UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-QSB
 
 [X]  Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 For the quarterly period ended October 31, 2003 .
 
 [ ]  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 Small Business Issuer as specified in its charter)
 Nevada ______       88-0344658
 (State or other jurisdiction of (IRS Employer
 incorporation) Identification No.)
 
 675 Grier Drive, Las Vegas, Nevada 89119
 (Address of principal executive offices)
 
 702-735-0101
 (Issuers telephone number)
 _______________________________________________________
 (Former name, former address and former fiscal year if changed since last report)
 
 Check whether the issuer (1) 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
 [X] Yes   [ ] No
 
 Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act).
 [ ] Yes   [X] No
 
 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
 DURING THE PRECEDING FIVE YEARS
 
 Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 Or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.
 [X] Yes   [ ] No
 
 State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: 7,836,846 shares of Common Stock as of December 1, 2003.
 
 1
  
 AMERICAN WAGERING, INC.
 TABLE OF CONTENTS
 
 PART I  FINANCIAL INFORMATION
 Item 1. Financial Statements 3
 CONSOLIDATED BALANCE SHEETS
 CONSOLIDATED STATEMENTS OF OPERATIONS
 CONSOLIDATED STATEMENTS OF OPERATIONS
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 AMERICAN WAGERING, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Item 3. Controls and Procedures
 PART II  OTHER INFORMATION
 Item 1. Legal Proceedings
 Item 2. Changes in securities and use of proceeds
 Item 3. Defaults upon senior securities
 Item 4. Submission of matters to a vote of security holders
 Item 5. Other information
 Item 6. Exhibits and reports on Form 8-K.
 
 
 
 
 2 
 PART I  FINANCIAL INFORMATION
 Item 1. Financial Statements  (1)
 AMERICAN WAGERING, INC. (DEBTOR-IN-POSSESSION) (2) AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
  ASSETS

October 31,
2003
(Unaudited)


January 31,
2003CURRENT ASSETSCash
$
3,153,152

$
4,329,654Restricted deposits

1,056,886


176,837Accounts receivable, net of allowance for doubtful accounts
of $40,296 and $32,750

444,213


542,493Inventories

434,448


424,482Deferred tax asset, net

440,481


440,481Prepaid expenses and other current assets

346,849


177,1765,876,029


6,091,123PROPERTY AND EQUIPMENT, net

3,075,253


3,113,766GOODWILL

103,725


103,725OTHER ASSETS

304,623


303,083$
9,359,630

$
9,611,697LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESCurrent portion of long-term debt
$
122,065

$
114,669Accounts payable

159,492


248,957Accrued expenses

459,653


814,332Unpaid winning tickets

685,893


953,868Customer deposits and other current liabilities

853,075


593,549Litigation payable




2,295,8572,280,178


5,021,232LIABILITIES AND REDEEMABLE PREFERRED STOCK SUBJECT TO COMPROMISEAccounts payable and accrued expenses

156,805Accrued expenses

365,633Litigation payable, including accrued interest

3,100,310Redeemable Series A preferred stock - 3,238 SHARES

323,8003,946,548LONG-TERM DEBT, less current portion

1,579,966


1,672,547OTHER LONG-TERM LIABILITIES

25,000


25,0001,604,966


1,697,5477,831,692


6,718,779REDEEMABLE SERIES A PREFERRED STOCK3,238 SHARES (3)




323,800STOCKHOLDERS EQUITYSeries A preferred stock  10% cumulative; $.01 par value;
authorized: 25,000,000 shares; issued and outstanding:
10,924 shares

1,092,400


1,092,400Common stock - $.01 par value; authorized: 25,000,000 shares;
issued: 7,897,946 shares

78,979


78,979Additional paid-in capital

12,738,889


12,738,889Deficit

(12,054,837
)

(11,013,657
)Less 61,100 common shares in treasury, at cost

(327,493
)

(327,493
)1,527,938


2,569,118$
9,359,630

$
9,611,697 See notes to consolidated financial statements.
 
 
  3
  
 AMERICAN WAGERING, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE THREE MONTHS ENDED OCTOBER 31,
 (UNAUDITED) (5)
 
 2003


2002REVENUES (7)Wagering
$
1,661,359

$
1,541,027Systems

1,075,903


950,7782,737,262


2,491,805OPERATING COSTS AND EXPENSESDirect costs:Wagering

1,394,187


1,388,593System s

574,007


469,8981,968,194


1,858,491Research and development

246,305


225,678Selling, general and administrative

503,703


553,870Depreciation and amortization

85,963


88,9572,804,165


2,726,996OPERATING LOSS

(66,903
)

(235,191
)OTHER INCOME (EXPENSE)Interest income

4,374


9,543Interest expense

(36,449
)

(39,230
)Reorganization expense (4)

(1,188
)Litigation judgment (8)




(6,970
)Other, net

22,611


31,787(10,652
)

(4,870
)LOSS FROM CONTINUING OPERATIONS

(77,555
)

(240,061
)DISCONTINUED OPERATIONSGain on disposal of discontinued operations




(89
)NET LOSS
$
(77,555
)
$
(240,150
)BASIC AND DILUTED INCOME (LOSS) PER SHAREIncome from continuing operations
$
(0.01
)
$
(0.04
)Loss from discontinued operations



$
(0.00
)Net income (6)
$
(0.01
)
$
(0.04
) See notes to consolidated financial statements
  4 
 AMERICAN WAGERING, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE NINE MONTHS ENDED OCTOBER 31,
 (UNAUDITED) (5)
 
 2003


2002REVENUES (7)Wagering
$
4,222,135

$
3,571,510Systems

3,220,820


3,123,1167,442,955


6,694,626OPERATING COSTS AND EXPENSESDirect costs:Wagering

3,526,958


3,243,357System s

1,549,579


1,452,0095,076,537


4,695,366Research and development

714,885


685,478Selling, general and administrative

1,474,490


1,555,651Depreciation and amortization

313,036


298,4617,578,948


7,234,956OPERATING LOSS

(135,993
)

(540,330
)OTHER INCOME (EXPENSE)Interest income

17,702


38,393Interest expense

(111,798
)

(117,993
)Reorganization expense (4)

(1,188
)Litigation judgment (8)

(800,465
)

(271,502
)Other, net

97,858


89,880(797,891
)

(261,222
)LOSS FROM CONTINUING OPERATIONS

(933,884
)

(801,552
)DISCONTINUED OPERATIONSGain on disposal of discontinued operations




630,557Loss from operations of discontinued segments




(216,142
)414,415NET LOSS
$
(933,884
)
$
(387,137
)BASIC AND DILUTED INCOME (LOSS) PER SHAREIncome from continuing operations
$
(0.13
)
$
(0.12
)Loss from discontinued operations



$
0.05Net income (6)
$
(0.13
)
$
(0.06
) See notes to consolidated financial statements
  5 
 AMERICAN WAGERING, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE NINE MONTHS ENDED OCTOBER 31,
 (UNAUDITED)
 
 2003


2002OPERATING ACTIVITIESNet cash provided by (used in) operating activities
$
122,149

$
(599,168
)INVESTING ACTIVITIESInvestment in restricted deposits

(1,000,222
)

(50,429
)Withdrawals of restricted deposits

120,173


153,232Purchase of property and equipment

(226,122
)

(267,531
)Net cash provided by (used in) investing activities

(1,106,171
)

(164,728
)FINANCING ACTIVITIESRepayment of borrowings

(85,185
)

(72,132
)Proceeds from borrowings




100,493Preferred stock redeemed




(50,000
)Dividends

(107,395
)

(109,201
)Other

100


--Net cash used in financing activities

(192,480
)

(130,840
)NET DECREASE IN CASH

(1,176,502
)

(894,736
)CASH AT BEGINNING OF PERIOD

4,329,654


3,756,113CASH AT END OF PERIOD
$
3,153,152

$
2,861,377 See notes to consolidated financial statements .
   6 
 AMERICAN WAGERING, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 1. Basis of Presentation
 
 The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for an interim period are not necessarily indicative of results for the full year. For further information, please refer to the consolidated financial statements of American Wagering, Inc. and Subsidiaries (collectively the "Company"), and the related notes, included within the Companys Annual Report on Form 10-KSB for the fiscal year ended January 31, 2003, previously filed on April 25, 2003 with the Securities and Exchange Commission from which the consolidated balance sheet at January 31, 2003, was derived. All significant inter-company accounts and transactions have been eliminated in the consolidation.
 
 Certain amounts in the consolidated financial statements of prior periods have been reclassified to conform to the current period presentation.
 
 2. Chapter 11 Filing
 
 On July 25, 2003 (the "Petition Date"), the parent company, American Wagering, Inc. ("AWI") and one of its wholly-owned subsidiaries Leroys Horse and Sports Place ("Leroys") filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Chapter 11 Cases") in the United States Bankruptcy Court for the District of Nevada, Northern Division in Reno, Nevada (the "Bankruptcy Court"). The consolidated financial statements for the nine months ended October 31, 2003, have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result if AWI and Leroys are unable to successfully emerge from Chapter 11 and continue as a going concern. The Company continues to cut costs, increase revenues and accumulate cash liquidity by increasing profitable and closing unprofitable Leroys locations and leasing self service kiosks as part of AWI Manufacturing getting underway in fiscal 2004 to enable the Company to resume as a going concern upon exiting from Chapter 11. For more information regarding the bankruptcy proceedings, please see the discussion contained in, Part I, Item 2, of this report.
 
 3.  Liabilities and Redeemable Preferred Stock subject to compromise as of October 31, 2003
 
 Description

AWI


Leroys


TotalAccounts payable
$
75,653

$
81,152

$
156,805Accrued expenses

308,100


57,533


365,633Judgment payable - Racusin

1,972,249





1,972,249Judgment payable - Imagineering

1,128,061





1,128,061Redeemable Series A Preferred Stock

323,800





323,800$
3,807,863

$
138,685

$
3,946,548 
 
 7
 
 4. Reorganization costs
 
 Reorganization costs are charged to expense as incurred.
 
 5. Supplemental unaudited condensed financial statements of debtor-in-possession
 
 Balance Sheets as of October 31, 2003

AWI


LeroysAssetsCash
$
124,178

$
2,045,246Restricted cash and investments




1,047,519Deferred tax asset

440,481Prepaid expenses and other current assets

143,549


164,143708,208


3,256,908Property and equipment, net

42,090


309,164Due from affiliates*

3,731,492


3,203,014Investment in subsidiaries*

1,573,009Other assets

238,361


2,100$
6,293,160

$
6,771,186Liabilities and EquityAccounts payable
$
14,942

$
21,685Accrued expenses

29,730


197,548Unpaid winning tickets




685,594Customer deposits and other current liabilities




878,07544,672


1,782,902Due to affiliates, subject to compromise*

3,200,754


1,433,336Other liabilities subject to compromise

3,807,863


138,685Equity

(760,129
)

3,416,263$
6,293,160

$
6,771,186   Statement of Operations
for the nine months ended October 31, 2003

AWI


LeroysRevenues
$
823,685

$
4,223,297Costs and expenses

819,154


4,427,886Income (loss) from operations

4,531


(204,589
)Other income (expense)

(804,613
)

(14,752
)Net loss from continuing operations

(800,082
)

(219,341
)Discontinued operations

(529,762
)

(183,724
)Net loss
$
(1,329,844
)
$
(403,065
) 
 The condensed balance sheets may not reflect, as liabilities, the total amount of the claims filed against AWI and Leroys in the Chapter 11 Cases as the date for the filing of pre-petition claims has not passed and the assertion of additional bankruptcy claims is possible.
 ____________
 *Eliminated in consolidation
 
 6. Net income per share
 
 Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share considers potentially dilutive
 
 8
 securities (options) as outstanding and net income is adjusted for preferred stock dividends. Since the Petition Date, there have been no dividends paid on preferred stock. For the operating periods presented, the tables below reconcile net income and weighted average shares outstanding used to calculate basic income per share to those used to calculate diluted income per share:
 
 Three months ended October 31,2003


2002Loss from continuing operations
$
(77,555
)
$
(240,061
)Preferred stock dividends

(36,192
)

(36,191
)Net loss, as adjusted
$
(113,747
)
$
(276,252
)Loss from discontinued operations



$
(89
)Net loss
$
(77,555
)
$
(240,150
)Preferred stock dividends

(36,192
)

(36,191
)Net loss, as adjusted
$
(113,747
)
$
(276,341
)Basic weighted average shares outstanding

7,836,846


7,836,846Diluted weighted average shares outstanding

8,083,132


8,152,807   Nine months ended October 31,2003


2002Loss from continuing operations
$
(933,884
)
$
(801,552
)Preferred stock dividends

(107,395
)

(109,201
)Net loss, as adjusted
$
(1,041,279
)
$
(910,753
)Income from discontinued operations



$
414,415Net loss
$
(933,884
)
$
(387,137
)Preferred stock dividends

(107,395
)

(109,201
)Net loss, as adjusted
$
(1,041,279
)
$
(496,338
)Basic weighted average shares outstanding

7,836,846


7,836,846Diluted weighted average shares outstanding

8,175,587


8,150,891 
 7. Business segments
 
 The Company conducts its continuing operations with customers through its Wagering and Systems segments. The Wagering segment operated 47 race and sports books throughout Nevada as of October 31, 2003. The Systems segment designs, markets, installs and maintains sports and race book wagering systems for the Nevada sports betting industry. The Companys Keno segment was discontinued during fiscal year ended 2002 and renamed AWI Manufacturing in fiscal year ended 2003. AWI Manufacturing, included in the Systems segment is currently leasing three kiosks to Leroys locations.
 
 Amounts presented below for prior periods have been reclassified to conform to the current period presentation .
  9   Three months ended October 31,Continuing Operations

2003


2002Operating income (loss)Wagering
$
185,057

$
96,327Systems

131,500


115,853SG&A

(383,460
)

(447,371$
(66,903
)
$
(235,191   Nine months ended October 31,Continuing Operations

2003


2002Operating income (loss)Wagering
$
511,197

$
123,568Systems

524,056


609,025SG&A

(1,171,246
)

(1,272,923$
(135,993
)
$
(540,330 
 8. Litigation
 
 On July 25, 2003, American Wagering, Inc. and its wholly owned subsidiary Leroys Horse and Sports Place, Inc. filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Nevada, Northern Division in Reno, Nevada. Included in the Chapter 11 Cases and plans of reorganization which may be confirmed therein is the treatment and payment of the judgment in the Racusin and Imagineering matters described more fully in Part II, Item 1.
 
 In accordance with Statement of Financial Accounting Standard No. 5, "Accounting for Contingencies," the Company has recorded allowances for probable losses equal to the lower end of the estimated probable loss range for the following matters and periodically revises these estimates as known facts and circumstances change and will be adjusted ultimately in accordance with any plans of reorganization confirmed in the Chapter 11 Cases. Also in accordance with Statement of Financial Accounting Standard No. 5, the Company has recorded the Racusin and Imagineering litigation liabilities (discussed in Part II) as probable losses to the extent of the lower end of the estimated probable loss range and has revised these estimates as known facts and circumstances change. The litigation amount is subject to compromise and could materially increase or decrease depending on the outcome of the Chapter 11 Cases.
 
 9. Regulatory Matters
 
 The scope of the Companys licensed race and sports books operation in the State of Nevada is limited by regulation and statute (as well as certain federal, county and local laws and ordinances). The passage of legislation designed to limit or prohibit race and/or sports wagering, at any level of government, would likely have a material adverse affect upon the Companys wagering operations.
  All jurisdictions that have legalized gaming require various licenses, permits and approvals for manufacturers and distributors of gaming devices and equipment. In general, such requirements involve restrictions similar to those of Nevada.
  The Company does not believe the Chapter 11 Cases will have any material effect upon the Companys or Leroys various licenses, permits and approvals.
  10
   Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
 This report on Form 10-QSB contains certain forward-looking statements within the meaning of section 21(e) of the Securities Exchange Act of 1934, as amended, and other applicable securities laws. All statements other than statements of historical fact are "forward-looking statements" for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments, any statements regarding future economic conditions or performance, statements of belief, and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.
 
 Chapter 11 Filing
 
 On July 25, 2003 (the "Petition Date"), the parent company, American Wagering, Inc. ("AWI") and one of its wholly-owned subsidiaries, Leroys Horse and Sports Place, Inc. ("Leroys"), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Chapter 11 Cases") in the United States Bankruptcy Court for the District of Nevada, Northern Division in Reno, Nevada (the "Bankruptcy Court"). Pursuant to the Bankruptcy Code, AWI and Leroys continue to manage and operate the assets and business as debtor-in-possession pending the confirmation of a reorganization plan and subject to the supervision and orders of the Bankruptcy Court in AWIs and Leroys Chapter 11 proceedings. The Companys other subsidiaries, including Computerized Bookmaking Systems, Inc. ("CBS"), are not directly involved in the bankruptcy proceedings; however, the outcome of the Chapter 11 Cases could have a material adverse effect on these subsidiaries. On July 28, 2003, motions were filed and the court approved, Leroys to honor all sports wagering and other gaming liabilities such as future wagers and unpaid winning tickets, joint administration of the AWI case and the Leroys case, payment of all wages, salaries, employee benefits and all reimbursable employee expenses, and the maintenance of AWI and Leroys prepetition cash management system and prepetition bank accounts. Since the Petition Date, preferred stock dividends have not been paid and the preferred stock is subject to treatment under the AWI and Leroys plan of reorganization. The consolidated financial statements for the nine months ended October 31, 2003, have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result if AWI and Leroys are unable to successfully emerge from bankruptcy.
 
 Liquidity and Capital Resources
 
 The Company has minimum cash flow from operations and exposures due to the litigation judgments against the Company in two lawsuits referred herein as the Racusin case and the Imagineering case and, on July 25, 2003, American Wagering, Inc. and its wholly owned subsidiary Leroys Horse and Sports Place, Inc. filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy code in the United States Bankruptcy Court for the District of Nevada, Northern Division in Reno, Nevada
 
 The ultimate disposition and payment of the judgment in the Racusin and Imagineering matters will be determined by the United States Bankruptcy Court. A more complete discussion of these cases can be found in the "Legal Proceedings" section of this 10-QSB found under Part II, Item 1. Unless the litigation matters are resolved satisfactorily, or the Company is able to finance them adequately, management believes that the Company may not be able to satisfy its operating cash requirements for at least the next twelve
 
 11
 months from existing cash balances and anticipated cash flows. For these reasons, our independent auditors, Piercy Bowler Taylor and Kern, have indicated in their report dated April 8, 2003, included in the 10-KSB for the fiscal year ended January 31, 2003, that they had substantial doubt as to the Companys ability to continue as a going concern. The Company plans to accumulate cash liquidity by increasing profitable and closing unprofitable Leroys locations and leasing self service kiosks as part of AWI Manufacturing getting underway in fiscal year ending January 31, 2004, to fund possible effects of litigation, seasonality of sports betting, timing of system sales, and the possible effects of legislation to ban wagering on amateur athletic events. The Company is also in the process of phasing out unprofitable operations. Payment of final judgments at accrued amounts and final judgments significantly in excess of amounts accrued could have a significant negative impact on the Companys existing cash balances, anticipated cash flows and ability to continue as a going concern.
 
 On December 31, 2002, the Company was notified that its bonds covering the Gaming Control Board Regulation 22.040 Reserve Requirement were cancelled effective March 1, 2003, due to the rehabilitation (bankruptcy) of the insurance company providing the bonds. The Regulation requires the Company have cash reserves of $2,100,000 to cover any outstanding wagering liability such as unpaids, future tickets and telephone account deposits. To meet the Regulations requirements, the Company set aside $1,000,000 in a certificate of deposit on February 25, 2003, which is classified in its balance sheet restricted cash. The Companys President and Chief Executive Officer, Victor Salerno, has personally secured an additional $1,100,000 irrevocable standby letter of credit to meet the Gaming Control Boards total reserve requirement of $2,100,000. Mr. Salerno was paid $38,500 (3.5% of the $1,100,000) for his personal guarantee. An inability to increase the reserve as necessary would have an adverse impact upon the Company including, but not limited to, requiring a significant reduction in the number of locations operated by the Leroys Horse & Sports Place subsidiary and/or requiring a significant reduction in the handle (total amount wagered).
 
 RESULTS OF OPERATIONS  Nine months ended October 31, 2003 and 2002
 
 Revenues
 
 Revenues for the nine months ended October 31, 2003, increased $748,329 (11.2%) to $7,442,955 from the nine months ended October 31, 2002. The increase in revenues consists primarily of an increase in Wagering revenues of $650,625 resulting from a 12.5% increase in net win and a $208,107 increase in pari-mutuel race commission revenue and an increase in Systems revenues of $97,704 (3.1%) for the nine months ended October 31, 2003. These increases are attributable to events and conditions described below.
 
 Wagering Operations
 Revenues from wagering increased $650,625 (18.2%) to $4,225,135 in the first nine months of 2003 as compared with the same nine-month period in 2002. The increase in revenue is attributable to an increase in the net win percentage to 6.6% compared to 6.1% for the nine months ended October 31, 2002. Additionally, pari-mutuel race commission revenue increased $208,107 (482.4%) for the nine months ended October 31, 2003. The Company did not have a pari-mutuel race location for the first six months of fiscal year 2003. Handle was $60,417,783 for the nine months ended October 31, 2003, $2,585,609 more than the same nine-month period ended October 31, 2002. The Company attributes the increase in handle to an increase in viable locations and increased customer loyalty. There is no assurance that our handle will increase or decrease in the
    12
  
 future. Elimination of unprofitable locations, closure of host properties, changes in state and/or federal regulations, and other factors beyond our control may also result in declines in handle. An increase or decrease in handle is not necessarily indicative of an increase or decrease in net win.
 
 Systems Operations
 Equipment and software license sales increased $203,441 (18.2%) over the same period in 2002 while the gross profit margin remained relatively flat at 56% in the current period compared to 55% in the prior period. Maintenance revenues decreased $105,737 (5.3%) to $1,900,547 associated with decreased maintenance cost on the newer product installations. CBS equipment sales typically are low volume, high dollar transactions. Equipment sales are not recurring like the maintenance fees; as the impetus for a sale is outdated or expired equipment at existing casinos or the opening of a new sports book, this is a limiting factor on the number of potential customers and potential sales.
 
 Operating Costs and Expenses
 
 Comparative operating costs and expenses for the nine months ended October 31, 2003, increased $343,922 (4.8%) to $7,578,948 as compared to $7,234,956 for the same period in 2002 primarily as a result of increased direct costs and expenses as discussed below.
 
 Direct Costs and Expenses
 The increase in the direct costs and expenses for the Wagering segment of $283,601 (8.7%) is primarily due to a $191,220 (10.6%) increase in employee expenses, and a $88,236 (265.6%) increase in pari-mutuel race expenses associated with new pari-mutuel race locations and a $39,581 (12.5%) increase in location rents and equipment rental. These increases are generally associated with cost of living increases for employees, the addition of pari-mutuel race in fiscal 2003 and costs associated with the new locations. Direct costs and expenses for the Systems segment increased $97,570 (6.7%) primarily due to increased cost of systems sold related to increased equipment sales.
 
 For the nine months ended October 31, 2003, Research and Development costs and Depreciation and Amortization increased modestly as a normal result of changes in mix of business. Selling, General and Administrative expenses decreased $81,161 (5.2%) primarily from reduced legal fees.
 
 Operating Income
 
 The operating loss decreased for the nine months ended October 31, 2003 by $404,337 (74.8%) from the same nine month period ended October 31, 2002 for the reasons discussed in the previous sub-section.
 
 Other Income and Expense
 
 Litigation expense increased $528,963 over the nine months ended October 31, 2002. On August 25, 2003, subsequent to the reported period, the Company was notified the Supreme Court denied the request for another review in the Imagineering case and that the judgment would remain as originally ordered on April 15, 2003. The Company has recorded an additional $802,041 including interest, against this claim in the
 
 13
 nine months ended October 31, 2003. The Company had recorded the judgment in the Willow case for the nine months ended October 31, 2002.
 
 Item 3. Controls and Procedures
 
 As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of October 31, 2003. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Company's Chief Financial Officer. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective.
 
 Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
  14 
 PART II  OTHER INFORMATION
 
 
 Item 1. Legal Proceedings
 
 The ultimate disposition and payment of the Racusin, Imagineering, and Jean Development Company matters listed below will be determined by the United States Bankruptcy Court.
 
 Racusin
 
 On July 7, 2003, the U.S. District Court for the District of Nevada issued a "Judgment Upon a Jury Verdict" in favor of Michael Racusin ("Racusin") and against the Company in the net amount of $1,328,764 plus interest at the legal rate commencing on June 20, 2003 until paid. This amount was calculated as the gross judgment of $2,310,000 plus interest of $183,393 (through June 20, 2003) reduced by the amounts previously paid to Racusin by the Company ($756,340 plus interest of $408,289 through June 20, 2003).
 
 The Company believes that Racusin will appeal the interest portion of the judgment to the Ninth Circuit Court of Appeals claiming that interest is due from the date of the breach (May of 1996) rather than from the date of the trial (November of 2002). This potential appeal on the judgment, or other legal actions, could extend this matter for an additional one to three years and, if successful, could increase the net amount of the judgment by approx. $1,500,000 (as of June 20, 2003) for the additional interest. The Company had previously accrued $328,624 for interest, which will not be adjusted until such time as the final disposition of the judgment and interest issue has been determined.
 
 On July 25, 2003, American Wagering, Inc. and its wholly owned subsidiary Leroys Horse and Sports Place, Inc. filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy code in the United States Bankruptcy Court for the District of Nevada, Northern Division, in Reno, Nevada (the "Bankruptcy Court"). Additionally, the Company has filed an adversary proceeding seeking to subordinate the claim of Racusin relating to the judgment; currently, the adversary proceeding is scheduled to be heard by the Bankruptcy Court on January 5, 2004.
 
 The Company recorded $1,643,625 against additional paid-in capital in the quarter ended October 31, 2002, which represents the jury verdict less amounts previously paid by the Company. The Company has been in litigation with Racusin, who introduced certain underwriters in connection with the initial public offering, since 1995. The Company disputed Racusins claim for compensation under agreements that the Company believed were unenforceable.
 
 Imagineering Systems, Inc.
 
 On June 18, 2003, an order of the Supreme Court of the State of Nevada was filed reversing in part and affirming in part the jury verdict of October 30, 2000. The Supreme Court of Nevada found that there was insufficient evidence to support the $397,500 jury award for breach of contract damages against the Company and instead found that substantial evidence only supported damages for breach of contract totaling $294,600. In addition, the Court affirmed the decision of the district court to award $500,000 in damages against the Company for breach of the implied covenant of good faith and fair dealing. On August 25, 2003, the Company was notified that the Supreme Court denied its request for further review of this matter.
 
 15
 As of October 31, 2003, the Company has recorded a liability in the amount of $794,600 plus interest of $333,461 relating to the judgment. In addition, as of October 31, 2003, the Company has recorded a receivable for monies owed by Imagineering to the Company in the amount of $76,583 plus interest in the amount of $37,857.
 
 Jean Development Co., et.al.
 
 The Company is a defendant in a claim brought by Jean Development Company, Jean Development West and Railroad Pass Investment Group alleging the nonpayment of fees associated with the operation of the keno game by AWI Keno, Inc. The Company is currently involved in discussions and expects this matter to be settled without material impact on the Company. In the event a settlement cannot be reached, the Company believes the impact of the lawsuit will not have a material effect on our financial position, results of operations or cash flows. AWI Keno, Inc. was subsequently renamed AWI Manufacturing, Inc.
 
 Willow International Ventures Corporation
 
 In 2001, the Company was sued for trademark infringement by Willow International Ventures Corporation ("Willow") regarding the name "Mega$ports". On August 28, 2002, Willow and the Company settled. As a result of the settlement, the Company wrote off the Mega$ports trademark in the amount of $252,532 in the quarter ended July 31, 2002 .
 
 Other
 
 The Company is involved in certain other legal matters arising in the ordinary course of business. In the opinion of management, based on the advice of counsel, the outcome of the other actions will not have a material effect on the financial position, results of operations or cash flows of the Company.
 
 
 Item 2. Changes in securities and use of proceeds
 None
 
 
 Item 3. Defaults upon senior securities
 None
 
 
 Item 4. Submission of matters to a vote of security holders
 None
 
 Item 5. Other information
 None
  16
  Item 6. Exhibits and reports on Form 8-K.
   a)  Exhibits.
  Exhibit Number   Description
 31.1 Certification of the Chief Executive Officer
 31.2  Certification of the Chief Financial Officer
 32. Chief Executive Officers and Chief Financial Officers Certification under Section 906 of the Sarbanes-Oxley Act of 2002
 
 b.) Reports on Form 8-K
 
 None
 
 17
  
 SIGNATURE
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 AMERICAN WAGERING, INC.
 
 Dated December 15, 2003
 
 
 
 By: /s/  Timothy F. Lockinger
 Timothy F. Lockinger
 Chief Financial Officer, Secretary and Treasurer
 (Principal Accounting Officer)
  
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