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

**Washington, D.C.  20549**

 

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**FORM 10-Q/A**

 

**Amendment No. 1**

 

**(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, 2010**

 

**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 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’s telephone 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 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.** **Yes x  No  o

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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 mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o**  **No  x

 

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

 

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

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

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

 

 

 

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** **

**Explanatory Note**

** **

This Amendment No. 1 on Form 10-Q/A (this “Form 10-Q/A”) to our Quarterly Report on Form 10-Q for the period ended April 30, 2010, which was filed with the Securities and Exchange Commission on June 22, 2010 (the “Original Form 10-Q”), is being filed to amend Part I, Item 1 - Financial Statements to (i) add the presentation of diluted net loss per common share in the Consolidated Statements of Operations and the related note 2 in the Notes to Consolidated Financial Statements, and (ii) re-title and expand note 5 in the Notes to Consolidated Financial Statements regarding stock options, other equity transactions and subsequent events. This Form 10-Q/A responds to comments of the Staff of the Securities and Exchange Commission in connection with its review of the Original Form 10-Q. Except as identified above, no other items included in the Original Form 10-Q have been amended and this Form 10-Q/A does not purport to provide an update for or a discussion of any developments subsequent to the filing of the Original Form 10-Q.

 

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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**

 

**Item 1.  Financial Statements.**

 

**AMERICAN WAGERING, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE 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 Financial Statements**

 

3

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**AMERICAN WAGERING, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS 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 LOSS   PER COMMON SHARE –** |       |                                                                |         |   |   |
| **BASIC   AND DILUTED**                | ** ** | **$**                                                               | **(.07**     | **)** | **$** | **0.00** | ** ** |

 

**See Notes to 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,** | ** **    |
|-----------------------------------------------------------|------------|---------------------------------------------------------------------|---------------|
| ** **                                                | ** ** | **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 Consolidated Financial Statements**

 

5

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**AMERICAN WAGERING, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Three Months Ended April 30, 2009**

 

**1.  Basis of Presentation**

 

The accompanying unaudited interim consolidated financial statements of American Wagering, Inc. and its subsidiaries (collectively “the Company” or “AWI”) have been prepared in accordance with the instructions to Form 10-Q as published by the Securities and Exchange Commission (“SEC”).  The financial statements do not include all of the information and disclosures required by generally accepted accounting principles for annual financial statements.  All significant inter-company accounts and transactions have been eliminated in consolidation.  In the opinion of management, all adjustments necessary for a fair presentation have been included.  Due to seasonality and other factors, results of operations for any interim period are not necessarily indicative of expected annual results.  These unaudited interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements of the Company, and the related notes, included in the Company’s Annual Report on Form 10-K filed on May 7, 2010, with the SEC, from which the balance sheet information as of January 31, 2010 was derived.

** **

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

 

Basic net income (loss) per common share is calculated based on the weighted-average number of shares of common stock outstanding during the reporting period. Diluted net income per common share is ordinarily calculated giving effect to all potentially dilutive common shares, assuming such shares were outstanding during the reporting period. Such potentially dilutive common shares are excluded from the diluted net loss per share calculation to avoid an anti-dilutive effect. The amount of potentially anti-dilutive common shares that have been excluded from diluted net income (loss) per share was 647,299 and 648,899 at April 30, 2010 and 2009, respectively.

 

Following is a reconciliation of the numerators and denominators of the net income (loss) per common share computations 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 |   |

 

6

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**3.  Income Taxes**

 

At April 30, 2010, the Company had federal tax net operating loss (“NOL”) carryforwards available to potentially reduce future tax obligations in the aggregate amount of approximately $7.0 million, of which approximately $1.3 million expires in 2019.  In assessing the realizability of deferred tax assets, which resulted primarily from the NOLs, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

 

Management believes that, despite atypically low hold percentage during the quarter ended April 30, 2010, which had a significant negative effect on the results of operations and cash flows for the quarter, and subject to the effect, if any, of the Racusin uncertainty (Note 4), the Company will be profitable for at least the next twelve months and that it 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.

 

The Company’s estimated annual effective tax rate of zero for the interim periods presented differs from statutory tax rates primarily due to the expected utilization of NOL carryforwards or changes in the valuation allowance for deferred tax assets.

 

**4.  Litigation and Contingencies**

 

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

 

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

 

**Racusin**. On July 25, 2003, AWI and a wholly-owned subsidiary (Leroy’s) filed voluntary petitions for relief (“Chapter 11 Petitions”) under Chapter 11 of the United States Bankruptcy Code (“Chapter 11”) in the United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”). The Company and Racusin entered into the Settlement Agreement on September 3, 2004.  On February 28, 2005, the Bankruptcy Court confirmed the Restated Amended Joint Plan of Reorganization (the “Plan”) of AWI and Leroy’s. On March 11, 2005, AWI and Leroy’s consummated the Plan and formally emerged from Chapter 11 proceedings after completing all required actions and all remaining conditions.  On September 26, 2005, the Bankruptcy Court issued an order closing the Chapter 11 cases of AWI and Leroy’s. All required distributions have been made, except with respect to the Racusin matter (“Racusin Claim”).

 

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

 

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

 

There have been no material legal changes for this matter during the quarter ended April 30, 2010 from the fiscal year ended January 31, 2010.

 

**Internet Sports International, Ltd. (ISI)** This case is currently in the discovery phase 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 First Amended Answer, Affirmative Defenses and Counterclaims through which those Defendants 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 is currently in its discovery phase and discovery will likely be extended for several months.

 

There have been no material legal changes for this matter during the quarter ended April 30, 2010 from the fiscal year ended January 31, 2010.

 

Economic Conditions and Related Risks and Uncertainties

 

The United States continues to experience a recession accompanied by, among other things, weakness in the commercial and investment banking industry resulting in reduced credit and capital financing availability, and highly curtailed gaming, other recreational activities and general discretionary consumer spending, and is also engaged in war, all of which are likely to continue to have far-reaching effects on economic conditions in the country for an indeterminate period.  The effects and duration of these developments and related risks and uncertainties on our future operations and cash flows, including, our principal officer’s ability to continue to provide financial support to the Company, as in the past, and other access to capital or credit financing, cannot be estimated at this time but may likely be significant.In addition, the Company often carries cash and equivalents on deposit with financial institutions substantially in excess of federally-insured limits.  The extent of any loss that might be incurred as a result of uninsured deposits in the event of a future failure of a bank or other financial institutions, if any, is not subject to estimation.

 

**5.  Stock Options, Other Equity Transactions, and Subsequent Events**

 

For the three months ended April 30, 2010 and 2009, activity related to both the employee and directors’ stock option 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 current stock 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    |       | —                                     |       | —                                     |            |
|                               |            |            |            |                                            |            |                                            |                 |  |

 

In addition, during the quarter ended April 30, 2010, 250,000 shares of common stock were issued to the principal of Alpine Advisors, LLC (“Alpine”) as a non-refundable fee for financial advisory services. The shares were valued at $0.15 per share ($37,500) based on the trading price of the Company’s common stock on the date of grant. Additional fees are due Alpine upon the successful completion of (1) a single or a series of transactions in which 50% or more of the voting power of the Company or all or a substantial portion of its business or assets are combined with or transferred to another company and (2) any offering of debt, equity or equity-linked securities either individually or in combination. The success fee is calculated generally at 3-3.5% of the “equity value” of the transaction, as defined, or the amount of the proceeds from the financing.

 

On June 11, 2010, the Company borrowed $195,000 from and entered into an agreement with Alpine Advisors, LLC (“Alpine”) that entitled but did not obligate Alpine to purchase up to 600,000 shares of the Company’s common stock at an exercise price of $0.22 per share through June 11, 2015. This transaction which occurred subsequent to April 30, 2010, has not yet been valued as of the filing of this Form 10-Q. The principle amount of the loan plus interest at 15% is due June 17, 2010 (six days following issuance) and then on demand. If no demand, interest is to be paid weekly at the rate of 22% per annum. The estimated value of the warrants will be amortized to interest expense over the expected repayment term of the loan which is estimated to be 12 months.

 

Also, services contributed by Victor and Terina Salerno and credited to additional paid-in capital during the three months ended April 30, 2010 and 2009 totaled $42,813 and $51,622.

 

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

 

8

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**6.  Business Segments**

 

The Company reports the results of operations through three operating segments as follows:

 
| ** **                    | ** ** | **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 for the 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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**Item 2.  Management’s Discussion and Analysis or Plan of Operation.**

 

The following discussion and analysis should be read together with our unaudited consolidated financial statements and the accompanying notes.  This discussion contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including statements regarding our expected financial position, business and financing plans.  Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seek,” “intends,” “plans,” “estimates,” “anticipates,” or other comparable terms.  Forward-looking statements involve inherent risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statement including those discussed herein and 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 such forward-looking statements, which speak only as of the date made.  We do not intend, and undertake no obligation to update our forward-looking statements to reflect future events or circumstances.

 

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

 

“Company” means American Wagering, Inc. and its subsidiaries collectively.

 

“AWI” means American Wagering, Inc.

 

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

 

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

 

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

 

10

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

 

Our core businesses are operated by the following subsidiaries which have the following strategic plans:

 

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

 

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

 

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

 

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

 

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

 

During the latter part of fiscal 2008, and continuing throughout fiscal 2009 and into 2010, our local, regional and national economy has been negatively impacted due to a number of factors, including the nationwide economic recession and the subprime mortgage crisis and higher gasoline and transportation costs.  Confidence in the credit market has also eroded, which resulted in a tightening of credit availability.  During fiscal 2010 and continuing through the first quarter of fiscal 2011, Las Vegas has experienced higher foreclosure and unemployment rates and reduced passenger traffic at McCarran airport. The effects of higher unemployment rates, foreclosures and continued pressure on housing prices, as well as business failures and stock market volatility place added strain on consumers’ ability to make purchases, repay their loans and thus, leave less funds available for travel and leisure activities. Consumer demand for gambling, due to decreased disposable income, has declined as a result of the current economic recession.  We have also experienced a change in gambling patterns of our patrons, including a trend toward more conservative bets, which tend to be less profitable to the Company.  In addition, because Sturgeon’s Hotel and Casino is heavily dependent on the drive-through market, these factors have and will continue to have an adverse affect on our business.  Accordingly, if the economic recession in the United States continues, it will likely continue to hurt our financial performance, due to, among other things, decreased wagering activity and a change in the types of wagers made.

 

**Liquidity and Capital Resources.**

 

The United States continues to experience a recession accompanied by, among other things, the BP oil spill in the Gulf of Mexico, the continued weakness in the commercial and investment banking industry resulting in reduced credit and 

 

11

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

 

As of April 30, 2010, we had working capital of $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 primarily due to positive operating performance in fiscal year 2010 combined with the restructuring of debt commitments from our Chief Executive Officer, and the timing of and increases in future bets and unpaid winning tickets.

 

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

 

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

 

The Company expects that it will experience a short term liquidity issue during the summer months. In anticipation of such event, the Company sought bridge financing and was successful in raising $445,000 from two sources. Victor Salerno, President and Chief Executive Officer, provided an interest 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 recently finalized an agreement to borrow an additional $195,000 from an unrelated party. The $195,000 loan became due on June 17, 2010, at which point the interest rate increased from 15% to 22% until paid in full.  The loan was intended as bridge financing until the Company could negotiate a $500,000 loan from the same lender.  No assurance can be given that the Company will be successful in negotiating the $500,000 loan. These financing agreements are expected to provide the necessary cash to overcome the expected short term liquidity issue. Management is also investigating more comprehensive, long term refinancing and capital raising alternatives. There is no assurance that such objective can be accomplished with acceptable terms. If we are unable to secure long-term financing or other capital raising efforts, we may not be able to satisfy our obligations as they come due.

 

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

 

**Restricted Cash Requirements (Regulation 22.040)**

 

Nevada Gaming Commission Regulation 22.040 (“Regulation 22.040”) requires us to maintain reserves (cash, surety bonds, irrevocable standby letter of credit, etc.) sufficient to cover any outstanding wagering liability including unpaid winning tickets, future tickets and telephone account deposits.

 

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

 

**Other**

 

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

 

12

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

 

**Results of Operations**

 

We report our results of operations through three operating segments:  Wagering, Hotel/Casino and Systems.  Although numerous factors are taken into consideration, the operating income (loss) of the segment represents a significant profitability measure used by us in 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 the discussions below (“Wagering Segment,” “Hotel/Casino Segment,” “Systems Segment,” and “Other Income and Expense”) for additional information, discussion and analysis.

 

**Wagering Segment**.

 

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

 

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 following factors:

 

During the three months ended April 30, 2010, our amount of sports handle decreased by 6.26%, compared to the same period in the prior year, primarily due to the economic conditions. However, an increase or decrease in handle is not necessarily indicative of an increase or decrease in revenues or profits due to the volatility of the win percentages. Elimination of unprofitable locations, closures of host properties, changes in state and/or federal regulations, and other factors beyond our control may result 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% compared to 5.08% in the prior year’s quarter. A change in the wagering patterns of our patrons, including a trend toward more conservative wagers, which are less profitable to the Company, also attributed to the lower hold percentage. Our race commissions were down $108,055 (-27.92%) from the prior year’s quarter as we 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 is attributed to the following factors:

 

Direct costs decreased primarily due to staff reductions and other personnel costs, lower revenue based taxes and licenses, and fewer leased locations.

 

Selling, general and administrative costs increased by $70,348 related to the timing of professional fees and other outside services.

 

Depreciation and amortization expense remained relatively constant for the quarters.

 

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

 

13

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**Hotel/Casino Segment.**

 

The Hotel/Casino Segment includes 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 a result of the following factors:

 

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

 

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

 

Food and beverage revenues — decline in hotel occupancy and wagering activities.

 

Hotel/Casino Segment total costs and expenses for the three months ended April 30, 2010 were relatively constant compared to the prior year’s quarter with only minor fluctuations in the various subcategories of costs and expenses.

 

**Systems Segment.**

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

**Critical accounting estimates and policies.**

 

Although our financial statements necessarily make use of certain accounting estimates by our management, we believe that, except as discussed below, we do not employ any critical accounting policies or estimates that are either selected from among available alternatives, or require the exercise of significant management judgment to apply, or that if changed are likely to affect future periods except with regard to the estimated effects if any on estimated costs associated with the Racusin litigation discussed elsewhere herein.  The following summarizes our critical estimates and policies.

 

**Wagering**

 

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

 

14

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

 

**Hotel/Casino Revenue**

 

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

 

**System — Software**

 

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

 

**System — Hardware**

 

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

 

**System — Maintenance**

 

We negotiate maintenance agreements with each of our customers to provide for the long-term care of the software and hardware.  Pursuant to the terms of the various maintenance agreements, a fixed sum is due at the beginning of each month regardless of whether the customer requires service during that month.  We recognize maintenance revenue on the first day of each month for which the maintenance agreement is in place; we maintain an allowance for doubtful accounts in the event that any such revenue recorded is not realized.

 

**Long-Lived Assets**

 

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

 

**Recent Accounting Pronouncements**

 

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

 

**Item 3.  Quantitative and Qualitative Disclosures About Market Risk.**

 

Not required.

 

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

 

**Evaluation of Disclosure Controls and Procedures**

 

We maintain disclosure controls and procedures that are intended to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management.

 

15

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

 

**Changes in Internal Control over Financial Reporting**

 

Our Chief Financial Officer and certain accounting personnel departed in February 2010. We have hired employees and consultants to mitigate the effects of such departures and are presently considering other improvements which we believe will properly address any material weakness in internal control over financial reporting.

 

**PART II — OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

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

 

16

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**Item 1A.  Risk Factors**

 

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

 

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

 

Not applicable.

 

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

 

Not applicable.

 

**Item 4.  Reserved.**

 

**Item 5.  Other Information.**

 

Not applicable.

 

**Item 6.  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 incorporated   by reference to registrant’s Quarterly Report on Form 10-Q, as filed with the   Securities and Exchange Commission on June 22, 2010. |
|                    |       |                                                                                                                                                                                                                                                                            |
| 10.4                    |       | Warrant Agreement by and between American   Wagering, Inc. and Alpine Advisors LLC dated June 11, 2010 incorporated by   reference to registrant’s Quarterly Report on Form 10-Q, as filed with the   Securities and Exchange Commission on June 22, 2010.  |
|                    |       |                                                                                                                                                                                                                                                                            |
| 10.5                    |       | Change of Terms to Line of Credit dated April 21,   2010 between American Wagering, Inc. and Victor Salerno incorporated by   reference to registrant’s Quarterly Report on Form 10-Q, as filed with the   Securities and Exchange Commission on June 22, 2010.       |
|                    |       |                                                                                                                                                                                                                                                                            |
| 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                                                   |

 

17

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**SIGNATURES**

 

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

 
| ** **                                | ** **     |
|-------------------------------------------|----------------|
| **AMERICAN   WAGERING, INC.**        | ** **     |
|                                      |           |
|                                      |           |
| Dated:                                    | May 11,   2011 |   |
|                                      |           |
| /s/ Victor J. Salerno                     |           |
| Victor J. Salerno                         |           |
| President, Chief   Executive Officer, and |           |
| Chairman of the Board   of Directors      |           |
|                                           |                |  |

 
| /s/ Robert Kocienski           |   |
|--------------------------------|--------|
| Robert Kocienski               |   |
| Chief Operating   Officer, and |   |
| Principal Financial   Officer  |   |

 

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