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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended January 31, 2011oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from            to


Commission file number 000-20685

AMERICAN WAGERING, INC.(Exact name of registrant as specified in its charter)

Nevada(State or other jurisdiction of
incorporation or organization)

88-0344658(I.R.S. Employer
Identification No.)675 Grier Drive, Las Vegas, NV(Address of principal executive offices)

89119(Zip Code)


Registrant's
telephone number, including area code(702) 735-0101

Securities
registered pursuant to Section 12(b) of the Act:None

Securities
registered pursuant to Section 12(g) of the Act:

Common Stock, par value, $0.01 per share(Title of class)

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o    No ý

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes o    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a
smaller reporting company)

Smaller reporting company ý


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No ý

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of July 30, 2010, based on the
closing price of the Over-The-Counter Bulletin Board of $0.17 per share was $751,506.

As
of May 16, 2011, the number of outstanding shares of the registrant's common stock was 8,404,879.

DOCUMENTS
INCORPORATED BY REFERENCE

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TABLE OF CONTENTS



PART I

1Item 1.

Business

1Item 1A.

Risk Factors

12Item 1B.

Unresolved Staff Comments

19Item 2.

Properties

20Item 3.

Legal Proceedings

20Item 4.

(Removed and Reserved)

20PART II

21Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

21Item 6.

Selected Financial Data

21Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

21Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

32Item 8.

Financial Statements and Supplementary Data

32Report of Independent Registered Public Accounting Firm

33Consolidated Balance Sheets as of January 31, 2011 and 2010

34Consolidated Statements of Operations for the Years Ended January 31, 2011 and 2010

35Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 2011 and 2010

36Consolidated Statements of Cash Flows for the Years Ended January 31, 2011 and 2010

37Notes to Consolidated Financial Statements Years Ended January 31, 2011 and 2010

38Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

60Item 9A.

Controls and Procedures

60Item 9B.

Other Information

61PART III

62Item 10.

Directors, Executive Officers and Corporate Governance

62Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

69Item 13.

Certain Relationships and Related Transactions, and Director Independence

71Item 14.

Principal Accountants' Fees and Services

74PART IV

76Item 15.

Exhibits, Financial Statement Schedules

76SIGNATURES

80


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PART I

This Annual Report on Form 10-K (the "Form 10-K") contains, and
incorporates by references, certain "forward looking statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended) that involve risk and uncertainties
and reflect our current expectation regarding our future results of operations, performance, and achievements. These forward-looking statements are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. We have tried, wherever possible, to identify these forward-looking statements by using words such as "anticipates," "outlook," "will," "could,"
"would," "remains," "to be," "plans," "believes," "may," "expects," "intends," "anticipates," "estimates," "future," "plan," "positioned," "potential," "project," "remain," "scheduled," "set to,"
"subject to," "upcoming," and similar expressions. These statements involve risks and uncertainties and reflect our current beliefs and are based upon information currently available to us.
Accordingly, these statements are subject to certain risks, uncertainties, and contingencies that could cause our actual result, performance or achievements, in fiscal year 2012 and beyond to differ
materially from those expressed in, or implied by, such statements. These risks and uncertainties include: anticipated future sales or the timing thereof; the long-term growth and
prospects of our business; the possible or potential legalization of sports wagering in other jurisdictions; the duration of unfavorable economic conditions which may reduce our product sales; the
long term potential of the mobile sports wagering device application market and our ability to capitalize on any such growth opportunities; the completion and timing of the merger transaction with
William Hill Holdings Limited; and the other factors identified in Item 1A-Risk Factors of this Form 10-K. The forward-looking statements in this report are based
upon information available to us as of the date of this report, and we assume no obligation to update or revise any forward-looking statements. Forward-looking statements believed to be true when made
may ultimately prove to be incorrect. These statements are not guarantees of our the future performance. and are subject to risks,
uncertainties, and other factors, some of which are beyond our control and may cause our actual results to differ materially from our current expectations.

Unless the context requires otherwise, all references to the "Company," "AWI" "we," "us," and "our" include American Wagering, Inc. and its consolidated
subsidiaries.

Item 1.    Business

Company History

AWI was incorporated in the state of Nevada in August 1995. We earn our revenue through the consolidated operations of our wholly-owned
subsidiaries, including Leroy's Horse & Sports Place, Inc. ("Leroy's"), Computerized Bookmaking Systems, Inc. ("CBS"), AWI Manufacturing, Inc. ("AWIM"), AWI
Gaming, Inc. ("AWIG"), ExactGeo Media, LLC ("ExactGeo Media"), and Mobile Sports Fantasy, LLC dba PlayBETM ("PlayBETM"). Leroy's operates a network of 57 sportsbooks and mobile
betting through the Leroy's® App©. CBS designs, produces, sells and services computerized wagering systems for the race and sports wagering industry. AWIM designs, produces,
and sells self-service race and sports wagering kiosks. AWIG is the sole member of Sturgeons, LLC dba Sturgeon's Inn & Casino ("Sturgeons"), which AWIG owns and operates in
Lovelock, Nevada. ExactGeo Media was recently formed to sell advertising in connection with our mobile betting capability, and PlayBETM is a contest, play-for-fun version of
our mobile sports application.

Bridge Loan Agreement, Merger Agreement and Plan of Merger

On April 13, 2011, we, William Hill Holdings Limited, a private limited company formed under the laws of England and Wales
("Parent"), and AW Sub Co., a Nevada corporation and an indirect wholly-owned subsidiary of Parent ("Merger Subsidiary"), entered into an Agreement and Plan of Merger (the "Merger Agreement").
Pursuant to the Merger Agreement, Merger Subsidiary will be merged with and into AWI, with AWI surviving as a wholly-owned subsidiary of Parent (the "Merger").

At
the effective time of the Merger, each holder of outstanding shares of AWI common stock (other than (i) shares owned by Parent, Merger Subsidiary, or us or (ii) shares
in respect of which

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dissenters'
rights have been properly exercised under Nevada law) will be entitled to receive $0.90 in cash for each such share (which shares shall be automatically cancelled).

Contemporaneous
with the Closing (as defined in the Merger Agreement), Parent shall cause a wholly-owned subsidiary of Parent to pay to us an amount equal to the sum of
(i) $1,416,200 and (ii) all of the additional accrued but unpaid interest on each share of preferred stock for the period from the execution of the Merger Agreement through the Closing
Date (as defined in the Merger Agreement), which we will use at the Closing to redeem in cash from the holders of our preferred stock each issued and outstanding share of preferred stock. On or after
the Closing, Parent shall cause the Surviving Corporation (as defined in the Merger Agreement) to honor the cashing of checks held by the holders of preferred shares representing accrued interest on
the preferred shares for the period prior to the date of the execution of the Merger Agreement. At the Closing, each outstanding stock warrant and option to purchase shares of our common stock that is
outstanding immediately prior to the effective time of the Merger shall be cancelled and, in exchange therefor, the Surviving Corporation shall pay to each former holder as soon as practicable
following the effective time of the Merger an amount in cash equal to the product of (i) the excess of $0.90 over the exercise price per share of our common stock under such stock warrant or
option, and (ii) the number of shares of our common stock subject to such stock warrant or option.

The
completion of the Merger is subject to the satisfaction or waiver of certain conditions, including, among other things, (i) the adoption of the Merger Agreement by our
stockholders, which was effected on April 13, 2011 by the written consent of a majority of our stockholders, and no further approval of our stockholders is required to approve and adopt the
Merger Agreement and the transactions contemplated thereby, (ii) the absence of any injunction or applicable law preventing consummation of the Merger, (iii) receipt of any required
consents, approvals and licenses under the Nevada Gaming Control Act and the rules and regulations promulgated thereunder and applicable local gaming and liquor laws, ordinances and regulations,
(iv) verification of the accuracy of the representations and warranties made by the Company, Parent and Merger Subsidiary, and (v) the performance, in all material respects, by each of
the Company, Parent and Merger Subsidiary of all of its obligations, agreements and covenants under the Merger Agreement.

The
Merger Agreement contains customary representations and warranties. In addition, we have agreed to various covenants in the Merger Agreement, including, among other things, covenants
(i) to conduct our business in the ordinary course of business consistent with past practice during the period between
the execution of the Merger Agreement and the Closing of the Merger and (ii) not to take certain actions prior to the Closing without the prior consent of Parent.

Additionally,
on April 13, 2011 (the "Bridge Loan Signing Date"), we and Parent entered into a Bridge Loan Agreement (the
"Bridge Loan Agreement") pursuant to which Parent agreed to loan to us funds in an aggregate principal amount of $4.25 million and, at the
Parent's discretion, up to an additional $3.0 million (the "Bridge Facility"). The Bridge Facility matures upon the earlier of
(i) consummation of the Merger, (ii) termination of the Merger Agreement (subject to a six month refinancing period) and (iii) December 31, 2013, subject to certain
extension mechanisms.

Loans
outstanding under the Bridge Facility accrue interest at an annual rate equal to 12.5%, which compound on a quarterly basis in arrears on March 31, June 30,
September 30, and December 31 of each year, and shall be paid in kind and added to the balance of the loan. During the existence of an event of default under the Bridge Facility, an
additional 2% per annum is imposed.

A
principal amount equal to $4,250,000 was made available to us on the Bridge Loan Signing Date. The remainder of the Bridge Facility may be funded from time to time in Parent's sole
discretion during the term of the Bridge Facility.

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In
connection with the Bridge Loan Agreement, the Company entered into a Pledge Agreement and Security Agreement to secure the Company's obligations under the Bridge Loan Agreement. The
pledged collateral under the Pledge Agreement includes (i) all right, title and interest of the Company (whether now or in the future) in (x) shares or other equity interests in the
Company's wholly-owned subsidiaries, Leroy's, CBS, AWIM, AWIG, ExactGeo Media, and PlayBETM, or any warrants to purchase or depositary shares or other rights in respect of any such interests, and
(y) all shares of stock, certificates, instruments or other documents evidencing or representing the same; (ii) all right, title and interest of the Company in and to all present and
future payments, proceeds, dividends, distributions, instruments, compensation, property, assets, interests and rights in connection with or related to the collateral listed in clause (i), and
all monies due or to become due and payable to the Company in connection with or related to such collateral or otherwise paid, issued or distributed from time to time in respect of or in exchange
therefor, and any certificate, instrument or other document evidencing or representing the same (including, without limitation, all proceeds of dissolution or liquidation); (iii) all
indebtedness from time to time owed to the Company; (iv) any and all rights, powers, remedies and privileges of the Company with respect to the foregoing; and (v) all proceeds of the
foregoing.

Pursuant
to the Security Agreement, the Company, Leroy's, CBS, AWIM, ExactGeo Media, and PlayBETM (the "Grantors") granted Parent a first priority lien upon, among other things, the
respective Grantor's right, title, and interest in and to all present and future (i) accounts, accounts receivable, and deposit accounts; (ii) chattel paper (whether tangible or
electronic); (iii) equipment; (iv) goods and inventory; (v) certain intellectual property, including patents, trademarks, trade names, and copyrights; (vi) cash and cash
equivalents; (vii) books and records relating to or in connection with the foregoing; (v) supporting obligations relating to any of the foregoing; and (vii) proceeds of all of the
foregoing.

The
foregoing descriptions of the Merger Agreement and the Bridge Loan Agreement have been provided solely to inform investors and security holders with information regarding their
terms. They are not intended to provide any other financial information about the parties thereto or their respective subsidiaries and affiliates. The representations, warranties and covenants
contained in the Merger Agreement and the Bridge Loan Agreement were made only for purposes of those agreements and as of specific dates; were solely for the benefit of the parties thereto; may be
subject to limitations agreed upon by such parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties thereto instead of
establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors should not rely on
the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of the parties or any of their respective subsidiaries or
affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date hereof, which subsequent information may or may not be fully
reflected in public disclosures by the parties thereto. Our shareholders and other investors are not third-party beneficiaries under the Bridge Loan Agreement and/or the Merger Agreement and should
not rely on the representations, warranties, and covenants or any descriptions thereof as characterizations of the actual state of facts or conditions of American Wagering, Inc., William Hill
Holdings Limited, AW Sub Co., or any of their respective subsidiaries or affiliates. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are
responsible for considering whether additional specific disclosures of material information regarding material contractual provision are required to make the statements in this
Form 10-K not misleading.

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Race and Sports Wagering Revenue Segment

Leroy's.Leroy's was incorporated in the state of Nevada in November 1977. Leroy's, through a central computer system located at
the Company's Las
Vegas headquarters, operates a network of race and
sport wagering facilities on the premises of non-restricted gaming locations throughout the state of Nevada. Leroy's offers a "turn-key" race and sports wagering operation that
allows casinos to satisfy their patron's desire for race and sports wagering, without the casino bearing the risk and overhead associated with running the operation themselves. By combining volume
from a large number of locations, the Company believes that Leroy's more effectively hedges risks and more efficiently covers fixed overhead. Keeping pace with the mobility trends of its bettors,
Leroy's introduced the first sports betting application for a bettor's mobile phone, theLEROY'S® APP©, approved by the Nevada
Gaming Authorities. Leroy's generates revenue from patron wagers less payouts.

Race and Sports Wagering Systems Segment

CBS.Founded in 1983, CBS designs, produces and services computerized wagering systems for the race and sports wagering
industry. CBS is a leading
race and sports equipment and software supplier in the State of Nevada. Accordingly, CBS services the majority of race and sports books in Nevada. We believe that the CBS Race and Sports System is the
industry standard for race and sports content wager processing, delivery, and accounting. CBS also is the distributor of self-service race and sports wager kiosks, designed by AWIM.
Additionally, CBS designed the first mobile sports betting application to receive approval from the Nevada Gaming Authorities, which is currently utilized by Leroy's. CBS generates revenue as it sells
and maintains these sports wagering systems for the gaming industry.

AWI Manufacturing, Inc.AWIM designs self-service race and sports wagering kiosks. The kiosks interface with our customers'
CBS
Race and Sports Systems and they expand our customers' race and sports books' size and hours of operation without increasing the labor cost. The installation of kiosks in Leroy's locations assists in
controlling personnel costs, lengthening hours of operation, increasing Leroy's visibility, and enhancing the convenience of the patron. The AWIM upright kiosk was jointly designed with a third-party
vendor. Smaller self-service kiosks were placed in over 19 local bar locations during fiscal 2011.

Hotel/Casino Segment

AWI Gaming, Inc.AWIG is the sole member of Sturgeons, LLC, which owns and operates the Sturgeon's Inn &
Casino. AWIG's intended
purpose was to acquire hotel/casino properties; although due to the economy and other financial reasons, no other acquisitions have occurred to date and none are anticipated in the near future.

Sturgeons, LLC.Sturgeons, LLC d/b/a Sturgeon's Inn & Casino ("Sturgeon's") is a hotel, casino and restaurant
operation located
in Lovelock, Nevada that was acquired on March 1, 2006.

Other activities(in the Race and Sports Wagering Revenue segment)

ExactGeo Media, LLC.Established in 2011 ExactGeo Media was formed to sell advertising in connection with our mobile betting
application.

Mobile Sports Fantasy, LLC dba PlayBETM.Established in 2011, PlayBETM was formed to offer the public a contest,
play-for-fun version of our mobile sports application, and we anticipate generating revenue from the sale of advertising placements on the contest application.

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Sports Wagering

Wagering on sporting events is currently legal in the states of Nevada, Delaware and in numerous foreign countries. Wagering on
sporting events has increased significantly with cable and satellite television, and technological improvements. When sporting events are televised, there is increased exposure and interest, which, we
believe, leads to increased sports betting.

A
sports wagering facility, or "sports book," is a gambling establishment that sets odds and point spreads and accepts bets on the outcome of sporting events such as football,
basketball, baseball, and hockey games. Sports books set odds and point spreads aiming not to reflect the final result, but to maintain a "balanced book" by offering odds or point spreads that will
attract equal amounts of bets on each side of a particular event. Generally, a patron's odds (or point spread or the "line") are fixed at the time he or she makes his or her bet, regardless of any
subsequent movement in the line. Under this system, a sports book operator attracts bets by changing or "moving" the line up or down to encourage wagering on a specific side or team. To the extent
that a book on a particular event is not balanced, the bookmaking operation takes a risk on the outcome of the event. This is the fundamental difference from other forms of organized gambling, where
profits result from patron play against a statistical advantage that the gambling operator (the "House") possesses; or in the case of pari-mutuel wagering, used by major North American
Horse Racing Tracks, Dog Race Tracks, and Jai-Alai establishments, where the House receives a guaranteed percentage of the wagers for operating expenses, profit and taxes and the remainder
is distributed to the winners. Nevada also now uses pari-mutuel wagering for betting on Dog Race Tracks.

This
fundamental difference is part of the appeal for many sports patrons, but it also creates risk for the sports book. A bookmaker operates in a system that is interrelated with
oddsmakers and patrons. Bookmakers collect bets, adjust odds to account for the preferences of their patrons, pay the winners, and if the book is balanced for each type of sports bet, the House then
has a "theoretical advantage." For example, for a straight football bet involving the outcome of one game, it is common practice that the patron wagers $11 to win $10. If the patron wins the wager, he
or she receives $21. If the patron loses, in this case, he has wagered $11. Accordingly, by maintaining a balanced book, the sports book would win $1 for each $22 wagered, or 4.55%.

Oddsmakers
initially set betting lines with the goal of splitting the bets evenly between each of the betting sides. Patrons have opinions concerning the odds and bet accordingly, which
requires initial lines to be adjusted. As a result, in practice, a sports book is rarely perfectly balanced. The sports books' profit depends upon the reliability of the oddsmaker and its own acumen
at adjusting the odds when required. Because patrons are betting on propositions of uncertain probability and are paid according to the line at which they make their bets rather than the closing odds
(as in a pari-mutuel system), the sports book is not assured of either a constant profit over time or for a single event.

A
sports book also attempts to limit the potential risk by setting game limits and line movement. For example, the opening line for a football game ideally would split the bets from the
time it was posted until kick-off. However, the opening line generally is unbalanced. Because a sports book does not want to take the risk of accepting unlimited bets on one side of a
game, it creates a game limit, the maximum amount of money that will be accepted at the posted line. When the game limit is reached, the line is changed, or "moved," to attract wagers on the "other"
side. We believe that using a conservative strategy of placing limits on games mitigates a great portion of our risk of losing large sums of money in short time periods.

The
game limit is established by the sports book based upon the "earn" in a sport, which is a function of the amount the sports book would earn if the odds guaranteed it a constant
commission regardless of the outcome (the "theoretical hold percentage"), the quality of the line, and the patron mix. For example, when the sports book anticipates that the majority of the bets will
come from sophisticated patrons who know as much as, or more than, the oddsmaker, the limit will be relatively

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low.
We believe that events with the highest fan popularity and media coverage, such as professional football, have a relatively small proportion of sophisticated patrons. Accordingly, the sports
books' expected earn on such an event would be higher and would justify a higher game limit.

In
order to effectively balance its books, a bookmaking operation must take a sufficient volume of wagers to offset large wagers on any given event. While many of the consolidated casino
operators have sufficient patron traffic to underwrite the substantial risks inherent in a sports book, many single casino operators are typically more risk adverse. Through Leroy's, we offer casino
operators the amenity of having sports wagering books with no risk of financial loss or substantial operating, labor, or administrative costs. Under Nevada gaming law, Leroy's is permitted to own and
operate sports books located on the premises of other nonrestricted gaming licensees.

When
Leroy's began operations in 1978, it was one of only seven sports and race books in Las Vegas. Currently, virtually every major casino in Nevada offers its patrons a sports and race
book. The typical sports book location leased by Leroy's encompasses approximately 300 square feet, but can range from 100 to 10,000 square feet, contains a board displaying the odds, television
monitors showing sporting events, betting stations, ticket sellers and cashiers. Most leases are at fixed rates, are cancelable by either party with proper notice, and some have revenue sharing or
incentive (participation) clauses. As a bet is placed, the wagering data is entered into a computer terminal which is connected via a communications device to Leroy's centralized computer system which
confirms the line, determines that the bet is within the limits set for the particular event, records the information on a central database and issues a ticket evidencing the bet. The ticket is then
distributed to the patron with Leroy's simultaneously recording the wager. Personnel at Leroy's corporate office monitor all bets and adjust the odds as necessary to reflect the various bets
throughout all of Leroy's locations.

We
believe that Leroy's has lower maximum betting limits than many sports books operated by the larger casinos. We established these lower limits in an effort to limit bets from the more
sophisticated patrons who often place larger bets. In addition, in order to limit the more sophisticated bettors from utilizing strategies that would provide an advantage, we set even lower limits for
bets placed over the telephone, which are currently accepted only from within Nevada. We believe that geographical dispersion across Nevada is more likely to attract bets from patrons more evenly on
both sides of a line, thereby further limiting our risk.

Professional
and college football games currently are the most popular sports wagered on, followed by professional and college basketball games, and finally professional baseball games;
together comprising the majority of the total amount wagered at all of our Leroy's locations. Historically, our Leroy's
business has been seasonal in nature, with more than half of its handle occurring between the months of September and February.

We
do not offer horse race wagering at all of our Leroy's locations. We offer limited horse race wagering at most locations, and a full pari-mutuel race book at several of
our locations. SeePari-Mutuel Race Wageringbelow.

Leroy's
race books utilize the same personnel and facilities as its sports books, but Leroy's does not set its own odds for race wagering. Leroy's accepts wagers for races by offering
race patrons the same odds as the racetracks at which the races occur. At those locations with limited race wagering, Leroy's pays full track odds up to the predetermined limit. At those locations
with full pari-mutuel race wagering, there are no limits and Leroy's operates a daily race book with wagers merged into the on-track pari-mutuel pools.

Online
sports' betting (through use of personal computers) has existed for approximately 20 years, is currently very popular, and continues to become more popular each year. The
increased popularity may result in the continued growth of the sports betting industry in general, or could have an adverse impact upon our live wagering facilities in Nevada. At this time, we cannot
predict what impact, if any,

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the
growth of online wagering may have on our overall handle (total amount wagered). See Item 1.ARisk Factors below.

Pari-Mutuel Race Wagering

In December 1997, Leroy's joined the Nevada Pari-mutuel Association to allow pari-mutuel race wagering at one
or more of its licensed locations. As of January 31, 2011, six licensed Leroy's locations, in association with a disseminator, offer pari-mutuel wagering on numerous events at
racetracks throughout the country.

Competition

There is intense competition among companies in the gaming industry, most of which have significantly greater financial, marketing,
technical and other resources than we do.

Leroy's
faces competition from all other sports and race wagering operations throughout Nevada. Virtually all of the major casinos in Nevada have sports and race books, some of which are
larger and offer more amenities than our locations and some casinos operate their own sports books.

The
state of Delaware legalized limited sports wagering in September 2009. This potential new sports wagering jurisdictions and expanded internet sports wagering could potentially reduce
the amount of wagers placed in Nevada. However, this expansion could also represent expansion opportunities for our Company, but there can be no assurance that this will create a positive impact on
our financial position or results of operations.

CBS
and its CBS Race and Sports System face competition from large casinos that may develop their own race and sports wagering systems; an over-the-counter system
offered by another company with approximately 10% of the market, and international race and sports service providers.

AWIM
competes with other manufacturers of self-service wagering kiosks.

AWIG
faces competition from other hotel/casino operators. Sturgeon's is the only hotel/casino operation in Lovelock, Nevada. While most of its revenues are generated from residents of
that area, Sturgeon's also competes, to varying degrees, in the tourism market with casino facilities in Reno, Sparks, Fallon and Winnemucca. However, other hotel operations (without casino
facilities) compete for the tourism market while other (smaller) casino facilities (without hotel operations) compete for gaming patrons in this area.

Intellectual Property

We regard our technology as proprietary and attempt to protect it by relying on patents, trademarks, service marks, copyrights and
trade secret laws and restrictions on disclosure and transferring title and other methods. We generally enter into confidentiality and/or
license agreements with our employees and consultants, and generally control access to and distribution of our documentation and other proprietary information. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use our proprietary information without authorization or to develop similar technology independently.

Research and Development

We incurred costs of $725,689 in research and development in the fiscal year ended January 31, 2011, as compared to $672,899 in
the fiscal year ended January 31, 2010, all of which was expensed as incurred. We intend to conduct continuing development and innovation of our products in accordance with changing consumer
preferences, demographics, and the evolution of new technologies such as the Leroy's® App©. Our development strategy is to leverage our proprietary technology and regulatory

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approvals
to integrate third party developed solutions such as age verification, biometrics, identification, security, and wireless devices in order to provide fully-integrated applications that are
competitive and innovative in the regulated gaming industry.

Proposed Government Regulation

In the past, the U.S. Congress has submitted bills that, if passed, would prohibit wagering on some, if not all, types of sporting
events. Passage of any such legislation would have a significant negative impact on our operations.

Regulation and Licensing

The ownership and operation of gaming facilities in Nevada are subject to extensive state and local regulation. Our gaming operations
are subject to the Nevada Gaming Control Act and its regulations (hereinafter collectively referred to as the "Nevada Act") and various local regulations. Our gaming operations are also subject to the
licensing and regulatory control of the Nevada Gaming Commission (the "Commission"), the State Gaming Control Board (the "Board"),
various county commissions (gaming, liquor, health, etc.), and other local jurisdictions. These regulatory agencies are hereinafter collectively referred to as the "Nevada Gaming Authorities."

The
laws, regulations and supervisory procedures of the Nevada Gaming Authorities have their genesis in various declarations of public policy which are concerned with, among other
things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and
maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities;
(iv) the prevention of cheating and fraudulent practices; and (v) the creation of a source of state and local revenues though taxation and licensing fees. Changes in such laws,
regulations and procedures could have an adverse effect on our gaming operations.

We
have been found suitable as the publicly traded parent of entities holding Nevada gaming licenses. Leroy's is licensed by the Nevada Gaming Authorities as the owner/operator of
non-restricted race and/or sports book operations; AWIM is licensed by the Nevada Gaming Authorities as a Manufacturer and a Distributor; AWIG is licensed by the Nevada Gaming Authorities
as the sole member of Sturgeon's; Sturgeon's is licensed by the Nevada Gaming Authorities as the operator of non-restricted gaming operations at Sturgeon's Inn & Casino; CBS is not
required to maintain any gaming-related licenses. Gaming licenses require the periodic payment of fees and taxes and periodic reviews by the gaming authorities. Furthermore, gaming licenses are not
transferable.

We
are registered in Nevada as a publicly traded corporation and, as such, are required to submit, on a periodic basis, detailed financial and operating reports to the Commission.
Additionally, we may be required to furnish any other information requested by the Commission. No person may become a stockholder of, or receive any percentage of profits from Leroy's, AWIM, AWIG or
Sturgeon's (as non-public entities) without first obtaining licenses and approvals from the appropriate Nevada Gaming Authorities. We have received from the Nevada Gaming Authorities the
various registrations, approvals, permits and licenses required to engage in gaming activities in Nevada.

The
Nevada Gaming Authorities may investigate any individual who has a material relationship, or involvement with us in order to determine whether such individual is suitable or should
be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees must file applications with the Nevada Gaming Authorities and may be required to be licensed or
found suitable by the Nevada Gaming Authorities. Our officers, directors and key employees who are actively and

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directly
involved in the gaming activities may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application of licensing for any
cause deemed reasonable. A finding of suitability is comparable to licensing, and both require the submission of detailed personal and financial information followed by a thorough investigation. An
applicant for licensing or a finding of suitability must pay all of the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities. In addition to
their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities also have jurisdiction to disapprove a change in a corporate position. Our current
officers and directors and those of our subsidiaries have been found suitable by the Nevada Gaming Authorities.

If
the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would be required
to sever all relationships with such a person. Additionally, the Commission may require us to terminate the employment of any person who refuses to file appropriate applications. Determinations of
suitability or questions pertaining to licensing are not subject to judicial review in Nevada.

If
it were determined that we or our subsidiaries violated the Nevada Act, the gaming licenses or registration held by us could be limited, conditioned, suspended or revoked. At the
discretion of the Commission, we and any person involved could be subject to substantial fines for each separate violation of the Nevada Act. Furthermore, a supervisor could be appointed by the
Commission to operate our gaming properties and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of our gaming properties)
could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could, and certainly the revocation of any gaming license
would, materially adversely affect the results of our operations.

A
beneficial holder of our voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his or her suitability as a
beneficial holder of our voting securities determined if the Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The
applicant must pay all costs of the investigation incurred by the Nevada Gaming Authorities in conducting such an investigation. If the applicant is an Executive Officer or Director of the Company, it
is our policy to pay for these expenses. In addition, the Clark County Liquor Gaming Licensing Board has taken the position that it has the authority to approve all persons owning or controlling the
stock of any corporation controlling a gaming license.

The
Nevada Act requires any person who acquires more than 5% of our voting securities to report the acquisition to the Commission. The Nevada Act requires that beneficial owners of more
than 10% of our voting securities apply to the Commission for a finding of suitability within 30 days after the Chairman of the Board mails written notice requiring such a filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of our voting securities may apply to the Commission for a waiver of such
a finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold the voting securities for
investment purposes only unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of our board of directors, any change in our corporate charter, bylaws, management, policies or operations, or any of our gaming affiliates, or
any other action which the Commission finds to be inconsistent with holding our voting securities for investment purposes only. Activities which are not deemed inconsistent with holding voting
securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Commission may determine to

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be
consistent with such investment intent. If the Commission grants a waiver to an "institutional investor," the waiver does not include a waiver or exemption from the requirement for prior approval
to "acquire control" of a registered corporation. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and
financial information, including a list of its beneficial owners. The applicant is required to pay all costs of investigation. If the applicant is an Executive Officer or Director of the Company, our
policy is to pay for those expenses.

Any
person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Commission, or the Chairman of the Board, may
be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owners. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock of a registered corporation beyond such period of time as may be prescribed by the Commission may be guilty of a criminal offense. We would
be subject to disciplinary action if, after we receive notice that a person is unsuitable to be a stockholder or to have any other relationship with us or our subsidiaries, we (i) pay that
person any dividend or interest on our voting securities; (ii) allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person;
(iii) pay remuneration in any form to that person for services rendered or otherwise; or (iv) fail to pursue all lawful efforts to require such unsuitable person to relinquish his voting
securities for cash at fair market value. Any person required by the Commission to be found suitable but who is found unsuitable shall be guilty of a criminal offense if he holds, directly or
indirectly, the beneficial ownership of the voting or debt securities beyond the time prescribed by the Commission.

We
are required to maintain a current stock ledger in Nevada, which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such a disclosure may be grounds for finding the record holder unsuitable. We are also required to render maximum assistance in determining the identity of the
beneficial owner. The Commission has the power to require our stock certificates to bear a legend indicating that the securities are subject to the Nevada Act. However, to date, the Commission has not
imposed such a requirement on us.

Changes
in control of AWI through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he or she obtains
control, may not occur without the prior approval of the Commission. Entities seeking to acquire control of a registered corporation must satisfy the Board and the Commission under a variety of
stringent standards prior to assuming control of such registered corporation. The Commission may also require controlling stockholders, officers, directors and other persons having a material
relationship or involvement with the entity that proposes to acquire control, to be investigated and licensed as part of the approval process related to the transaction.

The
Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defensive tactics affecting Nevada gaming
licenses and registered corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming
operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the Commission before we can make exceptional repurchases of voting securities above the current market price thereof and
before a corporate acquisition opposed by our management can be consummated. The Nevada Act also requires prior approval of a plan of

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recapitalization
proposed by a registered company's board of directors in response to a tender offer made directly to the registered company's stockholders for the purposes of acquiring control of the
registered company.

License
fees and taxes, computed in various ways depending upon the type of gaming activity involved, are payable to the State of Nevada and to the counties and cities in which the
Nevada licensees' respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly, semi-annually or
annually and are based upon either: (i) a percentage of gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of games operated. Nevada
licensees that hold a license as an operator of a slot route, or a manufacturer's or distributor's license, also pay certain fees and taxes to the State of Nevada.

Any
person who is licensed, required to be licensed, registered, or required to be registered, or is under common control with such person (hereinafter collectively referred to as
"licensees") and who proposes to become involved in a gaming venture outside the State of Nevada is required to deposit
with the Board, and thereafter maintain, a revolving fund to pay the expenses of investigation by the Board of his or her participation in such foreign gaming. We have filed the appropriate foreign
gaming reports and have established the required revolving fund, if required. The revolving fund is subject to increase or decrease at the discretion of the Commission. Thereafter, such licensees are
required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Commission if they knowingly violate any laws of the foreign
jurisdiction pertaining to the foreign gaming operations, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations,
engage in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employ a person in the foreign operation who has been denied a license or finding of
suitability in Nevada on the basis of personal unsuitability. Recent changes in the Nevada Gaming Control Act would allow us to seek a determination of suitability of any associate or activity
associated with the foreign gaming opportunity prior to engaging in that activity.

Pursuant
to the Professional and Amateur Sports Protection Act (the "Sports Protection Act"), which became effective January 1, 1993, the proliferation of legalized sports books
and wagering was significantly curtailed. The Sports Protection Act effectively outlawed sports betting nationwide, excluding Nevada and sports lotteries in Oregon, Montana, and Delaware. Thus, sports
books and wagering are permitted to continue to operate in Nevada, provided the wager originates in Nevada and is received by a licensed sports book in Nevada. Moreover, the Interstate Wire Act also
prohibits those in the business of betting and wagering from utilizing a wire communication facility for the transmission in interstate or foreign commerce of any bets, wagers or information assisting
in the placing of such bets and wagers on any sporting event or contest unless such betting or wagering activity is specifically authorized in each jurisdiction involved.

On
October 13, 2006, the United States Unlawful Internet Gambling Enforcement Act of 2006 ("UIGEA") was enacted. UIGEA prohibits any person engaged in the business of betting or
wagering from knowingly accepting payments related to unlawful bets or wagers transmitted over the Internet. UIGEA instructs the U.S. Treasury Department and Federal Reserve to impose new obligations
upon financial institutions and other payment processors to establish procedures designed to block online gaming-related financial transactions. It also expressly requires Internet bets and wagers to
comply with the law of the jurisdiction where the wagers are initiated and received.

Leroy's
may not accept pari-mutuel bets received by use of wire communications facilities, including telephones and computers, unless such bets originated in jurisdictions
where such betting or wagering is legal. Nevada has amended the Nevada Gaming Control Act to allow licensed race and sports books in Nevada to accept interstate pari-mutuel wagers (but not
other sports betting) from other jurisdictions in which pari-mutuel wagering is legal.

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Employees

We had 168 full-time and 49 part-time employees at January 31, 2011, at all of our locations and
subsidiaries, including our Sturgeon's property, of which 31 employees were full-time and 21 were part-time. None of our employees is represented by a labor union. We do not
know whether or to what extent, if any, our employees will, in the future, be governed by collective bargaining agreements. At this time, we believe our employee relations are good.

Item 1A.    Risk Factors

In addition to other matters identified or described by us from time to time in this report or in our other filings with the Securities
and Exchange Commission (the "SEC"), there are several important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned, or
results that are reflected from time to time in any forward-looking statement that may be made by us or on our behalf. Some of these important factors, but not necessarily all important factors,
include the following:

If the Merger Contemplated by the Merger Agreement Does Not Occur, It Could Have a Material Adverse Effect on Our Business, Financial Condition, and Results of Operations

There is no assurance that the Merger will occur or that the closing conditions of the Merger will be satisfied, including approval of
the Merger by Nevada gaming regulators. The transactions contemplated by the Merger Agreement may be delayed or even abandoned before completion if certain events occur. We are subject to several
risks as a result of the Merger Agreement and the Bridge Loan Agreement, including, but not limited to, the following, any of which could materially adversely affect our business, results of
operations and financial condition:



In
addition, the process of consummating the Merger could cause disruptions in our business, which could have an adverse effect on our financial results. Among other things, uncertainty as to whether
the Merger will be completed may cause current and prospective employees and members of management to become uncertain about their future roles with the Company if the transaction is completed. This
uncertainty could adversely affect our ability to retain employees, members of

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management,
and our relationships with customers and vendors. The terms of the Merger Agreement and the Bridge Loan Agreement also limit our ability to engage in certain business activities without
the prior consent of Parent. The most significant of these restrictions limit our ability to pay dividends, issue or repurchase shares of our common stock, incur new indebtedness, enter into or modify
material contracts, grant liens on our assets, and effect any significant change in our corporate structure or the nature of our business. If the Merger is not consummated, we will continue to be a
publicly traded company, and we may not be able to pay our debts as they come due, including the Bridge Facility.

Current Economic Conditions Will Likely Adversely Affect Our Results of Operations

Our business is vulnerable to downturns in national and local economic conditions, including, without limitation, downturns in the
economy related to threatened or actual terrorist attacks; pandemic outbreaks or similar widespread health epidemics; natural disasters; tightening of available credit; increasing government
regulation, spending and taxes; increasing energy costs; increasing interest rates; declining consumer confidence; and declines in the stock market. The demand for entertainment and leisure activities
tends to be highly sensitive to consumers' disposable incomes, and thus a decline in general economic conditions or an increase in transportation or other costs will likely lead to our customers
having less discretionary income with which to travel to Nevada and wager. We face the risk that the effects of higher unemployment rates, higher transportation costs, foreclosures and continued
pressure on housing prices, as well as business failures and stock market volatility will place added strain on consumers' ability to make purchases, repay their loans and thus, leave less funds
available for travel and leisure activities. Consumer demand for gambling, due to decreased disposable income, has declined and could continue to decline as a result of the current economic
conditions. We have also experienced a change in gambling patterns of our patrons, including a trend towards more conservative bets, which tend to be less profitable to the Company. Additionally, our
current casino customers who purchase equipment and wagering software have experienced a decline in growth and financial performance, which will likely lead to a decrease in maintenance revenues and
installation revenues. In addition, because Sturgeon's Hotel and Casino is heavily dependent on the drive-through market, especially travelers on Interstate 80, the foregoing factors have and could
continue to have an adverse affect on our business.

LiquidityIf We Are Unable to Raise Additional Capital in the Near Term, We May be Unable to Satisfy Our Obligations as They Become Due

At January 31, 2011, we had approximately $1.5 million in cash and equivalents, the majority of which is held to fund
winning tickets and future bets. Based upon our anticipated operations, we believe that cash on hand, operating cash flows, and potential financing to be provided in the Bridge Loan Agreement will be
adequate to meet our anticipated working capital requirements, capital expenditures, and scheduled payments for indebtedness for fiscal 2012. No assurance can be given however that our cash flow will
be sufficient, that our estimates for anticipated operational cash needs will be accurate, that new business development will or unforeseen events will not occur, that the outcome of litigation will
be positive, that we will be able to borrow additional funds under the Bridge Facility, resulting in the need to raise additional funds sooner, or that we will be able to raise additional funds. We
engaged a financial advisor on an exclusive basis to provide advisory services to us and we were successful in our efforts to find a strategic partner. See Item 1. BusinessBridge Loan Agreement, Merger Agreement and Plan of Mergerabove.

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Risk of Loss due to Racusin Litigation

The Company and Racusin entered into the Settlement Agreement on September 3, 2004. Racusin filed a claim for breach of the
Settlement Agreement on January 14, 2009, and motion for summary judgment to accelerate amounts due, with penalty interest, on February 24, 2009. On August 18, 2009, the Court
entered an order granting summary judgment in favor of Racusin that would have accelerated amounts due and imposed penalty interest at 12% per annum. We moved for rehearing in spring 2010, and at the
hearing the Court verbally indicated an intent to vacate the August 18, 2009 order granting summary judgment in favor of Racusin, with the order subsequently entered on December 23,
2010. Based upon the Court's December 23, 2010, finding that an issue of material fact existed as to the potential effect on the Settlement Agreement as a result of events that occurred in the
Interpleader Adversary during the period between the Bankruptcy Appellate Panel's subordination decision and the Ninth Circuit Court of Appeal's decision to reverse the Bankruptcy Appellate Panel, we
filed a motion for summary judgment seeking dismissal of Racusin's still pending complaint of breach of the Settlement Agreement, and further relief on and discharge pursuant to the Interpleader
Action. With respect to our claim for relief on the Interpleader Action, we contend that Racusin is not entitled to recover interest on the payment obligation that allegedly accrued during the time
when we previously deposited with the Court the 250,000 shares of AWI common stock through the date of entry of the Deposit Order on November 5, 2007, when the stock was exchanged for cash
(i.e., "Gap Period") and the interest that allegedly accrued during that period ("Gap Interest"). It is our position that if the Court disallows Gap
Interest, or allows for an equivalent offset in restitution, we would have satisfied our entire obligation in full under the Settlement Agreement as of November 2010, and we would, therefore, be
entitled to a refund of overpayments it made into the Court after
November 2010. In the event the Court disagrees with our position, we would argue that we are current on payments, and that we will have paid off our entire remaining obligation in full under the
Settlement Agreement by June 2012, at the current rate. If the Court determines we owe additional amounts, we believe that we have sufficient amounts allocated from the Bridge Facility to pay such
obligations when due in accordance with the current payment terms.

Regulation Regarding Reserves

Nevada Gaming Commission Regulation 22.040 ("Regulation 22.040") requires us to maintain reserves (cash, surety bonds,
irrevocable standby letter of credit, etc.) sufficient to cover any outstanding wagering liability including unpaid winning tickets, future tickets and telephone account deposits. We have historically
funded this reserve requirement through surety bonds secured by restricted cash held at Nevada State Bank.

As
of January 31, 2011, we had cash reserves and pledge agreements totaling $2.4 million to satisfy the Regulation 22.040 requirement in addition to a float amount
of $600,000 allowed by the Nevada Gaming Control Board to cover short term fluctuations in the outstanding liability. The $2.4 million amount consisted of our reserve account of
$1.7 million held at Nevada State Bank and pledged certificates of deposit totaling $700,000. The pledged certificates initially expired in October 2010, but the parties agreed to extend their
respective pledges without designating a specific expiration date. However, there is no guaranty that these pledges will continue. On April 13, 2011 the Nevada Gaming Control Board allowed us
to reduce our reserve balance by $750,000 during the off-peak season. The Company reduced its cash deposit at Nevada State Bank by $500,000 and reduced the pledge from Robert and Tracey Kocienski by
$250,000 as of April 19, 2011. We will likely have to increase our reserve in August 2011, and if we are unable to do so, it would have an adverse impact on us including, but not limited to,
requiring a significant reduction in the number of race/sports locations operated by Leroy's, and/or an elimination or reduction of telephone wagering accounts, resulting in an adverse change in our
operating results. We anticipate being able to increase our reserve balance as a portion of the financing proceeds from the Bridge Facility is allocated for this purpose.

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We Have Had a History of Significant Losses and We May Incur Additional Losses in the Future

For the fiscal years ended January 31, 2011 and 2010, we have incurred net loss of $3.3 million and a net income of
$1.0 million, respectively. From our inception of revenue producing operations through the current fiscal year, we have incurred an accumulated deficit of $15.6 million. For the fiscal
years ended 2001 though 2011, the Company recorded net income for six of
those years and net losses for five of those eleven years. While we have implemented strategies to improve future operations including, but not limited to the following: increasing financial analysis
and focusing on cost reductions; eliminating unprofitable sports book locations; investing in newer, more profitable sports book locations; investing in additional research and development aimed at
new markets and technologies; and settling litigation matters; there is no assurance that such strategies will be successful. Higher than expected administrative, research and development, and/or
distribution costs, could also negatively impact our financial results. The timing of the sales of equipment compared to the timing of expenses incurred may also negatively affect our financial
results. Changes in our business systems, competition, or technologies affecting our products could also negatively impact our financial results. In order for us to again achieve profitability, we
need to generate and sustain additional revenues while maintaining reasonable cost and expense levels.

We Are Subject to Potential Fluctuations in Results

Our quarterly results have fluctuated primarily due to outside factors such as professional and college sports seasons and timing of
sales and installations for CBS equipment. All of the Company's wagering revenue comes from its Nevada race and sports books and nearly 19% of that is derived from professional football events. If the
professional football season were to be interrupted, including by the current NFL lockout, this could have significant adverse impact on future operations. Management also estimates that a significant
amount of our Nevada non-casino wagering relates to college sports and, therefore, the passage of amateur sports anti-wagering legislation could have a material adverse impact
upon future operations. In addition, we generate substantial revenue from system sales and maintenance to a relatively small population of potential customers, a decline in the size, demand or number
of these contracts could also adversely affect future operations. Thus, the results of any quarter are not necessarily indicative of the results that may be expected for any other interim period. In
addition, we take risks by accepting wagers on the outcome of various sporting events. Fluctuations in the levels of the amounts wagered during particular times of the year and the win percentage of
the wagers contribute to variations in financial results. While we have instituted measures to lessen the risk, there is no assurance that we will be able to win more of the wagers than we lose. In
addition, our inability to manage the timing of the release of new products and installations can cause fluctuations in results.

We Are Subject to Intense Competition

There is intense competition among companies in the gaming industry, along with dynamic customer demand and rapid technological
advances; and most of our competitors have significantly greater financial, marketing, technical and other resources than we do. Significant competition that we encounter may have a materially adverse
effect on us. There can be no assurance that we will be able to compete successfully against current and future competitors.

The
state of Delaware legalized sports wagering in the form of parlay cards on professional football in 2009. This new sports wagering jurisdiction and expanded internet sports wagering
could potentially reduce the amount of wagers placed in Nevada. However, this expansion could also represent expansion opportunities for our Company, but there can be no assurance that this will
create a positive impact on our financial position.

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Demand for Our Products and Services is Subject to Continued Acceptance of Our Products and Services

We believe our ability to increase revenues, cash flow, and to maintain profitability will depend, in part, upon continued market
acceptance of our products and services. There can be no assurance that the market acceptance of our products and services will continue. Changes in market conditions in the gaming industry, the
general and gaming industry economic conditions, and the financial condition of host locations or patrons could limit or diminish market acceptance of these products and services.

We Cannot Guarantee the Success or Growth of The LEROY'S® APP©.

The market for downloadable applications permitting legal sports wagering from a mobile device is a new market in the United States. No
assurances can be given that there will be commercial acceptances of the LEROY'S® APP©, that other competing mobile applications will not be developed that adversely affect the
commercial acceptance of our mobile application, or that our ability to capitalize on any available growth opportunities will not be adversely affected by other risk factors previously discussed.
Depending on its market acceptance, the release of the LEROY'S® APP© may limit our aggressiveness in adding new Leroy's locations.

We Are Subject to Strict Regulation by Gaming Authorities

The ownership and operation of gaming licenses in Nevada are subject to strict regulation under various state, county and municipal
laws. In particular, the Leroy's, AWIM, AWIG and Sturgeon's subsidiaries are licensed by the Nevada Gaming Commission and are subject to extensive regulation. Together with key personnel, we undergo
extensive investigation before each new
gaming license is issued, and the products of CBS and AWIM are subjected to testing and evaluation prior to approval and use. Generally, gaming authorities have broad discretion when granting,
renewing or revoking these approvals and licenses. If we fail or any of our key personnel fail to obtain or retain a required license or approval, it would decrease our share in the marketplace and
put us at a disadvantage with our competitors. Consequently, the market price of our common stock may suffer.

Any
expansion of our activities could be hindered by delays in obtaining requisite state licenses or the inability to obtain such licenses. No assurance can be given as to the term for
which our licenses will be renewed in a particular jurisdiction or as to what license conditions, if any, may be imposed by such jurisdiction in connection with any future renewals. We cannot predict
the effects that adoption of and changes in gaming laws, rules and regulations might have on our future operations.

The Gaming Industry May be Adversely Affected by Federal Legislation and Tax Laws

The U.S. Congress passed UIGEA in late 2006, which prohibits any person engaged in the business of betting or wagering from knowingly
accepting payments related to unlawful bets or wagers transmitted over the Internet. UIGEA prohibits financial institutions and other payment processors from processing online gaming-related financial
transactions. It also expressly requires Internet bets and wagers to comply with the law of the jurisdiction where the wagers are initiated and received. In addition, the U.S. Congress has proposed
several bills that would prohibit any person from accepting wagers on amateur sporting events including high school, college and Olympic events.

Pursuant
to the Sports Protection Act, which became effective January 1, 1993, the proliferation of legalized sports books and wagering was significantly curtailed. The Sports
Protection Act effectively outlawed sports betting nationwide, excluding Nevada and sports lotteries in Oregon, Montana, and Delaware. Thus, sports books and wagering are permitted to continue to
operate in Nevada, provided the wager originates in Nevada and is received by a licensed sports book in Nevada. Moreover, the Interstate Wire Act also prohibits those in the business of betting and
wagering from utilizing a wire communication facility for the transmission in interstate or foreign commerce of any bets, wagers or

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information
assisting in the placing of such bets and wagers on any sporting event or contest unless such betting or wagering activity is specifically authorized in each jurisdiction involved.

There
is no guarantee that the U.S. Congress will not pass a bill which would adversely affect our operations. Additionally, federal and state tax legislation matters, including changes
to current law, or new assessments by taxing authorities could also negatively impact our results of operations or financial position.

An Adverse Change Affecting the Gaming Industry, Such as a Change in Gaming Regulations or a Decrease in the Rate of Growth and Popularity of Casino Gaming, Particularly
Those Casinos with Race and Sports Wagering, Will Negatively Impact Our Profitability and Our Potential for Growth

Our ability to grow and operate profitably is substantially dependent upon the expansion of the Nevada gaming industry and other
factors that are beyond our control. These factors include, among others, the pace of development and expansion, changes in gaming regulations, the continued popularity of casino gaming, particularly
those casinos with race and sports wagering, as a leisure activity, etc. An adverse change in any of these economic, political, legal or other factors may negatively impact our results of operations.
Additionally, consolidation of existing gaming operations could negatively impact our pricing structure and revenue. The number of visitors to Las Vegas increased 2.7% for the year ended
December 31, 2010, and gaming revenues were flat in 2010 compared with 2009 according to the Las Vegas Convention and Visitors Authority.

We May Experience Deficiencies in Disclosure Controls and Internal Controls Over Financial Reporting, Leading to a Material Weakness

As of January 31, 2011, we determined that our disclosure controls and internal controls over financial reporting were not effective.
See Part II, Item 9AControls and Procedures.

Over
the past few years, we have reduced staffing hours worked in the accounting and revenue auditing areas in response to macroeconomic conditions that affected Nevada's gaming, travel,
hospitality, leisure, and construction industry and resulted in a weakened local economy. In addition our Chief Financial Officer resigned in February 2010. The lack of adequate staffing may cause
existing controls to erode, possibly leading to a deficiency in disclosure controls and internal controls over financial reporting. While every effort will be made to monitor and retain these
controls, there can be no assurance that we will have effective internal controls over financial reporting.

We
believe that effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports. We have and will continue to incur a substantial
amount of management time and resources and significant expenses in order to comply with laws, regulations and standards relating to corporate governance and public disclosure, including our
management's annual review and evaluation of our internal control systems.

Further,
we or our auditors may identify significant deficiencies or material weaknesses in our internal control over financial reporting. If we fail to maintain the adequacy of our
internal controls, we may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting. Additionally, internal control over financial reporting may not
prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal
controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of effectiveness of internal
control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.

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We Are Largely Dependent on Current Management

Our success is largely dependent on the efforts of Victor Salerno, our Chief Executive Officer and Chairman of the Board. Although we
maintain a "key person" life insurance policy and have an employment agreement with Mr. Salerno, the loss of Mr. Salerno's services could have a materially adverse effect on our
business. Changes in the remainder of key management, or other key personnel or their compensation also contribute to this risk factor.

Future Revenue Growth Depends on Our Ability to Improve the Effectiveness and Breadth of Our Sales Organization

In order to achieve our goals for growth, and increase market awareness and sales, particularly with the AWIG and AWIM subsidiaries, we
need to improve the effectiveness and breadth of our sales operations. Our gaming products require sophisticated sales efforts targeted at selected people within the gaming industry. Also, our ability
to develop and refine products and technologies in a timely manner that have market acceptance, through effective marketing techniques is essential for financial success. Competition for qualified
sales personnel is intense, and we may not be able to hire the kind and number of sales personnel required. In addition, we will need to effectively train and educate the sales force in order to be
successful in selling into the market. We rely upon certain strategic relationships with our customers and our vendors. If we are unable to maintain these relationships or create new relationships,
our results of operations and financial condition will be adversely affected.

We May Not be Able to Protect Our Proprietary Rights and May Incur Significant Costs Attempting to Do So

Our success and ability to compete are dependent to a significant degree on our proprietary technology. We rely on a combination of
patent, copyright, trade secret and trademark laws, as well as confidentiality and licensing agreements to protect these proprietary rights. However, it may be possible for a third party to copy or
otherwise obtain and use our software or other proprietary information without authorization or to develop similar software independently. In addition, litigation may be necessary in the future to
enforce our intellectual property rights, to protect trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity.
Such litigation, whether successful or not, could result in substantial costs and diversions of resources, either of which could have a material adverse affect on our financial condition or operating
results.

The Market for Our Common Stock Is Limited

Our common stock is thinly-traded and any recently reported sales price may not be a true market-based valuation of our common stock.
There can be no assurance that an active market for our common stock will develop. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to operating performance. It is likely that the Merger consideration will act as a cap on the market price of our common stock until the Merger is consummated or the
Merger Agreement terminated. Therefore, it is unlikely that anyone selling shares of our common stock before consummation of the Merger will receive more than $0.90 per share. Upon consummation of the
Merger, we will no longer be a public company.

Our Common Stock is Considered a "Penny Stock" and, as Such, the Market for Our Common Stock May be Further Limited by Certain SEC rules

As long as the price of our common stock remains below $5.00 per share, the stock is likely to be subject to certain "penny stock"
rules promulgated by the SEC. Those rules impose certain sales practice requirements on brokers who sell penny stock to persons other than established customers and accredited investors (as defined in
Rule 501(a) of Regulation D promulgated under the Securities Act).

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For
transactions covered by the penny stock rules, the broker must make a special suitability determination for the purchaser and receive the purchaser's written consent to the transaction prior to
the sale. Furthermore, the penny stock rules generally require, among other things, that brokers engaged in secondary trading of penny stocks provide customers with written disclosure documents,
monthly statements of the market value of penny stocks, disclosure of the bid and ask prices, disclosure of the compensation to the brokerage firm, and disclosure of the sales person working for the
brokerage firm. These rules and regulations adversely affect the ability of brokers to sell our common stock and limit the liquidity of our securities.

The Trading Price of Our Common Stock is Volatile and Could Decline Substantially

The trading price of our common stock is volatile and is likely to continue to be volatile. Our stock price could be subject to wide
fluctuations in response to a variety of issues, including broad market factors that may have a material adverse impact on our stock price, regardless of our actual performance. The factors include,
but are not limited to, the following:



We Do Not Intend to Pay Cash Dividends. As a Result, Stockholders Will Benefit from an Investment in Our Common Stock Only if It Appreciates in Value

We have never paid a cash dividend on our common stock, and we do not plan to pay any cash dividends on our common stock in the
foreseeable future. Our ability to declare dividends is restricted under the terms of the Merger Agreement and the Bridge Loan Agreement as well. We currently intend to retain any future earnings to
finance our operations and further expand and grow our business, including growth through acquisitions. As a result, the success of an investment in our common stock will depend upon any future
appreciation in its value. We cannot assure you that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

Litigation May Subject Us to Significant Expenses and Liability

From time to time in the course of our business, we may be subject to litigation claims or other legal disputes, which may not be
covered under our insurance policies or as to which our insurance carriers may seek to deny coverage. We also may be subject to lawsuits filed in connection with the Merger Agreement. Consequently,
due to actions from third parties, we might incur adverse judgments, costly settlements or significant legal fees, any or all of which might have a material adverse effect on us. See Item 3. Legal
Proceedings.

Item 1B.    Unresolved Staff Comments

Not required.

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Item 2.    Properties

Our corporate office is located in a 25,861 square foot building at 675 Grier Drive, Las Vegas, Nevada. On January 7, 2005, we
completed a sale and leaseback of the property. Prior to the sale, the building was owned by our CBS subsidiary. We realized a gain of $1,638,000 on the sale of the building, which was deferred and
amortized against lease expense over the initial lease term (5 years). CBS leases the building from the new owner for rent in the amount of $32,339 per month (triple net). The lease had an
initial term which expired February 1, 2010, with options for two additional five-year terms. We exercised the first option and extended the lease for five years until
February 1, 2015. CBS, in turn, sublets a portion of the building to AWI (2,830 square feet; $5,236 per month) and to Leroy's (6,769 square feet; $11,014 per month) In addition, CBS leases
1,847 square feet of office and warehouse space in Reno, Nevada to provide 24 hour maintenance service to our Northern Nevada customers. This space is located at 960 Matley Lane,
Suite 20 and 21, Reno, Nevada. CBS pays a combined rent of $1,709 per month plus utilities, for the twelve month period ending September 30, 2011, when the lease will expire.

Leroy's
operates race and/or sports books subject to lease agreements primarily with the host casino operators. The average book occupies approximately 300 square feet, with individual
books ranging from 100 to 10,000 square feet.

Sturgeon's
is located at 1420 Cornell Avenue in Lovelock, Nevada. The facility contains over 65,000 square feet and is the security for a $1.5 million loan with Nevada State Bank,
having a 20-year amortization with a 5-year maturity at a fixed interest rate of 6.9% per annum which the bank reduced from 8% in October 2010.

We
believe that the existing facilities in Las Vegas, Reno and Lovelock satisfy our present and foreseeable needs and we do not anticipate any changes.

Item 3.    Legal Proceedings

See Part II-Item 8. Financial Statements and Supplementary Data-Notes to Consolidated Financial
Statements, Note 6, for information regarding legal proceedings and contingencies.

Item 4.    (Removed and Reserved)

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)Market information.    Our common stock is traded on the OTC Bulletin Board ("OTCBB")
under the symbol "BETM." The following table sets forth the range of high and low closing sale prices for our common stock for each of the periods indicated as reported by the OTCBB. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

BETMFiscal Year Ending January 31, 2011
Quarter Ended

High $

Low $April 30, 2010


0.30


0.12July 31, 2010


0.40


0.14October 31, 2010


0.63


0.13January 31, 2011


0.60


0.27




BETMFiscal Year Ending January 31, 2010
Quarter Ended

High $

Low $April 30, 2009


0.30


0.12July 31, 2009


0.20


0.10October 31, 2009


0.18


0.11January 31, 2010


0.15


0.08


We
consider our common stock to be thinly traded and, accordingly, reported sales prices or quotations may not be a true market-based valuation of our common stock.

(b)Holders.    As of January 31, 2011, there were 57 record holders of our common
stock. We believe there are more owners of our common stock whose shares are held by nominees or in street name.

(c)Dividends.    Holders of our common stock are entitled to receive dividends, as and
when declared by our Board of Directors, out of funds legally available therefore, subject to the dividend and liquidation rights of preferred stock issued and outstanding. We have never declared or
paid any dividends on our common stock, nor do we anticipate paying any cash dividends on our common stock in the foreseeable future. Our ability to declare dividends is also restricted under the
terms of the Merger Agreement and Bridge Loan Agreement.

Item 6.    Selected Financial Data

Not required.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Merger Agreement.On April 13, 2011, we entered into the Merger Agreement, which provides for the Merger of the Company with and
into Merger
Subsidiary with the Company surviving as a wholly-owned subsidiary of Parent. If the Merger is completed, each share of our common stock issued and outstanding immediately prior to closing
automatically will be cancelled and converted into the right to receive $0.90 in cash, and the Company will cease to be a publicly traded company. In connection with the Merger Agreement, we entered
into the Bride Loan Agreement pursuant to which Parent agreed to loan to us funds in an aggregate principal amount of $4.25 million and, at the Parent's discretion, up to an additional
$3.0 million. The Bridge Facility matures upon the earlier of (i) consummation of the Merger, (ii) termination of the Merger Agreement (subject to a six month

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refinancing
period) and (iii) December 31, 2013, subject to certain extension mechanisms.. For a description of the Merger Agreement and the Bridge Loan Agreement, see Part I,
Item 1Business.

Overview.AWI is a leader in the design, development, and marketing of sportsbook accounting systems (equipment and software) as well as
the leading
independent sportsbook operator in Nevada. Our business operations involve many aspects of the race and sports book industry operated by our subsidiaries, Leroy's, CBS, and AWIM. Our customer base is
segmented into two categories: the Contract Customers and the Bettors.

Leroy's
provides a turn-key race and sports book solution to our Contract Customers who do not desire to operate a book on their own. Leroy's operates a network of 57
sportsbooks, generating revenue from Bettors' wagers less pay outs. We grow our business and increase our efficiencies by, (i) adding new books where and when appropriate,
(ii) introducing new convenience-driven products for the Bettors, and (iii) continuing to increase efficiencies through self-service products such as AWIM's kiosk and the
LEROY'S® APP©, which are described below. Based on our strategy, the number of race and sports books operated by Leroy's may increase or decrease in the future, due to the
closure of unprofitable locations or host properties, closures due to other factors beyond our control and/or the possible opening of new locations with greater potential for profitability. There is
no assurance that Leroy's will be able to add new locations and/or that any existing locations or new locations so added will be profitable, and the release of the LEROY'S®
APP© may limit our aggressiveness in adding locations particularly in Las Vegas depending on its market acceptance.

CBS
develops, sells and maintains computerized race and sports wagering systems for the gaming industry, namely our Contract Customers who want to operate their own race and sports book.
CBS also markets, distributes, installs, and maintains AWIM's kiosks, which assists the Company in controlling personnel costs by eliminating duplicate job positions. AWIM has the following three
models of kiosk.



The LEROY'S® APP©.On August 31, 2010, we announced the introduction of the LEROY'S® APP©, a
mobile device application for smartphones that permits a Bettor, with a pre-established telephone wagering account, to bet from his approved mobile device anywhere within the state of
Nevada, assuming his wireless carrier provides coverage. The LEROY'S® APP© received final approval by the Nevada Gaming Control Board at the conclusion of its successful field
trial. The LEROY'S® APP© was developed for Leroy's by CBS and we have a patent pending on the intellectual property. We have been approved by the Nevada Gaming Control Board to
make the application available on Research In Motion's BlackBerry devices and Google's Android operating system v. 2.1 and newer. Additionally, we have been approved for use on the Samsung Galaxy
Tablet, which uses Google Android operating system.

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Sturgeon's
operates the hotel/casino in Northern Nevada and is heavily dependent on the drive-through market on I-80. Sturgeon's continuously reviews and modifies existing
procedures and personnel to increase efficiency, reduce expenses, and strengthen the financials as Nevada, both Northern and Southern, continues to experience high unemployment, high foreclosures for
residential homes and business failures. Accordingly, these factors will likely continue to have affect on our business conditions and financial performance.

Liquidity and Capital Resources

On April 13, 2011, we entered into the Merger Agreement and the Bridge Loan Agreement. If the Merger Agreement is terminated,
the principal amount and all accrued interest under the Bridge Facility will become due and payable, and, in certain circumstances, (a) we may be required to reimburse Parent and its affiliates
for all of their reasonable out-of-pocket fees and expenses up to $250,000 and (b) Parent may be required to pay us a termination fee of $1.5 million, which
amount shall be subject to offset to any amounts owed by us in connection with the Bridge Loan Agreement. If the Merger Agreement is not consummated, we will continue to be a publicly traded company,
and we may not be able to pay our debts as they come due, including the Bridge Facility. Upon a default under the Bridge Facility, Parent may foreclose on the collateral securing our obligations,
which includes all of the equity interests in our wholly-owned subsidiaries.

In
recent years for reasons discussed in the following paragraph, our cash flows from operating activities have been insufficient to satisfy our obligations (including legal
contingencies) when due and to fund cash reserves required by Nevada Gaming regulations. Such cash requirements have been funded largely with borrowings from and/or collateral arrangements with the
Company's principal
officers. Recently the Company entered into the Bridge Loan Agreement that should satisfy the Company's need for liquidity at least through the next year. More specifically, in April 2011, we borrowed
$4.25 million under the Bridge Loan Agreement and used approximately $2.3 million of the proceeds to pay vendors ($750,000), for rank and file employees ($260,000), other lenders
($850,000), and transaction fees ($450,000) leaving approximately $1.95 million available for future cash flow requirements. The Bride Loan Agreement also reduces the Company's dependence on
its principal officer's ability to continue to provide financial support. There is no assurance that we will be able to borrow additional funds under the Bridge Loan Agreement, as any additional
advances are in Parent's sole discretion.

In
addition, we see signs of slight improvements in the global macroeconomic factors that have negatively affected our country, Nevada, and the Company for the past three years. We
continue to monitor these signs of improvement such as lower unemployment and increased passenger traffic at McCarran International Airport that may provide new opportunities for our
self-service kiosks and mobile technologies as our Contract Customers remain conservative in their capital spending but are seeking meaningful ways to bring innovative betting technology
to their casino floor. We cannot be certain as to the timing or the scope of such opportunities in light of (i) the ongoing restricted credit market facing certain of our Contract Customers and
the risk of the gaming industry impact of continued economic uncertainty; (ii) intense competition among suppliers, and (iii) more conservative betting patterns by Bettors because of job
uncertainty and/or reduced discretionary income. Though there are signs of improvement, lingering markers of the downturn still affects Nevada with restricted credit markets and reduced consumer
spending, particularly in the domestic gaming and leisure industries, and the Company's business for an indeterminate period. We are also hopeful, but there is no assurance that, the Company's average
wagering win percentage, which has recently been significantly lower than historical levels due to unpredictable swings in customer betting success, will increase and also have a positive impact on
our cash flow from operating activities.

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Cash Flow

As of January 31, 2011, we had working capital deficit of $(901,583), compared to working capital of $751,489 at
January 31, 2010. The decrease in working capital is primarily due to the net loss of $(3,316,678). The net loss can be attributed significantly to the sports wagering handle being off by 6.6%
from fiscal year 2010, and the win percentage of 4.7% compared to 6.1% in the prior fiscal year. Direct expenses for the Company were slightly below the prior year while research and development costs
and selling, general and administrative costs increased approximately $825,000 primarily due to increased payroll and insurance expenses.

Additionally,
due to the current negative economic environment, the Company has taken additional measures to conserve cash. Effective January 1, 2009, the Company no longer
matches the employees' 401(k) contributions. The salaries of several supervisors and managers were temporarily reduced by 5% to 15%. The CEO, COO, Sr. Vice President of Marketing, and the
in-house General Counsel each agreed to reduce their annual base salaries to the amount sufficient to cover payroll deductions for benefits through October 2010. In November 2010, the
executive management group began to receive pay at a level of 50%. Upon funding of the Bridge Facility, the full salaries were reinstated.

In
fiscal 2011, the Company borrowed $500,000 from Alpine Advisors, LLC, and Victor Salerno, CEO, provided the Company with a $250,000 credit line. The proceeds of both loans were
fully used during the year to alleviate a difficult cash position, and from the proceeds of the Bridge Facility, the Company paid to Alpine Advisors, LLC $600,417 in full and final payment of
its loan and paid to Mr. Salerno $250,000 in full and final payment of his line of credit.

In
addition to borrowings under the Bridge Loan Agreement as previously discussed and reduced payment requirements to Racusin (as discussed below), we believe, but there is no assurance
that, our working capital position will also improve in fiscal 2012 due to: (a) normalization of the win percentage in sports book wagering; (b) an increased demand in fiscal 2012 for
our CBS equipment due to certain customers' desire to obtain new equipment, who are themselves recovering from the economy; (c) deployment of new products and services anticipated in fiscal
2012; and (d) additional or expanded sports book locations in fiscal 2012. Based on the foregoing and subject to the economy, we believe we will be able to satisfy our cash requirements for at
least the remainder of fiscal 2012 from existing cash balances, anticipated cash flows and potential borrowings under the Bridge Facility. Some of the above statements are forward-looking in nature.
No assurance can be given as to the ultimate outcome of any forward-looking statement because such outcome is dependent upon unknown evolving events.

Regulation Regarding Reserves

Nevada Gaming Commission Regulation 22.040 ("Regulation 22.040") requires us to maintain reserves (cash, surety bonds,
irrevocable standby letter of credit, etc.) sufficient to cover any outstanding wagering liability including unpaid winning tickets, future tickets and telephone account deposits. We have historically
funded this reserve requirement through restricted cash held at Nevada State Bank.

As
of January 31, 2011, we had cash reserves and pledge agreements totaling $2.4 million to satisfy the Regulation 22.040 requirement in addition to a float amount
of $600,000 allowed by the Nevada Gaming Control Board to cover short term fluctuations in the outstanding liability. The $2.4 million amount consisted of our reserve account of
$1.7 million held at Nevada State Bank and pledged certificates of deposit totaling $700,000. The pledged certificates initially expired in October 2010, but the parties agreed to extend their
respective pledges without designating a specific expiration date. On April 13, 2011 the Nevada Gaming Control Board allowed us to reduce our reserve balance by $750,000 during the off-peak
season. The Company reduced its cash deposit at Nevada State Bank by $500,000 and reduced the pledge from Robert and Tracey Kocienski by $250,000 as of April 19, 2011.

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We
will likely have to increase our reserve in August 2011, and if we are unable to do so, it would have an adverse impact on us including, but not limited to, requiring a significant reduction in the
number of race/sports locations operated by Leroy's, and/or an elimination or reduction of telephone wagering accounts, resulting in an adverse change in our operating results. We anticipate being
able to increase our reserve balance as a portion of the financing proceeds from the Bridge Facility is allocated for this purpose.

Outlook

At January 31, 2011, we had approximately $1.5 million in cash and cash equivalents, the majority of which is held to
fund winning tickets and future bets as required by Nevada gaming regulations. In April 2011, we borrowed $4.25 million under the Bridge Loan Agreement to satisfy outstanding obligations and
transaction costs ($2.3 million) and to provide additional working capital ($1.95 million). Based upon our anticipated operations, we believe that cash on hand, including borrowed funds,
operating cash flows, and potential borrowing under the Bridge Facility will be adequate to meet our anticipated working capital requirements, capital expenditures, and scheduled payments for
indebtedness for the remainder of fiscal 2012. Our operations are affected by seasonality. Typically, we anticipate the need for liquidity during the second quarter of each fiscal year which lessens
during the third quarter with the commencement of football season. However, with the current NFL lockout in effect, liquidity during football season may be negatively affected. However, even if there
is no or a reduced NFL schedule during fiscal 2012, we believe, but there is no assurance that, our cash liquidity position will be sufficient to meet our operating needs, including new business
development activities or unforeseen events including the outcome of litigation through fiscal 2012.

Cash Obligations

Subject to uncertainties resulting from the current economic conditions, we believe we will continue to successfully meet our
long-term obligations. The following
table summarizes our cash payment obligations, including short term debt and long term debt and operating lease obligations for the next five fiscal years:

2012

2013

2014

2015

2016

TotalNote payable, Sturgeon's

$
48,116

$
51,184

$
1,422,565







$
1,521,865Racusin settlement obligation (Note 6)


6,141














6,141Due to Victor Salerno





1,000,000


250,000








1,250,000Payable to Alpine Advisors, LLC


452,111














ISI Settlement Agreement


100,000


70,000











170,000Other


16,347














16,347Operating Leases


1,046,203


738,814


614,080

$
451,389

$
17,500


2,867,986Total

$
1,668,918

$
1,859,998

$
2,286,645

$
451,389

$
17,500

$
6,284,450


As
of January 31, 2011, the amount of Series A Preferred Stock that may be put to us by Mr. Salerno for immediate redemption (without prior approval by our Board of
Directors) is $323,800 (3,238 shares). In prior years, Mr. Salerno forwent his right to have his shares redeemed when we made partial, pro rata calls of Series A Preferred Stock for
redemption.

Racusin

The Company and Racusin entered into the Settlement Agreement on September 3, 2004. Racusin filed a claim for breach of the
Settlement Agreement on January 14, 2009, and motion for summary

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judgment
to accelerate amounts due, with penalty interest, on February 24, 2009. On August 18, 2009, the Court entered an order granting summary judgment in favor of Racusin that would
have accelerated amounts due and imposed penalty interest at 12% per annum. We moved for rehearing in spring 2010, and at the hearing the Court verbally indicated an intent to vacate an
August 18, 2009 order granting summary judgment in favor of Racusin, with the order subsequently entered on December 23, 2010. Based upon the Court's December 23, 2010, finding
that an issue of material fact existed as to the potential effect on the Settlement Agreement as a result of events that occurred in the Interpleader Adversary during the period between the Bankruptcy
Appellate Panel's subordination decision and the Ninth Circuit Court of Appeal's decision to reverse the Bankruptcy Appellate Panel, we filed a motion for summary judgment seeking dismissal of
Racusin's still pending complaint of breach of the Settlement Agreement, and further relief on and discharge pursuant to the Interpleader Action. With respect to our claim for relief on the
Interpleader action we contend that Racusin is not entitled to recover interest on the payment obligation that allegedly accrued during the time when we previously deposited with the Court the 250,000
shares of AWI common stock through the date of entry of the Deposit Order on November 5, 2007, when the stock was exchanged for cash (i.e., "Gap
Period") and the interest that allegedly accrued during that period ("Gap Interest"). It is our position that if the Court disallows Gap Interest, or allows for an equivalent offset in restitution, we
would have satisfied our entire obligation in full under the Settlement Agreement as of November 2010, and we would therefore be entitled to a refund of overpayments made into the Court after November
2010 In the event the Court disagrees with our position, we would argue that we are current on payments, and that we will have paid off our entire remaining obligation in full under the Settlement
Agreement by June 2012.

Accordingly,
as of January 31, 2011, we believe that the balance owed to Racusin is $6,141 plus interest at 8% per annum. If arguments regarding the effects of the Stay Order on
the Interpleader are heard and the Court were to rule that the Stay Order did not effect the Interpleader Order and did not result in an off-set in the calculation of the accrued interest,
then we believe the amount due would be approximately $402,697 as of January 31, 2011, assuming an 8% interest rate. There is no assurance that the Court will agree with our position.

Internet Sports International, Ltd. (ISI)

On February 3, 2011, we and ISI engaged in consensual mediation, which resulted in a global settlement. The parties subsequently
entered into a Settlement Agreement whereby AWIM agreed to pay to ISI the total sum $170,000 in exchange for a mutual release of all claims.

Salerno

No shareholder, director, or officer has a legal obligation to make a loan to the Company or provide a guaranty to secure the debts,
liabilities, and/or obligations of the Company. Over his tenure as Chairman of the Board and CEO of the Company, Mr. Salerno has made several such loans, extended lines of credit, and made
personal guaranties on behalf of the Company, although he is under no fiduciary, statutory, or contractual obligation to do so now or to continue to do so in the future.

On
November 8, 2007, we borrowed $400,000 against the $500,000 line of credit for the benefit of AWIG in its acquisition of Sturgeons under the terms of a Guaranty Agreement, as
amended from time to time, between Victor and Terina Salerno (the "Salernos") and AWI. On April 21, 2008, the Guaranty Agreement was restated as a Line of Credit Confirmation Letter ("Line of
Credit"); its terms broadened such that we could draw on the Line of Credit for the benefit of the Company, and consolidated subsidiaries, and provided we pay the Salernos interest at the rate of
10.0% per annum (payable monthly) on the outstanding portion of the loan (up to a maximum of $500,000) and to reimburse them for finance charges, fees, payments and other expenses they may incur. The
personal line of credit then in place was secured by the Salernos' residence and provides for an interest rate of

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0.5%
below the prime rate published by the Wall Street Journal, adjusted annually. The Salernos' terminated their bank financed personal line of credit in 2009, but they maintain the Line of Credit
with the Company.

On
December 1, 2008, Mr. Salerno, loaned the Company an additional $500,000 to fund our immediate general operating expenses. Due to the urgency for which the funds were
needed, the funds were advanced on an expedited basis without formal board approval as reported in our Form 10-Q for the quarter ended October 31, 2008. Our independent
directors considered and approved the fairness of a proposed amendment to the Line of Credit to cover the total $1,000,000 that has been loaned by Mr. Salerno at the same terms. The outstanding
balance of the line of credit
was $1,000,000 at January 31, 2011. We paid interest to Mr. Salerno totaling $100,000 in each fiscal 2011 and fiscal 2010. The total $1,000,000 will be repaid with
interest-only payments during fiscal 2012, and the loan will mature on February 1, 2012.

On
May 17, 2010, Mr. Salerno loaned us an additional interest free revolving line of credit in the amount of $250,000, which was repaid in full on April 14, 2011
from proceeds of the Bridge Facility.

Operating Leases

Included in the operating leases are rents payable at the Leroy's sports book operating locations, rent for our corporate headquarters,
and office equipment and vehicles leases. Rent at the Leroy's locations includes the base rent due per the contract terms. The rental leases also include locations in which the rent is calculated
based on a formula relating to the activity of the location. The rent to be paid for those locations was estimated for the purpose of the foregoing cash obligations table.

Off-Balance Sheet Arrangements

As of January 31, 2011, we had cash reserves and pledge agreements totaling $2.4 million to satisfy the
Regulation 22.040 requirement in addition to a float amount of $600,000 allowed by the Nevada Gaming Control Board to cover short term fluctuations in the outstanding liability. The
$2.4 million amount consisted of our reserve account of $1.7 million held at Nevada State Bank and pledged certificates of deposit totaling $700,000. The pledged certificates initially
expired in October 2010, but the parties agreed to extend their respective pledges without designating a specific expiration date. On April 13, 2011 the Nevada Gaming Control Board allowed us
to reduce our reserve balance by $750,000 during the off-peak season. The Company reduced its cash deposit at Nevada State Bank by $500,000 and reduced the pledge from Robert and Tracey Kocienski by
$250,000 as of April 19, 2011. We will likely have to increase our reserve in August 2011, and if we are unable to do so, it would have an adverse impact on us including, but not limited to,
requiring a significant reduction in the number of race/sports locations operated by Leroy's, and/or an elimination or reduction of telephone wagering accounts, resulting in an adverse change in our
operating results. We anticipate being able to increase our reserve balance as a portion of the financing proceeds from the Bridge Facility is allocated for this purpose.

Results of Operations



We report our results of operations through three operating segments: Wagering, Hotel/Casino and Systems. At this time, our operating
segment for Advertising, which ExactGeo Media and PlayBETM will show revenue, is not income generating. Although numerous factors are taken into consideration, the operating income (loss) of the
segment represents a significant profitability measure that is used by

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us
in allocating the appropriate level of resources and assessing performance of each segment. The following table summarizes the consolidated results of our segments

SUMMARY

2011

2010

$ Change

% ChangeRevenues

$
11,645,709

$
14,548,455

$
(2,902,746
)

(20.0
)%Costs and Expenses


13,852,205


13,418,290


433,915


3.2
%Other Income (Expense)


(741,182
)

(146,459
)

594,723


406.1
%Income (Loss) Before Income Taxes


(2,947,678
)

983,706


(3,931,384
)

(399.7
)%


The
decrease in revenues is primarily attributed to the results of our Wagering segment and, to a lesser extent, the other segments.

Costs
and expenses increased primarily due to higher executive payroll of approximately $513,000, building rent expense of approximately $281,000, offset by lower direct costs of
$321,646 (-3.5%) associated with lower revenues and cost containment measures.

The
change in other income (expense) is due primarily to higher interest expense $136,991 (+46.3%) due to increased borrowings, an increase in the estimated fair value of the warrant
liability ($120,816), and reductions in litigation income ($74,809) and sublease income ($43,800).

Please
refer to the discussions below ("Revenues and Direct Costs" and "Operating Expenses") for additional information, discussion and analysis.



The following table summarizes changes in our revenues and direct costs of our operating segments:

Revenues

2011

2010

$ Change

% ChangeWagering

$
6,674,058

$
9,235,783

$
(2,561,725
)

(27.7
)%Hotel/Casino


2,110,685


2,289,646


(178,961
)

(7.8
)%Systems


2,860,966


3,023,026


(162,060
)

(5.4
)%$
11,645,709

$
14,548,455

$
(2,902,746
)

(20.0
)%Direct costsWagering

$
5,973,238

$
6,381,494

$
(408,256
)

(6.4
)%Hotel/Casino


1,922,782


1,831,136


91,646


5.0
%Systems


857,903


862,939


(5,036
)

(0.6
)%$
8,753,923

$
9,075,569

$
(321,646
)

(3.5
)%


Wagering Segment.The Wagering Segment includes the operating results of the sports gaming wagers net of payouts and expenses, and
pari-mutuel horse and dog racing. Wagering Segment revenues decreased as a result of the following:



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The
increase or decrease in handle is not necessarily indicative of an increase or decrease in revenues or profits, due to the volatility in the win percentage. Elimination of
unprofitable locations, closure of host properties, changes in state and/or federal regulations, and other factors beyond our control may result in declines in handle.

We
intend to continue to open new locations that we expect to operate profitably and review our existing locations in order to close those locations that are not operating efficiently.
There is no assurance that the number of race and sports books operated by us will not decrease in the future due to elimination of unprofitable locations, closure of host properties, and other
factors beyond our control, that we will be able to add new locations, and/or that any new locations so added will be profitable.

Hotel/Casino Segment.The Hotel/Casino Segment consists of the operating results of Sturgeon's. Hotel/Casino Segment revenues decreased
because of
the following:



Systems Segment.The Systems Segment includes the operating results of our systems sales, installations and maintenance fees, less the
related
expenses. Systems Segment revenues decreased due to the following factors:





The $52,790 increase in research and development expenses relates to the development of our mobile device applications. Selling,
general and administrative expenses increased $771,463 due to additional executives compensation. More specifically, during 2011, the Company hired three individuals, of whom two qualify as executive
management, with annual salaries totaling $650,000, who

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were
paid partial salaries throughout the fiscal year. In addition, building rent increased $281,000 and insurance increased $45,000. In 2011, depreciation expense decreased $68,692 due to fewer
assets additions in 2011 ($42,406 versus $154,512 in 2011) and certain assets becoming fully depreciated.



The other income (expense) categories are primarily administrative in nature and, as such, are generally not directly attributable to
any operating segment. Accordingly, these items are generally not taken into consideration by us when we allocate resources to the segments or assess the performance of the segments.



Critical Accounting Estimates and Policies

Although our financial statements necessarily make use of certain accounting estimates by our management, we believe that, except as
discussed below, we do not employ any critical accounting policies or estimates that are either selected from among available alternatives, or require the exercise of significant management judgment
to apply, or that if changed are likely to affect future periods. See Note 1 toConsolidated Financial Statementsfor additional discussion of
our significant accounting policies. The following summarizes our critical estimates and policies.

Revenue recognition

Wagering.We record wagering revenues in compliance with Nevada law and its regulations. For sports and non-pari-mutuel race,
we use an accrual method wherein the handle (total amount wagered) is recognized as revenue on the day the event occurs (rather than the day the wager is accepted) decreased by the total amount owed
to patrons with winning wagers. This gross calculation (handle less payouts) is then adjusted upward to account for any winning wagers that were not redeemed (cashed) within the specified time period.
For pari-mutuel race,
commission and breakage revenues are recorded when the wagers are settled, typically the same day as the wager. Other sources of wagering revenue are relatively insignificant.

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Hotel/Casino Revenue.We report the wagering revenues of Sturgeon's, which is primarily comprised of slot revenue, hotel room revenue
and food and
beverage revenue, in compliance with Nevada law and the regulations of the Nevada gaming regulators. These revenues are generally in the form of cash, personal checks, credit cards, or gaming chips
and tokens, which do not require estimates. We do estimate certain liabilities with payment periods that extend for longer than several months. We believe these estimates are reasonable based on our
assumptions related to possible outcomes in the future. Future actual results might differ materially from these estimates. Slot revenue is the drop (the total amount removed from the machine) less
the fills and the payouts. Bingo revenue is calculated as the total handle (the amount wagered) less the payouts. For non-gaming revenues, such as food and beverage, hotel, etc., we record
revenues in compliance with generally accepted accounting principles, recognizing revenue when it is earned.

Systems.Software license fees represent revenues related to licenses for race/sports software delivered to customers for in-house use.
Revenues from software license agreements (including any related training revenue) are recognized upon installation of the software.

The
Company recognizes revenue from the sale of hardware (and any related installation revenue) upon installation of the hardware.

The
Company negotiates separate maintenance agreements with certain customers to provide for the long-term care of the software and hardware. Pursuant to the terms of the
various maintenance agreements, a fixed sum is due at the beginning of each month regardless of whether the customer requires service during that month. The Company recognizes maintenance revenue on
the first day of each month for which the maintenance agreement is in place.

In
other words, revenue is not recognized until it is realized or realizable and earned. The Company recognizes revenue when related assets held are readily convertible to known amounts
of cash or claims to cash, and revenues are considered to have been earned when we have substantially accomplished what we must do to be entitled to the benefits represented by the revenues.

The
Company's software licensing arrangements do not require significant production, modification, or customization of the software and, except for maintenance services consistently
priced on a per terminal / license basis at a standard price per unit across our entire customers base, the Company's software arrangements do not provide licenses for any other software deliverables.
Practically speaking, there are no software upgrades available once the hardware and applicable software license are purchased. Once in use, changes to the software occur infrequently and typically
consist only of minor debugging or patch fixes for a period contractually limited to 90 days following the purchase. Subsequent minor and infrequent modifications are considered part of the
support service and included in the maintenance fee. In the unlikely event that a major upgrade (modification) to the software is developed, customers would be given the opportunity, but are not
required, to purchase it separately and to enter into a new software license agreement. Occasionally, however, a customer will request a custom enhancement. Such custom enhancements are developed and
billed separately and are accounted for as sales and recognized as revenue upon installation and acceptance by the customer.

The
Company does not earn or collect the software license and equipment fees over the life of the agreement (the stated initial term is 60 months but automatically renews for
consecutive one-year periods indefinitely, without additional cost to the customer, until cancelled by the customer with appropriate written notice, and thus is, in substance, perpetual),
or recognize revenue prior to inception of the license; rather, these fees are earned and paid upon installation, which coincides with the commencement of the license.

The
only fees that are recognized over time are for maintenance services. Certain amounts in a few, but not all maintenance agreements, could, under one very remote condition that has
never

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occurred
(an intellectual property infringement claim that requires the software to be taken out of service and which could not be replaced within a specified time period), be refundable. A customer
may not unilaterally cancel its maintenance agreement at any time. Non-payment would result in a breach of the agreement, and the Company may seek to enforce its legal and equitable
contract rights.

Income Taxes

In establishing a valuation allowance for deferred tax assets we evaluate positive and negative factors affecting the probability that
such assets, primarily net operating loss carry-forwards, will be realized. For example, historical profitability trends are given more weight than forecasted future results. Given the Company's
recent history of operating losses and current equity deficiency, among other negative factors, a 100% valuation allowance has been provided as of January 31, 2011, because management believes
it is not more likely than not that such deferred tax assets will be realized.

Long-Lived Assets

Owned property and equipment are recorded at cost and depreciated to residual values over the estimated useful lives using the
straight-line method. Leasehold improvements on operating leases are amortized over the life of the lease or the life of the asset, whichever is shorter. The useful life, currently
estimated, of our equipment generally ranges from 3 to 10 years. We test for impairment losses on long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired. An impairment loss is recognized if the carrying amount of the asset is not recoverable from its undiscounted cash flows and is measured as the difference between the
carrying amount and fair value of the asset.

Change in Estimated Fair Value of Warrant Liability

The Company uses the Black-Scholes valuation model and "Level 2" measurement inputs as defined in GAAP including a
risk-free interest rate of 4%, expected warrant life of five years, and its internal stock price volatility factor (initially 206.3% and 231.4% at January 31, 2011) to estimate the
fair value of its warrant liability at each balance sheet date.

Recent Accounting Pronouncements

No recently issued accounting pronouncements not yet adopted are expected to have a material impact on our future financial position,
results of operations, or cash flows.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

Not required.

Item 8.    Financial Statements and Supplementary Data

Audited Financial Statements for Years Ended January 31, 2011 and 2010, including:



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors
American Wagering, Inc.
Las Vegas, Nevada

We
have audited the accompanying consolidated balance sheets of American Wagering, Inc. and Subsidiaries (collectively, the "Company") as of January 31, 2011 and 2010, and
the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for the years then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2011 and 2010, and the
results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

/s/ PIERCY BOWLER TAYLOR & KERNPIERCY BOWLER TAYLOR & KERNCertified Public AccountantsLas Vegas, Nevada
May 17, 2011


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AMERICAN WAGERING, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        JANUARY 31, 2011 AND 2010

2011

2010ASSETSCURRENT ASSETSCash and Equivalents

$
1,485,148

$
2,084,268Restricted Cash


1,762,396


1,729,209Accounts Receivable


209,737


204,706Inventories


122,228


143,913Deferred Tax Assets, net of allowance





369,000Prepaid Expenses and Other


359,758


364,2073,939,267


4,895,303Property and Equipment, net of accumulated depreciation and amortization


2,454,488


3,301,180Goodwill


103,725


103,725Other Assets


200,049


221,291$
6,697,529

$
8,521,499LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)CURRENT LIABILITIESShort-Term Debt, net of amortized discount of $47,889

$
452,111

$
Current Portion of Long-Term Debt


170,604


441,781Accounts Payable


1,624,448


1,217,409Accrued Liabilities


607,081


613,320Unpaid Winning Tickets


604,053


1,021,229Customer Deposits and Other


1,382,553


850,0754,840,850


4,143,814Long-Term Debt, less current portion


2,793,749


2,530,778Warrant Liability


250,294


Other Long-Term Liabilities


242,127


242,1113,286,170


2,772,889Redeemable Series A Preferred Stock (3,238 shares)


323,800


323,8008,450,820


7,240,503STOCKHOLDERS' EQUITY (DEFICIENCY)Series A Preferred Stock10% cumulative; $100.00 par and liquidation value; 18,924 shares authorized; 10,924 shares outstanding


1,092,400


1,092,400Common Stock$0.01 par value; 25,000,000 shares authorized; 8,404,879 and 8,129,879 shares issued


84,049


81,299Additional Paid-In Capital


13,010,578


12,589,318Deficit


(15,612,825
)

(12,154,528
)Treasury Stock, at cost (61,100 shares)


(327,493
)

(327,493
)(1,753,291
)

1,280,996$
6,697,529

$
8,521,499


See
notes to consolidated financial statements.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        FOR THE YEARS ENDED JANUARY 31, 2011 AND 2010

2011

2010REVENUES:Wagering

$
6,674,058

$
9,235,783Hotel/Casino


2,110,685


2,289,646Systems


2,860,966


3,023,02611,645,709


14,548,455OPERATING COSTS AND EXPENSES:Direct Costs:Wagering


5,973,238


6,381,494Hotel/Casino


1,922,782


1,831,136Systems


857,903


862,9398,753,923


9,075,569Operating Expenses:Research and Development


725,689


672,899Selling, General and Administrative


3,494,467


2,723,004Depreciation and Amortization


878,126


946,8185,098,282


4,342,721OPERATING INCOME (LOSS)


(2,206,496
)

1,130,165OTHER INCOME (EXPENSE):Interest Income


5,226


8,476Interest Expense


(433,199
)

(296,208
)Change in Estimated Fair Value of Warrant Liability


(120,816
)

Litigation Income (Expense)


(184,858
)

59,951Other


(7,535
)

81,322(741,182
)

(146,459
)INCOME (LOSS) BEFORE INCOME TAXES


(2,947,678
)

983,706INCOME TAXES


369,000


NET INCOME (LOSS)

$
(3,316,678
)
$
983,706NET INCOME (LOSS) PER COMMON SHAREBASIC AND DILUTED

$
(0.42
)
$
0.10


See
notes to consolidated financial statements.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)        FOR THE YEARS ENDED JANUARY 31, 2011 AND 2010

Preferred Stock

Common Stock

Treasury StockAdditional
Paid-In
Capital



Total
EquityShares

Dollars

Shares

Dollars

Shares

Dollars

DeficitBalances, January 31, 2009


10,924

$
1,092,400


8,129,879

$
81,299


61,100

$
(327,493
)
$
12,361,309

$
(12,996,579
)
$
210,936Preferred Stock Dividends























(141,655
)

(141,655
)Net Income























983,706


983,706Contributed Services




















193,164





193,164Stock-based Compensation




















34,845





34,845Balances, January 31, 2010


10,924


1,092,400


8,129,879


81,299


61,100


(327,493
)

12,589,318


(12,154,528
)

1,280,996Preferred Stock Dividends























(141,619
)

(141,619
)Net Loss























(3,316,678
)

(3,316,678
)Contributed Services




















146,337





146,337Stock-based Compensation




















236,423





236,423Issuance of Common Stock








275,000


2,750








38,500





41,250Balances, January 31, 2011


10,924

$
1,092,400


8,404,879

$
84,049


61,100

$
(327,493
)
$
13,010,578

$
(15,612,825
)
$
(1,753,291
)


See notes to consolidated financial statements.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE YEARS ENDED JANUARY 31, 2011 AND 2010

2011

2010OPERATING ACTIVITIESNet cash provided by (used in) operating activities

$
(1,040,618
)
$
165,619INVESTING ACTIVITIESIncreases in restricted cash


(80,000
)

(1,426,103
)Withdrawals from restricted cash


46,813


995,357Proceeds from the sale of property and equipment


4,206


83,533Purchase of property and equipment


(9,712
)

(154,512
)Net cash used in investing activities


(38,693
)

(501,725
)FINANCING ACTIVITIESProceeds from borrowings


750,000


705Repayment of borrowings


(128,190
)

(796,654
)Dividends on preferred stock


(141,619
)

(141,655
)Net cash provided by (used in) financing activities


480,191


(937,604
)NET DECREASE IN CASH AND EQUIVALENTS


(599,120
)

(1,273,710
)CASH AND EQUIVALENTS BEGINNING OF YEAR


2,084,268


3,357,978CASH AND EQUIVALENTS END OF YEAR

$
1,485,148

$
2,084,268SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest

$
433,199

$
355,047Non-cash investing and financing activities:Property and equipment acquired directly with proceeds of bank and vendor financing

$
32,694


Issuance of warrants accounted for as debt discount

$
129,478





See
notes to consolidated financial statements.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        YEARS ENDED JANUARY 31, 2011 AND 2010

1. Organization, Risks and Uncertainties, and Summary of Significant Accounting Policies

Organization and Business

American Wagering, Inc. ("AWI") is a publicly traded holding company that earns its revenues through the consolidated operations
of its wholly-owned subsidiaries. Leroy's Horse & Sports Place, Inc. ("Leroy's") owns and operates 56 (as of April 30, 2011) race and sports wagering locations ("books") in leased
space within non-restricted casinos throughout the state of Nevada. Computerized Bookmaking Systems, Inc. ("CBS"), designs, sells, installs, and maintains computerized race and
sports wagering systems. AWI Manufacturing, Inc. ("AWIM") develops and leases self-service race and sports wagering kiosks to the gaming industry. AWI Gaming, Inc. ("AWIG")
was formed in June 2005 for the purpose of acquiring hotel/casino operations, which it did through Sturgeons, LLC, a wholly-owned subsidiary of AWIG that owns and operates
Sturgeon's Inn & Casino in Lovelock, Nevada ("Sturgeon's"). ExactGeo Media, LLC ("ExactGeo Media"), is an advertising company established to purchase and sell advertising in connection
with our mobile betting application. Mobile Sports Fantasy, LLC dba PlayBETM ("PlayBETM") designs and hosts play-for-fun, contest versions of our mobile sports
application generating revenue through advertising.

On
April 13, 2011, the Company entered into an agreement and plan of merger (the "Merger Agreement") with a foreign privately held company (the "Purchaser"). At the effective time
of the merger, each holder of outstanding shares of the Company's common stock (other than participants in the merger and dissenters) will be entitled to receive $0.90 in cash for each such share
(which shares shall be automatically cancelled). Contemporaneous with the closing (as defined in the Merger Agreement), the purchaser shall pay the Company $1,416,200 and all of the additional accrued
but unpaid interest on each share of preferred stock which will be used at the closing to redeem the preferred stock issued and outstanding, and to pay the related accrued interest. At the closing,
each outstanding stock warrant and option to purchase shares of our common stock that is outstanding immediately prior to the effective time of the merger shall be cancelled and, in exchange
therefore, and the former holder shall receive an amount in cash equal to the product of (i) the excess of $0.90 over the exercise price per share under such stock warrant or option, and
(ii) the number of shares subject to such stock warrant or option.

The
completion of the Merger is subject to the satisfaction or waiver of certain conditions, including, among other things, (i) the adoption of the Merger Agreement by our
stockholders, which was effected on April 13, 2011, (ii) the absence of any injunction or applicable law preventing consummation of the merger, (iii) receipt of any required
consents, approvals and licenses under the Nevada Gaming Control Act and the rules and regulations promulgated there under and applicable local gaming and liquor laws, ordinances and regulations,
(iv) verification of the accuracy of the representations and warranties made by the parties, and (v) the performance, in all material respects, of all obligations, agreements and
covenants under the Merger Agreement.

Additionally,
on April 13, 2011, the Company and the purchaser entered into a bridge loan agreement (the "Bridge Loan Agreement") pursuant to which the Purchaser loaned the
Company $4.25 million and, at the Purchaser's sole discretion, may loan up to an additional $3.0 million (collectively, the "Bridge Facility"). The Bridge Facility matures upon earlier
of (i) consummation of the Merger, (ii) termination of the Merger Agreement and (iii) December 31, 2013, subject to certain extension mechanisms. Loans outstanding under
the Bridge Facility accrue interest at an annual rate equal to 12.5%, which compounds on a quarterly basis in arrears on March 31, June 30, September 30,

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

1. Organization, Risks and Uncertainties, and Summary of Significant Accounting Policies (Continued)

and
December 31 of each year, and shall be paid in kind by adding the accrued interest to the balance of the loan. During the existence of an event of default under the Bridge Facility, an
additional 2% per annum is imposed.

The
terms of the Merger Agreement and the Bridge Loan Agreement limit the Company's ability to engage in certain business activities without the prior consent of Purchaser. The most
significant of these restrictions limit the Company's ability to pay dividends, issue or repurchase shares of our common stock, incur new indebtedness, enter into or modify material contracts, grant
liens on the Company's assets, and effect any significant change in the Company's corporate structure or the nature of its business.

The
Merger Agreement contains certain termination rights and reimbursement obligations. If the Merger Agreement is terminated, the principal amount and all accrued interest under the
Bridge Facility will become due and payable, and, in certain circumstances, (a) the Company may be required to reimburse Purchaser and its affiliates for all of their reasonable
out-of-pocket fees and expenses up to $250,000 and (b) Purchaser may be required to pay the Company a termination fee of $1.5 million, which amount shall be
subject to offset to any amounts owed by the Company in connection with the Bridge Loan Agreement. If the Merger Agreement is not consummated, the Company will continue to be a publicly traded
company, and the Company may not be able to pay its debts as they come due, including the Bridge Facility.

Basis of Presentation

The consolidated financial statements include the accounts of AWI and all of its subsidiaries for applicable periods, (collectively
referred to hereafter as the "Company"). All subsidiaries are directly or indirectly wholly-owned by AWI. All significant inter-company accounts and transactions have been eliminated in consolidation.

Basis of Accounting

The Company measures all of its assets and liabilities on the historical cost basis of accounting, except as required under generally
accepted accounting principles in the United States ("GAAP") and disclosed herein.

Concentrations and Economic Conditions, and Related Risks and Uncertainties

Because the Company operates primarily in the larger metropolitan areas of Nevada in the highly regulated gaming industry, realization
of its receivables and its future operations could be affected by adverse economic conditions in Nevada and its key feeder markets in the western United States, and by possible future
anti-wagering legislation and regulatory limitations on the scope of wagering. All of the Company's wagering revenue comes from its Nevada race and sports books, of which nearly 19% is
derived from professional football events. If the professional football season were to be interrupted, for example, as a result of the current NFL lockout, this could have a significant adverse impact
on future operations. Management also estimates that a significant amount of the Company's Nevada non-casino wagering relates to college sports and, therefore, the passage of amateur
sports anti-wagering legislation could have a material adverse impact on future operations. In addition, because the Company

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

1. Organization, Risks and Uncertainties, and Summary of Significant Accounting Policies (Continued)

generates
substantial revenue from system sales and maintenance to a relatively small population of potential customers, a decline in the size, demand or number of these contracts could also adversely
affect future operations.

Though
there are signs of economic improvement, lingering markers of the downturn still affects Nevada with restricted credit markets and reduced consumer spending, particularly in the
domestic gaming and leisure industries, and the Company's business for an indeterminate period. We are also hopeful, but there is no assurance that, the Company's average wagering win percentage,
which has recently been significantly lower than historical levels due to unpredictable swings in customer betting success, will increase and also have a positive impact on our cash flow from
operating activities.

The
Company often carries cash and cash equivalents, including statutorily restricted amounts, on deposit with financial institutions substantially in excess of federally-insured limits,
and the risk of losses related to such concentrations may be increasing as result of recent economic developments and uncertainties discussed in the foregoing paragraph. The extent of a future loss as
a result of uninsured deposits in the event of a future failure of a bank or other financial institution, if any, is not subject to estimation at this time.

Accounts Receivable and Allowance for Doubtful Accounts

The Company manages its concentrations of credit risk by requesting deposits; evaluating the creditworthiness of systems' customers
before extending credit; and by perfecting and using, when necessary, security interests in the hardware and software.

Accounts
receivable are evaluated quarterly for collectability, and carried net of an appropriate allowance, at their estimated collectible value. Since customer credit is generally
extended on a short-term basis, accounts receivable do not bear interest, although a finance charge may be applied to accounts that are more than 30 days past due.

The
allowances for doubtful accounts represent allowances for accounts receivable that are estimated to be partially or entirely uncollectible. These allowances are used to reduce gross
accounts receivable to their estimated net realizable value. The Company records these allowances as a charge to general and administrative expenses.

In
establishing an allowance for doubtful accounts, if any, the Company is required to make judgments based on historical data and future expectations regarding the collectability of the
amount owed to the Company. The Company considers, among other things, the customer's financial condition; the relative strength of the Company's legal position, including the related cost of any
proceedings and its relationship with the customer; the amounts on the aging schedule; historical payment information; and local and general economic conditions.

Generally,
accounts for which no payments have been received for three consecutive months are considered delinquent, and the customary collection efforts are initiated. Accounts for
which no payments have been received for 12 months or if management becomes aware that no payment will be made to the Company, are written off. The maximum losses that the Company would incur
if a customer failed to pay would be limited to the amount due after any allowances were provided.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

1. Organization, Risks and Uncertainties, and Summary of Significant Accounting Policies (Continued)

Use of Estimates

Timely preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
reported amounts, which estimates may require revision in future periods. Settings and adjustments of betting lines on sporting events that have not yet taken place as of the most recent balance sheet
date, valuation of deferred tax assets, changed in estimated fair value of warrant liability, and estimated costs of litigation, claims and assessments are subject to change materially within one
year.

Cash and Equivalents

Cash equivalents include highly liquid investments with initial maturities of three months or less. Excluded from cash and equivalents,
but included in current assets, are restricted cash amounts primarily required to be maintained on deposit with a bank under Nevada Gaming Commission Regulation 22.040 (Note 6a), to fund
future potential gaming losses.

Inventories

Inventories consisting primarily of systems components and replacement parts are stated at the lower of cost (based on the
first-in, first-out method) or market value.

Property and Equipment

Property and equipment (Note 2) is stated at cost, net of accumulated depreciation and amortization, computed using the
straight-line method over the estimated useful lives of the depreciable assets, generally 3 to 10 years for equipment, furniture and fixtures, and 40 years for building
improvements, but limited to the lease term (Note 6c) for leasehold improvements. Test for possible impairment are performed when events and circumstances indicate that the assets might be
impaired. An impairment loss is recognized if the carrying amount of the asset is not recoverable from its undiscounted cash flows and is measured as the difference between the
carrying amount and the estimated fair value of the asset. There were no impairment provisions deemed necessary or taken for the fiscal years ended January 31, 2011 or 2010.

Goodwill

As of the most recent balance sheet date, goodwill primarily consists of the excess of the purchase price over fair value of net assets
acquired in connection with the acquisition of CBS. Goodwill is evaluated periodically and at least annually, for impairment as events or circumstances warrant. Such evaluations include, among other
analysis, cash flow and profitability projections, including the impact on other operations of the Company. There were no impairment provisions deemed necessary or taken for the fiscal years ended
January 31, 2011 or 2010.

Change in Estimated Fair Value of Warrant Liability

The Company used the Black-Scholes valuation model and "Level 2" measurement inputs (as defined in GAAP) including the risk-free
interest rate of 4%, expected warrant life of five years, and its

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

1. Organization, Risks and Uncertainties, and Summary of Significant Accounting Policies (Continued)

internal
stock price volatility factor (initially 206.3% and 231.4% at January 31, 2011) to estimate the fair value of its warrant liability at each balance sheet date.

Revenue Recognition

General.Service revenues are principally recognized as products or services are provided to customers; the Company does not bill in
advance. Advance
deposits, if any, are recorded as deferred revenue until services are provided to the customer. Sales and similar revenue-based taxes collected from customers
are excluded from revenue but rather are recorded as a liability, which is payable to the appropriate taxing authority and included in accrued expenses.

Wagering.The Company records wagering revenues in compliance with Nevada law and regulations. For sports and non-pari-mutuel
race wagering, the Company uses an accrual method wherein the handle (total amount wagered) is recognized as revenue on the day the event occurs (rather than the day the wager is accepted) and is
decreased by the total amount owed to patrons with winning wagers. This gross calculation (handle less payouts) is then adjusted upward to account for any winning wagers that were not redeemed
(cashed) within the specified time period. For pari-mutuel race, commission and breakage revenues are recorded when the wagers are settled, typically the same day as the wager.

Hotel/Casino.Revenues of Sturgeon's consist primarily of slot revenue, recorded in compliance with Nevada gaming law and regulations,
hotel room and
food and beverage revenue. Casino revenue is the aggregate net difference between gaming wins and losses. Food and beverage and other operating revenues are recognized as the good and services are
provided. Advance deposits, if any, are recorded as deferred revenue until the goods or services are provided to the customer. Sturgeon's casino gaming, food and beverage and other operating revenues
are included in hotel/casino revenue. Casino revenues are recognized net of cash incentives to patrons for gambling, which are not material, and have been recognized as a direct reduction of casino
revenue. Revenue does not include the retail value of food and beverage, and other services gratuitously furnished to patrons, which is not material. The estimated cost of providing such gratuities is
included in casino direct expenses.

Systems.Software license fees represent revenues related to licenses for race/sports software delivered to customers for in-house use.
Revenues from software license agreements (including any related training revenue) are recognized upon installation of the software. The Company recognizes revenue from the sale of hardware (and any
related installation revenue) upon installation of the hardware. The Company negotiates separate maintenance agreements with certain customers to provide for the long-term care of the
software and hardware. Pursuant to the terms of the various maintenance agreements, a fixed sum is due at the beginning of each month regardless of whether the customer requires service during that
month. The Company recognizes maintenance revenue on the first day of each month for which the maintenance agreement is in place.

In
other words, revenue is not recognized until it is realized or realizable and earned. The Company recognizes revenue when related assets held are readily convertible to known amounts
of cash or claims to cash, and revenues are considered to have been earned when we have substantially accomplished what we must do to be entitled to the benefits represented by the revenues.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

1. Organization, Risks and Uncertainties, and Summary of Significant Accounting Policies (Continued)

The
Company's software licensing arrangements do not require significant production, modification, or customization of the software and, except for maintenance services consistently
priced on a per terminal / license basis at a standard price per unit across our entire customers base, the Company's software arrangements do not provide licenses for any other software deliverables.
Practically speaking, there are no software upgrades available once the hardware and applicable software license are purchased. Once in use, changes to the software occur infrequently and typically
consist only of minor debugging or patch fixes for a period contractually limited to 90 days following the purchase. Subsequent minor and infrequent modifications are considered part of the
support service and included in the maintenance fee. In the unlikely event that a major upgrade (modification) to the software is developed, customers would be given the opportunity, but are not
required, to purchase it separately and to enter into a new software license agreement. Occasionally, however, a customer will request a custom enhancement. Such custom enhancements are developed and
billed separately and are accounted for as sales and recognized as revenue upon installation and acceptance by the customer.

The
Company does not earn or collect the software license and equipment fees over the life of the agreement (the stated initial term is 60 months but automatically renews for
consecutive one-year periods indefinitely, without additional cost to the customer, until cancelled by the customer with appropriate written notice, and thus is, in substance, perpetual),
or recognize revenue prior to inception of the license; rather, these fees are earned and paid upon installation, which coincides with the commencement of the license.

The
only fees that are recognized over time are for maintenance services. Certain amounts in a few, but not all maintenance agreements, could, under one very remote condition that has
never occurred (an intellectual property infringement claim that requires the software to be taken out of service and which could not be replaced within a specified time period), be refundable. A
customer may not unilaterally cancel its maintenance agreement at any time. Non-payment would result in a breach of the agreement, and the Company may seek to enforce its legal and
equitable contract rights.

Advertising

The Company expenses all advertising costs as incurred. Advertising expense was $140,802 and $99,252 for the fiscal years ended
January 31, 2011 and 2010, respectively.

Stock-Based Compensation

Stock options (Note 5) expected to be exercised currently and in future periods are measured at estimated fair value with the
expense associated with these awards being recognized on a straight-line basis over the award's vesting period. The fair value of options granted at the date of grant is estimated

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

1. Organization, Risks and Uncertainties, and Summary of Significant Accounting Policies (Continued)

using
the Black-Scholes Multiple Option pricing model based on Level 2 and 3 inputs as defined in GAAP, with the following weighted-average assumptions in the fiscal years ended
January 31:

2011

2010Risk-free interest rate


1.5
%

4.0
%Expected life of options (in years)


2.0


3.4Expected volatility of stock price


231.4
%

206.3
%Expected dividend yield


0.0
%

0.0
%


The
expected life (estimated period of time outstanding) of options granted was estimated using the expected exercise behavior of employees. The risk-free rate used was based
on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility was based on historical volatility for the Company over the past two years. The expected dividend yield is
based on the historical information that the Company did not have dividends in prior years.

Legal Defense Costs

The Company records provisions for probable losses equal to the lower end of the estimated probable loss range for matters in
litigation or other disputes, such as those discussed in Note 6(b) and periodically revises these estimates as facts and circumstances change. The Company does not accrue for estimated future
legal and related defense costs, if any, to be incurred in connection with outstanding or threatened litigation and other disputed matters but rather, records such as period costs when the related
services are rendered.

Income Taxes

The Company recognizes interest and penalties related to income tax matters (Note 8), if any, as part of income tax expense in
its consolidated statements of operations.

Net Income (Loss) Per Common Share

Basic income or (loss) per common share is calculated based on the weighted average number of shares of common stock outstanding during
the reporting period. Diluted net income per common share is calculated giving effect to all potentially dilutive common shares, assuming such shares were outstanding during the reporting period. Net
income (loss) per common share considers potentially dilutive securities, which consist of stock options and warrants of 2,695,780 and 400 at January 31, 2011 and 2010, respectively.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

1. Organization, Risks and Uncertainties, and Summary of Significant Accounting Policies (Continued)

Following
is a reconciliation of the numerators and denominators of the net income (loss) per common share computations for the periods presented.

Net Income (Loss) (numerator)

Weighted Average Common Shares (denominator)2011Net loss

$
(3,316,678
)Less preferred stock dividends (Note 4)


(141,619
)Basic net loss per common share:Net loss applicable to common shares


(3,458,297
)

8,307,409Effect of 150,519 dilutive stock options





None(*
)Diluted net loss per common share:Net loss applicable to common shares

$
(3,458,297
)

8,307,4092010Net income

$
983,706Less preferred stock dividends (Note 4)


(141,655
)Basic net income per common share:Net income applicable to common shares

$
842,051


8,068,836


---

2. Property and Equipment

Property and equipment consists of the following as of January 31, 2011 and 2010:

2011

2010Land

$
505,558

$
505,558Building and building improvements


828,125


825,068Leasehold improvements


136,844


136,844Equipment, furniture and fixtures


7,680,006


7,819,5509,150,533


9,287,020Less accumulated depreciation and amortization


(6,696,045
)

(5,985,840
)$
2,454,488

$
3,301,180


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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

3. Debt

Short-term debt consists of $452,111 payable to Alpine Advisors, LLC (Note 5).

As
of January 31, 2011 and 2010, long-term debt consists of the following:

2011

2010Note payable, Sturgeon's

$
1,521,865

$
1,563,779Racusin settlement obligation(Note 6)


6,141


338,851Due to Victor and Terina Salerno (Note 7)


1,250,000


1,000,000ISI Settlement Agreement (Note 6)


170,000


Other


16,347


69,9292,964,353


2,972,559Less current portion


170,604


441,781$
2,793,749

$
2,530,778


Note payable, Sturgeon's.This note payable is collateralized by substantially all of the assets of Sturgeon's. It is payable in equal monthly installments of
principal and interest of approximately $153,000 annually through January 2013, with the balance of approximately $1.43 million due February 2013. In October 2010, the Company negotiated a rate
modification with Nevada State Bank which lowered the fixed interest rate from 8% to 6.9%.

Long-term debt maturities for the years ending January 31 follow:

2012

2013

2014

TotalNote payable, Sturgeon's

$
48,116


51,184


1,422,565

$
1,521,865Racusin settlement obligation


6,141








6,141Due to Victor Salerno





1,000,000


250,000


1,250,000ISI Settlement Agreement


100,000


70,000





170,000Other


16,347








16,347Total

$
170,604

$
1,121,184

$
1,672,565

$
2,964,353


4. Series A Preferred Stock

The Series A Preferred Stock is held by two persons. One shareholder is an officer and director of the Company (the "Officer/Director Shareholder"); owning a total of 8,900 shares
(5,662 regular shares and 3,238 redeemable shares). The other shareholder is a director of the Company (the "Director Shareholder"); owning a total of 5,262 shares (all regular shares).

Holders
of the Series A Preferred Stock are entitled to receive monthly payments, upon declaration by the Board of Directors, of cumulative cash dividends at the annual rate of
10% per share. Interest at the rate of 10%, compounded annually, accrues on Series A Preferred Stock dividends that have accumulated but have not been paid. The Series A Preferred Stock
is not convertible but is callable, in whole or (on a pro rata basis) in part, at any time at the option of the Company. There were no shares called during the fiscal years ending January 31,
2011 or 2010. The holders of Series A Preferred Stock are not entitled to vote (on a cumulative basis or otherwise) as a

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

4. Series A Preferred Stock (Continued)

class
or with AWI's common stock (the "Common Stock") upon any matters submitted to shareholders for a vote, except as mandated under Nevada law. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any assets or
surplus funds, an amount equal to $100 per share plus all accumulated and unpaid dividends thereon and any unpaid interest due.

Over
the years, the Officer/Director Shareholder has forgone his right to have shares redeemed in accordance with the pro-rata provision applicable when shares were called,
and
accordingly, the affected 3,238 shares have been reclassified as "Redeemable Series A Preferred Stock" (in the liabilities section); these may be put to the Company for redemption at any time.

5. Stock Options and Other Equity and Related Party Transactions

Stock Repurchase

In 1999, the Board of Directors approved a program to repurchase up to 250,000 shares of the Company's publicly held Common Stock from
time to time in the open market. As of January 31, 2011, 61,100 shares had been repurchased and are held by the Company as treasury stock, and accordingly are non-voting. The timing
and amount of future share repurchases, if any, will depend on various factors, including market conditions, available alternative investments, the Company's financial position, and restrictive
covenants of the Merger Agreement and Bridge Loan.

2001 and 2010 Stock Option Plans

In general, the Company may, upon approval from the Board of Directors, award options to any employee at any time except that no
employee may receive in excess of 250,000 options per year and no more than 1,150,000 options in total may be granted under the 2001 Employee Stock Option Plan (the "2001 Plan"). In November 2010, the
stockholders approved the 2010 Employee Stock Option Plan (the "2010 Plan"). In general, the Company may, upon approval from the Board of Directors, award options to any employee at any time except
that no employee may receive in excess of 1,100,000 options and no more than 2,744,980 options in total may be granted
under the "2010 Plan". The 2001 and 2010 Plans do not require any specific vesting schedule and/or term; as such, the vesting and term is at the discretion of the Board of Directors. Pursuant to the
terms of the respective 2001 or 2010 Plan, the exercise price of options must be equal to or greater than the market value of the Common Stock on the date of the grant. The 2001 Plan is scheduled to
terminate on August 8, 2011, except as to the outstanding stock options on that date. At the closing, each outstanding stock warrant and option to purchase shares of our common stock that is
outstanding immediately prior to the effective time of the merger shall be cancelled and, in exchange therefor, and the former holder shall receive an amount in cash equal to the product of
(i) the excess of $0.90 over the exercise price per share under such stock warrant or option, and (ii) the number of shares subject to such stock warrant or option. (See Note 1).

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

5. Stock Options and Other Equity and Related Party Transactions (Continued)

The
following tables summarize the current status of the 2001 and 2010 Plans:

2011

2010Number of
Shares

Weighted-
Average
Exercise Price

Number of
Shares

Weighted-
Average
Exercise PriceOutstanding at Beginning of Fiscal Year


626,499

$
1.85


688,499

$
1.79Granted


2,294,981Cancelled


(280,000
)

1.71


(62,000
)

1.27Outstanding at End of Fiscal Year


2,641,480


0.50


626,499


1.85Exercisable at End of Fiscal Year


917,436





587,299


Outstanding
and Exercisable by Price Range as of January 31, 2011:

Options Outstanding

Options ExercisablePrice Range

Number
Outstanding

Remaining
Life

Weighted-
Average
Exercise Price

Number
Exercisable

Weighted-
Average
Exercise Price$0.27


2,094,980


9.78

$
0.27


570,936

$
0.27$0.42


200,000


9.95


0.42


0


0.42$1.50


30,000


2.34


1.50


30,000


1.50$2.00


316,500


0.73


2.00


316,500


2.00January 31, 2011


2,641,480


8.61


0.50


917,436


0.91Available For Grant


1,021,567


Vesting Schedule

Vested at January 31, 2010


626,499Cancelled


(280,000
)Vesting, fiscal year ending January 31, 2011


570,936Vesting, fiscal year ending January 31, 2012


1,025,717Vesting, fiscal year ending January 31, 2013


174,582Vesting, fiscal year ending January 31, 2014


523,746Number of Options Outstanding at January 31, 2011


2,641,480


Directors Stock Option Plan

In 1996, the Company adopted the Directors Stock Option Plan (the "Directors Plan"). The Directors Plan was extended in August 2006 and
terminated on April 30, 2011. In October 2007, the Board of Directors ratified this practice as an amendment to the Directors Plan and such prior grants and amendments to the Directors Plan
were approved by the stockholders at the last Annual Stockholders' Meeting held in December 2007. Beginning in fiscal year 2002, each non-employee

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

5. Stock Options and Other Equity and Related Party Transactions (Continued)

director
of the Company has been awarded options for 400 shares of stock on the last day of each fiscal year, in lieu of 100 shares of stock per committee on which such non-employee
directors serve. Mr. Swecker and Mr. Barengo voluntarily renounced their rights to stock option awards that would have been granted on January 31, 2011 and January 31,
2010, as part of the Directors' Stock Option Plan for the best financial interests of the Company.

No
more than 40,000 options may be granted pursuant to the Directors Plan, which will be exercisable on the anniversary of the date of grant and will expire no later than 10 years
from the grant date. Pursuant to the terms of the Directors Plan, the exercise price of options must be equal to the market value of the Company's common stock on the date of the grant.

As
of January 31, 2011 and 2010, 20,000 and 20,800 options were outstanding with 20,000 and 20,800 exercisable, respectively, at a weighted -average price of $1.32. At the
closing, each outstanding stock warrant and option to purchase shares of our common stock that is outstanding immediately prior to the effective time of the merger shall be cancelled and, in exchange
therefor, and the former holder shall receive an amount in cash equal to the product of (i) the excess of $0.90 over the exercise price per share under such stock warrant or option, and
(ii) the number of shares subject to such stock warrant or option. (See Note 1).

Options
outstanding and exercisable by price range as of January 31, 2011 follows:

Options Outstanding

Options ExercisablePrice Range

Number
Outstanding

Remaining
Life

Weighted
Average
Exercise Price

Number
Exercisable

Weighted
Average
Exercise Price$0.12


400


2.00

$
0.12


400

$
0.12$0.15


400


3.00


0.15


400


0.15$0.35


400


1.00


0.35


400


0.35$0.55


400


4.00


0.55


400


0.55$0.79


800


2.00


0.79


800


0.79$1.00


10,000


5.52


1.00


10,000


1.00$2.00


7,600


4.58


2.00


7,600


2.0020,000


4.78

$
1.32


20,000

$
1.32Available For Grant


20,000


Non-cash
stock-based compensation expense recorded in the line item "Selling, General and Administrative Expenses" on the consolidated statements of operations for fiscal
2011 and 2010 was $236,422and $34,845, respectively.

Other Equity and Related Party Transactions

Services contributed by Victor and Terina Salerno and credited to additional paid-in capital for fiscal 2011 and 2010
totaled $146,337 and $193,165, respectively. Mr. Salerno also provided the Company with a $250,000 interest free revolving line of credit on May 17, 2010, which was fully drawn as of
January 31, 2011, and repaid from the proceeds of the Bridge Facility.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

5. Stock Options and Other Equity and Related Party Transactions (Continued)

In
addition, during the quarter ended April 30, 2010, 250,000 shares of common stock were issued to the principal of Alpine Advisors, LLC ("Alpine") as a
non-refundable fee for financial advisory services, plus 25,000 shares effectively issued during the quarter ended July 31, 2010 as a one-time payment of additional
compensation for a late filing. The shares were valued at $0.15 per share ($41,250) based on the trading price of the Company's common stock on the date of grant. Additional fees are due Alpine upon
the successful completion of (1) a single or a series of transactions in which 50% or more of the voting power of the Company or all or a substantial portion of its business or assets are
combined with or transferred to another company and (2) any offering of debt, equity or equity-linked securities either individually or in combination. The success fee is calculated generally
at 3-3.5% of the "equity value" of the transaction, as defined, or the amount of the proceeds from the financing

In
June 2010, the Company borrowed $195,000 from and entered into an agreement with Alpine that entitled but did not obligate Alpine to purchase 600,000 shares of the Company's common
stock at an exercise price of $0.22 per share through June 11, 2015. The principal amount of the loan plus interest at 15% was due June 17, 2010 (six days following the issuance) and
then on demand with weekly interest payments calculated at 22% per annum. On June 22, 2010 the parties entered into a financing agreement that allowed the Company to borrow up to $500,000, at
15% per annum, due on June 10, 2011, and collateralized by the Company's stock in CBS and the receivables of CBS. Proceeds from the June 22nd financing agreement were used, in
part, to refinance the June 11th loan for $195,000. The Company has borrowed $500,000 to date, which was repaid from the proceeds of the Bridge Facility. The warrant agreement was also
amended to provide Alpine with registration rights and, the appointment two persons to the Company's board of directors, which would expand from five to seven members, should the Company default in
its financing or collateralization obligations. Using the Black-Scholes valuation model and "Level 2" measurement inputs as defined in GAAP including a risk-free interest rate of
4%, expected warrant life of five years, and its internal stock price volatility factor of 206% initially (approximately 231% as of January 31, 2011), the warrants were valued at $129,478 with
all treated as a warrant liability, revalued at each subsequent balance sheet with the change charged or credited to earnings with the debt discount amortized to interest expense over the repayment
term of the loan using the effective interest method.

At
the closing, each outstanding stock warrant and option to purchase shares of our common stock that is outstanding immediately prior to the effective time of the merger shall be
cancelled and, in exchange therefor, and the former holder shall receive an amount in cash equal to the product of (i) the excess of $0.90 over the exercise price per share under such stock
warrant or option, and (ii) the number of shares subject to such stock warrant or option.

6. Commitments and Contingencies



Nevada Gaming Commission Regulation 22.040 ("Regulation 22.040") requires us to maintain reserves (cash, surety bonds,
irrevocable standby letter of credit, etc.) sufficient to cover any outstanding wagering liability including unpaid winning tickets, future tickets and telephone account deposits. The Company
generally funded this reserve requirement through surety bonds secured by restricted cash held at Nevada State Bank.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

6. Commitments and Contingencies (Continued)

As
of January 31, 2011, we had cash reserves and pledge agreements totaling $2.4 million to satisfy the Regulation 22.040 requirement in addition to a float amount
of $600,000 allowed by the Nevada Gaming Control Board to cover short term fluctuations in the outstanding liability. The $2.4 million amount consisted of our reserve account of
$1.7 million held at Nevada State Bank and pledged
certificates of deposit totaling $700,000. The pledged certificates initially expired in October 2010, but the parties agreed to extend their respective pledges without designating a specific
expiration date. On April 13, 2011 the Nevada Gaming Control Board allowed us to reduce our reserve balance by $750,000 during the off-peak season. The Company reduced its cash deposit at
Nevada State Bank by $500,000 and reduced the pledge from Robert and Tracey Kocienski by $250,000 as of April 19, 2011. We will likely have to increase our reserve in August 2011, and if we are
unable to do so, it would have an adverse impact on us including, but not limited to, requiring a significant reduction in the number of race/sports locations operated by Leroy's, and/or an
elimination or reduction of telephone wagering accounts, resulting in an adverse change in our operating results. We anticipate being able to increase our reserve balance as a portion of the financing
proceeds from the Bridge Facility is allocated for this purpose.



Except as noted below, the Company is not a party in any litigation and has no knowledge of any pending material legal proceedings in
any court or agency of government or governmental authority. The Company has recorded provisions for probable losses equal to the lower end of the estimated probable loss range for the matters. As of
January 31, 2011 and 2010, respectively, the aggregate recorded provision for the following matters, included in long term debt, was $170,000 and $338,851.

Racusin

The Company and Racusin entered into a Settlement Agreement on September 3, 2004. On or about March 11, 2005, the Company
consummated its Plan of Reorganization and emerged from Bankruptcy. On May 13, 2005, the Company commenced an adversary proceeding in its bankruptcy case against Racusin and various other
competing claimants to Racusin's claim which action sought to interplead any distribution on the Racusin Claim into the Bankruptcy Court (the "Interpleader Adversary"). On or about August 2,
2005, the Bankruptcy Court entered an order approving the interpleader (the "Interpleader Order"), whereby the Company placed 250,000 shares of common stock with the clerk of the court as payment of
the Racusin Claim while Racusin pursued his appeal of the Bankruptcy Appellate Panel's decision in our favor subordinating Racusin's claim pursuant to Section 510(b) of the Bankruptcy Code to
the 9th Circuit Court of Appeals. The Interpleader Order further stated that the Company's stock would be substituted with cash payment in the event that the 9th Circuit reverses the
Bankruptcy Appellate Panel. On August 31, 2005, the Court entered an order staying the interpleader (the "Stay Order") pending a decision from the 9th Circuit Court of Appeals.

On
June 28, 2007, the 9th Circuit Court of Appeals entered its final opinion, which reversed the Bankruptcy Appellate Panel's decision, thus holding that Racusin's claim
was not to be subordinated
pursuant to Section 510(b) of the Bankruptcy Code. The Company filed a Form 8-K on July 6, 2007, in response to the 9th Circuit's reversal of the Bankruptcy
Appellate Panel.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

6. Commitments and Contingencies (Continued)

On
November 2, 2007, the Bankruptcy Court heard an argument to determine whether the Company could withdraw its 250,000 shares of common stock and whether it could begin
depositing funds pursuant to the Settlement Agreement attached to the Company's motion (the "Revised Payment Schedule"). The Revised Payment Schedule estimated post-judgment interest at 8%
per annum, compounded, from March 11, 2005, without taking into consideration the Interpleader Order of July 27, 2005 or the Stay Order of August 31, 2005.

The
Company and Racusin entered into the Settlement Agreement on September 3, 2004. Racusin filed a claim for breach of the Settlement Agreement on January 14, 2009, and
motion for summary judgment to accelerate amounts due, with penalty interest, on February 24, 2009. On August 18, 2009, the Court entered an order granting summary judgment in favor of
Racusin that would have accelerated amounts due and imposed penalty interest at 12% per annum. We moved for rehearing in spring 2010 and at the hearing the Court verbally indicated an intent to vacate
an August 18, 2009 order granting summary judgment in favor of Racusin, with the order subsequently entered on December 23, 2010. Based upon the Court's December 23, 2010, wherein
the Court found that an issue of material fact existed as to the potential effect on the Settlement Agreement as a result of events that occurred in the Interpleader Adversary during the period
between the Bankruptcy Appellate Panel's subordination decision and the Ninth Circuit Court of Appeal's decision to reverse the Bankruptcy Appellate Panel, we filed a motion for summary judgment
seeking dismissal of Racusin's still pending complaint of breach of the Settlement Agreement, and further relief on and discharge pursuant to the Interpleader Action. With respect to our claim for
relief on the Interpleader action we contend that Racusin is not entitled to recover interest that allegedly accrued during the time when we previously deposited with the Court the 250,000 shares of
AWI common stock through the date of entry of the Deposit Order on November 5, 2007, when the stock was exchanged for cash (i.e., "Gap Period")
and the interest that allegedly accrued during that period ("Gap Interest"). It is our position that if the Court disallows Gap Interest, or allows for an equivalent offset in restitution, we would
have satisfied our entire obligation in full under the Settlement Agreement as of November 2010, and we would therefore be entitled to a refund of overpayments it made into the Court after November
2010. In the event the Court disagrees with our position, we argue in the alternative that we are current on its payments, and that we will have paid off our entire remaining obligation in full under
the Settlement Agreement by June 2012.

Accordingly,
as of January 31, 2011, we believe that the balance owed to Racusin is $6,141 plus interest at 8% per annum. If arguments regarding the effects of the Stay Order on
the Interpleader are heard and the Court were to rule that the Stay Order did not effect the Interpleader Order and did not result in an off-set in the calculation of the accrued interest,
then we believe the amount due would be approximately $402,697 as of January 31, 2011, assuming an 8% interest rate.

Internet Sports International, Ltd.

On July 17, 2008, Internet Sports International, Ltd. ("ISI") filed a complaint against three of our subsidiaries, AWI
Manufacturing, Inc. ("AWIM"), AWI Gaming, Inc. ("AWIG") and Computerized Bookmaking Systems, Inc. ("CBS"), and our General Counsel (collectively, "the Defendants"). On
February 3, 2010, the Defendants and ISI engaged in consensual mediation, which resulted in a global

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

6. Commitments and Contingencies (Continued)

settlement.
The parties subsequently entered into a Settlement Agreement whereby AWIM agreed to pay to ISI the total sum $170,000 in exchange for a mutual release of all claims.



The Company has operating lease commitments for the majority of its race and sports book locations and for leased office equipment.
Future minimum lease payments under non-cancelable operating leases are as follows:

2012

2013

2014

2015

2016Sports book locations

$
635,400

$
335,150

$
205,100

$
77,125

$
17,500Office equipment and vehicles


40,003


21,740


15,566


2,846


Building rent


370,800


381,924


393,382


371,418


$
1,046,203

$
738,814

$
614,048

$
451,389

$
17,500


Rent
expense for all operating leases was $1,211,362 and $1,451,489 during the fiscal years ended January 31, 2011 and 2010, respectively.



The Company has employment agreements with the following executive officers. Our annual commitment under these agreements is $740,000
through 2013, without consideration of typical benefits and voluntary salary reductions or deferrals. Information related to these agreements follows:

Victor J. Salerno.Mr. Salerno's employment agreement was effective July 1, 2002, with automatic renewals for
successive
five-year terms as of January 31, 2008. The agreement provides an annual base salary of $240,000. However, Mr. Salerno agreed to temporarily reduce his annual base salary in
an amount sufficient to cover payroll deductions for benefits, effective November 24, 2008. Upon funding of the Bridge Facility, Mr. Salerno received payment of his deferred salary
reductions, and his full salary was reinstated. He is entitled to an annual performance bonus equal to 5% of our pre-tax earnings (as defined in his agreement) for the fiscal year,
employer contributions to a profit-sharing or retirement plan of not less than 4% of his base salary, health and life insurance coverage, and use of an automobile that we provide for him.
Mr. Salerno's agreement also entitles him to certain benefits if he is terminated without cause or if his employment terminates within 24 months after a change in control of AWI.
However, on April 13, 2011, Mr. Salerno entered into a subsequent agreement with the Company that terminates his employment agreement with the Company, including the entitlement to any
payments, benefits or other rights thereunder, simultaneously with the consummation of the merger.

Robert Kocienski.On November 11, 2010 the Company entered into an agreement with Robert Kocienski, Chief Operating Officer
and Principal
Financial Officer, for three years. The agreement provides an annual base salary of $250,000 and additional compensation of $204,261 to be paid over the term of the agreement in equal
bi-weekly installments. As all our employees have had their salaries reduced, including executive management with and without an employment agreement, Mr. Kocienski verbally agreed
to reduce of his annual base salary by half and defer the payment of all the additional

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Table of Contents

AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

6. Commitments and Contingencies (Continued)

compensation
for an unspecified time period. Upon funding of the Bridge Facility, Mr. Kocienski received payment of his deferred salary reductions, and his full salary was reinstated. In
addition, Mr. Kocienski will be reimbursed for all reasonable expenses incurred in the performance of his duties, participate in all medical, dental or other benefit plans made available by the
Company to its employees, and be eligible for an annual bonus pursuant to the Company's bonus program as determined by the Company's board of directors. The Company granted Mr. Kocienski a
stock option to
purchase 1,047,490 shares of the Company's common stock at an exercise price equal to $.27 per share. The agreement provides for termination rights and change of control payments dependent on the
particular circumstances. Mr. Kocienski did not enter into any agreement modifying the terms of his employment agreement. At consummation of the merger, Mr. Kocienski will be paid the
change of control payments, the total sum of which is variable depending on the date of the consummation of the merger.

John English.On November 11, 2010 the Company entered into an agreement with John English, Senior Vice President of
Marketing and Public
Relations, for three years. The agreement provides an annual base salary of $250,000 and additional compensation of $204,261 to be paid over the term of the agreement in equal bi-weekly
installments. As all our employees have had their salaries reduced, including executive management with and without an employment agreement, Mr. English verbally agreed to reduce of his annual
base salary by half and defer the payment of all the additional compensation for an unspecified time period. Upon funding of the Bridge Facility, Mr. English received payment of his deferred
salary reductions, and his full salary was reinstated. On April 13, 2011, Mr. English entered into an agreement that upon the execution of the Merger Agreement, amended and restated his
employment agreement with the Company, including providing for base salary, retention payments and severance in certain circumstances. In addition, Mr. English will be reimbursed for all
reasonable expenses incurred in the performance of his duties, participate in all medical, dental or other benefit plans made available by the Company to its employees, and be eligible for an annual
bonus pursuant to the Company's bonus program as determined by the Company's board of directors. The Company granted Mr. English a stock option to purchase 1,047,490 shares of the Company's
common stock at an exercise price equal to $.27 per share. The agreement provides for termination rights and change of control payments dependent on the particular circumstances.

Bruce Dewing.On August 1, 2010, the Company terminated the at-will employment relationship between Mr. Dewing and our
Company's wholly-owned subsidiary, AWI Gaming, Inc., where Mr. Dewing served as President of AWI Gaming, Inc. As a result of the termination, the at-will employment
agreement (the "Employment Agreement") between Mr. Dewing terminated. Pursuant to the terms of the Employment Agreement, the Company paid Mr. Dewing three months salary as severance pay,
continued to provide Mr. Dewing with medical insurance coverage through December 31, 2010, and continued to pay the remaining balance of Mr. Dewing's accrued, but unused, paid
time off. Victor Salerno, the Company's President and Chief Executive Officer, replaced Mr. Dewing as President of AWI Gaming, Inc. In addition, Mr. Dewing resigned from our Board
of Directors; his resignation from the Board of Directors was not the result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

7. Related Party Transactions

The Company has engaged in the following related-party transactions during the years ended January 31, 2011 and 2010:

As
a result of a series of prior transactions, as of February 1, 2009, the Company owed Victor and Terina Salerno (the "Salernos") $1,000,000, payable interest-only
monthly at the rate of 10.0% per annum with the balance due February 1, 2012. Our independent directors have considered and approved the fairness of the financing arrangements with the
Salernos. We paid interest to the Salernos totaling $100,000 in each of fiscal 2011 and fiscal 2010.

In
addition, on May 17, 2010, Mr. Salerno loaned the Company an additional interest -free revolving line of credit in the amount of $250,000, which was repaid
from proceeds of the Bridge Facility.

In
October 2009 Victor and Terina Salerno pledged a $200,000 certificate of deposit to the Nevada Gaming Control Board on behalf of Leroy's to increase the Regulation 22.040
reserve.

Related
party interest expense recorded for fiscal 2011 and 2010 was $124,000 and $108,000, respectively.

8. Income Taxes

The tax effect of significant temporary differences representing deferred tax assets and liabilities for the Company as of January 31, 2011 and 2010 follows:

2011

2010Deferred tax assets:Net operating loss carryforwards

$
3,306,411

$
2,517,044Tax credit carryforwards


19,917


46,966Depreciation and amortization


46,708


36,396Racusin settlement





115,209Other


137,366


135,5753,510,402


2,851,190Valuation allowance


(3,422,416
)

(2,406,382
)Deferred tax liability consisting of prepaid expense


(87,986
)

(75,808
)Net deferred tax assets




$
369,000


The
difference between the normal federal statutory tax rate of 34.00% applied to loss from continuing operations before income taxes and the Company's effective tax rate is:

2011

2010Income tax expense (benefit) at federal statutory rate

$
(1,127,671
)
$
334,460Contributed services and other permanent differences


135,865


65,676Other


(24,228
)

1,314Change in valuation allowance


1,016,034


(401,450
)





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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

8. Income Taxes (Continued)

At
January 31, 2011, the Company had federal tax net operating loss ("NOL") carryforwards available to potentially reduce future tax obligations in the aggregate
amount of approximately $9.7 million; of which approximately $1.1 million is expected to expire in 2019. In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible. Management believes that the Company based upon its historical performance of losses in 5 of the past
11 years make it more unlikely that our net deferred tax asset of $369,000, which resulted primarily from NOLs, will be fully realized.

The
Company's federal income tax returns for the years ended January 31, 2008 through 2011 are subject to possible examination by the Internal Revenue Service. Management has
reviewed the positions taken or to be taken on such returns and believes that there are no uncertain tax position as
defined by GAAP that would either require recognition or disclosure in these consolidated financial statements.

9. Business Segments

The Company reports its results of operations through three operating segments: Wagering, Hotel/Casino, and Systems.

Wagering Segment.The following table indicates the primary components of revenue and operating costs resulting in this segment's
operating income
(loss).

Year Ended January 31,2011

2010Revenue

$
6,674,058

$
9,235,783Direct Costs


5,973,238


6,381,494Selling, General and Administrative


1,326,400


1,089,772Depreciation and Amortization


272,030


295,7077,571,668


7,766,973Operating Loss

$
(897,610
)
$
1,468,810


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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

9. Business Segments (Continued)

Hotel/Casino Segment.The following table indicates the primary components of revenue and operating costs resulting in this segment's
operating
income (loss).

Year Ended January 31,2011

2010Revenue:Casino

$
893,509

$
1,106,384Hotel


455,930


489,149Food/Beverage


911,229


803,661Less: Casino Cash Incentives and Other Promotional Allowances


(149,983
)

(109,548
)2,110,685


2,289,646Direct Costs and Expenses:Casino


438,933


431,861Hotel


198,935


170,338Food/Beverage


847,618


724,568Unallocated


437,296


504,3691,922,782


1,831,136Selling, General and Administrative


326,845


266,625Depreciation and Amortization


247,602


255,3612,497,229


2,353,122Operating (Loss)

$
(386,544
)
$
(63,476
)


Systems Segment.The following table indicates the primary components of revenue and operating costs resulting in this segment's
operating loss.

Year Ended January 31,2011

2010Revenue

$
2,860,967

$
3,023,026Direct Costs


857,903


862,939Research and Development


725,689


672,899Selling, General and Administrative


1,841,223


1,366,607Depreciation and Amortization


358,494


395,7503,783,309


3,298,195Operating Loss

$
(922,342
)
$
(275,169
)


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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010

9. Business Segments (Continued)

Reconciliation of Operating Income (Loss) to Income (Loss) Before Income Taxes.The following table reconciles the operating income
(loss) from each
segment to income (loss) before income taxes.

Year Ended January 31,2011

2010Operating Income (Loss)Wagering

$
(897,610
)
$
1,468,810Hotel/Casino


(386,544
)

(63,476
)Systems


(922,342
)

(275,169
)(2,206,496
)

1,130,165Other Income (Expense)Interest Income


5,226


8,476Interest Expense


(433,199
)

(296,208
)Change in Estimated Fair Value of Warrant Liability


(120,816
)

Litigation Income (Expense)


(184,858
)

59,951Other


(7,535
)

81,322(741,182
)

(146,459
)Income (Loss) Before Income Taxes

$
(2,947,678
)
$
983,706


Other Information.Other information regarding the Wagering Segment, Hotel/Casino Segment, and Systems Segment and certain other
unallocated items
are set forth below.

2011

2010Capital ExpendituresWagering

$
3,744

$
43,795Hotel/Casino


38,662


8,357Systems





98,944Unallocated





3,416$
42,406

$
154,512Identifiable Property(1)Wagering

$
399,825

$
668,581Hotel/Casino


1,531,517


1,769,776Systems


827,420


1,187,839$
2,758,762

$
3,626,196


(1)Includes
property and equipment, shown net of accumulated depreciation and amortization; goodwill; and other assets. Goodwill, in the amount of $103,725,
for the fiscal years ended January 31, 2011 and 2010, is a component of the Systems Segment.


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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2011 AND 2010




10. Additional Supplementary Cash Flow Information

The reconciliation of net income (loss) to net cash provided by (used in) operating activities is as follows:

2011

2010Net income (loss)

$
(3,316,678
)
$
983,706Depreciation and amortization of property and equipment


878,126


979,858Amortization of deferred gain on sale/leaseback





(287,960
)(Gain) loss on fixed asset disposal


12,250


(33,040
)Stock based compensation


236,422


34,845Contributed services


146,338


193,164Racusin settlement adjustment





(118,791
)Change in fair value of warrant liability


120,816


Issuance of common stock for services


41,250


Amortization of debt discount


81,589


Decrease (increase) in operating assets:Accounts receivable


(5,031
)

14,558Inventories


21,685


75,688Deferred tax asset


369,000


Prepaid expenses


4,449


15,703Other current assets


15,758


94,072Increase (decrease) in operating liabilities:Accounts payable


407,039


25,760Accrued liabilities


(6,239
)

(39,118
)Long-term liabilities


170,000


Other long-term liabilities


16


Principal payments on Racusin litigation judgment


(332,710
)

(300,000
)Unpaid winning tickets


(417,176
)

(172,671
)Customer deposits and other current liabilities


532,478


(1,300,155
)Net cash provided by (used in) operating activities

$
(1,040,618
)
$
165,619


11. Financial Instruments

Except for the funds provided under the Bridge Loan and Merger Agreement, the Company's financial instruments consist of cash and equivalents, restricted cash, accounts receivable,
accounts payable, unpaid winning tickets, advance deposits, and long-term debt. The Company's cash equivalents are short-term and diversified among security types and issuers,
and their costs approximate estimated fair values. Other financial instruments that are also short-term and have little or no interest rate risk have estimated fair values equal to their
historical cost carrying amounts. Management believes the estimated fair value of long-term liabilities are also not materially different from their historical cost carrying amounts due to
the instruments' interest rates approximating market rates for similar borrowings.

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Table of Contents

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of January 31, 2011. We determined that our
disclosure controls and procedures were not effective, specifically in reference to the preparation of our Annual Report on Form 10-K, in accordance with all applicable reporting
standards and within the statutory due dates (without extension), as a result of unusual demands placed on our financial and accounting department personnel to (1) respond to due diligence
matters related to recent merger discussions and (2) to hire and train replacement personnel following the departure in February and March of 2010 of our prior Chief Financial Officer and
certain other accounting personnel.

Changes in Internal Control over Financial Reporting

Except for the effects of the staffing inadequacies and perceived causes discussed in the previous paragraph, there have been no
changes in the Company's internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the
Company's internal control over financial reporting other than our hiring of well qualified personnel for the accounting department who have stabilized the financial reporting function.

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Principal Accounting
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes
those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company; (b) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting
principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of the management and directors; and (c) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. In the course of this
evaluation and in accordance with Section 302 of the Sarbanes Oxley Act of 2002, we sought to identify material weaknesses in our controls, to determine whether we had identified any acts of
fraud involving personnel who have a significant role in our internal control over financial reporting that would have a material effect on our consolidated financial statements, and to confirm that
any necessary corrective action, including process improvements, were being undertaken.

Based
on our evaluation under the framework inInternal ControlIntegrated Framework, our management concluded that our
internal control over financial reporting was not effective as of January 31, 2011 because of the staffing inadequacies and related perceived causes discussed above. We

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Table of Contents

have
hired personnel to replace those that left the Company early in fiscal 2011 and are considering other changes designed to address the adequacy of our staffing. In addition, the stress on our
human resources caused by due diligence processes associated with recent merger discussions has lessened, in some respects and to a certain degree, which should also have a positive effect on the
adequacy of the staffing of our financial and accounting departments.

Item 9B.    Other Information

None.

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Table of Contents

PART III

Item 10.    Directors, Executive Officers and Corporate Governance

Our directors and executive officers are as follows:

Name

Age

PositionVictor J. Salerno


67

President, CEO, and Chairman of the BoardRobert R. Barengo


69

DirectorW. Larry Swecker


66

DirectorJudith L. Zimbelmann


59

DirectorRobert Kocienski


60

COO and Principal Financial OfficerJohn English


48

Sr. VP. Business Development and Public Affairs


Victor
J. Salerno has been our President, CEO, and Chairman of the Board since our inception. Mr. Salerno has been the President, CEO and a Director of Leroy's since September
1979. Mr. Salerno served as an Executive Vice-President and Director of Autotote CBS Corporation (subsequently purchased by us and renamed Computerized Bookmaking
Systems, Inc.). He is a past President of the Nevada Association of Race and Sports Operators.

Robert
R. Barengo became a Director in July 2005, and previously served on our Board of Directors from 1992 to 2000. Mr. Barengo has owned and operated his own law practice for
over 30 years during which he has handled, among other matters, general business, municipal finance, bonding, investment banking, government and administration law, and gaming law.
Mr. Barengo has extensive elected office and legislative experience as a Nevada Assemblyman (1972-1982) where he served on various committees including Interim Finance, Ways and
Means, Commerce and Judiciary; Chairman of the Judiciary Committee (1973-1979); Speaker Pro Tempore (1978-1981); Chairman of the Legislative Commission (1981-1983);
Speaker of the Assembly (1981-1983); and Judge Pro-Tem for the City of Sparks Municipal Court and the City of Reno Municipal Court (1976-1995). Mr. Barengo
also served on the Board of Directors of Riviera Holdings Corporation, a publicly reporting company, from 1992 to April 2005 and also served as that company's Director of Government and Public Affairs
from January 2001
to April 2005. Mr. Barengo also served as President of Columbia Trust Company from 2004 to 2008. Mr. Barengo serves as Chairman of the audit committee.

W.
Larry Swecker became a Director in April 2000. Mr. Swecker, a Certified Public Accountant, has been President of Swecker & Company, Ltd., Certified Public
Accountants, since January 1979. Prior to that, he was a partner in the firm of Keltner Milam & Company, Certified Public Accountants, from 1975 to 1979. Mr. Swecker was employed as a
revenue agent with the Internal Revenue Service from 1972 to 1975. He has a Bachelor of Science in Business Administration from the University of Nevada Reno. Mr. Swecker is a member of the
audit committee, serving as our Financial Expert; and is Chairman of the compensation committee the Board of Directors.

Judith
L. Zimbelmann became a Director in January 2001 and serves on the audit committee and the compensation committee. Ms. Zimbelmann is the daughter of Leroy Merillat, the
founder of Leroy's Horse & Sports Place, and was formerly married to Victor Salerno. Ms. Zimbelmann is a private investor with numerous holdings and is a member and officer of UV
Doctor, LLC (which provides ultra-violet lighting for sterilization).

Robert
Kocienski has been our COO and Principal Financial Officer since November 2010. Mr. Kocienski has extensive experience in the gaming industry over the past thirty years.
From July 2009 to November 2010, Mr. Kocienski provided consulting services to us. From April 2008 to June 2009, Mr. Kocienski served as Senior Vice President, CFO, and Treasurer of
Tropicana Entertainment, LLC. From June 2006 to April 2008, Mr. Kocienski served as CFO of Cosmo Senior

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Borrower, LLC.
From November 2004 to May 2006, Mr. Kocienski served as President and CFO of Torgurson Gaming Group Mississippi.

John
English has been our Senior Vice President of Business Development and Public Affairs since November 2010. From July 2009 to November 2010, Mr. English provided consulting
services to us. From 2004 to 2009, Mr. English served as Senior Vice President of Business and Creative Development for Las Vegas Gaming, Inc. (LVGI). Before joining LVGI,
Mr. English created Sports Bet Xpress 2000, the first ever Nevada Gaming Control Board approved remote sports wagering system for bars, taverns and restaurants. Mr. English has developed
global business relationships and has spoken and lectured on the subject of gaming, sports betting, and lottery worldwide.

Licensing

Pursuant to Nevada gaming regulations/statutes and the status of Leroy's, AWIM, AWIG and Sturgeon's as gaming licensees, officers and
directors of Leroy's, AWIM, AWIG and Sturgeon's must be investigated and licensed by the Commission, a process that may be both lengthy and expensive. AWI and CBS are not licensees and therefore, the
officers and directors of AWI and CBS must also be investigated and found "suitable" according to the Nevada gaming regulations and statutes. Victor Salerno is licensed by the Commission to be an
officer and director of Leroy's, AWIM, AWIG and Sturgeon's and has been found suitable as an officer and director of AWI and CBS. Robert Barengo has been found suitable as a director of AWI and CBS.
Judith Zimbelmann has been found suitable by the Commission to be a director of AWI and CBS and is licensed by the Commission to be an officer of Leroy's, AWIM, AWIG, and Sturgeons. John Salerno is
licensed by the Commission to be an officer of Leroy's, AWIM, AWIG and Sturgeon's and has been found suitable to be an officer of AWI and CBS and licensed as a director of AWIG.

Audit Committee

The Company has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act. The members of the audit committee are Robert Barengo, W. Larry Swecker and Judith L. Zimbelmann.

Audit Committee Financial Expert

Our Board of Directors has determined that a member of our audit committee, W. Larry Swecker, who meets the audit committee
independence criteria prescribed by NASDAQ, qualifies as an audit committee financial expert under the applicable rules of the SEC. Mr. Swecker's qualifications include, among other things, his
practice as a certified public accountant for the past 30 years.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than 10%
of our common stock to file with the SEC certain reports regarding their stock ownership ("Section 16(a) Reports"). Such persons are required to furnish us with copies of all
Section 16(a) Reports they file. Based solely on our review of such reports (and amendments thereto) that were furnished to us and written representations made to us by reporting persons in
connection with certain of these reporting requirements, we believe that all the reporting persons met their Section 16(a) reporting obligations on a timely basis during our last fiscal year.

Code of Ethics

We have adopted, and have filed with the SEC, a Code of Ethics for Financial Executives, which include our principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions.

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Item 11.    Executive Compensation

The following table summarizes the compensation for the periods indicated of our Chief Executive Officer and the two most highly
compensated executive officers who served as executive officers as of January 31, 2011.

Summary Compensation Table

Name and
principal position

Year
Ended
01/31

Salary

Bonus

Stock
Awards

Option
Awards(5)

Non-equity
incentive plan
compensation(6)

Non-qualified
deferred
compensation
earnings

All other
compensation(7)

Total(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)Victor Salerno,


2011

$
63,320
(1)















$
15,621

$
78,941CEO, President


2010

$
16,480
(1)









$
51,774




$
13,114

$
81,368Robert Kocienski,


2011

$
44,791
(2)






$
282,000










$
326,791COO, PFOJohn English


2011

$
44,791
(3)






$
282,000








17,846

$
344,637Sr.VP Bus. Dev.


(1)Mr. Salerno's
compensation does not include interest paid to him on his loan to the Company. Mr. Salerno agreed to reduce his annual base
salary in an amount sufficient to cover payroll deductions for benefits, effective November 24, 2008 which was modified on September 22, 2010 to re-instate his salary at a
50% level. Upon funding of the Bridge Facility, Mr. Salerno received payment of his deferred salary reductions, and his full salary was reinstated.(2)Mr. Kocienski's
annual salary is $250,000 under the employment agreement effective November 11, 2010. Under the agreement,
Mr. Kocienski will also receive additional annual compensation of $68,087. As all our employees have had their salaries reduced, including executive management with and without an employment
agreement, Mr. Kocienski verbally agreed to reduce of his annual base salary by half and defer the payment of all the additional compensation for an unspecified time period. Upon funding of the
Bridge Facility, Mr. Kocienski received payment of his deferred salary reductions, and his full salary was reinstated.(3)Mr. English's
annual salary is $250,000 under the employment agreement effective November 11, 2010. Under the agreement, Mr. English
will also receive additional annual compensation of $68,087. As all our employees have had their salaries reduced, including executive management with and without an employment agreement,
Mr. English verbally agreed to reduce of his annual base salary by half and defer the payment of all the additional compensation for an unspecified time period. Upon funding of the Bridge
Facility, Mr. English received payment of his deferred salary reductions, and his full salary was reinstated.(4)The
dollar amounts in column (f) are the aggregate grant date fair value of the option awards. Please refer to
Part II-Item 8.Financial Statements and Supplementary DataNotes to Consolidated Financial
Statements- Notes 1 and 5 for further information about our calculation of those amounts, which we based on the reported closing market price of our common stock on the
OTCBB on the date we granted the options.(5)The
amounts in column (g), if any, include the annual performance bonus that the executives earned under their respective employment agreements, which are
based on a pre-established percentage of our pre-tax earnings (as defined in their agreements) for the reported fiscal year.(6)These
amounts in column (i) include the Company's matching contributions under our 401(k) plan and any other compensation such as an auto allowance.
Mr. Salerno received an auto allowance which is included in the amounts in this column (i).


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Employment Agreements

We have the following employment agreements with the following executive officers:

Victor Salerno.Mr. Salerno's employment agreement became effective on July 1, 2002 with the initial term expiring on
January 31, 2008. The employment agreement automatically renewed for successive five-year terms as of January 31, 2008. The agreement provides that Mr. Salerno may
resign without cause upon 30 days' written notice to us. The agreement provides an annual base salary of $240,000, which is subject to annual review. However, Mr. Salerno agreed to
temporarily reduce his annual base salary in an amount sufficient to cover payroll deductions for benefits, effective November 24, 2008 and began receiving 50% of his annual base salary,
effective September 22, 2010. Upon funding of the Bridge Facility, Mr. Salerno received payment of his deferred salary reductions, and his full salary was reinstated. In addition,
Mr. Salerno is entitled to an annual performance bonus equal to 5% of our pre-tax earnings (as defined in his agreement) for the prior fiscal year, employer contributions to a
profit-sharing or retirement plan of not less than 4% of his base salary, health and life insurance coverage, and use of an automobile that we provide for him. Mr. Salerno is also entitled to
participate in our benefit plans available to our officers and employees
generally. If the Company terminates Mr. Salerno's employment without cause, he is entitled to an amount equal to five times his base salary at the rate in effect at the time of his
termination, any bonus awarded but not yet paid, reimbursement for expenses incurred but not paid prior to the termination, continuation of Company provided health benefits and participation in the
Company's long-term disability insurance for a period of 60 months following the termination (or the economic equivalent thereof), and such rights to other benefits as may be
provided in applicable plans and programs of the Company, including, without limitation, applicable employee benefit plans and programs, according to the terms and conditions of such plans and
programs. Mr. Salerno's agreement also entitles him to certain benefits if his employment terminates within 24 months after a change in control of AWI, as described below under "Payments
in the Event of a Change in Control." However, on April 13, 2011, Mr. Salerno entered into a subsequent agreement with the Company that terminates his employment agreement with the
Company, including the entitlement to any payments, benefits or other rights thereunder, simultaneously with the consummation of the merger.

Robert Kocienski.On November 11, 2010 the Company entered into an agreement with Robert Kocienski, Chief Operating Officer
and Principal
Financial Officer, for three years. The agreement provides an annual base salary of $250,000 and additional compensation of $204,261 to be paid over the term of the agreement in equal
bi-weekly installments. As all our employees have had their salaries reduced, including executive management with and without an employment agreement, Mr. Kocienski verbally agreed
to reduce of his annual base salary by half and defer the payment of all the additional compensation for an unspecified time period. Upon funding of the Bridge Facility, Mr. Kocienski received
payment of his deferred salary reductions, and his full salary was reinstated. In addition, Mr. Kocienski will be reimbursed for all reasonable expenses incurred in the performance of his
duties, participate in all medical, dental or other benefit plans made available by the Company to its employees, and be eligible for an annual bonus pursuant to the Company's bonus program as
determined by the Company's board of directors. The Company granted Mr. Kocienski a stock option to purchase 1,047,490 shares of the Company's common stock at an exercise price equal to $.27
per share. The agreement provides for termination rights and change of control payments dependent on the particular circumstances. Mr. Kocienski did not enter into any agreement modifying the
terms of his employment agreement. At consummation of the merger, Mr. Kocienski will be paid the change of control payments, the total sum of which is variable depending on the date of the
consummation of the merger.

John English.On November 11, 2010 the Company entered into an agreement with John English, Senior Vice President of
Marketing and Public
Relations, for three years. The agreement provides an annual base salary of $250,000 and additional compensation of $204,261 to be paid over the term of

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the
agreement in equal bi-weekly installments. As all our employees have had their salaries reduced, including executive management with and without an employment agreement,
Mr. English verbally agreed to reduce of his annual base salary by half and defer the payment of all the additional compensation for an unspecified time period. Upon funding of the Bridge
Facility, Mr. English received payment of his deferred salary reductions, and his full salary was reinstated. The
agreement provides for termination rights and change of control payments dependent on the particular circumstances. On April 13, 2011, Mr. English entered into an agreement that upon the
execution of the Merger Agreement, amended and restated his employment agreement with the Company, including providing for base salary, retention payments and severance in certain circumstances. In
addition, Mr. English will be reimbursed for all reasonable expenses incurred in the performance of his duties, participate in all medical, dental or other benefit plans made available by the
Company to its employees, and be eligible for an annual bonus pursuant to the Company's bonus program as determined by the Company's board of directors. The Company granted Mr. English a stock
option to purchase 1,047,490 shares of the Company's common stock at an exercise price equal to $.27 per share.

Our
long-term employment commitments through the existing terms of the agreements total $740,000 of base salary per annum through 2013, without consideration of typical
benefits and voluntary salary reductions or deferrals.

The
following table provides information concerning executive officers' unexercised stock options as of January 31, 2011.

Outstanding Equity Awards at Fiscal Year-End

Option awardsName

Number of
securities
underlying
unexercised
options
# exercisable(1)

Number of
securities
underlying
unexercised
options
# unexercisable(1)

Equity
incentive
plan awards:
Number of
securities
underlying
unearned
options
#

Option
exercise
price
$

Option
expiration
date(a)

(b)

(c)

(d)

(e)

(f)Victor J. Salerno


50,000







$
2.00


08/31/2012Robert Kocienski


1,047,490







$
0.27


11/11/2020John English


1,047,490







$
0.27


11/11/2020


(1)For
information on vesting dates, see the schedule of stock option grants following the Director Compensation table below.


Payments in the Event of a Change in Control

Mr. Salerno's agreement provides that if his employment terminates for any reason (other than death, disability or his
resignation without cause during the initial term of his agreement, which ended on January 31, 2008, but was automatically renewed for five more years) within 24 months after a change in
control of AWI, then we will pay, as termination benefits to Mr. Salerno, an amount equal to five times his base salary then in effect and we will continue his coverage under our health and
welfare benefit plans for five years. Also in the event of a change in control of AWI, all of his stock options and any other stock-based awards will become exercisable or non-forfeitable.
However, on April 13, 2011, Mr. Salerno entered into a subsequent
agreement with the Company that terminates his employment agreement with the Company, including the entitlement to any payments, benefits or other rights thereunder, simultaneously with the
consummation of the merger.

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Mr. Kocienski
and Mr. English's agreements provide for the payout of the remaining amount due under their respective agreements and all of their stock-based awards will
become exercisable and non-forfeitable. Mr. Kocienski did not enter into any agreement modifying the terms of his employment agreement. At consummation of the Merger,
Mr. Kocienski will be paid the change of control payments, the total sum of which is variable depending on the date of the consummation of the merger. Whereas, on April 13, 2011,
Mr. English entered into an agreement that upon the execution of the Merger, amends and restates his employment agreement with the Company, including providing for base salary, retention
payments and severance in certain circumstances.

Compensation of Directors

Directors who are not our employees or consultants receive a fee of $1,000 per month plus travel expenses. In addition, each Committee
Chairman (audit committee, compensation committee, etc.) receives an additional $1,000 per month for each committee chaired. The following table summarizes the compensation paid to the directors for
the fiscal year ended January 31, 2011.

Director Compensation

Name

Fees
Earned or
Paid in
Cash
$

Stock
Awards
$

Option
Awards
$

Non-Equity
Incentive
Plan
Compensation
$

Non-qualified
Deferred
Compensation
Earnings
$

All Other
Compensation
$

Total
$(a)

(b)(3)

(c)

(d)(4)

(e)

(f)

(g)

Sum (b-g)W. Larry Swecker(1)




















Robert R. Barengo(2)




















Judith L. Zimbelmann(5)
















$
3,000

$
3,000Bruce Dewing(6)
















$
31,759

$
31,759


(a)This
table includes only directors whose compensation is not reported in the Summary Compensation Table.(1)W.
Larry Swecker has served as chairman of the compensation committee since 2005.(2)Robert
R. Barengo has served as chairman of the audit committee since August 2006.(3)Mr. Swecker
and Mr. Barengo agreed to forego director fees in the amount of $24,000 during fiscals 2010 and 2011 for the best interests of the
financial health and well-being of the Company.(4)Mr. Swecker
had 10,800 in stock option awards outstanding at January 31, 2011. Mr. Barengo had 9,200 in stock option awards outstanding
at January 31, 2011. Mr. Swecker and Mr. Barengo voluntarily renounced their rights to stock option awards that would have been granted on January 31, 2011 as part of the
Directors' Stock Option Plan for the best financial interests of the Company.(5)Ms. Zimbelmann
has received this compensation for rendering administrative services to the Company.(6)Mr. Dewing
resigned as a director on August 1, 2010. Mr. Dewing received this compensation for serving as President of AWIG.


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We
have granted the following stock options to our Directors (excluding terminated options):

Date

Granted To

Number of
Shares

Terms08/09/2001

Victor J. Salerno


30,000
(1)
$0.70 exercise price per share; became fully exercisable on August 9, 2001; exercised on August 8, 200608/09/2001

Judith L. Zimbelmann


1,200
(1)
$0.60 exercise price per share; became fully exercisable on August 9, 2001; exercised on August 3, 200601/31/2002

W. Larry Swecker


400
(2)
$0.35 exercise price per share; became fully exercisable on January 31, 2003; expires on January 31, 201201/31/2003

W. Larry Swecker


400
(2)
$0.12 exercise price per share; became fully exercisable on January 31, 2004; expires on January 31, 201301/31/2004

W. Larry Swecker


400
(2)
$0.15 exercise price per share; became fully exercisable January 31, 2005; expires on January 31, 201401/31/2005

W. Larry Swecker


400
(2)
$0.55 exercise price per share; became fully exercisable on January 31, 2006; expires on January 31, 201508/31/2005

Robert R. Barengo


3,800
(2)
$2.00 exercise price per share; became fully exercisable on August 31, 2007; expires on August 31, 201508/31/2005

Victor J. Salerno


50,000
(1)
$2.00 exercise price per share; became fully exercisable on August 31, 2007; expires on August 31, 201208/31/2005

W. Larry Swecker


3,800
(2)
$2.00 exercise price per share; became fully exercisable on August 31, 2007; expires on August 31, 201508/31/2005

Judith Zimbelmann


3,000
(1)
$2.00 exercise price per share; became fully exercisable on August 31, 2007; expires on August 31, 201208/07/2006

Robert R. Barengo


5,000
(2)
$1.00 exercise price per share; became fully exercisable on August 31, 2008; expires on August 7, 201108/07/2006

W. Larry Swecker


5,000
(2)
$1.00 exercise price per share; became fully exercisable on August 31, 2008; expires on August 7, 2011


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Date

Granted To

Number of
Shares

Terms01/31/2008

Robert R. Barengo


400
(2)
$0.79 exercise price per share; became fully exercisable on January 31, 2009; expires on January 31, 201301/31/2008

W. Larry Swecker


400
(2)
$0.79 exercise price per share; became fully exercisable on January 31, 2009); expires on January 31, 2013


(1)Stock
options were issued pursuant to our 2001 Stock Option Plan.(2)Stock
options were issued pursuant to our Directors Stock Option Plan.


Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth, as of May 13, 2011, the number and percentage of outstanding shares of our common stock, which,
according to information supplied to us, are beneficially owned by: (i) each person who is a beneficial owner of more than 5.00% of our outstanding common stock; (ii) each of our
directors, and named executive officers individually; and (iii) all of our current directors and executive officers as a group. Under SEC rules, a person is deemed a beneficial owner of our
common stock with respect to which he or she has or shares voting power (which includes the power to vote or to direct the voting of the security), or investment power (which includes the power to
dispose of, or to direct the disposition of, the security).

A
person is also deemed the beneficial owner of shares with respect to which he or she could obtain voting or investment power within 60 days of May 13, 2011 (such as upon
the exercise of options or warrants). The percentage of outstanding common stock represented by each named person's stock ownership assumes the exercise by that person of all stock options that are
exercisable within 60 days of May 13, 2011 but does not assume the exercise of stock options by any other persons. The percentage of outstanding common stock represented by the stock
ownership of all directors and executive officers as a group assumes the exercise by all members of that group of their respective stock options that are exercisable within 60 days of
May 13, 2011, but does not assume the exercise of options by any persons outside of that group.

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Except
as otherwise indicated below, the persons named in the table have sole voting and investment power with respect to all shares of our common stock held by them. The address of each
person named in the table is c/o American Wagering, Inc., 675 Grier Drive, Las Vegas, Nevada 89119.

Name

Number of
Shares

Percentage of
Outstanding
SharesVictor J. Salerno(1)


2,488,054


29.43
%Judith L. Zimbelmann(2)


1,004,200


11.94
%Robert R. Barengo(3)


534,200


6.35
%W. Larry Swecker(4)


30,800


0.37
%Robert Kocienski(5)


872,908


9.41
%John English(6)


261,872


3.02
%All directors and executive officers as a group (six persons)(7)


5,192,034


54.01
%5% StockholderAlpine Advisors LLC/Don R. Kornstein(8)


875,000


9.72
%


(1)Mr. Salerno
has 50,000 in vested stock options that he has the right to exercise to acquire shares within the next 60 days which are included
in the table above.(2)Ms. Zimbelmann
has 3,000 in vested stock options that she has the right to exercise to acquire shares within the next 60 days which are
included in the table above.(3)Mr. Barengo
has 9,200 in vested stock options that he has the right to exercise to acquire shares within the next 60 days which are included
in the table above.(4)Mr. Swecker
has 10,800 in vested stock options that he has the right to exercise to acquire shares within the next 60 days which are included
in the table above.(5)Mr. Kocienski
has 872,908 in vested stock options that he has the right to exercise to acquire shares within the next 60 days which are
included in the table above.(6)Mr. English
has 261,872 in vested stock options that he has the right to exercise to acquire shares within the next 60 days which are included
in the table above.(7)Our
current directors and named executive officers as a group have options for 1,207,780 shares, which they can exercise within the next 60 days.
Those shares are included in the table above.(8)We
derived this information from a Schedule 13D filed by Alpine Advisors LLC and Don R. Kornstein on June 23, 2010. Don R. Kornstein is
the managing member of Alpine Advisors LLC. Alpine Advisors LLC is deemed to be the beneficial owner of 600,000 shares pursuant to the Amended and Restated Warrant Agreement dated as of
June 11, 2010 (the "Warrant Agreement"). Pursuant to the Warrant Agreement, Alpine Advisors LLC was granted a warrant to purchase 600,000 shares of our common stock. Don R. Kornstein is
deemed to be the beneficial owner of 875,000 shares, which amount includes the 600,000 shares issuable upon exercise of the Warrant and an additional 275,000 shares issued pursuant to the Advisor
Agreement between Alpine Advisors LLC and American Wagering, Inc. dated March 12, 2010. Alpine Advisors LLC and Don R. Kornstein are located at 825 Lakeshore Blvd., Incline
Village, Nevada 89451.


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Securities authorized for issuance under equity compensation plans

The following table provides information regarding the securities underlying outstanding options and securities remaining available for
issuance under our equity compensation plans as of January 31, 2011.

Plan Category(1)

Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))(a)

(b)

(c)Equity compensation plans approved by security holders:2001 Stock Option Plan


346,500

$
1.96


571,5672010 Stock Option Plan


2,294,980


0.28


450,000Directors Stock Option Plan


20,000


1.32


Equity compensation plans not approved by security holders:Warrant


600,000


0.22


N/ATotal


3,261,480

$
0.45


1,021,567


(1)For
information regarding the plans see Part II, Item 8Financial Statements and Supplementary
DataNotes to Consolidated Financial StatementsNote 5.


Item 13.    Certain Relationships and Related Transactions, and Director Independence

Other than as set forth below, there have been no transactions since the beginning of our last fiscal year, nor are there any proposed
transactions, to which we were or are to be a party, in which any of the following persons had or is to have a direct or indirect material interest:



Our
policy regarding related transactions requires that any director or executive officer who has an interest in any transaction disclose the presence and the nature of the interest to
our Board of Directors prior to any approval of the transaction by our Board of Directors. The transaction may then be approved by a majority of our disinterested directors, provided that an
interested director may be counted in determining the presence of a quorum at the meeting of our Board of Directors to approve the transaction. Our policy regarding compensation for directors and
executive officers is that our Board of Directors may, without regard to personal interest, establish the compensation of directors for services in any capacity.

Victor
J. Salerno (our President, CEO, and Chairman of the Board of Directors) owns 8,900 shares of Series A Preferred Stock (5,662 regular shares and 3,238 redeemable shares).
Judith Zimbelmann (one of our directors) owns 5,262 shares of Series A Preferred Stock (all regular shares).

Holders
of the Series A Preferred Stock are entitled to receive monthly payments, upon declaration by our Board of Directors, cumulative cash dividends at the annual rate of 10%
per share. Interest at the annual rate of 10%, compounded annually, accrues on Series A Preferred Stock

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dividends
that have accumulated but have not been paid. The Series A Preferred Stock is not convertible but is callable, in whole or (on a pro rata basis) in part, at any time at our option.
There were no shares called since the beginning of our last fiscal year. The holders of Series A Preferred Stock are not entitled to vote (on a cumulative basis or otherwise) as a class or with
our common stock upon any matters submitted to shareholders for a vote, except as mandated under Nevada law.

In
prior years, Mr. Salerno forwent his right to have his shares redeemed when we made partial, pro rata calls of Series A Preferred Stock for redemption. Those affected
shares have been classified as "Redeemable Series A Preferred Stock" in the liabilities section of our Consolidated Balance Sheet, and may be put to us by Mr. Salerno for redemption at
any time. As of January 31, 2010, the amount of Series A Preferred Stock that may be put to us by Mr. Salerno for immediate redemption (without prior approval by our Board of
Directors) is $323,800 (3,238 shares). When we and Leroy's filed Chapter 11 Petitions, this Redeemable Series A Preferred Stock became subject to compromise under the Bankruptcy Code.
(Under the Bankruptcy Code, the ordinary Series A Preferred Stock, which is classified in the equity section of our Consolidated Balance Sheet, was not designated as subject to compromise.)
Pursuant to the Plan that we and Leroy's consummated on March 11, 2005 (the "Effective Date"), the Redeemable Series A Preferred Stock is no longer considered subject to compromise, and
we will pay the redemption price in the ordinary course of business.

From
the filing of the Chapter 11 Petitions on July 25, 2003 through the Effective Date (March 11, 2005), dividends were accrued but not paid on the Series A
Preferred Stock. The following table indicates the accruals and payments to the preferred shareholders through the Effective Date:

Paid

Accrued

Unpaid02/2003 through 07/2003

$
72,195

$
0

$
008/2003 through 01/2004

$
0

$
71,392

$
71,39202/2004 through 01/2005

$
0

$
142,008

$
213,40002/2005

$
0

$
10,864

$
224,26403/11/2005(1)

$
226,241

$
0

$
003/12/2005 through 01/31/2006

$
141,620

$
0

$
0Fiscal 2007

$
141,620

$
0

$
0Fiscal 2008

$
141,584

$
0

$
0Fiscal 2009

$
141,602

$
0

$
0Fiscal 2010

$
141,655

$
0

$
0Fiscal 2011

$
141,619

$
0

$
0


(1)The
payment on March 11, 2005 includes $1,977 of interest at the Federal Judgment Rate.


On
November 8, 2007, we borrowed $400,000 against the $500,000 line of credit for the benefit of the AWIG in its acquisition of Sturgeons under the terms of a Guaranty Agreement,
as amended from time to time, between Victor and Terina Salerno (the "Salernos") and AWI. On April 21, 2008, the Guaranty Agreement was restated as a Line of Credit Confirmation Letter ("Line
of Credit"); its terms broadened such that we could draw on the line of credit for the benefit of the Company, and consolidated subsidiaries, provided for us to pay the Salernos interest at the rate
of 10.0% per annum (payable monthly) on the outstanding portion of the loan (up to a maximum of $500,000) and to reimburse them for finance charges, fees, payments and other expenses they may incur.
Unless extended, the April 21, 2008 Line of Credit expired on February 16, 2011. The personal line of credit then in place was secured by the Salernos' residence and provides for an
interest rate of 0.5% below the prime rate published by the Wall Street Journal, adjusted annually. The Salernos' terminated their bank financed personal line of credit in 2009, but they maintain the
Line of Credit with the Company.

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On
December 1, 2008, Mr. Salerno, loaned the Company an additional $500,000 fund our immediate general operating expenses. Due to the urgency for which the funds were
needed, the funds were advanced on an expedited basis without formal board approval as reported in our Form 10-Q for the quarter ended October 31, 2008. Our independent
directors considered and approved the fairness of a proposed amendment to the April 21, 2008 Line of Credit to cover the total $1,000,000 that has been loaned by Mr. Salerno at the same
terms. The outstanding balance of this line of credit was $1,000,000 at January 31, 2010. We paid interest to Mr. Salerno totaling $100,000 in fiscal 2011 and $100,000 in fiscal 2010.
The total $1,000,000 will be repaid with interest only payments during fiscal 2012, and the loan will mature on February 1, 2012.

Mr. Salerno
also provided the Company with a $250,000 interest free revolving line of credit on May 17, 2010, which was fully drawn as of January 31, 2011, and
repaid from the proceeds of the Bridge Facility.

We
employ on a full-time basis Terina Salerno, the wife of Victor Salerno, as our General Counsel. For our fiscal year ended January 31, 2011, her total compensation
was $22,121. Ms. Salerno agreed to temporarily reduce her annual base salary in an amount sufficient to cover payroll deductions for benefits, effective November 24, 2008.

The
contributed services expense for Victor and Terina Salerno for fiscal 2011 was $146,337.

We
employ on a full-time basis John Salerno, the son of Victor Salerno and Judith Zimbelmann, as a Vice President and gaming analyst of Leroy's. For our fiscal year ended
January 31, 2011, his total annual compensation was $60,125. John Salerno agreed to temporarily reduce his annual base salary by 15%, effective July 2010.

As
of January 31, 2011, we had cash reserves and pledge agreements totaling $2.4 million to satisfy the Regulation 22.040 requirement in addition to a float amount
of $600,000 allowed by the Nevada Gaming Control Board to cover short term fluctuations in the outstanding liability. The $2.4 million amount consisted of our reserve account of
$1.7 million held at Nevada State Bank and pledged certificates of deposit totaling $700,000. The pledged certificates initially expired in October 2010, but the parties agreed to extend their
respective pledges without designating a specific expiration date. On April 13, 2011 the Nevada Gaming Control Board allowed us to reduce our reserve balance by $750,000 during the off-peak
season. The Company reduced its cash deposit at Nevada State Bank by $500,000 and reduced the pledge from Robert and Tracey Kocienski by $250,000 as of April 19, 2011. We will likely have to
increase our reserve in August 2011, and if we are unable to do so, it would have an adverse impact on us including, but not limited to, requiring a significant reduction in the number of race/sports
locations operated by Leroy's, and/or an elimination or reduction of telephone wagering accounts, resulting in an adverse change in our operating results. We anticipate being able to increase our
reserve balance as a portion of the financing proceeds from the Bridge Facility is allocated for this purpose.

In
addition, during the quarter ended April 30, 2010, 250,000 shares of common stock were issued to the principal of Alpine Advisors, LLC ("Alpine") as a
non-refundable fee for financial advisory services, plus 25,000 shares effectively issued during the quarter ended July 31, 2010 as a one-time payment of additional
compensation for a late filing. The shares were valued at $0.15 per share ($41,250) based on the trading price of the Company's common stock on the date of grant. Additional fees are due Alpine upon
the successful completion of (1) a single or a series of transactions in which 50% or more of the voting power of the Company or all or a substantial portion of its business or assets are
combined with or transferred to another company and (2) any offering of debt, equity or equity-linked securities either individually or in combination. The success fee is calculated generally
at 3-3.5% of the "equity value" of the transaction, as defined, or the amount of the proceeds from the financing

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In
June 2010, the Company borrowed $195,000 from and entered into an agreement with Alpine that entitled but did not obligate Alpine to purchase 600,000 shares of the Company's common
stock at an exercise price of $0.22 per share through June 11, 2015. The principal amount of the loan plus interest at 15% was due June 17, 2010 (six days following the issuance) and
then on demand with weekly interest payments calculated at 22% per annum. On June 22, 2010 the parties entered into a financing agreement that allowed the Company to borrow up to $500,000, at
15% per annum, due on June 10, 2011, and collateralized by the Company's stock in CBS and the receivables of CBS. Proceeds from the June 22nd financing agreement were used, in
part, to refinance the June 11th loan for $195,000. The Company has borrowed $500,000 to date, which was repaid from the proceeds of the Bridge Facility. The warrant agreement was also
amended to provide Alpine with registration rights and, the appointment two persons to the Company's board of directors, which would expand from five to seven members, should the Company default in
its financing or collateralization obligations. Using the Black-Scholes valuation model and "Level 2" measurement inputs as defined in GAAP including a
risk-free interest rate of 4%, expected warrant life of five years, and its internal stock price volatility factor of 206% initially (approximately 231% as of January 31, 2011), the
warrants were valued at $129,478 with all treated as a warrant liability, revalued at each subsequent balance sheet with the change charged or credited to earnings with the debt discount amortized to
interest expense over the repayment term of the loan using the effective interest method.

At
the Closing, each outstanding stock warrant to purchase shares of our common stock that is outstanding immediately prior to the effective time of the Merger shall be cancelled and, in
exchange therefore, the Surviving Corporation shall pay to each former holder as soon as practicable following the effective time of the Merger an amount in cash equal to the product of (i) the
excess of $0.90 over the exercise price per share of our common stock under such stock warrant, and (ii) the number of shares of our common stock subject to such stock warrant.

Director Independence

We follow the director independence standards prescribed by NASDAQ. We are not listed on NASDAQ, but we are required by SEC rules to
select a standard for determining independence for disclosure purposes. As such, the members of our Board of Directors who are considered independent are Robert Barengo and W. Larry Swecker.

Under
the audit committee independence standards prescribed by NASDAQ, two of our three audit committee members, namely Robert Barengo (Chairman) and W. Larry Swecker are independent and
Judith Zimbelmann is not.

Under
the director independence standards prescribed by NASDAQ, two of our three compensation committee members, namely Robert Barengo and W. Larry Swecker, are independent and Judith
Zimbelmann is not.

Our
entire Board of Directors serves as our nominating committee.

Item 14.    Principal Accountants' Fees and Services

Our audit committee selected and our Board of Directors approved the firm of Piercy Bowler Taylor & Kern Certified Public
Accountants ("PBTK") as our independent registered public accounting firm to audit our annual consolidated financial statements and perform quarterly financial statement review services for the fiscal
year ended January 31, 2011. PBTK previously performed similar audit and review services for the years ended January 31, 2001 through January 31, 2010. PBTK's primary offices are
located at 6100 Elton Avenue, Suite 1000, Las Vegas, Nevada, 89107.

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Audit Committee's Pre-Approval of Engagement

Our policy is that before we engage our registered public accounting firm annually to render audit or approved non-audit
services, the engagement is reviewed and approved by our audit committee. All of our principal accountants' services for which we paid tax-related fees or other non-audit fees
for our last two fiscal years, as described below, were within the scope of the engagement that our audit committee approved before we entered into the engagement.

Total Fees.Total fees paid and accrued to PBTK are as follows:

Year Ending January 31,Service Provided

2011

2010Audit Service Fees

$
144,070

$
138,975Tax Service Fees


9,066


11,101Other Fees


57,113


39,501Total

$
210,249

$
189,577


Audit Service Fees

The aggregate fees for audit services were for the audits of our annual consolidated financial statements and review of our quarterly
consolidated financial statements for interim periods within the audit year. There were no Audit Related Services.

Tax Fees

The aggregate fees for tax services were for professional services relating to tax compliance, tax advice, and tax planning.

Other Fees

The aggregate Other Fees were for audits of our 401(k) employee benefit plan and all regulatory compliance attestation services.

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PART IV

Item 15.    Exhibits, Financial Statement Schedules



Included
in Part II of this report:



Consolidated Balance Sheets at January 31, 2011 and 2010

34Consolidated Statements of Operations for the Years Ended
January 31, 2011 and 2010

35Consolidated Statements of Stockholders' Equity for the Years
Ended January 31, 2011 and 2010

36Consolidated Statements of Cash Flows for the Years Ended
January 31, 2011 and 2010

37Notes to Consolidated Financial Statements

38




All
required schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes
thereto.



Exhibit Number

Description2.1
*
Agreement and Plan of Merger, dated as of April 13, 2011, among William Hill Holdings Limited, AW Sub Co. and American Wagering, Inc. (See Exhibit 2.1 to Form 8-K filed April 14, 2011, SEC
File No. 000-20685)3.1
*
Amended and Restated By-Laws of American Wagering, Inc. (see Exhibit 3.1 to Form 8-K filed November 20, 2007, SEC File No. 000-20685)3.2
*
Amended and Restated Articles of Incorporation of American Wagering, Inc. (see Exhibit 3.1 to Registration Statement on Form SB-2 filed December 13, 1995, SEC File No. 33-80431)3.3
*
Certificate of Designations, Preferences and Rights of Series A Preferred Stock of American Wagering, Inc. (see Exhibit 3.1.1 to Form 8-K filed December 10, 1998, SEC File No. 000-20685)10.1
*(A)
American Wagering, Inc. 2001 Stock Option Plan (see Exhibit 99 to our Definitive Proxy Statement on Schedule 14A filed October 16, 2001, SEC File No. 000-20685)10.2
*(A)
American Wagering, Inc. Amended and Restated Directors Stock Option Plan (see Appendix A to our Definitive Proxy Statement on Schedule 14A filed November 30, 2007, SEC File No. 000-20685)10.3
*(A)
2010 Stock Incentive Plan (see Appendix A to our Definitive Proxy Statement on Schedule 14A filed November 23, 2010, SEC File No. 000-20685)10.4
*(A)
Executive Employment Agreement between American Wagering, Inc. and Victor J. Salerno dated June 28, 2002 (see Exhibit 10.1 to Form 10-QSB filed September 14, 2005, SEC File No. 000-20685)10.5
*(A)
Amendment to Executive Employment Agreement of Victor Salerno (described in registrant's Form 8-K filed on December 15, 2008, SEC File No. 000-20685)


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Exhibit Number

Description10.6
(A)
Termination of Employment Agreement and Waiver of Payment Agreement dated April 13, 2011 between Victor Salerno, American Wagering, Inc. and William Hill Holdings Limited (to be effective upon consummation of
the merger with William Hill Holdings Limited)10.7
(A)
Employment Agreement between American Wagering, Inc. and Robert Kocienski, dated November 11, 201010.8
(A)
Amended and Restated Employment Agreement between American Wagering, Inc. and John English, dated April 13, 201110.9
*(A)
Compensation terms for American Wagering, Inc. directors (see Exhibit 10.8 to Form 10-KSB filed May 1, 2006, SEC File No. 000-20685)10.10
*(A)
Option Agreement of Robert Kocienski dated November 11, 2010 (See Appendix B to our Definitive Proxy Statement on Schedule 14A filed November 23, 2010, SEC File No. 000-20685)10.11
*(A)
Option Agreement of John English dated November 11, 2010 (See Appendix C to our Definitive Proxy Statement on Schedule 14A filed November 23, 2010, SEC File No. 000-20685)10.12
*
Lease Schedule No. 1 (with Options), dated July 14, 2006 by and between AWI Manufacturing Inc., American Wagering, Inc. and PDS Gaming Corporation-Nevada, and Master Lease Agreement (see
Exhibit 10.2 to Form 10-QSB filed December 26, 2006, SEC File No. 000-20685)10.13
*
Amended and Restated Guaranty Agreement dated June 8, 2006, between American Wagering, Inc. and Victor and Terina Salerno (see Exhibit 10.1 to Form 10-QSB filed June 14, 2006, SEC File
No. 000-20685)10.14
*
Line of Credit Confirmation Letter, dated April 21, 2008, between Victor and Terina Salerno and AWI, under the terms of the Guaranty Agreement dated June 8, 2006, with Loan Amortization Schedule (see
Exhibit 10.21 to Form 10-K filed May 13, 2008, SEC File No. 000-20685)10.15
*
Loan Agreement from Victor Salerno (described in registrant's Form 8-K filed on December 15, 2008, SEC File No. 000-20685)10.16
*
Reimbursement Agreement for Pledged Certificate of Deposits between Leroy's Horse and Sports Place and Robert and Tracey Kocienski dated December 10, 2009 (see Exhibit 10.2 to Form 10-Q filed
December 15, 2009, SEC File No. 000-20685)10.17
*
Reimbursement Agreement for Pledged Certificate of Deposits between Leroy's Horse and Sports Place and Victor and Terina Salerno dated December 10, 2009 (see Exhibit 10.1 to Form 10-Q filed
December 15, 2009, SEC File No. 000-20685)10.18
*
Commercial Loan Agreement, dated February 21, 2006, between AWI Gaming, Inc. and Great Basin Bank of Nevada (see Exhibit 10.12 to Form 10-KSB filed May 31, 2007, SEC File No. 000-20685)10.19
*
Promissory Note, dated February 21, 2006, executed by AWI Gaming, Inc. in favor of Great Basin Bank of Nevada (see Exhibit 10.13 to Form 10-KSB filed May 31, 2007, SEC File No. 000-20685)


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Exhibit Number

Description10.20
*
Commercial Guaranty, dated February 21, 2006, executed by American Wagering, Inc. in favor of Great Basin Bank of Nevada (see Exhibit 10.14 to Form 10-KSB filed May 31, 2007, SEC File
No. 000-20685)10.21
*
Commercial Guaranty, dated February 21, 2006, executed by Sturgeons, LLC in favor of Great Basin Bank of Nevada (see Exhibit 10.15 to Form 10-KSB filed May 31, 2007, SEC File
No. 000-20685)10.22
*
Commercial Security Agreement, dated February 21, 2006, executed by AWI Gaming, Inc. in favor of Great Basin Bank of Nevada (see Exhibit 10.16 to Form 10-KSB filed May 31, 2007, SEC File
No. 000-20685)10.23
*
Deed of Trust, dated February 21, 2006, among AWI Gaming, Inc., Great Basin Bank of Nevada and Western Title Company Inc. (see Exhibit 10.17 to Form 10-KSB filed May 31, 2007, SEC File
No. 000-20685)10.24
*
Changes in Terms Agreement, dated February 4, 2008, between AWI Gaming, Inc., and Great Basin Bank of Nevada; Commercial Guaranty, dated February 4, 2008, by American Wagering, Inc. in favor of
Great Basin Bank of Nevada; Commercial Guaranty, dated February 4, 2008, by Sturgeon's, LLC in favor of Great Basin Bank of Nevada (see Exhibit 10.19 to Form 10-K filed May 13, 2008, SEC File No. 000-20685)10.25
*
Change in Terms Agreement, dated May 5, 2008, between AWI Gaming, Inc., and Great Basin Bank of Nevada (see Exhibit 10.1 to Form 10-Q filed June 13, 2008, SEC File No. 000-20685)10.26
*
Commercial Guaranty, dated May 5, 2008, by Sturgeon's, LLC in favor of Great Basin Bank of Nevada (see Exhibit 10.2 to Form 10-Q filed June 13, 2008, SEC File No. 000-20685)10.27
*
Commercial Guaranty, dated May 5, 2008, by American Wagering, Inc. in favor of Great Basin Bank of Nevada (see Exhibit 10.3 to Form 10-Q filed June 13, 2008, SEC File No. 000-20685)10.28

Business Loan Agreement, dated September 4, 2010 between AWI Gaming, Inc. and Nevada State Bank; Change in Terms Agreement, dated September 4, 2010, between AWI Gaming, Inc. and Nevada State Bank;
Commercial Guaranty by American Wagering, Inc. in favor of Nevada State Bank; Commercial Guaranty by Sturgeon's, LLC in favor of Nevada State Bank; Commercial Security Agreement, dated September 4, 2010, executed by AWI Gaming,
 Inc. in favor of Nevada State Bank10.29
*
Settlement Agreement by American Wagering, Inc., Leroy's Horse & Sports Place, Inc. and Michael Racusin d/b/a M. Racusin & Co., dated September 3, 2004 (see Exhibit 99.1 to
Form 8-K filed September 7, 2004, SEC File No. 000-20685)10.30
*
Corrected Amortization Schedule as filed with the U.S. Bankruptcy court on March 17, 2008 related to the Settlement Agreement by American Wagering, Inc., Leroy's Horse & Sports Place, Inc. and
Michael Racusin d/b/a M. Racusin & Co., dated September 3, 2004 (see Exhibit 10.18 to Form 10-K filed May 13, 2008, SEC File No. 000-20685)10.31
*
Advisor Agreement between Alpine Advisors LLC and American Wagering, Inc. dated March 12, 2010 (see Exhibit 10.26 to Form 10-K filed May 7, 2010, SEC File No. 000-20685)


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Exhibit Number

Description10.32
*
Line of Credit dated May 17, 2010 between the Company and Victor Salerno (see Exhibit 10.1 to Form 8-K filed May 21, 2010, SEC File No. 000-20685)10.33
*
Revolving Line of Credit Promissory Note dated May 17, 2010 (see Exhibit 10.2 to Form 8-K filed May 21, 2010, SEC File No. 000-20685)10.34
*
Loan Agreement dated June 22, 2010 between the Company and Alpine Advisors LLC (see Exhibit 10.3 to Form 10-Q filed September 20, 2010, SEC File No. 000-20685)10.35
*
Borrower Pledge Agreement dated June 22, 2010 between the Company and Alpine Advisors LLC (see Exhibit 10.4 to Form 10-Q filed September 20, 2010 SEC File No. 000-20685)10.36
*
CBS Security Agreement dated June 22, 2010 between the Company and Alpine Advisors LLC (see Exhibit 10.5 to Form 10-Q filed September 20, 2010 SEC File No. 000-20685)10.37
*
Amended and Restated Warrant dated June 11, 2010 issued to Alpine Advisors LLC (see Exhibit 10.6 to Form 10-Q filed September 20, 2010, SEC File No. 000-20685)10.38
*
Bridge Loan Agreement, dated as of April 13, 2011, by and among American Wagering, Inc., the Guarantors (as defined therein) and William Hill Holdings Limited (See Exhibit 10.1 to Form 8-K filed
April 14, 2011, SEC File No. 000-20685)14.1
*
Code of Business Conduct and Ethics (see Exhibit 14.1 to Form 10-QSB filed June 14, 2005, SEC File No. 000-20685)21.1

Subsidiaries of American Wagering, Inc.23.1

Consent of Independent Registered Public Accounting Firm31.1

Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)31.2

Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)32.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350


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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

May 17, 2011

AMERICAN WAGERING, INC.By:

/s/ VICTOR SALERNO Victor Salerno President and Chief Executive Officer


In
accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date/s/ VICTOR SALERNO Victor Salerno

President and Chief Executive Officer (Principal Executive Officer)

May 17, 2011/s/ ROBERT KOCIENSKI Robert Kocienski

Principal Financial Officer and Chief Operating Officer (Principal Financial Officer)

May 17, 2011/s/ W. LARRY SWECKER W. Larry Swecker

Director

May 17, 2011/s/ JUDITH ZIMBELMANN Judith Zimbelmann

Director

May 17, 2011/s/ ROBERT BARENGO Robert R. Barengo

Director

May 17, 2011


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EXHIBIT INDEX

Number

Description10.6(A
)
Termination of Employment Agreement and Waiver of Payment Agreement dated April 13, 2011 between Victor Salerno, American Wagering, Inc. and William Hill Holdings Limited (to be effective upon consummation of
the merger with William Hill Holdings Limited)10.7(A
)
Employment Agreement between American Wagering, Inc. and Robert Kocienski, dated November 11, 201010.8(A
)
Amended and Restated Employment Agreement between American Wagering, Inc. and John English, dated April 13, 201110.28

Business Loan Agreement, dated September 4, 2010 between AWI Gaming, Inc. and Nevada State Bank; Change in Terms Agreement, dated September 4, 2010, between AWI Gaming, Inc. and Nevada State Bank;
Commercial Guaranty by American Wagering, Inc. in favor of Nevada State Bank; Commercial Guaranty by Sturgeon's, LLC in favor of Nevada State Bank; Commercial Security Agreement, dated September 4, 2010, executed by AWI Gaming,
 Inc. in favor of Nevada State Bank21.1

Subsidiaries of American Wagering, Inc.23.1

Consent of Independent Registered Public Accounting Firm31.1

Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)31.2

Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)32.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350


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