**UNITED STATES********SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

----

 

**FORM 10-Q**

 

**(Mark One)**

**x****     ****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

** **

**For the quarterly periodended:  April 30, 2010**

 

**o****        ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the transition period from:                   to                   **

** **

**Commission filenumber: 000-20685**

 

**AMERICAN WAGERING, INC.**

(Exact name ofregistrant 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)                       |       | (Zip Code)                            |

 

**702-735-0101**

(Registrant’stelephone number, including area code)

 

 

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

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.** **Yes x  No  o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files)  Yes o  No  o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

 

| Large accelerated filer o                     |   | Accelerated filer o         |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-accelerated filer o                       |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                             |

 

Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).  Yes o**  **No  x

 

**APPLICABLE ONLY TO ISSUERSINVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS**

 

Indicate by check mark whether the registrant hasfiled all documents and reports required to be filed by Section 12, 13 or15(d) of the Securities Exchange Act of 1934 subsequent to thedistribution of securities under a plan confirmed by a court. Yes x  No o

 

**APPLICABLE ONLY TO CORPORATEISSUERS**

 

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock as of the latest practicable date:****Asof June 22, 2010, there were 8,379,879 shares of common stock, par value$0.01, outstanding.

 

 

 

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**TABLE OF CONTENTS**

 
| ** **                                    | ** **                                                                                  | **Page** |
|-----------------------------------------------|---------------------------------------------------------------------------------------------|----------|
|                                          |                                                                                        |     |
| **PART I —  FINANCIAL INFORMATION** | 3                                                                                           |
|                                          |                                                                                        |     |
| Item  1.                                      | Consolidated Financial Statements                                                           | 3        |
|                                          |                                                                                        |     |
|                                          | BALANCE SHEETS AS OF APRIL 30, 2010 (UNAUDITED) AND  JANUARY 31, 2010                       | 3        |
|                                          |                                                                                        |     |
|                                          | STATEMENTS  OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 2010 AND 2009 (UNAUDITED)    | 4        |
|                                          |                                                                                        |     |
|                                          | STATEMENTS  OF CASH FLOWS FOR THE THREE MONTHS ENDED APRIL 30, 2010 AND 2009 (UNAUDITED)    | 5        |
|                                          |                                                                                        |     |
|                                          | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                                      | 6        |
|                                          |                                                                                        |     |
| Item 2.                                       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 10       |
|                                          |                                                                                        |     |
| Item 3.                                       | Quantitative  and Qualitative Disclosures About Market Risk                                 | 15       |
|                                          |                                                                                        |     |
| Item 4T.                                      | Controls and  Procedures                                                                    | 15       |
|                                          |                                                                                        |     |
| **PART II  — OTHER INFORMATION**    | 16                                                                                          |
|                                          |                                                                                        |     |
| Item 1.                                       | Legal Proceedings                                                                           | 16       |
|                                          |                                                                                        |     |
| Item  1A.                                     | Risk Factors                                                                                | 17       |
|                                          |                                                                                        |     |
| Item 2.                                       | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 17       |
|                                          |                                                                                        |     |
| Item 3.                                       | Defaults Upon  Senior Securities                                                            | 17       |
|                                          |                                                                                        |     |
| Item  4.                                      | Reserved                                                                                    | 17       |
|                                          |                                                                                        |     |
| Item 5.                                       | Other Information                                                                           | 17       |
|                                          |                                                                                        |     |
| Item  6.                                      | Exhibits                                                                                    | 17       |

 

2

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**PART I — FINANCIAL INFORMATION**

 

**Item1.  Financial Statements.**

 

**AMERICAN WAGERING, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**(Unaudited)**

 
| ** **                                                                                                                                       | ** ** | **April 30,  2010** | ** **    | **January 31,  2010** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|---------------|----------------------------|------------|
| ** **                                                                                                                                       | ** ** | ** **               | ** **    | ** **                 | ** ** |
| **ASSETS**                                                                                                                                       | ** ** | ** **               | ** **    | ** **                 | ** ** |
| CURRENT ASSETS                                                                                                                                   |       |                     |          |                       |       |
| Cash and Equivalents                                                                                                                             |       | $                        | 1,255,637     |                       | $          | 2,084,268 |   |
| Restricted Cash                                                                                                                                  |       | 1,683,015                |          | 1,729,209                  |       |
| Accounts Receivable                                                                                                                              |       | 327,205                  |          | 204,706                    |       |
| Inventories                                                                                                                                      |       | 99,165                   |          | 143,913                    |       |
| Deferred Tax Assets,  net of allowance                                                                                                           |       | 369,000                  |          | 369,000                    |       |
| Prepaid Expenses                                                                                                                                 |       | 176,887                  |          | 364,207                    |       |
| ** **                                                                                                                                       | ** ** | **3,910,909**            | ** **    | **4,895,303**              | ** ** |
|                                                                                                                                             |       |                     |          |                       |       |
| Property and Equipment,  net of accumulated depreciation and amortization                                                                        |       | 3,071,127                |          | 3,301,180                  |       |
| Goodwill                                                                                                                                         |       | 103,725                  |          | 103,725                    |       |
| Other                                                                                                                                            |       | 228,998                  |          | 221,291                    |       |
| ** **                                                                                                                                       | ** ** | **$**                    | **7,314,759** | ** **                 | **$**      | **8,521,499** | ** ** |
|                                                                                                                                             |       |                     |          |                       |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                   | ** ** | ** **               | ** **    | ** **                 | ** ** |
| CURRENT LIABILITIES                                                                                                                              |       |                     |          |                       |       |
| Current Portion of  Long-Term Debt                                                                                                               |       | $                        | 341,867       |                       | $          | 441,781 |   |
| Accounts Payable                                                                                                                                 |       | 1,197,105                |          | 1,217,409                  |       |
| Accrued Expenses                                                                                                                                 |       | 489,546                  |          | 613,320                    |       |
| Unpaid Winning Tickets                                                                                                                           |       | 831,834                  |          | 1,021,229                  |       |
| Customer Deposits and  Other                                                                                                                     |       | 621,638                  |          | 850,075                    |       |
| ** **                                                                                                                                       | ** ** | **3,481,990**            | ** **    | **4,143,814**              | ** ** |
|                                                                                                                                             |       |                     |          |                       |       |
| Long-Term Debt, less  current portion                                                                                                            |       | 2,513,949                |          | 2,530,778                  |       |
| Redeemable  Series A Preferred Stock (3,238 shares)                                                                                         |       | 323,800                  |          | 323,800                    |       |
| Other                                                                                                                                            |       | 242,113                  |          | 242,111                    |       |
|                                                                                                                                             | ** ** | **6,561,852**            | ** **    | **7,240,503**              | ** ** |
|                                                                                                                                             |       |                     |          |                       |       |
| 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                |          | 1,092,400                  |       |
| Common Stock - $0.01  par value; 25,000,000 shares authorized; 8,379,879 and 8,129,879 shares  issued and outstanding                            |       | 83,799                   |          | 81,299                     |       |
| Additional Paid-In  Capital                                                                                                                      |       | 12,671,074               |          | 12,589,318                 |       |
| Deficit                                                                                                                                          |       | (12,766,873              | )             | (12,154,528                | )          |
| Treasury Stock, at cost  (61,100 common shares)                                                                                                  |       | (327,493                 | )             | (327,493                   | )          |
| ** **                                                                                                                                       | ** ** | **752,907**              | ** **    | **1,280,996**              | ** ** |
| ** **                                                                                                                                       | ** ** | **$**                    | **7,314,759** | ** **                 | **$**      | **8,521,499** | ** ** |

 

**See Notes to Consolidated FinancialStatements**

 

3

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**AMERICAN WAGERING, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Unaudited)**

** **
| ** **                              | ** ** | **For the Three Months Ended  April 30,** | ** **   |
|-----------------------------------------|------------|--------------------------------------------------------------------|--------------|
| ** **                              | ** ** | **2010**                                                           | ** **   | **2009** | ** ** |
| **REVENUES:**                           | ** ** | ** **                                                         | ** **   | ** ** | ** ** |
| Wagering                                |       | $                                                                  | 1,499,992    |   | $ | 2,006,246 |   |
| Hotel/Casino                            |       | 457,459                                                            |         | 563,347 |   |
| Systems                                 |       | 905,382                                                            |         | 763,196 |   |
| ** **                              | ** ** | **2,862,833**                                                      | ** **   | **3,332,789** | ** ** |
| **OPERATING  COSTS AND EXPENSES:**      | ** ** | ** **                                                         | ** **   | ** ** | ** ** |
| **Direct  Costs:**                      | ** ** | ** **                                                         | ** **   | ** ** | ** ** |
| Wagering                                |       | 1,442,797                                                          |         | 1,613,791 |   |
| Hotel/Casino                            |       | 434,090                                                            |         | 444,791 |   |
| Systems                                 |       | 247,349                                                            |         | 197,390 |   |
| ** **                              | ** ** | **2,124,236**                                                      | ** **   | **2,255,972** | ** ** |
| **Operating  Expenses:**                | ** ** | ** **                                                         | ** **   | ** ** | ** ** |
| Research and  Development               |       | 161,082                                                            |         | 138,845 |   |
| Selling, General and  Administrative    |       | 840,047                                                            |         | 623,748 |   |
| Depreciation and  Amortization          |       | 234,575                                                            |         | 251,491 |   |
| ** **                              | ** ** | **1,235,704**                                                      | ** **   | **1,014,084** | ** ** |
|                                    |       |                                                               |         |   |   |
| ** **                              | ** ** | **3,359,940**                                                      | ** **   | **3,270,056** | ** ** |
|                                    |       |                                                               |         |   |   |
| **OPERATING  INCOME (LOSS)**            | ** ** | **(497,107**                                                       | **)**        | **62,733** | ** ** |
|                                    |       |                                                               |         |   |   |
| **OTHER  INCOME (EXPENSE):**            | ** ** | ** **                                                         | ** **   | ** ** | ** ** |
| Interest Expense                        |       | (79,420                                                            | )            | (69,760 | ) |
| Litigation Expense                      |       | (6,137                                                             | )            | (9,601 | ) |
| Interest and Other  Income              |       | 4,850                                                              |         | 53,137 |   |
| ** **                              | ** ** | ** **                                                         | ** **   | ** ** | ** ** |
| **NET  INCOME (LOSS)**                  | ** ** | **$**                                                              | **(577,814** | **)** | **$** | **36,509** | ** ** |
| ** **                              | ** ** | ** **                                                         | ** **   | ** ** | ** ** |
| **NET  INCOME (LOSS) PER COMMON SHARE** |       |                                                               |         |   |   |
| **BASIC**                               | ** ** | **$**                                                              | **(.07**     | **)** | **$** | **0.00** | ** ** |
| **DILUTED**                             | ** ** | **$**                                                              | **N/A**      | ** ** | **$** | **0.00** | ** ** |

 

**See Notes to ConsolidatedFinancial Statements**

 

4

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**AMERICAN WAGERING, INC. ANDSUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

** **
| ** **                                               | ** ** | **For the Three Months Ended  April 30,** | ** **    |
|----------------------------------------------------------|------------|--------------------------------------------------------------------|---------------|
| ** **                                               | ** ** | **2010**                                                           | ** **    | **2009** | ** ** |
| ** **                                               | ** ** | ** **                                                         | ** **    | ** ** | ** ** |
| **Operating  Activities**                                | ** ** | ** **                                                         | ** **    | ** ** | ** ** |
| **Net  cash used in operating activities**               | ** ** | **$**                                                              | **(803,577**  | **)** | **$** | **(1,355,335** | **)** |
| ** **                                               | ** ** | ** **                                                         | ** **    | ** ** | ** ** |
| **Investing  Activities**                                | ** ** | ** **                                                         | ** **    | ** ** | ** ** |
| Gross increases in  restricted cash                      | ** ** | **—**                                                         | ** **    | (188,192 | ) |
| Withdrawal of  restricted cash                           |       | 46,194                                                             |          | 129,885 |   |
| Purchase of property  and equipment                      |       | (3,058                                                             | )             | (15,201 | ) |
| **Net  cash provided by (used in) investing activities** | ** ** | **43,136**                                                         | ** **    | **(73,508** | **)** |
| ** **                                               | ** ** | ** **                                                         | ** **    | ** ** | ** ** |
| **Financing  Activities**                                |       |                                                               |          |   |   |
| Repayment of borrowings                                  |       | (33,658                                                            | )             | (155,401 | ) |
| Proceeds from  borrowings                                | ** ** | **—**                                                         | ** **    | 705 |   |
| Dividends on preferred  stock                            |       | (34,532                                                            | )             | (34,433 | ) |
| **Net  cash used in financing activities**               | ** ** | **(68,190**                                                        | **)**         | **(189,129** | **)** |
|                                                     |       |                                                               |          |   |   |
| **NET  DECREASE IN CASH AND EQUIVALENTS**                | ** ** | **(828,631**                                                       | **)**         | **(1,617,972** | **)** |
| ** **                                               | ** ** | ** **                                                         | ** **    | ** ** | ** ** |
| **CASH  AND EQUIVALENTS, BEGINNING OF PERIOD**           | ** ** | **2,084,268**                                                      | ** **    | **3,357,978** | ** ** |
| ** **                                               | ** ** | ** **                                                         | ** **    | ** ** | ** ** |
| **CASH  AND EQUIVALENTS, END OF PERIOD**                 | ** ** | **$**                                                              | **1,255,637** | ** ** | **$** | **1,740,006** | ** ** |
| ** **                                               | ** ** | ** **                                                         | ** **    | ** ** | ** ** |
| **SUPPLEMENTAL  CASH FLOW INFORMATION:**                 | ** ** | ** **                                                         | ** **    | ** ** | ** ** |
| Cash paid for interest                                   | ** ** | **$**                                                              | **85,557**    | ** ** | **$** | **84,430** | ** ** |
| Issuance of common  stock for services                   | ** ** | **$**                                                              | **37,500**    | ** ** | **—** | ** ** |

 

**See Notes to ConsolidatedFinancial Statements**

 

5

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**AMERICAN WAGERING, INC. ANDSUBSIDIARIES**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**ThreeMonths Ended April 30, 2009**

 

**1.  Basis of Presentation**

 

The accompanying unauditedinterim consolidated financial statements of American Wagering, Inc. andits subsidiaries (collectively “the Company” or “AWI”) have been prepared inaccordance with the instructions to Form 10-Q as published by theSecurities and Exchange Commission (“SEC”). The financial statements do not include all of the information anddisclosures required by generally accepted accounting principles for annualfinancial statements.  All significantinter-company accounts and transactions have been eliminated in consolidation.  In the opinion of management, all adjustmentsnecessary for a fair presentation have been included.  Due to seasonality and other factors, resultsof operations for any interim period are not necessarily indicative of expectedannual results.  These unaudited interimconsolidated financial statements should be read in conjunction with theaudited annual consolidated financial statements of the Company, and therelated notes, included in the Company’s Annual Report on Form 10-K filedon May 7, 2010, with the SEC, from which the balance sheet information asof January 31, 2010 was derived.

** **

**2.  Net Income (Loss) Per Common Share**

 

Basic net income (loss) percommon share is calculated based on the weighted-average number of shares ofcommon stock outstanding during the reporting period. Diluted net income percommon share is ordinarily calculated giving effect to all potentially dilutivecommon shares, assuming such shares were outstanding during the reportingperiod. However, there is no calculation made or presented for diluted net lossper common share for loss periods, since the effect of including potentiallydilutive common shares would be anti-dilutive because of the losses. The amountof potentially anti-dilutive common shares that have been excluded from basicnet income (loss) per share was 647,299 and 648,899 at April 30, 2010 and2009, respectively.

 

Following is a reconciliationof the numerators and denominators of the net income (loss) per common sharecomputations for the three months ended April 30:

 
| ** **                                                       | ** ** | **Numerator** | ** ** |
|------------------------------------------------------------------|------------|---------------|------------|
| ** **                                                       |       | **2010**      | ** ** | **2009** | ** ** |
|                                                             |       |          |       |   |   |
| Net income (loss)                                                |       | $             | (577,814   | ) | $ | 36,509 |   |
| Less preferred stock  dividends                                  |       | (34,532       | )          | (34,344 | ) |
| Net income (loss)  available to common shares, basic and diluted |       | $             | (612,346   | ) | $ | 2,165 |   |

 
| ** **                                           | ** ** | **Denominator** | ** ** |
|------------------------------------------------------|------------|-----------------|------------|
| ** **                                           | ** ** | **2010**        | ** ** | **2009** | ** ** |
| Weighted-average common  shares outstanding, basic   |       | 8,209,228       |       | 8,068,779 |   |
| Effect of dilutive  stock options                    |       | 316             |       | 80 |   |
| Weighted-average common  shares outstanding, diluted |       | 8,209,544       |       | 8,068,859 |   |
|                                                 |       |            |       |   |   |
| Net income (loss) per  common share                  |       |            |       |   |   |
| Basic                                                |       | $               | (.07       | ) | $ | 0.00 |   |
| Diluted                                              |       | $               | N/A        |   | 0.00 |   |
|                                                      |            |                 |            |  |  |  |  |

 

6

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**3.  Income Taxes**

 

At April 30, 2010, theCompany had federal tax net operating loss (“NOL”) carryforwards available topotentially reduce future tax obligations in the aggregate amount ofapproximately $7.0 million, of which approximately $1.3 million expires in2019.  In assessing the realizability ofdeferred tax assets, which resulted primarily from the NOLs, the Companyconsiders whether it is more likely than not that some portion or all of thedeferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in which those temporarydifferences become deductible.

 

Management believes that, despite atypically lowhold percentage during the quarter ended April 30, 2010, which had asignificant negative effect on the results of operations and cash flows for thequarter, and subject to the effect, if any, of the Racusin uncertainty (Note4), the Company will be profitable for at least the next twelve months and thatit is therefore more likely than not that the Company’s deferred tax asset of$369,000, net of the valuation allowance provided, will be realized.

 

TheCompany’s estimated annual effective tax rate of zero for the interim periodspresented differs from statutory tax rates primarily due to the expectedutilization of NOL carryforwards or changes in the valuation allowance fordeferred tax assets.

 

**4.  Litigation and Contingencies**

 

For 2010 and 2009, litigationexpense of $6,137 and $9,601, respectively, is included in other income(expense) and consists of judgment interest incurred on our previously recordedobligation due to Michael Racusin.

 

As of April 30, 2010and 2009, respectively, the aggregate recorded liability (in long term debt)for the estimated probable loss associated with litigation or other disputeswas $255,767 and $682,642, excluding future legal and related defense costs andjudgment interest.

 

**Racusin**. On July 25, 2003, AWI and a wholly-owned subsidiary (Leroy’s)filed voluntary petitions for relief (“Chapter 11 Petitions”) underChapter 11 of the United States Bankruptcy Code (“Chapter 11”)in the United States Bankruptcy Court for the District of Nevada (the “BankruptcyCourt”). The Company and Racusin entered into the Settlement Agreement onSeptember 3, 2004.  OnFebruary 28, 2005, the Bankruptcy Court confirmed the Restated AmendedJoint Plan of Reorganization (the “Plan”) of AWI and Leroy’s. OnMarch 11, 2005, AWI and Leroy’s consummated the Plan and formally emergedfrom Chapter 11 proceedings after completing all required actions and allremaining conditions.  OnSeptember 26, 2005, the Bankruptcy Court issued an order closing theChapter 11 cases of AWI and Leroy’s. All required distributions have beenmade, except with respect to the Racusin matter (“Racusin Claim”).

 

Racusin filed a claim for breach of theSettlement Agreement on January 14, 2009, and motion for summary judgmentto accelerate amounts due, with penalty interest, on February 24, 2009. Ahearing was held on May 8, 2009, regarding the motion for summaryjudgment.  On April 2, 2010, ahearing was held where the Court verbally indicated an intent to vacate an August 18,2009 order granting summary judgment in favor of Racusin that would haveaccelerated amounts due and imposed penalty interest at 12% per annum because amaterial issue of fact remained regarding whether the Company breached theSettlement Agreement, and whether the acceleration clause of the SettlementAgreement was triggered.  Arguments as tothe potential effects of a prior ruling (the Stay Order on the Interpleader)and the resulting calculation of amounts due may be considered later in thelitigation, including but not limited to at trial. No trial date has been setin this case as of yet.

 

Accordingly, as of April 30, 2010, webelieve that the balance owed to Racusin is $255,767, with $249,626 due in fiscal 2011 and the balance in 2012, plus interestat 8% per annum. If arguments regarding the effects of the Stay Order on theInterpleader are heard and the Court were to rule that the Stay Order didnot effect the Interpleader Order and did not result in an off-set in thecalculation of the accrued interest, then we believe the amount due as of April 30,2010 would be approximately $677,306 assuming an 8% interest rate.  For the first quarter of the fiscalyear ending January 31, 2011, the Company has paid $88,741, includinginterest, to the Bankruptcy Court and certain other lienholders of Racusin.

 

There have been no material legal changesfor this matter during the quarter ended April 30, 2010 from the fiscalyear ended January 31, 2010.

 

**Internet Sports International, Ltd.(ISI)** This case is currently in the discoveryphase and pending in the District Court of Clark County, Nevada, case no.A567638, and involves the Company and certain other Defendants (the “Defendants). The Court recently granted the Defendants’ motion for leave to file a FirstAmended Answer, Affirmative Defenses and Counterclaims through which thoseDefendants have asserted four additional claims for relief against ISI for

 

7

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misappropriation of trade secrets, conversion,unjust enrichment, and common law unfair competition.  The matter iscurrently in its discovery phase and discovery will likely be extended forseveral months.

 

There have been no material legal changesfor this matter during the quarter ended April 30, 2010 from the fiscalyear ended January 31, 2010.

 

Economic Conditions and Related Risks andUncertainties

 

The United States continues to experience arecession accompanied by, among other things, weakness in the commercial andinvestment banking industry resulting in reduced credit and capital financingavailability, and highly curtailed gaming, other recreational activities andgeneral discretionary consumer spending, and is also engaged in war, all ofwhich are likely to continue to have far-reaching effects on economicconditions in the country for an indeterminate period.  The effects and duration of thesedevelopments and related risks and uncertainties on our future operations andcash flows, including, our principal officer’s ability to continue to providefinancial support to the Company, as in the past, and other access to capitalor credit financing, cannot be estimated at this time but may likely besignificant.In addition, the Company often carries cash and equivalentson deposit with financial institutions substantially in excess offederally-insured limits.  The extent ofany loss that might be incurred as a result of uninsured deposits in the eventof a future failure of a bank or other financial institutions, if any, is notsubject to estimation.

 

**5.  Stock Options**

 

For the three months ended April 30,2010 and 2009, activity related to both the employee and directors’ stockoption plans was as follows:

 
| ** **                        | ** ** | **Option Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
|-----------------------------------|------------|------------------------|------------|---------------------------------------------|------------|
| Balance at  February 1, 2010 |       | 647,299                |       | $                                           | 1.83       |   |
| Granted                           |       | —                 |       |                                        |       |
| Exercised                         |       | —                 |       |                                        |       |
| Forfeited or canceled             |       | —                 |       |                                        |       |
| Balance at  April 30, 2010   |       | 647,299                |       | $                                           | 1.83       |   |
|                              |       |                   |       |                                        |       |
| Balance at  February 1, 2009 |       | 709,299                |       | $                                           | 1.78       |   |
| Granted                           |       | —                 |       |                                        |       |
| Exercised                         |       | —                 |       |                                        |       |
| Forfeited or canceled             |       | (60,000                | )          |                                        |       |
| Balance at  April 30, 2009   |       | 649,299                |       | $                                           | 1.78       |   |

 

As of April 30, 2010,stock options exercisable and available for future grants for both currentstock option plans are as follows:

 
| ** **                   | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Life** | ** **      |
|------------------------------|------------|------------|------------|-----------------------------------------|------------|-----------------------------------------|-----------------|
| Exercisable                  |       | 587,299    |       | $                                       | 1.83       |                                    | 3.18 years |   |
| Available for future  grants |       | 308,767    |       | —                                  |       | —                                  |            |
|                              |            |            |            |                                         |            |                                         |                 |  |

 

For the three months ended April 30,2010 and 2009, non-cash stock-based compensation expense recorded in the lineitem “Selling, General and Administrative Expenses” was $41,442 and $8,809,respectively.

 

8

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**6.  Business Segments**

 

TheCompany reports the results of operations through three operating segments asfollows:

 
| ** **                   | ** ** | **Three Months Ended April 30,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|
| ** **                   | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| **Revenues**                 |       |                                                 |       |   |   |
| Wagering                     |       | $                                                    | 1,499,992  |   | $ | 2,006,246 |   |
| Hotel/Casino                 |       | 457,459                                              |       | 563,347 |   |
| Systems                      |       | 905,382                                              |       | 763,196 |   |
| ** **                   | ** ** | **$**                                                | 2,862,833  |   | $ | 3,332,789 |   |
| **Operating  income (loss)** |       |                                                 |       |   |   |
| Wagering                     |       | $                                                    | (328,257   | ) | $ | 69,581 |   |
| Hotel/Casino                 |       | (129,357                                             | )          | (20,376 | ) |
| Systems                      |       | (39,493                                              | )          | 13,528 |   |
|                         |       | (497,107                                             | )          | 62,733 |   |
| **Other  expense, net**      |       | (80,707                                              | )          | (26,224 | ) |
| **Net  Income (Loss)**       | ** ** | **$**                                                | (577,814   | ) | $ | 36,509 |   |

 

Additional information forthe Hotel/Casino segment follows:

 
| ** **                           | ** ** | **Three Months Ended April 30,** | ** **   |
|--------------------------------------|------------|------------------------------------------------------|--------------|
| ** **                           | ** ** | **2010**                                             | ** **   | **2009** | ** ** |
| **Revenue**                          |       |                                                 |         |   |   |
| Casino                               |       | $                                                    | 219,958      |   | $ | 306,779 |   |
| Hotel                                |       | 86,088                                               |         | 101,787 |   |
| Food/Beverage                        |       | 151,413                                              |         | 154,781 |   |
|                                 |       | 457,459                                              |         | 563,347 |   |
| **Direct  Costs and Expenses**       |       |                                                 |         |   |   |
| Casino                               |       | 127,150                                              |         | 125,531 |   |
| Hotel                                |       | 40,041                                               |         | 37,346 |   |
| Food/Beverage                        |       | 179,042                                              |         | 178,497 |   |
| Unallocated                          |       | 87,857                                               |         | 103,417 |   |
|                                 |       | 434,090                                              |         | 444,791 |   |
|                                 |       |                                                 |         |   |   |
| Selling, General and  Administrative |       | 89,140                                               |         | 73,522 |   |
| Depreciation and Amortization        |       | 63,586                                               |         | 65,410 |   |
|                                 |       | 586,816                                              |         | 583,723 |   |
| **Operating  Loss**                  | ** ** | **$**                                                | **(129,357** | **)** | **$** | **(20,376** | **)** |

 

9

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**Item2.  Management’s Discussion and Analysisor Plan of Operation.**

 

The following discussion and analysis should beread together with our unaudited consolidated financial statements and theaccompanying notes.  This discussioncontains forward-looking statements, within the meaning of Section 27A ofthe Securities Act of 1933, as amended, Section 21E of the SecuritiesExchange Act of 1934, as amended, and the Private Securities Litigation ReformAct of 1995, including statements regarding our expected financial position,business and financing plans.  Some ofthe forward-looking statements can be identified by the use of forward-lookingterms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seek,” “intends,”“plans,” “estimates,” “anticipates,” or other comparable terms.  Forward-looking statements involve inherentrisks and uncertainties which could cause actual results to differ materiallyfrom those in the forward-looking statement including those discussed hereinand elsewhere in our Form 10-K for the year ended January 31, 2010,particularly under the heading “Risk Factors.” We caution readers not to place undue reliance upon any suchforward-looking statements, which speak only as of the date made.  We do not intend, and undertake no obligationto update our forward-looking statements to reflect future events orcircumstances.

 

**Definitions. **For the purposes of this report, the following termshave the following meanings:

 

“Company” means AmericanWagering, Inc. and its subsidiaries collectively.

 

“AWI” means AmericanWagering, Inc.

 

“AWIG” means AWIGaming, 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” means Sturgeon’sInn & Casino (which, as of March 1, 2006, is owned by Sturgeons,LLC).

 

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**Overview. **Our primary operating strategies for the foreseeablefuture are to maintain and increase the profitability of our core businessesrelating to the race and sports industry, improving profitability of Sturgeon’s,and developing new products.

 

Our core businesses areoperated by the following subsidiaries which have the following strategicplans:

 

·                  Leroy’s - operating existingsports books, generating revenue from customer wagers less pay outs, adding newbooks where and when appropriate, and continuing to become more efficient in orderto reduce expenses. We periodically review our existing Leroy’s locations inorder to close those locations that are not operating efficiently.  Basedon our strategy, the number of race and sports books operated by Leroy’s mayincrease or decrease in the future, due to the closure of unprofitablelocations or host properties, closures due to other factors beyond our controland/or the possible opening of new locations with greater potential forprofitability.  There is no assurance that Leroy’s will be able to add newlocations and/or that any new locations so added will be profitable.

 

·                  CBS — developing, sellingand maintaining computerized race and sports wagering systems for the gamingindustry and seeking strategic international alliances with third party gamingsuppliers and/or gaming operators that desire to utilize our expertise in therace and sports industry.  These strategies should enable us to gain acompetitive advantage by offering the gaming operator and/or the betting patrona well-rounded gaming experience, both in the United States and abroad. Thereis no assurance that CBS will be successful in obtaining any strategicalliances.

 

·                  AWIM — developing theself-service wagering kiosk, installing kiosks in Leroy’s locations to assistin controlling personnel costs, and marketing the kiosks to non-Leroy’slocations.

 

·                  Sturgeon’s — effectively operatingthe hotel/casino while periodically reviewing and modifying existing proceduresand personnel alignment to increase efficiency and reduce expenses.

 

We have implemented, and are continuing to initiatecost cutting measures throughout the Company.  In the first quarter offiscal 2010, the Company reduced its workforce by means of staffing reductionsand hour reductions in each of our subsidiaries and began to focus more on costcontrols. During the remainder of fiscal 2010 and continuing though the firstquarter of fiscal 2011, AWI’s corporate expenses that are allocated to Leroy’sand CBS have been reduced primarily due to reductions in administrativesalaries and benefits, including accounting, decreased audit fees and outsideservices; which were partially offset by increases in interest expense,contributed services expense for certain executives, legal expense andinsurance expenses. We will continue to evaluate and closely monitor costs,looking for additional efficiencies and improvements during at least theremainder of fiscal 2011. Subject to our cost constraints, where appropriate,we will continue to explore possible new locations for our products, includingforeign jurisdictions.

 

During the latter part of fiscal 2008, andcontinuing throughout fiscal 2009 and into 2010, our local, regional andnational economy has been negatively impacted due to a number of factors,including the nationwide economic recession and the subprime mortgage crisisand higher gasoline and transportation costs. Confidence in the credit market has also eroded, which resulted in atightening of credit availability.  During fiscal 2010 and continuingthrough the first quarter of fiscal 2011, Las Vegas has experienced higherforeclosure and unemployment rates and reduced passenger traffic at McCarran airport.The effects of higher unemployment rates, foreclosures and continued pressureon housing prices, as well as business failures and stock market volatilityplace added strain on consumers’ ability to make purchases, repay their loansand thus, leave less funds available for travel and leisure activities.Consumer demand for gambling, due to decreased disposable income, has declinedas a result of the current economic recession.  We have also experienced achange in gambling patterns of our patrons, including a trend toward moreconservative bets, which tend to be less profitable to the Company.  Inaddition, because Sturgeon’s Hotel and Casino is heavily dependent on thedrive-through market, these factors have and will continue to have an adverseaffect on our business.  Accordingly, if the economic recession in theUnited States continues, it will likely continue to hurt our financialperformance, due to, among other things, decreased wagering activity and achange in the types of wagers made.

 

**Liquidity and CapitalResources.**

 

The United States continues to experience arecession accompanied by, among other things, the BP oil spill in the Gulf ofMexico, the continued weakness in the commercial and investment bankingindustry resulting in reduced credit and 

 

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capital financing availability, highly curtailedgaming, other recreational activities and general discretionary consumerspending, and is also engaged in war, all of which are likely to continue tohave far-reaching effects on economic conditions in the country for anindeterminate period. The effects and duration of these developments andrelated risks and uncertainties on our future operations and cash flows,including, our principal officer’s ability to continue to provide financialsupport to the Company, as in the past, and other access to capital or creditfinancing, cannot be estimated at this time but may likely be significant.

 

As of April 30, 2010, we had working capitalof $428,920 compared to working capital deficit of ($227,706) at April 30,2009. (Also see Restricted Cash Requirements (Regulation 22.040.))  The increase in working capital is primarilydue to positive operating performance in fiscal year 2010 combined with therestructuring of debt commitments from our Chief Executive Officer, and thetiming of and increases in future bets and unpaid winning tickets.

 

Our principal cash requirements relate primarily tooperation activities associated with our core businesses. For the first quarterof fiscal 2011, cash used in operating activities totaled approximately $803,577as compared to $1,355,335 for the same quarter of fiscal 2010 which isprimarily due to the timing of wagers placed on the Super Bowl. In addition to “playingunlucky” which had a significant negative effect on the current quarter asexplained below under Results of Operations, the reduction of accrued expenses,customer deposits and unpaid winning tickets (as a result of the timing of betsplaced on the Super Bowl, which occurred on February 7, 2010) alsorequired the use of cash.

 

Significant cost reduction efforts resulted inimproved operating performance for fiscal year 2010. The focus for fiscal 2011will be cost containment and deployment of new products. However, the timing ofspending required to develop new products is flexible and can be accelerated ordeferred depending on the availability of funds.

 

The Company expects that it will experience a shortterm liquidity issue during the summer months. In anticipation of such event,the Company sought bridge financing and was successful in raising $445,000 fromtwo sources. Victor Salerno, President and Chief Executive Officer, provided aninterest free revolving line of credit to the Company of $250,000 on May 17,2010 (of which the full amount has been drawn down), and the Company recentlyfinalized an agreement to borrow an additional $195,000 from an unrelatedparty. The $195,000 loan became due on June 17, 2010, at which point theinterest rate increased from 15% to 22% until paid in full.  The loan was intended as bridge financinguntil the Company could negotiate a $500,000 loan from the same lender.  No assurance can be given that the Companywill be successful in negotiating the $500,000 loan. These financing agreements are expected to provide the necessary cash toovercome the expected short term liquidity issue. Management is alsoinvestigating more comprehensive, long term refinancing and capital raisingalternatives. There is no assurance that such objective can be accomplishedwith acceptable terms. If we are unable to secure long-term financing or othercapital raising efforts, we may not be able to satisfy our obligations as theycome due.

 

Net cash used in financing activities for the firstquarter of fiscal 2011 was approximately $68,000 compared to approximately$189,000 for the same quarter of fiscal 2010 primarily due to a reduction inprincipal maturities.

 

**Restricted CashRequirements (Regulation 22.040)**

 

Nevada Gaming Commission Regulation 22.040 (“Regulation 22.040”)requires us to maintain reserves (cash, surety bonds, irrevocable standbyletter of credit, etc.) sufficient to cover any outstanding wageringliability including unpaid winning tickets, future tickets and telephoneaccount deposits.

 

As of April 30, 2010 the Company has $1.62million on deposit at Nevada State Bank for purposes of meeting the Regulation22.040 reserve requirement. In addition, Victor and Terina Salerno pledged acertificate of deposit for $200,000 and Robert and Tracey Kocienski pledged twocertificates of deposit totaling $500,000 for the benefit of Leroy’s creating areserve of $2.32 million. The pledged certificates expire in November 2010and unless the pledge is renewed we may be required to make additional reservedeposits during football season. We believe that the $2.32 million reserve isadequate until football season, at which time we may need to increase thereserve amount. If we are required to increase the Regulation 22.040reserve and are unable to do so, it would have an adverse impact on usincluding, but not limited to, requiring a significant reduction in the numberof race/sports locations operated by Leroy’s, or an elimination or reduction oftelephone wagering accounts, resulting in an adverse change in our operatingresults.

 

**Other**

 

The Company has anoff-balance sheet arrangement whereby Leroy’s has received the benefit of thepledges made by Victor and Terina Salerno for $200,000 and Robert and TraceyKocienski for $500,000 to the Nevada Gaming Control Board to meet its reserverequirements under Regulation 22.040. The pledges are treated as off-balance sheet financing although theCompany agreed with the pledgors to repay the pledges or increase the reservedeposits in order to release the pledges. Interest accrues on the pledges at 1%per month and the interest is payable on the first day of every month. Thepledges will expire in November, 2010.

 

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

 

**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 each segment.

 
| ** **                         | ** ** | **Three Months Ended April 30,** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|
| **Summary**                        | ** ** | **2010**                                             | ** ** | **2009** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Revenues                           |       | $                                                    | 2,862,833  |   | $ | 3,332,789 |   | $ | (469,956 | ) | (14.10 | ) |
|                               |       |                                                 |       |   |   |   |   |   |   |
| Costs and Expenses                 |       | 3,359,940                                            |       | 3,270,056 |   | 89,884 |   | 2.75 |   |
| Other (Income) and  Expense        |       | 80,707                                               |       | 26,224 |   | 54,483 |   | 207.76 |   |
|                               |       |                                                 |       |   |   |   |   |   |   |
| Income (Loss) Before  Income Taxes |       | $                                                    | (577,814   | ) | $ | 36,509 |   | $ | (614,323 | ) | (1682.71 | ) |

 

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

 

**Wagering Segment**.

 

The Wagering Segment includesthe operating results of the sports gaming wagers, net of payouts and expenses.

 

Wagering Segment revenues for the three months ended April 30, 2010 decreased $506,254(-25.23%) over the three months ended April 30, 2009.  This decrease is attributed to the followingfactors:

 

During the three months ended April 30,2010, our amount of sports handle decreased by 6.26%, compared to the sameperiod in the prior year, primarily due to the economic conditions. However, anincrease or decrease in handle is not necessarily indicative of an increase ordecrease in revenues or profits due to the volatility of the win percentages.Elimination of unprofitable locations, closures of host properties, changes instate and/or federal regulations, and other factors beyond our control mayresult in declines in handle. We also “played unlucky” during the quarter and,as a result, experienced a lower than average hold percentage of 4.08% comparedto 5.08% in the prior year’s quarter. A change in the wagering patterns of ourpatrons, including a trend toward more conservative wagers, which are lessprofitable to the Company, also attributed to the lower hold percentage. Ourrace commissions were down $108,055 (-27.92%) from the prior year’s quarter aswe continue to experience the downward trend in race wagering.

 

Wagering Segment total costs and expenses for the three months ended April 30, 2010 decreased $170,994(-10.6%) over the three months ended April 30, 2009. This decrease isattributed to the following factors:

 

Direct costs decreased primarily due to staff reductions andother personnel costs, lower revenue based taxes and licenses, and fewer leasedlocations.

 

Selling, general andadministrative costsincreased by $70,348 related to the timing of professional fees and otheroutside services.

 

Depreciation and amortizationexpense remained relativelyconstant for the quarters.

 

As the opportunity may arise,we intend to continue to open new locations and to continue our periodic reviewof existing locations in order to close those locations that are not operatingefficiently.  There is no assurance thatthe number of race and sports books operated by us will not decrease in thefuture due to elimination of unprofitable locations, closure of hostproperties, changes in state and/ or federal regulations and other factorsbeyond our control, that we will be able to add new locations, or that any newlocations so added will be profitable.

 

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**Hotel/Casino Segment.**

 

The Hotel/Casino Segmentincludes the operating results of Sturgeon’s .Hotel/Casino Segment revenues,casino, hotel, and food and beverage for the three months ended April 30,2010 all decreased $105,888 (-18.80%) compared to the prior year’s quarter as aresult of the following factors:

 

Casino revenues - decreased handle and wagering activities due todecreased customer spending caused by current economic conditions.

 

Hotel revenues — lower occupancy, primarily to weather, general economicconditions and decreased travel.

 

Food and beverage revenues — decline in hotel occupancy and wageringactivities.

 

Hotel/Casino Segment totalcosts and expenses for the three months ended April 30, 2010 wererelatively constant compared to the prior year’s quarter with only minorfluctuations in the various subcategories of costs and expenses.

 

**Systems Segment.**

 

The Systems Segment includesthe operating results of our systems sales, installations and maintenance, lessthe related expenses.

 

Systems Segment revenues for the three months ended April 30, 2010increased $142,186 (18.63%) over the three months ended April 30, 2009.** **This increase isattributable entirely to an increase in equipment sales.

 

Systems Segment total costsand expensesfor the three months ended April 30, 2010 increased disproportionatelywith sales ($195,203 or 26.04%) over the three months ended April 30, 2009due to increased research and development activities related to new productsand slightly higher net rent expense due to the loss of sublease income.

 

**Other income and (expense). **The other income and (expense) categories are primarilyadministrative in nature and, as such, are not directly attributable to anyoperating segment.  Accordingly, theseitems are generally not taken into consideration by us when we allocateresources to the segments or assess the performance of the segments.

 

Interest Income is primarily attributable to interest earned onrestricted cash deposits required for the Regulation 22.040 reserve.  The decrease in interest income of $2,944 isdue primarily to decreased interest rates paid on our cash deposits. Interestexpense increased $9,660 due to interest paid on pledged deposits.

 

Litigation expense includes $6,137 of settlement interest for thefirst three months of fiscal 2011 and $9,601 for the same three month period ofthe prior fiscal year related to the Racusin matter.  This is considered a non-operating expensebecause this settlement related to a capital raising activity.

 

Income tax expense(benefit).  The Company’s effective tax rate of zero forthe interim periods presented differs from statutory tax rates primarily due tothe utilization of NOL carryforwards and changes in deferred tax activity.

 

**Critical accounting estimates andpolicies.**

 

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 among availablealternatives, or require the exercise of significant management judgment toapply, or that if changed are likely to affect future periods except withregard to the estimated effects if any on estimated costs associated with theRacusin litigation discussed elsewhere herein. The following summarizes our critical estimates and policies.

 

**Wagering**

 

We record wagering revenuesin compliance with Nevada law and the regulations of the Nevada gamingregulators.  For sports andnon-pari-mutuel race, we use an accrual method wherein the handle (total amountwagered) is recognized on the day the event occurs (rather than the day thewager is accepted) decreased by the total amount owed to patrons with winningwagers.  This gross calculation (handleless payouts) is then adjusted upward to account for any winning wagers thatwere not redeemed (cashed) within the specified time period.  For pari-mutuel race, commission and breakagerevenues are

 

14

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recorded when the wagers aresettled, typically the same day as the wager. Other sources of revenue are relatively insignificant.

 

**Hotel/Casino Revenue**

 

We report the wageringrevenues of Sturgeon’s, which is primarily comprised of slot revenue, hotelroom revenue and food and beverage revenue, in compliance with Nevada law andthe related regulations. These revenues are generally in the form of cash,personal checks, credit cards and gaming tokens, which do not requireestimates. We do estimate certain liabilities with payment periods that extendfor longer than several months. We believe these estimates are reasonable basedon our assumptions related to possible outcomes in the future. Future actualresults might differ materially from these estimates. Slot revenue iscalculated by deducting the hopper fills and jackpot payouts from the slot dropwhich is the amount removed from the slot machine. For non-gaming revenues,such as food and beverage and hotel, we record revenues in compliance withgenerally accepted accounting principles, recognizing revenue when it isearned.

 

**System — Software**

 

Software license feesrepresent revenues related to licenses for race/sports software delivered tocustomers for in house use. Revenues from software license agreements includingany related training revenue are recognized upon installation of the software.

 

**System — Hardware**

 

We recognize hardware revenueincluding any related 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.

 

**Long-Lived Assets**

 

Owned property and equipmentare recorded at cost and depreciated to residual values over the estimateduseful lives 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. Animpairment loss is recognized if the carrying amount of the asset is notrecoverable from its undiscounted cash flows and is measured as the differencebetween the carrying amount and fair value of the asset.

 

**Recent AccountingPronouncements**

 

No recently issued accounting pronouncements notyet adopted are expected to have a material impact on our future financialposition, results of operations, or cash flows.

 

**Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk.**

 

Not required.

 

**Item4T.  Controls and Procedures.**

 

**Evaluationof Disclosure Controls and Procedures**

 

We maintain disclosurecontrols and procedures that are intended to ensure that information requiredto be disclosed in our reports under the Securities Exchange Act of 1934, asamended (Exchange Act), is recorded, processed, summarized and reported withinthe time period specified in the SEC’s rules and forms and that suchinformation is accumulated and communicated to our management.

 

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Our management, with theparticipation of our Chief Executive Officer and Interim Principal AccountingOfficer, has completed an evaluation of the effectiveness of the disclosurecontrols and procedures pursuant to Exchange Act Rule 13a-15(c). Based onthat evaluation, we concluded that the disclosure controls and procedures werenot effective, given a group of deficiencies collectively considered to be amaterial weakness in the internal control over financial reporting thatmanagement and the Company’s independent registered accounting firm haveidentified as of January 31, 2010 which have not been fully mitigated asof April 30, 2010.

 

**Changes inInternal Control over Financial Reporting**

 

Our Chief Financial Officerand certain accounting personnel departed in February 2010. We have hiredemployees and consultants to mitigate the effects of such departures and arepresently considering other improvements which we believe will properly addressany material weakness in internal control over financial reporting.

 

**PART II— OTHER INFORMATION**

 

**Item1.  Legal Proceedings**

 

For a description of our Legal Proceedings,see Note 4 in the “Notes to Consolidated Financial Statements” of thisQuarterly Report on Form 10-Q, which is incorporated by reference in responseto this item.

 

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**Item1A.  Risk Factors**

 

A description of our riskfactors can be found in Item 1A. of our Annual Report on Form 10-K for thefiscal year ended January 31, 2010. There were no material changes tothose risk factors during the three months ended April 30, 2010.

 

**Item2.  Unregistered Sales of EquitySecurities and Use of Proceeds.**

 

Not applicable.

 

**Item3.  Defaults Upon Senior Securities.**

 

Not applicable.

 

**Item4.  Reserved.**

 

**Item5.  Other Information.**

 

Not applicable.

 

**Item6.  Exhibits.**

 
| **EXHIBIT NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                                              |
|-------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                    |       | Line of Credit dated May 17, 2010 between  the Company and Victor Salerno incorporated by reference to registrant’s  Current Report on Form 8-K, as filed with the Securities and Exchange  Commission on May  17, 2010. |
|                    |       |                                                                                                                                                                                                                                         |
| 10.2                    |       | Revolving Line of Credit Promissory Note dated  May 17, 2010 incorporated by reference to registrant’s Current Report on  Form 8-K, as filed with the Security and Exchange Commission on  May 17, 2010.                 |
|                    |       |                                                                                                                                                                                                                                         |
| 10.3                    |       | Secured Promissory Note by and between American  Wagering, Inc. and Alpine Advisors LLC dated June 11, 2010.                                                                                                                       |
|                    |       |                                                                                                                                                                                                                                         |
| 10.4                    |       | Warrant Agreement by and between American  Wagering, Inc. and Alpine Advisors LLC dated June 11, 2010.                                                                                                                             |
|                    |       |                                                                                                                                                                                                                                         |
| 10.5                    |       | Change of Terms to Line of Credit dated April 21,  2010 between American Wagering, Inc. and Victor Salerno.                                                                                                                                  |
|                    |       |                                                                                                                                                                                                                                         |
| 10.6                    |       | Advisor Agreement between American Wagering, Inc.  and Alpine Advisors, LLC dated March 12, 2010, incorporated by reference to  registrant’s Form 10-K as filed with the SEC on May 7, 2010.                                            |
|                    |       |                                                                                                                                                                                                                                         |
| 10.7                    |       | Separation Agreement between American Wagering,  Inc. and Melody Sherrill dated February 24, 2010, incorporated by reference  to registrant’s Form 8-K as filed with the SEC of February 24, 2010.                                      |
|                    |       |                                                                                                                                                                                                                                         |
| 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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**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:     June 22,  2010                                                                                                 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                    |   |
| /s/ Victor J. Salerno                                                                                                                                   |   |
| Victor J. Salerno                                                                                                                                       |   |
| President, Chief Executive Officer, Chief  OperatingOfficer, and Chairman of the Board of  Directors Interim Principal Accounting Officer and Treasurer |   |
| (Principal Executive Officer and Principal Financial  Officer)                                                                                          |   |

 

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