be required to develop its own AWP technology (or find
      an alternate licensor of such technology), and may be subject to claims of
      intellectual-property rights infringement.**




The
      Company has received notice from Bally Gaming,
      Inc. that the Company is currently in default of certain obligations under
      the
      Redemption Technology and Supply Agreement, as amended. In particular, Bally
      Gaming alleges that the Company is in default of its obligation to purchase
      175
      gaming machines (as defined in the agreement) from Bally Gaming by April 30,
      2006, has failed to secure a line of credit in the amount of $400,000 by April
      30, 2006 (for the purpose of ordering parts for new gaming machines), and has
      failed to deposit certain software into a technology escrow account by April
      30,
      2006, all as required under the Sixth Amendment to the Redemption Technology
      and
      Supply Agreement, dated March 29, 2006.




The
      Company is currently discussing with Bally Gaming
      these alleged defaults, appropriate cures, and the resolution of other matters
      related to the Redemption Technology and Supply Agreement. The outcome of these
      discussions is currently uncertain.




If
      the Company is unable to reach an agreement with
      Bally Gaming regarding the treatment of these alleged defaults, is unable to
      reach agreement on other matters related to the Redemption Technology and Supply
      Agreement, or for any other reason the Redemption Technology and Supply
      Agreement is terminated, the Company would likely be required to write off
      the
      unamortized balance of the long-term technology and distribution rights assets
      on the Company’s balance sheet ($4,147,849 as of March 31, 2006). Moreover,
      any actual default could result, among other things, in the release of software
      developed by the Company to Bally Gaming, the immediate acceleration of
      obligations due under the agreement, and/or a significant increase in the
      interest rate due on the associated note payable. In addition, the Company
      would likely be required to identify and enter into agreements
      with licensors of similar technology or incur the expense involved in
      completing the development of its own proprietary AWP technology. The Company
      may not be able to sustain these costs. Finally, any licensed or independently
      developed AWP technology may subject the Company to the risk of being sued
      for
      alleged infringement of intellectual-property rights of Bally Gaming or third
      parties.




The
      materialization of any of these risks related to
      the Company’s relationship with Bally Gaming could result in material and
      adverse change in the Company’s financial condition, results of operation,
      prospects for future success, and the viability of the Company and its
      business.


19





**Even
      if successfully developed, our gaming products may not be accepted by the
      marketplace.**





Our
      gaming systems and the gaming products, even if successfully tested, developed
      and manufactured, may not be accepted by the marketplace or successfully compete
      against other systems, games and products in the marketplace.





**We
      will depend upon others for the manufacture of our gaming products, which will
      subject our business to the risk that we will be unable to fully control the
      supply of our products to the market.**





Our
      ability to develop, manufacture and successfully commercialize our proposed
      products depends upon our ability to enter into and maintain contractual and
      collaborative arrangements with others, such as Bally. We do not intend to
      manufacture any of our proposed products; but instead intend to retain contract
      manufacturers. There can be no assurance that Bally or any other manufacturers
      will be able to supply our products in the required quantities, at appropriate
      quality levels or at acceptable costs. We may be adversely affected by any
      difficulties encountered by such third-party manufacturers that result in
      product defects, production delays or the inability to fulfill orders on a
      timely basis. If a manufacturer cannot meet our quality standards and delivery
      requirements in a cost-efficient manner, we would likely suffer interruptions
      of
      delivery while we arrange for alternative manufacturing sources. Any extended
      disruption in the delivery of products could result in our inability to satisfy
      customer demand for our products. Consequently, our inability to obtain
      alternative sources on a timely basis may have a material adverse effect on
      our
      business and results of operations.





**Our
      reliance on third-party manufacturers and other third parties in other aspects
      of our business will reduce any profits we may earn from our products, and
      may
      negatively affect future product development.**





As
      noted
      above, we currently intend to market and commercialize products manufactured
      by
      others, and in connection therewith we will likely be required to enter into
      manufacturing, licensing and distribution arrangements with third parties.
      These
      arrangements will likely reduce our product profit margins. In addition, the
      identification of new product candidates for development may require us to
      enter
      into licensing or other collaborative agreements with others. These
      collaborative agreements may require us to pay license fees, make milestone
      payments, pay royalties and/or grant rights, including marketing rights, to
      one
      or more parties. Any such arrangement will likely reduce our profits. Moreover,
      these arrangements may contain covenants restricting our product development
      or
      business efforts in the future.





**We
      may not be able to enter into manufacturing agreements or other collaborative
      agreements on terms acceptable to us, if at all, which
      failure**  **would
      materially and adversely affect our business.**





We
      may
      not be able to enter into manufacturing or other collaborative arrangements
      with
      third parties on terms acceptable to us, if at all, when and as required. If
      we
      fail to establish such arrangements when and as necessary, we could be required
      to undertake these activities at our own expense, which would significantly
      increase our capital requirements and may delay the development, manufacture
      and
      installation of our gaming machines on casino floors. If we cannot find ways
      of
      addressing these capital requirements, we would likely be forced to sell or
      abandon our business.


20





**Our
      inability to protect the intellectual property we use could impair our ability
      to compete.**





Our
      success and ability to compete depend in part upon proprietary intellectual
      property. The intellectual property we use currently consists of certain
      licensed propriety technology that is critical to our AWP business, as well
      as
      other trademark, image and likeness, moral rights, and certain other
      intellectual property assets. We currently rely and intend to rely in the future
      on a combination of copyright, trademark, patent, trade secret laws, and
      nondisclosure agreements to protect our proprietary technology. Although we
      have
      entered into confidentiality, non-compete and invention assignment agreements
      with our employees and otherwise limit access to, and distribution of, our
      proprietary technology, there can be no assurance that such agreements will
      not
      be breached, that we would have adequate remedies for any breach, or that our
      trade secrets will not otherwise become independently developed or discovered
      by
      competitors.




The
      regulatory environment in which the
      Company operates lacks clarity, which could impair our ability to place
      redemption gaming machines in some jurisdictions.





AWP
      is
      not a highly regulated industry, and as such, it lacks the clarity which
      typically stems from the existence and a body of interpretation of laws and
      regulations. Moreover, AWP laws tend to be enforced at the county or city level
      instead of a central state-sponsored regulatory authority, which decreases
      the
      visibility and predictability of such regulation. The lack of clarity or
      guidance can lead to legal interpretation errors, changes in the manner in
      which
      the laws or controlling court cases are articulated and interpreted by law
      enforcement personnel, and disagreements about the legality of the Company’s
      operations and games in various jurisdictions. In turn, these matters can lead
      to delays in game deployment, removal of games from locations, withdrawal of
      business operations in various counties, as well as the possibility that games
      may be seized pending resolution of the appropriate court case, and the possible
      arrest of company personnel for violation of law.





**Changes
      in regulatory** **approvals** **or
      regulatory interpretations** **may** **adversely effect our AWP operations.**





It
      is
      possible that after the Company has either received a favorable guidance letter
      or meeting from a county or city authority, and commenced operations, that
      such
      authority may change its position or the person rendering the advice is replaced
      by another person, such as a change in District Attorney, and the advising
      authority determines that the Company’s activities or games do not comply with a
      new interpretation of the law or recent court case holdings. Such changes,
      to
      the negative, could cause the Company to limit its business activities in the
      respective jurisdiction, or to remove its operations and devices entirely.





**Changes
      in laws regarding gaming or AWP may inhibit the Company’s ability to do
      business.**





In
      the
      event that a state changes the laws under which redemption or AWP activity
      is
      conducted, such as outlawing the games entirely or further limiting bet, play
      and prize restrictions, this will have a negative impact on the placement of
      games and the further conduct of operations, if any in the respective state.
      Also, a state may determine to legalize other forms of gaming, such as slot
      machines. We
      expect
      that any such
      liberalization of gaming laws would have a negative impact on the Company’s
      operations in such state, unless the Company is able to convert the AWP games
      to
      the newly allowed form of games.


21





**The
      Company will rely on relationships with operators and distributors to install
      and maintain its AWP devices.**





The
      Company will establish partnerships with various distribution and service
      companies which are doing business in the jurisdictions in which Spectre will
      conduct AWP. These operators will provide sales and support, as well as money
      and data collection. Failure to find sufficient or capable partners may delay
      the rollout in various areas. Additionally, partners may not move quickly enough
      to exploit any market advantages the company may have. Partners may not provide
      a sufficient level of service, to the detriment of games in place or to future
      placements. Finally, partners will not be exclusive partners, and their
      associated business activities and conduct may cause conflict with the Company’s
      business.





**More
      experienced and better financed companies may enter the AWP market which may
      result in the Company losing significant market share.**





Currently,
      the AWP marketplaces in Texas and Florida, as well as other states, do not
      have
      any established major gaming competitors (such as IGT, Alliance, Aristocrat,
      Konami, MGAM, et al), but is instead a market for small second or third tier
      manufacturers. The entry of well financed, established competitors into the
      market could have a material impact on Spectre’s ability to place games or to
      continue to maintain the number of games in the field it will have at that
      time.





**We
      are highly dependent on the services provided by certain executives and key
      personnel.**





Our
      success depends in significant part upon the continued service of certain senior
      management and other key personnel. In particular, we are materially dependent
      upon the services of Russell C. Mix, a director of the Company and our Chief
      Executive Officer, and the services of D. Bradly Olah, a director of the Company
      and our President. We have an employment agreement with Mr. Mix, but if he
      should no longer serve the Company it would likely have a materially adverse
      impact on our business, financial condition and operations. We do not have
      an
      employment agreement with Mr. Olah. The Company has not secured any “key person”
life insurance covering the lives of either Mr. Mix or Mr. Olah.





Our
      success also depends on our ability to identify, hire, train, retain and
      motivate highly skilled technical, managerial, sales and marketing personnel.
      We
      intend to hire a number of sales, business development, marketing, technical
      and
      administrative personnel in the future. Competition for such personnel is
      intense and there can be no assurance that we will successfully attract,
      assimilate or retain a sufficient number of qualified personnel. The failure
      to
      retain and attract the necessary technical, managerial, sales and marketing
      and
      administrative personnel could have a material adverse impact on our business,
      financial condition and operations.


22





**Our
      officers and directors, together with certain affiliates, possess substantial
      voting power with respect to our common stock, which could adversely affect
      the
      market price of our common stock.**





As
      of
      June 6, 2006, our officers and directors collectively possessed beneficial
      ownership of approximately 2,313,281 shares of our common stock, which
      represents approximately 14.6% of our common stock. Certain other significant
      shareholders, including Perkins Capital Management, Inc., Ronald E. Eibensteiner
      and Wayne W. Mills collectively possessed beneficial ownership of a total of
      approximately 6,510,835 shares of common stock, which represents
      approximately 35.7% of our common stock. When taken together, our directors,
      officers and significant shareholders have beneficial ownership of approximately
      43.7% of our common stock. This represents a significant and controlling portion
      of the voting power of the Company’s shareholders. As a result, our directors
      and officers, together with significant shareholders, have the ability to
      substantially (but not wholly) control our management and affairs through the
      election and removal of our entire board of directors, and all other matters
      requiring shareholder approval, including the future merger, consolidation
      or
      sale of all or substantially all of our assets. This concentrated control could
      discourage others from initiating any potential merger, takeover or other
      change-of-control transaction that may otherwise be beneficial to our
      shareholders. As a result, the market price of our common stock or ultimate
      sale
      of our business could be adversely affected.





**Our
      stock price is, and we expect it to remain, volatile, which could limit our
      shareholders’ ability to resell shares of our common stock at a profit.**





The
      volatile price of our common stock makes it difficult for shareholders to
      predict the value of their investment, to sell shares at a profit at any given
      time, or to plan purchases and sales in advance. A variety of factors may affect
      the market price of our common stock, including but not limited to:





·
            achievement
                or rejection of regulatory approvals in favor of us or the tribes
                or other
                purchasers of our products,·
            announcements
                of technological innovations or new commercial products by us or
                our
                competitors,·
            developments
                concerning proprietary rights, including patents,·
            regulatory
                developments relating to the United States relating to the gaming
                industry,·
            period-to-period
                fluctuations in our revenues and other results of operations,
                and·
            sales
                of our common stock.





We
      will
      not be able to control many of these factors, and we believe that
      period-to-period comparisons of our financial results will not necessarily
      be
      indicative of our future performance.





**Our
      articles of incorporation grant the Company’s board of directors with the power
      to designate and issue additional shares of common and/or preferred stock.**





Our
      authorized capital consists of 100,000,000 shares of capital stock. Pursuant
      to
      authority granted by the Company’s articles of incorporation, our board of
      directors, without any action by the shareholders, may designate and issue
      shares in such classes or series (including classes or series of common stock
      and/or preferred stock) as it deems appropriate and establish the rights,
      preferences, and privileges of such shares, including dividends, liquidation
      and
      voting rights. The rights of holders of classes or series of common stock or
      preferred stock that may be issued could be superior to the rights of our
      exiting capital stock. Our board of directors’ ability to designate and issue
      shares could impede or deter an unsolicited tender offer or takeover proposal.
      Further, the issuance of additional shares having preferential rights could
      adversely affect other rights appurtenant to the shares of common stock offered
      hereby. Any such issuances will dilute the percentage of ownership interest
      of
      our shareholders and may dilute the per-share book value of the Company.


23





As
      of
      June 6, 2006, we had 13,838,024 shares of common stock outstanding. As of such
      date, a further 20,733,838 shares of our common stock have been reserved
      for issuance as follows:


·
              2,300,000
                  shares under our existing stock option plans, of which options
                  relating to
                  1,901,668 shares are currently outstanding;·
              1,511,942
                  sharesrelating
                  to additional options grantedoutside of our stock option plans;·
              97,798
                  shares upon conversion of outstanding Series A Preferred
                  Stock·
              4,481,250
                  shares upon conversion of outstanding Series B Variable Rate Convertible
                  Preferred Stock, and·
              12,342,848
                  shares upon the exercise of outstanding
                  warrants.




In
      connection with the sale of 7,420 shares of our Series B Variable Rate
      Convertible Preferred Stock, the Company obtained the right, until September
      23,
      2006 and upon meeting certain milestones, to sell to the original Series B
      investors another 2,580 preferred shares, which would be convertible into
      1,612,500 shares of common stock, together with warrants to purchase 1,612,500
      common shares. In addition, until March 23, 2006 the original Series B investors
      have the option to purchase another 7,420 preferred shares, convertible into
      4,637,500 common shares, and receive warrants to
      purchase 4,637,500 common shares.




In
        addition to the above reservations of shares of common stock, the Company
        is
        obligated under a Securities Purchase Agreement dated October 27, 2005, entered
        into with purchasers of Series B Variable Rate Convertible Preferred Stock
        to
        reserve additional shares of common stock that may be required to pay dividends,
        if paid in common stock, and to fulfill other obligations to such purchasers
        in
        connection with the Securities Purchase Agreement .





**Our
      common stock trades only in an illiquid trading market.**





Trading
      of our common stock is conducted on the over-the-counter bulletin board. This
      has an adverse effect on the liquidity of our common stock, not only in terms
      of
      the number of shares that can be bought and sold at a given price, but also
      through delays in the timing of transactions and reduction in security analysts’
and the media’s coverage of our Company and its common stock. This may result in
      lower prices for our common stock than might otherwise be obtained and could
      also result in a larger spread between the bid and asked prices for our common
      stock.


24





**There
      is currently little trading volume in our common stock, which may make it
      difficult to sell shares of our common stock.**





In
      general, there has been very little trading activity in our common stock. Over
      the past three months, the average daily trading volume (as reported by Yahoo
      Finance) has been approximately 36,000 shares. The relatively small trading
      volume will likely make it difficult for our shareholders to sell their shares
      as and when they choose. Furthermore, small trading volumes generally depress
      market prices. As a result, you may not always be able to resell shares of
      our
      common stock publicly at the time and prices that you feel are fair or
      appropriate.





**Because
      it is a “penny stock,” you may have difficulty selling shares of our common
      stock.**





Our
      common stock is a “penny stock” and is therefore subject to the requirements of
      Rule 15g-9 under the Securities and Exchange Act of 1934. Under this rule,
      broker-dealers who sell penny stocks must provide purchasers of these stocks
      with a standardized risk-disclosure document prepared by the SEC. Under
      applicable regulations, our common stock will generally remain a “penny stock”
until and for such time as its per-share price is $5.00 or more (as determined
      in accordance with SEC regulations), or until we meet certain net asset or
      revenue thresholds. These thresholds include the possession of net tangible
      assets (i.e., total assets less intangible assets and liabilities) in excess
      of
      $2,000,000 in the event we have been operating for at least three years or
      $5,000,000 in the event we have been operating for fewer than three years,
      and
      the recognition of average revenues equal to at least $6,000,000 for each of
      the
      last three years. We do not anticipate meeting any of the foregoing thresholds
      in the foreseeable future.





The
      penny-stock rules severely limit the liquidity of securities in the secondary
      market, and many brokers choose not to participate in penny-stock transactions.
      As a result, there is generally less trading in penny stocks. If you become
      a
      holder of our common stock, you may not always be able to resell shares of
      our
      common stock publicly at the time and prices that you feel are fair or
      appropriate.





**We
      have no intention of paying dividends on our common stock.**





To
      date,
      we have not paid any cash dividends and do not anticipate the payment of cash
      dividends in the foreseeable future. Accordingly, the only return on an
      investment in shares of our common stock, if any, may occur upon a subsequent
      sale of such shares.








**Off-Balance-Sheet
      Arrangements**





The
      Company has no off-balance-sheet arrangements.


25








**Critical
      Accounting Estimates**





Our
      critical accounting policies are those both having the most impact to the
      reporting of our financial condition and results, and requiring significant
      judgments and estimates. Our critical accounting policies include those related
      to (a) revenue recognition, (b) property, plant and equipment, (c) inventory
      and
      (d) the valuation of stock-based compensation awarded. The Company derives
      its
      gaming revenues in primarily two ways, outright sales of machines to customers,
      and participation arrangements with its Native American customers. Revenue
      for
      machine sales is recorded upon shipment. Under the participation arrangements,
      the Company retains ownership of the equipment installed at a customer site
      and
      receives revenue based on a percentage of the hold per day generated by each
      gaming system, which is generally considered both realizable and earned at
      the
      end of each gaming day. The Company accounts for the participation agreements
      as
      operating leases. Property, equipment and leasehold improvements and leased
      gaming equipment were stated at cost. Depreciation of an asset was recognized
      on
      the straight-line basis over the asset’s estimated useful life ranging from
      three to five years. Leasehold improvements were amortized using the
      straight-line method over the shorter of the lease term or the estimated useful
      life. Maintenance, repairs and minor renewals are expensed when incurred.
      Inventory, which consists principally of gaming products and related materials,
      are stated at the lower of cost (determined on the first-in, first-out method)
      or market.  The
      Company uses the intrinsic value-based method prescribed by Accounting
      Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and
      related interpretations in accounting for employee stock options and stock
      based
      compensation. The Company uses Emerging Issues Task Force 96-18 (EITF 96-18),
      "Accounting for Equity Instruments that are Issued to Other Than Employees
      for
      Acquiring, or in Conjunction with Selling, Goods or Services," to value options
      and warrants issued to non-employees. Management's estimates of the fair value
      of each option and warrant granted is calculated using the Black-Scholes pricing
      model with weighted-average assumptions including risk free interest rate,
      expected life of options granted, expected volatility range, and expected
      dividend yield.




**Forward-Looking
      Statements**





This
      Form
      10-QSB/A contains certain forward-looking statements 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. Statements made in this report
      which are not historical in nature, including but not limited to statements
      using the terms “may,” “expect to,” “believe,” “should,” “anticipate,” and other
      language employing a future aspect, are referred to as forward-looking
      statements, should be viewed as uncertain and should not be relied upon.
      Although our management believes that the results reflected in or suggested
      by
      these forward-looking statements are reasonable, all forward-looking statements
      involve risks and uncertainties and our actual future results may be materially
      different from the expectations expressed in such forward-looking statements.
      In
      particular, all statements included herein regarding activities, events or
      developments that the Company expect, believe or anticipate will or may occur
      in
      the future, including such things as future capital expenditures (including
      the
      amount and nature thereof), business strategy and measures to implement
      strategy, competitive strengths, goals, expansion and other such matters are
      forward-looking statements. The foregoing list is not exhaustive, and the
      Company disclaims any obligation to subsequently revise any forward-looking
      statements to reflect events or circumstances after the date of such
      statements.


26





Actual
      events may differ materially from those anticipated in the forward-looking
      statements. Important factors that may cause such a difference include those
      risk factors summarized above. For additional information regarding these and
      other factors, see our Annual Report on Form 10-KSB/A for the year ended
      December 31, 2005 and other recent filings with the SEC.








**Item
      3. Controls and Procedures**





The
      Company carried out an evaluation, with the participation of our Chief Executive
      and Chief Financial Officers, of the effectiveness, as of March 31, 2006, of
      our
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      of the Securities Exchange Act of 1934). Based upon that evaluation, made at
      the
      end of the period, our Chief Executive Officer and Chief Financial Officer
      concluded that our disclosure controls and procedures are effective in alerting
      them on a timely basis to material information required to be disclosed in
      our
      periodic reports to the SEC, and that there has been no significant change
      in
      such internal controls, or other factors which could significantly affect such
      controls including any corrective actions with regard to significant
      deficiencies or material weaknesses, since our evaluation. However, due to
      the
      limited number of Company employees engaged in the authorization, recording,
      processing and reporting of transactions, there is inherently a lack of
      segregation of duties. During the course of their audit of our consolidated
      financial statements for fiscal 2004, our independent registered public
      accounting firm, Virchow, Krause & Company, LLP, advised management and the
      audit committee of our Board of Directors that they had identified a deficiency
      in internal control. The deficiency is considered to be a material weakness
      as
      defined under standards established by the American Institute of Certified
      Public Accountants. The material weakness relates to the lack of segregation
      of
      duties within the financial processes in the Company. The Company periodically
      assesses the cost versus benefit of adding the resources that would remedy
      or
      mitigate this situation, and currently does not consider the benefits to
      outweigh the costs of adding additional staff in light of the limited number
      of
      transactions related to the Company’s operations.








**PART
      II Other Information**





Item
      2.Unregistered
      Sales of Equity Securities




During
      the three months ended March 31, 2006, the Company issued 156, 250 shares of
      the
      Company’s common stock upon conversion of 250 shares of the Company’s Series B
      Variable Rate Convertible Preferred Stock. In addition, the Company issued
      7,348
      shares of its common stock upon the cashless exercise of warrants to purchase
      14,140 shares of the Company’s common stock and issued 26,500 shares of its
      common stock upon the exercise of stock options. These issuances were made
      in
      reliance on the exemption from registration provided under Section 4(2) of
      the
      Securities Act of 1933.





**Item
      6. Exhibits**





(a) Exhibits




31.1
            Rule
                13a-14(a) Certification of Chief Executive Officer.31.2
            Rule
                13a-14(a) Certification of Chief Financial Officer.32
            Section
                1350 Certification.








27





**SIGNATURES**





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






SPECTRE
              GAMING,
              INCDate:
              June 27, 2006
            By:
            /s/
              Russell
              C. MixTitle:Chief
                Executive Officer Date:
              June 27, 2006
            By:
            /s/
              Kevin M. GreerTitle:Chief
              Financial Officer(Principal
              Accounting Officer)


.





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