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**UNITED STATES****SECURITIES AND EXCHANGE COMMISSION****Washington, D.C.  20549**

----

**FORM10-QSB**
| **(Mark One)**                                                                                                                                                                                                                                                                                         | ** ** | ** **                                                                              |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|
| **x**                                                                                                                                                                                                                                                                                                  | ** ** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                                                                                                                                                                             | ** ** | ** **                                                                              |
| **For the quarterly period ended:  July  31, 2007**                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                   |       |                                                                                    |
| **o**                                                                                                                                                                                                                                                                                                  | ** ** | **TRANSITION  REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                                                                             | ** ** | ** **                                                                              |
| **For the transition period  from:                        to                      ** |
| **Commission file number:  000-20685**                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                        |            |                                                                                         |  |

**AMERICANWAGERING, INC.****** (Exact name of small businessissuer as specified in its charter)

| **Nevada**                                                      |   | **88-0344658**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |   | (I.R.S. Employer Identification No.) |

 

**675 Grier Drive, Las Vegas,Nevada  89119**

(Address of principal executive offices)

**702-735-0101**

(Issuer’s telephone number)

 

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

Check whether theissuer (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

xYes     oNo

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  

oYes     x No

**APPLICABLE ONLY TO ISSUERS INVOLVEDIN BANKRUPTCYPROCEEDINGS DURING THE PRECEDING FIVE YEARS**

Check whether theregistrant filed all documents and reports required to be filed bySection 12, 13 or 15(d) of the Exchange Act after the distribution ofsecurities under a plan confirmed by a court.

xYes     oNo

**APPLICABLE ONLY TO CORPORATEISSUERS**

State the number of shares outstanding of each of theissuer’s classes of common equity, as of the latest practicable date: 8,129,880shares of Common Stock as of September 10, 2007

Transitional SmallBusiness Disclosure Format (Check one):  o Yes     xNo

 

----

**TABLE OF CONTENTS**
|                                                                          | ** **                                              | **Page**   |
|--------------------------------------------------------------------------|---------------------------------------------------------|------------|
| **PART I — FINANCIAL INFORMATION**                                  |                                                    | **3**      |
|                                                                     | ** **                                              | ** ** |
| Item 1. Consolidated  Financial Statements.                              |                                                    | 3          |
|                                                                     |                                                    |       |
|                                                                     | Balance Sheet  (Unaudited)                              |       | 3 |
|                                                                     |                                                    |       |
|                                                                     | Statements of  Operations (Unaudited)                   |       | 4 |
|                                                                     |                                                    |       |
|                                                                     | Statements of Cash  Flows (Unaudited)                   |       | 5 |
|                                                                     |                                                    |       |
|                                                                     | Notes to  Consolidated Financial Statements (Unaudited) |       | 6 |
|                                                                     |                                                    |       |
| Item 2.  Management’s Discussion and Analysis or Plan of Operation. |                                                    | 12         |
|                                                                     |                                                    |       |
| Item 3A (T).  Controls and Procedures.                                   |                                                    | 19         |
|                                                                     |                                                    |       |
| **PART II —  OTHER INFORMATION**                                    |                                                    | **22**     |
|                                                                     | ** **                                              | ** ** |
| Item 1. Legal Proceedings                                                |                                                    | 22         |
|                                                                     |                                                    |       |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.    |                                                    | 23         |
|                                                                     |                                                    |       |
| Item 3.  Defaults Upon Senior Securities.                                |                                                    | 23         |
|                                                                     |                                                    |       |
| Item 4.  Submission of Matters to a Vote of Security Holders.            |                                                    | 23         |
|                                                                     |                                                    |       |
| Item 5. Other Information.                                               |                                                    | 23         |
|                                                                     |                                                    |       |
| Item  6. Exhibits.                                                       |                                                    | 24         |

 

2

----

**PART I — FINANCIAL INFORMATION**

**Item1.  Financial Statements.**

**AMERICAN WAGERING, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEET (Unaudited)**
| ** **                                                                                                                                  | ** ** | **July 31,  2007** | ** **     |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|----------------|
| **ASSETS**                                                                                                                                  | ** ** | ** **              | ** **     |
| CURRENT ASSETS                                                                                                                              |       |                    |           |
| Cash and Cash  Equivalents                                                                                                                  |       | $                       | 2,797,742      |   |
| Restricted Cash                                                                                                                             |       | 1,145,429               |           |
| Accounts Receivable                                                                                                                         |       | 497,717                 |           |
| Inventories                                                                                                                                 |       | 734,402                 |           |
| Deferred Tax Assets,  net of allowance                                                                                                      |       | 440,481                 |           |
| Prepaid Expenses and  Other Current Assets                                                                                                  |       | 463,538                 |           |
| ** **                                                                                                                                  | ** ** | **6,079,309**           | ** **     |
| Property and Equipment,  net of depreciation and amortization                                                                               |       | 4,704,291               |           |
| Goodwill                                                                                                                                    |       | 103,725                 |           |
| Other Assets                                                                                                                                |       | 381,538                 |           |
| ** **                                                                                                                                  | ** ** | **$**                   | **11,268,863** | ** ** |
|                                                                                                                                        |       |                    |           |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                              | ** ** | ** **              | ** **     |
| CURRENT LIABILITIES                                                                                                                         |       |                    |           |
| Current Portion of  Long-Term Debt                                                                                                          |       | $                       | 3,671,237      |   |
| Accounts Payable                                                                                                                            |       | 897,387                 |           |
| Accrued Expenses                                                                                                                            |       | 1,051,910               |           |
| Unpaid Winning Tickets                                                                                                                      |       | 745,337                 |           |
| Customer Deposits and  Other Current Liabilities                                                                                            |       | 1,008,711               |           |
| ** **                                                                                                                                  | ** ** | **7,374,582**           | ** **     |
|                                                                                                                                        |       |                    |           |
| Long-Term Debt, less  current portion                                                                                                       |       | 1,796,860               |           |
| Other Long-Term  Liabilities                                                                                                                |       | 906,392                 |           |
| ** **                                                                                                                                  | ** ** | **2,703,252**           | ** **     |
|                                                                                                                                        |       |                    |           |
| Redeemable Series A  Preferred Stock (3,238 shares)                                                                                         |       | 323,800                 |           |
|                                                                                                                                        |       |                    |           |
| ** **                                                                                                                                  | ** ** | **10,401,634**          | ** **     |
|                                                                                                                                        |       |                    |           |
| STOCKHOLDERS’ EQUITY                                                                                                                   |       |                    |           |
| Series A Preferred  Stock — 10.00% cumulative; $100.00 par and liquidation value; 18,924 shares  authorized; 10,924 shares outstanding |       | 1,092,400               |           |
| Common Stock - $0.01  par value; 25,000,000 shares authorized; 8,129,880 shares issued and  outstanding                                     |       | 81,299                  |           |
| Additional Paid-In  Capital                                                                                                                 |       | 12,218,828              |           |
| Deficit                                                                                                                                     |       | (12,197,805             | )              |
| Treasury Stock, at cost  (61,100 common shares)                                                                                             |       | (327,493                | )              |
| ** **                                                                                                                                  | ** ** | **867,229**             | ** **     |
| ** **                                                                                                                                  | ** ** | **$**                   | **11,268,863** | ** ** |

 

**See Notesto Consolidated Financial Statements**

3

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**AMERICAN WAGERING, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)**
| ** **                              | ** ** | **For the Three Months Ended  July 31,** | ** **   | **For the Six Months Ended  July 31,** | ** ** |
|-----------------------------------------|------------|-------------------------------------------------------------------|--------------|-----------------------------------------------------------------|------------|
| ** **                              | ** ** | **2007**                                                          | ** **   | **2006**                                                        | ** ** | **2007** | ** ** | **2006** | ** ** |
| **REVENUES:**                           | ** ** | ** **                                                        | ** **   | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Wagering                                |       | $                                                                 | 2,359,567    |                                                            | $          | 1,799,884 |   | $ | 4,523,156 |   | $ | 4,062,589 |   |
| Hotel/Casino                            |       | 893,450                                                           |         | 863,908                                                         |       | 1,556,344 |   | 1,296,272 |   |
| Systems                                 |       | 737,153                                                           |         | 2,189,868                                                       |       | 2,084,868 |   | 4,031,959 |   |
| ** **                              | ** ** | **3,990,170**                                                     | ** **   | **4,853,660**                                                   | ** ** | **8,164,368** | ** ** | **9,390,820** | ** ** |
| **OPERATING  COSTS AND EXPENSES:**      | ** ** | ** **                                                        | ** **   | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Direct Costs:**                       | ** ** | ** **                                                        | ** **   | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Wagering                                |       | 2,353,998                                                         |         | 1,505,214                                                       |       | 4,434,178 |   | 2,914,589 |   |
| Hotel/Casino                            |       | 647,810                                                           |         | 688,478                                                         |       | 1,197,396 |   | 1,079,884 |   |
| Systems                                 |       | 289,983                                                           |         | 590,931                                                         |       | 690,474 |   | 1,322,272 |   |
| ** **                              | ** ** | **3,291,791**                                                     | ** **   | **2,784,623**                                                   | ** ** | **6,322,048** | ** ** | **5,316,745** | ** ** |
| **Operating Expenses:**                 | ** ** | ** **                                                        | ** **   | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Research and Development                |       | 242,140                                                           |         | 261,372                                                         |       | 517,120 |   | 500,734 |   |
| Selling, General and Administrative     |       | 1,144,656                                                         |         | 802,856                                                         |       | 1,934,186 |   | 1,556,586 |   |
| Depreciation and Amortization           |       | 232,216                                                           |         | 204,506                                                         |       | 449,129 |   | 373,524 |   |
| ** **                              | ** ** | **1,619,012**                                                     | ** **   | **1,268,734**                                                   | ** ** | **2,900,435** | ** ** | **2,430,844** | ** ** |
|                                    |       |                                                              |         |                                                            |       |   |   |   |   |
| ** **                              | ** ** | **4,910,803**                                                     | ** **   | **4,053,357**                                                   | ** ** | **9,222,483** | ** ** | **7,747,589** | ** ** |
|                                    |       |                                                              |         |                                                            |       |   |   |   |   |
| **OPERATING  INCOME (LOSS)**            | ** ** | **(920,633**                                                      | **)**        | **800,303**                                                     | ** ** | **(1,058,115** | **)** | **1,643,231** | ** ** |
|                                    |       |                                                              |         |                                                            |       |   |   |   |   |
| **OTHER  INCOME (EXPENSES):**           | ** ** | ** **                                                        | ** **   | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest Income                         |       | 28,622                                                            |         | 21,273                                                          |       | 61,275 |   | 38,051 |   |
| Interest Expense                        |       | (67,438                                                           | )            | (47,107                                                         | )          | (134,050 | ) | (81,326 | ) |
| Litigation Expense                      |       | (52,862                                                           | )            | —                                                          |       | (108,337 | ) | — |   |
| Other, net                              |       | 33,938                                                            |         | 18,249                                                          |       | 61,446 |   | 46,047 |   |
| ** **                              | ** ** | **(57,740**                                                       | **)**        | **(7,585**                                                      | **)**      | **(119,666** | **)** | **2,772** | ** ** |
|                                    |       |                                                              |         |                                                            |       |   |   |   |   |
| **INCOME  (LOSS) BEFORE INCOME TAXES**  | ** ** | **(978,373**                                                      | **)**        | **792,718**                                                     | ** ** | **(1,177,781** | **)** | **1,646,003** | ** ** |
|                                    |       |                                                              |         |                                                            |       |   |   |   |   |
| **PROVISION  FOR INCOME TAXES**         |       | —                                                            |         | —                                                          |       | — |   | — |   |
|                                    |       |                                                              |         |                                                            |       |   |   |   |   |
| **NET  INCOME (LOSS)**                  | ** ** | **$**                                                             | **(978,373** | **)**                                                           | **$**      | **792,718** | ** ** | **$** | **(1,177,781** | **)** | **$** | **1,646,003** | ** ** |
|                                    |       |                                                              |         |                                                            |       |   |   |   |   |
| **NET  INCOME (LOSS) PER COMMON SHARE** | ** ** | ** **                                                        | ** **   | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **BASIC**                               | ** ** | **$**                                                             | **(0.13**    | **)**                                                           | **$**      | **0.10** | ** ** | **$** | **(0.15** | **)** | **$** | **0.19** | ** ** |
| ** **                              | ** ** | ** **                                                        | ** **   | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **DILUTED**                             | ** ** | **$**                                                             | **N/A**      | ** **                                                      | **$**      | **0.09** | ** ** | **$** | **N/A** | ** ** | **$** | **0.19** | ** ** |

 

**See Notesto Consolidated Financial Statements**

4

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**AMERICAN WAGERING, INC. ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)**
| ** **                                                | ** ** | **For the Six Months Ended  July 31,** | ** **    |
|-----------------------------------------------------------|------------|-----------------------------------------------------------------|---------------|
| ** **                                                | ** ** | **2007**                                                        | ** **    | **2006** | ** ** |
| **CASH  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**     | ** ** | **$**                                                           | **4,537,424** | ** ** | **$** | **2,221,445** | ** ** |
| ** **                                                | ** ** | ** **                                                      | ** **    | ** ** | ** ** |
| **Net  cash provided by (used in) Operating Activities**  | ** ** | **(1,035,793**                                                  | **)**         | **1,186,748** | ** ** |
| ** **                                                | ** ** | ** **                                                      | ** **    | ** ** | ** ** |
| **Investing  Activities**                                 | ** ** | ** **                                                      | ** **    | ** ** | ** ** |
| Increase in  restricted cash                              |       | (247,226                                                        | )             | (24,378 | ) |
| Withdrawal of  restricted cash                            |       | 215,453                                                         |          | — |   |
| Acquisition of  Sturgeon’s                           |       | —                                                          |          | (300,000 | ) |
| Purchase of  property and equipment                       |       | (396,050                                                        | )             | (365,431 | ) |
| **Net cash used in Investing Activities**                 | ** ** | **(427,823**                                                    | **)**         | **(689,809** | **)** |
| ** **                                                | ** ** | ** **                                                      | ** **    | ** ** | ** ** |
| **Financing  Activities**                                 |       |                                                            |          |   |   |
| Stock options  exercised                                  |       | —                                                          |          | 38,602 |   |
| Repayment of  borrowings                                  |       | (205,838                                                        | )             | (409,968 | ) |
| Proceeds from  borrowings                                 |       | —                                                          |          | 300,000 |   |
| Preferred stock  dividends                                |       | (70,228                                                         | )             | (70,228 | ) |
| **Net cash used in Financing Activities**                 | ** ** | **(276,066**                                                    | **)**         | **(141,594** | **)** |
|                                                      |       |                                                            |          |   |   |
| **NET  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS** | ** ** | **(1,739,682**                                                  | **)**         | **355,345** | ** ** |
|                                                      |       |                                                            |          |   |   |
| **CASH AND CASH EQUIVALENTS AT  END OF PERIOD**           | ** ** | **$**                                                           | **2,797,742** | ** ** | **$** | **2,576,790** | ** ** |

 

**See Notes to Consolidated Financial Statements**

5

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**AMERICANWAGERING, INC. AND SUBSIDIARIES**

### **NOTESTO CONSOLIDATED FINANCIAL STATEMENTSSIX MONTHS ENDED July 31, 2007(Unaudited)**

#### **1. Basis of Presentation**

The accompanyingunaudited interim, consolidated financial statements of American Wagering, Inc.and all of its subsidiaries (collectively, the “Company”) have been prepared inaccordance with the instructions to Form 10-QSB per Item 310(b) of RegulationS-B published by the Securities and Exchange Commission (“SEC”).  Accordingly, the financial statements do notinclude all of the information and disclosures required by generally acceptedaccounting principles for annual financial statements.  In the opinion of management, all adjustmentsnecessary for a fair presentation have been included.  Results of operations for the current interimperiods are not necessarily indicative of results to be expected for the fullyear.  For further information, pleaserefer to the consolidated financial statements of the Company, and the relatednotes, included in its Annual Report on Form 10-KSB for the fiscal year endedJanuary 31, 2007, previously filed with the SEC.  All significant inter-company accounts andtransactions have been eliminated in the consolidation.

Certain minorreclassifications have been made to the consolidated financial statements ofprior periods to conform to the current period presentation primarily to reportHotel/Casino information separately from Wagering.

#### **2.  NetIncome (Loss) per Common Share**

Basic net income (loss)per common share is calculated based on the weighted average number of sharesof common stock outstanding during the reporting period.

Diluted net income percommon share is calculated using potentially dilutive securities consistingsolely of stock options for 175,952 shares for the three months ended July 31,2006.  Diluted net income per commonshare is calculated using potentially dilutive securities consisting solely ofstock options for 175,952 shares for the six months ended July 31, 2006.Potentially dilutive securities would not be used to calculate diluted net lossper common share for a loss period, since the effect of including them in sucha calculation would be anti-dilutive because of the loss.

Anti-dilutive stockoptions for 719,099 and 671,600 shares for the three months ended July 31, 2007and 2006, respectively, are not included in the weighted average number ofshares outstanding since their effect is anti-dilutive.  Anti-dilutive stock options for 719,090 and 671,600shares for the six months ended July 31, 2007 and 2006, respectively, are notincluded in the weighted average number of shares outstanding since theireffect is anti-dilutive.

The following is areconciliation of the numerators and denominators of the net income (loss) percommon share computations for the periods presented:

6

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| ** **                                   | ** ** | **Net  Income (Loss)  (numerator)** | ** ** | **Weighted  Average  Common  Shares  (denominator)** | ** ** | **Per   Share  Amount** | ** ** |
|----------------------------------------------|------------|------------------------------------------|------------|------------------------------------------------------|------------|------------------------------|------------|
| **For the three months ended July 31, 2007** |       |                                     |       |                                                 |       |                         |       |
| Net loss                                     |       | $                                        | (978,373   | )                                                    |       |                         |       |   |
| Less preferred stock dividends               |       | (35,697                                  | )          |                                                 |       |                         |       |
| **Basic net loss per common share:**         |       |                                     |       |                                                 |       |                         |       |
| Net loss available to common shares          |       | (1,014,070                               | )          | 8,068,780                                            |       | $                            | (0.13      | ) |
| Effect of dilutive stock options             |       |                                     |       | *                                                    |       |                         |       |
| **Diluted net loss per common share:**       |       |                                     |       |                                                 |       |                         |       |
| Net loss available to common shares          |       | $                                        | *          |                                                 | *          |                         | $          | * |   |
|                                         |       |                                     |       |                                                 |       |                         |       |
| **For the three months ended July 31, 2006** |       |                                     |       |                                                 |       |                         |       |
| Net income                                   |       | $                                        | 792,718    |                                                 |       |                         |       |   |
| Less preferred stock dividends               |       | (35,696                                  | )          |                                                 |       |                         |       |
| **Basic net income per common share:**       |       |                                     |       |                                                 |       |                         |       |
| Net income available to common shares        |       | 757,022                                  |       | 8,274,376                                            |       | $                            | 0.10       |   |
| Effect of dilutive stock options             |       |                                     |       | 114,076                                              |       |                         |       |
| **Diluted net income per common share:**     |       |                                     |       |                                                 |       |                         |       |
| Net income available to common shares        |       | $                                        | 757,022    |                                                 | 8,388,452  |                         | $          | 0.09 |   |
|                                         |       |                                     |       |                                                 |       |                         |       |
| **For the six months ended July 31, 2007**   |       |                                     |       |                                                 |       |                         |       |
| Net loss                                     |       | $                                        | (1,177,781 | )                                                    |       |                         |       |   |
| Less preferred stock dividends               |       | (70,228                                  | )          |                                                 |       |                         |       |
| **Basic net loss per common share:**         |       |                                     |       |                                                 |       |                         |       |
| Net loss available to common shares          |       | (1,248,009                               | )          | 8,068,780                                            |       | $                            | (0.15      | ) |
| Effect of dilutive stock options             |       |                                     |       | *                                                    |       |                         |       |
| **Diluted net loss per common share:**       |       |                                     |       |                                                 |       |                         |       |
| Net loss available to common shares          |       | $                                        | *          |                                                 | *          |                         | $          | * |   |
|                                         |       |                                     |       |                                                 |       |                         |       |
| **For the six months ended July 31, 2006**   |       |                                     |       |                                                 |       |                         |       |
| Net income                                   |       | $                                        | 1,646,003  |                                                 |       |                         |       |   |
| Less preferred stock dividends               |       | (70,228                                  | )          |                                                 |       |                         |       |
| **Basic net income per common share:**       |       |                                     |       |                                                 |       |                         |       |
| Net income available to common shares        |       | 1,575,775                                |       | 8,263,241                                            |       | $                            | 0.19       |   |
| Effect of dilutive stock options             |       |                                     |       | 125,763                                              |       |                         |       |
| **Diluted net income per common share:**     |       |                                     |       |                                                 |       |                         |       |
| Net income available to common shares        |       | $                                        | 1,575,775  |                                                 | 8,389,004  |                         | $          | 0.19 |   |

 

----

* Diluted net loss pershare is not applicable for loss periods.

7

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#### **3. Income Taxes**

At July 31, 2007, theCompany had federal tax net operating loss (“NOL”) carryforwards available topotentially reduce future tax obligations in the aggregate amount ofapproximately $4,100,000; of which $1,856,000 expires in 2020, and the balanceexpires in 2026.  Management believes thatthe Company will likely be profitable for at least the short-term future andthat it is therefore more likely than not that our net deferred tax asset of$440,481, which resulted primarily from NOLs, will be fully realized.

Management has assessedthe valuation allowance against the remainder of the deferred tax assets andcontinues to reevaluate this asset periodically.  The change in the deferred tax assetvaluation allowance for the three months ended July 31, 2007 and 2006, based onthese estimates, created a deferred income tax expense (benefit) ofapproximately $(330,000) and $270,000, respectively, which offset the currentincome tax expense (benefit) for the three-month periods ended July 31,2007 and 2006.  The change in thedeferred tax asset valuation allowance for the six months ended July 31, 2007and 2006, based on these estimates, created a deferred income tax expense(benefit) of approximately $(400,000) and $560,000, respectively, which offsetthe current income tax expense (benefit) for the six-month periods endedJuly 31, 2007 and 2006.

In June 2006, theFinancial Accounting Standards Board (“FASB”) issued FASB Interpretation No.48, *Accounting for Uncertainty in Income Taxes, aninterpretation of FASB Statement No. 109, Accounting for Income Taxes*(“FIN 48”), effective for us for periods in the years beginning on February 1,2007.  Based on its evaluation,management believes that adopting FIN 48 did not have a material effect on theCompany’s opening deficit, its tax provision or benefit for the three or sixmonths ended July 31, 2007, or its net NOL carryforwards or the relateddeferred tax assets or the valuation allowance.

#### **4. Litigation**

#### The Company continues to be involved inpreviously disclosed ongoing legal proceedings over certain issues that remainunresolved with Michael Racusin, d/b/a M. Racusin & Company, who introduced certain underwriters to the Companyand provided certain advisory services in relation to the Company’s initialpublic offering. For the three and six month periods ended July 31, 2007, theCompany recorded litigation judgment expense of $52,862 and $108,337,respectively, in additional accrued interest on our previously recorded debtand related accrued interest due to Racusin under a settlement agreementrelative to this matter.  A hearing todetermine the manner and timing of the payments is currently scheduled forNovember 2, 2007.

#### **5. Stock Options**

**2001 stock option plan.  **In general, the Company may,upon approval from the Board of Directors, award options to any employee at anytime except that no employee may receive in excess of 250,000 options per yearand the 2001 Plan may not grant more than 1,150,000 options in total.  The 2001 Plan does not require any specificvesting schedule and/or term; as such, the vesting and term is at thediscretion of the Board of Directors. Pursuant to the terms of the 2001 Plan, the exercise price of optionsmust be equal to or greater than the market value of the Common Stock on thedate of the grant.  The 2001 Plan isscheduled to terminate on August 8, 2011, except as to any outstanding stockoptions on that date.

**Directors stock option plan**.  In 1996, the Company adopted the “DirectorsStock Option Plan” (the “Directors Plan”). The Directors Plan was extended in August 2006 to terminate on April 30,2011.  The Directors Plan provides thateach non-employee director shall be awarded options for 100 shares on the lastday each fiscal year for each committee on which such director is then serving.Beginning in fiscal year 2002, each non-employee director has been awardedoptions for a fixed number of shares which was determined to be 400 annually inlieu of the 100 shares per committee on which the non-employee directorserves.  The Board has recently formallyratified this practice as an amendment to the plan effective retroactively tofiscal year 2002, subject to stockholder approval at the next annual meeting.  No more than 20,000 options may be grantedpursuant to the Directors Plan.  The optionswill vest 100.00% one year from the grant date and will expire 10 years fromthe grant date.  Pursuant to the terms ofthe Directors Plan, the exercise price of options must be equal to the marketvalue of the Company’s common stock on the date of the grant.

Activity related to boththe 2001 Employee Stock Option Plan and the Directors Plan for the six monthsended July 31, 2007 and 2006 is as follows:
|                                  | ** ** | **Option Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
|----------------------------------|------------|------------------------|------------|---------------------------------------------|------------|
| Balance at January 31, 2007 |       | 757,749                |       | $                                           | 1.80       |   |
| Granted                          |       | —                 |       | —                                      |       |
| Exercised                        |       | —                 |       | —                                      |       |
| Forfeited or Canceled            |       | (26,250                | )          | 2.00                                        |       |
|                             |       |                   |       |                                        |       |
| Balance at July 31, 2007         |       | 731,499                |       | 1.79                                        |       |
|                             |       |                   |       |                                        |       |
| Balance at January 31, 2006 |       | 897,998                |       | $                                           | 1.64       |   |
| Granted                          |       | —                 |       | —                                      |       |
| Exercised                        |       | (50,446                | )          | 0.64                                        |       |
| Forfeited or Canceled            |       | —                 |       | —                                      |       |
|                             |       |                   |       |                                        |       |
| Balance at July 31, 2006         |       | 847,552                |       | 1.65                                        |       |

 

8

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Stock options exercisableand available for future grants for both stock option plans as of July 31, 2007are as follows: 
|                             | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Life** | ** **      |
|-----------------------------|------------|------------|------------|-----------------------------------------|------------|-----------------------------------------|-----------------|
| Exercisable                 |       | 401,949    |       | $                                       | 1.79       |                                    | 5.79 years |   |
| Available for future grants |       | 329,550    |       | —                                  |       | —                                  |            |
|                             |            |            |            |                                         |            |                                         |                 |  |

 

Non-cash stock-basedcompensation expense recorded in the line item “Selling, General andAdministrative Expenses” on the consolidated statements of operations for thethree and six months ended July 31, 2007 and 2006 was $50,839 and $84,798,and $97,006 and $158,994, respectively.

#### **6. Acquisition of Sturgeon’s**

On March 1, 2006, AWIGaming Inc. (“AWIG”) acquired Sturgeon’s Inn and Casino (“Sturgeon’s”) for$1,800,000, with a remaining balance of $1,500,000.  The purposes of the acquisition of Sturgeon’swere to diversify and strengthen our cash flows and broaden our revenue base byoperating this small casino.  Inconnection with the acquisition, AWIG incurred initial indebtedness of$1,800,000, which included a bank loan of $1,500,000, collateralized by a 1stdeed of trust on the Sturgeon’s real estate and a security interest in thepersonal property and fixtures of Sturgeon’s and a loan for $300,000 fromVictor Salerno, the Company’s CEO, and his wife Terina Salerno, the Company’s GeneralCounsel, which was repaid prior to January 31, 2007.  Interest on the bank loan is payable monthlyat the Wall Street Journal-listed prime rate plus 2.00% and the principal isdue in a single payment on March 1, 2008.

In accordance withStatement of Financial Accounting Standards (“SFAS”) No. 141, *Business Combinations*, the Company performed a valuation todetermine, among other things, the cost of the acquired entity and to assignthat cost to the assets acquired on the basis of their fair values.  Based upon this valuation process, theCompany determined an overall asset value for Sturgeon’s of $2,091,570, whichamount exceeded the purchase price of $1,800,000 and resulted in tentativenegative goodwill in the amount of $291,570. Pursuant to paragraphs 44 and 45 of SFAS No. 141, the negative goodwillwas apportioned to all of the acquired assets on a pro rata basis, subject tothe applicable exceptions.  The purchaseprice allocation was as follows:
|                      | ** ** | **Sturgeon’s Inn & Casino  Purchase Price Allocation** | ** ** |
|----------------------|------------|------------------------------------------------------------------------------------------|------------|
| Land                 |       | $                                                                                        | 505,558    |   |
| Buildings            |       | 795,618                                                                                  |       |
| Other                |       | 498,824                                                                                  |       |
| Total Purchase Price |       | $                                                                                        | 1,800,000  |   |

 

9

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The operations ofSturgeon’s are included in the accompanying consolidated financial statementssince the acquisition date of March 1, 2006, and, therefore, are included forall periods presented except the six months ended July 31, 2006.  The following unaudited pro formaconsolidated financial information has been prepared for the six months endedJuly 31, 2006, as if the acquisition of Sturgeon’s had occurred onFebruary 1, 2006.
|                                        | ** ** | **Six Months  Ended  July 31,  2006** | ** **    |
|----------------------------------------|------------|-------------------------------------------------|---------------|
| Revenues                               |       | $                                               | 9,599,999     |   |
| Operating Expenses                     |       | 8,021,165                                       |          |
| Operating Income                       |       | 1,578,834                                       |          |
| Other Income                           |       | 3,274                                           |          |
| Income Before Income Taxes             |       | 1,582,108                                       |          |
| Provision for Income Taxes             |       | —                                          |          |
| **Net Income**                         | ** ** | **$**                                           | **1,582,108** | ** ** |
| Basic and Diluted Net Income Per Share |       | $                                               | 0.19          |   |

 

These unaudited pro formaresults are presented for comparative purposes only.  The pro forma results are not necessarilyindicative of what actual results would have been had the acquisition beencompleted as of the beginning of each fiscal year, or of future results.

#### **7. Business Segments**

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

**Wagering Segment**.  The following table indicates the primarycomponents of revenue and operating costs resulting in this segment’s operatingincome (loss).  
|                                     | ** ** | **Three Months Ended July 31,** | ** **    | **Six Months Ended July 31,** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------|---------------|---------------------------------------------------|------------|
| ** **                          | ** ** | **2007**                                            | ** **    | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenue**                         | ** ** | **$**                                               | **2,359,567** | ** **                                        | **$**      | **1,799,884** | ** ** | **$** | **4,523,156** | ** ** | **$** | **4,062,589** | ** ** |
| Direct Costs                        |       | 2,353,998                                           |          | 1,505,214                                         |       | 4,434,178 |   | 2,914,589 |   |
| Selling, General and Administrative |       | 359,476                                             |          | 234,013                                           |       | 583,374 |   | 632,574 |   |
| Depreciation and Amortization       |       | 71,881                                              |          | 48,117                                            |       | 139,399 |   | 154,014 |   |
|                                | ** ** | **2,785,340**                                       | ** **    | **1,787,344**                                     | ** ** | **5,156,951** | ** ** | **3,701,177** | ** ** |
| **Operating Income (Loss)**         | ** ** | **$**                                               | **(425,788**  | **)**                                             | **$**      | **12,540** | ** ** | **$** | **(633,795** | **)** | **$** | **361,412** | ** ** |

 

**Hotel/Casino Segment**.  The following table indicates the primarycomponents of revenue and operating costs resulting in this segment’s operatingloss.
|                                                               | ** ** | **Three Months Ended July 31,** | ** **  | **Six Months Ended July 31,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------------|-------------|---------------------------------------------------|------------|
| ** **                                                    | ** ** | **2007**                                            | ** **  | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenue**                                                   |       |                                                |        |                                              |       |   |   |   |   |
| Casino                                                        |       | $                                                   | 386,967     |                                              | $          | 404,021 |   | $ | 732,382 |   | $ | 616,567 |   |
| Hotel                                                         |       | 253,512                                             |        | 186,340                                           |       | 387,795 |   | 257,800 |   |
| Food/Beverage                                                 |       | 312,408                                             |        | 320,244                                           |       | 557,297 |   | 468,602 |   |
| Less: Casino Cash Incentives and Other Promotional  Allowance |       | (59,437                                             | )           | (46,697                                           | )          | (121,130 | ) | (46,697 | ) |
|                                                          |       | 893,450                                             |        | 863.908                                           |       | 1,556,344 |   | 1,296,272 |   |
| **Direct Costs and Expenses**                                 |       |                                                |        |                                              |       |   |   |   |   |
| Casino                                                        |       | $                                                   | 308,082     |                                              | $          | 324,618 |   | $ | 576,933 |   | $ | 518,925 |   |
| Hotel                                                         |       | 74,932                                              |        | 68,124                                            |       | 127,795 |   | 102,159 |   |
| Food/Beverage                                                 |       | 264,796                                             |        | 291,172                                           |       | 492,668 |   | 458,800 |   |
|                                                          |       | 647,810                                             |        | 683,914                                           |       | 1,197,396 |   | 1,079,884 |   |
|                                                          |       |                                                |        |                                              |       |   |   |   |   |
| Selling, General and Administrative                           |       | 256,319                                             |        | 359,455                                           |       | 483,449 |   | 315,828 |   |
| Depreciation and Amortization                                 |       | 64,239                                              |        | 47,111                                            |       | 121,548 |   | 118,863 |   |
|                                                          |       | 320,558                                             |        | 406,566                                           |       | 604,997 |   | 434,691 |   |
| **Operating Loss**                                            | ** ** | **$**                                               | **(74,918** | **)**                                             | **$**      | **(226,572** | **)** | **$** | **(246,049** | **)** | **$** | **(218,303** | **)** |

 

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**Systems Segment. **The following table indicates the primarycomponents of revenue and operating costs resulting in this segment’s operatingincome.
|                                     | ** ** | **Three Months Ended July 31,** | ** **   | **Six Months Ended July 31,** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------|--------------|---------------------------------------------------|------------|
| ** **                          | ** ** | **2007**                                            | ** **   | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenue**                         | ** ** | **$**                                               | **737,153**  | ** **                                        | **$**      | **2,189,868** | ** ** | **$** | **2,084,868** | ** ** | **$** | **4,031,959** | ** ** |
| Direct Costs                        |       | 289,983                                             |         | 590,931                                           |       | 690,474 |   | 1,322,272 |   |
| Research and Development            |       | 242,140                                             |         | 261,372                                           |       | 517,120 |   | 500,734 |   |
| Selling, General and Administrative |       | 528,861                                             |         | 294,430                                           |       | 867,363 |   | 551,785 |   |
| Depreciation and Amortization       |       | 96,096                                              |         | 79,866                                            |       | 188,182 |   | 157,046 |   |
|                                |       | 1,157,080                                           |         | 1,226,599                                         |       | 2,263,139 |   | 2,531,837 |   |
| **Operating Income (Loss)**         | ** ** | **$**                                               | **(419,927** | **)**                                             | **$**      | **963,269** | ** ** | **$** | **(178,271** | **)** | **$** | **1,500,122** | ** ** |

 

**Operating Income (Loss) to Income(Loss) Before Income Taxes. **The following table reconciles the operating income (loss) from eachsegment to income (loss) before taxes.
|                                       | ** ** | **Three Months Ended July 31,** | ** **   | **Six Months Ended July 31,** | ** ** |
|---------------------------------------|------------|-----------------------------------------------------|--------------|---------------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                            | ** **   | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Operating Income (Loss)**           |       |                                                |         |                                              |       |   |   |   |   |
| Wagering                              |       | $                                                   | (425,788     | )                                                 | $          | (49,410 | ) | $ | (633,795 | ) | $ | 361,412 |   |
|                                  |       |                                                |         |                                              |       |   |   |   |   |
| Hotel/Casino                          |       | (74,918                                             | )            | (113,556                                          | )          | (246,049 | ) | (218,303 | ) |
|                                  |       |                                                |         |                                              |       |   |   |   |   |
| Systems                               |       | (419,927                                            | )            | 963,269                                           |       | (178,271 | ) | 1,500,122 |   |
|                                  |       | (920,633                                            | )            | 800,303                                           |       | (1,058,115 | ) | 1,643,231 |   |
| **Other Income (Expenses)**           |       |                                                |         |                                              |       |   |   |   |   |
| Interest Income                       |       | 28,622                                              |         | 21,273                                            |       | 61,275 |   | 38,051 |   |
| Interest Expense                      |       | (67,438                                             | )            | (47,107                                           | )          | (134,050 | ) | (81,326 | ) |
| Litigation Expense                    |       | (52,862                                             | )            | —                                            |       | (108,337 | ) | — |   |
| Other, net                            |       | 33,938                                              |         | 18,249                                            |       | 61,446 |   | 46,047 |   |
|                                  |       | (57,740                                             | )            | (7,585                                            | )          | (119,666 | ) | 2,772 |   |
| **Income (Loss) Before Income Taxes** | ** ** | **$**                                               | **(978,373** | **)**                                             | **$**      | **792,718** | ** ** | **$** | **(1,177,781** | **)** | **$** | **1,646,003** | ** ** |

 

#### Identifiable Property:

|                                         | ** ** | **July 31,** | ** ** |
|-----------------------------------------|------------|-------------------|------------|
| **Identifiable Property (1)** | ** ** | **2007**          | ** ** | **2006** | ** ** |
| Wagering                                |       | $                 | 540,547    |   | $ | 202,134 |   |
| Hotel/Casino                            |       | 2,707,245         |       | 2,552,814 |   |
| Systems                                 |       | 1,941,762         |       | 1,692,758 |   |
|                                    |       | $                 | 5,189,554  |   | $ | 4,447,706 |   |

 

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(1)          Includes property andequipment, shown net of accumulated depreciation and amortization; goodwill;intangibles; and other assets.

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

**Forward-LookingStatements** Throughout this report we make statementsregarding our business, expectations and prospects, such as projections offuture performance, statements of our plans and objectives, forecasts of markettrends, and other matters that are “forward-looking statements” as defined inSection 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”).  Statements containing words or phrases suchas “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-lookingstatements are reasonable at the present time, we might not achieve them or wemay modify them from time to time.  Youshould read this report thoroughly and with the understanding that actualfuture results may be materially different from what we expect.  We do not plan to update forward-lookingstatements even though our situation or plans may change in the future, unlessapplicable law requires us to do so.

In addition to othermatters identified or described by us from time to time in this report or inour other filings with the Securities and Exchange Commission (the “SEC”),there are several important factors that could cause our future results todiffer materially from historical results or trends, results anticipated orplanned, or results that are reflected from time to time in any forward-lookingstatement that may be made by us or on our behalf.  Some of these important factors, but notnecessarily all important factors, include the following:

·                  increasedintense competition in the race and sports wagering business;

·                  the possibilitythat our stock could be removed from quotation on the OTC Bulletin Board (“OTCBB”)if we are late with the filing of another Exchange Act report between now andthe due date for our October 31, 2007 Form 10-QSB;

·                  our ability todevelop and refine products and technologies in a timely manner, and the market’sacceptance of them;

·                  our ability tocarry out our long-term future plans to grow the Company through theacquisition and operation of hotel/casino properties; 

·                  volatility inquarterly results due to the timing of system sales and installations andfluctuations in levels of wagering during particular times of the year;

·                  our ability tosecure external sources of financing on acceptable terms, including financingto implement our acquisition plans mentioned above;

·                  changes ordevelopments in laws, regulations or taxes affecting the race and sportswagering business;

·                  economic,demographic, business and other conditions in our local and regional markets;

·                  our ability tocomplete our assessment of or the receipt of a qualified opinion from ourauditors, and the excessive costs, all related to the implementation of Section404 of the Sarbanes-Oxley Act of 2002;

·                  the availabilityand adequacy of our cash flow to meet our requirements and the paymentsregarding the Racusin Settlement;

·                  our ability tocontrol our operating expenses;

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·                  actions taken ornot taken by third parties, such as our customers, competitors and vendors, aswell as legislative, regulatory, judicial and other governmental authorities;

·                  changes in ourkey management, other personnel or their compensation, including thoseresulting from changes in minimum wage requirements;

·                  the potentialpolitical, economic and other issues related to our international operationsthrough our CBS subsidiary;

·                  our failure toobtain, delays in obtaining, or loss of, any proprietary rights, licenses,permits or approvals, or the limitation, conditioning, suspension or revocationof any such proprietary rights, licenses, permits or approvals, or our failureto obtain an unconditional renewal of any of our proprietary rights, licenses,permits or approvals on a timely basis;

·                  other adverseconditions, such as economic downturns, changes in general customer confidenceor spending, increased transportation costs or travel concerns that mayadversely affect the economy in general or the Nevada gaming industry inparticular;

·                  a decline in thepublic acceptance of wagering;

·                  our ability tocontinue to meet the reserve requirements of the Nevada Gaming Commission (“NGC”);

·                  the consequencesof the war in Iraq and other military conflicts or political instability in theMiddle East or elsewhere and any future security alerts or terrorist attackssuch as the attacks that occurred on September 11, 2001; and

·                  other riskfactors discussed elsewhere in this report.

All future written andoral forward-looking statements attributable to us or any person acting on ourbehalf are expressly qualified in their entirety by the cautionary statementscontained or referred to in this section. In light of these and other risks, uncertainties and assumptions, theforward-looking events discussed in this report might not occur.

**Definitions. **For the purposes of thisreport, the following terms have the following meanings:

“The Company” meansAmerican Wagering, Inc. and its subsidiaries collectively.

“AWI” means AmericanWagering, Inc.

“AWIG” means AWI Gaming,Inc., a wholly-owned subsidiary of AWI.

“AWIM” means AWIManufacturing, Inc., a wholly-owned subsidiary of AWI.

“CBS” means ComputerizedBookmaking Systems, Inc., a wholly-owned subsidiary of AWI.

“Leroy’s” means Leroy’sHorse & Sports Place, Inc., a wholly-owned subsidiary of AWI.

“Sturgeons, LLC” meansSturgeons, LLC, a wholly-owned subsidiary of AWIG.

“Sturgeon’s” meansSturgeon’s Inn & Casino (which, as of March 1, 2006, is owned by Sturgeons,LLC).

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**Overview. **Our primary operatingstrategies for the foreseeable future are to focus on our core businessesrelating to the race and sports industry, and the operation of Sturgeon’s.Concerning Leroy’s, we intend to continue operating existing sports books,adding new books where and when appropriate, and continue to become moreefficient in order to reduce expenses. Regarding CBS, we intend to continue developing, selling and maintainingcomputerized race and sports wagering systems for the gaming industry.  As to AWIM, we intend to continue developingthe self-service wagering kiosk, installing kiosks in Leroy’s locations toassist in controlling escalating personnel costs, and marketing the kiosk tonon-Leroy’s locations.  With regard to theAWI International, Inc. subsidiary, we dissolved this legal entity, effectiveAugust 27, 2007. However we still intend, through our established CBSsubsidiary, to seek strategic alliances with third party gaming suppliersand/or gaming operators that desire to utilize our expertise in the race andsports industry. This strategy should enable us to gain a competitive advantageby offering the gaming operator and/or the betting patron a well-rounded gamingexperience. Regarding AWIG, we intend in the long-term future to seekadditional hotel/casino acquisitions that meet our established criteria andeconomic feasibility.  Additionally, we intendto continue to operate the Sturgeon’s facility, change the slot mix where andwhen appropriate, and modify existing procedures to increase efficiency andreduce expenses.  We have implemented,and are continuing to initiate, other cost cutting measures.

Where appropriate, wewill continue to explore possible new locations for our products, includingforeign jurisdictions.  We will alsocontinue our review of existing Leroy’s locations in order to close thoselocations that are not operating efficiently. Based on our strategy, the number of race and sports books operated byLeroy’s may increase or decrease in the future, due to the closure ofunprofitable locations or host properties, closures due to other factors beyondour control and/or the possible opening of new locations with greater potentialfor profitability.  There is no assurancethat Leroy’s will be able to add new locations and/or that any new locations soadded will be profitable.

#### **Liquidity and Capital Resources.**

#### **Cash Flow.**

As of July 31, 2007,we had a working capital deficit of $1,295,273, compared to working capital of$1,205,572 at January 31, 2007.  Thedecrease in working capital is primarily due to the seasonality of sportsbetting for our second quarter, as expected, and fewer system sales. Ourprincipal cash requirements consist of payroll and benefits, businessinsurance, real estate and equipment leases, legal expenses,telecommunications, debt service, interest expense, and costs related toinventory and to assemble race/sports systems for our CBS customers.

As of July 31, 2007, weused cash of $1,035,793 for the six months ended July 31, 2007 as comparedto the cash provided by operations of $1,186,748 in the comparable period oflast year, primarily due to decreased revenues from systems and wageringoperations, primarily systems sales and installations. In the 2006 period, werecorded systems and software sales of approximately $1.3 million while nosimilar one-time sales occurred in the 2007 period.

Net cash used ininvesting activities for the six months ended July 31, 2007 decreased by $261,986as compared to the same period last year primarily as a result of the financingof casino equipment partially offset by cash purchases for upgraded computersand networks, leasehold improvements, new kiosk locations and other furnitureand equipment.

Net cash used in financingactivities for the six months ended July 31, 2007 was $276,066, primarilydue to repayments on borrowings of $205,838 in the 2006 period, the repaymentof borrowings of $409,968 was partially offset by new borrowings of cash of$300,000 and the exercise of stock options.

Regulation:  Nevada Gaming Commission Regulation 22.040 (“Regulation22.040”) requires us to maintain reserves (cash, surety bonds, irrevocablestandby letter of credit, etc.) sufficient to cover any outstanding wageringliability including unpaid winning tickets, future tickets and telephoneaccount deposits.  From September 1,2005  to August 2006, we maintained aRegulation 22.040 reserve in the amount of $2.4 million; which was increased to$3.0 million in August 2006 in the form of a surety bond issued by Fidelity andDeposit Company of Maryland (a subsidiary of Zurich American Insurance).  This $3.0 million surety bond is secured by a$1.0 million cash deposit, in the form of certificates of deposit at GreatBasin Bank of Nevada. This bond was renewed in September 2007 for the sameamount and with no changes to the terms.

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If we are required toincrease the Regulation 22.040 reserve and are unable to do so, it would havean adverse impact on us including, but not limited to, requiring a significantreduction in the number of race/sports locations operated by Leroy’s, anelimination or reduction of telephone wagering accounts, and a reduction in netincome.

#### **Other.**

We do not have anyoff-balance sheet financing arrangements or liabilities.  We may, from time to time, seek additionalcapital to fund our operations, reduce our liabilities, or fund our expansionplans (including acquisitions).  To raisecapital, we may seek to sell additional equity securities (common or preferred),issue debt or convertible securities, or obtain credit facilities throughfinancial institutions.  The sale ofadditional equity or convertible securities would result in dilution to ourshareholders.

We believe that we willbe able to satisfy our operating cash requirements for at least the next 12months from existing cash balances and anticipated cash flows.  We plan to accumulate cash liquidity duringthe current fiscal year (ending January 31, 2008) to help us fund thefollowing:  litigation expenses andjudgments; potential purchase of kiosks; volatility and seasonality effects ofsports betting; volatility and timing of system sales; compliance costsassociated with Section 404 of the Sarbanes-Oxley Act of 2002; and the possibleeffects of legislation to ban wagering on amateur athletic events.

#### **Results of Operations**

We report our results ofoperations 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 used by usin allocating resources and assessing performance of the segments.
| ** **                        | ** ** | **Three Months Ended July 31,** | ** ** | **Six Months Ended July 31,** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| **Summary**                       | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **$ Change** | ** ** | **% Change** | ** ** | **2007** | ** ** | **2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Revenues                          |       | $                                                   | 3,990,170  |                                              | $          | 4,853,660 |   | $ | (863,490 | ) | (17.79 | ) | $ | 8,164,368 |   | $ | 9,390,820 |   | $ | (1,226,452 | ) | (13.06 | ) |
| Costs and Expenses                |       | 4,951,688                                           |       | 4,053,357                                         |       | 898,331 |   | (22.16 | ) | 9,263,368 |   | 7,747,589 |   | 1,515,779 |   | (19.56 | ) |
| Other Income (Expense)            |       | (16,855                                             | )          | (7,585                                            | )          | (9,270 | ) | (122.21 | ) | (78,781 | ) | 2,772 |   | (81,553 | ) | (-2942.03 | ) |
| Income (Loss) Before Income Taxes |       | $                                                   | (978,373   | )                                                 | $          | 792,718 |   | $ | (1,771,091 | ) | (223.42 | ) | $ | (1,177,781 | ) | $ | 1,646,003 |   | $ | (2,823,784 | ) | (171.55 | ) |

 

Please refer to thediscussions below (“Wagering Segment,” “Hotel/Casino Segment,” “SystemsSegment,” and “Other Income and Expense”) for additional information,discussion and analysis.

#### **For the Six Months Ended July 31, 2007Compared to the Six Months Ended July 31, 2006**

#### **Wagering Segment.**

The Wagering Segmentincludes the operating results of the sports gaming wagers, net of payouts andexpenses.

**Wagering Segment revenues for thesix months ended July 31, 2007 increased $460,567 (11.34%) over the six monthsended July 31, 2006. **This increaseis attributed to the following factors:

We experienced increasedhandle during baseball season due to increased player interest and our newlocations.

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**Wagering Segment total costs andexpenses for the six months ended July 31, 2007 increased $1,455,774 (+39.33%)over the six months ended July 31, 2006. **This increase is attributed to the following factors:

Direct costs increasedprimarily due to increased expenses related to establishing new locations,advertising expenses, wages due to additional locations, increasedcommunication costs and increases in rent paid to our Leroy’s sports booklocations.

Selling, general andadministrative costs decreased primarily due to decreases in variousadministrative costs in the six months ending July 31, 2007 compared to the sixmonths ending July 31, 2006.  Managementfees allocated to the segments also increased due to increased insurance,legal, and other public company costs.

Depreciation andamortization expense decreased over the prior year’s six month period primarilydue to a cumulative decrease in capitalized acquisitions compared to the samesix month period ending July 31, 2006.

Note that an increase ordecrease in handle is not necessarily indicative of an increase or decrease inrevenues or profits.  Elimination ofunprofitable locations, closure of host properties, changes in state and/orfederal regulations, and other factors beyond our control may result indeclines in handle.

We intend to continue toopen new locations that we expect to operate profitably and to continue ourreview of existing locations in order to close those locations that are notoperating efficiently.  There is noassurance that the number of race and sports books operated by us will not decreasein the future due to elimination of unprofitable locations, closure of hostproperties, and other factors beyond our control, that we will be able to addnew locations, and/or that any new locations so added will be profitable.

#### **Hotel/Casino Segment.**

The Hotel/Casino Segmentincludes the operating results of Sturgeon’s. Sturgeon’s commenced operations on March 1, 2006.

**Hotel/Casino Segment revenues forthe six months ended July 31, 2007 increased $260,072 (+20.06%) over the sixmonths ended July 31, 2006. **Thisincrease is attributed to the following factors:

Casino revenues increasedprimarily due to the inclusion of all six months in the in the first six monthsending July 31, 2007 compared to the five months in the period ending July 31,2006, along with increased handle.

Hotel revenues increaseddue to the inclusion of all six months in the period ending July 31, 2007compared to five months in the period ending July 31, 2006, along withincreased room occupancies, primarily with group bookings.

Food and Beveragerevenues increased primarily due to the inclusion of all six months in theperiod ending July 31, 2007 compared to five months in the period ending July31, 2006.  Casino cash incentives andother promotional allowances increased primarily due to the inclusion of allsix months in the period ending July 31, 2007 compared to five months in theperiod ending July 31, 2006, along with additional promotions offered.

**Hotel/Casino Segment costs andexpenses for the six months ended July 31, 2007 increased $117,512 (+10.88%)over the six months ended July 31, 2006. **This increase is attributed to the following factors:

Direct costs for thecasino operations increased over the prior six months ended July 31, 2006primarily due to the inclusion of all six months in the period ending July 31,2007 compared to five months in the period ending July 31, 2006, and increasedpersonnel expense.

Direct costs for thehotel operations increased primarily due to the inclusion of all six months inthe period ending July 31, 2007 compared to five months in the period endingJuly 31, 2006, and increased expenses related to higher room occupancies.

Direct costs for the foodand beverage operations increased primarily due to the inclusion of all sixmonths in the period ending July 31, 2007 compared to five months in the periodending July 31, 2006.

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Selling, general andadministrative costs for Sturgeon’s increased primarily due to the inclusion ofall six months in the period ending July 31, 2007 compared to five months inthe period ending July 31, 2006. This increase was partially offset by a one-timepayment from a workers’ compensation insurance demutualization due to thatorganization going public, for $40,885, in the second quarter of fiscal 2008.

#### **Systems Segment.**

The Systems Segmentincludes the operating results of our systems sales, installations andmaintenance, less the related expenses.

**Systems Segment revenues for thesix months ended July 31, 2007 decreased $1,947,091 (-48.29%) over thesix months ended July 31, 2006. **Thisdecrease is attributed to the following factors:

System sales decreasedover the prior fiscal year due to a decreased number of one-time sales to eightlocations compared to and installations in 27 locations in the prior six monthsended July 31, 2006.

 Revenues from maintenance contracts increasedover the prior fiscal year.  Thisincrease is attributable to the addition of the number of new customers and thehigher fees charged to customers.

**Systems Segment costs andexpenses for the six months ended July 31, 2007 decreased $268,698 (-10.61%)over the six months ended July 31, 2006. **This decrease is attributed to the following factors:

Direct costs for systemsdecreased over the prior six months ended July 31, 2006 primarily due todecreased wages and benefits resulting from a reduction and realignment ofpersonnel, improving our operational efficiencies and a decline in the numberof sales installations.

Research and developmentcosts increased from the prior six months ended July 31, 2006 primarily due tohigher costs for technical support and personnel.

Management fees allocatedto the systems segment also increased due to increased insurance, legal, publiccompany costs, and bonuses paid pursuant to employment contracts.

Depreciation and amortizationincreased from the prior six months ended July 31, 2006 due to increasedproperty acquisitions, primarily to the upgrades to our networks.

**Other income and (expenses). **The other income and(expenses) categories are primarily administrative in nature and, as such, arenot directly attributable to any operating segment.  Accordingly, these items are generally nottaken into consideration by us when we allocate resources to the segments orassess the performance of the segments.

Interest Income:  The majority of interest income isattributable to interest earned on restricted cash deposits required for theRegulation 22.040 reserve.  (Refer to thediscussion regarding this matter located at “Liquidity and Capital Resources”above.)  The remainder of the interestincome is attributable to interest earned on interest-bearing checkingaccounts.

Interest Expense:  The increase in interest expense is primarilydue to our financing of Sturgeon’s, including three additional loans totaling$295,629, for casino equipment in the second quarter of fiscal 2008.  (Refer to the discussion regarding theSturgeon’s acquisition financing located in “Liquidity and Capital Resources”above.)

Litigation expense of$102,331 was recorded in the first six months of fiscal 2008 related to theRacusin litigation, while no similar expense was recorded for the same sixmonth period of the prior fiscal year.

Other, net:  Other, net increased $15,689 primarily due toincreased rental income and various other income in the six months ended July31, 2007 compared to the same period in the prior year.

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**Critical AccountingEstimates and Policies.**

Although our financialstatements necessarily make use of certain accounting estimates by ourmanagement, we believe that, except as discussed below, we do not employ anycritical accounting policies or estimates that are either selected from amongavailable alternatives, or require the exercise of significant managementjudgment to apply, or that if changed are likely to affect future periods.  The following summarizes our criticalestimates and policies.

Wagering:  We record wagering revenues in compliancewith Nevada law and the regulations of the Nevada gaming regulators.  For sports and non pari-mutuel race, we use anaccrual method wherein the handle (total amount wagered) is recognized on theday the event occurs (rather than the day the wager is accepted) decreased bythe 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 notredeemed (cashed) within the specified time period.  For pari-mutuel race, commission and breakagerevenues are recorded when the wagers are settled, typically the same day asthe wager.  Other sources of revenue arerelatively insignificant.

Hotel/CasinoRevenue:  We report the wagering revenuesof Sturgeon’s, which is primarily comprised of slot revenue, hotel room revenueand food and beverage revenue, in compliance with Nevada law and theregulations 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 withpayment periods that extend for longer than several months.  We believe these estimates are reasonablebased on our assumptions related to possible outcomes in the future.  Future actual results might differ materiallyfrom these estimates.  Slot revenue isthe drop (the total amount removed from the machine) less the fills and thepayouts.  Bingo revenue is calculated asthe total handle (the amount wagered) less the payouts.  For non-gaming revenues, such as food andbeverage, hotel, etc., we record revenues in compliance with generally acceptedaccounting principles, recognizing revenue when it is earned.  The Sturgeon’s acquisition was completed onMarch 1, 2006 and wagering revenues for the Sturgeon’s operation were reportedfor the first time in the fiscal year ended January 31, 2007.

System — Software:  We recognize software revenue in accordancewith the provisions of Statement of Position (“SOP”) 97-2, *SoftwareRevenue Recognition, as amended by SOP 98-9, Software Revenue Recognition, WithRespect to Certain Transactions*. Software license fees represent revenues related to licenses forrace/sports software delivered to customers for in-house use.  Revenues from software license agreements(including any related training revenue) are recognized upon installation ofthe software.

System — Hardware:  We recognize hardware revenue (including anyrelated installation revenue) upon installation of the hardware.

System —Maintenance:  We negotiate maintenanceagreements with each of our customers to provide for the long-term care of thesoftware and hardware.  Pursuant to theterms of the various maintenance agreements, a fixed sum is due at thebeginning of each month regardless of whether the customer requires serviceduring that month.  We recognizemaintenance revenue on the first day of each month for which the maintenanceagreement is in place; we maintain an allowance for doubtful accounts in theevent that any such revenue recorded is not realized.

Accounting for long-livedassets:  Owned property and equipment arerecorded at cost and depreciated to residual values over the estimated usefullives using the straight-line method. Leasehold improvements on operating leases are amortized over the lifeof the lease or the life of the asset, whichever is shorter.  The useful life, currently estimated, of ourequipment generally ranges from 3 to 10 years. We test for impairment losses on long-lived assets used in operationswhen events and circumstances indicate that the assets might be impaired, underthe standards of SFAS No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets*.  An impairment loss is recognized if thecarrying amount of the asset is not recoverable from its undiscounted cashflows and is measured as the difference between the carrying amount and fairvalue of the asset.

Accounting for incometaxes:  We review the net loss operatingcarryforwards available to reduce current and future tax obligations; which wasapproximately $4,100,000 as of July 31, 2007. We assess the valuation allowance against the remainder of the deferredtax assets in our calculations to estimate the effective tax rate for the

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fiscal year, and at thistime, we believe that more likely than not there is sufficient losscarryforward to offset the current year’s net income.  We consider and evaluate the components ofthe tax calculations and are satisfied as to realization and probability of thepermanent and temporary differences.

We additionally believethat we will continue to be profitable annually, for at least the short-termfuture, and it is therefore more likely than not that our net deferred taxasset of $440,481, which resulted primarily from net loss carryforwards, willbe fully realized.

#### **Recent Accounting Pronouncements.**

In September 2006, theFASB issued SFAS No. 157, *Fair Value Measurements*(“SFAS No. 157”), which defines fair value, establishes a framework formeasuring fair value and expands disclosures about fair valuemeasurements.  In February 2007, theFASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities — Including an Amendment of SFAS No.115,* which will permit the option of choosing to measure certaineligible items at fair value at specified election dates and report unrealizedgains and losses in earnings.  SFASNos.  157 and 159 will become effectivefor us for financial statements issued for the fiscal year ending January 31,2009.  We are currently evaluating thelikely impact, if any, of these standards on our future consolidated financialstatements.

## **Item 3A (T). Controls and Procedures.**

We carried out anevaluation of the effectiveness of the design and operation of our disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) as of July 31, 2007, (the end of the second quarter of our 2008fiscal year).  This evaluation wascarried out under the supervision and with the participation of our management,including our Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”).  Based upon that evaluation, our CEO and CFOconcluded that our disclosure controls and procedures are not sufficientlyeffective, as discussed below.  “Disclosurecontrols and procedures” are controls and other procedures that are designed toensure that information required to be disclosed in our reports filed orsubmitted under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed in our reports filed or submitted under the ExchangeAct is accumulated and communicated to management, including our CEO and CFO,as appropriate, to allow timely decisions regarding required disclosure.

During the second quarterof our 2008 fiscal year, there were no changes in our internal control overfinancial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting. However, as discussed below, we had significant weaknesses and materialdeficiencies in our internal control over financing reporting that continuedduring our second fiscal quarter of 2008. “Internal control over financial reporting” means a process designed by,or under the supervision of, our principal executive and principal financialofficers, or persons performing similar functions, and effected by our board ofdirectors, management and other personnel, to provide reasonable assuranceregarding the reliability of our financial reporting and the preparation of ourfinancial statements for external purposes in accordance with generallyaccepted accounting principles and includes those policies and procedures that:

(1)                                  Pertainto the maintenance of records that in reasonable detail accurately and fairlyreflect our transactions and dispositions of assets;

(2)                                  Providereasonable assurance that transactions are recorded as necessary to permit preparationof financial statements in accordance with generally accepted accountingprinciples, and that our receipts and expenditures are being made only inaccordance with authorization of our management and directors; and

(3)                                  Providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of our assets that could have a material effecton our financial statements.

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Our former CFO gave us 30days’ notice of termination of his employment on November 17, 2006.  Since then, we have appointed persons toassist in the preparation of our quarterly and annual reports on Forms 10-QSBand 10-KSB, respectively, and we have continued to seek personnel on both afull-time and part-time basis for our accounting department.  We filled the CFO position on August 6, 2007,and we continue to evaluate the adequacy of the appropriate accountingpersonnel.  That situation, together withour already-small finance and accounting staff, the turnover we haveexperienced in that staff, and a triennial routine gaming audit that began inMarch 2007, created the need for additional time to complete our October 31,2006 Form 10-QSB and January 31, 2007 Form 10-KSB, which we did not filetimely. The annual Form 10-KSB was filed the end of May, 2007, which wasfollowed (two weeks later) with the first quarter filing as of April 30, 2007,filed on June 14, 2007. The newly hired CFO has not had sufficient time toresolve and remediate or test the deficiencies that existed during the priorperiods, even though some progress has been made, we are still experiencingaccount department turnover.  As such, webelieve we have a material weakness in our disclosure controls and procedures.

The factors described inthe preceding paragraph have also resulted in significant deficiencies andmaterial weaknesses in our internal control over financial reporting, and havesignificantly increased the risk of continued significant deficiencies andmaterial weaknesses.  Such deficienciesor weaknesses could cause us again to be late in satisfying our Exchange Actreporting obligations, cause the OTCBB to remove our stock from quotation andcause investors to lose confidence in our reported financial information, allof which could lead to a decline in the price of our stock.

We may be required tospend a substantial amount of management time and resources and incursignificant costs in order to comply with laws, regulations and standardsrelating to corporate governance and public disclosure, including the Sarbanes-OxleyAct of 2002.  In particular, Section 404of the Sarbanes-Oxley Act of 2002 will require our management’s annual reviewand evaluation of our internal control over financial reporting, commencingwith our Annual Report on Form 10-KSB for fiscal year ended January 31, 2008and attestations by our independent public accounting firm as to theeffectiveness of our internal control over financial reporting for the fiscalyear ended January 31, 2009.

Our process of reviewing,documenting and testing our internal controls over financial reporting maycause a significant strain on members of our management, diverting them fromtheir daily business focus; and strain on our information systems and otherresources.  We likely will have to hireadditional personnel and use outside legal, accounting and advisory servicesand software.  In addition, the fees toour independent public accounting firm will increase, as that firm performs thereview work necessary for its attestation. Even with those expenditures, we may be unable to complete ourassessment or obtain an unqualified attestation as to the sufficiency of ourinternal controls.

Further, we or ourindependent registered public accounting firm may again identify significantdeficiencies or material weaknesses in our internal control over financialreporting.  If we fail to maintain theadequacy of our internal controls, we may not be able to conclude on an ongoingbasis that we have effective internal control over financial reporting.  If we fail to maintain the adequacy of ourinternal controls or fail to implement any required new or improved controls,this could have a material adverse effect on our business, financial positionand results of operations.

You should also note thatinternal control over financial reporting may not prevent or detectmisstatements because of its inherent limitations, including the possibility ofhuman error, circumvention or overriding of controls, or fraud.  Therefore, even effective internal controlscan provide only reasonable assurance with respect to the preparation and fairpresentation of financial statements.  Inaddition, projections of any evaluation of effectiveness of internal controlover financial reporting to future periods are subject to the risk that thecontrols may become inadequate because of changes in conditions, or that thedegree of compliance with the applicable policies or procedures maydeteriorate.

We do not expect that ourdisclosure controls and procedures or our internal control over financial reportingwill necessarily prevent all fraud and material error.  Further, the design of a control system mustreflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs.

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Because of the inherentlimitations in all control systems, no evaluation of controls can provideabsolute assurance that we have detected all control issues and instances offraud, if any.  These inherentlimitations include the realities that judgments in decision-making can befaulty, and that breakdowns can occur because of simple errors ormistakes.  Additionally, controls can becircumvented by the individual acts of certain persons, by collusion of two ormore persons, or by management override of the internal control.  The design of any system of controls also isbased in part upon certain assumptions about the likelihood of future events,and there can be no assurance that any design will succeed in achieving itsstated goals under all potential future conditions.  Over time, controls may become inadequatebecause of changes in conditions or deterioration in the degree of compliancewith the applicable policies.

Partly in response to ourobligations under Section 404a of the Sarbanes-Oxley Act of 2002, we will begina significant redesign and upgrade of our financial reporting systems andprocedures.  We will undertake thisredesign and upgrade in hopes of strengthening our internal control overfinancial reporting, improving our ability to plan and analyze our business,and reducing the work burden on our finance and accounting staff.

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# **PART II — OTHER INFORMATION**

## **Item 1. Legal Proceedings**

On June 28, 2007, in thecase titled Michael Racusin, d/b/a M. Racusin & Company v. AmericanWagering, Inc. *et al*., Case No. 05-15969,the United States Court of Appeals for the Ninth Circuit (the “9th Circuit”) issued a decisionthat reversed the ruling in our favor by the Bankruptcy Appellate Panel for theNinth Circuit (the “BAP”) on the issue of whether a July 8, 2003 judgment (the “Judgment”)by the United States District Court for the District of Nevada in favor ofMichael Racusin d/b/a M.  Racusin &Company (“Racusin”), in a breach of contract action against us was subject tosubordination under Section 510(b) of the U.S. Bankruptcy Code (the “Code”) pursuant to our prior plan ofreorganization under Chapter 11 of the Code (the “Plan”).  In all material respects, the 9th Circuit’s June 28, 2007decision has the same effect as its October 6, 2006 decision in which it ruledthat the Judgment was not subject to subordination (as to which we had filed apetition for rehearing), but the 9th Circuitwithdrew the latter decision and replaced it with the June 28, 2007decision.  The 9th Circuit also ruled that no further petitions for rehearingmay be filed.

As a result of the 9th Circuit’s reversal of the BAP’sruling, and in accordance with our September 3, 2004 Settlement Agreementwith Racusin described and included as Exhibit 99.1 in our Form 8-K filed onSeptember 7, 2004 (the “Settlement Agreement”), we estimate that ourfuture payment obligations to (or for the benefit of) Racusin for the balanceof our current fiscal year and for subsequent fiscal years will beapproximately as follows:
| **Period**                    | ** ** | **Principal** | ** ** | **Interest** | ** ** | **Total** | ** ** |
|-------------------------------|------------|---------------|------------|--------------|------------|-----------|------------|
| August 2007 to January 2008   |       | $             | 1,095,035  |         | $          | 67,213    |       | $ | 1,162,248 |   |
| February 2008 to January 2009 |       | 750,000       |       | 103,099      |       | 853,099   |       |
| February 2009 to January 2010 |       | 300,000       |       | 71,310       |       | 371,310   |       |
| February 2010 to January 2011 |       | 300,000       |       | 47,310       |       | 347,310   |       |
| February 2011 to January 2012 |       | 300,000       |       | 23,310       |       | 323,310   |       |
| February 2012 to July 2012    |       | 130,000       |       | 2,671        |       | 132,671   |       |
| Total future payments         |       | $             | 2,875,035  |         | $          | 314,913   |       | $ | 3,189,948 |   |

 

The $2,875,035 totalPrincipal amount reported in the table above equals the $2,800,000 debt owed toRacusin under the Settlement Agreement (giving effect to the 9th Circuit’s decision), minus$427,323 we paid to Racusin during our fiscal years ended January 31, 2005 and2006, plus interest calculated on a daily basis from March 11, 2005 (thedate we consummated the Plan and emerged from Chapter 11 proceedings under theCode) through July 31, 2007.

The 9th Circuit issued its originaldecision reversing the BAP’s ruling during our fiscal year ended January 31,2007.  For information concerning theeffects of that decision on our 2007 fiscal year’s financial statements (whichare not changed by the 9th Circuit’sJune 28, 2007 decision), please see Part I, Item 3 - “LegalProceedings” and our financial statements and notes thereto in our January 31,2007 Form 10-KSB.  For the period fromFebruary 1 to July 31, 2007, we are recording litigation judgment expense of$111,811 to account for accrued interest on our debt to Racusin for thisperiod.  That amount is included in thePrincipal column of the table above because that table reports our indebtednessas of August 1, 2007, after giving effect to the accrual of interest for thesix months ended July 31, 2007.  Infuture periods we will record litigation judgment expense to account for ourfuture interest payment obligations, as estimated in the Interest column of thetable above.

A hearing was scheduledfor September 12, 2007 in order to determine the manner and timing of thepayments, however, we received notice on September 7, 2007 that the bankruptcycourt has continued the matter until November 2, 2007.

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## **Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.**

Not applicable.

## **Item 3. Defaults Upon Senior Securities.**

Not applicable.

## **Item 4. Submission of Matters to a Vote of Security Holders.**

We had no submission ofmatters to a vote of security holders in the current quarter, however, we planto hold an annual stockholders’ meeting prior to the end of the calendar yearended December 31, 2007. We had waited to hold this meeting until we filled theCFO position, which was filled on August 6, 2007.

## **Item 5. Other Information.**

Not applicable.

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## **Item 6. Exhibits.**

| EXHIBIT NUMBER | ** ** | **DESCRIPTION**                                                                                                                                                                                        |
|----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1           |       | Employment Agreement between American Wagering, Inc.  and Melody Sullivan, dated August 6, 2007 (see Exhibit 10.19(A) to Form  8-K filed August 8, 2007, SEC File No. 000-20685)             |
|           |       |                                                                                                                                                                                                   |
| 31.1           |       | Certification of  Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)-Section  302 of the Sarbanes-Oxley Act of 2002                                                                   |
|           |       |                                                                                                                                                                                                   |
| 31.2           |       | Certification of  Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)-Section  302 of the Sarbanes-Oxley Act of 2002                                                                   |
|           |       |                                                                                                                                                                                                   |
| 32.1           |       | Certification of  Principal Executive Officer and Principal Financial Officer pursuant to  Exchange Act Rule 13a-14(b) and Title 18 U.S.C. Section 1350-Section 906 of  the Sarbanes-Oxley Act of 2002 |

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*       Thisdocument is incorporated by reference as an exhibit hereto.  Following the description of the exhibit is areference to the document as it appeared in a specified report previously filedwith the SEC, to which there have been no amendments or changes unlessotherwise indicated.

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**SIGNATURES**

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

**AMERICAN WAGERING, INC.**
| Dated:    September  19, 2007   |   |
|-----------------------------------------------------|--------|
|                                                |
| /s/ Victor J. Salerno                               |   |
| Victor J. Salerno                                   |
| President, Chief Executive Officer, Chief Operating |
| Officer, and Chairman of the Board of Directors     |
|                                                |
| /s/ Melody J. Sullivan                              |   |
| Melody J. Sullivan                                  |
| Chief Financial Officer and Treasurer               |
|                                                     |        |  |

 

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