SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number O-21831
International Sports Wagering Inc.
(Exact name of Small Business Issuer as specified in its charter)
Delaware 22-3375134
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
201 Lower Notch Road, Little Falls, NJ 07424
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (973) 256-8181
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(D) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such report) and (2) has been subject to such
filing requirement for the past 90 days.
Yes X No
There were 7,816,660 shares of Common Stock outstanding at August
5, 1998.
Transitional Small Business Disclosure Format (check one):
Yes No X
International Sports Wagering Inc.
June 30, 1998
Form 10-QSB
Index
Page
Part I: Financial Information
Item 1. Financial Statements
Balance Sheets at June 30, 1998 (Unaudited)
and September 30, 1997. 2
Statements of Operations for the Three and Nine
Months Ended June 30, 1998 and June 30, 1997
and May 22,1995 (date of inception) to June 30,
1998 (Unaudited). 3
Statement of Changes in Stockholders' Equity for
the Nine Months Ended June 30, 1998 (Unaudited). 4
Statements of Cash Flows for the Nine Months
Ended June 30, 1998 and 1997 and May 22,
1995 (date of inception) to June 30, 1998
(Unaudited). 5
Notes to Financial Statements. 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations or Plan of
Operation. 9-12
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K. 13
Signatures 14
International Sports Wagering Inc.
(A Development Stage Company)
Balance Sheets
Assets
June 30, September 30,
1998 1997
(Unaudited) (Note 1)
Current assets:
Cash and cash equivalents $ 450,598 $ 1,026,313
Accounts receivable, less
allowance for doubtful accounts
of $25,124 and $0, respectively 2,623 2,950
Investments 3,223,971 4,457,118
Current portion of notes
receivable, less reserve for
uncollectibility of $50,000
and $0, respectively 25,000 34,615
Prepaid expenses and other
current assets 98,023 184,315
Total current assets 3,800,215 5,705,311
Investments 250,992 618,120
Property and equipment, net 897,580 1,055,196
Notes receivable, less current
portion 15,385 34,615
Other assets 6,707 6,358
Total assets $ 4,970,879 $ 7,419,600
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 141,446 $ 143,197
Accrued expenses 112,457 222,345
Customer deposits 8,461 --
Total current liabilities 262,364 365,542
Stockholders' Equity:
Preferred stock, par value $.001
per share; 2,000,000 shares
authorized, none issued or
outstanding -- --
Common stock, par value $.001 per
share; 20,000,000 shares
authorized, issued and out-
standing 7,816,660 and
7,749,269 shares, respectively 7,817 7,749
Additional paid-in capital 10,262,138 10,214,829
Deficit accumulated during the
development stage (5,561,440) (3,168,520)
Total stockholders' equity 4,708,515 7,054,058
Total liabilities and
stockholders' equity $ 4,970,879 $ 7,419,600
See notes to financial statements
2
International Sports Wagering Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
May 22, 1995
(Date of
Three Months Ended Nine Months Ended Inception)
June 30, June 30, to June 30,
1998 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C>
Revenues $ 2,193 $ -- $ 29,343 $ -- $ 32,923
Costs and expenses
Research and
development
expense 221,158 199,688 740,818 611,793 2,524,337
General and
administrative
expense 650,063 265,525 1,878,016 668,496 3,318,962
871,221 465,213 2,618,834 1,280,289 5,843,299
Operating loss (869,028) (465,213) (2,589,491) (1,280,289) (5,810,376)
Other income
(expense)
Interest income 54,667 91,509 196,571 213,737 548,034
Interest expense -- -- -- (299,098) (299,098)
54,667 91,509 196,571 (85,361) 248,936
Net loss $(814,361) $(373,704) $(2,392,920) $(1,365,650) $(5,561,440)
Net loss per
share basic
and diluted $ (.10) (.05) $ (.31) $ (.19) $ (.81)
Weighted average
common shares
outstanding 7,802,881 7,749,269 7,707,622 7,266,027 6,883,791
</TABLE>
See notes to financial statements
3
International Sports Wagering Inc.
(A Development Stage Company)
Statement of Changes In Stockholders' Equity
For the Nine Months Ended June 30, 1998
Deficit
Accumulated
Additional During The
Common Stock Paid-In Development
Shares Amount Capital Stage Total
Balance at
September 30,1997 7,749,269 $7,749 $10,214,829 $(3,168,520) $7,054,058
Net loss for the
nine months
ended June 30,
1998 (2,392,920) (2,392,920)
Issuance of common
stock through
exercise of
options 67,391 68 47,309 -- 47,377
Balance at
June 30, 1998 7,816,660 $7,817 $10,262,138 $(5,561,440) $4,708,515
See notes to financial statements
4
International Sports Wagering Inc.
(A Development Stage Company)
Statements of Cash Flows
May 22, 1995
Nine Months Ended (Date of Inception)
June 30, to June 30,
1998 1997 1998
Cash Flows from
Operating Activities:
Net loss $(2,392,920) $(1,365,650) $(5,561,440)
Adjustment to reconcile
net loss to net cash
(Used in)operating
activities:
Depreciation and
amortization 313,871 99,589 588,851
Provision for doubtful
accounts 25,124 -- 25,124
Reserve for uncollect-
ibility 50,000 -- 50,000
Issuance of options
to consultants -- -- 14,500
Changes in assets
and liabilities:
Accounts receivable (24,797) -- (27,747)
Prepaid expenses and
other current assets 86,292 (224,006) (98,023)
Other assets (742) (46,604) (8,932)
Accounts payable (1,751) (30,882) 141,446
Accrued expenses (109,888) (82,530) 112,457
Customer deposits 8,461 -- 8,461
Net Cash (Used In)
Operating Activities (2,046,350) (1,650,083) (4,755,303)
Cash Flows from Investing
Activities:
Proceeds from sales of
investments 8,744,900 -- 35,845,197
Short-term investments (7,144,625) (5,076,643) (39,320,160)
Purchase of property
and equipment (155,862) (202,196) (1,484,206)
Proceeds from repayments
of notes receivable 28,845 -- 59,615
Issuance of notes receivable (50,000) -- (150,000)
Net Cash Provided By (Used
In) Investing Activities 1,423,258 (5,278,839) (5,049,554)
Cash Flows from Financing
Activities:
Net proceeds from issuance
of common stock 47,377 8,575,871 10,255,455
Net Cash Provided by
Financing Activities 47,377 -- 10,255,455
Net (Decrease) Increase in
Cash and Cash Equivalents (575,715) 1,646,949 450,598
Cash and Cash Equivalents,
Beginning of Period 1,026,313 537,546 --
Cash and Cash Equivalents,
End of Period $ 450,598 $ 2,184,495 $ 450,598
See notes to financial statements 5
International Sports Wagering Inc.
Notes To Financial Statements
Note 1 - Basis of Presentation:
The balance sheet at the end of the preceding fiscal year has
been derived from the audited balance sheet contained in the
Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission and is presented for comparative purposes.
All other financial statements presented are unaudited. In the
opinion of Management, all adjustments which include only normal
recurring adjustments necessary to present fairly the financial
position for all periods presented have been made. The results
of operations for the periods ended June 30,1998 and June 30,1997
are not necessarily indicative of the results expected for the
entire year.
Footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been omitted in accordance with the published
rules and regulations of the Securities and Exchange Commission.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB.
Note 2 - Net Loss Per Share of Common Stock:
During June 1997, the Financial Accounting Standards Board
("FASB") released Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"). SFAS 128 establishes
standards for computing and presenting earnings per share and is
effective for financial statements for both interim and annual
periods ending after December 15, 1997. Accordingly, effective
December 31, 1997, the accompanying net loss per share
information has been calculated and presented in accordance with
the provisions of SFAS 128 and as further prescribed by the
relevant Staff Accounting Bulletins of the Securities and
Exchange Commission.
Basic net loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding during the
applicable reporting periods. The computation of diluted net
loss per share is similar to the computation of basic net loss
per share except that the denominator is increased to include the
number of additional common shares that would have been
outstanding if the dilutive potential common shares had been
issued. However, the Company's computations of dilutive net loss
per share does not assume any conversion or exercise of
securities as their effect is antidilutive for all periods
presented.
6
International Sports Wagering Inc.
Notes To Financial Statements
Note 2 - Net Loss Per Share of Common Stock (continued):
The weighted average shares used in the net loss per share
computations for the three month periods ended June 30,1998 and
1997 were 7,802,881 and 7,749,269; for the nine month periods
ended June 30, 1998 and 1997 were 7,707,622 and 7,266,027; and
for the period from May 22, 1995 (date of inception) to June 30,
1998 was 6,883,791.
Common equivalent shares that could potentially dilute basic
earnings per share in the future and that were not included in
the computation of diluted loss per share because of antidilution
were 2,773,695 and 2,731,891 as of June 30, 1998 and 1997,
respectively.
Note 3 - Accounts and Notes Receivable and Subsequent Events:
In June 1997, the Company retained Yarlow, Inc. d/b/a Tom's
Sunset Casino ("Yarlow") to operate the Company's SportXctionTM
sports wagering system (the "System") until the later of June
1998 or such time as the Company received a Nevada gaming license
as an operator of an inter-casino linked system ("OILS license"),
permitting it to operate the System. The Company applied for an
OILS license in July 1997. On January 13, 1998, the Company
announced that Yarlow had suspended operation of Tom's Sunset
Casino, including operation of the SportXctionTM System, as a
result of financial difficulties unrelated to the System. On
April 23, 1998, the Nevada gaming authorities granted an OILS
license to the Company.
Live operation of the System commenced on September 21, 1997 and
by January, 1998, when operation of the System was temporarily
suspended, as described above, the System was in operation at
eight inter-linked casinos and gaming establishments in Nevada,
with simultaneous wagering conducted through approximately 220
player-betting stations installed at those eight establishments.
The Company re-commenced operations on May 11, 1998 on a limited
basis in two wagering establishments. By June 30, 1998,
operations had commenced at an additional two locations. Wagers
were accepted on both professional basketball and baseball.
During the hiatus in operations, between late January and late
May, 1998, the Company enhanced the SportXctionTM System with
several new features including an improved parley of sequential
bets which had initial testing last winter, and free practice
bets.
The Company was restricted to charging fixed fees for the use of
the System until it obtained an OILS license. $1,735 of the
revenue for the three months March 31, 1998, $20,459 of the
7
International Sports Wagering Inc.
Notes To Financial Statements
Note 3 - Accounts and Notes Receivable and Subsequent Events (continued):
revenue for the three months ended December 31, 1997, and $2,930 of the
revenue for the three months ended September 30, 1997, represented
accounts receivable from Yarlow. In view of Yarlow's financial
situation, the Company has established a reserve to cover the full
amount of these accounts receivable. In addition, the Company has
reserved the full amount of a $50,000 loan made on October 20, 1997 to
T&D, a Nevada general partnership, that is an affiliate of Yarlow.
Although this loan is guaranteed by Yarlow and two principals of T&D
there is no assurance that the Company will be successful in its
collection efforts.
8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations or Plan of
Operation.
In June of 1997, the Company retained Yarlow, Inc. d/b/a Tom's Sunset
Casino ("Yarlow") to operate the Company's SportXctionTM sports wagering
system (the "System") until the later of June 1998 or such time as the
Company received a Nevada gaming license as an operator of an inter-casino
linked system ("OILS license"), permitting it to operate the System. The
Company applied for an OILS license in July 1997. On January 13, 1998, the
Company announced that Yarlow had suspended operation of Tom's Sunset
Casino, including operation of the SportXctionTM System, as a result of
financial difficulties unrelated to the System. On April 23, 1998, the
Nevada gaming authorities granted an OILS license to the Company.
Live operation of the System commenced on September 21, 1997 and by
January, 1998, when operation of the System was temporarily suspended, as
described above, the System was in operation at eight inter-linked casinos
and gaming establishments in Nevada, with simultaneous wagering conducted
through approximately 220 player-betting stations installed at those eight
establishments.
The Company re-commenced operations on May 11, 1998 on a limited basis
in two wagering establishments. By June 30, 1998, operations had commenced
at an additional two locations. Wagers were accepted on both professional
basketball and baseball. During the hiatus in operations, between late
January and late May, 1998, the Company enhanced the SportXctionTM System
with several new features including an improved parley of sequential bets
which had initial testing last winter, and free practice bets.
For the three months ended June 30, 1998 the Company had a net loss of
$814,361, or $0.10 loss per share on the 7,802,881 weighted average common
shares outstanding, compared with a net loss of $373,704, or $0.05 loss per
share on 7,749,269, weighted average common shares outstanding for the
three months ended of June 30, 1997. Revenues of $2,193 were reported for
the three months ended June 30, 1998, compared with no revenues reported
for the comparable quarter of the prior year. Prior to being granted an
OILS license, the Company was restricted to charging fixed fees for the use
of the System. Subsequent to the granting of the OILS license, the
Company's revenues represent the net win (i.e. total amount wagered less
total amount paid out) of the System during the quarter. The System was
operated for approximately one half of the quarter ended June 30, 1998.
The net win is affected by the success (or lack thereof) of the
players in making sports wagering bets. The System seeks to induce
balanced betting action. It operates most efficiently when there are a
substantial number of wagers being placed through the System
simultaneously. When the number of wagers through the System is modest, as
it has been most of the time the System has been in operation, it is more
difficult to attempt to create balanced pools. This tends to result in
lower net wins.
The increased loss for the three months ended June 30, 1998 resulted
primarily from: depreciation expense, which increased $71,300, from the
prior year period to $108,196, reflecting the purchase of additional
9
computer equipment used in the operation of the System; salary expense,
which increased $204,907 to $436,840, attributable to increased
administrative, marketing, technical support activities and a severance
payment to a former officer; rent expense which increased by $9,723 to
$13,956, due to opening an office in Las Vegas; marketing expenses, which
increased by $96,588 to $106,288, primarily reflecting advertising early in
the quarter to promote awareness of the SportXctionTM game; an increase in
casino fees, which represent the casino's share of the handle which
increased to $1,210 from $0; and a decline in interest income which
decreased by $48,857 to $54,667, due to reduced investments.
Shortly after the Company was granted the OILS license, the Company
assumed responsibility for the players' account balances (money deposited
by players in accounts prior to commencing play on the System) of
approximately $7,000, and for cash reconciliation payment balances owed to
the casinos of approximately $5,000. These balances were the
responsibility of Yarlow, in accordance with the agreements between the
Company, Yarlow, as hub operator, and the sports wagering establishments at
which the System was in operation before it was shut down due to Yarlow's
financial difficulties. The balances were secured by a Certificate of
Deposit ("CD") in the amount of $50,000. The Company has petitioned Nevada
Gaming Control Board to reimburse the Company out of the proceeds of that
CD for the assumption of those fiscal responsibilities. There can be no
assurance that the Nevada Gaming Control Board will agree to such a
reimbursement, or that if there is a reimbursement, that it will be for the
entire amount requested.
The Company incurred $221,158 in research and development costs for
the three months ended June 30, 1998, compared with approximately $199,688
for the comparable prior year period. This increase is largely
attributable to increased salary expenses.
The Company continues to be in the development stage, with limited
revenues generated from the System. As of June 30, 1998, the Company had
cumulative net losses since inception of $5,561,440. It expects to
continue to incur substantial losses and negative cash flow at least
through fiscal year ended September 30, 1999. Contributing to this are the
fact that revenues currently being generated since the resumption of the
operation of the System in mid May have been modest, and the Company's
expectation that it will continue to incur substantial research and
development expenses for further product enhancement and development
activities.
As of June 30, 1998, the Company had liquid resources totaling
$3,674,569. These include cash and cash equivalents in the amount of
$450,598, and short-term investments in the amount of $3,223,971.
Investments are limited to investment grade marketable securities with
maturities of 18 months or less. Based upon its current proposed plans and
assumptions relating to its operations, the Company anticipates that
existing resources will be sufficient to satisfy its contemplated cash
requirements for approximately 18 months. Capital expenditures are
expected to be limited to purchase of additional computer equipment as
needed. Existing resources will fund these requirements.
The Company believes that the response from players of the
SportXctionTM game has been favorable, although the number of
10
players participating in wagering on each sporting event does not meet the
Company's expectations. The Company believes that this results from the
fact that the game, when introduced, was entirely new; wagering
during the course of a sporting event had not been tried previously, either
in Las Vegas or elsewhere. In addition, since the System was not in
operation for a period of approximately four months and was only recently
reintroduced during the baseball season when the interest in sports
wagering is traditionally less then during football and basketball seasons,
the Company was required to recreate potential player awareness.
In order to encourage more potential players to wager through the
System, the Company adapted the System to permit limited time periods of
free play and practice betting during the course of a sporting event. It
also introduced other new features and enhancements to the System to
attract additional players and increase wagering. These features included
a form of parlay wager resulting in a larger potential payoff, smaller
minimum wagers, and new betting proposition features. Other new features
intended to attract additional players and increase wagering are currently
under development, including a one-sided, long shot proposition which
offers to the players larger payoffs for relatively small wager amounts.
The Company is also in the process of adapting the System for use over
the Internet, or over private Intranets which utilize Internet
technologies. These adaptations will permit the use of the System by a
player at home (rather than in a casino), utilizing a PC and a modem for
(i) wagering within the State of Nevada, (ii) wagering in those foreign
countries where it is legal to do so, and (iii) non-wagering applications,
including games and contests over the Internet. The Company also intends
to explore alternative applications of its proprietary technology,
including adaptation of the System for activities conducted over cable
television and other communications media.
The Company's plan of operation during the next twelve months focuses
primarily upon (i) attracting additional players of the game and increasing
wagering through the System, (ii) continued sales and marketing to casinos
and other sportsbook operators in Nevada,(iii) hiring additional personnel
in the area of business development, sales and marketing, and product
development,(iv) continued research and further product enhancement and
development,(v) securing further intellectual property protection,
including additional patents, trademarks and copyright protections, and
(vi) exploring opportunities in foreign markets and (vii) exploring
alternative applications of the Company's proprietary technology, including
adoption of the System for use in non-wagering activities.
Except for the historical information contained herein, this quarterly
report on Form 10-QSB contains forward-looking statements, within the
meaning of Section 27A of the Securities Exchange Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include, but are not limited to, the ability of
the Company to retain any gaming licenses, required in order for the
Company to be able to continue to operate the System, the ability of the
Company to attract adequate numbers of players to its SportXctionTM game,
the ability of the Company to develop and market other opportunities for
its product, and the length of time that the Company's liquid resources
will last. Investors are cautioned that forward-looking statements are
11
inherently uncertain. Actual performance and results of operations may
differ materially from those projected or suggested in the forward-looking
statements due to certain risks and uncertainties, including, without
limitation, ability of the Company to attract adequate numbers of players
to the SportXctionTM game and ability of the Company to develop and market
other opportunities for its product. Additional information concerning
certain risks or uncertainties that would cause actual results to differ
materially from those projected or suggested in the forward-looking
statements is contained in the Company's filings with the Securities and
Exchange Commission, including those risks and uncertainties discussed in
its Prospectus dated December 11, 1996 and its Form 10-KSB for the fiscal
year ended September 30, 1997. The forward-looking statements contained
herein represent the Company's judgement as of the date of this report, and
the Company cautions readers not to place undue reliance on such matters.
12
II: Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company
during the quarter ended June 30, 1998.
13
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
International Sports Wagering Inc.
Dated: August 13, 1998 By: S/ BARRY MINDES
Barry Mindes, Chairman of the
Board of Directors
(Principal Executive Officer)
Dated: August 13, 1998 S/BERNARD ALBANESE
Bernard Albanese, President
Treasurer and Director
(Principal Financial Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 450,598
<SECURITIES> 3,223,971
<RECEIVABLES> 27,747
<ALLOWANCES> 25,124
<INVENTORY> 0
<CURRENT-ASSETS> 3,800,215
<PP&E> 1,484,206
<DEPRECIATION> 586,626
<TOTAL-ASSETS> 4,970,879
<CURRENT-LIABILITIES> 262,364
<BONDS> 0
0
0
<COMMON> 7,817
<OTHER-SE> 4,700,698
<TOTAL-LIABILITY-AND-EQUITY> 4,970,879
<SALES> 29,343
<TOTAL-REVENUES> 225,914
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,541,976
<LOSS-PROVISION> 76,858
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,392,920)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,392,920)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,392,920)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
