~~Table~~UNITED ~~of Contents~~STATES

~~UNITED STATES~~ SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 2011
For the quarterly period ended: July 31, 2011
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~~Noo

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 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~~ September 14, 2011, there were 8,404,879 shares of common stock, par value $0.01, outstanding.

Table of Contents

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION		1
Item 1.	Consolidated Financial Statements	1
	BALANCE SHEETS AS OF APRIL 30, 2011 (UNAUDITED) AND JANUARY 31, 2011	1
	Balance Sheets as of July 31, 2011 (Unaudited) and January 31, 2011	1
	STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 2011 AND 2010 (UNAUDITED)	2
	Statements of Operations (Unaudited) for the Six Months Ended July 31, 2011 and 2010	2
	STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED APRIL 30, 2011 AND 2010 (UNAUDITED)	3
	Statements of Cash Flows (Unaudited) for the Six Months Ended July 31, 2011 and 2010	3
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	4
	Notes to Consolidated Financials Statements (unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4	Controls and Procedures	14
PART II — OTHER INFORMATION		1415
Item 1.	Legal Proceedings	1415
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Reserved	15
Item 5.	Other Information	15
Item 6.	Exhibits	15

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN WAGERING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	April 30, 2011 (Unaudited)			January 31, 2011
	July 31 2011				January 31, 2011
ASSETS
	(Unaudited)
CURRENT ASSETS
ASSETS
Cash and Equivalents	$	2,660,732		$	1,485,148
CURRENT ASSETS
Restricted Cash	1,262,408			1,762,396
Cash and Equivalents	$	1,062,747			$	1,485,148
Accounts Receivable	303,026			209,737
Restricted Cash		1,262,319				1,762,396
Inventories	120,146			122,228
Accounts Receivable		192,193				209,737
Prepaid Expenses	332,491			359,758
Inventories		126,918				122,228
	4,678,803			3,939,267
Prepaid Expenses		409,092				359,758
Property and Equipment, net of accumulated depreciation and amortization	2,271,486			2,454,488
		3,053,269				3,939,267
Goodwill	103,725			103,725
Property and Equipment, net of accumulated depreciation and amortization		2,093,693				2,454,488
Other	187,008			200,049
Goodwill		103,725				103,725
	$	7,241,022		$	6,697,529
Other		184,706				200,049
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
	$	5,435,393			$	6,697,529
CURRENT LIABILITIES
LIABILITIES AND STOCKHOLDERS’ EQUITY DEFICIENCY
Short-Term Debt, net of amortized discount of $47,889	$	—		$	452,111
CURRENT LIABILITIES
Current Portion of Long-Term Debt	1,176,839			170,604
Short-Term Debt, net of amortized discount of $47,889 as of January 31, 2011	$	—			$	452,111
Accounts Payable	549,454			1,624,448
Current Portion of Long-Term Debt		1,184,517				170,604
Accrued Expenses	474,392			607,081
Accounts Payable		355,104				1,624,448
Unpaid Winning Tickets	378,144			604,053
Accrued Expenses		346,904				607,081
Customer Deposits and Other	1,058,619			1,382,553
Unpaid Winning Tickets		337,521				604,053
	3,637,448			4,840,850
Customer Deposits and Other		839,294				1,382,553
Long-Term Debt, less current portion	5,774,437			2,793,749
		3,063,340				4,840,850
Warrant Liability	403,884			250,294
Long-Term Debt, less current portion		5,865,678				2,793,749
Redeemable Series A Preferred Stock (3,238 shares)	323,800			323,800
Warrant Liability		408,000				250,294
Other	401,726			242,127
Redeemable Series A Preferred Stock (3,238 shares)		323,800				323,800
	10,541,295			8,450,820
Other		403,941				242,127
STOCKHOLDERS’ EQUITY (DEFICIENCY)
		10,064,759				8,450,820
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
STOCKHOLDERS’ EQUITY DEFICIENCY
Common Stock - $0.01 par value; 25,000,000 shares authorized; 8,404,879 shares issued and outstanding	84,049			84,049
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
Additional Paid-In Capital	13,146,032			13,010,578
Common Stock - $0.01 par value; 25,000,000 shares authorized; 8,404,879 shares issued and outstanding		84,049				84,049
Deficit	(17,295,261		)	(15,612,825		)
Additional Paid-In Capital		13,255,332				13,010,578
Treasury Stock, at cost (61,100 common shares at cost)	(327,493		)	(327,493		)
Deficit		(18,733,654	)			(15,612,825	)
	(3,300,273		)	(1,753,291		)
Treasury Stock, at cost (61,100 common shares at cost)		(327,493	)			(327,493	)
	$	7,241,022		$	6,697,529
		(4,629,366	)			(1,753,291	)
	$	5,435,393			$	6,697,529

See Notes to Consolidated Financial Statements

Table of Contents

AMERICAN WAGERING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended April 30,
	For the Three Months Ended July 31,							For the Six Months Ended July 31,
	2011			~~2010~~	2010			2011			2010
REVENUES:
Wagering	$	1913,~~693,148~~514		$	~~1,499,992~~$	1,186,224		$	2,606,661		$	2,686,216
Hotel/Casino	~~469,460~~	650,234		~~457,459~~		594,742			1,119,695			1,052,201
Systems	~~699,233~~	733,657		~~905,382~~		699,459			1,432,890			1,604,841
	2,861,841			2,862,833
		2,297,405				2,480,425			5,159,246			5,343,258
OPERATING COSTS AND EXPENSES:
Direct Costs:
Wagering	~~1,386,163~~	1,203,659		~~1,442,797~~		1,458,358			2,589,822			2,901,155
Hotel/Casino	~~392,107~~	441,016		~~434,090~~		515,709			833,123			949,799
Systems	~~198,899~~	234,387		~~247,349~~		179,819			433,286			427,168
	1,977,169			2,124,236
		1,879,062				2,153,886			3,856,231			4,278,122
Operating Expenses:
Research and Development	~~199,082~~	217,573		~~161,082~~		185,236			416,655			346,318
Selling, General and Administrative	~~1,749,655~~	1,275,194		~~840,047~~		840,823			3,024,849			1,680,870
Depreciation and Amortization	~~188,257~~	170,841		~~234,575~~		225,117			359,098			459,692
	2,136,994			1,235,704
		1,663,608				1,251,176			3,800,602			2,486,880
	4,114,163			3,359,940
		3,542,670				3,405,062			7,656,833			6,765,002
OPERATING LOSS	~~(1,252,322~~	(1,245,265	)	~~(497,107~~		)(924,637	)		(2,497,587	)		(1,421,744	)
OTHER INCOME (EXPENSE):
Interest Expense	(147,053		)	(79,420		)
Interest Income		333				1,397			762			4,065
Loss on Debt Extinguishment	~~(126,960~~	—	)	—		—			(126,960	)		—
Change in Estimated Fair Value of Warrant Liability	(153,590		)	—
Interest Expense		(200,442	)			(101,404	)		(347,495	)		(180,824	)
Litigation Expense	(42		)	(6,137		)
Change in Estimated Fair Value of Warrant Liability		(4,114	)			35,000			(157,706	)		35,000
Interest and Other Income	32,064			4,850
Litigation Expense		—				(4,549	)		(42	)		(10,686	)
NET LOSS	$	(1,647,903	)	$	(577,814	)
Other		46,791				(12,250	)		78,427			(10,068	)
NET LOSS PER COMMON SHARE —
		(157,432	)			(81,806	)		(553,014	)		(162,513	)
BASIC AND DILUTED	$	(0.20	)	$	(0.07	)
NET LOSS	$	(1,402,697	)		$	(1,006,443	)	$	(3,050,601	)	$	(1,584,257	)
NET LOSS PER COMMON SHARE –BASIC AND DILUTED	$	(0.17	)		$	(0.13	)	$	(0.37	)	$	(0.20	)

See Notes to Consolidated Financial Statements

Table of Contents

AMERICAN WAGERING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Three Months Ended April 30,
	For the Six Months Ended July 31,
	2011			~~2010~~	2010
Operating Activities
OPERATING ACTIVITIES
Net cash used in operating activities	$	(24,~~788~~509,~~909~~309	)	$	~~(803,577~~$	)(1,487,011	)
Investing Activities
INVESTING ACTIVITIES
Withdrawal of restricted cash	500,000			46,194
(Increase) decrease in restricted cash		77				(80,000	)
Purchase of property and equipment	(4,039		)	(3,058		)
Withdrawal of restricted cash		500,000				46,170
Net cash provided by investing activities	495,961			43,136
Proceeds from the sale of property and equipment		73,521				3,885
Financing Activities
Purchase of property and equipment		(33,446	)			(8,242	)
Repayment of borrowings	(770,224		)	(33,658		)
Net cash provided by (used in) investing activities		540,152				(38,187	)
Proceeds from borrowings	4,273,288			—
FINANCING ACTIVITIES
Dividends on preferred stock	(34,532		)	(34,532		)
Repayment of borrowings		(790,365	)			(65,422	)
Net cash provided by (used in) financing activities	3,468,532			(68,190		)
Proceeds from borrowings		4,407,349				650,000
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	1,175,584			(828,631		)
Dividends on preferred stock		(70,228	)			(70,228	)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD	1,485,148			2,084,268
Net cash provided by financing activities		3,546,756				514,350
CASH AND EQUIVALENTS, END OF PERIOD	$	2,660,732		$	1,255,637
NET DECREASE IN CASH AND EQUIVALENTS		(422,401	)			(1,010,848	)
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH AND EQUIVALENTS, BEGINNING OF PERIOD		1,485,148				2,084,268
Cash paid for interest	$	250,767		$	85,557
CASH AND EQUIVALENTS, END OF PERIOD	$	1,062,747			$	1,073,420
Issuance of common stock for services	$	—		$	37,500
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	316,196			$	169,973
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Property and equipment acquired with bank and/or vendor financing	$	—			$	32,694
Repayment of borrowing with new debt	$	750,000			$	195,000
Common Stock Issued for Services	$	—			$	3,750
Issuance of Warrants to Purchase Common Stock in connection with debt refinancing	$	—			$	129,478

See Notes to Consolidated Financial Statements

Table of Contents

AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~THREE~~SIX MONTHS ENDED ~~APRIL~~JULY 3031, 2011 AND 2010

(Unaudited)

1. Basis of Presentation; The Merger and Bridge Facility; and Related Risks and Uncertainties

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 (consisting of normal recurring 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 18, 2011, with the SEC, from which the balance sheet information as of January 31, 2011 was derived.

On April 13, 2011, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with aWilliam ~~foreign~~Hill ~~privately~~Holdings, ~~held~~Limited, a private limited company formed under the laws of England and Wales (the “Purchaser”). At the effective time of the merger, each holder of outstanding shares of the Company’s common stock (other than participants in the merger and dissenters) will be entitled to receive $0.90 in cash for each such share. All of the outstanding shares of the Company’s common stock (other than participants in the merger) will be automatically cancelled at the effective time of the merger. Contemporaneous with the closing (as defined in the Merger Agreement), the ~~purchaser~~Purchaser shall pay the Company $1,416,200 and all of the additional accrued but unpaid interest on each share of preferred stock, which will be used at the closing to redeem the preferred stock issued and outstanding, and to pay the related accrued interest. At the closing, each outstanding stock warrant and option to purchase shares of our common stock that is outstanding immediately prior to the effective time of the merger shall be cancelled, and, in exchange therefor, the former holder shall receive an amount in cash equal to the product of (i) the excess of $0.90 over the exercise price per share under such stock warrant or option, and (ii) the number of shares subject to such stock warrant or option.

The completion of the Merger is subject to the satisfaction or waiver of certain conditions, including, among other things, (i) the adoption of the Merger Agreement by our stockholders, which was effected on April 13, 2011, (ii) the absence of any injunction or applicable law preventing consummation of the merger, (iii) receipt of any required consents, approvals and licenses under the Nevada Gaming Control Act and the rules and regulations promulgated thereunder and applicable local gaming and liquor laws, ordinances and regulations, (iv) verification of the accuracy of the representations and warranties made by the parties, and (v) the performance, in all material respects, of all obligations, agreements and covenants under the Merger Agreement.

Additionally, on April 13, 2011, the Company and the Purchaser entered into a bridge loan agreement (the “Bridge Loan Agreement”) pursuant to which the Purchaser loaned the Company $4.25 million and, at the Purchaser’s sole discretion, may loan up to an additional $3.0 million (collectively, the “Bridge Facility”). The Bridge Facility matures upon the earlier of (i) consummation of the Merger, (ii) termination of the Merger Agreement and (iii) December 31, 2013, subject to certain extension mechanisms. Loans outstanding under the Bridge Facility accrue interest at an annual rate equal to 12.5%, which compounds on a quarterly basis in arrears on March 31, June 30, September 30, and December 31 of each year, and shall be paid “in kind” by adding the accrued interest to the balance of the loan. During the existence of an event of default under the Bridge Facility, an additional 2% per annum is imposed.

The terms of the Merger Agreement and the Bridge Loan Agreement limit the Company’s ability to engage in certain business activities without the prior consent of the Purchaser. The most significant of these restrictions ~~limit~~limits the Company’s ability to pay dividends, issue or repurchase shares of our common stock, incur new indebtedness, enter into or modify material contracts, grant liens on the Company’s assets, and effect any significant change in the Company’s corporate structure or the nature of its business.

The Merger Agreement contains certain termination rights and reimbursement obligations. If the Merger Agreement is terminated, the principal amount and all accrued interest under the Bridge Facility will become due and payable, and, in certain circumstances, (a) the Company may be required to reimburse the Purchaser and its affiliates for all of their reasonable out-of-pocket expenses up to $250,000 and (b) the Purchaser may be required to pay the Company a termination fee of $1.5 million, which amount shall be subject to offset to any amounts owed by the Company in connection with the Bridge Loan Agreement. If the Merger Agreement is not consummated, the Company may not be able to pay its debts as they come due, including the Bridge ~~Facility~~Loan and / or execute its business plans, possibly leading to the financial and operational failure of the Company.

42. Net (Loss) Per Common Share

~~Table~~Basic net income (loss) per common share is calculated based on the weighted-average number of ~~Contents~~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. For loss periods, such potentially dilutive common

~~2. Net Income (Loss) Per Common Share~~4

~~Basic~~Table ~~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. For loss periods, such potentially dilutive common shares are excluded from the calculation to avoid an anti-dilutive effect.Contents

~~Following~~ shares isare aexcluded ~~reconciliation~~from of the ~~numerators~~calculation ~~and~~to ~~denominators~~avoid ofan ~~the~~anti-dilutive ~~net income (loss) per common share computations for the three months ended April 30 (unaudited):~~effect.

	Numerator
	2011			2010
Net loss	$	(1,647,903	)	$	(577,814	)
Less preferred stock dividends	(34,532		)	(34,532		)
Net loss available to common shares, basic and diluted	$	(1,682,435	)	$	(612,346	)

Following is a reconciliation of the numerators and denominators of the net income (loss) per common share computations for the three and six months ended July 31 (unaudited):

	Denominator
	Numerator
	2011		2010
Three Months Ended July 31,	2011			2010
Weighted-average common shares outstanding, basic	8,343,779		8,209,228
Net loss	$	(1,402,697	)	$	(1,006,443	)
Effect of dilutive stock options	1,158,641		316
Less preferred stock dividends		(35,696	)		(35,696	)
Weighted-average common shares outstanding, diluted	9,502,420		8,209,544
Net loss applicable to common shares, basic and diluted	$	(1,438,393	)	$	(1,042,139	)
	Denominator
		2011			2010
Weighted-average common shares outstanding, basic		8,343,779			8,329,649
Effect of dilutive stock options		1,693,330			51,724
Weighted-average common shares outstanding, diluted		10,037,109			8,381,373

The number of potentially dilutive common shares that have been excluded from the denominator using the treasury stock method was 165,300 and 646,100 at April 30, 2011 and 2010, respectively.

	Numerator
Six Months Ended July 31,		2011			2010

Net loss	$	(3,050,601	)	$	(1,584,257	)
Less preferred stock dividends		(70,228	)		(70,228	)
Net loss applicable to common shares, basic and diluted	$	(3,120,829	)	$	(1,654,485	)

	Denominator
		2011			2010
Weighted-average common shares outstanding, basic		8,343,779			8,270,436
Effect of dilutive stock options		1,474,557			436
Weighted-average common shares outstanding, diluted		9,818,336			8,270,872

~~3. Income~~The ~~Taxes~~number of potentially dilutive common shares that have been excluded from the denominator using the treasury stock method was 162,900 and 616,100 at July 31, 2011 and 2010, respectively.

~~At April 30, 2011, the Company had federal tax net operating loss (“NOL”) carryforwards available to potentially reduce future tax obligations in the aggregate amount of approximately $9~~3.7 Income million, of which approximately $1.1 million expires in 2019. In assessing the realizability of deferred tax assets, 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 the Company’s history of net losses in three of the last four years makes it more likely than not that the Company’s net deferred tax assets will not be fully realized and, accordingly, has established a 100% allowance. In addition, in the event of a change in control (such as the pending Merger), realization of federal income tax benefits from NOLs may also be limited under Section 382 of the Internal Revenue Service Code.Taxes

~~The~~At July 31, 2011, the Company’s ~~estimated~~had ~~annual~~federal ~~effective~~tax net operating loss (“NOL”) carryforwards available to potentially reduce future tax ~~rate~~obligations in the aggregate amount of ~~zero~~approximately ~~for~~$9.7 million, of which approximately $1.1 million expires in 2019. In assessing the ~~interim~~realizability ~~periods~~of ~~presented~~deferred ~~differs~~tax ~~from~~assets, ~~statutory~~the Company considers whether it is more likely than not that some portion or all of the deferred tax ~~rates~~assets ~~primarily~~will ~~due~~not tobe ~~changes~~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. Based upon its historical performance of losses in five of the ~~valuation~~past ~~allowance~~eleven ~~for~~years, Management believes it more likely than not that deferred tax assets will not be fully realized and, accordingly, has established a 100% allowance. In addition, in the event of a change in control (such as the pending Merger), realization of federal income tax benefits from NOLs may also be limited under Section 382 of the Internal Revenue Service Code.

~~4. Litigation~~The ~~and~~Company’s ~~Contingencies~~estimated annual effective tax rate of zero for the interim periods presented differs from statutory tax rates primarily due to changes in the valuation allowance for deferred tax assets.

~~Racusin~~4. Litigation ~~For 2011~~ and ~~2010,~~Other litigation expense of $42 and $6,137, respectively, is included in other income (expense) and consists of judgment interest incurred on our previously recorded obligation due to Michael Racusin. There have been no material legal changes for this matter during the quarter ended April 30, 2011, from the fiscal year ended January 31, 2011. Accordingly, as of April 30, 2011, we believe that the balance owed to Racusin has been fully paid. 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 would be approximately $347,738 as of April 30, 2011, assuming an 8% interest rate. A history of the various proceedings in connection with this matter follows:Contingencies

~~The Company and~~ Racusin ~~entered into a Settlement Agreement on September 3, 2004~~. OnFor or2011 ~~about~~and ~~March 11~~2010, ~~2005,~~litigation ~~the~~expense ~~Company consummated its Plan~~ of ~~Reorganization~~$42 and ~~emerged from Bankruptcy. On May 13~~$10,686, ~~2005~~respectively, ~~the~~is ~~Company~~included ~~commenced an adversary proceeding~~ in ~~its~~other ~~bankruptcy~~income ~~case~~(expense) ~~against Racusin~~ and ~~various~~consists ~~other~~of ~~competing~~judgment ~~claimants~~interest toincurred ~~Racusin’s~~on ~~claim~~our ~~which~~previously ~~action~~recorded ~~sought~~obligation due to ~~interplead~~Michael ~~any distribution on the~~ Racusin. Except ~~Claim~~for ~~into~~ the ~~Bankruptcy~~oral ~~Court~~findings ~~(the~~and ~~“Interpleader~~conclusions ~~Adversary”).~~in Onfavor orof ~~about August 2, 2005,~~ the ~~Bankruptcy~~Company ~~Court~~on ~~entered~~July an27, ~~order~~2011 ~~approving the interpleader~~ (~~the~~see ~~“Interpleader Order”~~below), ~~whereby~~there ~~the~~have ~~Company~~been ~~placed~~no ~~250,000~~material ~~shares~~legal ofchanges ~~common~~for ~~stock~~this ~~with~~matter during the ~~clerk~~quarter ofended ~~the~~July ~~court~~31, as2011, ~~payment~~from of the ~~Racusin~~fiscal ~~Claim~~year ~~while~~ended ~~Racusin~~January ~~pursued~~31, ~~his~~2011. A ~~appeal~~history of the ~~Bankruptcy~~various ~~Appellate~~proceedings ~~Panel’s decision~~ in ~~our~~connection ~~favor~~with ~~subordinating~~this ~~Racusin’s~~matter ~~claim pursuant to Section 510(b) of the Bankruptcy Code to the 9th Circuit Court of Appeals~~follows. ~~The Interpleader Order further stated that the Company’s stock would be substituted with~~

5The Company and Racusin entered into a Settlement Agreement on September 3, 2004 to resolve a claim that Racusin had against the Company in its Chapter 11 bankruptcy case (the “Racusin Claim”). On or about March 11, 2005, the Company consummated its Plan of Reorganization and emerged from bankruptcy. On May 13, 2005, the Company commenced an adversary proceeding in its bankruptcy case against Racusin and various other competing claimants to Racusin’s claim which action sought to interplead any distribution on the Racusin Claim into the Bankruptcy Court

~~Table of Contents~~5

~~cash~~Table payment in the event that the 9th Circuit reverses the Bankruptcy Appellate Panel. On August 31, 2005, the Court entered an order staying the interpleader (the “Stay Order”) pending a decision from the 9th Circuit Court of ~~Appeals.~~Contents

(the “Interpleader Action”). On ~~June 28~~or about August 2, ~~2007~~2005, the ~~9th~~Bankruptcy Court entered an order approving the interpleader (the “Interpleader Order”), whereby the Company placed 250,000 shares of common stock with ~~Circuit~~the Clerk of the Court as payment of ~~Appeals~~the ~~entered~~Racusin ~~its~~Claim ~~final~~while ~~opinion,~~Racusin ~~which~~pursued ~~reversed~~his appeal of the Bankruptcy Appellate Panel’s decision, ~~thus~~in ~~holding~~our ~~that~~favor subordinating Racusin’s ~~claim~~Claim ~~was not to be subordinated~~ pursuant to Section 510(b) of the Bankruptcy Code to the 9th Circuit Court of Appeals. The Interpleader Order further stated that the Company’s ~~filed~~stock awould ~~Form 8-K~~be onsubstituted ~~July 6,~~with ~~2007,~~cash payment in ~~response~~the toevent that the 9th Circuit’s ~~reversal~~reverses of the Bankruptcy Appellate Panel. On August 31, 2005, the Court entered an order staying the interpleader (the “Stay Order”) pending a decision from the 9th Circuit Court of Appeals.

On ~~November 2~~June 28, 2007, the ~~Bankruptcy~~9th Circuit Court ~~heard~~of anAppeals ~~argument~~entered toits ~~determine~~final ~~whether~~opinion, ~~the~~which ~~Company~~reversed ~~could~~the ~~withdraw~~Bankruptcy ~~its~~Appellate ~~250~~Panel’s decision,~~000~~ ~~shares~~thus ofholding ~~common~~that ~~stock~~Racusin’s ~~and~~Claim ~~whether~~against itthe ~~could~~Company ~~begin~~was ~~depositing~~not ~~funds pursuant~~ to ~~the~~be ~~Settlement~~subordinated ~~Agreement~~pursuant ~~attached~~ to ~~the~~Section ~~Company’s~~510(b) ~~motion~~of (the ~~“Revised~~Bankruptcy ~~Payment Schedule”)~~Code. The ~~Revised~~Company ~~Payment~~filed ~~Schedule~~a ~~estimated~~Form ~~post~~8-~~judgment~~K ~~interest~~on atJuly ~~8% per annum~~6, ~~compounded~~2007, ~~from~~in ~~March 11,~~response ~~2005,~~to ~~without taking into consideration~~ the ~~Interpleader~~9th ~~Order~~Circuit’s reversal of ~~July 27, 2005 or~~ the ~~Stay~~Bankruptcy ~~Order~~Appellate ~~of August 31, 2005~~Panel.

The Company and Racusin entered into the Settlement Agreement on September 3, 2004. 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. On ~~August 18,~~November ~~2009~~2, the Court entered an order granting summary judgment in favor of Racusin that would have accelerated amounts due and imposed penalty interest at 12% per annum. We moved for rehearing in spring 2010 and at the hearing the Court verbally indicated an intent to vacate an August 182007, ~~2009 order granting summary judgment in favor of Racusin, with~~ the ~~order~~Bankruptcy ~~subsequently entered on December 23, 2010. Based upon the~~ Court’s ~~December 23,~~heard ~~2010, wherein the Court found that~~ an ~~issue~~argument ~~of material fact existed as~~ to ~~the~~determine ~~potential~~whether ~~effect on~~ the ~~Settlement~~Company ~~Agreement~~could aswithdraw aits result of events that occurred in the Interpleader Adversary during the period between the Bankruptcy Appellate Panel’s subordination decision and the Ninth Circuit Court of Appeal’s decision to reverse the Bankruptcy Appellate Panel, we filed a motion for summary judgment seeking dismissal of Racusin’s still pending complaint of breach of the Settlement Agreement, and further relief on and discharge pursuant to the Interpleader Action. With respect to our claim for relief on the Interpleader action we contend that Racusin is not entitled to recover interest that allegedly accrued during the time when we previously deposited with the Court the 250,000 shares of ~~AWI~~ common stock ~~through~~and ~~the~~whether ~~date~~it ofcould ~~entry~~begin ofdepositing ~~the~~funds ~~Deposit~~pursuant ~~Order~~to onan ~~November 5,~~updated ~~2007,~~payment ~~when~~schedule ~~the~~attached ~~stock~~to ~~was~~the ~~exchanged~~Company’s ~~for~~motion ~~cash~~ (~~i.e., “Gap Period”) and~~ the ~~interest that allegedly accrued during that period (~~“~~Gap~~Revised ~~Interest~~Payment Schedule”). ItThe isRevised ~~our~~Payment ~~position~~Schedule ~~that~~estimated ifpost-judgment ~~the~~interest ~~Court~~at ~~disallows~~8% ~~Gap~~per ~~Interest~~annum, orcompounded, ~~allows~~from ~~for~~March ~~an equivalent offset in restitution~~11, ~~we would have satisfied our entire obligation in full under the Settlement Agreement as of November 2010~~2005, ~~and~~without wetaking ~~would therefore be entitled to a refund of overpayments it made~~ into ~~the~~consideration ~~Court after November 2010. In~~ the ~~event~~Interpleader ~~the~~Order ~~Court~~of ~~disagrees~~July ~~with our position~~27, we2005 ~~argue~~or in the ~~alternative~~Stay ~~that~~Order weof ~~are~~August ~~current in our payments~~31, and that we will pay off our entire remaining obligation in full under the Settlement Agreement in June 2012. There is no assurance that the Court will agree with our position. If the Court disagrees with us2005, itamong ~~could~~other ~~have a material adverse affect on our business, results of operations and financial condition~~matters.

~~Internet~~Racusin ~~Sports~~filed ~~International, Ltd.~~a Onclaim ~~July 17~~against the Company for breach of the Settlement Agreement on January 14, ~~2008~~2009, ~~Internet~~ ~~Sports~~and ~~International, Ltd.~~motion ~~(“ISI”)~~for ~~filed~~summary ajudgment ~~complaint~~on ~~against~~that ~~three~~claim ofto ~~our~~accelerate ~~subsidiaries~~amounts due, ~~AWI~~with ~~Manufacturing~~penalty interest, ~~Inc~~ on February 24, 2009. ~~(“AWIM”)~~On August 18, ~~AWI~~2009, ~~Gaming~~the Court entered an order granting summary judgment in favor of Racusin, ~~Inc.~~ ~~(“AWIG”)~~which accelerated amounts due and ~~Computerized~~imposed ~~Bookmaking~~penalty ~~Systems, Inc~~interest at 12% per annum. ~~(“CBS”),~~The Company moved for rehearing in spring 2010 and ~~our~~at ~~General~~a ~~Counsel~~hearing ~~(collectively~~on April 2, “2010, the ~~Defendants”).~~Court Onorally ~~February 3,~~ruled ~~2011,~~that it was vacating the ~~Defendants~~prior ~~and~~August ~~ISI~~18, ~~engaged~~2009 order granting summary judgment in ~~consensual~~favor ~~mediation~~of Racusin, which ~~resulted~~oral ruling was later entered in a ~~global~~written ~~settlement~~order on December 23, 2010. ~~The~~Based ~~parties~~upon ~~subsequently~~the ~~entered~~Court’s ~~into~~December 23, 2010 order, wherein the Court found that a genuine issue of material fact existed as to the potential effect on the Settlement Agreement ~~whereby~~as ~~AWIM~~a ~~agreed~~result toof ~~pay~~events that occurred in the Interpleader Action during the period between the Bankruptcy Appellate Panel’s subordination decision and the Ninth Circuit Court of Appeal’s decision to ~~ISI~~reverse the ~~total~~Bankruptcy ~~sum~~Appellate ~~$170~~Panel,~~000~~ inon ~~exchange~~April ~~for~~20, 2011 the Company filed a ~~mutual~~motion ~~release~~for summary judgment seeking dismissal of ~~all~~Racusin’s ~~claims~~still pending complaint for breach of the Settlement Agreement, further relief on and discharge of the Company pursuant to the Interpleader Action, as well as a refund of alleged overpayments the Company made.

~~Economic~~On ~~Conditions~~July ~~and~~27, ~~Related~~2011, ~~Risks~~the ~~and~~Court ~~Uncertainties~~made ~~Because~~oral ~~the~~findings ~~Company~~and ~~operates~~conclusion ~~primarily~~ in ~~the~~favor ~~larger metropolitan areas~~ of ~~Nevada in~~ the ~~highly~~Company ~~regulated~~on ~~gaming industry, realization of~~ its ~~receivables~~motion ~~and~~for ~~its~~summary ~~future operations could be affected by adverse economic conditions in Nevada and its key feeder markets in the western United States~~judgment. Specifically, ~~and by possible future anti-wagering legislation and regulatory limitations on~~ the ~~scope~~Court oforally ~~wagering.~~ruled ~~All~~that ~~of the Company~~Racusin’s ~~wagering~~complaint ~~revenue~~against ~~comes~~the ~~from~~Company ~~its~~for ~~Nevada~~breach ~~race and sports books,~~ of ~~which~~the ~~nearly~~Settlement ~~19%~~Agreement iswas ~~derived from professional football events~~dismissed. The IfCourt ~~the~~also ~~professional~~orally ~~football~~ruled ~~season~~that ~~were~~as to ~~be interrupted, for example, as a result of~~ the ~~current~~Company’s ~~NFL lockout~~Interpleader Action, ~~this~~interest ~~could~~did ~~have~~not aaccrue ~~significant~~during ~~adverse~~the ~~impact~~time onwhen ~~future~~the ~~operations.~~Company ~~Management~~previously ~~also~~deposited ~~estimates~~with ~~that~~the aCourt ~~significant portion~~ the ~~Company’s~~250,000 ~~wagering~~shares ~~revenue~~of ~~relates~~AWI tocommon ~~college~~stock ~~sports~~through ~~and,~~at ~~therefore,~~least the ~~passage~~date of ~~any~~the ~~amateur~~final ~~sports~~decision ~~anti-wagering~~of ~~legislation~~the ~~could~~9th ~~have~~Circuit aCourt ~~material~~of ~~adverse~~Appeals ~~impact~~ on ~~future~~June ~~operations~~28, 2007. The InCourt ~~addition,~~also ~~because~~orally ruled that the Company ~~generates~~had ~~substantial~~satisfied ~~revenue~~its ~~from~~obligations ~~system~~in ~~sales~~full ~~and maintenance~~ to aRacusin ~~relatively~~under ~~small population of potential customers, a decline in~~ the ~~size,~~Settlement ~~demand~~Agreement orand ~~number~~thus ofdid ~~these~~not ~~contracts~~have ~~could~~to ~~also~~make ~~adversely~~any ~~affect~~further ~~future~~payments ~~operations~~to Racusin.

~~Though~~The ~~there~~Court ~~are~~also ~~signs~~orally ofindicated, ~~economic improvement~~however, ~~lingering~~that ~~markers~~it ofwould ~~the~~not ~~downturn~~make ~~still~~a ~~affect~~determination ~~Nevada~~on ~~with~~the ~~restricted~~amount ~~credit~~of ~~markets~~the ~~and~~Company ~~reduced~~allegedly ~~consumer~~overpaid ~~spending,~~under ~~particularly in~~ the ~~domestic~~Settlement ~~gaming~~Agreement and ~~leisure~~thus ~~industries,~~did ~~and~~not ~~the~~release ~~Company’s~~such ~~business~~alleged ~~for~~overpayment anback ~~indeterminate~~to ~~period.~~the WeCompany ~~are~~without ~~also~~further ~~hopeful,~~proceedings ~~but~~to ~~there~~determine iswhat norights, ~~assurance~~if ~~that~~any, the Company’s, ~~average~~Racusin ~~wagering~~and ~~win~~certain ~~percentage,~~other ~~which~~parties ~~has~~in ~~recently~~interest ~~been~~had ~~significantly~~to ~~lower~~such ~~than~~funds, ~~historical~~as ~~levels~~well ~~due~~as potentially allowing for appeals to ~~unpredictable~~be ~~swings~~taken infrom ~~customer~~the ~~betting~~Court’s ~~success,~~decisions. It ~~will~~is ~~increase~~anticipated ~~and~~that ~~also~~the Court’s oral decision from July 27, ~~have~~2011 will be memorialized into a ~~positive~~final ~~impact~~written ondecision ~~our~~and ~~cash~~entered ~~flow~~by ~~from~~the ~~operating~~Court ~~activities~~sometime in September 2011.

~~The~~Racusin has the right to appeal the Court’s decision granting the Company ~~often~~summary ~~carries~~judgment. If ~~cash~~the Company were to prevail through the appellate process in accordance with the Court’s oral findings and ~~cash~~conclusions ~~equivalents~~from July 27, ~~including~~2011, ~~statutorily~~it ~~restricted~~is ~~amounts,~~estimated onthat ~~deposit~~the ~~with~~Company’s ~~financial~~payments ~~institutions~~to ~~substantially~~the Court through July 31, 2011, in ~~excess~~connection ofwith ~~federally-insured~~these ~~limits~~matters, ~~and~~have exceeded the ~~risk~~amount ofdue ~~losses~~by ~~related~~$239,000, toincluding ~~such~~the ~~concentrations~~$160,000 ~~may~~reflected bein ~~increasing~~prepaid expenses as of such date.

6Internet Sports International, Ltd. On July 17, 2008, Internet Sports International, Ltd. (“ISI”) filed a complaint against three of our subsidiaries, AWI Manufacturing, Inc. (“AWIM”), AWI Gaming, Inc. (“AWIG”) and Computerized Bookmaking Systems, Inc. (“CBS”), and our General Counsel (collectively, “the Defendants”). On February 3, 2011, the Defendants and ISI engaged in consensual mediation, which resulted in a Settlement Agreement whereby AWIM agreed to pay to ISI the total sum $170,000 in exchange for a mutual release of all claims.

~~Table~~Economic Conditions and Related Risks and Uncertainties Because the Company operates primarily in the larger metropolitan areas of ~~Contents~~Nevada in the highly regulated gaming industry, realization of its receivables and its future operations could be affected by adverse economic conditions in Nevada and its key feeder markets in the western United States, and by possible future anti-wagering legislation and regulatory limitations on the scope of wagering. All of the Company’s wagering revenue comes from its Nevada race and sports books, of which nearly 19% is derived from professional football events. Management also estimates that a significant portion the Company’s wagering revenue relates to college sports, and, therefore, the passage of any amateur sports anti-wagering legislation could have a

result of economic uncertainties discussed in the foregoing paragraphs. The extent of a future loss as a result of uninsured deposits in the event of a future failure of a bank or other financial institution, if any, is not subject to estimation at this time.6

~~5. Stock~~Table ~~Options,~~of ~~Other Equity Transactions, and Subsequent Events~~Contents

~~For~~ material ~~the~~adverse ~~three~~impact ~~months~~on ~~ended~~future ~~April 30~~operations. In addition, ~~2011~~because ~~and~~the ~~2010,~~Company ~~activity~~generates ~~related~~substantial revenue from system sales and maintenance to ~~both~~a relatively small population of potential customers, a decline in the ~~employee~~size, ~~and~~demand ~~directors’~~or ~~stock~~number ~~option~~of ~~plans~~these ~~was~~contracts ascould ~~follows:~~also adversely affect future operations.

	Option Shares		Weighted- Average Exercise Price
Balance at February 1, 2011	2,661,480		$	0.51
Granted	—
Exercised	—
Forfeited or canceled	(200,000	)	2.00
Balance at April 30, 2011	2,461,480		$	0.39
Balance at February 1, 2010	647,299		$	1.83
Granted	—
Exercised	—
Forfeited or canceled	—
Balance at April 30, 2010	647,299		$	1.83

Though management believes there are recent signs of economic improvement, lingering markers of the downturn still negatively affect Nevada with restricted credit markets and reduced consumer spending, particularly in the domestic gaming and leisure industries, including the Company’s business, and may continue to do so for an indeterminate period. We are also hopeful, but there is no assurance that, the Company’s average wagering win percentage, which has recently been significantly lower than historical levels due to unpredictable swings in customer betting success, will increase and also, have a positive impact on our cash flow from operating activities.

AsThe ofCompany ~~April 30~~often carries cash and cash equivalents, ~~2011~~including statutorily restricted amounts, ~~stock~~on ~~options~~deposit ~~exercisable~~with ~~and~~financial ~~available~~institutions ~~for~~substantially ~~future~~in ~~grants~~excess ~~for~~of ~~both~~federally-insured ~~current~~limits. ~~stock~~The ~~option~~extent ~~plans~~of ~~are~~a future loss as ~~follows:~~a result of uninsured deposits in the event of a future failure of a bank or other financial institution, if any, is not subject to estimation at this time.

	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Life
Exercisable	737,436	$	0.62	7.80 years
Available for future grants	1,221,567	—		—

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

~~Services~~For ~~contributed by Victor and Terina Salerno and credited to additional paid-in capital for~~ the ~~quarters~~six months ended ~~April 30~~July 31, 2011 and 2010, ~~totaled~~activity ~~$8,326~~related ~~and~~to ~~$42,813,~~both ~~respectively. Mr. Salerno also provided~~ the ~~Company~~employee ~~with~~and adirectors’ ~~$250,000~~stock ~~interest~~option ~~free~~plans ~~revolving line of credit on May 17, 2010, which~~ was ~~fully drawn and repaid from the proceeds of the Bridge Facility~~ as ~~of April 30, 2011.~~follows:

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, plus 25,000 shares effectively issued during the quarter ended July 31, 2010, as a one-time payment of additional compensation for a late filing. The shares were valued at $0.15 per share (or $41,250 in the aggregate) 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

	Option Shares			Weighted- Average Exercise Price
Balance at February 1, 2011		2,661,480		$	0.51
Granted		—
Exercised		—
Forfeited or canceled		(202,000	)		2.00
Balance at July 31, 2011		2,459,480		$	0.39

Balance at February 1, 2010		647,299		$	1.83
Granted		—
Exercised		—
Forfeited or canceled		(30,000	)		.96
Balance at July 31, 2010		617,299		$	1.87

InAs ~~June 2010, the Company borrowed $195,000 from and entered into an agreement with Alpine that entitled but did not obligate Alpine to purchase 600,000 shares~~ of ~~the~~July ~~Company’s common stock at an exercise price of $0.22 per share through June 11~~31, 2015. The principal amount of the loan plus interest at 15% was due June 17, 2010 (six days following the issuance) and then on demand with weekly interest payments calculated at 22% per annum. On June 22, 2010, the parties entered into a financing agreement that allowed the Company to borrow up to $500,000, at 15% per annum, due on June 10, 2011, ~~and was collateralized by the Company’s~~ stock inoptions ~~CBS~~exercisable and ~~the~~available ~~receivables~~for offuture ~~CBS.~~grants ~~Proceeds from the June 22nd financing agreement were used, in part, to refinance the June 11th loan~~ for ~~$195,000.~~both ~~The~~current Company borrowed $500,000 which was repaid from the proceeds of the Bridge Facility. The warrant agreement was also amended to provide Alpine with registration rights and, the appointment of two persons to the Company’s board of directors, which would expand from five to seven members, should the Company default in its financing or collateralization obligations. Using the Black-Scholes valuation model and “Level 2” fair value measurement inputs as defined in GAAP including a risk-free interest rate of 4%, expected warrant life of five years, and its internal stock ~~price~~option ~~volatility~~plans ~~factor~~are ~~of 206% initially (approximately 1.5% risk-free interest rate and an internal stock price volatility of 231%~~ as ~~of April 30, 2011), the warrants were valued at $403,884 and recorded as a warrant liability.~~follows:

	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Life
Exercisable	1,499,280	$	0.46	8.47 years
Available for future grants	1,223,567	—		—

~~Table~~Non-cash stock-based compensation recorded in the line item “Selling, General and Administrative Expenses” on the consolidated statements of ~~Contents~~operations for the three months ended July 31, 2011 and 2010 was $109,300 and $27,029, respectively. Non-cash stock-based compensation recorded in the line item “Selling, General and Administrative Expenses” on the consolidated statements of operations for the six months ended July 31, 2011 and 2010 was $236,428 and $30,972, respectively.

~~For~~Services contributed by Victor and Terina Salerno and credited to additional paid-in capital for the three and six months ended ~~April 30~~July 31, 2011 and 2010, ~~non-cash~~totaled ~~stock-based~~$0 ~~compensation~~and ~~expense~~$36,816 ~~recorded~~and in$8,326 and $79,626, respectively. Mr. Salerno also provided the ~~line~~Company ~~item~~with ~~“Selling~~a $250,000 ~~General~~interest ~~and~~free ~~Administrative~~revolving ~~Expenses”~~line ~~was~~of ~~$127~~credit on May 17,~~128~~ 2010, which was fully drawn and ~~$41~~repaid from the proceeds of the Bridge Facility as of July 31,~~442,~~ ~~respectively~~2011.

6In 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, plus 25,000 shares effectively issued during the quarter ended July 31, 2010, as a one-time payment of additional compensation for a late filing. ~~Business~~ ~~Segments~~The shares were valued at $0.15 per share (or $41,250 in the aggregate) 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.

~~The Company reports the results of operations through three operating segments as follows: [this should change for debt extinguishment]~~7

	Three Months Ended April 30,
	2011			2010
Revenues
Wagering	$	1,693,148		$	1,499,992
Hotel/Casino	469,460			457,459
Systems	699,233			905,382
	$	2,861,841		$	2,862,833
Operating (loss)
Wagering	$	(587,397	)	$	(328,257	)
Hotel/Casino	(38,340		)	(129,357		)
Systems	(626,585		)	(39,493		)
	(1,252,322		)	(497,107		)
Other expense, net	(395,581		)	(80,707		)
Net (Loss)	$	(1,647,903	)	$	(577,814	)

Table of Contents

~~Additional~~ In ~~information~~June 2010, the Company borrowed $195,000 from and entered into a warrant agreement with Alpine that entitled but did not obligate Alpine to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.22 per share through June 11, 2015. The principal amount of the loan plus interest at 15% was due June 17, 2010 (six days following the issuance) and then on demand with weekly interest payments calculated at 22% per annum. On June 22, 2010, the parties entered into a financing agreement that allowed the Company to borrow up to $500,000, at 15% per annum, due on June 10, 2011, and was collateralized by the Company’s stock in CBS and the receivables of CBS. Proceeds from the June 22nd financing agreement were used, in part, to refinance the June 11th loan for $195,000. The Company borrowed $500,000 which was repaid from the ~~Hotel/Casino~~proceeds ~~segment~~of ~~follows:~~the Bridge Facility. The warrant agreement was also amended to provide Alpine with registration rights and, the appointment of two persons to the Company’s board of directors, which would expand from five to seven members, should the Company default in its financing or collateralization obligations. Using the Black-Scholes valuation model and “Level 2” fair value measurement inputs as defined in GAAP including a risk-free interest rate of 4%, expected warrant life of five years, and its internal stock price volatility factor of 206% initially (approximately 1.5% risk-free interest rate and an internal stock price volatility of 231% as of July 31, 2011), the warrants were fully valued at $408,000 and recorded as a warrant liability.

	Three Months Ended April 30,
	2011			2010
Revenue
Casino	$	243,094		$	219,958
Hotel	98,362			86,088
Food/Beverage	128,004			151,413
	469,460			457,459
Direct Costs and Expenses
Casino	101,192			127,150
Hotel	45,717			40,041
Food/Beverage	154,420			179,042
Unallocated	90,778			87,857
	392,107			434,090
Selling, General and Administrative	62,511			89,140
Depreciation and Amortization	53,182			63,586
	507,800			586,816
Operating Loss	$	(38,340	)	$	(129,357	)

6. Business Segments

8The Company reports the results of operations through three operating segments as follows:

Table of Contents

	For the Three Months Ended July 31,						For the Six Months Ended July 31,
	2011			2010			2011			2010
Revenues:
Wagering	$	913,514		$	1,186,224		$	2,606,661		$	2,686,216
Hotel Casino		650,234			594,742			1,119,695			1,052,201
Systems		733,657			699,459			1,432,890			1,604,841
	$	2,297,405		$	2,480,425		$	5,159,246			5,343,258
Operating income (loss):
Wagering	$	(950,747	)	$	(657,179	)	$	(1,538,144	)	$	(985,436	)
Hotel Casino		95,037			(72,448	)		56,697			(201,805	)
Systems		(389,555	)		(195,010	)		(1,016,140	)		(234,503	)
		(1,245,265	)		(924,637	)		(2,497,587	)		(1,421,744	)
Other expense, net		(157,432	)		(81,806	)		(553,014	)		(162,513	)
Net Loss	$	(1,402,697	)	$	(1,006,443	)	$	(3,050,601	)	$	(1,584,257	)

~~Item~~Additional 2.information ~~Management’s~~for ~~Discussion~~the ~~and~~Hotel ~~Analysis~~Casino orsegment ~~Plan of Operation.~~follows:

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, 2011, 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.

	For the Three Months Ended July 31,					For the Six Months Ended July 31,
	2011		2010			2011		2010
Revenues:
Casino	$	290,737	$	238,576		$	536,899	$	458,534
Hotel		213,265		139,859			311,101		225,947
Food/Beverage		146,232		216,307			271,695		367,720
	$	650,234	$	594,742		$	1,119,695	$	1,052,201
Direct Costs and Expenses:
Casino		108,213		134,945			209,404		262,095
Hotel		72,334		58,609			118,050		98,650
Food/Beverage		166,729		235,259			321,150		414,301
Unallocated		93,740		86,896			184,519		174,753
		441,016		515,709			833,123		949,799
Selling, General and Administrative		67,034		90,800			129,544		179,940
Depreciation and Amortization		47,147		60,681			100,331		124,267
		555,197		667,190			1,062,998		1,254,006

Operating Income	$	95,037	$	(72,448	)	$	56,697	$	(201,805	)

~~Definitions. For the purposes of this report, the following terms have the following meanings:~~8

~~“Company”~~Table ~~means~~of ~~American Wagering, Inc. and its subsidiaries collectively.~~Contents

~~“AWI”~~Item ~~means~~2. Management’s ~~American~~Discussion ~~Wagering, Inc~~and Analysis or Plan of Operation.

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

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 “~~AWIM~~believes,” ~~means~~“expects,” ~~AWI~~“may,” ~~Manufacturing~~“will, ~~Inc~~” “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, a2011, ~~wholly~~particularly under the heading “Risk Factors.” No assurance can be given as to the ultimate outcome of any forward-~~owned~~looking ~~subsidiary~~statement because such outcome is dependent upon unknown evolving events. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of ~~AWI~~the date made. We do not intend, and undertake no obligation to update our forward-looking statements to reflect future events or circumstances.

~~“CBS”~~Definitions. For ~~means~~the ~~Computerized~~purposes ~~Bookmaking~~of ~~Systems~~this report, ~~Inc.,~~ athe ~~wholly-owned~~following ~~subsidiary~~terms ofhave ~~AWI.~~the following meanings:

“~~ExactGeo Media~~Company” means ~~ExactGeo~~American ~~Media~~Wagering, Inc. ~~LLC,~~and aits ~~wholly-owned~~subsidiaries ~~subsidiary of AWI~~collectively.

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

“~~PlayBETM~~AWIG” means ~~Mobile~~AWI ~~Sports Fantasy~~Gaming, ~~LLC dba PlayBETM~~ Inc., a wholly-owned subsidiary of AWI.

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

“~~Sturgeon’s~~CBS” means ~~Sturgeon’s~~Computerized ~~Inn &~~Bookmaking ~~Casino (which~~Systems, ~~as of March~~ 1Inc., ~~2006,~~a is wholly-owned bysubsidiary ~~Sturgeons,~~of ~~LLC)~~AWI.

~~Overview. AWI~~“ExactGeo isMedia” ameans ~~leader~~ExactGeo ~~in the design~~Media, ~~development~~LLC, ~~and marketing of sportsbook accounting systems (equipment and software) as well as~~ a ~~leading~~wholly-owned ~~independent~~subsidiary ~~sportsbook operator in Nevada. Our business operations involve many aspects~~ of ~~the race and sports book industry operated by our subsidiaries, Leroy’s, CBS, and AWIM~~AWI. ~~Our customer base is segmented into two categories: the Contract Customers and the Bettors.~~

“Leroy’s” ~~provides~~means ~~a turn-key race and sports book solution to our Contract Customers who do not desire to operate a book on their own.~~ Leroy’s ~~operates a network of 57 sportsbooks, generating revenue from Bettors’ wagers less pay outs. We grow our business and increase our efficiencies by, (i)~~Horse ~~adding~~& ~~new~~Sports ~~books where and when appropriate~~Place, ~~(ii)~~ ~~introducing new convenience-driven products for the Bettors~~Inc., ~~and~~a ~~(iii) providing self~~wholly-~~service~~owned ~~products~~subsidiary ~~such as AWIM’s kiosk and the LEROY’S® APP©, which are described below. 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 profitabilityAWI. There is no assurance that Leroy’s will be able to add new locations and/or that any existing locations or new locations so added will be profitable, and the release of the LEROY’S® APP© may limit our aggressiveness in adding locations particularly in Las Vegas depending on its market acceptance.

~~CBS~~“PlayBETM” ~~develops,~~means ~~sells~~Mobile ~~and~~Sports ~~maintains computerized race and sports wagering systems for the gaming industry~~Fantasy, ~~namely~~LLC ~~our~~dba ~~Contract Customers who want to operate their own race and sports book. CBS also markets~~PlayBETM, ~~distributes,~~a ~~installs,~~wholly-owned ~~and~~subsidiary ~~maintains AWIM’s kiosks, which assists the Company in controlling personnel costs by eliminating duplicate job positions. AWIM has the following three models~~ of ~~kiosk~~AWI.

~~· Upright kiosk~~“Sturgeons, ~~which~~LLC” ~~was~~means ~~jointly~~Sturgeons, ~~developed with a third party~~LLC, is a ~~free~~wholly-owned ~~standing~~subsidiary ~~wagering kiosk and most frequently used by Leroy’s and our Contract Customers to expand the reach~~ of ~~the race and sports book throughout the casino floor~~AWIG.

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

~~Table~~AWI is a leader in the design, development, and marketing of ~~Contents~~sportsbook accounting systems (equipment and software) as well as a leading independent sportsbook operator in Nevada. Our business operations involve many aspects of the race and sports book industry operated by our subsidiaries, Leroy’s, CBS, and AWIM. Our customer base is segmented into two categories: the Contract Customers and the Bettors.

~~· Carrel~~Leroy’s ~~kiosk~~provides isa ~~designed~~turn-key ~~for~~race ~~the~~and ~~race~~sports ~~bettor~~book solution to our contract customers who ~~never~~do ~~wants~~not desire to ~~leave~~operate ~~his~~a ~~race~~book ~~carrel~~on their own. ~~The~~Leroy’s ~~carrel~~operates a network of 54 sportsbooks and 19 tavern locations, generating revenue from bettors’ wagers less pay outs. We grow our business and increase our efficiencies by, (i) adding new books where and when appropriate, (ii) introducing new convenience-driven products for the bettors, and (iii) providing self-service products such as AWIM’s kiosk ~~allows~~and ~~him~~the toLEROY’S® ~~place~~APP©, which are described below. Based on our strategy, the number of race and sports ~~bets~~books ~~from~~operated by Leroy’s may increase or decrease in the ~~comfort~~future, due to the closure of ~~his~~unprofitable ~~race~~locations ~~carrel~~or host properties, ~~watch~~closures due to other factors beyond our control and/or the ~~races~~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 ~~sporting~~that ~~events)~~any existing locations or new locations so added will be profitable, and ~~check~~or ~~results~~that the release of the LEROY’S® APP© will not limit our aggressiveness in adding locations particularly in Las Vegas depending on its market acceptance.

~~· Wall-mount~~CBS ~~kiosk~~develops, issells ~~designed~~and ~~for~~maintains ~~space~~computerized ~~conscious~~race ~~environments~~ and ~~can~~sports bewagering ~~mounted~~systems onfor orthe ~~built~~gaming ~~into~~industry, anamely ~~wall~~our tocontract ~~give~~customers awho ~~seamless,~~want ~~integrated~~to ~~look.~~operate ~~Demand~~their ~~for~~own ~~the~~race ~~wall-mount~~and ~~kiosk~~sports isbook. ~~greatest~~CBS byalso ~~Leroy’s~~markets, ~~locations~~distributes, ainstalls, ~~bars~~ and ~~taverns.~~maintains ~~These Leroy~~AWIM’s ~~locations~~kiosks, ~~utilize~~which assists the ~~wall-mount~~Company ~~kiosk~~ in ~~conjunction~~controlling ~~with~~personnel ~~telephone~~costs ~~account~~by ~~wagering,~~eliminating ~~where~~duplicate ~~the~~job ~~Bettor~~positions. ~~establishes~~AWIM ahas ~~wagering account and then can bet from his account while watching~~ the ~~sporting~~following ~~event~~three atmodels ~~his~~of ~~favorite bar or tavern that has a Leroy’s wall-mount~~ kiosk.

~~The~~● ~~LEROY’S® APP©. On~~Upright ~~August 31~~kiosk, ~~2010,~~which wewas ~~announced~~jointly ~~the~~developed ~~introduction~~with ~~of the LEROY’S® APP©,~~ a ~~mobile~~third ~~device application for smartphones that permits a Bettor~~party, ~~with~~is a ~~pre-established~~free ~~telephone~~standing wagering ~~account,~~kiosk toand ~~bet~~most ~~from~~frequently ~~his~~used ~~approved mobile device anywhere within the state of Nevada, assuming his wireless carrier provides coverage. The LEROY’S® APP© received final approval~~ by ~~the Nevada Gaming Control Board at the conclusion of its successful field trial. The LEROY’S® APP© was developed for~~ Leroy’s ~~by CBS~~ and weour ~~have~~contract acustomers ~~patent~~to ~~pending~~expand on the ~~intellectual~~reach ~~property.~~of ~~We have been approved by~~ the ~~Nevada~~race ~~Gaming Control Board to make the application available on Research In Motion®’s BlackBerry® devices~~ and ~~Google®’s~~sports ~~Android®~~book ~~operating~~throughout ~~system v. 2.1 and newer. Additionally, we have been approved for use on~~ the ~~Samsung®~~casino ~~Galaxy® Tablet, which uses Google® Android® operating system~~floor.~~(1)~~

~~Sturgeon’s~~● ~~operates~~Carrel ~~the~~kiosk ~~hotel/casino~~is indesigned ~~Northern~~for ~~Nevada~~the ~~and~~race isbettor ~~heavily~~who ~~dependent~~never onwants ~~the~~to ~~drive-through~~leave ~~market~~his onrace ~~I-80~~carrel. ~~Sturgeon’s~~The ~~continuously~~carrel ~~reviews~~kiosk ~~and~~allows ~~modifies~~him ~~existing procedures and personnel~~ to ~~increase~~place ~~efficiency,~~race ~~reduce~~and ~~expenses,~~sports ~~and~~bets ~~strengthen~~from the ~~financials~~comfort asof ~~Nevada,~~his ~~both~~race ~~Northern and Southern~~carrel, ~~continues~~watch tothe ~~experience~~races ~~high~~(or ~~unemployment,~~sporting ~~high foreclosures for residential homes and business failures. Accordingly~~events), ~~these factors will likely continue to have an affect on our business conditions~~ and ~~financial~~check ~~performance~~results.

~~ExactGeo~~● ~~Media~~Wall-mount kiosk is andesigned ~~advertising~~for ~~company~~space ~~established~~conscious toenvironments ~~purchase~~ and ~~sell~~can ~~advertising~~be inmounted ~~connection~~on ~~with~~or ~~our~~built ~~mobile~~into ~~betting~~a ~~application. PlayBETM~~wall ~~designs~~to ~~and~~give ~~hosts~~a ~~play-for-fun~~seamless, ~~contest~~integrated ~~versions~~look. ofDemand ~~our~~for ~~mobile~~the ~~sports~~wall-mount ~~application,~~kiosk ~~which~~is wegreatest ~~anticipate~~by ~~will~~Leroy’s ~~generate~~locations ~~revenue~~in ~~through~~bars ~~advertising~~and taverns. ~~ExactGeo~~ ~~Media~~These ~~and~~Leroy’s ~~PlayBETM~~locations ~~are~~utilize ~~not~~the ~~revenue~~wall-mount ~~generating~~kiosk ~~entities~~in asconjunction ofwith ~~yet. Nonetheless~~telephone account wagering, ifwhere ~~and~~the ~~when~~bettor ~~these~~establishes ~~two~~a ~~entities~~wagering ~~generate~~account ~~material~~and ~~amounts~~then ofcan ~~revenue~~bet from ~~advertising~~his ~~sales~~account ~~and~~while ~~services~~watching ~~leveraged~~the ~~from~~sporting ~~our~~event ~~mobile~~at ~~application,~~his wefavorite ~~intend~~bar toor ~~report~~tavern ~~the~~that ~~entities’~~has ~~operating results as~~ a ~~fourth~~Leroy’s ~~segment,~~wall-mount ~~“Advertising~~kiosk.”

~~Liquidity and Capital Resources.~~9

OnTable April 13, 2011, we entered into the Merger Agreement and the Bridge Loan Agreement. If the Merger Agreement is terminated, the principal amount and all accrued interest under the Bridge Facility will become due and payable, and, in certain circumstances, (a) we may be required to reimburse the Purchaser and its affiliates for all of their reasonable out-of-pocket fees and expenses up to $250,000 and (b) the Purchaser may be required to pay us a termination fee of $1.5 million, which amount shall be subject to offset to any amounts owed by us in connection with the Bridge Loan Agreement. If the Merger Agreement is not consummated, we may not be able to pay our debts as they come due, including the Bridge Facility and / or may be unable to execute our business plan, possibly resulting in the financial and operational failure of the Company. Upon a default under the Bridge Facility, the Purchaser may foreclose on the collateral securing our obligations, which includes all of the equity interests in our wholly-owned subsidiaries.Contents

In The ~~recent~~LEROY’S® ~~years~~APP©. On ~~for~~August 31, ~~reasons~~2010, ~~discussed~~we inannounced the ~~following~~introduction ~~paragraph,~~of ~~our~~the ~~cash~~LEROY’S® ~~flows~~APP©, ~~from~~a ~~operating~~mobile ~~activities~~device ~~have~~application ~~been~~for ~~insufficient~~smartphones tothat ~~satisfy~~permits ~~our~~a ~~obligations~~Bettor, ~~(including~~with ~~legal~~a ~~contingencies)~~pre-established ~~when~~telephone ~~due~~wagering ~~and~~account, to ~~fund~~bet ~~cash reserves required by Nevada Gaming regulations. Such cash requirements have been funded largely with borrowings~~ from ~~and/or~~his ~~collateral~~approved ~~arrangements~~mobile ~~with~~device ~~the~~anywhere ~~Company’s~~within ~~principal officers. Recently~~ the ~~Company~~state ~~entered~~of ~~into~~Nevada, ~~the~~assuming ~~Bridge~~his ~~Loan~~wireless ~~Agreement~~carrier ~~that~~provides ~~should~~coverage. ~~satisfy~~The ~~the Company~~LEROY’sS® ~~need~~APP© ~~for~~received ~~liquidity~~final atapproval ~~least~~by ~~through~~ the ~~next~~Nevada ~~year.~~Gaming ~~More~~Control ~~specifically,~~Board inat ~~April 2011, we borrowed $4.25 million under~~ the ~~Bridge~~conclusion ~~Loan~~of ~~Agreement~~its ~~and~~successful ~~used~~field ~~approximately $2~~trial.~~3 million~~ ofThe ~~the~~LEROY’S® ~~proceeds~~APP© towas ~~pay~~developed ~~vendors~~for ~~($750,000),~~Leroy’s ~~for~~by ~~rank~~CBS and ~~file~~we ~~employees~~have ~~($260,000),~~a ~~other~~patent ~~lenders~~pending ~~($850,000),~~on ~~and~~the ~~transaction~~intellectual ~~fees ($450,000) leaving approximately $1~~property.~~95 million~~ ~~available~~We ~~for~~have ~~future~~been ~~cash~~approved ~~flow~~by ~~requirements.~~the ~~The~~Nevada ~~Bride~~Gaming ~~Loan~~Control ~~Agreement~~Board ~~also~~to ~~reduces~~make the ~~Company’s~~application ~~dependence~~available on ~~its~~Research ~~principal~~In ~~officer~~Motion®’s ~~ability~~BlackBerry® todevices ~~continue~~and toGoogle®’s ~~provide~~Android® ~~financial~~operating ~~support~~system v. ~~There~~2.1 isand nonewer. ~~assurance~~Additionally, ~~that~~ we ~~will~~have bebeen ~~able~~approved tofor ~~borrow~~use ~~additional~~on ~~funds under~~ the ~~Bridge~~Samsung® ~~Loan~~Galaxy® ~~Agreement~~Tablet, aswhich ~~any~~uses ~~additional~~Google® ~~advances~~Android® ~~are~~operating ~~in the Purchaser’s sole discretion~~system.

InSturgeon’s ~~addition,~~operates a wehotel/casino ~~see~~in ~~signs~~Northern ofNevada ~~slight~~and ~~improvements~~is inheavily dependent on the ~~global~~drive-through ~~macroeconomic~~market ~~factors~~on ~~that~~I-80. ~~have~~Sturgeon’s ~~negatively~~continuously ~~affected~~reviews ~~our~~and ~~country~~modifies existing procedures and personnel to increase efficiency, ~~Nevada~~reduce expenses, and strengthen the ~~Company~~financials ~~for~~as ~~the~~Nevada, ~~past~~both ~~three~~Northern ~~years.~~and WeSouthern, ~~continue~~continues to ~~monitor~~experience ~~these~~high ~~signs~~unemployment, ofhigh ~~improvement~~foreclosures ~~such~~for asresidential ~~lower~~homes ~~unemployment~~ and ~~increased~~business ~~passenger~~failures. ~~traffic~~Accordingly, atthese ~~McCarran~~factors ~~International~~will ~~Airport~~likely ~~that~~continue ~~may~~to ~~provide~~have ~~new~~an ~~opportunities~~affect ~~for~~on our ~~self-~~business conditions and financial performance.

~~(1) Each~~ExactGeo ~~registered~~Media ~~trademark~~ is ~~the~~an ~~property~~advertising company established to purchase and sell advertising in connection with our mobile betting application. PlayBETM designs and hosts play-for-fun, contest versions of ~~its~~our ~~respective~~mobile ~~owner~~sports application, which we anticipate will generate revenue through advertising. ExactGeo Media and PlayBETM are not revenue generating entities as of yet. Nonetheless, if and when these two entities generate material amounts of revenue from advertising sales and services leveraged from our mobile application, we intend to report the entities’ operating results as a fourth segment, “Advertising.”

10Liquidity and Capital Resources.

~~Table of Contents~~Overview

~~service~~On ~~kiosks~~April 13, ~~and~~2011, ~~mobile~~we ~~technologies~~entered asinto ~~our~~the ~~Contract~~Merger ~~Customers~~Agreement ~~remain~~and ~~conservative~~the inBridge ~~their~~Loan ~~capital~~Agreement. ~~spending~~If ~~but~~the ~~are~~Merger ~~seeking~~Agreement ~~meaningful~~is ~~ways~~terminated, tothe ~~bring~~principal ~~innovative~~amount ~~betting~~and ~~technology~~all toaccrued ~~their~~interest ~~casino~~under ~~floor. We cannot be certain as to~~ the ~~timing~~Bridge orFacility ~~the~~will ~~scope~~become ofdue ~~such~~and ~~opportunities~~payable, and, in ~~light~~certain ofcircumstances, (ia) ~~the~~we ~~ongoing~~may ~~restricted~~be ~~credit~~required ~~market~~to ~~facing~~reimburse ~~certain~~the ofPurchaser ~~our~~and ~~Contract~~its ~~Customers~~affiliates ~~and~~for ~~the~~all ~~risk~~ of ~~the~~their ~~gaming~~reasonable ~~industry impact~~ out-of-pocket ~~continued~~fees ~~economic~~and ~~uncertainty;~~expenses ~~(ii) intense~~up ~~competition~~to ~~among suppliers~~$250,000 and (~~iii~~b) ~~more~~the ~~conservative~~Purchaser ~~betting~~may ~~patterns~~be byrequired ~~Bettors~~to ~~because~~pay ofus ~~job~~a ~~uncertainty~~termination ~~and/or~~fee ~~reduced~~of ~~discretionary income~~$1.5 million, ~~Though~~which ~~there~~amount ~~are~~shall ~~signs~~be ofsubject ~~improvement,~~to ~~lingering~~offset ~~markers~~to ofany ~~the~~amounts ~~downturn~~owed ~~still~~by ~~affects~~us ~~Nevada~~in connection with ~~restricted~~the ~~credit~~Bridge ~~markets~~Loan ~~and~~Agreement. ~~reduced~~If ~~consumer~~the ~~spending,~~Merger ~~particularly~~Agreement inis ~~the~~not ~~domestic~~consummated, ~~gaming~~we ~~and~~may ~~leisure~~not ~~industries,~~be ~~and~~able ~~the~~to ~~Company’s~~pay ~~business~~our ~~for~~debts anas ~~indeterminate~~they ~~period.~~come Wedue, ~~are~~including ~~also~~the ~~hopeful,~~Bridge ~~but~~Facility ~~there~~and is/ noor ~~assurance~~may ~~that,~~be ~~the~~unable ~~Company’s~~to ~~average~~execute ~~wagering~~our ~~win~~business ~~percentage~~plan, ~~which~~possibly ~~has~~resulting ~~recently~~in ~~been~~the ~~significantly~~financial ~~lower~~and ~~than~~operational ~~historical~~failure ~~levels~~of ~~due~~the toCompany. ~~unpredictable~~Upon ~~swings~~a indefault ~~customer~~under ~~betting~~the ~~success~~Bridge Facility, ~~will~~the ~~increase~~Purchaser ~~and~~may ~~also~~foreclose ~~have~~on athe ~~positive~~collateral ~~impact~~securing on our ~~cash~~obligations, ~~flow~~which ~~from~~includes ~~operating~~all ~~activities~~of the equity interests in our wholly-owned subsidiaries.

~~Cash~~In ~~Flow~~recent years for reasons discussed in the following paragraph, our cash flows from operating activities have been insufficient to satisfy our obligations (including legal contingencies) when due and to fund cash reserves required by Nevada Gaming regulations. Such cash requirements have been funded largely with borrowings from and/or collateral arrangements with the Company’s principal officers. Recently the Company entered into the Bridge Loan Agreement that should satisfy the Company’s need for liquidity at least through the next year. In April 2011, we borrowed $4.25 million under the Bridge Loan Agreement and used approximately $2.3 million of the proceeds to pay vendors ($750,000), rank and file employees ($260,000), other lenders ($850,000), and transaction fees ($450,000) and leaving $1.95 million at that time for general corporate purposes. On September 2, 2011, the Company made a borrowing request under the Bridge Loan Agreement for $750,000 of Tranche II for general corporate purposes. There is currently $2,250,000 potentially available for borrowing under the Bridge Facility for future cash flow requirements. The Bridge Loan Agreement also reduces the Company’s dependence on its principal officer’s ability to continue to provide financial support. However, there is no assurance that we will be able to borrow additional funds under the Bridge Loan Agreement, as any additional advances are in the Purchaser’s sole discretion.

AsThough last quarter we saw signs of ~~April 30~~slight improvements in the global macroeconomic factors that have negatively affected our country, ~~2011~~Nevada, weand ~~had~~the ~~working~~Company ~~capital~~for ofthe $1past three years,~~041,355,~~ ~~compared~~this quarter we witnessed increase in Nevada’s unemployment rate and increased volatility in the stock market. We continue to ~~working~~monitor ~~capital~~these ~~deficit~~signs of ~~$(901,583)~~improvement such as lower unemployment and increased passenger traffic at ~~January 31,~~McCarran ~~2011.~~International ~~The~~Airport ~~increase~~that may provide new opportunities for our self-service kiosks and mobile technologies as our contract customers remain conservative in ~~working~~their capital isspending ~~primarily~~but ~~due~~are seeking meaningful ways to bring innovative betting technology to their casino floor. We cannot be certain as to the ~~proceeds~~timing or the scope of ~~$4.25~~such ~~million~~opportunities ~~under~~in light of (i) the ~~Bridge~~ongoing ~~Facility.~~restricted ~~This~~credit ~~was~~market ~~partially~~facing ~~offset~~certain of our contract customers and the risk of the gaming industry impact of continued economic uncertainty; (ii) intense competition among suppliers, and (iii) more conservative betting patterns by bettors because of job uncertainty and/or reduced discretionary income. Though there are signs of improvement, lingering markers of the ~~net~~downturn ~~loss~~still ~~for~~negatively affect Nevada with restricted credit markets and reduced consumer spending, particularly in the ~~current~~domestic ~~year~~gaming and leisure industries, and the Company’s ~~quarter~~business for an indeterminate period. ~~The~~We ~~short-term~~are ~~debt~~also ~~obligation~~hopeful, but there is no assurance that, the Company’s average wagering win percentage, which has recently been significantly lower than historical levels due to ~~Alpine~~unpredictable ~~Advisors~~swings in customer betting success, ~~LLC.~~will ~~was~~increase ~~paid~~and ~~from~~also ~~the~~have ~~proceeds~~a ofpositive ~~the~~impact ~~Bridge~~on ~~Facility~~our ascash ~~well~~flow from operating activities.

Additionally, due to the negative economic environment, the Company previously took additional measures to conserve cash. Upon funding of the Bridge Facility, the restrictive measures concerning the salaries were addressed. The Company was able to reinstate the partial salary reductions of the employees, who had previously had their salaries reduced by 5% to 15%. The executive management group, including the CEO, COO, Sr. Vice President of Business Development, and the in-house General Counsel, had agreed to reduce their annual base salaries to the amount sufficient to cover payroll deductions for benefits through October 2010. In November 2010, the executive management group began receiving pay at a level of 50%. Upon funding of the Bridge Facility, the full salaries of the executive management group were reinstated and the salaries deferrals which began in November 2010 for the CEO, COO, and Sr. Vice President of Business Development were paid. The Company no longer matches the employees’ 401(k) contributions.10

InTable ~~fiscal 2011, the Company borrowed $500,000 from Alpine Advisors, LLC, and Victor Salerno, CEO, provided the Company with a $250,000 credit line. The proceeds~~ of both loans were fully used during the year to alleviate a difficult cash position, and from the proceeds of the Bridge Facility, the Company paid to Alpine Advisors, LLC $600,417 in full and final payment of its loan and a prepayment penalty, and paid to Mr. Salerno $250,000 in full and final payment of his line of credit. In addition, upon funding of the Bridge Loan, the Company paid Alpine $175,000 for advisory services in connection with negotiating and structuring the Merger Agreement with the Purchaser. If the Merger is consummated, an additional fee of $625,000 will be due.Contents

In Cash addition to borrowings under the Bridge Loan Agreement as previously discussed and reduced payment requirements to Racusin (see Note 4 — Litigation and Contingencies), we believe, but there is no assurance that, our working capital position will also improve in fiscal 2012 due to: (a) normalization of the win percentage in sports book wagering; (b) an increased demand in fiscal 2012 for our CBS equipment due to certain customers’ desire to obtain new equipment, who are themselves recovering from the economy; (c) deployment of new products and services anticipated in fiscal 2012; and (d) additional or expanded sports book locations in fiscal 2012. Based on the foregoing, subject to the economy and the timely closing of the merger, we believe we will be able to satisfy our cash requirements for at least the next year from existing cash balances, anticipated cash flows and potential borrowings under the Bridge Facility. Some of the above statements are forward-looking in nature. No assurance can be given as to the ultimate outcome of any forward-looking statement because such outcome is dependent upon unknown evolving events.Flow

~~Regulation~~As ~~Regarding~~of ~~Reserves~~July 31, 2011, we had working capital deficit of $(10,071), compared to working capital deficit of $(255) at July 31, 2010. The proceeds of $4.25 million under the Bridge Facility was used to payoff the short-term debt obligations to Alpine Advisors, LLC. ($500,000) and Victor Salerno ($250,000), as well as, reducing accounts payable and funded the cash flow shortfall experienced during the six months ended July 31, 2011. On September 2, 2011, the Company borrowed an additional $750,000 as tranche two under the Bridge Facility. In April 2011, the Company paid Alpine $175,000 for advisory services in connection with negotiating and structuring the Merger Agreement with the Purchaser. If the Merger is consummated, an additional fee of approximately $625,000 will be due.

~~Nevada~~In ~~Gaming~~addition ~~Commission~~to ~~Regulation 22.040~~borrowings under the Bridge Loan Agreement as previously discussed and reduced payment requirements to Racusin (~~“Regulation 22.040”~~see Note 4 — Litigation and Contingencies), ~~requires~~we usbelieve, but there is no assurance that, our working capital position will also improve in last six months of fiscal 2012 due to: ~~maintain~~(a) normalization ~~reserves~~of the win percentage in sports book wagering; (~~cash,~~b) an ~~surety~~increased ~~bonds~~demand for our CBS equipment due to certain customers’ desire to obtain new equipment, ~~irrevocable~~who ~~standby~~are ~~letter~~themselves recovering from the economy; (c) deployment of ~~credit,~~new products and services anticipated and (d) ~~etc~~additional or expanded Leroy’s locations.) ~~sufficient~~Based on the foregoing, subject to ~~cover~~the ~~any~~economy ~~outstanding~~and ~~wagering~~the ~~liability~~timely ~~including~~closing ~~unpaid~~of ~~winning~~the ~~tickets~~merger, ~~future~~we ~~tickets~~believe ~~and~~we ~~telephone~~will ~~account~~be ~~deposits.~~able Weto ~~have~~satisfy ~~historically~~our ~~funded~~cash ~~this~~requirements ~~reserve~~until ~~requirement~~the ~~through~~end ~~restricted~~of the fiscal year 2012 from existing cash ~~held~~balances, atanticipated ~~Nevada~~cash ~~State~~flows ~~Bank~~and potential borrowings under the Bridge Facility. Some of the above statements are forward-looking in nature.

~~As of April 30, 2011, we had cash reserves and pledge agreements totaling $1.65 million to satisfy the~~ Regulation ~~22.040~~ ~~requirement~~Regarding in addition to a float amount of $600,000 allowed by the Nevada Gaming Control Board to cover short term fluctuations in the outstanding liability. The $1.65 million amount consisted of our reserve account of $1.2 million held at Nevada State Bank and pledged certificates of deposit totaling $450,000. The pledged certificates initially expired in October 2010, but the parties agreed to extend their respective pledges without designating a specific expiration date. On April 13, 2011 the Nevada Gaming Control Board allowed us to reduce our reserve balance by $750,000 during the off-peak season. The Company reduced its cash deposit at NevadaReserves

11Nevada 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. We have historically funded this reserve requirement through restricted cash held at Nevada State Bank.

~~Table~~As of ~~Contents~~July 31, 2011, we had cash reserves and pledge agreements totaling $1.65 million to satisfy the Regulation 22.040 requirement in addition to a float amount of $600,000 allowed by the Nevada Gaming Control Board to cover short term fluctuations in the outstanding liability. The $1.65 million amount consisted of our reserve account of $1.2 million held at Nevada State Bank and pledged certificates of deposit totaling $450,000. The pledged certificates initially expired in October 2010, but the parties agreed to extend their respective pledges without designating a specific expiration date. On April 13, 2011, the Nevada Gaming Control Board allowed us to reduce our reserve balance by $750,000 during the off-peak season. The Company reduced its cash deposit at Nevada State Bank by $500,000 and reduced the pledge from Robert and Tracey Kocienski by $250,000 on April 19, 2011. We do not anticipate an increase to our reserve for the remainder of this fiscal year. If we are required to increase our reserve and if we 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, and/or an elimination or reduction of telephone wagering accounts, resulting in an adverse change in our operating results. We anticipate being able to increase our reserve balance as a portion of the financing proceeds from the Bridge Facility is allocated for this purpose.

State Bank by $500,000 and reduced the pledge from Robert and Tracey Kocienski by $250,000 as of April 19, 2011. We will likely have to increase our reserve in August 2011, and if we 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, and/or an elimination or reduction of telephone wagering accounts, resulting in an adverse change in our operating results. We anticipate being able to increase our reserve balance as a portion of the financing proceeds from the Bridge Facility is allocated for this purpose.Other

~~Other~~As of July 31, 2011, we had approximately $1.3 million in restricted cash and $450,000 in pledged certificates of deposit on an off-balance sheet arrangement, the majority of which is held to fund winning tickets and future bets as required by Nevada gaming regulations. In April 2011, we borrowed $4.25 million under the Bridge Loan Agreement to satisfy outstanding obligations and transaction costs (approximately $2.3 million) and to provide additional working capital (approximately $1.95 million). On September 2, 2011, the Company borrowed an additional $750,000 as tranche two under the Bridge Facility. Based upon our anticipated operations, we believe that cash on hand, including borrowed funds, operating cash flows, and potential borrowing under the Bridge Facility will be adequate to meet our anticipated working capital requirements, capital expenditures, and scheduled payments for indebtedness for the remainder of fiscal 2012. Our operations are affected by seasonality and the Company is entering the football season which generally has a positive impact on our cash flow. We believe, but there is no assurance that, our cash liquidity position will be sufficient to meet our operating needs, including new business development activities or unforeseen events including the outcome of litigation through fiscal 2012.

AsResults of ~~April 30, 2011, we had approximately $1~~Operations.2 million in cash and cash equivalents and $450,000 in pledged certificates of deposit, the majority of which is held to fund winning tickets and future bets as required by Nevada gaming regulations. In April 2011, we borrowed $4.25 million under the Bridge Loan Agreement to satisfy outstanding obligations and transaction costs (approximately $2.3 million) and to provide additional working capital (approximately $1.95 million). Based upon our anticipated operations, we believe that cash on hand, including borrowed funds, operating cash flows, and potential borrowing under the Bridge Facility will be adequate to meet our anticipated working capital requirements, capital expenditures, and scheduled payments for indebtedness for the remainder of fiscal 2012. Our operations are affected by seasonality. Typically, we anticipate the need for liquidity during the second quarter of each fiscal year which lessens during the third quarter with the commencement of football season. However, with the current NFL lockout in effect, liquidity during football season may be negatively affected. However, even if there is no or a reduced NFL schedule during fiscal 2012, we believe, but there is no assurance that, our cash liquidity position will be sufficient to meet our operating needs, including new business development activities or unforeseen events including the outcome of litigation through fiscal 2012.

~~Results of Operations~~Overview

~~Overview~~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 that is used by us in allocating the appropriate level of resources and assessing performance of each segment. The following table summarizes the consolidated results of our segments.

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 that is used by us in allocating the appropriate level of resources and assessing performance of each segment. The following table summarizes the consolidated results of our segments11

~~Summary~~Table of Contents

	Three Months Ended April 30,
	2011			2010			$ Change			% Change
Revenues	$	2,861,841		$	2,862,833		$	(992	)	0.0	%
Costs and Expenses	4,114,163			3,359,940			754,223			22.4	%
Other Expense, net	395,581			80,707			314,874			390.1	%
(Loss) Before Income Taxes	$	(1,647,903	)	$	(577,814	)	$	(1,070,089	)	(185.2	)%

Summary

Revenues and Direct Costs

	Three Months Ended July 31,												Six Months Ended July 31,
	2011			2010			$ Change			% Change			2011			2010			$ Change			% Change
Revenues	$	2,297,405		$	2,480,425		$	(183,020	)		(7.38	)	$	5,159,246		$	5,343,258		$	(184,012	)		(3.44	)

Costs and Expenses		3,542,670			3,405,062			137,608			4.04			7,656,833			6,765,002			891,831			13.18
Other Income and (Expense)		(157,432	)		(81,806	)		75,626			92.45			(553,014	)		(162,513	)		390,501			240.29

Loss Before Income Taxes	$	(1,402,697	)	$	(1,006,443	)	$	(396,254	)		(39.37	)	$	(3,050,601	)	$	(1,584,257	)	$	(1,466,344	)		(92.56	)

~~The~~Please ~~following~~refer ~~table~~to ~~summarizes~~the ~~changes~~discussions inbelow ~~our~~(“Wagering ~~revenues~~Segment,” “Hotel/Casino Segment,” “Systems Segment,” and ~~direct~~“Other ~~costs~~Income ofand ~~our~~Expense”) ~~operating~~for ~~segments:~~additional information, discussion and analysis.

	Three Months Ended April 30,
	2011		2010		$ Change			% Change
Revenues
Wagering	$	1,693,148	$	1,499,992	$	193,156		12.9	%
Hotel/Casino	469,460		457,459		12,001			2.6	%
Systems	699,233		905,382		(206,149		)	(22.8	)%
	$	2,861,841	$	2,862,833	$	(992	)	0.0	%
Direct costs
Wagering	$	1,386,163	$	1,442,797	$	(56,634	)	(3.9	)%
Hotel/Casino	392,107		434,090		(41,983		)	(9.7	)%
Systems	198,899		247,349		(48,450		)	(19.6	)%
	$	1,977,169	$	2,124,236	$	(147,067	)	(6.9	)%

Three Months Ended July 31, 2011 Compared to the Three Months Ended July 31, 2010

~~Please refer to the discussions below (“~~Wagering Segment,”. The ~~“Hotel/Casino~~Wagering Segment,” ~~“Systems~~includes ~~Segment,”~~the ~~and~~operating ~~“Other~~results ~~Income~~of ~~and~~the ~~Expense”)~~sports ~~for~~gaming ~~additional information~~wagers, ~~discussion~~net of payouts and ~~analysis~~expenses.

12Wagering Segment revenues increased due to the following factors:

~~Table~~During the three months ended July 31, 2011, our amount of ~~Contents~~sports handle decreased by 24.9%, compared to the same period in the prior year, primarily due to the economic conditions as the average wager per ticket has trended downward, the closure of one property and the loss of a contract at another property. 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 experienced a slightly higher win percentage of 3.91% compared to 3.44% in the prior year’s quarter. Our race commissions were down $87,000 (-29.1%) from the prior year’s quarter as we continue to experience the downward trend in race wagering and the impact of the loss of two race book locations.

~~Wagering~~Direct ~~Segment~~costs decreased by $255,000 primarily due to reductions in payroll costs, telephone expense, gaming related taxes due to lower revenues, race related expenses due lower revenues, and lower rent and contingent rent expense for locations that did not achieve volume incentives or were closed.

~~The~~As ~~Wagering~~the ~~Segment~~opportunity ~~includes~~may ~~the~~arise, ~~operating~~we ~~results~~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 ~~gaming~~books ~~wagers~~operated by us will not decrease in the future due to elimination of unprofitable locations, ~~net~~closure of ~~payouts~~host properties, changes in state and/ ~~expenses~~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.

~~Wagering~~Hotel/Casino Segment. The ~~revenues~~Hotel/Casino ~~increased~~Segment ~~due~~includes to the ~~following~~operating ~~factors:~~results of Sturgeon’s Hotel/Casino.

~~During~~Revenues ~~the~~include ~~three~~primarily ~~months~~the ~~ended~~net ~~April 30,~~win ~~2011,~~from ~~our~~casino ~~amount~~gaming ~~of sports handle decreased by 11.4%~~activities, ~~compared to~~ the ~~same~~rental ~~period~~of inhotel ~~the prior year~~rooms, ~~primarily~~and ~~due to~~ the ~~economic~~sale ~~conditions~~of asfood ~~the~~and ~~average~~beverages. Casino ~~wager~~revenues ~~per~~increased ~~ticket~~by ~~has~~$52,000 ~~trended downward~~(21.9%) ~~However,~~as ana ~~increase~~result orof ~~decrease in~~ handle isand ~~not~~wagering ~~necessarily~~activities ~~indicative~~due ofto ana ~~increase~~modification ~~or decrease~~ in ~~revenues or profits due to~~ the ~~volatility~~slot offloor ~~the~~theoretical win ~~percentages~~percentage. Hotel ~~Elimination~~revenues ofincreased ~~unprofitable locations~~$73,000 ~~closures~~(52.5%) ofdue ~~host~~to ~~properties,~~an ~~changes~~18 in% ~~state~~increase ~~and/or~~in ~~federal~~occupancy ~~regulations,~~ and ~~other factors beyond our control may result in declines in handle. We experienced~~ a ~~higher win percentage of 5~~13.5374% ~~compared~~increase ~~to 4.08%~~ in ~~the~~average ~~prior~~room ~~year’s quarter~~rate. Food ~~Our~~and ~~race~~beverage ~~commissions~~revenues ~~were~~declined ~~down~~by $4970,~~758~~000 (-1732.84%) ~~from~~due ~~the~~to ~~prior~~modification ~~year’s~~of ~~quarter~~food asproducts weprovided ~~continue~~and toinstallation ~~experience~~of ~~the~~self ~~downward~~service ~~trend in race wagering~~ordering.

Direct costs decreased ~~primarily~~ due to “across the board” cost reductions, inprimarily payroll ~~costs~~ and ~~lower~~related ~~contingent~~of ~~rent~~$27,000 ~~expense~~and ~~for~~reduced ~~locations~~costs ~~that~~of ~~did~~sales ~~not~~of ~~achieve~~$29,000 ~~volume~~due ~~incentives~~to reduced food sales.

AsSystems ~~the~~Segment. The ~~opportunity~~Systems ~~may~~Segment ~~arise,~~includes wethe ~~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~~results isfrom ~~no assurance that~~ the ~~number~~sales of ~~race~~equipment and ~~sports~~related ~~books~~maintenance ~~operated by us will not decrease in the future due to elimination~~ of ~~unprofitable~~such 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 profitableequipment.

~~Hotel/Casino~~ Systems Segment revenues increased due to higher equipment sales of $86,000 and a reduction in maintenance fees (of $52,000 due primarily to the loss of a multiple location contract.

~~The~~Direct ~~Hotel/Casino~~costs ~~Segment~~increased ~~includes~~in relation to the ~~operating~~higher ~~results~~equipment sales of ~~Sturgeon’s~~$33,000 ~~Hotel/Casino.~~and higher payroll costs of $18,000.

~~Revenues~~Research ~~include primarily the net win from casino gaming activities, the rental of hotel rooms,~~ and ~~the sale of food and beverages~~Development. ~~Casino~~ Research ~~revenues increased by $23,136 (10.5%) as a result of handle~~ and ~~wagering~~development ~~activities~~costs ~~due to a modification in the slot floor theoretical win percentage. Hotel revenues~~ increased $1232,~~274~~000 ~~(14.3%)~~ due to ~~slightly~~additional ~~higher~~development ~~occupancy~~costs ~~and~~associated ~~average~~with ~~room~~expanding ~~rate. Food~~the ~~and~~capability ~~beverage~~of ~~revenues~~our ~~declined~~mobile bywagering ~~$23,409 (-15~~application.~~5%) due modification in food product and self service.~~

~~Direct~~Selling, ~~costs~~General, ~~decreased~~and ~~due~~Administrative. Selling, togeneral, ~~“across~~and ~~the~~administrative ~~board”~~expenses ~~cost~~increased ~~reductions~~approximately $434,000 ~~primarily~~due higher payroll ~~and~~costs ~~related~~of ($39235,000) and higher professional fees related to the Bridge Facility and the Merger Agreement with the Purchaser.

~~Systems Segment~~12

~~Systems~~Table ~~Segment revenues decreased due to fewer equipment sales ($132,000) because no new casinos commenced operations and a reduction in maintenance fees ($74,000) due primarily to the loss~~ of ~~a multiple location contract.~~Contents

~~Direct~~ Depreciation ~~costs~~and Amortization. Depreciation and amortization decreased inapproximately ~~relation~~$54,000 tobecause management has deferred the ~~lower~~routine ~~sales~~replacement ~~volume~~of operating equipment.

~~Research~~Other Income (Expense), net. The other income (expense), net increased approximately $76,000 due additional interest expense related to the Bridge Facility borrowings of $99,000, which was partially offset by a gain on the sale of property and ~~Development~~equipment of $38,000.

~~Research~~Six ~~and~~Months ~~development~~Ended ~~costs~~July ~~increased $38~~31,~~000~~ ~~due~~2011 Compared to ~~activities associated with expanding~~ the ~~capability~~Six ofMonths ~~our~~Ended ~~mobile~~July ~~wagering~~31, ~~application.~~2010

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

~~Selling,~~Wagering ~~general,~~Segment ~~and~~revenues ~~administrative expenses~~ increased ~~approximately $910,000~~ due to ~~non-recurring costs associated with~~ the ~~negotiating~~following ~~and structuring of the Merger Agreement ($450,000) and higher payroll and related costs primarily for executives ($487,000).~~factors:

~~Depreciation~~During the six months ended July 31, 2011, our amount of sports handle decreased by 17.4%, compared to the same period in the prior year, primarily due to the economic conditions as the average wager per ticket has trended downward, the closure of one property and ~~Amortization~~the loss of a contract at another property. 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 experienced a higher win percentage of 4.87% compared to 3.92% in the prior year period. Our race commissions were down $137,000 (-23.7%) from the prior year as we continue to experience the downward trend in race wagering and the impact of the loss of two race book locations.

~~Depreciation~~Direct ~~and~~costs ~~amortization~~ decreased ~~approximately~~by $47311,000 ~~because~~primarily ~~management~~due ~~has~~to ~~deferred~~reductions ~~the~~in ~~routine~~payroll ~~replacement~~costs, ofgaming ~~operating~~related ~~equipment~~taxes due to lower revenues, race related expenses due lower revenues, and lower rent and contingent rent expense for locations that did not achieve volume incentives or were closed.

13As 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.

~~Table~~Hotel/Casino Segment. The Hotel/Casino Segment includes the operating results of ~~Contents~~Sturgeon’s Hotel/Casino.

~~Other~~Revenues ~~Income~~include primarily the net win from casino gaming activities, the rental of hotel rooms, and the sale of food and beverages. Casino revenues increased by $78,000 (~~Expense~~17.1%) as a result of handle and wagering activities due to a modification in the slot floor theoretical win percentage. Hotel revenues increased $85,000 ~~net~~ (37.7%) due to an 18% increase in occupancy and a 13.74% increase in average room rate. Food and beverage revenues declined by $96,000 (-26.1%) due to modification of food products provided and installation of self service ordering.

~~The~~Direct ~~other~~costs ~~income~~decreased ~~(expense), net increased approximately $315,000~~ due to ~~cost~~“across ~~associated with~~ the ~~early~~board” ~~extinguishment~~cost ~~of the Alpine Loan ($127~~reductions,~~000,~~ ~~including~~primarily apayroll ~~prepayment~~and ~~penalty~~related of ($~~100~~32,000 ~~and the write-off of the remaining debt discount~~), ~~additional~~utilities ~~interest expense due to increased borrowings~~ ($6820,000), and anreduced ~~increase~~costs ~~in the estimated fair value~~ of ~~the~~sales ~~warrant liability~~ ($~~154~~32,000) due to anreduced ~~increase~~food ~~in the trading value of the Company’s common stock~~sales.

~~Critical~~Systems ~~accounting~~Segment. The ~~estimates~~Systems Segment includes the operating results from the sales of equipment and ~~policies~~related maintenance of such equipment.

~~Although~~ Systems ~~our~~Segment ~~financial~~revenues ~~statements~~decreased ~~necessarily~~due ~~make~~to ~~use~~a ofreduction ~~certain accounting estimates by our management, we believe that, except as discussed~~ in ~~our~~equipment ~~2011~~sales ~~Form 10-K, 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~~$46,000 ~~or that if changed are likely to affect future periods. On an ongoing basis, we evaluate our estimates~~ and ~~judgments,~~maintenance ~~including~~fees ~~those related to revenue recognition, income taxes, estimating the fair value~~ of ~~the warrant liability~~$126,000 ~~loss~~due ~~contingencies,~~primarily and stock-based compensation. We base our estimates and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. There have been no changes to ~~our critical accounting policies, estimates, and estimate methodologies since~~ the ~~filing~~loss of ~~our~~a ~~2011~~multiple ~~Form 10-K.~~location ~~See Note 1 to Consolidated Financial Statements in the Form 10-K for additional discussion of our significant accounting estimates and policies~~contract.

~~Recent~~Direct ~~Accounting~~costs ~~Pronouncements~~increased slightly by $6,000 with various expenses having nominal changes.

NoResearch ~~recently~~and ~~issued~~Development. Research ~~accounting~~and ~~pronouncements~~development ~~not~~costs ~~yet~~increased ~~adopted~~$70,000 ~~are~~due ~~expected~~ to ~~have~~additional adevelopment ~~material~~costs ~~impact~~associated onwith ~~our~~expanding ~~future~~the ~~financial~~capability ~~position, results~~ of ~~operations,~~our ormobile ~~cash~~wagering ~~flows~~application.

~~Item~~Selling, 3General, and Administrative. Selling, ~~Quantitative~~general, and ~~Qualitative~~administrative ~~Disclosures~~expenses ~~About~~increased ~~Market~~approximately ~~Risk~~$1,344,000 due higher payroll costs of $697,000 and higher professional fees related to the Bridge Facility and the Merger Agreement with the Purchaser which included one time costs of $450,000.

~~Not~~Depreciation ~~required~~and Amortization. Depreciation and amortization decreased approximately $100,000 because management has deferred the routine replacement of operating equipment.

~~Item~~Other 4Income (Expense), net. The ~~Controls~~other income (expense), net increased approximately $390,000 due to costs associated with the early extinguishment of the Alpine Loan ($127,000, including a prepayment penalty of $100,000 and ~~Procedures~~the write-off of the remaining debt discount), additional interest expense related to the Bridge Facility, additional interest expense due to increased borrowings of $158,000, and an increase in the value of warrant liability of $158,000.

~~Evaluation of Disclosure Controls and Procedures~~13

WeTable ~~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.Contents

~~Our~~ Critical ~~management,~~accounting ~~with~~estimates ~~the participation of our Chief Executive Officer~~ and ~~Principal Financial Officer, has completed an evaluation of the effectiveness of the disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(c)~~policies. ~~Based on that evaluation, we concluded that the disclosure controls and procedures were not effective due to a late Form 10-K filed on May 18, 2011, which should have been filed by May 17, 2011.~~

~~Changes~~Although our financial statements necessarily make use of certain accounting estimates by our management, we believe that, except as discussed in ~~Internal~~our ~~Control~~2011 ~~over~~Form 10-K, ~~Financial~~we ~~Reporting~~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. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, income taxes, estimating the fair value of the warrant

~~During~~liability, ~~the~~loss ~~quarter ended April 30~~contingencies, ~~2011,~~and ~~there~~stock-based ~~were~~compensation. ~~changes~~We tobase our ~~internal~~estimates ~~controls over financial reporting that improved the effectiveness of our review~~ and ~~approval~~judgments ofon ~~account~~historical ~~analysis~~experience and ~~journal~~on ~~entries~~various ~~associated~~other ~~with~~factors ~~our~~that ~~periodic~~we ~~closing~~believe ~~processes~~are ~~that~~reasonable ~~have~~under ~~substantially~~the ~~mitigated~~circumstances, athe ~~group~~results of ~~previously~~which ~~reported~~form ~~deficiencies. Such~~the ~~deficiencies~~basis ~~were~~for ~~caused~~making byjudgments about the ~~departure~~carrying value of ~~our~~assets ~~prior~~and ~~chief~~liabilities ~~financial~~that ~~officer~~are ~~and~~not ~~certain~~readily ~~accounting~~apparent ~~personnel~~from inother ~~February and~~sources. ~~March 2010~~There ~~and~~have ~~the~~been ~~unusual~~no ~~time~~changes ~~demands~~to on our ~~financial~~critical ~~personnel~~accounting ~~related~~policies, toestimates, ~~the~~and ~~William~~estimate ~~Hill~~methodologies ~~transactions. There~~since ~~were~~the nofiling ~~other~~of ~~changes to~~ our ~~internal~~2011 ~~controls~~Form 10-K. ~~over~~See ~~financial~~Note 1 ~~reporting~~to ~~during~~Consolidated ~~the~~Financial ~~quarter,~~Statements ~~that~~in ~~materially~~the ~~affected~~Form 10-K orfor ~~are~~additional ~~reasonably~~discussion ~~likely~~of ~~to materially affect~~ our ~~internal~~significant ~~controls~~accounting ~~over~~estimates ~~financial~~and ~~reporting~~policies.

~~PART II~~Recent —Accounting ~~OTHER INFORMATION~~Pronouncements

~~Item~~No 1.recently ~~Legal~~issued ~~Proceedings~~accounting pronouncements not yet adopted are expected to have a material impact on our future financial position, results of operations, or cash flows.

~~For~~ Item a3. Quantitative ~~description~~and ofQualitative ~~our~~Disclosures ~~Legal~~About ~~Proceedings,~~Market ~~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~~Risk.

14Not required.

~~Table~~Item of4. Controls ~~Contents~~and Procedures.

~~Item~~Evaluation ~~1A.~~of ~~Risk~~Disclosure ~~Factors~~Controls and Procedures

AWe ~~description~~maintain ofdisclosure ~~our~~controls ~~risk~~and ~~factors~~procedures ~~can~~that beare ~~found~~intended into ~~Item~~ensure ~~1A.~~that ofinformation ~~our~~required ~~Annual~~to ~~Report~~be ondisclosed ~~Form 10-K~~in ~~for~~our reports under the ~~fiscal~~Securities ~~year~~Exchange ~~ended~~Act ~~January 31~~of 1934, ~~2011.~~as ~~There~~amended ~~were~~(Exchange noAct), ~~material~~is ~~changes~~recorded, toprocessed, ~~those~~summarized ~~risk~~and ~~factors~~reported ~~during~~within the ~~three~~time ~~months~~period ~~ended~~specified ~~April~~in the SEC’s rules ~~30,~~and ~~2011~~forms and that such information is accumulated and communicated to our management.

~~Item~~Our 2.management, ~~Unregistered~~with ~~Sales~~the participation of ~~Equity~~our ~~Securities~~Chief Executive Officer and ~~Use~~Principal Financial Officer, has completed an evaluation of ~~Proceeds~~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 due to a late Form 10-K filed on May 18, 2011, which should have been filed by May 17, 2011.

~~Not~~Changes ~~applicable.~~in Internal Control over Financial Reporting

~~Item~~During 3.the ~~Defaults~~quarter ~~Upon~~ended ~~Senior~~July ~~Securities~~31, 2011, there were no changes to our internal controls over financial reporting that materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

~~Not applicable.~~14

~~Item~~Table 4.of ~~Reserved.~~Contents

~~Item~~ PART II 5.— ~~Other~~OTHER ~~Information.~~INFORMATION

~~Not~~Item ~~applicable~~1. Legal Proceedings

~~Item~~ For 6.a ~~Exhibits~~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.

EXHIBIT NUMBER		DESCRIPTION
2.1		Agreement and Plan of Merger, dated as of April 13, 2011, among William Hill Holdings Limited, AW Sub Co. and American Wagering, Inc. incorporated by reference to registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on April 14, 2011.
10.1		Termination of Employment Agreement and Waiver of Payment Agreement dated April 13, 2011 between Victor Salerno, American Wagering, Inc. and William Hill Holdings Limited (to be effective upon consummation of the merger with William Hill Holdings Limited) incorporated by reference to registrant’s Form 10-K, as filed with the Securities and Exchange Commission on May 18, 2011.
10.2		Amended and Restated Employment Agreement between American Wagering, Inc. and John English, dated April 13, 2011 incorporated by reference to registrant’s Form 10-K, as filed with the Securities and Exchange Commission on May 18, 2011.
10.3		Bridge Loan Agreement, dated as of April 13, 2011, by and among American Wagering, Inc., the Guarantors (as defined therein) and William Hill Holdings Limited incorporated by reference to registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on April 14, 2011.
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

Item 1A. Risk Factors

15A 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, 2011. There were no material changes to those risk factors during the six months ended July 31, 2011.

~~Table~~Item 2. Unregistered Sales of ~~Contents~~Equity Securities and Use of Proceeds.

~~SIGNATURES~~ Not applicable.

InItem ~~accordance~~3. Defaults ~~with~~Upon ~~the~~Senior ~~requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized~~Securities.

~~AMERICAN~~Not ~~WAGERING, INC~~applicable. Dated: June 14, 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

16Item 4. Reserved.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

EXHIBIT NUMBER		DESCRIPTION
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

101.INS**		XBRL Instance

101.SCH**		XBRL Taxonomy Extension Schema

101.CAL**		XBRL Taxonomy Extension Calculation

101.DEF**		XBRL Taxonomy Extension Definition

101.LAB**		XBRL Taxonomy Extension Labels

101.PRE**		XBRL Taxonomy Extension Presentation

**XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Act of 1934, as amended, and is otherwise not subject to liability under these sections.

Table of Contents

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.



Date:	September 14, 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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