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: October 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 x No o

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

Large accelerated filero		Accelerated filer o

Non-accelerated filero		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 December 15, 2011, there were 8,404,879 shares of common stock, par value $0.01, outstanding.

TABLE OF CONTENTS

		Page

PART I — FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	1

	Balance Sheets	1

	Statements of Operations	2

	Statements of Cash Flows	3

	Notes to Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16

Item 4.	Controls and Procedures	16

PART II — OTHER INFORMATION		17

Item 1.	Legal Proceedings	17

Item 1A.	Risk Factors	17

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3.	Defaults Upon Senior Securities	17

Item 4.	Reserved	17

Item 5.	Other Information	17

Item 6.	Exhibits	17

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

AMERICAN WAGERING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	October 31 2011			January 31, 2011
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Equivalents	$	1,973,858		$	1,485,148
Restricted Cash		1,491,472			1,762,396
Accounts Receivable		228,068			209,737
Inventories		134,898			122,228
Prepaid Expenses		571,995			359,758
		4,400,291			3,939,267

Property and Equipment, net of accumulated depreciation and amortization		1,954,778			2,454,488
Goodwill		103,725			103,725
Other		160,406			200,049
	$	6,619,200		$	6,697,529

LIABILITIES AND STOCKHOLDERS’ EQUITY DEFICIENCY
CURRENT LIABILITIES
Short-Term Debt, net of amortized discount of $47,889 as of January 31, 2011	$	—		$	452,111
Current Portion of Long-Term Debt		1,165,394			170,604
Accounts Payable		622,401			1,624,448
Accrued Expenses		497,276			607,081
Unpaid Winning Tickets		682,291			604,053
Customer Deposits and Other		1,662,978			1,382,553
		4,630,340			4,840,850

Long-Term Debt, less current portion		6,746,334			2,793,749
Warrant Liability		408,000			250,294
Redeemable Series A Preferred Stock (3,238 shares)		323,800			323,800
Other		426,374			242,127
		12,534,848			8,450,820

STOCKHOLDERS’ EQUITY DEFICIENCY
Series A Preferred Stock — 10.00% cumulative; $100.00 par and liquidation value; 18,924 shares authorized; 10,924 shares outstanding		1,092,400			1,092,400
Common Stock - $0.01 par value; 25,000,000 shares authorized; 8,404,879 shares issued and outstanding		84,049			84,049
Additional Paid-In Capital		13,298,845			13,010,578
Deficit		(20,063,449	)		(15,612,825	)
Treasury Stock, at cost (61,100 common shares at cost)		(327,493	)		(327,493	)
		(5,915,648	)		(1,753,291	)
	$	6,619,200		$	6,697,529

See Notes to Consolidated Financial Statements

AMERICAN WAGERING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended October 31,						For the Nine Months Ended October 31,
	2011			2010			2011			2010
REVENUES:
Wagering	$	1,096,785		$	2,382,578		$	3,703,447		$	5,068,794
Hotel/Casino		603,921			618,311			1,723,616			1,670,512
Systems		725,228			635,536			2,158,118			2,240,377
		2,425,934			3,636,425			7,585,181			8,979,683
OPERATING COSTS AND EXPENSES:
Direct Costs:
Wagering		1,373,900			1,653,595			3,963,723			4,554,750
Hotel/Casino		446,244			520,392			1,279,367			1,470,191
Systems		242,284			199,783			675,570			626,951
		2,062,428			2,373,770			5,918,660			6,651,892
Operating Expenses:
Research and Development		209,983			175,439			626,638			521,757
Selling, General and Administrative		1,077,515			772,768			4,102,364			2,453,639
Depreciation and Amortization		149,207			214,459			508,305			674,151
		1,436,705			1,162,666			5,237,307			3,649,547
		3,499,133			3,536,436			11,155,967			10,301,439

OPERATING INCOME (LOSS)		(1,073,199	)		99,989			(3,570,786	)		(1,321,756	)

OTHER INCOME (EXPENSE):
Interest Income		498			657			1,260			4,722
Loss on Debt Extinguishment		—			—			(126,960	)		—
Interest Expense		(221,399	)		(124,969	)		(568,894	)		(305,793	)
Change in Estimated Fair Value of Warrant Liability		—			(201,547	)		(157,706	)		(166,547	)
Litigation Expense		—			(2,928	)		(42	)		(13,614	)
Other		1			2,482			78,428			(7,586	)
		(220,900	)		(326,305	)		(773,914	)		(488,818	)

NET LOSS	$	(1,294,099	)	$	(226,316	)	$	(4,344,700	)	$	(1,810,574	)

NET LOSS PER COMMON SHARE –BASIC AND DILUTED	$	(0.16	)	$	(0.03	)	$	(0.53	)	$	(0.23	)

See Notes to Consolidated Financial Statements

AMERICAN WAGERING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Nine Months Ended October 31,
	2011			2010

OPERATING ACTIVITIES
Net cash used in operating activities	$	(3,918,841	)	$	(323,225	)

INVESTING ACTIVITIES
(Increase) decrease in restricted cash		712			(80,000	)
Withdrawal of restricted cash		270,212			46,852
Proceeds from the sale of property and equipment		73,521			3,885
Purchase of property and equipment		(43,713	)		(10,188	)
Net cash provided by (used in) investing activities		300,732			(39,451	)

FINANCING ACTIVITIES
Repayment of borrowings		(787,257	)		(105,989	)
Proceeds from borrowings		5,000,000			750,000
Dividends on preferred stock		(105,924	)		(105,924	)
Net cash provided by financing activities		4,106,819			538,087

NET INCREASE IN CASH AND EQUIVALENTS		488,710			175,411

CASH AND EQUIVALENTS, BEGINNING OF PERIOD		1,485,148			2,084,268

CASH AND EQUIVALENTS, END OF PERIOD	$	1,973,858		$	2,259,679

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	385,123		$	305,793

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

AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 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 William Hill Holdings, 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 those held by 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 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, 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 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 Loan and / or execute its business plans, possibly leading to the financial and operational failure of the Company.

2. Net (Loss) Per Common Share

Basic net income (loss) per common share is calculated based on the weighted-average number of shares of common stock outstanding during the reporting period. Diluted net income per common share is ordinarily calculated giving effect to all potentially dilutive common shares, assuming such shares were outstanding during the reporting period. For loss periods, such potentially dilutive common

shares are excluded from the calculation to avoid an anti-dilutive effect.

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

	Numerator
Three Months Ended October 31,	2011			2010

Net loss	$	(1,294,099	)	$	(226,316	)
Less preferred stock dividends		(35,696	)		(35,696	)
Net loss applicable to common shares, basic and diluted	$	(1,329,795	)	$	(262,012	)

	Denominator
		2011			2010
Weighted-average common shares outstanding, basic		8,343,779			8,343,779
Effect of dilutive stock options		1,729,248			200,691
Weighted-average common shares outstanding, diluted		10,073,027			8,544,470

	Numerator
Nine Months Ended October 31,		2011			2010

Net loss	$	(4,344,700	)	$	(1,810,574	)
Less preferred stock dividends		(105,924	)		(105,924	)
Net loss applicable to common shares, basic and diluted	$	(4,450,624	)	$	(1,916,498	)

	Denominator
		2011			2010
Weighted-average common shares outstanding, basic		8,343,779			8,295,153
Effect of dilutive stock options		1,570,965			48,905
Weighted-average common shares outstanding, diluted		9,914,744			8,344,058

3. Income Taxes

At October 31, 2011, the Company had federal tax net operating loss (“NOL”) carryforwards available to potentially reduce future tax obligations in the aggregate amount of approximately $9.7 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. Based upon its historical performance of losses in five of the past eleven years, Management believes that it is 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.

The Company’s 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.

4. Litigation and Other Contingencies

Racusin. For the nine month periods ended October 31, 2011 and 2010, litigation expense of $42 and $13,614, respectively, is included in other income (expense) and consists of judgment interest incurred on our previously recorded obligation due to

Michael Racusin. Except for the order granting partial summary judgment in favor of the Company entered on October 7, 2011 (see below), there have been no material legal changes for this matter during the quarter, from the fiscal year ended January 31, 2011. A summary of the various proceedings in connection with this matter follows.

The 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 (the “Interpleader Action”). On or about August 2, 2005, the Bankruptcy Court entered an order approving the interpleader (the “Interpleader Order”), whereby the Company placed 250,000 shares of common stock with the Clerk of the Court as payment of the Racusin Claim while Racusin pursued his appeal of the Bankruptcy Appellate Panel’s decision in our favor subordinating Racusin’s Claim 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 stock would be substituted with cash 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.

On June 28, 2007, the 9th Circuit Court of Appeals entered its final opinion, which reversed the Bankruptcy Appellate Panel’s decision, thus holding that Racusin’s Claim against the Company was not to be subordinated pursuant to Section 510(b) of the Bankruptcy Code. The Company filed a Form 8-K on July 6, 2007, in response to the 9th Circuit’s reversal of the Bankruptcy Appellate Panel.

On November 2, 2007, the Bankruptcy Court heard an argument to determine whether the Company could withdraw its 250,000 shares of common stock and whether it could begin depositing funds pursuant to an updated payment schedule attached to the Company’s motion (the “Revised Payment Schedule”). The Revised Payment Schedule estimated post-judgment interest at 8% per annum, compounded, from March 11, 2005, without taking into consideration the Interpleader Order of July 27, 2005 or the Stay Order of August 31, 2005, among other matters.

Racusin filed a claim against the Company for breach of the Settlement Agreement on January 14, 2009, and motion for summary judgment on that claim to accelerate amounts due, with penalty interest, on February 24, 2009. On August 18, 2009, the Court entered an order granting summary judgment in favor of Racusin, which accelerated amounts due and imposed penalty interest at 12% per annum. The Company moved for rehearing in spring 2010 and at a hearing on April 2, 2010, the Court orally ruled that it was vacating the prior August 18, 2009 order granting summary judgment in favor of Racusin, which oral ruling was later entered in a written order on December 23, 2010. Based upon the Court’s 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 as a result of 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 reverse the Bankruptcy Appellate Panel, on April 20, 2011 the Company filed a motion for summary judgment seeking dismissal of Racusin’s 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.

On July 27, 2011, the Court made oral findings and conclusion in favor of the Company on its motion for summary judgment, which was entered into written findings on October 7, 2011. Specifically, the Court ruled that Racusin’s complaint against the Company for breach of the Settlement Agreement was dismissed. The Court also ruled that as to the Company’s Interpleader Action, interest did not accrue during the time when the Company previously deposited with the Court the 250,000 shares of AWI common stock through at least the date of the final decision of the 9th Circuit Court of Appeals on June 28, 2007. The Court also ruled that the Company had satisfied its obligations in full to Racusin under the Settlement Agreement and thus did not have to make any further payments to Racusin.

The Court also ruled, however, that it would not make a determination on the amount that the Company allegedly overpaid under the Settlement Agreement and thus did not release such alleged overpayment back to the Company without further proceedings to determine what rights, if any, the Company, Racusin and certain other parties in interest had to such funds, as well as allowing for appeals to be taken from the Court’s decisions.

On October 7, 2011, Racusin noticed his intent to appeal the Court’s decision granting the Company summary judgment to the United States Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals. Racusin filed his appellate brief on November 28, 2011, under case number BAP. No. NV-11-1549. If the Company were to prevail through the appellate process in accordance with the Court’s findings and conclusions from September 26, 2011, it is estimated that the Company’s payments to the Court through October 31, 2011, in connection with these matters, have exceeded the amount due by $239,000, including the $160,000 reflected in prepaid expenses as of such date.

Internet 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.

Economic Conditions and Related Risks and Uncertainties. Because the Company operates primarily in the larger metropolitan areas of 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. Nonetheless, a significant portion of the Company’s wagering revenue derives from professional basketball, and the recent National Basketball Association lockout did negatively impact the Company’s wagering revenue segment. 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 material adverse impact on future operations. In addition, because the Company generates substantial revenue from system sales and maintenance to a relatively small population of potential customers, a decline in the size, demand or number of these contracts could also adversely affect future operations.

Nevada’s unemployment rate still remains above 10%, which is a negative indicator of economic recovery for the state economy, from which the Company derives nearly all its revenue. As a result of the poor economic conditions, the Company has experienced reduced customer spending over the past three years, both from equipment and software sales and from customer wagering revenue.

The Company often carries cash and cash equivalents, including statutorily restricted amounts, on deposit with financial institutions substantially in excess of federally-insured limits. 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.

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

For the nine months ended October 31, 2011 and 2010, activity related to both the employee and directors’ stock option plans was as follows:

	Option Shares			Weighted- Average Exercise Price
Balance at February 1, 2011		2,661,480		$	0.51
Granted		—
Exercised		—
Forfeited or canceled		(207,000	)		2.00
Balance at October 31, 2011		2,454,480		$	0.38

Balance at February 1, 2010		647,299		$	1.83
Granted		1
Exercised		—
Forfeited or canceled		(30,000	)		.96
Balance at October 31, 2010		617,300		$	1.87

As of October 31, 2011, stock options exercisable and available for future grants for both current stock option plans are as follows:

	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Life
Exercisable	1,625,216	$	0.44	8.30 years
Available for future grants	450,000	—		—

Non-cash stock-based compensation of $43,513 and $10,000 is included the line item “Selling, General and Administrative Expenses” on the consolidated statements of operations for the three months ended October 31, 2011 and 2010, respectively. Non-cash stock-based compensation of $279,941 and $40,972 , is included in the line item “Selling, General and Administrative Expenses” on the consolidated statements of operations for the nine months ended October 31, 2011 and 2010, respectively.

Services contributed by Victor and Terina Salerno and credited to additional paid-in capital for the three and nine months ended October 31, 2011 and 2010, totaled $0 and $26,952 and $8,326 and $106,581, respectively. Mr. Salerno also provided the Company with a $250,000 interest free revolving line of credit on May 17, 2010, which was fully drawn and repaid from the proceeds of the Bridge Facility as of October 31, 2011.

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 were 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 closing 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, which is agreed to be $625,000, based on an enterprise value of the Merger of $18 million.

In 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 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 volatility factor of 206% initially (approximately 1.5% risk-free interest rate and an internal stock price volatility of 231% as of October 31, 2011), the warrants were fully valued at $408,000 and recorded as a warrant liability.

6. Business Segments

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

	For the Three Months Ended October 31,						For the Nine Months Ended October 31,
	2011			2010			2011			2010
Revenues:
Wagering	$	1,096,785		$	2,382,578		$	3,703,447		$	5,068,794
Hotel Casino		603,921			618,311			1,723,616			1,670,512
Systems		725,228			635,536			2,158,118			2,240,377
	$	2,425,934		$	3,636,425		$	7,585,181			8,979,683
Operating income (loss):
Wagering	$	(821,502	)	$	379,905		$	(2,359,646	)	$	(605,531	)
Hotel Casino		40,886			(44,418	)		97,583			(246,223	)
Systems		(292,583	)		(235,498	)		(1,308,723	)		(470,002	)
		(1,073,199	)		99,989			(3,570,786	)		(1,321,756	)
Other expense, net		(220,900	)		(326,305	)		(773,914	)		(488,818	)
Net Loss	$	(1,294,099	)	$	(226,316	)	$	(4,344,700	)	$	(1,810,574	)

Additional information for the Hotel Casino segment follows:

	For the Three Months Ended October 31,					For the Nine Months Ended October 31,
	2011		2010			2011		2010
Revenues:
Casino	$	267,220	$	239,181		$	804,119	$	697,715
Hotel		197,830		156,702			508,931		382,649
Food/Beverage		138,871		222,428			410,566		590,148
	$	603,921	$	618,311		$	1,723,616	$	1,670,512
Direct Costs and Expenses:
Casino		126,964		137,558			385,835		399,653
Hotel		66,791		60,046			184,841		158,696
Food/Beverage		181,117		249,645			511,963		663,946
Unallocated		71,372		73,143			196,727		247,896
		446,244		520,392			1,279,366		1,470,191
Selling, General and Administrative		70,450		80,670			199,995		260,610
Depreciation and Amortization		46,341		61,667			146,672		185,934
		563,035		662,729			1,626,033		1,916,735

Operating Income (Loss)	$	40,886	$	(44,418	)	$	97,583	$	(246,223	)

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

Overview.

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.” No assurance can be given as to the ultimate outcome of any forward-looking 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 the date made. We do not intend, and undertake no obligation to update our forward-looking statements to reflect future events or circumstances.

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

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

“AWI” means American Wagering, Inc.

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

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

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

“ExactGeo Media” means ExactGeo Media, LLC, a wholly-owned subsidiary of AWI.

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

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

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

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

AWI is a leader in the design, development, and marketing of 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.

Leroy’s provides 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 54 sportsbooks and 56 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 CBS’s advanced betting terminals such as the dual faced-touchscreen terminals, and (iii) providing self-service products 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 profitability. 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, or 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.

CBS develops, sells and maintains computerized race and sports wagering systems for the gaming industry, namely our contract customers who want to operate their own race and sports book. CBS also markets, distributes, installs, and 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.

u	Upright kiosk, which was jointly developed with a third party, is a free standing 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.

u	Carrel kiosk is designed for the race bettor who never wants to leave his race carrel. The carrel kiosk allows him to place race and sports bets from the comfort of his race carrel, watch the races (or sporting events), and check results.

u	Account Wagering Kiosk which is designed for use in areas beyond the traditional sportsbook, in conjunction with telephone account wagering. That is, once the bettor establishes a wagering account, he can bet from his account while watching the sporting event at his favorite bar or tavern.

The LEROY’S® APP©. On August 31, 2010, we announced the introduction of the LEROY’S® APP©, a mobile device application for smartphones that permits a Bettor, with a pre-established telephone wagering account, to bet from his 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 we have a patent pending on the intellectual property. We have been approved by the Nevada Gaming Control Board to make the application available on Research In Motion®’s BlackBerry® devices, Google®’s Android® operating system v. 2.1 and newer, and Apple, Inc’s. iPhone®. Additionally, we have more recently been approved for use on the Samsung® Galaxy® Tablet, which uses the Google® Android® operating system.

Sturgeon’s operates a hotel/casino in Northern Nevada and is heavily dependent on the drive-through market on I-80. Sturgeon’s continuously reviews and modifies existing procedures and personnel to increase efficiency, reduce expenses, and strengthen the financials as Nevada, both Northern and Southern, continues to experience high unemployment, high foreclosures for residential homes and business failures. Accordingly, these factors will likely continue to have an adverse affect on our business conditions and financial performance, despite recent improvement in profitability resulting from changes to the average theoretical hold of our slot machines and certain cost cutting measures.

ExactGeo Media is an 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 our mobile 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.”

Liquidity and Capital Resources.

Overview

On 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.

In 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. The shortfall of 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 borrowed an additional $750,000 under the Bridge Loan Agreement for general working capital 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.

Nevada’s unemployment rate still remains above 10%, which is a negative indicator of economic recovery for the state economy, from which the Company derives nearly all its revenue. As a result of the poor economic conditions , the Company has experienced over three years of reduced customer spending, whether from equipment and software sales or from customer wagering revenue. The recent National Basketball Association lockout also has adversely affected our wagering revenue.

Cash Flow

As of October 31, 2011, we had working capital deficit of ($230,000), compared to working capital of $182,000 at October 31, 2010. The proceeds of $4.25 million under the Bridge Facility were used to payoff the short-term debt obligations to Alpine Advisors, LLC. ($500,000) and Victor Salerno ($250,000), as well as, reduce accounts payable and fund the cash flow shortfalls experienced during the nine months ended October 31, 2011. On September 2, 2011, the Company borrowed an additional $750,000 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, based upon the full enterprise value of the Merger of approximately $18 million, will be due.

In 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 may improve during the fourth quarter of fiscal 2012 due to: normalization of the win percentage in sportsbook wagering; deployment of new products and services anticipated; and additional or expanded Leroy’s locations. Based on the foregoing, subject to the economy and the timely closing of the Merger, which we expect will occur within the first half of 2012, we believe we will be able to satisfy our cash requirements until the expected closing of the Merger Agreement from existing cash balances, anticipated cash flows and potential borrowings under the Bridge Facility. Some of the above statements are forward-looking in nature.

Regulation Regarding Reserves

Nevada Gaming Commission Regulation 22.040 (“Regulation 22.040”) requires us to maintain reserves (cash, surety bonds, irrevocable standby letter of credit, etc.) sufficient to cover any outstanding wagering liability including unpaid winning tickets, future tickets and telephone account deposits. We have historically funded this reserve requirement through restricted cash held at Nevada State Bank.

Previously 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.

On September 14, 2011, the Company increased its reserve account with Nevada State Bank by $250,000, as the football season is our peak season. As of October 31, 2011, we had cash reserves and pledge agreements totaling $1.9 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 $1.9 million amount consisted of our reserve account of $1.45 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. We do not anticipate an increase to our reserve for the remainder of this fiscal year. If, however, we are required to increase our reserve, there is no assurance that we will be able to borrow additional funds under the Bridge Facility as any additional advances are in the Purchasers sole discretion. If we are unable to obtain the additional funds to increase our reserve, 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.

Other

As of October 31, 2011, we had approximately $1.45 million in restricted cash and cash equivalents 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 under the Bridge Facility for general working purposes. 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 resolution of the NBA lockout and the football season should have positive effects on our cash flow for the remainder of the fiscal year. 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

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.

Summary

	Three Months Ended October 31,												Nine Months Ended October 31,
	2011			2010			$ Change			% Change			2011			2010			$ Change			% Change
Revenues	$	2,425,934		$	3,636,425		$	(1,210,491	)		(33.29	)	$	7,585,181		$	8,979,683		$	(1,394,502	)		(15.53	)

Costs and Expenses		3,499,133			3,536,436			(37,303	)		(1.05	)		11,155,967			10,301,439			854,528			8.30
Other Income and (Expense)		(220,900	)		(326,305	)		(105,405	)		(32.30	)		(773,914	)		(488,818	)		285,096			58.32

Loss Before Income Taxes	$	(1,294,099	)	$	(226,316	)	$	(1,067,783	)		(471.81	)	$	(4,344,700	)	$	(1,810,574	)	$	(2,534,126	)		(139.96	)

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

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

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

Wagering Segment revenues decreased due to the following factors:

During the three months ended October 31, 2011, our amount of sports handle increased by 2.3%, compared to the same period in the prior year, primarily due to an increase in account wagering which may be attributed to use of the mobile phone application and the addition of several new bar locations throughout Las Vegas. 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. We experienced a lower win percentage of 3.0% compared to 7.2% in the prior year’s quarter, which was primarily due to a significantly lower win percentage in baseball from the prior year's quarter consistent with the industry performance and a lower than normal win percentage in football from the prior year's quarter which was not consistent with the industry performance. 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. Also our race commissions were down $68,000 (-29%) 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.

Direct costs decreased by $280,000 in the period primarily due to reductions in variable expenses directly related to revenue productions including a reduction in gaming taxes of $123,000, rent paid to book locations of $52,000, race related expenses such as track fees wire fees, racing forms and other related fees totaling $57,000, and advertising expense $62,000.

As the opportunity may arise and in accordance with our Bridge Facility and Merger Agreement, 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.

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

Revenues 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 $28,000 (11.7%) as a result of handle and wagering activities due to a modification in the slot floor theoretical win percentage. Hotel revenues increased $41,000 (26.2%) due to a 9.4 % increase in occupancy and an 8.0% increase in average room rate. Food and beverage revenues declined by $84,000 (-37.6%) as a result of reduced banquet room reservations.

Direct costs decreased $74,000 due to “across the board” cost reductions, primarily payroll and related of $31,000 and reduced costs of sales of $31,000 due to reduced food sales.

Systems Segment. Systems Segment revenues increased due to higher equipment sales of $81,000 and a slight increase in maintenance fees of $8,000.

Direct costs increased $43,000 related to the higher equipment costs of sales of $26,000 and higher repairs and maintenance expense of $18,000.

Research and Development. Research and development costs increased $35,000 due to additional development costs associated with expanding the capability of our mobile wagering application.

Selling, General, and Administrative. Selling, general, and administrative expenses increased approximately $305,000 due higher payroll costs of $211,000 and higher professional fees of $78,000 related primarily to legal expense related to the Racusin matter.

Depreciation and Amortization. Depreciation and amortization decreased approximately $65,000 because management has deferred the routine replacement of operating equipment.

Other Income (Expense), net. The other income (expense), net decreased approximately $105,000 due to additional interest expense primarily related to the Bridge Facility borrowings of $96,000 which was offset by a reduction in the expense for warrant liability of $201,000.

Nine Months Ended October 31, 2011 Compared to the Nine Months Ended October 31, 2010

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

Wagering Segment revenues decreased due to the following factors:

During the nine months ended October 31, 2011, our amount of sports handle decreased by 10.3%, compared to the same period in the prior year, primarily due to 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 lower win percentage of 4.11% compared to 5.07% in the prior year period. The win percentage was lower than the prior year's nine month period primarily due to a significantly lower win percentage in baseball which was consistent with the industry performance and a lower than normal win percentage in football. Our sports revenue was $1,160,000 below the same period last year due to decreased handle and lower win percentage. Our race commissions were down $205,000 (-25.2%) 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.

Direct costs decreased by $591,000 primarily due to reductions in variable expenses directly related to revenue, such as, taxes and licenses of $153,000, rent paid to book locations of $143,000, and race related expenses including wire services, racing forms, and other related fees of $64,000. Additional expenses below last year included advertising of $46,000, supplies of $40,000, and payroll costs of $113,000.

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

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

Revenues 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 $106,000 (15.3%) as a result of handle and wagering activities due to a modification in the slot floor theoretical win percentage. Hotel revenues increased $126,000 (33.0%) due to an 11.1 % increase in occupancy and an 18.7% increase in average room rate. Food and beverage revenues declined by $180,000 (-30.4%) due to modification of food products provided and installation of self service ordering.

Direct costs decreased $190,000 due to “across the board” cost reductions, primarily payroll and related of $71,000, utilities of $28,000 and reduced costs of sales of $63,000 due to reduced food sales.

Systems Segment. Systems Segment revenues decreased $82,000 (-3.7%) due to a reduction in maintenance fees of $117,000 due to the loss of a multiple location contract which was partially offset by an increase in sales of $35,000.

Direct costs increased by $49,000 with cost of goods sold increasing by $14,000 and repairs and maintenance increasing by $26,000.

Research and Development. Research and development costs increased $105,000 due to additional development costs associated with expanding the capability of our mobile wagering application.

Selling, General, and Administrative. Selling, general, and administrative expenses increased approximately $1,649,000 due to higher payroll costs of $932,000 and higher professional fees of $676,000 related to the Bridge Facility and the Merger Agreement including one time costs of $450,000, and increased Racusin legal costs.

Depreciation and Amortization. Depreciation and amortization decreased approximately $166,000 because management has deferred the routine replacement of operating equipment.

Other Income (Expense), net. The other income (expense), net increased approximately $285,000 due to costs associated with the early extinguishment of the Alpine Loan ($127,000, including a prepayment penalty of $100,000 and the write-off of the remaining debt discount), additional interest expense due to increased borrowings of $263,000 which was partially offset by an increase in other income of $86,000 and a reduction in litigation expense of $14,000.

Critical accounting estimates and policies.

Although our financial statements necessarily make use of certain accounting estimates by our management, we believe that, except as discussed in our 2011 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, 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 liability, loss contingencies, 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 of our 2011 Form 10-K. See Note 1 to Consolidated Financial Statements in the Form 10-K for additional discussion of our significant accounting estimates and policies.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

Our management, with 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). Based on that evaluation, we concluded that the disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the quarter ended Octorber 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.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

A description of our risk factors can be found in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended January 31, 2011. There were no material changes to those risk factors during the nine months ended October 31, 2011.

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

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Reserved.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

EXHIBIT NUMBER		DESCRIPTION
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 Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections.

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:	December 15, 2011

/s/ Victor J. Salerno
Victor J. Salerno
President, Chief Executive Officer, and
Chairman of the Board of Directors
(Principal Executive Officer)

/s/ Robert Kocienski
Robert Kocienski
Chief Operating Officer, and
Principal Financial Officer
(Principal Financial Officer)

AMERICAN WAGERING INC 10-Q