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PART IV

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

Commission file number 000-20685

AMERICAN WAGERING, INC.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code (702) 735-0101

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value, $0.01 per share
(Title of class)

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         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 ý    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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         The aggregate market value of the voting and non-voting common equity held by non-affiliates as of July 31, 2009, based on the closing price of the Over-The-Counter Bulletin Board of $0.18 per share was $725,230.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

         As of April 30, 2010, the number of outstanding shares of the registrant's common stock was 8,379,879.

DOCUMENTS INCORPORATED BY REFERENCE

None

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PART I

Item 1.    Business

Company History

        American Wagering, Inc. ("AWI" or the "Company") was incorporated in the state of Nevada in August 1995. AWI earns its revenues through the consolidated operations of its wholly-owned subsidiaries, including Leroy's Horse & Sports Place, Inc. ("Leroy's"), Computerized Bookmaking Systems, Inc. ("CBS"), AWI Manufacturing, Inc. ("AWIM"), and AWI Gaming, Inc. ("AWIG").

Race and Sports Wagering Revenue Segment

        Leroy's.    Leroy's was incorporated in the state of Nevada in November 1977. Leroy's, through a central computer system located at the Company's Las Vegas headquarters, operates a network of race and sport wagering facilities on the premises of non-restricted gaming locations throughout the state of Nevada. Leroy's offers a "turn-key" race and sports wagering operation that allows casinos to satisfy their patron's desire for race and sports wagering, without the casino bearing the risk and overhead associated with running the operation themselves. By combining volume from a large number of locations, the Company believes that Leroy's more effectively hedges risks and more efficiently covers fixed overhead. Leroy's generates revenue from patron wagers less payouts.

Race and Sports Wagering Systems Segment

        CBS.    Founded in 1983, CBS designs, produces and services computerized wagering systems for the race and sports wagering industry. CBS is the leading race and sports equipment and software supplier in the State of Nevada. Accordingly, CBS services the majority of race and sports books in Nevada. The CBS Race and Sports System is the industry standard for race and sports content wager processing, delivery, and accounting. CBS also is the distributor of self-service race and sports wager kiosks, designed by AWIM. 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 seamlessly 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 19 local bar locations during fiscal 2010.

Hotel/Casino Segment

        AWI Gaming, Inc.    AWIG is the sole member of Sturgeons, LLC, which owns and operates the Sturgeon's Inn & Casino. AWIG's intended purpose was to acquire hotel/casino properties, although due to the economy and other financial reasons, no other acquisitions have occurred to date and none are anticipated in the near future.

        Sturgeons, LLC.    Sturgeons, LLC d/b/a Sturgeon's Inn & Casino ("Sturgeon's") is a hotel, casino and restaurant operation located in Lovelock, Nevada that was acquired on March 1, 2006.

Chapter 11 Filing

        On July 25, 2003, AWI and Leroy's filed voluntary petitions for relief ("Chapter 11 Petitions") under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy Court for the District of Nevada (the "Bankruptcy Court"). On February 28, 2005, the Bankruptcy Court confirmed the Restated Amended Joint Plan of Reorganization (the "Plan") of AWI and Leroy's. On March 11, 2005, AWI and Leroy's consummated the Plan and formally emerged from Chapter 11 proceedings after completing all required actions and all remaining conditions.

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        On September 26, 2005, the Bankruptcy Court issued an order closing the Chapter 11 cases of AWI and Leroy's. All required distributions have been made, except with respect to the Racusin matter ("Racusin Claim"). For the fiscal years ended January 31, 2010 and 2009, the Company has paid $363,891 and $540,986, respectively, to the Bankruptcy Court and certain other lienholders of Racusin. As of January 31, 2010, the remaining Racusin Claim liability is $338,851, with $332,710 due in 2011, and the balance in 2012, plus interest at the rate of 8% per annum.

        For a discussion of the Racusin Claim, see Item 3. Legal Proceedings.

Sports Wagering

        Wagering on sporting events is currently legal in the states of Nevada, Delaware and in numerous foreign countries. Wagering on sporting events has increased significantly with cable and satellite television, and technological improvements. When sporting events are televised, there is increased exposure and interest, which, we believe, leads to increased sports betting.

        A sports wagering facility, or "sports book," is a gambling establishment that sets odds and point spreads and accepts bets on the outcome of sporting events such as football, basketball, baseball, and hockey games. Sports books set odds and point spreads aiming not to reflect the final result, but to maintain a "balanced book" by offering odds or point spreads that will attract equal amounts of bets on each side of a particular event. Generally, a patron's odds (or point spread or the "line") are fixed at the time he or she makes his or her bet, regardless of any subsequent movement in the line. Under this system, a sports book operator attracts bets by changing or "moving" the line up or down to encourage wagering on a specific side or team. To the extent that a book on a particular event is not balanced, the bookmaking operation takes a risk on the outcome of the event. This is the fundamental difference from other forms of organized gambling, where profits result from patron play against a statistical advantage that the gambling operator (the "House") possesses; or in the case of pari-mutuel wagering, used by major North American Horse Racing Tracks, Dog Race Tracks, and Jai-Alai establishments, where the House receives a guaranteed percentage for operating expenses, profit and taxes and the remainder is distributed to the winners. The Nevada legislature recently passed a bill to legalize the acceptance of Dog Track pari-mutuel wagering.

        This fundamental difference is part of the appeal for many sports patrons, but it also creates risk for the sports book. A bookmaker operates in a system that is interrelated with oddsmakers and patrons. Bookmakers collect bets, adjust odds to account for the preferences of their patrons, pay the winners, and if the book is balanced for each type of sports bet, the House then has a "theoretical advantage." For example, for a straight football bet involving the outcome of one game, it is common practice that the patron wagers $11 to win $10. If the patron wins the wager, he or she receives $21. If the patron loses, in this case, he has wagered $11. Accordingly, by maintaining a balanced book, the sports book would win $1 for each $22 wagered, or 4.55%.

        Oddsmakers initially set betting lines with the goal of splitting the bets evenly between each of the betting sides. Patrons have opinions concerning the odds and bet accordingly, which requires initial lines to be adjusted. As a result, in practice, a sports book is rarely perfectly balanced. The sports books' profit depends upon the reliability of the oddsmaker and its own acumen at adjusting the odds when required. Because patrons are betting on propositions of uncertain probability and are paid according to the line at which they make their bets rather than the closing odds (as in a pari-mutuel system), the sports book is not assured of either a constant profit over time or for a single event.

        A sports book also attempts to limit the potential risk by setting game limits and line movement. For example, the opening line for a football game ideally would split the bets from the time it was posted until kick-off. However, the opening line generally is unbalanced. Because a sports book does not want to take the risk of accepting unlimited bets on one side of a game, it creates a game limit, the maximum amount of money that will be accepted at the posted line. When the game limit is reached,

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the line is changed, or "moved," to attract wagers on the "other" side. We believe that using a conservative strategy of placing limits on games, mitigates a great portion of our risk of losing large sums of money in short time periods.

        The game limit is established by the sports book based upon the "earn" in a sport, which is a function of the amount the sports book would earn if the odds guaranteed it a constant commission regardless of the outcome (the "theoretical hold percentage"), the quality of the line, and the patron mix. For example, when the sports book anticipates that the majority of the bets will come from sophisticated patrons who know as much as, or more than, the oddsmaker, the limit will be relatively low. We believe that events with the highest fan popularity and media coverage, such as professional football, have a relatively small proportion of sophisticated patrons. Accordingly, the sports books' expected earn on such an event would be higher and would justify a higher game limit.

        In order to effectively balance its books, a bookmaking operation must take a sufficient volume of wagers to offset large wagers on any given event. While many of the consolidated casino operators have sufficient patron traffic to underwrite the substantial risks inherent in a sports book, many single casino operators are typically more risk adverse. Through Leroy's, we offer casino operators the amenity of having sports wagering books with no risk of financial loss or substantial operating, labor, or administrative costs. Under Nevada gaming law, Leroy's is permitted to own and operate sports books located on the premises of other nonrestricted gaming licensees.

        When Leroy's began operations in 1978, it was one of only seven sports and race books in Las Vegas. Currently, virtually every major casino in Nevada offers its patrons a sports and race book. The typical sports book location leased by Leroy's encompasses approximately 300 square feet, but can range from 100 to 10,000 square feet, contains a board displaying the odds, television monitors showing sporting events, betting stations, ticket sellers and cashiers. Most leases are at fixed rates, are cancelable by either party with proper notice, and some have revenue sharing or incentive (participation) clauses. As a bet is placed, the wagering data is entered into a computer terminal which is connected via a communications device to Leroy's centralized computer system which confirms the line, determines that the bet is within the limits set for the particular event, records the information on a central database and issues a ticket evidencing the bet. The ticket is then distributed to the patron with Leroy's simultaneously recording the wager. Personnel at Leroy's corporate office monitor all bets and adjust the odds as necessary to reflect the various bets throughout all of Leroy's locations.

        We believe that Leroy's has lower maximum betting limits than many sports books operated by the larger casinos. We established these lower limits in an effort to limit bets from the more sophisticated patrons who often place larger bets. In addition, in order to limit the more sophisticated bettors from utilizing strategies that would provide an advantage, we set even lower limits for bets placed over the telephone, which are currently accepted only from within Nevada and are limited to $2,200 per day per patron, by regulation (unless a higher limit for a specific patron is approved by the Nevada State Gaming Control Board). We believe that geographical dispersion across Nevada is more likely to attract bets from patrons more evenly on both sides of a line, thereby further limiting our risk.

        Professional and college football games currently are the most popular sports wagered on, followed by professional and college basketball games, and finally professional baseball games; together comprising the majority of the total amount wagered at all of our Leroy's locations. Historically, our Leroy's business has been seasonal in nature, with more than half of its handle occurring between the months of September and February.

        We do not offer horse race wagering at all of our Leroy's locations. We offer limited horse race wagering at most locations, and a full pari-mutuel race book at several of our locations. See Pari-Mutuel Race Wagering below.

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        Leroy's race books utilize the same personnel and facilities as its sports books, but Leroy's does not set its own odds for race wagering. Leroy's accepts wagers for races by offering race patrons the same odds as the racetracks at which the races occur. At those locations with limited race wagering, Leroy's pays full track odds up to the predetermined limit. At those locations with full pari-mutuel race wagering, there are no limits and Leroy's operates a daily race book with wagers merged into the on-track pari-mutuel pools.

        Online sports' betting (through use of personal computers) has existed for approximately 20 years, is currently very popular, and continues to become more popular each year. The increased popularity may result in the continued growth of the sports betting industry in general, or could have an adverse impact upon our live wagering facilities in Nevada. At this time, we cannot predict what impact, if any, the growth of online wagering may have on our overall handle (total amount wagered). See Item 1.A Risk Factors below.

Pari-Mutuel Race Wagering

        In December 1997, Leroy's joined the Nevada Pari-mutuel Association to allow pari-mutuel race wagering at one or more of its licensed locations. As of January 31, 2010, six licensed Leroy's locations, in association with a disseminator, offer pari-mutuel wagering on numerous events at racetracks throughout the country.

Competition

        There is intense competition among companies in the gaming industry, most of which have significantly greater financial, marketing, technical and other resources than we do.

        Leroy's faces competition from all other sports and race wagering operations throughout Nevada. Virtually all of the major casinos in Nevada have sports and race books, some of which are larger and offer more amenities than our locations and some casinos operate their own sports books.

        The state of Delaware legalized limited sports wagering in September 2009. The state of New Jersey is suing the federal government for the right to also accept sports wagering. These potential new sports wagering jurisdictions and expanded internet sports wagering could potentially reduce the amount of wagers placed in Nevada. However, this expansion could also represent expansion opportunities for our Company, but there can be no assurance that this will create a positive impact on our financial position.

        CBS and its CBS Race and Sports System face competition from the following sources: larger casinos that may develop their own race and sports wagering systems; an over-the-counter system offered by another company with approximately 10% of the market; and international race and sports service providers.

        AWIM competes with other manufacturers of self-service wagering kiosks.

        AWIG faces competition from other hotel/casino operators. Sturgeon's is the only hotel/casino operation in Lovelock, Nevada and competes in the tourism market with casino facilities in the nearby cities of Reno, Sparks, Fallon and Winnemucca. However, other hotel operations (without casino facilities) compete for the tourism market while other (smaller) casino facilities (without hotel operations) compete for gaming patrons in this area.

Intellectual Property

        We regard our technology as proprietary and attempt to protect it by relying on patents, trademarks, service marks, copyrights and trade secret laws and restrictions on disclosure and transferring title and other methods. We generally enter into confidentiality and/or license agreements

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with our employees and consultants, and generally control access to and distribution of our documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our proprietary information without authorization or to develop similar technology independently.

Research and Development

        We incurred costs of $672,899 in research and development in the fiscal year ended January 31, 2010, as compared to $591,121 in the fiscal year ended January 31, 2009 all of which was expensed as incurred. We intend to conduct continuing development and innovation of our products in accordance with changing consumer preferences, demographics, and the evolution of new technologies. Our development strategy is to leverage our proprietary technology and regulatory approvals to integrate third party developed solutions such as age verification, biometrics, identification, security, and wireless devices in order to provide fully-integrated applications that are competitive and innovative in the regulated gaming industry.

Proposed Government Regulation

        In the past, the U.S. Congress has submitted bills that, if passed, would prohibit wagering on some, if not all, types of sporting events. Passage of any such legislation would have a significant negative impact on our operations.

Regulation and Licensing

        The ownership and operation of gaming facilities in Nevada are subject to extensive state and local regulation. Our gaming operations are subject to the Nevada Gaming Control Act and its regulations (hereinafter collectively referred to as the "Nevada Act") and various local regulations. Our gaming operations are also subject to the licensing and regulatory control of the Nevada Gaming Commission (the "Commission"), the State Gaming Control Board (the "Board"), various county commissions (gaming, liquor, health, etc.), and other local jurisdictions. These regulatory agencies are hereinafter collectively referred to as the "Nevada Gaming Authorities."

        The laws, regulations and supervisory procedures of the Nevada Gaming Authorities have their genesis in various declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) the creation of a source of state and local revenues though taxation and licensing fees. Changes in such laws, regulations and procedures could have an adverse effect on our gaming operations.

        We have been found suitable as the publicly traded parent of entities holding Nevada gaming licenses. Leroy's is licensed by the Nevada Gaming Authorities as the owner/operator of nonrestricted race and/or sports book operations; AWIM is licensed by the Nevada Gaming Authorities as a Manufacturer and a Distributor; AWIG is licensed by the Nevada Gaming Authorities as the sole member of Sturgeon's; Sturgeon's is licensed by the Nevada Gaming Authorities as the operator of nonrestricted gaming operations at Sturgeon's Inn & Casino; CBS is not required to maintain any gaming-related licenses. Gaming licenses require the periodic payment of fees and taxes and periodic reviews by the gaming authorities. Furthermore, gaming licenses are not transferable.

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        We are registered in Nevada as a publicly traded corporation and, as such, are required to submit, on a periodic basis, detailed financial and operating reports to the Commission. Additionally, we may be required to furnish any other information requested by the Commission. No person may become a stockholder of, or receive any percentage of profits from Leroy's, AWIM, AWIG or Sturgeon's (as non-public entities) without first obtaining licenses and approvals from the appropriate Nevada Gaming Authorities. We have received from the Nevada Gaming Authorities the various registrations, approvals, permits and licenses required to engage in gaming activities in Nevada.

        The Nevada Gaming Authorities may investigate any individual who has a material relationship, or involvement with us in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Our officers, directors and key employees who are actively and directly involved in the gaming activities may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application of licensing for any cause deemed reasonable. A finding of suitability is comparable to licensing, and both require the submission of detailed personal and financial information followed by a thorough investigation. An applicant for licensing or a finding of suitability must pay all of the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities. In addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities also have jurisdiction to disapprove a change in a corporate position. Our current officers and directors and those of our subsidiaries have been found suitable by the Nevada Gaming Authorities.

        If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would be required to sever all relationships with such a person. Additionally, the Commission may require us to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or questions pertaining to licensing are not subject to judicial review in Nevada.

        If it were determined that we or our subsidiaries violated the Nevada Act, the gaming licenses or registration held by us could be limited, conditioned, suspended or revoked. At the discretion of the Commission, we and any person involved could be subject to substantial fines for each separate violation of the Nevada Act. Furthermore, a supervisor could be appointed by the Commission to operate our gaming properties and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of our gaming properties) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could, and certainly the revocation of any gaming license would, materially adversely affect the results of our operations.

        A beneficial holder of our voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his or her suitability as a beneficial holder of our voting securities determined if the Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of the investigation incurred by the Nevada Gaming Authorities in conducting such an investigation. If the applicant is an Executive Officer or Director of the Company, it is our policy to pay for these expenses. In addition, the Clark County Liquor Gaming Licensing Board has taken the position that it has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming license.

        The Nevada Act requires any person who acquires more than 5% of our voting securities to report the acquisition to the Commission. The Nevada Act requires that beneficial owners of more than 10% of our voting securities apply to the Commission for a finding of suitability within 30 days after the Chairman of the Board mails written notice requiring such a filing. Under certain circumstances, an

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"institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of our voting securities may apply to the Commission for a waiver of such a finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold the voting securities for investment purposes only unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of our board of directors, any change in our corporate charter, bylaws, management, policies or operations, or any of our gaming affiliates, or any other action which the Commission finds to be inconsistent with holding our voting securities for investment purposes only. Activities which are not deemed inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Commission may determine to be consistent with such investment intent. If the Commission grants a waiver to an "institutional investor," the waiver does not include a waiver or exemption from the requirement for prior approval to "acquire control" of a registered corporation. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information, including a list of its beneficial owners. The applicant is required to pay all costs of investigation. If the applicant is an Executive Officer or Director of the Company, our policy is to pay for those expenses.

        Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Commission, or the Chairman of the Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owners. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a registered corporation beyond such period of time as may be prescribed by the Commission may be guilty of a criminal offense. We would be subject to disciplinary action if, after we receive notice that a person is unsuitable to be a stockholder or to have any other relationship with us or our subsidiaries, we (i) pay that person any dividend or interest on our voting securities; (ii) allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person; (iii) pay remuneration in any form to that person for services rendered or otherwise; or (iv) fail to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities for cash at fair market value. Any person required by the Commission to be found suitable but who is found unsuitable shall be guilty of a criminal offense if he holds, directly or indirectly, the beneficial ownership of the voting or debt securities beyond the time prescribed by the Commission.

        We are required to maintain a current stock ledger in Nevada, which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such a disclosure may be grounds for finding the record holder unsuitable. We are also required to render maximum assistance in determining the identity of the beneficial owner. The Commission has the power to require our stock certificates to bear a legend indicating that the securities are subject to the Nevada Act. However, to date, the Commission has not imposed such a requirement on us.

        Changes in control of AWI through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he or she obtains control, may not occur without the prior approval of the Commission. Entities seeking to acquire control of a registered corporation must satisfy the Board and the Commission under a variety of stringent standards prior to assuming control of such registered corporation. The Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or

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involvement with the entity that proposes to acquire control, to be investigated and licensed as part of the approval process related to the transaction.

        The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defensive tactics affecting Nevada gaming licenses and registered corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Commission before we can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by our management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by a registered company's board of directors in response to a tender offer made directly to the registered company's stockholders for the purposes of acquiring control of the registered company.

        License fees and taxes, computed in various ways depending upon the type of gaming activity involved, are payable to the State of Nevada and to the counties and cities in which the Nevada licensees' respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly, semi-annually or annually and are based upon either: (i) a percentage of gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of games operated. Nevada licensees that hold a license as an operator of a slot route, or a manufacturer's or distributor's license, also pay certain fees and taxes to the State of Nevada.

        Any person who is licensed, required to be licensed, registered, or required to be registered, or is under common control with such person (hereinafter collectively referred to as "licensees") and who proposes to become involved in a gaming venture outside the State of Nevada is required to deposit with the Board, and thereafter maintain, a revolving fund to pay the expenses of investigation by the Board of his or her participation in such foreign gaming. We have filed the appropriate foreign gaming reports and have established the required revolving fund, if required. The revolving fund is subject to increase or decrease at the discretion of the Commission. Thereafter, such licensees are required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operations, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employ a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the basis of personal unsuitability. Recent changes in the Nevada Gaming Control Act would allow us to seek a determination of suitability of any associate or activity associated with the foreign gaming opportunity prior to engaging in that activity.

        Pursuant to the Professional and Amateur Sports Protection Act (the "Sports Protection Act"), which became effective January 1, 1993, the proliferation of legalized sports books and wagering was significantly curtailed. The Sports Protection Act effectively outlawed sports betting nationwide, excluding Nevada and sports lotteries in Oregon and Delaware. Thus, sports books and wagering are permitted to continue to operate in Nevada, provided the wager originates in Nevada and is received by a licensed sports book in Nevada. Moreover, the Interstate Wire Act also prohibits those in the business of betting and wagering from utilizing a wire communication facility for the transmission in interstate or foreign commerce of any bets, wagers or information assisting in the placing of such bets and wagers on any sporting event or contest unless such betting or wagering activity is specifically authorized in each jurisdiction involved.

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        On October 13, 2006, the United States Unlawful Internet Gambling Enforcement Act of 2006 ("UIGEA") was enacted. UIGEA prohibits any person engaged in the business of betting or wagering from knowingly accepting payments related to unlawful bets or wagers transmitted over the Internet. UIGEA instructs the U.S. Treasury Department and Federal Reserve to impose new obligations upon financial institutions and other payment processors to establish procedures designed to block online gaming-related financial transactions. It also expressly requires Internet bets and wagers to comply with the law of the jurisdiction where the wagers are initiated and received.

        Leroy's may not accept pari-mutuel bets received by use of wire communications facilities, including telephones and computers, unless such bets originated in jurisdictions where such betting or wagering is legal. Nevada has amended the Nevada Gaming Control Act to allow licensed race and sports books in Nevada to accept interstate pari-mutuel wagers (but not other sports betting) from other jurisdictions in which pari-mutuel wagering is legal.

Employees

        We had 180 full-time and 47 part-time employees at January 31, 2010, at all of our locations and subsidiaries, including our Sturgeon's property, of which 33 employees were full-time and 22 were part-time. None of our employees are represented by a labor union. We do not know whether or to what extent, if any, our employees will, in the future, be governed by collective bargaining agreements. At this time, we believe our employee relations are good.

Item 1A.    Risk Factors

Cautionary Statements Regarding Future Results, Forward-Looking Statements and Other Important Factors

        Throughout this report we make statements regarding our business, expectations and prospects, such as projections of future performance, statements of our plans and objectives, forecasts of market trends, and other matters that are "forward- looking statements" as defined in Section 27A of the Securities Act of 1933, as amended, (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Statements containing words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "estimates," "projects," "believes," "expects," "anticipates," "intends," "target," "goal," "plans," "objective," "might," "may," "could," "will," "should," or similar expressions, or the negative thereof, constitute forward-looking statements. Although we believe that our plans, objectives and expectations reflected in, or suggested by, such forward-looking statements are reasonable at the present time, we might not achieve them or we may modify them from time to time. You should read this report thoroughly and with the understanding that actual future results may be materially different from what we expect. We do not plan to update forward-looking statements even though our situation or plans may change in the future, unless applicable law requires us to do so.

        In addition to other matters identified or described by us from time to time in this report or in our other filings with the Securities and Exchange Commission (the "SEC"), there are several important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned, or results that are reflected from time to time in any forward-looking statement that may be made by us or on our behalf. Some of these important factors, but not necessarily all important factors, include the following:

Current Economic Conditions Will Likely Adversely Affect Our Results of Operations

        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

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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. We face the risk that the effects of higher unemployment rates, 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 less funds available for travel and leisure activities. Consumer demand for gambling, due to decreased disposable income, has declined and could continue to decline as a result of the current economic conditions. We have also experienced a change in gambling patterns of our patrons, including a trend towards more conservative bets, which tend to be less profitable to the Company. Additionally, our current casino customers who purchase equipment and wagering software have experienced a decline in growth and financial performance, which will likely lead to a decrease in maintenance revenues and installation revenues. In addition, because Sturgeon's Hotel and Casino is heavily dependent on the drive-through market, especially travelers on Interstate 80, the foregoing factors have and could continue to have an adverse affect on our business.

Liquidity—If We Are Unable to Raise Additional Capital in the Near Term, We May be Unable to Satisfy Our Obligations as They Become Due

        At January 31, 2010, we had approximately $2.1 million in cash and equivalents, a majority of which cash is held to fund winning tickets and future bets. Based upon our anticipated operations, we believe that cash on hand and operating cash flows will be adequate to meet our anticipated working capital requirements, capital expenditures, and scheduled payments for indebtedness for fiscal 2011; however, we do anticipate a short term liquidity issue during the second quarter of fiscal year 2011, which we expect will recover during the third quarter of fiscal year 2011 with the commencement of football season. This expectation is based upon our inability to reduce our Regulation 22.040 reserve requirement as we normally do after football season. No assurance can be given however, that our cash flow will be sufficient, that our estimates for anticipated operational cash needs will be accurate, that new business development will or unforeseen events will not occur, or that the outcome of litigation will be positive, resulting in the need to raise additional funds sooner, or that we will be able to raise additional funds. We recently engaged a financial advisor on an exclusive basis to provide advisory services to us, including the identification of potential investors in an offering of debt, equity or equity-linked securities of us, or a strategic based transaction involving us. No assurance can be given, however, that we will be able to raise any additional capital, through the efforts of our financial advisor or otherwise, or that such capital will be available to us on acceptable terms. Given the current financial market disruption, credit crisis and state of the economy, it may be particularly difficult at this time to raise any capital on acceptable terms. In the event we cannot raise additional capital or operations continue to decline, we may be unable to satisfy our obligations as they become due.

Risk of Loss due to Racusin Litigation

        The Company and Racusin entered into the Settlement Agreement on September 3, 2004. Racusin filed a claim for breach of the Settlement Agreement on January 14, 2009, and motion for summary judgment to accelerate amounts due, with penalty interest, on February 24, 2009. A hearing was held on May 8, 2009, regarding the motion for summary judgment. On April 2, 2010, a hearing was held where the Court verbally indicated an intent to vacate an August 18, 2009 order granting summary judgment in favor of Racusin because a material issue of fact remained regarding whether the Company breached the Settlement Agreement, and whether the acceleration clause of the Settlement Agreement was triggered. Additionally, at the April 2, 2010 hearing, the Court also held off rendering a decision on Racusin's Motion for Attorneys' Fees and Costs because at this time no prevailing party exists as no material breach of the Settlement Agreement has been proven. No trial date has been set

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in this case as of yet. If the Court determines we owe additional amounts, we may not be able to pay such obligations when due without obtaining additional financing. No assurance can be given, however, that we will be able to raise any additional capital or that such capital will be available to us on acceptable terms.

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 surety bonds secured by restricted cash held at Nevada State Bank.

        In March 2009, we were notified that Fidelity would cancel its surety bond effective May 8, 2009. We have been unable to secure a replacement bond with acceptable terms subsequent to the cancellation. In September 2009 we reached an agreement with the Nevada Gaming Control Board to increase our reserve by $500,000 with a deposit of $100,000 on September 30, 2009 and an $80,000 deposit required on October 31, 2009; November 30, 2009; December 31, 2009; January 31, 2010; and February 28, 2010. These deposits increased our reserve account to $1.62 million held at Nevada State Bank as of January 31, 2010. In addition, Victor and Terina Salerno pledged a certificate of deposit for $200,000 and Robert and Tracey Kocienski pledged two certificates of deposit totaling $500,000 for the benefit of Leroy's effectively creating a total reserve of $2.32 million as of January 31, 2010. The pledged certificates expire in October 2010 and unless the pledge is renewed we may be required to make additional reserve deposits during football season. If we are required to increase the Regulation 22.040 reserve and are unable to do so, it would have an adverse impact on us including, but not limited to, requiring a significant reduction in the number of race/sports locations operated by Leroy's, and/or an elimination or reduction of telephone wagering accounts, resulting in an adverse change in our operating results.

We Have Had a History of Significant Losses and We May Incur Additional Losses in the Future

        For the fiscal years ended January 31, 2010 and 2009, we have incurred net income of $1.0 million and a net loss of $1.0 million, respectively. From our inception of revenue producing operations through the current fiscal year, we have incurred an accumulated deficit of $12.2 million. For the fiscal years ended 2001 though 2010, the Company recorded net income for six of those years and net losses for four of those ten years. While we have implemented strategies to improve future operations including, but not limited to the following: increasing financial analysis and focusing on cost reductions; eliminating unprofitable sports book locations; investing in newer, more profitable sports book locations; investing in additional research and development aimed at new markets and technologies; and settling litigation matters; there is no assurance that such strategies will be successful. Higher than expected administrative, research and development, and/or distribution costs, could also negatively impact our financial results. The timing of the sales of equipment compared to the timing of expenses incurred may also negatively affect our financial results. Changes in our business systems, competition, or technologies affecting our products could also negatively impact our financial results. In order for us to again achieve profitability, we need to generate and sustain additional revenues while maintaining reasonable cost and expense levels.

We Are Subject to Potential Fluctuations in Results

        Our quarterly results have fluctuated primarily due to outside factors such as professional and college sports seasons and timing of sales and installations for CBS equipment. All of the Company's wagering revenue comes from its Nevada race and sports books and nearly 20% of that is derived from professional football events. If the professional football season were to be interrupted, this could have

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significant adverse impact on future operations. Management also estimates that a significant amount of our Nevada non-casino wagering relates to college sports and, therefore, the passage of amateur sports anti-wagering legislation could have a material adverse impact upon future operations. In addition, we generate substantial revenue from system sales and maintenance to a relatively small population of potential customers, a decline in the size, demand or number of these contracts could also adversely affect future operations. Thus, the results of any quarter are not necessarily indicative of the results that may be expected for any other interim period. In addition, we take risks by accepting wagers on the outcome of various sporting events. Fluctuations in the levels of the amounts wagered during particular times of the year and the win percentage of the wagers contribute to variations in financial results. While we have instituted measures to lessen the risk, there is no assurance that we will be able to win more of the wagers than we lose. In addition, our inability to manage the timing of the release of new products and installations can cause fluctuations in results.

We Are Subject to Intense Competition

        There is intense competition among companies in the gaming industry, along with dynamic customer demand and rapid technological advances; and most of our competitors have significantly greater financial, marketing, technical and other resources than we do. Significant competition that we encounter may have a materially adverse effect on us. There can be no assurance that we will be able to compete successfully against current and future competitors.

        The state of Delaware legalized sports wagering in the form of parlay cards on professional football in 2009. The state of New Jersey is suing the federal government for the right to also accept sports wagering. These potential new sports wagering jurisdictions and expanded internet sports wagering could potentially reduce the amount of wagers placed in Nevada. However, this expansion could also represent expansion opportunities for our Company, but there can be no assurance that this will create a positive impact on our financial position.

Demand for Our Products and Services is Subject to Continued Acceptance of Our Products and Services

        We believe our ability to increase revenues, cash flow, and to maintain profitability will depend, in part, upon continued market acceptance of our products and services. There can be no assurance that the market acceptance of our products and services will continue. Changes in market conditions in the gaming industry, the general and gaming industry economic conditions, and the financial condition of host locations or patrons could limit or diminish market acceptance of these products and services.

We Are Subject to Strict Regulation by Gaming Authorities

        The ownership and operation of gaming licenses in Nevada are subject to strict regulation under various state, county and municipal laws. In particular, the Leroy's, AWIM, AWIG and Sturgeon's subsidiaries are licensed by the Nevada Gaming Commission and are subject to extensive regulation. Together with key personnel, we undergo extensive investigation before each new gaming license is issued, and the products of CBS and AWIM are subjected to testing and evaluation prior to approval and use. Generally, gaming authorities have broad discretion when granting, renewing or revoking these approvals and licenses. If we fail or any of our key personnel fail to obtain or retain a required license or approval, it would decrease our share in the marketplace and put us at a disadvantage with our competitors. Consequently, the market price of our common stock may suffer.

        Any expansion of our activities could be hindered by delays in obtaining requisite state licenses or the inability to obtain such licenses. No assurance can be given as to the term for which our licenses will be renewed in a particular jurisdiction or as to what license conditions, if any, may be imposed by such jurisdiction in connection with any future renewals. We cannot predict the effects that adoption of and changes in gaming laws, rules and regulations might have on our future operations.

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The Gaming Industry May be Adversely Affected by Federal Legislation and Tax Laws

        The U.S. Congress passed UIGEA in late 2006, which prohibits any person engaged in the business of betting or wagering from knowingly accepting payments related to unlawful bets or wagers transmitted over the Internet. UIGEA prohibits financial institutions and other payment processors from processing online gaming-related financial transactions. It also expressly requires Internet bets and wagers to comply with the law of the jurisdiction where the wagers are initiated and received. In addition, the U.S. Congress has proposed several bills that would prohibit any person from accepting wagers on amateur sporting events including high school, college and Olympic events.

        Pursuant to the Sports Protection Act, which became effective January 1, 1993, the proliferation of legalized sports books and wagering was significantly curtailed. The Sports Protection Act effectively outlawed sports betting nationwide, excluding Nevada and sports lotteries in Oregon, Montana, and Delaware. Thus, sports books and wagering are permitted to continue to operate in Nevada, provided the wager originates in Nevada and is received by a licensed sports book in Nevada. Moreover, the Interstate Wire Act also prohibits those in the business of betting and wagering from utilizing a wire communication facility for the transmission in interstate or foreign commerce of any bets, wagers or information assisting in the placing of such bets and wagers on any sporting event or contest unless such betting or wagering activity is specifically authorized in each jurisdiction involved.

        There is no guarantee that the U.S. Congress will not pass a bill which would adversely affect our operations. Additionally, federal and state tax legislation matters, including changes to current law, or new assessments by taxing authorities could also negatively impact our results of operations or financial position.

An Adverse Change Affecting the Gaming Industry, Such as a Change in Gaming Regulations or a Decrease in the Rate of Growth and Popularity of Casino Gaming, Particularly Those Casinos with Race and Sports Wagering, Will Negatively Impact Our Profitability and Our Potential for Growth

        Our ability to grow and operate profitably is substantially dependent upon the expansion of the Nevada gaming industry and other factors that are beyond our control. These factors include, among others, the pace of development and expansion, changes in gaming regulations, the continued popularity of casino gaming, particularly those casinos with race and sports wagering, as a leisure activity, etc. An adverse change in any of these economic, political, legal or other factors may negatively impact our results of operations. Additionally, consolidation of existing gaming operations could negatively impact our pricing structure and revenue. The number of visitors to Las Vegas declined 3% for the year ended December 31, 2009, and gaming revenues fell in 2009 compared with 2008 according to the Las Vegas Convention and Visitors Authority.

Staffing Reductions and Internal Controls—Due to Our Staff Reductions and Reduced Hours Worked, Particularly in the Accounting Department, We May Experience Deficiencies in Disclosure Controls and Internal Controls Over Financial Reporting, Leading to a Material Weakness and Non-Compliance with the Sarbanes-Oxley Act of 2002

        We have reduced staffing hours worked in the accounting and revenue auditing areas and may have additional layoffs in the future. In addition our Chief Financial Officer resigned in February 2010. The lack of sufficient staffing may cause existing controls to erode, possibly leading to a deficiency in disclosure controls and internal controls over financial reporting. While every effort will be made to monitor and retain these controls, there can be no assurance that we will have effective internal controls over financial reporting.

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We Are Largely Dependent on Current Management

        Our success is largely dependent on the efforts of Victor Salerno, our Chief Executive Officer and Chief Operating Officer. Although we maintain a "key person" life insurance policy and have an employment agreement with Mr. Salerno, the loss of Mr. Salerno's services could have a materially adverse effect on our business. Changes in the remainder of key management, or other key personnel or their compensation also contribute to this risk factor.

Future Revenue Growth Depends on Our Ability to Improve the Effectiveness and Breadth of Our Sales Organization

        In order to achieve our goals for growth, and increase market awareness and sales, particularly with the AWIG and AWIM subsidiaries, we need to improve the effectiveness and breadth of our sales operations. Our gaming products require sophisticated sales efforts targeted at selected people within the gaming industry. Also, our ability to develop and refine products and technologies in a timely manner that have market acceptance, through effective marketing techniques is essential for financial success. Competition for qualified sales personnel is intense, and we may not be able to hire the kind and number of sales personnel required. In addition, we will need to effectively train and educate the sales force in order to be successful in selling into the market. We rely upon certain strategic relationships with our customers and our vendors. If we are unable to maintain these relationships or create new relationships, our results of operations and financial condition will be adversely affected.

We Have the Authority to Issue Additional Equity Securities, Which Would Lead to Dilution of Our Issued and Outstanding Common Stock

        The issuance of additional equity securities or securities convertible into equity securities would result in dilution of our existing stockholders' equity interests in us. Our Board of Directors has the authority to issue, without vote or action of stockholders, preferred stock in one or more series, and has the ability to fix the rights, preferences, privileges and restrictions of any such series. We currently have Redeemable Series A Preferred Stock outstanding, of which 3,238 shares, representing $323,800, are subject to redemption at any time, without prior approval from the Board of Directors. Any redemption of the remainder of the preferred stock is subject to prior approval from the Board of Directors. Any such series of preferred stock could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of our common stock. If we issue convertible preferred stock, a subsequent conversion may dilute the current common stockholders' interest. In addition, as of January 31, 2010, we are authorized to issue, without stockholder approval, up to 16,870,121 shares of common stock. Of that amount, 616,499 shares of our common stock are reserved for issuance upon the exercise of vested options. On March 12, 2010, the Company engaged a financial advisor on an exclusive basis to provide advisory services to us, including the identification of potential investors in an offering of debt, equity or equity-linked securities of the Company, or a strategic based transaction involving the Company. As part of the consideration we agreed to pay the financial advisor for its services an initial retainer of 250,000 restricted shares of the Company's common stock.

We May Not be Able to Protect Our Proprietary Rights and May Incur Significant Costs Attempting to Do So

        Our success and ability to compete are dependent to a significant degree on our proprietary technology. We rely on a combination of patent, copyright, trade secret and trademark laws, as well as confidentiality and licensing agreements to protect these proprietary rights. However, it may be possible for a third party to copy or otherwise obtain and use our software or other proprietary information without authorization or to develop similar software independently. In addition, litigation may be necessary in the future to enforce our intellectual property rights, to protect trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or

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invalidity. Such litigation, whether successful or not, could result in substantial costs and diversions of resources, either of which could have a material adverse affect on our financial condition or operating results.

The Market for Our Common Stock Is Limited

        Our common stock is thinly-traded and any recently reported sales price may not be a true market-based valuation of our common stock. There can be no assurance that an active market for our common stock will develop. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to operating performance.

Our Common Stock is Considered a "Penny Stock" and, as Such, the Market for Our Common Stock May be Further Limited by Certain SEC Rules

        As long as the price of our common stock remains below $5.00 per share, the stock is likely to be subject to certain "penny stock" rules promulgated by the SEC. Those rules impose certain sales practice requirements on brokers who sell penny stock to persons other than established customers and accredited investors (as defined in Rule 501(a) of Regulation D promulgated under the Securities Act). For transactions covered by the penny stock rules, the broker must make a special suitability determination for the purchaser and receive the purchaser's written consent to the transaction prior to the sale. Furthermore, the penny stock rules generally require, among other things, that brokers engaged in secondary trading of penny stocks provide customers with written disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and ask prices, disclosure of the compensation to the brokerage firm, and disclosure of the sales person working for the brokerage firm. These rules and regulations adversely affect the ability of brokers to sell our common stock and limit the liquidity of our securities.

The Trading Price of Our Common Stock is Volatile and Could Decline Substantially

        The trading price of our common stock is volatile and is likely to continue to be volatile. Our stock price could be subject to wide fluctuations in response to a variety of issues, including broad market factors that may have a material adverse impact on our stock price, regardless of our actual performance. The factors include, but are not limited to, the following:

•

Periodic variations in the actual or anticipated financial results of our business or that of our competitors;



•

Downward revisions in estimates of our future operating results or of the future operating results of our competitors;



•

Material announcements by us or our competitors;



•

Uncertainty as to the continued quotation of our stock on the OTC Bulletin Board ("OTCBB"); and



•

Adverse changes in general market conditions or economic trends or in conditions or trends in the market in which we operate.

We Do Not Intend to Pay Cash Dividends. As a Result, Stockholders Will Benefit from an Investment in Our Common Stock Only if It Appreciates in Value

        We have never paid a cash dividend on our common stock, and we do not plan to pay any cash dividends on our common stock in the foreseeable future. We currently intend to retain any future earnings to finance our operations and further expand and grow our business, including growth through acquisitions. As a result, the success of an investment in our common stock will depend upon any

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future appreciation in its value. We cannot assure you that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

We May Not Receive an Unqualified Opinion From Our Auditors With Respect to the Assessment of Our Internal Controls Over Financial Reporting That Is Required by Section 404 of the Sarbanes-Oxley Act Of 2002, and We Will Incur Additional Costs in That Process

        We believe that effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports. We have and will continue to incur a substantial amount of management time and resources and significant expenses in order to comply with laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002. In particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires our management's annual review and evaluation of our internal control systems. Commencing with our Annual Report on Form 10-K for the year ending January 31, 2011, attestations as to these systems by our registered independent accounting firms will be required.

        We will continue to incur increased costs in implementing and responding to these requirements due to the complexities of Section 404 that require significant documentation, testing and, if necessary, remediation. Our process of reviewing, documenting and testing our internal controls over financial reporting may cause a considerable strain on our management, diverting them from their daily business focus and strain on our information systems and other resources. We may be required to hire additional temporary or part-time personnel and to use outside legal, accounting and advisory services and software to assist us in compliance efforts. In addition, we will incur additional fees from our auditors as they perform the added review work necessary for them to provide their attestation. Even with those expenditures, we may not be able to successfully complete our assessment or we may not be able to obtain an unqualified attestation report on such assessment.

        Further, we or our auditors may identify significant deficiencies or material weaknesses in our internal control over financial reporting. If we fail to maintain the adequacy of our internal controls, we may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting. Additionally, internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Litigation May Subject Us to Significant Expenses and Liability

        From time to time in the course of our business, we may be subject to litigation claims or other legal disputes, which may not be covered under our insurance policies or as to which our insurance carriers may seek to deny coverage. Consequently, due to actions from third parties, we might incur adverse judgments, costly settlements or significant legal fees, any or all of which might have a material adverse effect on us. See Item 3. Legal Proceedings.

Item 1B.    Unresolved Staff Comments

        Not required.

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Item 2.    Properties

        Our corporate office is located in a 25,861 square foot building at 675 Grier Drive, Las Vegas, Nevada. On January 7, 2005, we completed a sale and leaseback of the property. Prior to the sale, the building was owned by our CBS subsidiary. We realized a gain of $1,638,000 on the sale of the building, which was deferred and amortized against lease expense over the initial lease term (5 years). CBS leases the building from the new owner for rent in the amount of $32,339 per month (triple net). The lease had an initial term which expired February 1, 2010 with options for two additional five-year terms. We exercised the first option and extended the lease for five years until February 1, 2015. CBS, in turn, sublets a portion of the building to AWI (2,830 square feet; $5,236 per month) and to Leroy's (6,769 square feet; $11,014 per month) In addition, CBS leases 1,847 square feet of office and warehouse space in Reno, Nevada to provide 24 hour maintenance service to our Northern Nevada customers. This space is located at 960 Matley Lane, Suite 21, Reno, Nevada. CBS pays $1,709 per month plus utilities, for a twelve month period ending September 30, 2010, the lease expiration date.

        Leroy's operates race and/or sports books subject to lease agreements primarily with the host casino operators. The average book occupies approximately 300 square feet, with individual books ranging from 100 to 10,000 square feet.

        Sturgeon's is located at 1420 Cornell Avenue in Lovelock, Nevada. The facility contains over 65,000 square feet and is the security for a $1.6 million loan with Nevada State Bank, having a 20-year amortization with a 5-year maturity at a fixed interest rate of 8.0% per annum.

        We believe that the existing facilities in Las Vegas, Reno and Lovelock satisfy our present and foreseeable needs and we do not anticipate any changes.

Item 3.    Legal Proceedings

        See Part II-Item 8. Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements, Note 6, for information regarding legal proceedings and contingencies.

Item 4.    (Removed and Reserved)

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        (a)   Market information.    Our common stock is traded on the OTC Bulletin Board ("OTCBB") under the symbol "BETM." The following table sets forth the range of high and low closing sale prices for our common stock for each of the periods indicated as reported by the OTCBB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

        We consider our common stock to be thinly traded and, accordingly, reported sales prices or quotations may not be a true market-based valuation of our common stock.

        (b)   Holders.    As of January 31, 2010, there were 58 record holders of our common stock. We believe there are more owners of our common stock whose shares are held by nominees or in street name.

        (c)   Dividends.    Holders of our common stock are entitled to receive dividends, as and when declared by our Board of Directors, out of funds legally available therefore, subject to the dividend and liquidation rights of preferred stock issued and outstanding. We have never declared or paid any dividends on our common stock, nor do we anticipate paying any cash dividends on our common stock in the foreseeable future.

Item 6.    Selected Financial Data

        Not required.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

        Our primary operating strategies for the foreseeable future are to focus on our core businesses relating to the race and sports industry, and the operation of Sturgeon's. Regarding CBS, we intend to continue developing, selling and maintaining computerized race and sports wagering systems for the gaming industry. As to AWIM, we intend to continue developing the self-service wagering kiosk, installing kiosks in Leroy's locations to assist in controlling escalating personnel costs, and marketing the kiosk to non-Leroy's locations to seek strategic alliances with third party gaming suppliers and/or gaming operators, if economically feasible, that desire to utilize our expertise in the race and sports industry. These strategies should enable us to gain a national, and foreseeably global, competitive advantage by offering the gaming operator and/or the betting patron a well-rounded gaming experience.

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Regarding the Sturgeon's facility, we intend to continue to monitor and make additional changes in the slot mix at Sturgeon's where and when appropriate, and continue to increase efficiency by possible personnel and other administrative cost reductions, where appropriate.

        Concerning Leroy's, we intend to continue operating existing sports books, adding new books where and when appropriate, based on our business model, and to continue to increase efficiency by possible personnel and other administrative cost reductions, where appropriate. We are closely reviewing and analyzing the existing Leroy's locations in order to close those locations that are not operating efficiently. Based on our strategy, the number of race and sports books operated by Leroy's may increase or decrease in the future, due to the closure of unprofitable locations or host properties, closures due to other factors beyond our control and/or the possible opening of new locations with greater potential for profitability. Additionally, we will be adding sports bars and taverns for the purpose of sports account wagering. There is no assurance that Leroy's will be able to add new locations and/or that any new locations added will be profitable.

        We have implemented, and continually revise our cost reduction measures throughout the Company. During fiscal 2009, the Company began reducing its workforce by means of a lay-off for a total of 114 employees (or 31.2%) as of January 31, 2009. The lay-offs were in each of our subsidiaries and we began to focus on other non-employment related cost reduction measures, such as reductions in telecommunication costs, energy and utility costs, and office supply costs. The Company maintained its cost reduction measures throughout fiscal 2010. During fiscal 2010 and fiscal 2009, our local, regional and national economy has been negatively impacted due to a number of factors, including the nationwide downturn in the economy, the subprime mortgage crisis and transportation costs. Confidence in the credit market has also eroded, which resulted in a tightening of credit availability. The economy is also subject to events such as threatened or actual terrorist attacks; pandemic outbreaks or similar widespread health epidemics; natural disasters; and declines in the stock market. During fiscal 2010, Las Vegas continued to experience high foreclosure and unemployment rates and reduced passenger traffic at McCarran International airport attributed to additional costs and airline cutbacks. We face the risk that the effects of higher unemployment rates, 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 less funds available for travel and leisure activities. Consumer demand for gambling, due to decreased disposable income, has declined as a result of the current economic environment. We have also experienced a change in gambling patterns of our patrons, including a trend toward more conservative bets, which tend to be less profitable to the Company. In addition, because Sturgeon's Hotel and Casino is heavily dependent on the drive-through market, especially travelers on Interstate 80; the factors listed above have and will continue to have an adverse affect on our business.

Liquidity and Capital Resources

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

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Cash Flow

        As of January 31, 2010, we had working capital of $751,489, compared to working capital deficit of $(456,055) at January 31, 2009. The increase in working capital is primarily due to earning a profit of $983,706 and the timing of and decreases in future bets and unpaid winning tickets. Significant expense control measures were instituted throughout the fiscal year resulting in expense reductions of $3.2 million (-19%) from the prior year. Expense reductions were partially offset by revenue reductions of $.9 million (-6%). The third and fourth quarters have historically been the best two quarters regarding cash flow and earnings for the Company; however, for fiscal 2010, the third quarter was weak due to a low hold percentage in professional football, and, during the fourth quarter, we experienced a high hold percentage which offset the third quarter.

        The United States recently experienced a severe economic downturn that curtailed casino gaming development, activity and profitability. This was a local and nationwide problem, resulting in highly reduced availability of credit and capital financing. The recession continues to have an adverse effect on our cash flows and earnings for fiscal 2010 particularly on the revenues of our Hotel / Casino segment which experienced a reduction of $387,998 (-14.5%). The effects and the duration of these negative developments and related uncertainties on the Company's future operations and cash flows cannot be estimated at this time, but may likely be significant.

        Additionally, due to the current negative economic environment, the Company has taken additional measures to increase cash flow. Effective January 1, 2009, the Company no longer matches the employees' 401(k) contributions. The salaries of the President of AWIG and the controller of Sturgeon's Hotel and Casino were reduced by 20%. The CEO and the in-house general counsel each agreed to reduce their annual base salaries to the amount sufficient to cover payroll deductions for benefits, effective November 24, 2008. Pursuant to the original terms of Mr. Salerno's employment agreement, Mr. Salerno is entitled to an annual base salary of $240,000. Additionally, several higher salaried employees each agreed to reduce their salaries by 20% effective January 3, 2009. Certain higher paid hourly employees agreed to a 32 hour work week, effective January 4, 2009, resulting in a 20% pay reduction. The salary reductions were intended to be temporary pending an improvement in the Company's cash flow and were reversed in September 2009 with the exception of the President of AWIG; the controller at Sturgeon's Hotel and Casino; the CEO; and the in-house general counsel.

        Victor Salerno, the Company's President, Chief Executive Officer, Chief Operating Officer, and interim Principal Accounting Officer (as our Chief Financial Officer resigned in February 2010), loaned the Company an additional $500,000 on December 1, 2008 due to the cash flow needs of the Company. Due to the urgency, the funds were advanced on an expedited basis without formal board approval, as reported in the Company's Form 10-Q for the quarter ended October 31, 2008. Mr. Salerno had previously loaned the Company $500,000 pursuant to a loan agreement dated April 21, 2008. The independent directors of the Company evaluated and approved the fairness of the loan agreement to cover the total $1,000,000, at the same terms of the April 21, 2008 loan agreement. Additionally, the Company's outside directors elected not to receive their directors' fees for the last three months of 2008 and renounced their stock option grants for fiscal 2009 effective January 31, 2009.

        On December 11, 2008, U.S. Bank gave the Company verbal approval to extend the maturity date of the Company's $500,000 revolving line of credit to 90 days after the original maturity date of December 31, 2008 (March 31, 2009) and to further negotiate the terms of the line of credit. This credit facility was converted into a term loan, effective March 30, 2009. As of January 31, 2010, the Company paid the full balance of the term loan.

        We believe our working capital position will improve in fiscal 2011 due to: (a) the continuation of the expense reduction measures implemented by management in fiscal 2009 and fiscal 2010; (b) an increased demand in fiscal 2011 for our CBS equipment due to certain customers' desire to obtain new equipment, who are themselves recovering from the economic downturn; (c) deployment of new

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products and services anticipated in fiscal 2011; (d) reduced cash obligations in fiscal 2011 related to paydowns and reduced payments to Racusin; and (e) additional or expanded sports book locations in fiscal 2011. Based on the foregoing and subject to the severity of the economic downturn, we believe we will be able to satisfy our operating cash requirements for at least the remainder of fiscal 2011 from existing cash balances and anticipated cash flows; however, we do anticipate a short term liquidity issue in the second quarter of fiscal year 2011 due to reserve requirements of Regulation 22.040. Some of the above statements are forward-looking in nature. No assurance can be given that our working capital position will improve in fiscal 2011 or that we will be successful in achieving the items listed above, including, but not limited to, a reduction in costs, increased demand for our CBS equipment, successful deployment of new products and services, and additional or expanded sports book locations.

        If our cash flow from operations and available credit is not sufficient to meet our capital requirements, we will be required to raise additional funds. If we cannot locate additional sources of capital, we may not be able to fund operations, take advantage of future opportunities, or respond to competitors or changing demands of customers. In the event we are required to raise additional funds to support our operations, we cannot assure you that the additional funds will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, it would likely have a material adverse effect on our financial condition and operating results and we may be unable to satisfy our obligations as they become due.

        Subject to uncertainties resulting from the current economic conditions, we plan to improve our cash liquidity during the current fiscal year (ending January 31, 2011), as described above, to help us fund the following: payroll and benefits; sports book supplies and improvements; required cash reserves; business insurance; real estate and equipment leases; Racusin obligation; legal expenses; telecommunications; costs related to inventory and to assemble race/sports systems for our CBS customers; compliance costs associated with gaming regulations and Section 404 of the Sarbanes-Oxley Act of 2002; and debt service. However, there can be no assurance that we will be profitable in the future.

        Our principal cash requirements consist of cash provided by operations for fiscal 2010 of $0.2 million as compared to cash used by operations of $0.2 million for fiscal 2009, primarily due to a net income of $1.0 million and a reduction in unpaid winning tickets and future wagers related to the last big game of the professional football season.

        Net cash used in investing activities for fiscal 2010 was approximately $0.5 million as compared to approximately $0.4 million for fiscal 2009, primarily as a result of an increase in the Regulation 22.040 reserve requirement of approximately $0.4 million.

        Net cash used in financing activities for fiscal year ended January 31, 2010 was approximately $0.9 million compared to approximately $0.6 million in cash provided by financing activities for fiscal 2009 primarily due to payments made on borrowings.

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 surety bonds secured by restricted cash held at Nevada State Bank.

        In May 2009, our surety bond was cancelled and we have been unable to secure a replacement bond with acceptable terms subsequent to the cancellation. In September 2009 we reached an agreement with the Nevada Gaming Control Board to increase our reserve by $500,000 with a deposit of $100,000 on September 30, 2009 and $80,000 deposits on October 31, 2009; November 30, 2009;

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December 31, 2009; January 31, 2010; and February 28, 2010. These deposits increased our required reserve to $1.62 million as of January 31, 2010. In addition, Victor and Terina Salerno pledged a certificate of deposit for $200,000 and Robert and Tracey Kocienski pledged two certificates of deposit totaling $500,000 for the benefit of Leroy's effectively creating a reserve of $2.32 million. The pledged certificates expire in October 2010 and unless the pledge is renewed we may be required to make additional reserve deposits during football season. We believe that such amount will provide an adequate reserve until football season, at which time; we may need to increase the reserve amount. If we are required to increase the Regulation 22.040 reserve and are unable to do so, it would have an adverse impact on us including, but not limited to, requiring a significant reduction in the number of race/sports locations operated by Leroy's and/or elimination or reduction of telephone wagering accounts, resulting in an adverse change in our operating results.

Outlook

        Our liquidity has been adversely impacted by a number of factors, including economic conditions and those summarized under "Overview" above.

        At January 31, 2010, we had approximately $2.1 million in cash and equivalents, a majority of which cash is held to fund winning tickets and future bets. Based upon our anticipated operations, we believe that cash on hand and operating cash flows will be adequate to meet our anticipated working capital requirements, capital expenditures, and scheduled payments for indebtedness for the remainder of fiscal 2011; however, we do anticipate a short term liquidity issue during the second quarter of fiscal year 2011, which we expect will recover during the third quarter of fiscal year 2011 with the commencement of football season. No assurance can be given, however, that our cash flow will be sufficient, that our estimates for anticipated operational cash needs will be accurate, that new business development or unforeseen events will not occur, that the outcome of litigation will be positive, including any amounts that may be accelerated under the Racusin settlement agreement, resulting in the need to raise additional funds sooner, or that we will be able to raise additional funds. We anticipate that we may require additional funds to meet our cash requirements sometime in fiscal 2011. To raise capital, we may seek to sell additional securities, issue debt or convertible securities, obtain additional credit facilities through financial institutions or third parties, or sell assets of the Company. No assurance can be given, however, that we will be able to raise any additional capital, or that such capital will be available to us on acceptable terms. Given the current financial market disruption, credit crisis and state of the economy, including the current recession, it may be particularly difficult at this time to raise any capital on acceptable terms. In the event we cannot raise additional capital or operations continue to decline, we may be unable to satisfy our obligations as they become due. See "Liquidity and Capital Resources, Cash Flow".

Cash Obligations

        Once again, subject to uncertainties resulting from the current economic conditions, we believe we will continue to successfully meet our long-term obligations. The following table summarizes our cash payment obligations, including short term debt and long term debt and operating lease obligations for the next five fiscal years:

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/s/ PIERCY BOWLER TAYLOR & KERN
PIERCY BOWLER TAYLOR & KERN, Certified Public Accountants
Las Vegas, Nevada May 7, 2010

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*

Diluted income (loss) per common share is not applicable for loss periods.