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Table of Contents



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, 2010oro

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 31, 2009, based on the
closing price of the Over-The-Counter Bulletin Board of $0.18 per share was $725,230.

APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

As of April 30, 2010, the number of outstanding shares of the registrant's common stock was 8,379,879.

DOCUMENTS
INCORPORATED BY REFERENCE

None



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TABLE OF CONTENTS



PART I


1Item 1.

Business


1Item 1A.

Risk Factors


9Item 1B.

Unresolved Staff Comments


16Item 2.

Properties


17Item 3.

Legal Proceedings


17Item 4.

(Removed and Reserved)


17PART II


18Item 5.

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


18Item 6.

Selected Financial Data


18Item 7.

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


18Item 7A.

Quantitative and Qualitative Disclosures about Market Risk


28Item 8.

Financial Statements and Supplementary Data


28Report of Independent Registered Public Accounting Firm


29Consolidated Balance Sheets January 31, 2010 and 2009


30Consolidated Statements of Operations for the Years Ended January 31, 2010 and 2009


31Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 2010 and 2009


32Consolidated Statements of Cash Flows for the Years Ended January 31, 2010 and 2009


33Notes to Consolidated Financial Statements Years Ended January 31, 2010 and 2009


34Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


53Item 9A(T).

Controls and Procedures


53Item 9B.

Other Information


54PART III


55Item 10.

Directors, Executive Officers and Corporate Governance


55Item 12.

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


61Item 13.

Certain Relationships and Related Transactions, and Director Independence


63Item 14.

Principal Accountants' Fees and Services


65PART IV


67Item 15.

Exhibits, Financial Statement Schedules


67SIGNATURES


70


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PART I

Item 1.    Business

Company History

American Wagering, Inc. ("AWI" or the "Company") was incorporated in the state of Nevada in August 1995. AWI earns its revenues
through the consolidated operations of its wholly-owned subsidiaries, including Leroy's Horse & Sports Place, Inc. ("Leroy's"), Computerized Bookmaking Systems, Inc. ("CBS"), AWI
Manufacturing, Inc. ("AWIM"), and AWI Gaming, Inc. ("AWIG").

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.
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 the 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. 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. 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 seamlessly 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 2010.

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.

Chapter 11 Filing

On July 25, 2003, AWI and Leroy's filed voluntary petitions for relief ("Chapter 11 Petitions") under Chapter 11
of the United States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy Court for the District of Nevada (the "Bankruptcy Court"). On February 28, 2005, the Bankruptcy Court
confirmed the Restated Amended Joint Plan of Reorganization (the "Plan") of AWI and Leroy's. On March 11, 2005, AWI and Leroy's consummated the Plan and formally emerged from Chapter 11
proceedings after completing all required actions and all remaining conditions.

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On
September 26, 2005, the Bankruptcy Court issued an order closing the Chapter 11 cases of AWI and Leroy's. All required distributions have been made, except with respect
to the Racusin matter ("Racusin Claim"). For the fiscal years ended January 31, 2010 and 2009, the Company has paid $363,891 and $540,986, respectively, to the Bankruptcy Court and certain
other lienholders of Racusin. As of January 31, 2010, the remaining Racusin Claim liability is $338,851, with $332,710 due in 2011, and the balance in 2012, plus interest at the rate of 8% per
annum.

For
a discussion of the Racusin Claim,seeItem 3. Legal Proceedings.

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 for operating expenses, profit and taxes and the remainder is
distributed to the winners. The Nevada legislature recently passed a bill to legalize the acceptance of Dog Track pari-mutuel wagering.

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,

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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 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 and are limited to $2,200 per day per patron, by regulation (unless a higher limit for a specific patron is
approved by the Nevada State Gaming Control Board). 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 Wagering below.

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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, the growth of online wagering may have on our overall handle (total amount wagered).SeeItem 1.A Risk 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, 2010, 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. The state of New Jersey is suing the federal government for the right to also accept sports wagering. These
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.

CBS
and its CBS Race and Sports System face competition from the following sources: larger 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 and competes in the tourism market with casino facilities in
the nearby cities of 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

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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 $672,899 in research and development in the fiscal year ended January 31, 2010, as compared to $591,121 in
the fiscal year ended January 31, 2009 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. Our development strategy is to leverage our proprietary technology and regulatory 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
nonrestricted 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 nonrestricted 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.

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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 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

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"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 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

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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 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 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.

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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.

Employees

We had 180 full-time and 47 part-time employees at January 31, 2010, at all of our locations and
subsidiaries, including our Sturgeon's
property, of which 33 employees were full-time and 22 were part-time. None of our employees are 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

Cautionary Statements Regarding Future Results, Forward-Looking Statements and Other Important Factors

Throughout this report we make statements regarding our business, expectations and prospects, such as projections of future
performance, statements of our plans and objectives, forecasts of market trends, and other matters that are "forward- looking statements" as defined in Section 27A of the Securities Act of
1933, as amended, (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Statements containing words or phrases such as "will likely
result," "are expected to," "will continue," "is anticipated," "estimates," "projects," "believes," "expects," "anticipates," "intends," "target," "goal," "plans," "objective," "might," "may,"
"could," "will," "should," or similar expressions, or the negative thereof, constitute forward-looking statements. Although we believe that our plans, objectives and expectations reflected in, or
suggested by, such forward-looking statements are reasonable at the present time, we might not achieve them or we may modify them from time to time. You should read this report thoroughly and with the
understanding that actual future results may be materially different from what we expect. We do not plan to update forward-looking statements even though our situation or plans may change in the
future, unless applicable law requires us to do so.

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:

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

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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, 2010, we had approximately $2.1 million in cash and equivalents, a majority of which cash is held to fund
winning tickets and future bets. Based upon our anticipated operations, we believe that cash on hand and operating cash flows will be adequate to meet our anticipated working capital requirements,
capital expenditures, and scheduled payments for indebtedness for fiscal 2011; however, we do anticipate a short term liquidity issue during the second quarter of fiscal year 2011, which we expect
will recover during the third quarter of fiscal year 2011 with the commencement of football season. This expectation is based upon our inability to reduce our Regulation 22.040 reserve
requirement as we normally do after football season. 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, or that the outcome of litigation will be positive, resulting in the need to raise additional funds sooner, or that we
will be able to raise additional funds. We recently engaged a financial advisor on an exclusive basis to provide advisory services to us, including the identification of potential investors in an
offering of
debt, equity or equity-linked securities of us, or a strategic based transaction involving us. No assurance can be given, however, that we will be able to raise any additional capital, through the
efforts of our financial advisor or otherwise, or that such capital will be available to us on acceptable terms. Given the current financial market disruption, credit crisis and state of the economy,
it may be particularly difficult at this time to raise any capital on acceptable terms. In the event we cannot raise additional capital or operations continue to decline, we may be unable to satisfy
our obligations as they become due.

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. A hearing was held on May 8,
2009, regarding the motion for summary judgment. On April 2, 2010, a hearing was held where the Court verbally indicated an intent to vacate an August 18, 2009 order granting summary
judgment in favor of Racusin because a material issue of fact remained regarding whether the Company breached the Settlement Agreement, and whether the acceleration clause of the Settlement Agreement
was triggered. Additionally, at the April 2, 2010 hearing, the Court also held off rendering a decision on Racusin's Motion for Attorneys' Fees and Costs because at this time no prevailing
party exists as no material breach of the Settlement Agreement has been proven. No trial date has been set

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in
this case as of yet. If the Court determines we owe additional amounts, we may not be able to pay such obligations when due without obtaining additional financing. No assurance can be given,
however, that we will be able to raise any additional capital or that such capital will be available to us on acceptable 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.

In
March 2009, we were notified that Fidelity would cancel its surety bond effective May 8, 2009. We have been unable to secure a replacement bond with acceptable terms subsequent
to the cancellation. In September 2009 we reached an agreement with the Nevada Gaming Control Board to increase our
reserve by $500,000 with a deposit of $100,000 on September 30, 2009 and an $80,000 deposit required on October 31, 2009; November 30, 2009; December 31, 2009;
January 31, 2010; and February 28, 2010. These deposits increased our reserve account to $1.62 million held at Nevada State Bank as of January 31, 2010. In addition, Victor
and Terina Salerno pledged a certificate of deposit for $200,000 and Robert and Tracey Kocienski pledged two certificates of deposit totaling $500,000 for the benefit of Leroy's effectively creating a
total reserve of $2.32 million as of January 31, 2010. The pledged certificates expire in October 2010 and unless the pledge is renewed we may be required to make additional reserve
deposits during football season. If we are required to increase the Regulation 22.040 reserve and 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 Have Had a History of Significant Losses and We May Incur Additional Losses in the Future

For the fiscal years ended January 31, 2010 and 2009, we have incurred net income of $1.0 million and a net loss of
$1.0 million, respectively. From our inception of revenue producing operations through the current fiscal year, we have incurred an accumulated deficit of $12.2 million. For the fiscal
years ended 2001 though 2010, the Company recorded net income for six of those years and net losses for four of those ten 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 20% of that is derived from professional football events. If the
professional football season were to be interrupted, this could have

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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. The state of New Jersey is suing the federal government for the right to
also accept sports wagering. These 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.

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 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.

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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 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 declined 3% for the year ended
December 31, 2009, and gaming revenues fell in 2009 compared with 2008 according to the Las Vegas Convention and Visitors Authority.

Staffing Reductions and Internal ControlsDue to Our Staff Reductions and Reduced Hours Worked, Particularly in the Accounting Department, We May Experience
Deficiencies in Disclosure Controls and Internal Controls Over Financial Reporting, Leading to a Material Weakness and Non-Compliance with the Sarbanes-Oxley Act of 2002

We have reduced staffing hours worked in the accounting and revenue auditing areas and may have additional layoffs in the future. In
addition our Chief Financial Officer resigned in February 2010. The lack of sufficient 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.

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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 Chief Operating Officer. 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 Have the Authority to Issue Additional Equity Securities, Which Would Lead to Dilution of Our Issued and Outstanding Common Stock

The issuance of additional equity securities or securities convertible into equity securities would result in dilution of our existing
stockholders' equity interests in us. Our Board of Directors has the authority to issue, without vote or action of stockholders, preferred stock in one or more series, and has the ability to fix the
rights, preferences, privileges and restrictions of any such series. We currently have Redeemable Series A Preferred Stock outstanding, of which 3,238 shares, representing $323,800, are subject
to redemption at any time, without prior approval from the Board of Directors. Any redemption of the remainder of the preferred stock is subject to prior approval from the Board of Directors. Any such
series of preferred stock could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of
holders of our common stock. If we issue convertible preferred stock, a subsequent conversion may dilute the current common stockholders' interest. In addition, as of January 31, 2010, we are
authorized to issue, without stockholder approval, up to 16,870,121 shares of common stock. Of that amount, 616,499 shares of our common stock are reserved for issuance upon the exercise of vested
options. On March 12, 2010, the Company engaged a financial advisor on an exclusive basis to provide advisory services to us, including the identification of potential investors in an offering
of debt, equity or equity-linked securities of the Company, or a strategic based transaction involving the Company. As part of the consideration we agreed to pay the financial advisor for its services
an initial retainer of 250,000 restricted shares of the Company's common stock.

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

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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.

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). 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. 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

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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.

We May Not Receive an Unqualified Opinion From Our Auditors With Respect to the Assessment of Our Internal Controls Over Financial Reporting That Is Required by
Section 404 of the Sarbanes-Oxley Act Of 2002, and We Will Incur Additional Costs in That Process

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
the Sarbanes-Oxley Act of 2002. In particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires our management's annual review and evaluation of our internal control systems. Commencing
with our Annual Report on Form 10-K for the year ending January 31, 2011, attestations as to these systems by our registered independent accounting firms will be required.

We
will continue to incur increased costs in implementing and responding to these requirements due to the complexities of Section 404 that require significant documentation,
testing and, if necessary, remediation. Our process of reviewing, documenting and testing our internal controls over financial reporting may cause a considerable strain on our management, diverting
them from their daily business focus and strain on our information systems and other resources. We may be required to hire additional temporary or part-time personnel and to use outside
legal, accounting and advisory services and software to assist us in compliance efforts. In addition, we will incur additional fees from our auditors as they perform the added review work necessary
for them to provide their attestation. Even with those expenditures, we may not be able to successfully complete our assessment or we may not be able to obtain an unqualified attestation report on
such assessment.

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.

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. 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.SeeItem 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 21, Reno, Nevada. CBS pays $1,709 per month plus utilities, for a twelve month period ending September 30, 2010, the lease expiration date.

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 $1.6 million loan with Nevada State Bank,
having a 20-year amortization with a 5-year maturity at a fixed interest rate of 8.0% per annum.

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, 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




BETMFiscal Year Ending January 31, 2009
Quarter Ended

High $

Low $April 30, 2008


0.82


0.63July 31, 2008


0.63


0.40October 31, 2008


0.49


0.18January 31, 2009


0.27


0.15


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, 2010, there were 58 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.

Item 6.    Selected Financial Data

Not required.

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



Our primary operating strategies for the foreseeable future are to focus on our core businesses relating to the race and sports
industry, and the operation of Sturgeon's. Regarding CBS, we intend to continue developing, selling and maintaining computerized race and sports wagering systems for the gaming industry. As to AWIM,
we intend to continue developing the self-service wagering kiosk, installing kiosks in Leroy's locations to assist in controlling escalating personnel costs, and marketing the kiosk to
non-Leroy's locations to seek strategic alliances with third party gaming suppliers and/or gaming operators, if economically feasible, that desire to utilize our expertise in the race and
sports industry. These strategies should enable us to gain a national, and foreseeably global, competitive advantage by offering the gaming operator and/or the betting patron a
well-rounded gaming experience.

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Regarding
the Sturgeon's facility, we intend to continue to monitor and make additional changes in the slot mix at Sturgeon's where and when appropriate, and continue to increase efficiency by
possible personnel and other administrative cost reductions, where appropriate.

Concerning
Leroy's, we intend to continue operating existing sports books, adding new books where and when appropriate, based on our business model, and to continue to increase
efficiency by possible personnel and other administrative cost reductions, where appropriate. We are closely reviewing and analyzing the existing Leroy's locations in order to close those locations
that are not operating efficiently. 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. Additionally, we will be adding sports bars and taverns for the purpose of sports account wagering. There is no assurance that Leroy's will be able to add new
locations and/or that any new locations added will be profitable.

We
have implemented, and continually revise our cost reduction measures throughout the Company. During fiscal 2009, the Company began reducing its workforce by means of a
lay-off for a total of 114 employees (or 31.2%) as of January 31, 2009. The lay-offs were in each of our subsidiaries and we began to focus on other
non-employment related cost reduction measures, such as reductions in telecommunication costs, energy and utility costs, and office supply costs. The Company maintained its cost reduction
measures throughout fiscal 2010. During fiscal 2010 and fiscal 2009, our local, regional and national economy has been negatively impacted due to a number of factors, including the nationwide downturn
in the economy, the subprime mortgage crisis and transportation costs. Confidence in the credit market has also eroded, which resulted in a tightening of credit availability. The economy is also
subject to events such as threatened or actual terrorist attacks; pandemic outbreaks or similar widespread health epidemics; natural disasters; and declines in the stock market. During fiscal 2010,
Las Vegas continued to experience high foreclosure and unemployment rates and reduced passenger traffic at McCarran International airport attributed to additional costs and airline cutbacks. We face
the risk that the effects of higher unemployment rates, 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 as a result of the current economic environment. We have also experienced a change in gambling patterns of our patrons, including a trend toward more conservative bets, which tend to be less
profitable to the Company. In addition, because Sturgeon's Hotel and Casino is heavily dependent on the drive-through market, especially travelers on Interstate 80; the factors listed above have and
will continue to have an adverse affect on our business.

Liquidity and Capital Resources

The United States is currently experiencing an economic downturn accompanied by, among other things, weakness in the commercial and
investment banking systems resulting in reduced credit and capital financing availability, and highly curtailed gaming, other recreational activities and general discretionary consumer spending, and
is also engaged in war, all of which are likely to continue to have far-reaching effects on economic conditions in the country for an indeterminate period. The effects and duration of
these developments and related risks and uncertainties on our future operations and cash flows, including, the principal officer's ability to continue to provide financial support for the Company, as
in the past, and other access to capital or credit financing, cannot be estimated at this time but may likely be significant.

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Cash Flow

As of January 31, 2010, we had working capital of $751,489, compared to working capital deficit of $(456,055) at
January 31, 2009. The increase in working capital is primarily due to earning a profit of $983,706 and the timing of and decreases in future bets and unpaid winning tickets. Significant expense
control measures were instituted throughout the fiscal year resulting in expense reductions of $3.2 million (-19%) from the prior year. Expense reductions were partially offset by
revenue reductions of $.9 million (-6%). The third and fourth quarters have historically been the best two quarters regarding cash flow and earnings for the Company; however, for
fiscal 2010, the third quarter was weak due to a low hold percentage in professional football, and, during the fourth quarter, we experienced a high hold percentage which offset the third quarter.

The
United States recently experienced a severe economic downturn that curtailed casino gaming development, activity and profitability. This was a local and nationwide problem, resulting
in highly reduced availability of credit and capital financing. The recession continues to have an adverse effect on our cash flows and earnings for fiscal 2010 particularly on the revenues of our
Hotel / Casino segment which experienced a reduction of $387,998 (-14.5%). The effects and the duration of these negative developments and related uncertainties on the Company's future
operations and cash flows cannot be estimated at this time, but may likely be significant.

Additionally,
due to the current negative economic environment, the Company has taken additional measures to increase cash flow. Effective January 1, 2009, the Company no longer
matches the employees' 401(k) contributions. The salaries of the President of AWIG and the controller of Sturgeon's Hotel and Casino were reduced by 20%. The CEO and the in-house general
counsel each agreed to reduce their annual base salaries to the amount sufficient to cover payroll deductions for benefits, effective November 24, 2008. Pursuant to the original terms of
Mr. Salerno's employment agreement, Mr. Salerno is entitled to an annual base salary of $240,000. Additionally, several higher salaried employees each agreed to reduce their salaries by
20% effective January 3, 2009. Certain higher paid hourly employees agreed to a 32 hour work week, effective January 4, 2009, resulting in a 20% pay reduction. The salary
reductions were intended to be temporary pending an improvement in the Company's cash flow and were reversed in September 2009 with the exception of the President of AWIG; the controller at Sturgeon's
Hotel and Casino; the CEO; and the in-house general counsel.

Victor
Salerno, the Company's President, Chief Executive Officer, Chief Operating Officer, and interim Principal Accounting Officer (as our Chief Financial Officer resigned in February
2010), loaned the Company an additional $500,000 on December 1, 2008 due to the cash flow needs of the Company. Due to the urgency, the funds were advanced on an expedited basis without formal
board approval, as reported in the Company's Form 10-Q for the quarter ended October 31, 2008. Mr. Salerno had previously loaned the Company $500,000 pursuant to a
loan agreement dated April 21, 2008. The independent directors of the Company evaluated and approved the fairness of the loan agreement to cover the total $1,000,000, at the same terms of the
April 21, 2008 loan agreement. Additionally, the Company's outside directors elected not to receive their directors' fees for the last three months of 2008 and renounced their stock option
grants for fiscal 2009 effective January 31, 2009.

On
December 11, 2008, U.S. Bank gave the Company verbal approval to extend the maturity date of the Company's $500,000 revolving line of credit to 90 days after the
original maturity date of December 31, 2008 (March 31, 2009) and to further negotiate the terms of the line of credit. This credit facility was converted into a term loan, effective
March 30, 2009. As of January 31, 2010, the Company paid the full balance of the term loan.

We
believe our working capital position will improve in fiscal 2011 due to: (a) the continuation of the expense reduction measures implemented by management in fiscal 2009 and
fiscal 2010; (b) an increased demand in fiscal 2011 for our CBS equipment due to certain customers' desire to obtain new equipment, who are themselves recovering from the economic downturn;
(c) deployment of new

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products
and services anticipated in fiscal 2011; (d) reduced cash obligations in fiscal 2011 related to paydowns and reduced payments to Racusin; and (e) additional or expanded sports
book locations in fiscal 2011. Based on the foregoing and subject to the severity of the economic downturn, we believe we will be able to satisfy our operating cash requirements for at least the
remainder of fiscal 2011 from existing cash balances and anticipated cash flows; however, we do anticipate a short term liquidity issue in the second quarter of fiscal year 2011 due to reserve
requirements of Regulation 22.040. Some of the above statements are forward-looking in nature. No assurance can be given that our working capital position will improve in fiscal 2011 or that we
will be successful in achieving the items listed above, including, but not limited to, a reduction in costs, increased demand for our CBS equipment, successful deployment of new products and services,
and additional or expanded sports book locations.

If
our cash flow from operations and available credit is not sufficient to meet our capital requirements, we will be required to raise additional funds. If we cannot locate additional
sources of capital, we may not be able to fund operations, take advantage of future opportunities, or respond to competitors or changing demands of customers. In the event we are required to raise
additional funds to support our operations, we cannot assure you that the additional funds will be available on terms favorable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, it would likely have a material adverse effect on our financial condition and operating results and we may be unable to satisfy our obligations as they become due.

Subject
to uncertainties resulting from the current economic conditions, we plan to improve our cash liquidity during the current fiscal year (ending January 31, 2011), as
described above, to help us fund the following: payroll and benefits; sports book supplies and improvements; required cash reserves; business insurance; real estate and equipment leases; Racusin
obligation; legal expenses; telecommunications; costs related to inventory and to assemble race/sports systems for our CBS customers; compliance costs associated with gaming regulations and
Section 404 of the Sarbanes-Oxley Act of 2002; and debt service. However, there can be no assurance that we will be profitable in the future.

Our
principal cash requirements consist of cash provided by operations for fiscal 2010 of $0.2 million as compared to cash used by operations of $0.2 million for fiscal
2009, primarily due to a net income of $1.0 million and a reduction in unpaid winning tickets and future wagers related to the last big game of the professional football season.

Net
cash used in investing activities for fiscal 2010 was approximately $0.5 million as compared to approximately $0.4 million for fiscal 2009, primarily as a result of an
increase in the Regulation 22.040 reserve requirement of approximately $0.4 million.

Net
cash used in financing activities for fiscal year ended January 31, 2010 was approximately $0.9 million compared to approximately $0.6 million in cash provided
by financing activities for fiscal 2009 primarily due to payments made on borrowings.

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.

In
May 2009, our surety bond was cancelled and we have been unable to secure a replacement bond with acceptable terms subsequent to the cancellation. In September 2009 we reached an
agreement with the Nevada Gaming Control Board to increase our reserve by $500,000 with a deposit of $100,000 on September 30, 2009 and $80,000 deposits on October 31, 2009;
November 30, 2009;

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December 31,
2009; January 31, 2010; and February 28, 2010. These deposits increased our required reserve to $1.62 million as of January 31, 2010. In addition,
Victor and Terina Salerno pledged a certificate of deposit for $200,000 and Robert and Tracey Kocienski pledged two certificates of deposit totaling $500,000 for the benefit of Leroy's effectively
creating a reserve of $2.32 million. The pledged certificates expire in October 2010 and unless the pledge is renewed we may be required to make additional reserve deposits during football
season. We believe that such amount will provide an adequate reserve until football season, at which time; we may need to increase the reserve amount. If we are required to increase the
Regulation 22.040 reserve and 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 elimination or reduction of telephone wagering accounts, resulting in an adverse change in our operating results.

Outlook

Our liquidity has been adversely impacted by a number of factors, including economic conditions and those summarized under "Overview"
above.

At
January 31, 2010, we had approximately $2.1 million in cash and equivalents, a majority of which cash is held to fund winning tickets and future bets. Based upon our
anticipated operations, we believe that cash on hand and operating cash flows will be adequate to meet our anticipated working capital requirements, capital expenditures, and scheduled payments for
indebtedness for the remainder of fiscal 2011; however, we do anticipate a short term liquidity issue during the second quarter of fiscal year 2011, which we expect will recover during the third
quarter of fiscal year 2011 with the commencement of football season. 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 or unforeseen events will not occur, that the outcome of litigation will be positive, including any amounts that may be accelerated under the
Racusin settlement agreement, resulting in the need to raise additional funds sooner, or that we will be able to raise additional funds. We anticipate that we may require additional funds to meet our
cash requirements sometime in fiscal 2011. To raise capital, we may seek to sell additional securities, issue debt or convertible securities, obtain additional credit facilities through financial
institutions or third parties, or sell assets of the Company. No assurance can be given, however, that we will be able to raise any additional capital, or that such capital will be available to us on
acceptable terms. Given the current financial market disruption, credit crisis and state of the economy, including the current recession, it may be particularly difficult at this time to raise any
capital on acceptable terms. In the event we cannot raise additional capital or operations continue to decline, we may be unable to satisfy our obligations as they become due. See"Liquidity and Capital
Resources, Cash Flow".

Cash Obligations

Once again, 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:

2011

2012

2013

2014

2015

TotalNote payable, Sturgeon's

$
39,142


42,440


45,660


1,436,537




$
1,563,779Racusin settlement obligation


332,710


6,141











338,851Due to Victor Salerno








1,000,000








1,000,000Other


69,929














69,929Operating Leases


1,295,858


1,005,110


734,577


580,713


407,000


4,023,258Total

$
1,737,639

$
1,053,691

$
1,780,237

$
2,017,250

$
407,000

$
6,995,817


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Note:
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). 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 judgment to accelerate amounts due, with penalty interest, on February 24, 2009. A hearing was held on May 8,
2009, regarding the motion for summary judgment. On April 2, 2010, a hearing was held where the Court verbally indicated an intent to vacate an August 18, 2009 order granting summary
judgment in favor of Racusin that would have accelerated amounts due and imposed penalty interest at 12% per annum because a material issue of fact remained regarding
whether the Company breached the Settlement Agreement, and whether the acceleration clause of the Settlement Agreement was triggered. Arguments as to the potential effects of the Stay Order on the
Interpleader and the resulting calculation of amounts due may be considered later in the litigation, including but not limited to at trial. No trial date has been set in this case as of yet.
Accordingly, we believe that the balance owed to Racusin as of January 31, 2010 is $338,851, with $332,710 due in 2011 and the balance in 2012, 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 as of January 31, 2010 would be approximately $759,426 assuming an 8% interest rate.

Internet Sports International, Ltd.

This case is currently in the discovery phase and pending in the District Court of Clark County, Nevada, case no. A567638. Several of
the Defendants have recently moved the Court for leave to file a First Amended Answer, Affirmative Defenses and Counterclaims through which those Defendants will assert four additional claims
for relief against ISI for misappropriation of trade secrets, conversion, unjust enrichment, and common law unfair competition. In November 2009, ISI issued a press release and attended the G2E gaming
show in Las Vegas, NV, claiming to have filed a provisional patent for a slot machine that accepts sports bets. Defendants have alleged that they previously developed the race and sports
application for a product with the same or similar attributes and that ISI misappropriated this intellectual property and trade secrets. Through the assertion of these additional Counterclaims
Defendants seek to obtain appropriate relief from the Court concerning these newly asserted claims for relief.

Salerno

On November 8, 2007, the Company borrowed $400,000 against the $500,000 line of credit for the benefit of the Company under the
terms of a Guaranty Agreement, as amended from time to time, between Victor and Terina Salerno (the "Salernos") and AWI. As amended on April 21, 2008, the Guaranty Agreement provides for AWI 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. The April 21, 2008 Guaranty Agreement expires 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 and Guaranty Agreement with the Company.

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On December 1, 2008, Mr. Salerno, loaned the Company an additional $500,000 to fund urgent cash flow needs of the Company. Due to the urgency, the
funds were advanced on an expedited basis without formal board approval as reported in the Company's Form 10-Q for the quarter ended October 31, 2008. The independent
directors of the Company considered and approved the fairness of a proposed amendment to the April 21, 2008 Guaranty Agreement 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. The Company paid interest to Mr. Salerno totaling $100,000 in
fiscal 2010 and $63,630 in fiscal 2009. The total $1,000,000 will be repaid with interest only payments during fiscal 2011 and 2012, and the loan will mature on February 1, 2012.

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

The Company received the benefit of pledges from Victor and Terina Salerno for $200,000 and Robert and Tracey Kocienski for $500,000 to
the Nevada Gaming Control Board to meet its reserve requirements under Regulation 22.040. The pledges are treated as off-balance sheet financing although the Company agreed with the
pledgors to repay the pledges or increase its cash reserve deposits in order to release the pledges. Interest accrues on the pledges at 1% per month and the interest is payable on the first day of
every month. The pledges expire in October 2010.

We
may, from time to time, seek additional capital to fund our operations, reduce our liabilities, or fund our expansion plans (including acquisitions). The Company engaged a financial
advisor on an exclusive basis to provide advisory services to the Company, including the identification of potential investors in an offering of debt, equity, or equity linked securities of the
Company, or a strategic based transaction involving the Company. The sale of additional equity or convertible securities would result in dilution to our shareholders.

Results of Operations

Overview.We report our results of operations through three operating segments: Wagering, Hotel/Casino and Systems. Although numerous
factors are
taken into consideration, the operating income (loss) of the segment represents a significant profitability measure that is used by us in allocating the appropriate level of resources and assessing
performance of each segment.

SUMMARY

2010

2009

$ Change

% ChangeRevenues

$
14,548,455

$
15,488,400

$
(939,945
)

(6.1
)Costs and Expenses


13,418,290


16,601,536


(3,183,246
)

(19.2
)Other Income (Expense)


(146,459
)

185,033


(331,492
)

(179.2
)Income/(Loss) Before Income Taxes


983,706


(928,103
)

1,911,809


206.0


The
decrease in revenues for the year ended January 31, 2010 is attributed to a decrease in the Hotel / Casino segment revenues of $387,998 (-14.5%); a decrease in the
Systems segment revenues of $672,229 (-18.2%); partially offset by increased Wagering segment revenues of $120,282 (+1.3%).

The
decrease in operating costs and expenses for the year ended January 31, 2010 is due to the decrease in direct costs of $2,674,729 (-22.8%) and a decrease in
operating expenses of $508,517 (-10.5%).

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The
change in other income (expense) for the year ended January 31, 2010 is due primarily to the following factors: interest income decreased $37,359 (-81.5%);
interest expense increased $22,993 (+8.4%); litigation income decreased by $239,896 (-80.0%); and other income decreased by $31,244 (-27.8%).See statements of operation

Please
refer to the discussions below ("Wagering Segment," "Hotel/Casino Segment," "Systems Segment," and "Other Income and Expense") for additional information, discussion and analysis.

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 for the fiscal year ended January 31, 2010 increased $120,282 (+1.3%) from the fiscal year ended January 31, 2009.
This increase is attributed to the following factors:



Wagering
Segment total costs and expenses for the fiscal year ended January 31, 2010 decreased $2,229,719 (-21.9%) from the fiscal year ended January 31, 2009.
This decrease is attributed to the following factors:



Note
that an 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 for the
fiscal year
ended January 31, 2010 decreased by $387,998
(-14.5%) from the fiscal year ended January 31, 2009. This decrease is attributed to the following factors:



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Hotel/Casino
Segment total costs and expenses for the twelve months ended January 31, 2010 decreased by $289,086 (-10.9%) from the twelve months ended
January 31, 2009. This decrease is attributed to the following factors:



Systems Segment.The Systems Segment includes the operating results of our systems sales, installations and maintenance fees, less the
related
expenses. Systems Segment revenues for the fiscal year ended January 31, 2010 decreased by $672,229(-18.2%) from the fiscal year ended January 31, 2009. This decrease is
attributed to the following factors:



Systems
Segment total costs and expenses for fiscal year ended January 31, 2010 decreased $467,825 (-12.4%) from the fiscal year ended January 31, 2009. This
decrease is attributed to the following factors:



Other Income (Expense).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.



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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. The following summarizes our critical estimates and policies.

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 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 revenue are relatively insignificant.

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.

SystemSoftware

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.

SystemHardware

We recognize hardware revenue (including any related installation revenue) upon installation of the hardware.

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SystemMaintenance

We negotiate maintenance agreements with each of our 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. We
recognize maintenance revenue on the first day of each month for which the maintenance agreement is in place; we maintain an allowance for doubtful accounts in the event that any such revenue recorded
is not 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.

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, 2010 and 2009, 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, 2010 and 2009, and
the related consolidated statements of operations, stockholders' equity 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, 2010 and 2009, 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 & KERN,Certified Public AccountantsLas Vegas, Nevada
May 7, 2010


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AMERICAN WAGERING, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        JANUARY 31, 2010 AND 2009

2010

2009ASSETSCURRENT ASSETSCash and Equivalents

$
2,084,268

$
3,357,978Restricted Cash


1,729,209


1,298,463Accounts Receivable


204,706


219,264Inventories


143,913


219,601Deferred Tax Assets, net of allowance


369,000


369,000Prepaid Expenses and Other


364,207


379,9104,895,303


5,844,216Property and Equipment, net of accumulated depreciation and amortization


3,301,180


4,171,160Goodwill


103,725


103,725Other Assets


221,291


321,222$
8,521,499

$
10,440,323LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIESCurrent Portion of Long-Term Debt

$
441,781

$
612,759Accounts Payable


1,217,409


1,191,649Line of Credit Payable





499,295Accrued Liabilities


613,320


652,439Unpaid Winning Tickets


1,021,229


1,193,900Customer Deposits and Other


850,075


2,150,2304,143,814


6,300,272Long-Term Debt, less current portion


2,530,778


3,075,244Other Long-Term Liabilities


242,111


530,0712,772,889


3,605,615Redeemable Series A Preferred Stock (3,238 shares)


323,800


323,8007,240,503


10,229,387STOCKHOLDERS' EQUITYSeries 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; 8,129,879 shares issued


81,299


81,299Additional Paid-In Capital


12,589,318


12,361,309Deficit


(12,154,528
)

(12,996,579
)Treasury Stock, at cost (61,100 shares)


(327,493
)

(327,493
)1,280,996


210,936$
8,521,499

$
10,440,323


See
notes to consolidated financial statements.

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Table of Contents



AMERICAN WAGERING, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        FOR THE YEARS ENDED JANUARY 31, 2010 AND 2009

2010

2009REVENUES:Wagering

$
9,235,783

$
9,115,501Hotel/Casino


2,289,646


2,677,644Systems


3,023,026


3,695,25514,548,455


15,488,400OPERATING COSTS AND EXPENSES:Direct Costs:Wagering


6,381,494


8,576,477Hotel/Casino


1,831,136


2,060,634Systems


862,939


1,113,1879,075,569


11,750,298Operating Expenses:Research and Development


672,899


591,121Selling, General and Administrative


2,723,004


3,232,566Depreciation and Amortization


946,818


1,027,5514,342,721


4,851,238OPERATING INCOME (LOSS)


1,130,165


(1,113,136
)OTHER INCOME (EXPENSE):Interest Income


8,476


45,835Interest Expense


(296,208
)

(273,215
)Litigation Income (Expense)


59,951


299,847Other


81,322


112,566(146,459
)

185,033INCOME (LOSS) BEFORE TAXES


983,706


(928,103
)TAX PROVISION





71,481NET INCOME (LOSS)

$
983,706

$
(999,584
)NET INCOME (LOSS) PER COMMON SHAREBASIC

$
0.10

$
(0.14
)DILUTED

$
0.10


N/A


See
notes to consolidated financial statements.

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Table of Contents



AMERICAN WAGERING, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        FOR THE YEARS ENDED JANUARY 31, 2010 AND 2009

Preferred Stock

Common Stock

Treasury StockAdditional
Paid-In
Capital



Total
EquityShares

Dollars

Shares

Dollars

Shares

Dollars

DeficitBalances, January 31, 2008


10,924

$
1,092,400


8,129,879

$
81,299


61,100

$
(327,493
)
$
12,246,651

$
(11,855,393
)
$
1,237,464Preferred Stock Dividends























(141,602
)

(141,602
)Net Loss























(999,584
)

(999,584
)Contributed services




















52,085





52,085Stock-based compensation




















62,573





62,573Balances, 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
)
$
1,280,996


See notes to consolidated financial statements.

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Table of Contents



AMERICAN WAGERING, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE YEARS ENDED JANUARY 31, 2010 AND 2009

2010

2009OPERATING ACTIVITIESNet cash provided by (used in) operating activities

$
165,619

$
(215,355
)INVESTING ACTIVITIESGross increases in restricted cash


(1,426,103
)

(763,602
)Withdrawals from restricted cash


995,357


788,827Proceeds from the sale of property and equipment


83,533


1,500Purchase of property and equipment


(154,512
)

(392,888
)Net cash used in investing activities


(501,725
)

(366,163
)FINANCING ACTIVITIESProceeds from borrowings


705


5,018,670Repayment of borrowings


(796,654
)

(4,254,167
)Dividends on preferred stock


(141,655
)

(141,602
)Net cash provided by (used in) financing activities


(937,604
)

622,901NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS


(1,273,710
)

41,383CASH AND EQUIVALENTS BEGINNING OF YEAR


3,357,978


3,316,595CASH AND EQUIVALENTS END OF YEAR

$
2,084,268

$
3,357,978SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest

$
355,047

$
328,128Non-cash investing and financing activities:Property and equipment acquired directly with proceeds of bank and vendor financing

$


$
10,000


See
notes to consolidated financial statements.

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Table of Contents



AMERICAN WAGERING, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        YEARS ENDED JANUARY 31, 2010 AND 2009

1. Nature of Operations 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 59 (as of April 11, 2010) race and sports wagering locations ("books") in leased
space within nonrestricted 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").

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 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 20% is
derived from professional football events. If the professional football season were to be interrupted, 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 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.

The
United States is currently experiencing an economic downturn accompanied by, among other things, weakness in the commercial and investment banking systems resulting in reduced credit
and capital financing availability, and highly curtailed gaming, other recreational activities and general discretionary consumer spending, and is also engaged in war, all of which are likely to
continue to have far-reaching effects on economic conditions in the country for an indeterminate period. The effects and duration of these developments and related risks and uncertainties
on our future operations and cash

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Table of Contents

AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

1. Nature of Operations and Summary of Significant Accounting Policies (Continued)

flows,
including the principal officer's ability to continue to provide financial support for the Company, as in the past, and, other access to capital or credit financing, cannot be estimated at this
time but may likely be significant.

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.

Use of Estimates

Timely preparation of financial statements in conformity with generally accepted accounting principles in the United States of America
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

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Table of Contents

AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

1. Nature of Operations and Summary of Significant Accounting Policies (Continued)

balance
sheet date, valuation of deferred tax assets, 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
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.

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, 2010 or 2009.

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 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.

36

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Table of Contents

AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

1. Nature of Operations and Summary of Significant Accounting Policies (Continued)

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 certain sales incentives in accordance with Emerging Issues Task Force Issue No. 01-9, Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor's Products.)Accordingly, cash incentives to patrons
for gambling, which are not material, 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 wagering 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 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.

Advertising

The Company expenses all advertising costs as incurred. Advertising expense was $99,252 and $310,130 for the fiscal years ended
January 31, 2010 and 2009, respectively.

Stock-Based Compensation

Stock options 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 using the Black-Scholes
Multiple Option pricing model based on Level 2 inputs pursuant to fair value measurements, with the following weighted-average assumptions in the fiscal years ended January 31:

2010

2009Risk-free interest rate


4.0
%

4.0
%Expected life of options (in years)


3.42


4.05Expected volatility of stock price


206.26
%

107.85
%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

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

1. Nature of Operations and Summary of Significant Accounting Policies (Continued)

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.

The
Company did not grant stock options to employees and non-employee directors in fiscal 2010 and 2009.

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 known 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, 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.
Except for loss periods, net income per common share considers potentially dilutive securities, which consist solely of stock options of 400 and 900 at January 31, 2010 and 2009, respectively.
There is no computation of dilution for loss periods, since the effect of including potentially dilutive common shares would be anti-dilutive because of the losses.

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Table of Contents

AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

1. Nature of Operations and Summary of Significant Accounting Policies (Continued)

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

Net
Income (Loss)
(numerator)

Weighted Average
Common Shares
(denominator)

Per Share
Amount2010Net income

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


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


842,051


8,068,779

$
0.10Effect of dilutive stock options





57Diluted net income per common share:Net income available to common shares

$
842,051


8,068,836

$
0.102009*Net loss

$
(999,584
)Less preferred stock dividends (Note 4)


(141,602
)Basic net loss per common share:Net loss available to common shares


(1,141,186
)

8,068,779

$
(0.14
)


*Diluted
income (loss) per common share is not applicable for loss periods.


2. Property and Equipment

Prior to the year ended January 31, 2007, the Company completed a sale and leaseback of a building with an unrelated party and realized a gain of $1,638,000. Only a portion of the
gain was recognized in each of the succeeding years, including $287,971 and $327,600 for the fiscal years ended January 31, 2010 and 2009, respectively. The deferred gain was reported as "Other
Long-Term Liabilities."

Property
and equipment consists of the following as of January 31, 2010 and 2009:

2010

2009Land

$
505,558

$
505,558Building and building improvements


825,068


825,068Leasehold improvements


136,844


228,647Equipment, furniture and fixtures


7,819,550


7,665,0389,287,020


9,224,311Less accumulated depreciation and amortization


5,985,840


5,053,151$
3,301,180

$
4,171,160


39

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Table of Contents

AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

3. Debt

Short-term debt at January 31, 2009 consists of $499,295 due to U.S. Bank. On April 21, 2008, U.S. Bank approved a revolving credit note for $500,000 for the
Company to provide overdraft protection on our checking accounts. This credit facility was converted into a term loan, effective March 30, 2009, with principal payments of $25,000 for six
months (from March through August 2009) and $70,000 for five months (from September 2009 through January 2010), plus interest at prime plus 2%, collateralized by Victor Salerno's personal residence.

Long-term
debt as of January 31, 2010 and 2009 consists of the following:

2010

2009Note payable, Sturgeon's

$
1,563,779

$
1,599,165Racusin settlement obligation


338,851


757,642Due to Victor and Terina Salerno (Note 7)


1,000,000


1,000,000Other


69,929


331,196$
2,972,559

$
3,688,003Less current portion


441,781


612,759$
2,530,778

$
3,075,244


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 $165,000 annually through January 2013, with the balance of approximately $1.43 million due February 2013.

Racusin Settlement Obligation.The total amount of the Racusin settlement obligation is estimated to be $338,851 outstanding at
January 31,
2010, bearing interest at 8.0% per annum. (See Note 6b.)

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

2011

2012

2013

2014

TotalNote payable, Sturgeon's

$
39,142


42,440


45,660


1,436,537

$
1,563,779Racusin settlement obligation


332,710


6,141








338,851Due to Victor Salerno








1,000,000





1,000,000Other


69,929











69,929Total

$
441,781

$
48,581

$
1,045,660

$
1,436,537

$
2,972,559


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).

40

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Table of Contents

AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

4. Series A Preferred Stock (Continued)

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,
2010 or 2009. The holders of Series A Preferred Stock are not entitled to vote (on a cumulative basis or otherwise) as a 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. Common Stock and Stock Options

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, 2010, 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 and the Company's financial position.

2001 Stock Option 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 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"). The 2001 Plan does
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 2001 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.

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Table of Contents

AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

5. Common Stock and Stock Options (Continued)

The
following tables summarize the current status of the 2001 Plan:

2010

2009Number of
Shares

Weighted
Average
Exercise Price

Number of
Shares

Weighted
Average
Exercise PriceOutstanding at Beginning of Fiscal Year


688,499

$
1.79


728,499

$
1.76Cancelled


(62,000
)

1.27


(40,000
)

1.25Outstanding at End of Fiscal Year


626,499


1.85


688,499


1.79Exercisable at End of Fiscal Year


587,299





558,499


Outstanding
and Exercisable by Price Range as of January 31, 2010:

Options Outstanding

Options ExercisablePrice Range

Number
Outstanding

Remaining
Life

Weighted
Average
Exercise Price

Number
Exercisable

Weighted
Average
Exercise Price$0.96


30,000


7.51

$
0.96


20,000

$
0.96$1.50


30,000


2.34


1.50


30,000


1.50$1.80


250,000


5.36


1.80


250,000


1.80$2.00


316,499


1.55


2.00


316,499


2.00January 31, 2010


626,499


3.98


1.85


616,499


1.86Available For Grant


291,567


Vesting Schedule

Vested at January 31, 2010


616,499Vesting, fiscal year ending January 31, 2011


10,000Number of Options Outstanding at January 31, 2010


626,499


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 to
terminate 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 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, 2010 and January 31, 2009 as part of the Directors' Stock Option
Plan for the best financial interests of the Company.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

5. Common Stock and Stock Options (Continued)

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, 2010 and 2009, 20,800 options were outstanding with 20,800 and 20,000 exercisable, respectively, at a weighted average price of $1.28. Options outstanding and
exercisable by price range as of January 31, 2010 follows:

Options Outstanding

Options ExercisablePrice Range

Number
Outstanding

Remaining
Life

Weighted
Average
Exercise Price

Number
Exercisable

Weighted
Average
Exercise Price$0.12


400


3.00

$
0.12


400

$
0.12$0.15


800


4.00


0.15


800


0.15$0.35


400


2.00


0.35


400


0.35$0.55


800


5.00


0.55


800


0.55$0.79


800


3.00


0.79


800


0.79$1.00


10,000


6.52


1.00


10,000


1.00$2.00


7,600


5.58


2.00


7,600


2.0020,800


5.73

$
1.28


20,800

$
1.28Available For Grant


19,200


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.

In
May 2009, our surety bond was cancelled, and we were subsequently unable to secure a replacement bond with acceptable terms. In September 2009, we reached an agreement with the Nevada
Gaming Control Board to increase our reserve by $500,000 with a deposit of $100,000 on September 30, 2009, and $80,000 deposits on October 31, 2009; November 30, 2009;
December 31, 2009; January 31, 2010; and February 28, 2010. These deposits increased our reserve to $1.62 million as of January 31, 2010. In addition, Victor and
Terina Salerno pledged a certificate of deposit for $200,000 and Robert and Tracey Kocienski pledged two certificates of deposit totaling $500,000 for the benefit of Leroy's effectively creating a
reserve of $2.32 million. The pledged certificates expire in October 2010 and unless the pledge is renewed we may be required to make additional reserve deposits during football season. We
believe that such amount will provide an adequate reserve until football season, at which time; we may need to increase the reserve amount. If we are required to increase the Regulation 22.040
reserve and are unable to do so, it would have an adverse impact on us including,

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

6. Commitments and Contingencies (Continued)

but
not limited to, requiring a significant reduction in the number of race/sports locations operated by Leroy's and/or elimination or reduction of telephone wagering accounts, resulting in an adverse
change in our operating results.



Currently, 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, except as noted below. 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, 2010 and 2009, respectively, the aggregate recorded provision for the following matters, included in long term debt, was $338,851 and $757,642.

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.

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 filed its Corrected Amortization Schedule on March 17, 2008 ("Corrected Amortization Schedule") under the assumption that interest should not accrue as long as the
Company was in compliance with the Interpleader Order. As a result of confirming legal analysis that occurred during the fourth quarter of fiscal 2009, pursuant to legal actions initiated by Racusin
during that quarter (and through February 2009) described below, estimated interest payable was reduced $394,021, decreasing legal expense in that quarter.

44

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

6. Commitments and Contingencies (Continued)

On
April 2, 2008, the Company received a letter from Racusin stating that he considered our filing of the Corrected Amortization Schedule and making payments pursuant thereto to
be a breach of the Settlement Agreement. On October 10, 2008, Racusin moved the Court to file supplemental pleadings in the Interpleader Adversary, and that motion was granted on
December 23, 2008. Racusin filed a counterclaim in the Interpleader Adversary for breach of the Settlement Agreement on January 14, 2009, and his Motion for Summary Judgment on breach of
the Settlement Agreement on February 24, 2009.

A
hearing was held on May 8, 2009, regarding Racusin's Motion for Summary Judgment. On August 18, 2009, the Court entered its order granting Racusin's motion and awarding
damages of $3,935,932 of which $ 2,910,097 had already been paid (including $ 2,153,757 paid into the bankruptcy court registry). On April 2, 2010, a hearing was held regarding the Company's
Motion for Rehearing of the order granting Racusin summary judgment. In such hearing the Court verbally held that it was going to vacate the August 18, 2009 order granting Racusin summary
judgment because the starting balance owed per the Revised Payment Schedule and/or Corrected Amortization Schedule under the Settlement Agreement was inaccurate and, as a result, a material issue of
fact exists regarding whether the Company materially breached the Settlement Agreement. Arguments as to the potential effects of the Stay Order on the Interpleader and the resulting calculation of
amounts due may be considered later in the litigation, including but not limited to at trial. As yet, no trial date has been set. The effect of correcting the starting balance in accordance with the
Court's decision is to reduce the amount due to $759,426 under the Revised Payment Schedule and to $338,851 as calculated in accordance the Corrected Amortization Schedule. Accordingly, during the
fourth quarter of fiscal 2010, the Company recorded an adjustment to reduce the estimated interest payable (and legal expense) by $118,149 to reflect an estimated balance due of $338,851.

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. The complaint was filed in the District Court, Clark County, Nevada as Case No. A567638, asserting claims
for breach of contract, breach of implied covenant of good faith and fair dealing, intentional and negligent interference with prospective economic advantage, andquantum
meruit. The claims arise out of agreements with plaintiff to jointly develop an upright kiosk, including an equipment purchase agreement, software license agreement, and a
marketing agreement. Plaintiff alleges that we failed to perform under, and effectively and prematurely terminated, the equipment purchase agreement as to 100 upright kiosks. Plaintiff further alleges
that it had entered into negotiations with an established customer of ours to place kiosks and plaintiff's products on the customer's casino floor, and that we contacted the customer and terminated
plaintiff's opportunity. Plaintiff seeks for (i) the recovery of actual, consequential and punitive damages, and (ii) the recovery of attorneys' fees, costs and expenses.

On
December 8, 2008, the Court (i) granted summary judgment and dismissed CBS and AWIG from the breach of contract and breach of the implied covenant of good faith and fair
dealing; (ii) granted summary judgment and dismissed the claim of unjust enrichment against AWIM; (iii) granted summary judgment and dismissed the claim of negligent interference with a
prospective

45

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

6. Commitments and Contingencies (Continued)

business
advantage against all defendants; (iv) denied summary judgment and refused to dismiss the claim of intentional interference with a prospective business advantage against CBS, AWIG, and
General Counsel; (v) denied summary judgment and refused to dismiss the claim of quantum meruit against CBS and AWIG; and (vi) denied summary judgment and refused to dismiss the claim of
unjust enrichment against CBS and AWIG.

On
December 29, 2008, the Defendants filed their answer, affirmative defenses and counter-claims for abuse of process, breach of contract, breach of the implied covenant of good
faith and fair dealing, accounting, rescission, and violation of relevant provisions of the Nevada Revised Statutes.

This
case is currently in the discovery phase. We recently moved the Court for leave to file a First Amended Answer, Affirmative Defenses and Counterclaims through which we will
assert four additional claims for relief against plaintiff for misappropriation of trade secrets, conversion, unjust enrichment, and common law unfair competition. Through the assertion of these
additional counterclaims, we seek to obtain appropriate relief from the Court concerning these newly asserted claims for relief.



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:

2011

2012

2013

2014

2015Sports book locations

$
867,264

$
601,414

$
357,256

$
212,400

$
77,000Office equipment and vehicles


68,594


43,696


17,321


8,313


Building rent


360,000


360,000


360,000


360,000


330,000Total

$
1,295,858

$
1,005,110

$
734,577

$
580,713

$
407,000


Rent
expense for all operating leases was $1,451,489 and $1,771,428 during the fiscal years ended January 31, 2010 and 2009, respectively.



The Company has employment agreements with the following executive officers:

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. 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.

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

6. Commitments and Contingencies (Continued)

Bruce Dewing.On December 29, 2009, the Company entered into an agreement with Bruce Dewing, a member of the Company's board
of directors and
president of the Company's wholly-owned subsidiary, AWI Gaming, Inc. Pursuant to the agreement, the employment agreement dated June 14, 2005, as amended between the Company and
Mr. Dewing was terminated effective December 17, 2009. As part of the termination of the employment agreement, the Company agreed to pay Mr. Dewing at his then current
compensation rate of $144,000 annually through December 31, 2009. The Company also agreed to pay Mr. Dewing his accrued, but unused, paid time off of approximately $15,500 in twelve
monthly payments beginning January 15, 2010. In addition, Mr. Dewing's 50,000 remaining unvested stock options fully vested on December 31, 2009. The Company also agreed to pay
Mr. Dewing's medical insurance coverage through December 31, 2010. The agreement also contains a general release of claims by the Company and Mr. Dewing regarding any and all
claims that they may have against each other through the date of the agreement. Pursuant to the agreement Mr. Dewing will remain president of AWI Gaming, Inc. However, he will be
employed on an at-will basis, and his annual salary will be reduced to $34,573 with a commensurate reduction in hours. Mr. Dewing will also be entitled to three calendar months of
severance pay upon termination by the Company of his at-will employment and mileage reimbursement related to travel to and from work.

Melody (Sullivan) Sherrill.Ms. Sherrill's employment agreement became effective on August 6, 2007 and the initial term
expired on
August 6, 2009, which was not extended by the Company. The Company continued to honor the terms of the expired agreement until Ms. Sherrill resigned her position effective
February 18, 2010. The agreement provided for an annual base salary of $180,000 with an annual performance bonus of 1% of Consolidated Income Before Income Taxes. However, Ms. Sherrill
agreed to temporarily reduce her annual base salary by 20%, effective January 3, 2009. Ms. Sherrill also received non-qualified stock options of 30,000 shares upon hire with
one-third vesting on each anniversary of her hiring date, at an exercise price equal to the closing market price of the Company's stock on her hire date. As a result of
Ms. Sherrill's resignation, the Company entered into a Separation Agreement that contained a general release of claims, a six month non-competition and non-solicitation
covenant, a confidentiality covenant and non-disparagement covenant. The Separation Agreement provided Ms. Sherrill with three months of salary and accrued but unused paid time off.

Our
long-term employment commitments through the existing terms of the agreements total $240,000 of base salary through fiscal year 2011, without consideration of typical
benefits and voluntary salary reductions.

7. Related Party Transactions

The Company has engaged in the following related-party transactions during the years ended January 31, 2010 and 2009:

On
November 8, 2007, the Company borrowed $400,000 against the $500,000 line of credit for the benefit of the Company under the terms of a Guaranty Agreement, as amended from time
to time, between Victor and Terina Salerno (the "Salernos") and AWI. As amended in April 21, 2008, the Guaranty Agreement provides for AWI to pay the Salernos interest at 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 April 21,
2008 Guaranty Agreement expires on February 16, 2011. The personal line of credit then in place was

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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

7. Related Party Transactions (Continued)

secured
by the Salerno's residence and provides for an interest rate of 0.5% below the prime rate published by the Wall Street Journal, adjusted annually. The outstanding balance of this line of
credit was $380,773 at January 31, 2008. The Company paid principal and interest payments totaling $63,630 in fiscal 2009 and $25,814 in fiscal 2008 and paid interest-only payments
of $8,333 per month in fiscal 2010. In February 2008, an additional $80,000 was also borrowed by the Company against this line of credit. Smaller amounts were loaned to the Company by
Mr. Salerno subsequent to February 2008, but prior to December 31, 2008, totaling $20,000. The payments described above take into consideration the additional borrowings.

On
December 1, 2008, Mr. Salerno, loaned the Company an additional $500,000 to fund urgent cash flow. Due to the urgency, the funds were advanced on an expedited basis
without formal board approval as reported in the Company's Form 10-Q for the quarter ended October 31, 2008. The independent directors of the Company considered and approved
the fairness of a proposed amendment to the April 21, 2008 Guaranty Agreement to cover the total $1,000,000 that has been loaned by Mr. Salerno at the same terms. The total $1,000,000
will be repaid with interest only payments during fiscal 2011 and 2012, with the balance due February 1, 2012.

Additionally,
Mr. Salerno's personal residence secured the U.S. Bank term loan for $500,000 until repaid January 31, 2010.

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 2010 and 2009 was $120,000 and $63,630, respectively.

8. Income Taxes

The tax effect of significant temporary differences representing deferred tax assets and liabilities for the Company as of January 31, 2010 and 2009 follows:

2010

2009Deferred tax assets:Net operating loss carryforwards

$
2,517,044

$
2,534,298Tax credit carryforwards


46,966


23,437Depreciation and amortization


36,396


101,760Racusin settlement


115,209


259,316Deferred gain on sale and leaseback





97,910Other


135,575


222,6342,851,190


3,239,355Valuation allowance


(2,406,382
)

(2,807,831
)Deferred tax liability consisting of prepaid expense


(75,808
)

(62,524
)Net deferred tax assets

$
369,000

$
369,000


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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

8. Income Taxes (Continued)

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:

2010

2009Income tax expense (benefit) at federal statutory rate

$
334,460

$
(315,555
)Contributed services


65,676


17,709Other


1,314


58,703Change in valuation allowance


(401,450
)

310,624$


$
71,481


At
January 31, 2010, the Company had federal tax net operating loss ("NOL") carryforwards available to potentially reduce future tax obligations in the aggregate
amount of approximately $7.0 million; of which approximately $1.3 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 will be profitable for at least the short-term future and
that it is therefore more likely than not 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, 2007 through 2010 are subject to possible examination by the Internal Revenue Service.

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 31,2010

2009Revenue

$
9,235,783

$
9,115,501Direct Costs


6,381,494


8,576,477Selling, General and Administrative


1,089,772


1,296,523Depreciation and Amortization


295,707


320,3087,766,973


10,193,308Operating Income (Loss)

$
1,468,810

$
(1,077,807
)


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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

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 31,2010

2009Revenue:Casino

$
1,106,384

$
1,289,800Hotel


489,149


587,827Food/Beverage


803,661


916,027Less: Casino Cash Incentives and Other Promotional Allowances


(109,548
)

(116,010
)2,289,646


2,677,644Direct Costs and Expenses:Casino


431,861


564,807Hotel


170,338


197,461Food/Beverage


724,568


863,323Unallocated


504,369


435,0431,831,136


2,060,634Selling, General and Administrative


266,625


303,666Depreciation and Amortization


255,361


277,9082,353,122


2,642,208Operating Income (Loss)

$
(63,476
)
$
35,436


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

Year Ended January 31,2010

2009Revenue

$
3,023,026

$
3,695,255Direct Costs


862,939


1,113,187Research and Development


672,899


591,121Selling, General and Administrative


1,366,607


1,632,377Depreciation and Amortization


395,750


429,3353,298,195


3,766,020Operating Loss

$
(275,169
)
$
(70,765
)


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AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009

9. Business Segments (Continued)

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

Year Ended January 31,2010

2009Operating Income (Loss)Wagering

$
1,468,810

$
(1,077,807
)Hotel/Casino


(63,476
)

35,436Systems


(275,169
)

(70,765
)1,130,165


(1,113,136
)Other Income (Expense)Interest Income


8,476


45,835Interest Expense


(296,208
)

(273,215
)Litigation Income


59,951


299,847Other


81,322


112,566(146,459
)

185,033Income (Loss) Before Income Taxes

$
983,706

$
(928,103
)


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

2010

2009Capital ExpendituresWagering

$
43,795

$
216,720Hotel/Casino


8,357


20,982Systems


98,944


99,685Unallocated


3,416


1,530$
154,512


338,917Identifiable Property(1)Wagering

$
668,581

$
1,000,296Hotel/Casino


1,769,776


2,026,225Systems


1,187,839


1,569,586$
3,626,196

$
4,596,107


(1)Includes
property and equipment, shown net of accumulated depreciation and amortization; goodwill; intangibles; and other assets. Goodwill, in the amount of
$103,725, for the fiscal years ended January 31, 2010 and 2009, is a component of the Systems Segment.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED JANUARY 31, 2010 AND 2009




10. Additional Supplementary Cash Flow Information

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

2010

2009Net income (loss)

$
983,706

$
(999,584
)Depreciation and amortization of property and equipment


979,858


1,013,679Amortization of deferred gain on sale/leaseback


(287,960
)

(327,600
)Gain on fixed asset disposal


(33,040
)

Other





14,120Stock based compensation


34,845


62,573Bad debt expense





(2,835
)Contributed services


193,164


52,085Racusin settlement adjustment


(118,791
)

(394,021
)Increase in deferred tax asset net of valuation allowance





71,481Decrease (increase) in operating assets:Accounts receivable


14,558


128,716Inventories


75,688


224,038Prepaid expenses


15,703


117,146Other current assets


94,072


(46,150
)Increase (decrease) in operating liabilities:Accounts payable


25,760


136,102Accrued liabilities


(39,118
)

(151,956
)Principal payments on Racusin litigation judgment


(300,000
)

(520,000
)Unpaid winning tickets


(172,671
)

(207,482
)Customer deposits and other current liabilities


(1,300,155
)

614,333Net cash provided by (used in) operating activities

$
165,619

$
(215,355
)


11. Financial Instruments

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(T).    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Interim Principal Accounting 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, 2010. We determined
that our disclosure controls and procedures, specifically with respect to a late Form 8-K filed on April 29, 2009 (which should have been filed on or before April 2,
2009) and a late Form 8-K filed on October 15, 2009 (which should have been filed on or before October 7, 2009) and the effects of the departure of our Chief Financial
Officer and certain accounting department personnel in February 2010 discussed below, were not effective.

Changes in Internal Control over Financial Reporting

Except for the effects of the departure of our Chief Financial Officer in February 2010 and certain accounting department personnel in
February 2010, 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. The departure of these individuals adversely affected the preparation of our consolidated financial statements
resulting in audit adjustments. We have hired employees and consultants to mitigate the effects of such departures and are presently considering other improvements.

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

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January 31,
2010, due to the effects of the departure of the our Chief Financial Officer and certain accounting department personnel in February 2010 as discussed above.

This
annual report on Form 10-K does not include an attestation report by the Company's registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management's report in this year's annual report on Form 10-K.

Item 9B.    Other Information

None.

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PART III

Item 10.    Directors, Executive Officers and Corporate Governance

Our directors and executive officers are as follows:

Name

Age

PositionVictor J. Salerno


66

President, CEO, COO, Interim Principal Accounting Officer, Treasurer, and Chairman of the BoardRobert R. Barengo


68

DirectorW. Larry Swecker


65

DirectorJudith L. Zimbelmann


58

DirectorBruce Dewing


60

Director and President of AWIG


Victor
J. Salerno has been our President, CEO, COO, and Chairman of the Board since our inception and our interim Principal Accounting Officer and Treasurer since February 2010.
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).

Bruce
Dewing became a Director in July 2003 and President of AWIG in July 2005. Mr. Dewing has over thirty years of progressive experience in hotel/casino senior level management
positions. Mr. Dewing was formerly the President of the Holder Hospitality Group, Inc. where he oversaw the daily operations of five casinos, an AM radio station, a statewide (Nevada)
slot route, several event companies and over 1,500 executives and employees. Mr. Dewing is a founding member of the Air

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Service
Task Force for Washoe County (Nevada) Airport Authority, a member of the Advisory Board to Washoe Airport Authority, a Board member of the Reno Air Race Association, and a Board member of the
Nevada Hotel and Lodging Association. Mr. Dewing is a former chairman of the Pershing County Tourism Board. In July 2008, Mr. Dewing was appointed to the Nevada Commission on Tourism as
a commissioner.

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. Bruce Dewing is licensed by the Commission to be an officer and
director of AWIG and Sturgeon's. 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. Melody Sullivan 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. 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, 2009.

Summary Compensation Table

Name and
principal position

Year
Ended
01/31

Salary

Bonus

Stock
Awards

Option
Awards(4)

Non-equity
incentive plan
compensation(5)

Non-qualified
deferred
compensation
earnings

All other
compensation(6)

Total(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)Victor Salerno,


2010

$
16,480
(1)









$
51,774




$
13,114

$
81,368CEO, COO, interim PAO, President


2009

$
203,689
(1)















$
15,598

$
219,287Bruce Dewing,


2010

$
152,853
(2)






$
22,083







$
9,000

$
183,936Director of AWI and President of AWIG


2009

$
168,923
(2)






$
43,610







$
11,793

$
224,326Melody Sullivan,


2010

$
156,462
(3)






$
5,358







$
4,800

$
166,620Former CFO and Treasurer


2009

$
178,615
(3)






$
5,373







$
1,662

$
185,650


(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.(2)Mr. Dewing's
annual salary as President of AWIG was $180,000; however, he agreed to reduce his base salary by 20%, through December 2009.(3)Ms. Sullivan's
annual salary was $180,000; however, she agreed to reduce her annual base salary by 20% effective January 3, 2009 which was
reinstated in September 2009.(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 Statement 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. Ms. Sullivan was not eligible for our 401(k)
plan until she completed one year of service (August 5, 2008 was the completion of one year of service but the next allowable enrollment date for the plan was October 1, 2008). Pursuant
to Ms. Sullivan's employment agreement, she received a payment in the amount of $4,800 representing the remainder of the 4% of her salary that would have been matched by the Company, if she
were a participant in the 401(k) plan upon her hire date. Mr. Salerno's and Mr. Dewing's vehicle expenses are also included in the amounts in this column (i). Ms. Sullivan has no
vehicle expense reimbursement.


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. 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

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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."

Bruce Dewing.On December 29, 2009 the Company entered into an agreement with Bruce Dewing, a member of the Company's board
of directors and
president of the Company's wholly-owned subsidiary, AWI Gaming, Inc. pursuant to which, the employment agreement dated June 14, 2005, as amended, between the Company and
Mr. Dewing was terminated effective December 17, 2009. As part of the termination of the employment agreement, the Company agreed to pay Mr. Dewing at his then compensation rate
of $144,000 annually through December 31, 2009. The Company also agreed to pay Mr. Dewing his accrued, but unused, paid time off of approximately $15,500 in twelve monthly payments
beginning January 15, 2010. In addition, Mr. Dewing's 50,000 remaining unvested stock options vested on
December 31, 2009. The Company also agreed to pay Mr. Dewing's medical insurance coverage through December 31, 2010. The agreement also contains a general release of claims by the
Company and Mr. Dewing regarding any and all claims that they may have against each other through the date of the agreement. Pursuant to the agreement Mr. Dewing remains president of AWI
Gaming, Inc. However, he is employed on an at-will basis, and his annual salary is reduced to $34,573 with a commensurate reduction in hours. Mr. Dewing will also be entitled
to three calendar months of severance pay upon termination by the Company of his at-will employment and mileage reimbursement related to travel to and from work.

Our
long-term employment commitments through the existing terms of the agreements total $240,000 of base salary through 2011, without consideration of typical benefits and
voluntary salary reductions.

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Table of Contents

The following table provides information concerning executive officers' unexercised stock options as of January 31, 2010.

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


08/31/2012Bruce Dewing


250,000







$
1.80


06/10/2015Bruce Dewing


400







$
0.15


01/31/2014Bruce Dewing


400







$
0.55


01/31/2015Melody Sullivan


20,000







$
0.96


05/19/2010


(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.

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. Mr. Swecker and Mr. Barengo agreed to forego director fees in
the amount of $24,000 each during fiscal 2010 and $6,000 each during fiscal 2009, for the best interests of the financial health and well-being of the Company. The following table
summarizes the compensation paid to the directors for the fiscal year ended January 31, 2010.

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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)

(c)

(d)

(e)

(f)

(g)

Sum (b-g)W. Larry Swecker




















Robert R. Barengo























(a)This
table includes only non-employee directors whose compensation is not reported in the Summary Compensation Table.(b)W.
Larry Swecker is chairman of the compensation committee for fiscal 2009 and 2010. Robert R. Barengo became chairman of the audit committee in August 2006
and continues as Chairman for fiscal 2009 and 2010.(c)Mr. Swecker
had 10,800 in stock option awards outstanding at January 31, 2010. Mr. Barengo had 9,200 in stock option awards outstanding
at January 31, 2010. Mr. Swecker and Mr. Barengo voluntarily renounced their rights to stock option awards that would have been granted on January 31, 2010 as part of the
Directors' Stock Option Plan for the best financial interests of the Company.


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, 201401/31/2004

Bruce Dewing


400
(2)
$0.15 exercise price per share; became fully exercisable on 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, 2015


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Date

Granted To

Number of
Shares

Terms01/31/2005

Bruce Dewing


400
(2)
$0.55 exercise price per share; became fully exercisable on January 31, 2006; expires on January 31, 201507/11/2005

Bruce Dewing


250,000
(1)
$1.80 exercise price per share; became fully exercisable on December 31, 2009; expires on June 10, 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, 201101/31/2008

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 April 30, 2010, 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).

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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 April 30, 2010 (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 April 30, 2010 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
April 30, 2010, but does not assume the exercise of options by any persons outside of that group.

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


29.51
%Judith L. Zimbelmann(2)


1,004,200


11.98
%Robert R. Barengo(3)


534,200


6.37
%W. Larry Swecker(4)


30,800


0.37
%Bruce Dewing(5)


295,600


3.42
%Melody Sullivan(6)


20,000


0.24
%All directors and executive officers as a group (six persons)(7)


4,372,854


50.13
%


(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. Dewing
and his wife share the voting and investment power with respect to 44,800 shares included above. Mr. Dewing has 250,800 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.(6)Ms. Sullivan
has 20,000 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.(7)Our
current directors and named executive officers as a group have options for 343,800 shares, which they can exercise within the next 60 days. Those
shares are included in the table above.


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, 2010.

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Equity Compensation Plans Approved by Security Holders:

Plan Category

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


626,499

$
1.85


291,567Directors Stock Option Plan


20,800


1.28


19,200Equity compensation plans not approved by security holders


None


None


NoneTotal


647,299

$
1.83


310,767


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, COO, interim Principal Accounting Officer, Treasurer, 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 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

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"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

$
0


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


On
November 8, 2007, the Company borrowed $400,000 against the $500,000 line of credit for the benefit of the Company under the terms of a Guaranty Agreement, as amended from time
to time, between Victor and Terina Salerno (the "Salernos") and AWI. As amended in April 21, 2008, the Guaranty Agreement provides for AWI 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. The
April 21, 2008 Guaranty Agreement expires on February 16, 2011. The personal line of credit then in place was secured by the Salerno's residence and provides for an interest rate of 0.5%
below the prime rate published by the Wall Street Journal, adjusted annually. The outstanding balance of this line of credit was $380,773 at January 31, 2008. The Company paid principal and
interest payments totaling $63,630 in fiscal 2009 and $25,814 in fiscal 2008 and paid interest only payments of $3,839 per month in fiscal 2009. In February 2008, an additional $80,000 was also
borrowed by the Company against this line of credit. Smaller amounts were loaned to the Company by Mr. Salerno subsequent to February 2008, but
prior to December 31, 2008, totaling $20,000. The payments described above take into consideration the additional borrowings.

On
December 1, 2008, Mr. Salerno, loaned the Company an additional $500,000 to fund urgent cash flow needs of the Company. Due to the urgency, the funds were advanced on an
expedited basis without formal board approval as reported in the Company's Form 10-Q for the quarter ended October 31, 2008. The independent directors of the Company
considered and approved the fairness of a proposed amendment to the April 21, 2008 Guaranty Agreement to cover the total $1,000,000 that

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has
been loaned by Mr. Salerno at the same terms. The total $1,000,000 will be repaid with interest only payments during fiscal 2011 and 2012, with the balance due February 1, 2012.

Additionally,
Mr. Salerno's personal residence secured the U.S. Bank term loan for $500,000, until repaid January 31, 2010.

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, 2010, her total compensation
was $4,739. 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 2010 was $193,165.

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, 2010, his total annual compensation was $67,561. John Salerno agreed to temporarily reduce his annual base salary by 20%, effective January 3, 2009 which was reinstated in
September, 2009.

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, is 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, 2010. PBTK previously performed similar audit and review services for the years ended January 31, 2001 through January 31, 2008. PBTK's primary offices are
located at 6100 Elton Avenue, Suite 1000, Las Vegas, Nevada, 89107.

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.

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

Year Ending January 31,Service Provided

2010

2009Audit Service Fees

$
138,975

$
146,022Tax Service Fees


11,101


17,662Other Fees


39,501


21,433Total

$
189,577

$
185,117


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

(a)(1)Financial Statements

Included
in Part II of this report:



Consolidated Balance Sheets at January 31, 2010 and 2009


30Consolidated Statements of Operations for the Years Ended January 31,
2010 and 2009


31Consolidated Statements of Stockholders' Equity for the Years Ended
January 31, 2010 and 2009


32Consolidated Statements of Cash Flows for the Years Ended January 31,
2010 and 2009


33Notes to Consolidated Financial Statements


34


(a)(2)Financial Statement Schedules

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.

(a)(3)
and (c)Exhibits

Exhibit
Number

Description2.1
*
Restated Amended Joint Plan of Reorganization of American Wagering Inc. and Leroy's Horse & Sports Place, Inc. (see Exhibit 2.1 to Form 10-KSB filed May 1, 2006, 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 Schedule 14A filed October 16, 2001, SEC File No. 000-20685)10.2
*
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)10.3
*
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)10.4
*(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)
Compensation terms for American Wagering, Inc. directors (see Exhibit 10.8 to Form 10-KSB filed May 1, 2006, SEC File No. 000-20685)


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Table of Contents

Exhibit
Number

Description10.6
*(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)10.7
*
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)10.8
*
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)10.9
*
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)10.10
*
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)10.11
*
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)10.12
*
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)10.13
*
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)10.14
*
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)10.15
*
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)10.16
*
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)10.17
*
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)10.18
*
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)


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Table of Contents

Exhibit
Number

Description10.19
*
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)10.20
*
Loan Agreement from Victor Salerno (described in registrant's Form 8-K filed on December 15, 2008, SEC File No. 000-20685)10.21
*(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)10.22
*
Separation Agreement between American Wagering, Inc. and Melody Sherrill dated February 24, 2010 (See Exhibit 10.1 to form 8-K filed February 24, 2010, SEC File No. 000-20685)10.23
*
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)10.24
*
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)10.25
(A)
Employment Agreement Termination and Offer of Employment between American Wagering, Inc. and Bruce Dewing, effective December 29, 200910.26

Advisor Agreement between Alpine Advisors LLC and American Wagering, Inc. dated March 12, 201014.1
*
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. (see Exhibit 21.1 to Form 10-K filed May 4, 2009, SEC File No. 000-20685)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 Chief Executive Officer and Chief Financial Officer pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350


*These
documents are incorporated herein by reference as exhibits hereto. Following the description of each such exhibit is a reference to the document as it
appeared in a specified report previously filed with the SEC, to which there have been no amendments or changes unless otherwise indicated.(A)Management
contract or compensatory plan or arrangement.


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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 7, 2010

AMERICAN WAGERING, INC.By:

/s/ VICTOR SALERNO Victor Salerno President, Chief Executive Officer, and Interim Principal Accounting 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, Chief Executive Officer and Interim Principal Accounting Officer(Principal Executive Officer)
(Principal Financial and Accounting Officer)

May 7, 2010/s/ W. LARRY SWECKER W. Larry Swecker

Director

May 7, 2010/s/ JUDITH ZIMBELMANN Judith Zimbelmann

Director

May 7, 2010/s/ BRUCE DEWING Bruce Dewing

Director

May 7, 2010Robert R. Barengo

Director


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EXHIBIT INDEX

Number

Description10.25

Employment Agreement Termination and Offer of Employment between American Wagering, Inc. and Bruce Dewing, effective December 29, 200910.26

Advisor Agreement between Alpine Advisors LLC and American Wagering, Inc. dated March 12, 201023.1

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


71

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