10-Q

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, 2012
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 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   Nox

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 14, 2012, there were 8,404,879 shares of common stock, par value $0.01, outstanding.

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION		1
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	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	13
PART II — OTHER INFORMATION		14
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Mine Safety Disclosures	14
Item 5.	Other Information	14
Item 6.	Exhibits	14
SIGNATURES		15

PART I — FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements.

AMERICAN WAGERING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	April 30, 2012 (Unaudited)			January 31, 2012
ASSETS
CURRENT ASSETS
Cash and Equivalents	$	1,779,334		$	2,638,676
Restricted Cash		741,733			741,480
Accounts Receivable		287,309			143,739
Inventories		150,625			140,311
Prepaid Expenses		456,680			517,161
		3,415,681			4,181,367
Property and Equipment, net of accumulated depreciation and amortization		1,715,190			1,812,334
Goodwill		103,725			103,725
Other		336,366			221,579
	$	5,570,962		$	6,319,005
LIABILITIES AND STOCKHOLDERS’ EQUITY DEFICIENCY
CURRENT LIABILITIES
Current Portion of Long-Term Debt	$	2,501,208		$	1,121,287
Accounts Payable		580,750			451,257
Accrued Expenses		464,986			663,085
Unpaid Winning Tickets		284,323			548,313
Customer Deposits and Other		1,169,412			1,577,213
		5,000,679			4,361,155
Long-Term Debt, less current portion		5,647,883			6,899,280
Warrant Liability		408,000			408,000
Redeemable Series A Preferred Stock (3,238 shares)		323,800			323,800
Other		522,526			500,580
		11,902,888			12,492,815
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		13,339,330			13,320,758
Deficit		(20,520,212	)		(20,343,524	)
Treasury Stock, at cost (61,100 common shares at cost)		(327,493	)		(327,493	)
		(6,331,926	)		(6,173,810	)
	$	5,570,962		$	6,319,005

1

AMERICAN WAGERING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended April 30,
	2012			2011
REVENUES:
Wagering	$	2,203,608		$	1,693,148
Hotel/Casino		467,781			469,460
Systems		642,380			699,233
		3,313,769			2,861,841
OPERATING COSTS AND EXPENSES:
Direct Costs:
Wagering		1,365,516			1,386,163
Hotel/Casino		395,433			392,107
Systems		202,871			198,899
		1,963,820			1,977,169
Operating Expenses:
Research and Development		209,277			199,082
Selling, General and Administrative		929,555			1,749,655
Depreciation and Amortization		125,355			188,257
		1,264,187			2,136,994
		3,228,007			4,114,163
OPERATING INCOME (LOSS)		85,762			(1,252,322	)
OTHER INCOME (EXPENSE):
Interest Expense		(228,151	)		(147,053	)
Loss on Debt Extinguishment		—			(126,960	)
Change in Estimated Fair Value of Warrant Liability		—			(153,590	)
Litigation Expense		—			(42	)
Interest and Other Income		621			32,064
NET LOSS	$	(141,768	)	$	(1,647,903	)
NET LOSS PER COMMON SHARE — BASIC AND DILUTED	$	(0.02	)	$	(0.20	)

2

AMERICAN WAGERING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Three Months Ended April 30,
	2012			2011
Operating Activities
Net cash used in operating activities	$	(754,000	)	$	(2,788,909	)
Investing Activities
Increase in restricted cash		(253	)		—
Withdrawal of restricted cash		—			500,000
Purchase of property and equipment		(27,545	)		(4,039	)
Net cash provided by (used in ) investing activities		(27,798	)		495,961
Financing Activities
Repayment of borrowings		(42,624	)		(770,224	)
Proceeds from borrowings		—			4,273,288
Dividends on preferred stock		(34,920	)		(34,532	)
Net cash provided by (used in) financing activities		(77,544	)		3,468,532
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS		(859,342	)		1,175,584
CASH AND EQUIVALENTS, BEGINNING OF PERIOD		2,638,676			1,485,148
CASH AND EQUIVALENTS, END OF PERIOD	$	1,779,334		$	2,660,732

3

AMERICAN WAGERING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED APRIL 30, 2012

(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 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 with the SEC on April 30, 2012, from which the balance sheet information as of January 31, 2012 was derived.

On April 13, 2011, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with a foreign privately held company (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 (which shares shall be automatically cancelled). 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 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 absence of any injunction or applicable law preventing consummation of the merger, (ii) 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, (iii) verification of the accuracy of the representations and warranties made by the parties, and (iv) the performance, in all material respects, of all obligations, agreements and covenants under the Merger Agreement.

Also on April 13, 2011, the Company 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”).  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. Such cash requirements have been funded largely with borrowings from and/or collateral arrangements with the Company’s principal officers. 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 which the Company used 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 $2.25 million 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.

The Bridge Facility matures upon the earlier of (i) consummation of the merger, (ii) termination of the Merger Agreement or (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 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 Purchaser. The most significant of these restrictions limit 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.

4

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 Purchaser and its affiliates for all of their reasonable out-of-pocket fees and expenses up to $250,000 and (b) 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 will continue to be a publicly traded company, and the Company may not be able to pay its debts as they come due, including the Bridge Facility.

2.  Net Income (Loss) Per Common Share

Basic net income (loss) per common share is calculated based on the weighted-average number of shares of common stock outstanding during the reporting period. Diluted net income per common share is ordinarily calculated giving effect to all potentially dilutive common shares, assuming such shares were outstanding during the reporting period. 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 loss per common share computations for the three months ended April 30 (unaudited):

	Numerator
	2012			2011
Net loss	$	(141,768	)	$	(1,647,903	)
Less preferred stock dividends		(34,920	)		(34,532	)
Net loss available to common shares, basic and diluted	$	(176,688	)	$	(1,682,435	)
	Denominator
		2012			2011
Weighted-average common shares outstanding, basic		8,343,779			8,343,779
Effect of dilutive stock options		1,954,083			1,158,641
Weighted-average common shares outstanding, diluted		10,297,862			9,502,420

The number of potentially dilutive common shares that have been excluded from the denominator using the treasury stock method was 157,100 and 165,300 at April 30, 2012 and 2011, respectively.

3.  Income Taxes

At April 30, 2012, the Company had federal tax net operating loss (“NOL”) carryforwards available to potentially reduce future tax obligations in the aggregate amount of approximately $13.9 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 historical performance of net losses in six of the last twelve 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.

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. The Company’s federal income tax returns for the years ended January 31, 2009 through 2012 are subject to possible examination by the Internal Revenue Service. Management has reviewed the positions taken or to be taken on such returns and believes that there are no uncertain tax position as defined by GAAP that would either require recognition or disclosure in these consolidated financial statements.

4.  Litigation and Contingencies

   Racusin. 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”). Subsequently, various claims and counter claims have been heard in bankruptcy court and the 9th Circuit Court of Appeals.

On January 14, 2009, Racusin filed a claim against the Company for breach of the Settlement Agreement and motion for summary judgment on that claim to accelerate amounts due along with penalty interest. 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 in which the Court vacated the order on December 23, 2010.  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 related to earlier pleadings, as well as a refund of alleged overpayments the Company made.

5

On October 7, 2011, the Court entered findings and conclusions in favor of the Company on its motion for summary judgment.  Specifically, the Court ruled that Racusin’s complaint against the Company for breach of the Settlement Agreement was dismissed.  The Court also ruled that interest on amounts due Racusin did not accrue during the time when the Company had deposited with 250,000 shares of AWI common stock with the Court pursuant to Court instructions.  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.

Also 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.  Appeal briefs have been filed under case number BAP. No. NV-11-1549; oral arguments have not been scheduled.  If the Company were to prevail through the appellate process in accordance with the Court’s findings and conclusions from October 7, 2011, it is estimated that the Company’s payments deposited with the Court through October 31, 2011, in connection with these matters, have exceeded the amount due by $239,000, including the $160,000 paid to cover prepaid expenses as of such date.  There is no assurance that the appellate court will agree with our position.

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, 2010, the Defendants and ISI engaged in consensual mediation, which resulted in a global settlement. The parties subsequently entered into a Settlement Agreement whereby AWIM agreed to pay to ISI the total sum $170,000 in exchange for a mutual release of all claims. The outstanding balance of the Settlement Agreement as of April 30, 2012 was $40,000.

Economic Conditions and Related Risks and Uncertainties.

Delaware legalized sports wagering in the form of parlay cards on professional football in 2009.  New Jersey also recently passed legislation to permit sports wagering; however, the legislation is not effective and may be subject to legal challenge. Should sports wagering expand into more state jurisdictions, or become permissible to be conducted via the internet, such an expansion could reduce the total number of wagers placed in Nevada while correspondingly increasing the opportunities for both wagering and system sales for our Company outside the State. However, we cannot predict that such an expansion will occur at all or provide any assurance that any expansion would create a positive impact on our financial position.

Locally, our business is vulnerable to downturns in national and local economic conditions, including, without limitation, downturns in the economy related to threatened or actual terrorist attacks; pandemic outbreaks or similar widespread health epidemics; natural disasters; tightening of available credit; increasing government regulation, spending and taxes; increasing energy costs; increasing interest rates; declining consumer confidence; and declines in the stock market. The demand for entertainment and leisure activities tends to be highly sensitive to consumers’ disposable incomes, and thus a decline in general economic conditions or an increase in transportation or other costs will likely lead to our customers having less discretionary income with which to travel to Nevada and wager. As of April 30, 2012, Nevada still has the highest unemployment rates in the country.  Thus, the residual effects of higher transportation costs, foreclosures and continued pressure on housing prices, as well as business failures and stock market volatility will place added strain on consumers’ ability to make purchases, repay their loans and thus, leave fewer funds available for travel and leisure activities.  We have also experienced a change in gambling patterns of our patrons, including a trend toward more conservative bets, which tend to be less profitable to the Company.

In addition, there is intense competition among companies that offer race and sports book wagering services as well as those that supply systems to the gaming industry.  Most of our competitors have significantly greater financial, marketing, technical and other resources than we do. In our effort to achieve a cost efficient wagering model and to provide technologically advanced products to the gaming industry, we invested significant resources into research and development in 2011.

Several years of increased reinvestment costs, increased competition, and coupled with reduced cash flow from a distressed economy and altered consumer betting patterns have had a significant adverse effect on us; thus, compelling our merger with the Purchaser.  On June 7, 2012, the Nevada Gaming Control Board recommended to the Nevada Gaming Commission that the transaction contemplated by the Merger Agreement, and related findings of suitability, be approved.  The Nevada Gaming Commission is scheduled to meet on June 21, 2012.  Should the Nevada Gaming Commission accept the Nevada Gaming Control Board’s recommendation and grant approval of the transaction, then we would expect the closing of the merger to occur on or about June 27, 2012, in accordance with the process set forth in the Merger Agreement.  Although we have no reason to indicate otherwise, no assurances can be given that the Nevada Gaming Commission will grant approval on June 21, 2012, or that closing will occur on June 27, 2012 (Note 7).

  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.

6

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

For the three months ended April 30, 2012 and 2011, activity related to both the employee and directors’ stock option plans was as follows:

	Option Shares			Weighted- Average Exercise Price
Balance at February 1, 2012		2,454,080		$	0.38
Granted		—			—
Exercised		—			—
Forfeited or canceled		—			—
Balance at April 30, 2012		2,454,080		$	0.38
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

As of April 30, 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	1,755,753	$	0.43	7.86 years
Available for future grants	450,000	—		—

Services contributed by Victor and Terina Salerno and credited to additional paid-in capital for the quarters ended April 30, 2012 and 2011, totaled $0 and $8,326, 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 as of January 31, 2011, and repaid from the proceeds of the Bridge Facility.

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.

In 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 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 right to appoint up to 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 and 3” fair value measurement inputs as defined in GAAP including a risk-free interest rate of 2.2%, expected warrant life of five years, and its internal stock price volatility factor of 206% initially (approximately 183% as of April 30, 2012), the warrants were fully valued at $408,000 and recorded as a warrant liability.

For the three months ended April 30, 2012 and 2011, non-cash stock-based compensation expense recorded in the line item “Selling, General and Administrative Expenses” was $18,572 and $127,128, respectively.

7

6.  Business Segments

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

	Three Months Ended April 30,
	2012			2011
Revenues
Wagering	$	2,203,608		$	1,693,148
Hotel/Casino		467,781			469,460
Systems		642,380			699,233
	$	3,313,769		$	2,861,841
Operating income (loss)
Wagering	$	379,577		$	(587,397	)
Hotel/Casino		(63,354	)		(38,340	)
Systems		(230,461	)		(626,585	)
		85,762			(1,252,322	)
Other expense, net		(227,530	)		(395,581	)
Net (Loss)	$	(141,768	)	$	(1,647,903	)

Additional information for the Hotel/Casino segment follows:

	Three Months Ended April 30,
	2012			2011
Revenue
Casino	$	232,023		$	243,094
Hotel		115,581			98,362
Food/Beverage		120,177			128,004
		467,781			469,460
Direct Costs and Expenses
Casino		93,270			101,192
Hotel		64,215			45,717
Food/Beverage		144,489			154,420
Unallocated		93,459			90,778
		395,433			392,107
Selling, General and Administrative		89,343			62,511
Depreciation and Amortization		46,359			53,182
		531,135			507,800
Operating Loss	$	(63,354	)	$	(38,340	)

7. Subsequent Event

On June 7, 2012, the Nevada Gaming Control Board recommended to the Nevada Gaming Commission that the transaction contemplated by the Merger Agreement, and related findings of suitability, be approved.  The Nevada Gaming Commission is scheduled to meet on June 21, 2012.  Should the Nevada Gaming Commission accept the Nevada Gaming Control Board’s recommendation and grant approval of the transaction, then we would expect the closing of the merger to occur on or about June 27, 2012, in accordance with the process set forth in the Merger Agreement.  Although we have no reason to indicate otherwise, no assurances can be given that the Nevada Gaming Commission will grant approval on June 21, 2012, or that closing will occur on June 27, 2012.

8

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

The following discussion and analysis should be read together with our unaudited consolidated financial statements and the accompanying notes.  This discussion contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including statements regarding our expected financial position, business and financing plans.  Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seek,” “intends,” “plans,” “estimates,” “anticipates,” or other comparable terms.  Forward-looking statements involve inherent risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statement including those discussed herein and elsewhere in our Form 10-K for the year ended January 31, 2012, particularly under the heading “Risk Factors.”  We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.  We do not intend, and undertake no obligation, to update our forward-looking statements to reflect future events or circumstances.

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

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

“AWI” means American Wagering, Inc.

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

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

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

“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).

Overview.  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.

Lerory’s. Leroy’s was incorporated in the state of Nevada in November 1977.  Leroy’s operates a network of 54 sportsbooks in casinos and 56 remote account wagering 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 meets the bettor’s request for mobility and convenience based products utilizing remote account wagering.  The LEROY’S® APP© is a mobile device application for smartphones and tablets 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. It was developed for Leroy’s by CBS and we have a patent pending on the intellectual property.

CBS.  Founded in 1983, CBS designs, produces and services computerized wagering systems for the race and sports wagering industry. CBS is a leading race and sports equipment and software supplier in the State of Nevada. CBS also is the distributor of self-service race and sports wager kiosks, designed by AWIM. Additionally, CBS designed the first mobile sports betting application to receive approval from the Nevada Gaming Authorities, which is currently utilized by Leroy’s. CBS generates revenue as it sells and maintains these sports wagering systems for the gaming industry.

AWI Manufacturing, Inc.  AWIM designs self-service race and sports wagering kiosks. The kiosks interface with our customers’ CBS Race and Sports Systems and they expand our customers’ race and sports books’ size and hours of operation without increasing the labor cost. The installation of kiosks in Leroy’s locations assists in controlling personnel costs, lengthening hours of operation, increasing Leroy’s visibility, and enhancing the convenience of the patron. The AWIM upright kiosk was jointly designed with a third-party vendor. Smaller self-service kiosks were placed in over 20 of our 56 local tavern locations during fiscal 2012.

Sturgeon’s. Sturgeon's operates a small hotel/casino of the same name 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.

9

 ExactGeo Media and PlayBETM.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.

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. Such cash requirements historically have been funded largely with borrowings from and/or collateral arrangements with the Company’s principal officers. In April 2011, the Company entered into the Bridge Loan Agreement that satisfied the Company’s need for liquidity through fiscal year end January 31, 2012, and continuing through the first quarter ended April 30, 2012.  More specifically, 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), for rank and file employees ($260,000), other lenders ($850,000), and transaction fees ($450,000) leaving approximately $1.95 million at that time which the Company used for general corporate purposes. On September 2, 2011 the Company borrowed an additional $750,000 under the Bridge Loan Agreement to fund a cash shortfall. The Bridge Loan Agreement also reduces the Company’s dependence on its principal officer’s ability to continue to provide financial support. There is $2.25 million remaining for draws under the Bridge Loan Agreement. 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.

We believe that several years of increased reinvestment costs and competition, coupled with reduced cash flow from a distressed economy and altered consumer betting patterns, may have had a significant adverse effect on us; thus, compelling our merger with the Purchaser.  Though we have been advised that Nevada Gaming regulators have scheduled the Purchaser to be on the agenda in June 2012 for approval of the merger and related findings of suitability, we cannot provide any assurances that such approval will be granted or that closing of the Merger Agreement will occur.  See Note 7–Subsequent Event.

Cash Flow

As of April 30, 2012, we had a working capital deficit of nearly ($1.6 million), compared to working capital deficit of approximately ($180,000) at January 31, 2012. The decrease in working capital is primarily due to the maturity of the note payable on the Sturgeon’s property of $1.4 million which will become due and payable on February 4, 2013. If the merger is not closed by the due date, we believe, but there is no assurance that, the note payable on the Sturgeon’s property can be refinanced.  We believe, but there is no assurance that, our working capital position will also improve in fiscal 2013 due to: (a) normalization of the win percentage in sports book wagering as we experienced in the quarter ended April 30, 2012; (b) a continued increase in users of our Leroy’s® App© and other forms of account wagering services; and (c) additional or expanded sportsbook and/or tavern locations in fiscal 2013. 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 the remainder of fiscal 2013 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.

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.

As of April 30, 2012, 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 $700,000 held at Nevada State Bank, a pledged certificate of deposit totaling $200,000, and an Irrevocable Standby Letter of Credit of $1 million. The pledged certificate initially expired in October 2010, but the Victor and Terina Salerno agreed to extend their pledge without designating a specific expiration date.

10

We will likely have to increase our reserve in August 2012 in preperation for the football season. Should the merger and related findings of suitablity receive approval from the Nevada regulators in June, then it would be anticipated that any increase to our reserve would be the Purchaser’s responsibility as closing of the merger would likely have occurred by August 2012.  However, should the Purchaser not receive approval from the Nevada regulators or should closing not occur by August 2012, and if  we are unable to increase the reserve, then 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. There is no assurance that we will be able to borrow additional funds under the Bridge Facility as any additional advances are in the sole discretion of the Purchaser.

Other

As of April 30, 2012, we had $1.8 million in cash and cash equivalents the majority of which is held to fund winning tickets and future bets as required by Nevada gaming regulations. Based upon our anticipated operations, and subject to the economy and the timely closing of the merger, we believe we will be able to satisfy our cash requirements for the remainder of fiscal 2013 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.

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 April 30,
	2012			2011			$ Change			% Change
Revenues	$	3,313,769		$	2,861,841		$	451,928			15.8	%
Costs and Expenses		3,228,007			4,114,163			(886,156	)		(21.5	)%
Other Expense, net		227,530			395,581			(168,051	)		(42.5	)%
(Loss) Before Income Taxes	$	(141,768	)	$	(1,647,903	)	$	(1,506,135	)		91.4	%

Revenues and Direct Costs

The following table summarizes changes in our revenues and direct costs of our operating segments:

	Three Months Ended April 30,
	2012		2011		$ Change			% Change
Revenues
Wagering	$	2,203,608	$	1,693,148	$	510,460			30.1	%
Hotel/Casino		467,781		469,460		(1,679	)		(0.4	)%
Systems		642,380		699,233		(56,853	)		(8.1	)%
	$	3,313,769	$	2,861,841	$	451,928			15.8	%
Direct costs
Wagering	$	1,365,516	$	1,386,163	$	(20,647	)		(1.5	)%
Hotel/Casino		395,433		392,107		3,326			0.8	%
Systems		202,871		198,899		3,972			2.0	%
	$	1,963,820	$	1,977,169	$	(13,349	)		(.07	)%

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

11

Wagering Segment

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

Wagering Segment revenues increased due to the following factors:

During the three months ended April 30, 2012, our sports handle increased by 2.9%, compared to the same period in the prior year, primarily due to the convenience provided by remote account wagering via the Leroy’s® App© and an increase in kiosk activity at the tavern locations although the average wager per ticket continues to trend downward. However we continue to see signifcant growth in smart phone wagering through the Leroy’s® App©, which more than offset declines in betting at our various locations. Consumers are migrating from feature phones to smart phones at an accelerated rate, and we are constantly updating our software for device compatibility and software advancements. 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 higher win percentage of 7.46% compared to 5.53% in the prior year’s quarter. Our race commissions were down approximately $61,000 (-26.4%) from the prior year’s quarter due to the loss of two contracts with racing components.

Direct costs decreased slightly by approximately $21,000 due to reductions in race expenses directly related to the reduction in race commissions which were offset substantially by increases in rent, taxes and licenses, and ticket paper costs related to the increase in sports handle.

We intend to continue to open new locations that we expect to operate profitably and review our 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, and other factors beyond our control, that we will be able to add new locations, and/or that any new locations so added will be profitable. We will continue to grow the mobile wagering market as we expand the accessibility of the product as new devices come to market.

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 decreased by $11,000 (-4.6%) as a result of handle and wagering activities due to a modification in the slot floor theoretical win percentage.  Hotel revenues increased $17,000 (17.5%) due to a 23.6% increase in occupancy offset slightly by a 5.4% reduction in the average room rate.  Food and beverage revenues declined by $8,000 (-6.1%) due to modification in food product and self service.

Direct costs increased slightly by $3,000 (.8%).

Systems Segment

Systems Segment revenues decreased due to fewer equipment sales ($19,000) and a reduction in maintenance fees ($38,000) due primarily to the loss of a multiple location contract.

Direct costs increased by $4,000 (2%) primarily related to payroll and related costs.

Research and Development

Research and development costs increased $10,000 due to activities associated with expanding the capability of our mobile wagering application.

Selling, General, and Administrative

Selling, general, and administrative expenses decreased approximately $820,000 due to non-recurring costs associated with the negotiating and structuring of the Merger Agreement ($450,000) and higher payroll and related costs primarily for executives ($261,000) incurred in the prior year’s quarter and a reduction in legal fees of $85,000 in the current year's quarter.

Depreciation and Amortization

Depreciation and amortization decreased approximately $63,000 because management has deferred the routine replacement of operating equipment due to the potential Merger Agreement.

12

Other Income (Expense), net

The other income (expense), net decreased approximately $168,000 due to the non-recurring expense for the value of the warrant liability ($154,000) incurred in the first quarter of last year.

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 2012 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. 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(e) and 15(d)-15(e) under the Exchange Act as of April 30, 2012. Based on this evaluation, we determined that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the quarter ended April 30, 2012, there were no changes to our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

13

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, 2012. There were no material changes to those risk factors during the three months ended April 30, 2012.

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

Not applicable.

Item 3.  Defaults Upon Senior Securities.

Not applicable.

Item 4.  Mine Safety Disclosures.

Not applicable.

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.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 Exchange 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.

14

SIGNATURES

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

AMERICAN WAGERING, INC.

Dated:  June 14, 2012

/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

15

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Victor J. Salerno, certify that;

1.           I have reviewed this quarterly report on Form 10-Q of American Wagering, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting, and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	June 14, 2012	/s/ Victor J. Salerno
		Victor J. Salerno
		President, Chief Executive Officer, and
		Chairman of the Board of Directors
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Robert Kocienski, certify that;

1.           I have reviewed this quarterly report on Form 10-Q of American Wagering, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting, and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	June 14, 2012	/s/ Robert Kocienski
		Robert Kocienski
		Chief Operating Officer, and
		Principal Financial Officer
		(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

AND PRINCIPAL FINANCIAL OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

In connection with the Quarterly Report on Form 10-Q of American Wagering, Inc. (the “Company”) for the quarter ended April 30, 2012 as filed with the Securities and Exchange Commission (the “Report”), I certify as of the date hereof, solely for the purposes of Title 18, Chapter 63, Section 1350 of the United States Code, to my knowledge, that:

(1)           the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2)           the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

A signed original of this written statement, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date:  June 14, 2012	/s/ Victor J. Salerno
	Victor J. Salerno
	President, Chief Executive Officer, and
	Chairman of the Board of Directors
	(Principal Executive Officer)
Date:  June 14, 2012	/s/ Robert Kocienski
	Robert Kocienski
	Chief Operating Officer, and
	Principal Financial Officer
	(Principal Financial Officer)

XML

Litigation and Other Contingencies

3 Months Ended

Apr. 30, 2012

Litigation and Other Contingencies [Abstract]

Litigation and Other Contingencies

4.  Litigation and Contingencies

   Racusin. 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"). Subsequently, various claims and counter claims have been heard in bankruptcy court and the 9th Circuit Court of Appeals.

On January 14, 2009, Racusin filed a claim against the Company for breach of the Settlement Agreement and motion for summary judgment on that claim to accelerate amounts due along with penalty interest. 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 in which the Court vacated the order on December 23, 2010.  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 related to earlier pleadings, as well as a refund of alleged overpayments the Company made.

On October 7, 2011, the Court entered findings and conclusions in favor of the Company on its motion for summary judgment.  Specifically, the Court ruled that Racusin's complaint against the Company for breach of the Settlement Agreement was dismissed.  The Court also ruled that interest on amounts due Racusin did not accrue during the time when the Company had deposited with 250,000 shares of AWI common stock with the Court pursuant to Court instructions.  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.

Also 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.  Appeal briefs have been filed under case number BAP. No. NV-11-1549; oral arguments have not been scheduled.  If the Company were to prevail through the appellate process in accordance with the Court's findings and conclusions from October 7, 2011, it is estimated that the Company's payments deposited with the Court through October 31, 2011, in connection with these matters, have exceeded the amount due by $239,000, including the $160,000 paid to cover prepaid expenses as of such date.  There is no assurance that the appellate court will agree with our position.

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, 2010, the Defendants and ISI engaged in consensual mediation, which resulted in a global settlement. The parties subsequently entered into a Settlement Agreement whereby AWIM agreed to pay to ISI the total sum $170,000 in exchange for a mutual release of all claims. The outstanding balance of the Settlement Agreement as of April 30, 2012 was $40,000.

Economic Conditions and Related Risks and Uncertainties.

Delaware legalized sports wagering in the form of parlay cards on professional football in 2009.  New Jersey also recently passed legislation to permit sports wagering; however, the legislation is not effective and may be subject to legal challenge. Should sports wagering expand into more state jurisdictions, or become permissible to be conducted via the internet, such an expansion could reduce the total number of wagers placed in Nevada while correspondingly increasing the opportunities for both wagering and system sales for our Company outside the State. However, we cannot predict that such an expansion will occur at all or provide any assurance that any expansion would create a positive impact on our financial position.

Locally, our business is vulnerable to downturns in national and local economic conditions, including, without limitation, downturns in the economy related to threatened or actual terrorist attacks; pandemic outbreaks or similar widespread health epidemics; natural disasters; tightening of available credit; increasing government regulation, spending and taxes; increasing energy costs; increasing interest rates; declining consumer confidence; and declines in the stock market. The demand for entertainment and leisure activities tends to be highly sensitive to consumers' disposable incomes, and thus a decline in general economic conditions or an increase in transportation or other costs will likely lead to our customers having less discretionary income with which to travel to Nevada and wager. As of April 30, 2012, Nevada still has the highest unemployment rates in the country.  Thus, the residual effects of higher transportation costs, foreclosures and continued pressure on housing prices, as well as business failures and stock market volatility will place added strain on consumers' ability to make purchases, repay their loans and thus, leave fewer funds available for travel and leisure activities.  We have also experienced a change in gambling patterns of our patrons, including a trend toward more conservative bets, which tend to be less profitable to the Company.

In addition, there is intense competition among companies that offer race and sports book wagering services as well as those that supply systems to the gaming industry.  Most of our competitors have significantly greater financial, marketing, technical and other resources than we do. In our effort to achieve a cost efficient wagering model and to provide technologically advanced products to the gaming industry, we invested significant resources into research and development in 2011.

Several years of increased reinvestment costs, increased competition, and coupled with reduced cash flow from a distressed economy and altered consumer betting patterns have had a significant adverse effect on us; thus, compelling our merger with the Purchaser.  On June 7, 2012, the Nevada Gaming Control Board recommended to the Nevada Gaming Commission that the transaction contemplated by the Merger Agreement, and related findings of suitability, be approved.  The Nevada Gaming Commission is scheduled to meet on June 21, 2012.  Should the Nevada Gaming Commission accept the Nevada Gaming Control Board's recommendation and grant approval of the transaction, then we would expect the closing of the merger to occur on or about June 27, 2012, in accordance with the process set forth in the Merger Agreement.  Although we have no reason to indicate otherwise, no assurances can be given that the Nevada Gaming Commission will grant approval on June 21, 2012, or that closing will occur on June 27, 2012 (Note 7).

  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.

XML

Income Taxes

3 Months Ended

Apr. 30, 2012

Income Taxes [Abstract]

Income Taxes

3.  Income Taxes

At April 30, 2012, the Company had federal tax net operating loss ("NOL") carryforwards available to potentially reduce future tax obligations in the aggregate amount of approximately $13.9 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 historical performance of net losses in six of the last twelve 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.

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. The Company's federal income tax returns for the years ended January 31, 2009 through 2012 are subject to possible examination by the Internal Revenue Service. Management has reviewed the positions taken or to be taken on such returns and believes that there are no uncertain tax position as defined by GAAP that would either require recognition or disclosure in these consolidated financial statements.

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)	Apr. 30, 2012	Jan. 31, 2012
CURRENT ASSETS
Cash and Equivalents	$ 1,779,334	$ 2,638,676
Restricted Cash	741,733	741,480
Accounts Receivable	287,309	143,739
Inventories	150,625	140,311
Prepaid Expenses	456,680	517,161
Total Current Assets	3,415,681	4,181,367
Property and Equipment, net of accumulated depreciation and amortization	1,715,190	1,812,334
Goodwill	103,725	103,725
Other	336,366	221,579
Total Assets	5,570,962	6,319,005
CURRENT LIABILITIES
Current Portion of Long-Term Debt	2,501,208	1,121,287
Accounts Payable	580,750	451,257
Accrued Expenses	464,986	663,085
Unpaid Winning Tickets	284,323	548,313
Customer Deposits and Other	1,169,412	1,577,213
Total Current Liabilities	5,000,679	4,361,155
Other Liabilities
Long-Term Debt, less current portion	5,647,883	6,899,280
Warrant Liability	408,000	408,000
Redeemable Series A Preferred Stock (3,238 shares)	323,800	323,800
Other	522,526	500,580
Total Liabilities	11,902,888	12,492,815
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	13,339,330	13,320,758
Deficit	(20,520,212)	(20,343,524)
Treasury Stock, at cost (61,100 common shares at cost)	(327,493)	(327,493)
Total Stockholders' Equity (Deficiency)	(6,331,926)	(6,173,810)
Total Liabilities and Stockholders' Equity (Deficiency)	$ 5,570,962	$ 6,319,005

XML

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

3 Months Ended

Apr. 30, 2012

Basis of Presentation; The Merger and Bridge Facility; and Related Risks and Uncertainties [Abstract]

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

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 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 with the SEC on April 30, 2012, from which the balance sheet information as of January 31, 2012 was derived.

On April 13, 2011, the Company entered into an agreement and plan of merger (the "Merger Agreement") with a foreign privately held company (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 (which shares shall be automatically cancelled). 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 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 absence of any injunction or applicable law preventing consummation of the merger, (ii) 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, (iii) verification of the accuracy of the representations and warranties made by the parties, and (iv) the performance, in all material respects, of all obligations, agreements and covenants under the Merger Agreement.

Also on April 13, 2011, the Company 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").  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. Such cash requirements have been funded largely with borrowings from and/or collateral arrangements with the Company's principal officers. 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 which the Company used 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 $2.25 million 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.

The Bridge Facility matures upon the earlier of (i) consummation of the merger, (ii) termination of the Merger Agreement or (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 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 Purchaser. The most significant of these restrictions limit 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 Purchaser and its affiliates for all of their reasonable out-of-pocket fees and expenses up to $250,000 and (b) 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 will continue to be a publicly traded company, and the Company may not be able to pay its debts as they come due, including the Bridge Facility.

XML

Net Income (Loss) Per Common Share

3 Months Ended

Apr. 30, 2012

Net Income (Loss) Per Common Share [Abstract]

Net Income (Loss) Per Common Share

2.  Net Income (Loss) Per Common Share

Basic net income (loss) per common share is calculated based on the weighted-average number of shares of common stock outstanding during the reporting period. Diluted net income per common share is ordinarily calculated giving effect to all potentially dilutive common shares, assuming such shares were outstanding during the reporting period. 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 loss per common share computations for the three months ended April 30 (unaudited):

	Numerator
	2012			2011
Net loss	$	(141,768	)	$	(1,647,903	)
Less preferred stock dividends		(34,920	)		(34,532	)
Net loss available to common shares, basic and diluted	$	(176,688	)	$	(1,682,435	)
	Denominator
		2012			2011
Weighted-average common shares outstanding, basic		8,343,779			8,343,779
Effect of dilutive stock options		1,954,083			1,158,641
Weighted-average common shares outstanding, diluted		10,297,862			9,502,420

The number of potentially dilutive common shares that have been excluded from the denominator using the treasury stock method was 157,100 and 165,300 at April 30, 2012 and 2011, respectively.

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)	3 Months Ended	12 Months Ended
	Apr. 30, 2012	Jan. 31, 2012
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
Redeemable Series A Preferred Stock, shares (in shares)	3,238	3,238
STOCKHOLDERS' EQUITY DEFICIENCY
Series A Preferred Stock, dividend rate (in hundredths)	10.00%	10.00%
Series A Preferred Stock, par value (in dollars per share)	$ 100.00	$ 100.00
Series A Preferred Stock, liquidation value (in dollars per share)	$ 100.00	$ 100.00
Series A Preferred Stock, shares authorized (in shares)	18,924	18,924
Series A Preferred Stock, shares outstanding (in shares)	10,924	10,924
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, shares authorized (in shares)	25,000,000	25,000,000
Common Stock, shares issued (in shares)	8,404,879	8,404,879
Common Stock, shares outstanding (in shares)	8,404,879	8,404,879
Treasury Stock, common shares (in shares)	61,100	61,100

XML

Document and Entity Information	3 Months Ended
	Apr. 30, 2012	Jun. 14, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	AMERICAN WAGERING INC
Entity Central Index Key	0001005214
Current Fiscal Year End Date	--01-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		8,404,879
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Apr. 30, 2012

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
REVENUES:
Wagering	$ 2,203,608	$ 1,693,148
Hotel/Casino	467,781	469,460
Systems	642,380	699,233
Total Revenues	3,313,769	2,861,841
Direct Costs :
Wagering	1,365,516	1,386,163
Hotel/Casino	395,433	392,107
Systems	202,871	198,899
Total Direct Costs	1,963,820	1,977,169
Operating Expenses :
Research and Development	209,277	199,082
Selling, General and Administrative	929,555	1,749,655
Depreciation and Amortization	125,355	188,257
Total Operating Expenses	1,264,187	2,136,994
Total operating costs and expenses	3,228,007	4,114,163
OPERATING INCOME (LOSS)	85,762	(1,252,322)
OTHER INCOME (EXPENSE):
Interest Expense	(228,151)	(147,053)
Loss on Debt Extinguishment	0	(126,960)
Change in Estimated Fair Value of Warrant Liability	0	(153,590)
Litigation Expense	0	(42)
Interest and Other Income	621	32,064
NET LOSS	$ (141,768)	$ (1,647,903)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED (in dollars per share)	$ (0.02)	$ (0.20)

XML

Subsequent Event

3 Months Ended

Apr. 30, 2012

Subsequent Event [Abstract]

Subsequent Event

7. Subsequent Event

On June 7, 2012, the Nevada Gaming Control Board recommended to the Nevada Gaming Commission that the transaction contemplated by the Merger Agreement, and related findings of suitability, be approved.  The Nevada Gaming Commission is scheduled to meet on June 21, 2012.  Should the Nevada Gaming Commission accept the Nevada Gaming Control Board's recommendation and grant approval of the transaction, then we would expect the closing of the merger to occur on or about June 27, 2012, in accordance with the process set forth in the Merger Agreement.  Although we have no reason to indicate otherwise, no assurances can be given that the Nevada Gaming Commission will grant approval on June 21, 2012, or that closing will occur on June 27, 2012.

XML

Business Segments

3 Months Ended

Apr. 30, 2012

Business Segments [Abstract]

Business Segments

6.  Business Segments

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

	Three Months Ended April 30,
	2012			2011
Revenues
Wagering	$	2,203,608		$	1,693,148
Hotel/Casino		467,781			469,460
Systems		642,380			699,233
	$	3,313,769		$	2,861,841
Operating income (loss)
Wagering	$	379,577		$	(587,397	)
Hotel/Casino		(63,354	)		(38,340	)
Systems		(230,461	)		(626,585	)
		85,762			(1,252,322	)
Other expense, net		(227,530	)		(395,581	)
Net (Loss)	$	(141,768	)	$	(1,647,903	)

Additional information for the Hotel/Casino segment follows:

	Three Months Ended April 30,
	2012			2011
Revenue
Casino	$	232,023		$	243,094
Hotel		115,581			98,362
Food/Beverage		120,177			128,004
		467,781			469,460
Direct Costs and Expenses
Casino		93,270			101,192
Hotel		64,215			45,717
Food/Beverage		144,489			154,420
Unallocated		93,459			90,778
		395,433			392,107
Selling, General and Administrative		89,343			62,511
Depreciation and Amortization		46,359			53,182
		531,135			507,800
Operating Loss	$	(63,354	)	$	(38,340	)

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	3 Months Ended
	Apr. 30, 2012	Apr. 30, 2011
Operating Activities
Net cash used in operating activities	$ (754,000)	$ (2,788,909)
Investing Activities
Increases in restricted cash	(253)	0
Withdrawal of restricted cash	0	500,000
Purchase of property and equipment	(27,545)	(4,039)
Net cash provided by (used in) investing activities	(27,798)	495,961
Financing Activities
Repayment of borrowings	(42,624)	(770,224)
Proceeds from borrowings	0	4,273,288
Dividends on preferred stock	(34,920)	(34,532)
Net cash provided by (used in) financing activities	(77,544)	3,468,532
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS	(859,342)	1,175,584
CASH AND EQUIVALENTS, BEGINNING OF PERIOD	2,638,676	1,485,148
CASH AND EQUIVALENTS, END OF PERIOD	$ 1,779,334	$ 2,660,732

XML

Stock Options, Other Equity Transactions, and Subsequent Events

3 Months Ended

Apr. 30, 2012

Stock Options, Other Equity Transactions, and Subsequent Events [Abstract]

Stock Options, Other Equity Transactions, and Subsequent Events

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

For the three months ended April 30, 2012 and 2011, activity related to both the employee and directors' stock option plans was as follows:

	Option Shares			Weighted- Average Exercise Price
Balance at February 1, 2012		2,454,080		$	0.38
Granted		-			-
Exercised		-			-
Forfeited or canceled		-			-
Balance at April 30, 2012		2,454,080		$	0.38
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

As of April 30, 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	1,755,753	$	0.43	7.86 years
Available for future grants	450,000	-		-

Services contributed by Victor and Terina Salerno and credited to additional paid-in capital for the quarters ended April 30, 2012 and 2011, totaled $0 and $8,326, 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 as of January 31, 2011, and repaid from the proceeds of the Bridge Facility.

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.

In 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 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 right to appoint up to 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 and 3" fair value measurement inputs as defined in GAAP including a risk-free interest rate of 2.2%, expected warrant life of five years, and its internal stock price volatility factor of 206% initially (approximately 183% as of April 30, 2012), the warrants were fully valued at $408,000 and recorded as a warrant liability.

For the three months ended April 30, 2012 and 2011, non-cash stock-based compensation expense recorded in the line item "Selling, General and Administrative Expenses" was $18,572 and $127,128, respectively.