** **

**UNITEDSTATES********SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

----

 

**FORM 10-Q**

 

| **(Mark One)**                                                                                                                                                                                                                                                                | ** ** |                                                                                                    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| **x**                                                                                                                                                                                                                                                                         | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                                                                                                                                                    | ** ** | ** **                                                                                              |
| **For the quarterly period ended:  April 30,  2008**                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                          |       |                                                                                                    |
| **o**                                                                                                                                                                                                                                                                         | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                                                    | ** ** | ** **                                                                                              |
| **For the transition period from:                     to                     ** |
| ** **                                                                                                                                                                                                                                                                    |
| **Commission file number:  000-20685**                                                                                                                                                                                                                              |

 

**AMERICAN WAGERING, INC.**

(Exact name of registrant asspecified 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 ofprincipal executive offices)

 

**702-735-0101** (Registrant’stelephone number)

 

 

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

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(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  Noo

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer,” 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 markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes o**  **No x

 

**APPLICABLEONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING**

**THEPRECEDING FIVE YEARS**

 

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

 

**APPLICABLEONLY TO CORPORATE ISSUERS**

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock as of thelatest practicable date:****As of June 6, 2008, there were 8,129,879shares of common stock, par value $0.01, outstanding.

 

 

----

 

**TABLE OF CONTENTS**

 
| ** **                               | ** **                                                                                  | ** ** | **Page** |
|------------------------------------------|---------------------------------------------------------------------------------------------|------------|----------|
| ** **                               |                                                                                        |       |
| **Part I —  Financial Information** |                                                                                        | **3**      |
| ** **                               |                                                                                        |       |
| Item 1.                                  | Consolidated  Financial Statements                                                          |       | 3        |
|                                     |                                                                                        |       |     |
|                                     | Balance  Sheets as of April 30, 2008 (Unaudited) and January 31, 2008                       |       | 3        |
|                                     |                                                                                        |       |     |
|                                     | Statements  of Operations for the three months ended April 30, 2008 and 2007 (Unaudited)    |       | 4        |
|                                     |                                                                                        |       |     |
|                                     | Statements  of Cash Flows for the three months ended April 30, 2008 and 2007 (Unaudited)    |       | 5        |
|                                     |                                                                                        |       |     |
|                                     | Notes to Consolidated Financial Statements (Unaudited)                                      |       | 6        |
|                                     |                                                                                        |       |     |
| Item 2.                                  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       | 11       |
|                                     |                                                                                        |       |     |
| Item 3.                                  | Quantitative and  Qualitative Disclosures About Market Risk                                 |       | 18       |
|                                     |                                                                                        |       |     |
| Item 4T.                                 | Controls and Procedures                                                                     |       | 18       |
|                                     |                                                                                        |       |     |
| **PART  II — OTHER INFORMATION**    |                                                                                        | **18**     |
| ** **                               |                                                                                        |       |
| Item 1.                                  | Legal Proceedings                                                                           |       | 18       |
|                                     |                                                                                        |       |     |
| Item 1A.                                 | Risk  Factors                                                                               |       | 19       |
|                                     |                                                                                        |       |     |
| Item 2.                                  | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       | 19       |
|                                     |                                                                                        |       |     |
| Item 3.                                  | Defaults Upon  Senior Securities                                                            |       | 19       |
|                                     |                                                                                        |       |     |
| Item 4.                                  | Submission of  Matters to a Vote of Security Holders                                        |       | 19       |
|                                     |                                                                                        |       |     |
| Item 5.                                  | Other Information                                                                           |       | 19       |
|                                     |                                                                                        |       |     |
| Item 6.                                  | Exhibits                                                                                    |       | 20       |

 

2

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# **PART I — FINANCIALINFORMATION**

#  

## **Item 1.  Financial Statements.**

## ** **

**AMERICAN WAGERING, INC. AND SUBSIDIARIES**

### **CONSOLIDATED BALANCE SHEETS**

###  

| ** **                                                                                                                                       | ** ** | **April 30,   2008** | ** **     | **January 31,   2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|----------------|----------------------------------|------------|
| ** **                                                                                                                                       | ** ** | **(Unaudited)**                | ** **     | ** **                       | ** ** |
| **ASSETS**                                                                                                                                       | ** ** | ** **                     | ** **     | ** **                       | ** ** |
| CURRENT  ASSETS                                                                                                                                  |       |                           |           |                             |       |
| Cash  and Cash Equivalents                                                                                                                       |       | $                              | 2,128,506      |                             | $          | 3,316,595 |   |
| Restricted  Cash                                                                                                                                 |       | 1,332,289                      |           | 1,323,688                        |       |
| Accounts  Receivable, net of allowance for doubtful accounts of $2,578 and $2,835                                                                |       | 329,848                        |           | 345,145                          |       |
| Inventories                                                                                                                                      |       | 437,706                        |           | 443,639                          |       |
| Deferred  Tax Assets, net of allowance                                                                                                           |       | 440,481                        |           | 440,481                          |       |
| Prepaid  Expenses and Other Current Assets                                                                                                       |       | 387,278                        |           | 497,056                          |       |
| ** **                                                                                                                                       | ** ** | **5,056,108**                  | ** **     | **6,366,604**                    | ** ** |
|                                                                                                                                             |       |                           |           |                             |       |
| Property  and Equipment, net of accumulated depreciation and amortization                                                                        |       | 4,595,780                      |           | 4,783,451                        |       |
| Goodwill                                                                                                                                         |       | 103,725                        |           | 103,725                          |       |
| Other  Assets                                                                                                                                    |       | 296,720                        |           | 289,192                          |       |
| ** **                                                                                                                                       | ** ** | **$**                          | **10,052,333** | ** **                       | **$**      | **11,542,972** | ** ** |
|                                                                                                                                             |       |                           |           |                             |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                    | ** ** | ** **                     | ** **     | ** **                       | ** ** |
| CURRENT  LIABILITIES                                                                                                                             |       |                           |           |                             |       |
| Current  Portion of Long-Term Debt                                                                                                               |       | $                              | 731,308        |                             | $          | 1,280,161 |   |
| Accounts  Payable                                                                                                                                |       | 935,171                        |           | 1,055,547                        |       |
| Accrued  Expenses                                                                                                                                |       | 1,119,021                      |           | 1,006,310                        |       |
| Unpaid  Winning Tickets                                                                                                                          |       | 1,022,493                      |           | 1,401,382                        |       |
| Customer  Deposits and Other                                                                                                                     |       | 888,531                        |           | 1,535,960                        |       |
| ** **                                                                                                                                       | ** ** | **4,696,524**                  | ** **     | **6,279,360**                    | ** ** |
|                                                                                                                                             |       |                           |           |                             |       |
| Long-Term  Debt, less current portion                                                                                                            |       | 3,254,179                      |           | 3,046,655                        |       |
| Other  Long-Term Liabilities                                                                                                                     |       | 573,816                        |           | 655,693                          |       |
|                                                                                                                                             |       | 3,827,995                      |           | 3,702,348                        |       |
| Redeemable  Series A Preferred Stock (3,238 shares)                                                                                         |       | 323,800                        |           | 323,800                          |       |
|                                                                                                                                             |       | 8,848,319                      |           | 10,305,508                       |       |
|                                                                                                                                             |       |                           |           |                             |       |
| 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 - $0.01 par value; 25,000,000 shares authorized; 8,129,879 shares  issued and outstanding                                          |       | 81,299                         |           | 81,299                           |       |
| Additional  Paid-In Capital                                                                                                                      |       | 12,263,847                     |           | 12,246,651                       |       |
| Deficit                                                                                                                                          |       | (11,906,039                    | )              | (11,855,393                      | )          |
| Treasury  Stock, at cost (61,100 common shares)                                                                                                  |       | (327,493                       | )              | (327,493                         | )          |
| ** **                                                                                                                                       | ** ** | **1,204,014**                  | ** **     | **1,237,464**                    | ** ** |
| ** **                                                                                                                                       | ** ** | **$**                          | **10,052,333** | ** **                       | **$**      | **11,542,972** | ** ** |

 

**See Notesto Consolidated Financial Statements**

 

3

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**AMERICAN WAGERING, INC. AND SUBSIDIARIES**

### **CONSOLIDATED STATEMENTS OF OPERATIONS**

### **(Unaudited)**

** **
| ** **                           | ** ** | **For the Three Months Ended   April 30,** | ** **  |
|--------------------------------------|------------|--------------------------------------------------------------------------|-------------|
| ** **                           | ** ** | **2008**                                                                 | ** **  | **2007** | ** ** |
| **REVENUES:**                        | ** ** | ** **                                                               | ** **  | ** ** | ** ** |
| Wagering                             |       | $                                                                        | 2,701,821   |   | $ | 2,163,589 |   |
| Hotel/Casino                         |       | 627,531                                                                  |        | 662,894 |   |
| Systems                              |       | 930,108                                                                  |        | 1,347,715 |   |
| ** **                           | ** ** | **4,259,460**                                                            | ** **  | **4,174,198** | ** ** |
| **OPERATING COSTS AND EXPENSES:**    | ** ** | ** **                                                               | ** **  | ** ** | ** ** |
| **Direct Costs:**                    | ** ** | ** **                                                               | ** **  | ** ** | ** ** |
| Wagering                             |       | 2,208,929                                                                |        | 2,080,181 |   |
| Hotel/Casino                         |       | 504,603                                                                  |        | 549,584 |   |
| Systems                              |       | 299,781                                                                  |        | 400,491 |   |
| ** **                           | ** ** | **3,013,313**                                                            | ** **  | **3,030,256** | ** ** |
| **Operating Expenses:**              | ** ** | ** **                                                               | ** **  | ** ** | ** ** |
| Research  and Development            |       | 166,850                                                                  |        | 274,980 |   |
| Selling,  General and Administrative |       | 781,653                                                                  |        | 789,530 |   |
| Depreciation  and Amortization       |       | 257,504                                                                  |        | 216,913 |   |
| ** **                           | ** ** | **1,206,007**                                                            | ** **  | **1,281,423** | ** ** |
|                                 |       |                                                                     |        |   |   |
| ** **                           | ** ** | **4,219,320**                                                            | ** **  | **4,311,679** | ** ** |
|                                 |       |                                                                     |        |   |   |
| **OPERATING INCOME (LOSS)**          | ** ** | **40,140**                                                               | ** **  | **(137,481** | **)** |
|                                 |       |                                                                     |        |   |   |
| **OTHER INCOME (EXPENSES):**         | ** ** | ** **                                                               | ** **  | ** ** | ** ** |
| Interest  Income                     |       | 13,610                                                                   |        | 32,653 |   |
| Interest  Expense                    |       | (63,009                                                                  | )           | (66,612 | ) |
| Litigation  Expense                  |       | (36,165                                                                  | )           | (55,475 | ) |
| Other                                |       | 29,598                                                                   |        | 27,507 |   |
| ** **                           | ** ** | **(55,966**                                                              | **)**       | **(61,927** | **)** |
| ** **                           | ** ** | ** **                                                               | ** **  | ** ** | ** ** |
| **NET LOSS**                         | ** ** | **$**                                                                    | **(15,826** | **)** | **$** | **(199,408** | **)** |
|                                 |       |                                                                     |        |   |   |
| **NET LOSS PER COMMON SHARE BASIC**  | ** ** | **$**                                                                    | **(.01**    | **)** | **$** | **(.03** | **)** |

 

**See Notesto Consolidated Financial Statements**

 

4

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**AMERICAN WAGERING, INC. AND SUBSIDIARIES**

### **CONSOLIDATED STATEMENTS OF CASH FLOWS**

### **(Unaudited)**

** **
| ** **                                           | ** ** | **For the Three Months Ended   April 30,** | ** **     |
|------------------------------------------------------|------------|--------------------------------------------------------------------------|----------------|
| ** **                                           | ** ** | **2008**                                                                 | ** **     | **2007** | ** ** |
| ** **                                           | ** ** | ** **                                                               | ** **     | ** ** | ** ** |
| **Operating Activities**                             | ** ** | ** **                                                               | ** **     | ** ** | ** ** |
| **Net cash used in operating activities**            | ** ** | **$**                                                                    | **(1,030,098** | **)** | **$** | **(580,984** | **)** |
| ** **                                           | ** ** | ** **                                                               | ** **     | ** ** | ** ** |
| **Investing Activities**                             | ** ** | ** **                                                               | ** **     | ** ** | ** ** |
| Gross  increases in restricted cash                  |       | (169,733                                                                 | )              | (36,687 | ) |
| Withdrawal  of restricted cash                       |       | 161,132                                                                  |           | 46,605 |   |
| Proceeds  from the sale of property and equipment    |       | 1,500                                                                    |           | — |   |
| Purchase  of property and equipment                  |       | (69,739                                                                  | )              | (187,399 | ) |
| **Net cash used in investing activities**            | ** ** | **(76,840**                                                              | **)**          | **(177,481** | **)** |
| ** **                                           | ** ** | ** **                                                               | ** **     | ** ** | ** ** |
| **Financing Activities**                             |       |                                                                     |           |   |   |
| Repayment  of borrowings                             |       | (126,331                                                                 | )              | (98,661 | ) |
| Proceeds  from borrowings                            |       | 80,000                                                                   |           | — |   |
| Preferred  stock dividends                           |       | (34,820                                                                  | )              | (34,531 | ) |
| **Net cash used in financing activities**            | ** ** | **(81,151**                                                              | **)**          | **(133,192** | **)** |
|                                                 |       |                                                                     |           |   |   |
| **NET DECREASE IN CASH AND CASH EQUIVALENTS**        | ** ** | **(1,188,089**                                                           | **)**          | **(891,657** | **)** |
| ** **                                           | ** ** | ** **                                                               | ** **     | ** ** | ** ** |
| **CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD** | ** ** | **3,316,595**                                                            | ** **     | **4,537,424** | ** ** |
| ** **                                           | ** ** | ** **                                                               | ** **     | ** ** | ** ** |
| **CASH AND CASH EQUIVALENTS AT END OF PERIOD**       | ** ** | **$**                                                                    | **2,128,506**  | ** ** | **$** | **3,645,767** | ** ** |

 

**See Notes to Consolidated Financial Statements**

 

5

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** **

**AMERICAN WAGERING, INC. AND SUBSIDIARIES**

### **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

### **(Unaudited)**

### ** **

### **Three Months Ended April 30, 2008**

###  

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

#### ** **

The accompanying unaudited interim consolidatedfinancial statements of American Wagering, Inc. and all of itssubsidiaries (collectively referred to hereafter as the “Company” or “AWI”)have been prepared in accordance with the instructions to Form 10-Q aspublished 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.  Due to seasonality and other factors, resultsof operations for the current interim periods are not necessarily indicative ofresults to be expected for the full year. For further information, please refer to the annual consolidatedfinancial statements of the Company, and the related notes, included in itsAnnual Report on Form 10-K for the fiscal year ended January 31,2008, filed on May 13, 2008, with the SEC. All significant inter-company accounts and transactions have beeneliminated in the consolidation.

 

#### **2.  Net Loss Per Common Share**

#### ** **

Basic loss per common share is calculated based on theweighted average number of shares of common stock outstanding during thereporting period. Diluted net income per common share is ordinarily calculatedgiving effect to all potentially dilutive common shares, assuming such shareswere outstanding during the reporting period. However, diluted net loss percommon share is not presented for loss periods, since the effect of includingpotentially dilutive common shares would be anti-dilutive because of thelosses. The amounts of potentially anti-dilutive common shares that have beenexcluded from any calculation of basic net loss per share were 746,899 and745,349 at April 30, 2008 and 2007, respectively.

 

6

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Following is a reconciliation of the numerators anddenominators of the net loss per common share computations for the periodspresented.

 
| ** **                                         | ** ** | **Net   Loss   (numerator)** | ** ** | **Weighted   Average   Common   Shares   (denominator)** | ** ** | **Per   Share   Amount** | ** ** |
|----------------------------------------------------|------------|----------------------------------------|------------|------------------------------------------------------------------------------|------------|------------------------------------|------------|
| **For the three months ended April 30, 2008** |       |                                   |       |                                                                         |       |                               |       |
| Net  loss                                          |       | $                                      | (15,826    | )                                                                            |       |                               |       |   |
| Less  preferred stock dividends                    |       | (34,820                                | )          |                                                                         |       |                               |       |
| **Basic net loss per common share:**               |       |                                   |       |                                                                         |       |                               |       |
| Net  loss available to common shares               |       | (50,646                                | )          | 8,070,110                                                                    |       | $                                  | (0.01      | ) |
| Effect  of dilutive stock options                  |       |                                   |       |                                                                         | *          |                               |       |
| **Diluted net loss per common share:**             |       |                                   |       |                                                                         |       |                               |       |
| Net  loss available to common shares               |       | $                                      |       | *                                                                            |       | *                                  | $          |   | * |
|                                               |       |                                   |       |                                                                         |       |                               |       |
| **For the three months ended April 30, 2007** |       |                                   |       |                                                                         |       |                               |       |
| Net  loss                                          |       | $                                      | (199,408   | )                                                                            |       |                               |       |   |
| Less  preferred stock dividends                    |       | (34,531                                | )          |                                                                         |       |                               |       |
| **Basic net loss per common share:**               |       |                                   |       |                                                                         |       |                               |       |
| Net  loss available to common shares               |       | (233,939                               | )          | 8,070,988                                                                    |       | $                                  | (0.03      | ) |
| Effect  of dilutive stock options                  |       |                                   |       |                                                                         | *          |                               |       |
| **Diluted net loss per common share:**             |       |                                   |       |                                                                         |       |                               |       |
| Net  loss available to common shares               |       | $                                      |       | *                                                                            |       | *                                  | $          |   | * |
|                                                    |            |                                        |            |                                                                              |            |                                    |            |  |  |  |  |  |

 

----

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

 

7

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

#### ** **

Effective February 1, 2007, as required, theCompany adopted Financial Accounting Standards Board (“FASB”)  Interpretation No. 48, *Accounting for Uncertainty in Income Taxes, an interpretation of FASBStatement No. 109, Accounting for Income Taxes* (“FIN 48”). Theincome tax years of 2007, 2006, 2005 and 2004 remain open to examination underthe statute of limitations by the U.S. federal, state and local respectivetaxing jurisdictions. Accordingly, management has reviewed the Company’spreviously filed tax returns and particularly its NOL carryforwards availableto reduce current and future tax obligations for the possible effect of FIN 48as of January 1, 2007, and subsequently. Based on its evaluation,management believes that adopting FIN 48 did not have a material effect on ouropening deficit at the time of adoption, the Company’s federal tax netoperating loss (“NOL”)  carryforwards, orthe related deferred tax assets or the valuation allowance.

 

At April 30, 2008, the Company had federal taxNOL carryforwards available to potentially reduce future tax obligations in theaggregate amount of approximately $5.7 million, of which approximately $1.8million expires in 2019.  In assessingthe realizability of deferred tax assets, the Company considers whether it ismore likely than not that some portion or all of the deferred tax assets will notbe realized.  The ultimate realization ofdeferred tax assets is dependent upon the generation of future taxable incomeduring the periods in which those temporary differences become deductible. Thedetermination of profitability in the future is partially based on the marketpenetration of our kiosks and potential volume of systems sales; implementationof cost reductions; our sports betting volumes and win percentages; and otherfactors. Therefore, no additional tax benefit or expense provision was recognizedfor the current period loss.

 

Management has assessedthe valuation allowance against the remainder of the deferred tax assets andcontinues to reevaluate this asset quarterly.  The change in the deferredtax asset valuation allowance for the three months ended April 30, 2008,based on these estimates, created a deferred income tax expense provision of$34,017, which offset the current income tax benefit for the three-month periodended April 30, 2008. The change in the deferred tax asset valuationallowance for the three months ended April 30, 2007, based on theseestimates, created a deferred income tax benefit of $(68,000), which offset thecurrent income tax expense for the three month period ended April 30,2007.  Management believes that AWI will be sufficiently profitable forthe short-term future, and it is therefore more likely than not that a portion,estimated to be approximately $440,000 of its net deferred tax asset, whichresulted primarily from NOL carryforwards, will be realized. However, there canbe no assurance that the Company will be profitable in the future.

 

The Company’s effective tax rate of zero for theinterim periods presented differs from statutory tax rates primarily due to theutilization of NOL carryforwards and changes in deferred tax activity.

 

**4. Litigation**

 

For the three month periods ended April 30, 2008and 2007, the Company recorded litigation judgment expense of $24,916 and$55,475, respectively, representing additional accrued interest on ourpreviously recorded obligation due to Michael Racusin under a settlementagreement and, $11,249 in 2008 related to a settlement regarding an officespace contract.

 

TheCompany is a party to proceedings that are ordinary in nature and incidental tothe Company’s business. Management is unable to estimate any minimum lossesfrom any of these proceedings. Accordingly, no losses have been accrued for thequarter ended April 30, 2008.

 

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

#### ** **

Activity related to both the employee and directors’stock option plans for the three months ended April 30, 2008 and 2007 wasas follows:

 

8

----

 
| ** **                        | ** ** | **Option Shares** | ** ** | **Weighted-  Average   Exercise Price** | ** ** |
|-----------------------------------|------------|------------------------|------------|---------------------------------------------------|------------|
| Balance  at January 31, 2008 |       | 749,299                |       | $                                                 | 1.75       |   |
| Granted                           |       | —                 |       |                                              |       |
| Exercised                         |       | —                 |       |                                              |       |
| Forfeited  or canceled            |       | —                 |       |                                              |       |
|                              |       |                   |       |                                              |       |
| Balance  at April 30, 2008   |       | 749,299                |       | 1.75                                              |       |
|                              |       |                   |       |                                              |       |
| Balance  at January 31, 2007 |       | 757,749                |       | $                                                 | 1.80       |   |
| Granted                           |       | —                 |       |                                              |       |
| Exercised                         |       | —                 |       |                                              |       |
| Forfeited  or canceled            |       | (26,250                | )          | 2.00                                              |       |
|                              |       |                   |       |                                              |       |
| Balance  at April 30, 2007   |       | 731,499                |       | 1.79                                              |       |

 

Stock options exercisable and available for futuregrants for both current stock option plans as of April 30, 2008 are asfollows:

 
| ** **                   | ** ** | **Shares** | ** ** | **Weighted-  Average   Exercise   Price** | ** ** | **Weighted-  Average  Remaining   Life** | ** **      |
|------------------------------|------------|------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|-----------------|
| Exercisable                  |       | 488,500    |       | $                                                   | 1.86       |                                          | 5.23 years |   |
| Available  for future grants |       | 208,767    |       | —                                              |       | —                                        |            |
|                              |            |            |            |                                                     |            |                                               |                 |  |

 

Non-cash stock-based compensation expense recorded inthe line item “Selling, General and Administrative Expenses” on theconsolidated income statements for the three months ended April 30, 2008and 2007 was $17,196 and $50,839, respectively.

 

**6.  BusinessSegments**

** **

#### **The Companyreports the results of 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 April 30,** | ** **    |
|--------------------------------------|------------|------------------------------------------------------|---------------|
| ** **                           | ** ** | **2008**                                             | ** **    | **2007** | ** ** |
| **Revenue**                          | ** ** | **$**                                                | **2,701,821** | ** ** | **$** | **2,163,589** | ** ** |
| Direct  Costs                        |       | 2,208,929                                            |          | 2,080,181 |   |
| Selling,  General and Administrative |       | 301,166                                              |          | 222,450 |   |
| Depreciation  and Amortization       |       | 79,444                                               |          | 67,984 |   |
| ** **                           | ** ** | **2,589,539**                                        | ** **    | **2,370,615** |   |
| **Operating Income (Loss)**          | ** ** | **$**                                                | **112,282**   | ** ** | **$** | **(207,026** | **)** |

 

9

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**Hotel/Casino Segment**.  The following table indicates the primarycomponents of revenue and operating costs resulting in this segment’s operatingloss.

 
| ** **                                                          | ** ** | **Three Months Ended April 30,** | ** **  |
|---------------------------------------------------------------------|------------|------------------------------------------------------|-------------|
| ** **                                                          | ** ** | **2008**                                             | ** **  | **2007** | ** ** |
| **Revenue**                                                         |       |                                                 |        |   |   |
| Casino                                                              |       | $                                                    | 375,094     |   | $ | 345,415 |   |
| Hotel                                                               |       | 113,266                                              |        | 134,283 |   |
| Food/Beverage                                                       |       | 170,420                                              |        | 212,208 |   |
| Less:  Casino Cash Incentives and Other  Promotional Allowance |       | (31,249                                              | )           | (29,012 | ) |
|                                                                |       | 627,531                                              |        | 662,894 |   |
| **Direct Costs and Expenses**                                       |       |                                                 |        |   |   |
| Casino                                                              |       |                                                 | 149,931     |   |   | 129,206 |   |
| Hotel                                                               |       | 47,543                                               |        | 52,863 |   |
| Food/Beverage                                                       |       | 202,623                                              |        | 227,871 |   |
| Unallocated                                                         |       | 104,506                                              |        | 139,644 |   |
|                                                                |       | 504,603                                              |        | 549,584 |   |
|                                                                |       |                                                 |        |   |   |
| Selling,  General and Administrative                                |       | 90,420                                               |        | 176,783 |   |
| Depreciation  and Amortization                                      |       | 69,086                                               |        | 56,376 |   |
|                                                                |       | 664,109                                              |        | 782,743 |   |
| **Operating Loss**                                                  | ** ** | **$**                                                | **(36,578** | **)** | **$** | **(119,849** | **)** |

 

**Systems Segment. **The following table indicates the primarycomponents of revenue and operating costs resulting in this segment’s operatingincome (loss).

 
| ** **                           | ** ** | **Three Months Ended April 30,** | ** **  |
|--------------------------------------|------------|------------------------------------------------------|-------------|
| ** **                           | ** ** | **2008**                                             | ** **  | **2007** | ** ** |
| **Revenue**                          | ** ** | **$**                                                | **930,108** | ** ** | **$** | **1,347,715** | ** ** |
| Direct  Costs                        |       | 299,781                                              |        | 400,491 |   |
| Research  and Development            |       | 166,850                                              |        | 274,980 |   |
| Selling,  General and Administrative |       | 390,067                                              |        | 390,297 |   |
| Depreciation  and Amortization       |       | 108,974                                              |        | 92,553 |   |
|                                 |       | 965,672                                              |        | 1,158,321 |   |
| **Operating Income (Loss)**          | ** ** | **$**                                                | **(35,564** | **)** | **$** | **189,394** | ** ** |

 

**Operating Income (Loss) to Net Loss. **The following table reconciles theoperating income (loss) from each segment to net loss.

 
| ** **                  | ** ** | **Three Months Ended April 30,** | ** **  |
|-----------------------------|------------|------------------------------------------------------|-------------|
| ** **                  | ** ** | **2008**                                             | ** **  | **2007** | ** ** |
| **Operating Income (Loss)** |       |                                                 |        |   |   |
| Wagering                    |       | $                                                    | 112,282     |   | $ | (207,026 | ) |
| Hotel/Casino                |       | (36,578                                              | )           | (119,849 | ) |
| Systems                     |       | (35,564                                              | )           | 189,394 |   |
|                        |       | 40,140                                               |        | (137,481 | ) |
| **Other Income (Expenses)** |       |                                                 |        |   |   |
| Interest  Income            |       | 13,610                                               |        | 32,653 |   |
| Interest  Expense           |       | (63,009                                              | )           | (66,612 | ) |
| Litigation  Expense         |       | (36,165                                              | )           | (55,475 | ) |
| Other                       |       | 29,598                                               |        | 27,507 |   |
|                        |       | (55,966                                              | )           | (61,927 | ) |
| **Net Loss**                | ** ** | **$**                                                | **(15,826** | **)** | **$** | **(199,408** | **)** |

 

10

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

##  

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

 

“Company” means American Wagering, Inc. and itssubsidiaries collectively.

 

“AWI” means American Wagering, Inc.

 

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

 

“AWIM” means AWI Manufacturing, Inc., awholly-owned subsidiary of AWI.

 

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

 

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

 

“Sturgeons, LLC” means Sturgeons, LLC, a wholly-ownedsubsidiary of AWIG.

 

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

 

**Overview. **Ourprimary operating strategies for the foreseeable future are to focus on ourcore businesses relating to the race and sports industry, and the operation ofSturgeon’s. Our intentions regarding the following subsidiaries are tocontinue:

 

·                  Leroy’s -operating existing sports books, adding new books where and when appropriate,and continuing to become more efficient in order to reduce expenses. We willalso continue 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.

 

·                  CBS -developing, selling and maintaining computerized race and sports wageringsystems for the gaming industry and seeking strategic international allianceswith third party gaming suppliers and/or gaming operators that desire toutilize our expertise in the race 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.

 

·                  AWIM -developing the self-service wagering kiosk, installing kiosks in Leroy’slocations to assist in controlling personnel costs, and marketing the kiosks tonon-Leroy’s locations.

 

·                  Sturgeon’s- evaluating and changing the slot mix, where and when appropriate, and modifyexisting procedures to increase efficiency and reduce expenses.

 

Whereappropriate, we will continue to explore possible new locations for ourproducts, including foreign jurisdictions. We have implemented, and are continuing to initiate, other cost cuttingmeasures throughout the Company.  In thefirst quarter of fiscal 2009, the Company reduced its workforce by means of alay-off of several employees in all subsidiaries and began to focus more oncost controls. We will continue to evaluate and closely monitor costs, lookingfor efficiencies and improvements during at least the remainder of fiscal 2009.

 

Duringfiscal 2008, and continuing through the first quarter of fiscal 2009, ourlocal, regional and national economy has been negatively impacted due to anumber of factors, including the subprime mortgage crisis and 

 

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higher gasoline andtransportation costs. Confidence in the credit market has also eroded, whichresulted in a tightening of credit availability. Consumer demand for gambling,due to decreased disposable income, may further decline during an economicdownturn or recession. We face the risk that the effects of higher interestrates, continued higher energy costs and pressure on housing prices may placeadded strain on consumers’ ability to make purchases, repay their loans andthus, leave less funds available for travel and leisure activities.Accordingly, this economic downturn in the United States could hurt our financialperformance if wagering activity decreases. We may undergo additional costreductions due to a decline in the demand for wagering, depending on theeconomic conditions.

 

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

#### ** **

#### **Cash Flow**

#### ** **

As of April 30, 2008, we had working capital of$359,584, compared to working capital of $87,244 at January 31, 2008.  The increase in working capital is primarilydue to a decrease in current liabilities, as a result of the pay-down of theRacusin obligation; and reductions in future bets and unpaid tickets as aresult of paying out these tickets after the end of football season and the lastbig game. The decrease in current liabilities was greater than the decrease incurrent assets during the three months ended April 30, 2008.  The decrease in current assets was partiallyreduced by cash inflows generated by increased wagering revenues for the firstquarter of fiscal 2009.

 

On April 21, 2008,U.S. Bank approved a revolving credit note for $500,000 for the Company.  The purpose of this credit note is to provideoverdraft protection on our checking accounts. Any negative balances on our checking accounts will sweep into thisoverdraft protection credit note and then will be automatically repaid when thefunds in the checking accounts return to a positive balance. The maturity dateof this credit note is December 31, 2008, but may be renewed at that time,if agreed to by the Company and the bank. The unpaid principal balance will bear interest at the prime rate.Interest is payable monthly commencing on May 1, 2008 and the loan matureson December 31, 2008.  On April 30,2008, the Company had drawn down approximately $209,000 under the revolvingcredit note.

 

Our principal cash requirements consist of payroll andbenefits, business insurance, real estate and equipment leases, legal expenses,telecommunications, debt service, interest expense, and costs related toinventory, including those costs to assemble race/sports systems for our CBScustomers.

 

As of April 30, 2008, net cash used in operationsincreased by $449,114 over the comparable period of last year, primarily due todecreased systems sales and installations, and increased payouts due to thepayout on the last big football game wagers, partially offset by increasedwagering revenue for other sports. In the three months ended April 30,2008, one-time or infrequent systems and software sales were approximately$270,000 less than in the three months ended April 30, 2007.

 

Net cash used in investing activities for the threemonths ended April 30, 2008 decreased by $100,641, as compared to $177,481in the same period last year, primarily as a result of decreased purchases offurniture and equipment.

 

Net cash used in financing activities for the threemonths ended April 30, 2008 decreased by $52,041, as compared to $133,192for the three months ended April 30, 2007, primarily due an $80,000advance on a loan from our president to the Company in the current period,partially offset by an increase in repayment of borrowings compared to fiscal2008.

 

 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.  We maintained aRegulation 22.040 reserve in the amount of $3.0 million in the form of a suretybond issued by Fidelity and Deposit Company of Maryland (a subsidiary of ZurichAmerican Insurance).  On November 16,2007, due to increased 

 

12

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handle, we increased thebond to $3.4 million along with a cash deposit of $1.2 million which securesthis bond. The cash deposits, in the form of certificates of deposit, are heldat Great Basin Bank of Nevada along with an irrevocable letter of credit, alsowith Great Basin Bank of Nevada, that was originally $1.0 million, which alsoincreased to $1.2 million on November 16, 2007.

 

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, an elimination or reduction oftelephone wagering accounts, and a reduction in net income.

 

#### **Other.**

#### ** **

We do not have any off-balance sheet financingarrangements or liabilities.  We may,from time to time, seek additional capital to fund our operations, reduce ourliabilities, or fund our expansion plans (including acquisitions).  To raise capital, we may seek to selladditional equity securities (common or preferred), issue debt or convertiblesecurities, or obtain credit facilities through financial institutions.  The sale of additional equity or convertiblesecurities would result in dilution to our shareholders.

 

We believe that we will be able to satisfy ouroperating cash requirements for at least the next 12 months from existing cashbalances and anticipated cash flows.  Weplan to accumulate cash liquidity during the current fiscal year (ending January 31,2009) to help us fund the following: litigation expenses and judgments; potential purchase of kiosks;volatility and seasonality effects of sports betting; volatility and timing ofsystem sales; compliance costs associated with Section 404 of theSarbanes-Oxley Act of 2002.

 

#### **Results of Operations.**

#### ** **

We report our results of operations through threeoperating segments:  Wagering,Hotel/Casino and Systems.  Althoughnumerous factors are taken into consideration, the operating income (loss) ofthe segment represents a significant profitability measure used by us inallocating resources and assessing performance of the segments.

 
| ** **                         | ** ** | **Three Months Ended April 30,** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|
| **Summary**                        | ** ** | **2008**                                             | ** ** | **2007** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Revenues                           |       | $                                                    | 4,259,460  |   | $ | 4,174,198 |   | $ | 85,262 |   | 2.04 |   |
|                               |       |                                                 |       |   |   |   |   |   |   |
| Less:  Costs and Expenses          |       | 4,219,320                                            |       | 4,311,679 |   | (92,359 | ) | (2.14 | ) |
| Less:  Other (Income) and Expenses |       | 55,966                                               |       | 61,927 |   | (5,961 | ) | (9.63 | ) |
|                               |       |                                                 |       |   |   |   |   |   |   |
| Net  (Loss)                        |       | $                                                    | (15,826    | ) | $ | (199,408 | ) | $ | 183,582 |   | (92.06 | ) |

#### ** **

Please refer to the discussions below (“WageringSegment,” “Hotel/Casino Segment,” “Systems Segment,” and “Other Income andExpense”) for additional information, discussion and analysis.

 

#### **For the Three Months Ended April 30, 2008 Compared to the ThreeMonths Ended April 30, 2007.**

#### ** **

#### **Wagering Segment.**

#### ** **

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

 

**Wagering Segment revenues for the three monthsended April 30, 2008 increased $538,232 (+24.88%) over the three monthsended April 30, 2007. **Thisincrease is attributed to the following factors:

 

We experienced increased basketball and baseballhandle during the three months ended April 30, 2008 compared to the sameperiod in the prior year due to having more locations and the improvements andexpansion of 

 

13

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some of our previouslyexisting locations. These increases in handle resulted in increased revenuesfor this period. Despite a $650,000 negative change in the results of the lastbig game of football season, held on February 3, 2008, for the first quarter offiscal 2009 compared to the same quarter in fiscal 2008, handle and winincreased for other sports, resulting in a net increase in revenues for thequarter ending April 30, 2008.

 

**Wagering Segment total costs and expenses for thethree months ended April 30, 2008 increased $218,924 (+9.23%) over thethree months ended April 30, 2007. **Thisincrease is attributed to the following factors:

 

Direct costs increased primarily dueto increased expenses related to establishing new locations, advertisingexpenses, wages due to additional locations, increased communication costs andincreases in rent paid to our Leroy’s sports book locations. These increaseswere partially offset by cost reductions in personnel expense.

 

Selling, general and administrative costsdecreased primarily due to decreases in various administrative costs in thethree months ending April 30, 2008 compared to the three months ending April 30,2007.  Management fees allocated to thesegments increased due to increased insurance, legal, and other public companycosts.

 

Depreciation and amortization expenseincreased over the prior year’s three month period primarily due to an increasein capitalized acquisitions compared to the same three month period ending April 30,2007.

 

Note that an increase or decrease in handle is notnecessarily indicative of an increase or decrease in revenues or profits.  Elimination of unprofitable locations,closure of host properties, changes in state and/or federal regulations, andother factors beyond our control may result in declines in handle.

 

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

 

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

#### ** **

The Hotel/Casino Segment includes the operatingresults of Sturgeon’s.  Sturgeon’scommenced operations on March 1, 2006.

 

**Hotel/Casino Segment revenues for the three monthsended April 30, 2008 decreased $35,363 (-5.33%) over the three monthsended April 30, 2007. **Thisdecrease is attributed to the following factors:

 

Casino revenues increased primarilydue to increased handle and wagering activities for the quarter ending April 30,2008 compared to the same period ending April 30, 2007.

 

Hotel revenues decreased in thefirst quarter of fiscal 2009 compared to the first quarter of fiscal 2008 dueto a lower occupancy rate, primarily due to weather issues and decreasedtravel.

 

Food and beverage revenues decreasedprimarily due to the decline in occupancy for the three months ended April 30,2008 compared to the three months ended April 30, 2007.  Casino cash incentives and other promotionalallowances remained approximately the same for both periods.

 

**Hotel/Casino****Segment****total****costs****and****expenses****for****the****three****months****ended****April****30,****2008****decreased****$118,634****(-15.16%)****over****the****three****months****ended****April****30,****2007.**** **Thisdecreaseisattributedtothefollowingfactors:

 

14

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Direct costs for the casino operationsincreased for the three months ended April 30, 2008 compared to the threemonths ended April 30, 2007 due to increased handle at the casino.

 

Direct costs for the hotel operationsdecreased primarily due to lower occupancies for the three months ended April 30,2008 compared to the three months ended April 30, 2007.

 

Direct costs for food and beverage operationsdecreased primarily due to lower occupancies in the hotel for the three monthsended April 30, 2008 compared to the three months ended April 30,2007.

 

Selling,general and administrative costs for Sturgeon’s decreased primarilybecause there was no bonus payment made in the first quarter of fiscal 2009compared to the first quarter of fiscal 2008, due to the prior year-to-dateloss; and decreased casino personnel costs over the first quarter of the prioryear.

 

#### **Systems Segment.**

#### ** **

The Systems Segment includes the operating results ofour systems sales, installations and maintenance, less the related expenses.

 

**Systems Segment revenues for the three monthsended April 30, 2008 decreased $417,607 (-30.99%) over the three monthsended April 30, 2007. **Thisdecrease is attributed to the following factors:

 

Systems revenues decreased over the prior fiscal yeardue to a decreased number of infrequent sales. The following table shows the approximate system sales revenuecomparison for both fiscal years’ first quarters:

 
| ** **                | ** ** | **Three Months Ended April 30,** | ** ** |
|---------------------------|------------|------------------------------------------------------|------------|
| **Systems Revenues** | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Software  sales           |       | $                                                    | 0          |   | $ | 112,000 |   |
| Equipment  installations  |       | 183,000                                              |       | 372,000 |   |
| Kiosk  sales              |       | 170,000                                              |       | 136,000 |   |
|                      |       |                                                 |       |   |   |
| Total                     |       | $                                                    | 353,000    |   | $ | 620,000 |   |

 

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

 

**Systems Segment total costs and expenses for thethree months ended April 30, 2008 decreased $192,649 (-16.63%) over thethree months ended April 30, 2007. **Thisdecrease is attributed to the following factors:

 

Direct costs for systems decreasedover the prior three months ended April 30, 2007 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 development costsdecreased from the prior three months ended April 30, 2007 primarily dueto decreased personnel expense and greater efficiencies.

 

Depreciation and amortizationincreased from the prior three months ended April 30, 2007 due toincreased property acquisitions, primarily due to the equipment and softwareupgrades 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.

 

15

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Interest Income:  The majority of interest income isattributable to interest earned on restricted cash deposits required for theRegulation 22.040 reserve.  The decreasein interest income of $19,043 is due primarily to decreased interest rates paidon our cash deposits and less held in cash deposits.

 

Litigation expense of $36,165 wasrecorded in the first three months of fiscal 2009; of which $24,916 was relatedto the Racusin litigation settlement, compared to Racusin litigation expense of$55,475 for the same three month period of the prior fiscal year.  The decreased interest is due to a decline inthe principal amount owed to Racusin, due to our payments. The remainder of$11,249 is due to a settlement paid related to an office space contract.

 

Incometax expense (benefit). The Company’s effective tax rate of zero for the interim periodspresented differs from statutory tax rates primarily due to the utilization ofNOL carryforwards and changes in deferred tax activity.

 

**Critical accounting estimates and policies.**

 

Although our financial statements necessarily make useof certain accounting estimates by our management, we believe that, except asdiscussed below, we do not employ any critical accounting policies or estimatesthat are either selected from among available alternatives, or require theexercise of significant management judgment to apply, or that if changed arelikely to affect future periods.  Thefollowing summarizes our critical estimates and policies.

 

**Wagering**

 

We record wagering revenues in compliance with Nevadalaw and the regulations of the Nevada gaming regulators.  For sports and non-pari-mutuel race, we usean accrual method wherein the handle (total amount wagered) is recognized onthe day the event occurs (rather than the day the wager is accepted) decreasedby the total amount owed to patrons with winning wagers.  This gross calculation (handle less payouts)is then adjusted upward to account for any winning wagers that were 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/Casino Revenue**

 

We report the wagering revenues of Sturgeon’s, whichis primarily comprised of slot revenue, hotel room revenue and food andbeverage revenue, in compliance with Nevada law and the regulations of theNevada gaming regulators.  These revenuesare generally in the form of cash, personal checks, credit cards, or gamingchips 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 on March 1,2006 and wagering revenues for the Sturgeon’s operation were reported for thefirst time in the fiscal year ended January 31, 2007.

 

**System — Software**

 

We recognize software revenue in accordance with theprovisions of Statement of Position (“SOP”) 97-2, *Software Revenue Recognition*, as amended by SOP 98-9, *Software Revenue Recognition, With Respect to CertainTransactions*.  Softwarelicense fees represent revenues related to licenses for race/sports softwaredelivered to customers for in-house use. Revenues from software license agreements (including any relatedtraining revenue) are recognized upon installation of the software.

 

16

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**System — Hardware**

 

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

 

**System — Maintenance**

** **

We negotiate maintenance agreements with each of ourcustomers to provide for the long-term care of the software and hardware.  Pursuant to the terms of the variousmaintenance agreements, a fixed sum is due at the beginning of each monthregardless of whether the customer requires service during that month.  We recognize maintenance revenue on the firstday of each month for which the maintenance agreement is in place; we maintainan allowance for doubtful accounts in the event that any such revenue recordedis not realized.

 

**Long-Lived Assets**

** **

Owned property and equipment are recorded at cost anddepreciated to residual values over the estimated useful lives using thestraight-line method.  Leaseholdimprovements on operating leases are amortized over the life of the lease orthe life of the asset, whichever is shorter. The useful life, currently estimated, of our equipment generally rangesfrom 3 to 10 years.  We test forimpairment losses on long-lived assets used in operations when events andcircumstances indicate that the assets might be impaired, under the standardsof Statement of Financial Accounting Standard (“SFAS”) No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets*.  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.

 

**Accounting for IncomeTaxes**

** **

Effective February 1,2007, the Company adopted Financial Accounting Standards Board (“FASB”)  Interpretation No. 48, *Accounting for Uncertainty in Income Taxes, an interpretation of FASBStatement No. 109, Accounting for Income Taxes* (“FIN 48”).  Accordingly, we have reviewed our previouslyfiled tax returns and particularly our NOL carryforwards available to reducecurrent and future tax obligations for the possible effect of FIN 48 and toestimate the extent to which it remains needed as of April 30, 2008. Basedon our evaluation, we believe that adopting FIN 48 did not have a materialeffect on our opening deficit at the time of adoption, our NOL carryforwards,or the related deferred tax assets or valuation allowance. We also believe thatwe will be sufficiently profitable for the short-term future, and it istherefore more likely than not that an estimate of approximately $440,000 ofour net deferred tax asset, which resulted primarily from NOL carryforwards,will be realized.

 

#### **RecentAccounting Pronouncements**

#### ** **

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*, whichdefines fair value, establishes a framework for measuring fair value andexpands disclosures about fair value measurements.  In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assetsand Financial Liabilities – Including an Amendment of SFAS No 115*,which will permit the option of choosing to measure certain eligible items atfair value at specified election dates and report unrealized gains and lossesin earnings.  SFAS No. 157 willbecome effective for us for financial statements issued for the fiscal yearending January 31, 2009, except that for nonfinancial assets andliabilities, it will not become effective for us until the following yearunless SFAS No. 159 is adopted earlier. Since we have no assets orliabilities carried at estimated fair values, and we do not presently intend totake the fair value option offered by SFAS No. 159, there will likely beno affect of SFAS No. 157 on our future consolidated financial statements.

 

InDecember 2007, the FASB issued SFAS 141R, *Business Combinations*, which will significantly change theaccounting for business combinations and certain other transactions.SFAS 141R will apply prospectively to business combinations and certainother transactions for which the acquisition date is on or after the start ofthe first annual reporting period beginning on or after December 15, 2008,and early adoption is prohibited. Since we are not 

 

17

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nowcontemplating any covered transactions after its effective date, we currentlyexpect that SFAS 141R will not have an impact on our future financialposition, results of operations and operating cash flows.

 

InDecember 2007, the FASB issued SFAS No. 160, *Noncontrolling Interests in Consolidated Financial Statements — anamendment of Accounting Research Bulletin No. 51*, whichestablishes accounting and reporting standards for ownership interests insubsidiaries held by parties other than the parent, the amount of consolidatednet income attributable to the parent and to the noncontrolling interest,changes in a parent’s ownership interest and the valuation of retainednoncontrolling equity investments when a subsidiary is deconsolidated. TheStatement also establishes reporting requirements that provide sufficientdisclosures that clearly identify and distinguish between the interests of theparent and the interests of the noncontrolling owners. SFAS 160 iseffective for fiscal years beginning after December 15, 2008. The Companycurrently has and presently contemplates obtaining no noncontrolling interestsin any subsidiaries, and we do not expect any effect of SFAS 160 in theforeseeable future.

 

**Item 3.  Quantitative and Qualitative Disclosures AboutMarket Risk.**

 

Not required.

 

## **Item 4T.  Controls and Procedures.**

##  

**Evaluation of Disclosure Controlsand Procedures**

 

Our management, with the participation of our ChiefExecutive Officer and Chief Financial Officer, evaluated the effectiveness ofour disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) asof April 30, 2008. As part of our evaluation, management took into accountthe material weakness in our disclosure controls and procedures identified bymanagement in our Form 10-K for the fiscal year ended January 31,2008. We determined that our disclosure controls and procedures, specificallywith respect to a late Form 8-K filed on February 29, 2008 (whichshould have been filed on or before February 13, 2008) were not effective.Management has implemented a procedure requiring that any material agreement oramendment thereto be submitted to and reviewed by our Chief Financial Officerand in-house counsel prior to execution thereof.

 

**Changes in Internal Control overFinancial Reporting**

 

There has not been any changes in the Company’sinternal controls over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and15d-15(f)) during the three months ended April 30, 2008 that havematerially affected, or are reasonably likely to materially affect the Company’sinternal controls over financial reporting.

 

# **PART II — OTHER INFORMATION**

#  

## **Item 1.  Legal Proceedings**

##  

**Racusin**

** **

There have been no material legal changes for thismatter during the quarter ended April 30, 2008 from the fiscal year ended January 31,2008.  Payments from February 1,2008 through April 30, 2008 totaled $331,165. At April 30, 2008,approximately $1.38 million remained outstanding to Racusin.

 

**Other**

** **

TheCompany is a party to proceedings that are ordinary in nature and incidental tothe Company’s business. Management is unable to estimate any minimum lossesfrom any of these proceedings. Accordingly, no losses have been accrued for thequarter ended April 30, 2008.

 

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## **Item 1A.  Risk Factors**

##  

A description of our risk factors can be found in Item1A of our Annual Report on Form 10-K for the fiscal year ended January 31,2008. There were no material changes to those risk factors during the threemonths ended April 30, 2008.

 

## **Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds.**

##  

Not applicable.

 

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

##  

Not applicable.

 

## **Item 4.  Submission of Matters to a Vote of SecurityHolders.**

##  

Not applicable.

 

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

##  

Not applicable.

 

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## **Item 6.  Exhibits.**

 
| **EXHIBIT NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                       |
|-------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                    |       | Change in Terms Agreement, dated May 5, 2008,  between AWI Gaming, Inc., and Great Basin Bank of Nevada;                                                                                                    |
|                    |       |                                                                                                                                                                                                                  |
| 10.2                    |       | Commercial Guaranty, dated May 5, 2008, by  American Wagering, Inc. in favor of Great Basin Bank of Nevada;                                                                                                 |
|                    |       |                                                                                                                                                                                                                  |
| 10.3                    |       | Commercial Guaranty, dated May 5, 2008, by  Sturgeon’s, LLC in favor of Great Basin Bank of Nevada                                                                                                          |
|                    |       |                                                                                                                                                                                                                  |
| 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 |

 

20

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**SIGNATURES**

 

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

**AMERICANWAGERING, INC.**

 

 
| Dated:     June 13,  2008 |   |
|---------------------------------------------------------|--------|
|                                                    |   |
| /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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