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 March 31, 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 May 4,
1998.
Transitional Small Business Disclosure Format (check one):
Yes No X
International Sports Wagering Inc.
March 31, 1998
Form 10-QSB
Index
Page
Part I: Financial Information
Item 1. Financial Statements
Balance Sheets at March 31, 1998 (Unaudited)
and September 30, 1997. 2
Statements of Operations for the Three and Six
Months Ended March 31, 1998 and March 31, 1997
and May 22,1995 (date of inception) to March 31,
1998 (Unaudited). 3
Statement of Changes in Stockholders' Equity for
the Six Months Ended March 31, 1998 (Unaudited). 4
Statements of Cash Flows for the Six Months
Ended March 31, 1998 and 1997 and May 22,
1995 (date of inception) to March 31, 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
March 31, September 30,
1998 1997
(Unaudited) (Note 1)
Current assets:
Cash and cash equivalents $ 884,623 $ 1,026,313
Accounts receivable, less
allowance for doubtful accounts
of $25,124 and $0, respectively -- 2,950
Investments 3,167,552 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 164,820 184,315
Total current assets 4,241,995 5,705,311
Investments 403,688 618,120
Property and equipment, net 992,394 1,055,196
Notes receivable, less current
portion 25,000 34,615
Other assets 6,707 6,358
Total assets $ 5,669,784 $ 7,419,600
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 96,510 $ 143,197
Accrued expenses 95,650 222,345
Total current liabilities 192,160 365,542
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 7,752,292 and
7,749,269 shares, respectively 7,752 7,749
Additional paid-in capital 10,216,951 10,214,829
Deficit accumulated during the
development stage (4,747,079) (3,168,520)
Total stockholders' equity 5,477,624 7,054,058
Total liabilities and
stockholders' equity $ 5,669,784 $ 7,419,600
See notes to financial statements
2
International Sports Wagering Inc.
(A Development Stage Company)
Statements of Operations
May 22, 1995
(Date of
Three Months Ended Six Months Ended Inception)
March 31, March 31, to March 31,
1998 1997 1998 1997 1998
Revenues $ 2,455 $ -- $ 27,150 $ -- $ 30,730
Costs and expenses
Research and
development
expense 255,697 232,832 519,660 412,105 2,303,179
General and
administrative
expense 425,460 221,390 1,227,953 402,971 2,668,899
681,157 454,222 1,747,613 815,076 4,972,078
Operating loss (678,702) (454,222) (1,720,463) (815,076) (4,941,348)
Other income
(expense)
Interest income 76,382 103,358 141,904 122,228 493,367
Interest expense -- -- -- (299,098) (299,098)
76,382 103,358 141,904 (176,870) 194,269
Net loss $ (602,320) $(350,864) $(1,578,559) $(991,946) $(4,747,079)
Net loss per
share basic
and diluted $ (.08) $ (.05) $ (.20) $ (.14) $ (.70)
Weighted average
common shares
outstanding 7,752,292 7,696,769 7,751,013 7,024,406 6,803,833
See notes to financial statements
3
International Sports Wagering Inc.
(A Development Stage Company)
Statement of Changes In Stockholders' Equity
For the Six Months Ended March 31, 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
six months
ended March 31,
1998 -- -- -- (1,578,559) (1,578,559)
Issuance of common
stock through
exercise of
options 3,023 3 2,122 -- 2,125
Balance at
March 31, 1998 7,752,292 $7,752 $10,216,951 $(4,747,079) $5,447,624
See notes to financial statements
4
International Sports Wagering Inc.
(A Development Stage Company)
Statements of Cash Flows
May 22, 1995
Six Months Ended (Date of Inception)
March 31, to March 31,
1998 1997 1998
Cash Flows from
Operating Activities:
Net loss $(1,578,559) $(991,946) $(4,747,079)
Adjustment to reconcile
net loss to net cash
(Used in)operating
activities:
Depreciation and
amortization 205,871 62,693 480,851
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 (22,174) -- (25,124)
Prepaid expenses and
other current assets 19,495 (215,461) (164,820)
Other assets (742) (50,001) (8,932)
Accounts payable (46,687) (40,660) 96,510
Accrued expenses (126,695) (68,229) 95,650
Net Cash (Used In)
Operating Activities (1,474,367) (1,303,604) (4,183,320)
Cash Flows from Investing
Activities:
Proceeds from sales of
investments 6,207,529 -- 33,307,826
Short-term investments (4,703,531) (4,457,548) (36,879,066)
Purchase of property
and equipment (142,676) (20,538) (1,471,020)
Proceeds from repayments
of notes receivable 19,230 -- 50,000
Issuance of notes receivable (50,000) -- (150,000)
Net Cash Provided By (Used
In) Investing Activities 1,330,552 (4,478,086) (5,142,260)
Cash Flows from Financing
Activities:
Net proceeds from issuance
of common stock 2,125 8,566,361 10,210,203
Net Cash Provided by
Financing Activities 2,125 8,566,361 10,210,203
Net (Decrease) Increase in
Cash and Cash Equivalents (141,690) 2,784,671 884,623
Cash and Cash Equivalents,
Beginning of Period 1,026,313 537,546 --
Cash and Cash Equivalents,
End of Period $ 884,623 $3,322,217 $ 884,623
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 March 31,1998 and March
31,1997 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 March 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 March 31,1998 and
1997 were 7,752,292 and 7,696,769, the six month periods ended
March 31, 1998 and 1997 were 7,751,013 and 7,024,406, and the
period from May 22, 1995 (date of inception) to March 31, 1998
was 6,803,833.
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 2,853,408 and 2,731,891 as of March 31, 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 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. 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. The System has not been in use since then.
The Company applied for an OILS license in July 1997 and the
investigation by the Nevada gaming authorities proceeded since
early fall of 1997. The Company was granted an OILS license on
April 23, 1998. The Company intends to commence operations again
in mid May 1998. During the hiatus in operations, the Company
enhanced the SportXctionTM System with several new features
including an improved parlay of sequential bets which had initial
testing last winter, and free practice bets.
Revenues of $2,455, were reported for the three months ending
March 31, 1998, compared with no revenues reported for the
comparable prior period. The revenues represented the Company's
fees for use of the System during the quarter, in accordance with
the agreements between the Company, Yarlow, as hub operator, and
sports wagering establishments at which the System was in
operation before it was shut down due to Yarlow's financial
difficulties. 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 ended March 31, 1998,
$20,459 of the revenue for the three months ended December 31,
1997 and $2,930 of the revenue reported for the year ended
September 30, 1997, reflecting operation of the System from
7
International Sports Wagering Inc.
Notes To Financial Statements
Note 3 - Accounts and Notes Receivable and Subsequent Events (continued):
September 21 through September 30, represented accounts
receivable from Yarlow. In view of Yarlow's financial
difficulties and the suspension of operations of Tom's Sunset
Casino, the Company has established a reserve to cover the full
amount of these accounts receivable.
During the three months ended March 31, 1998, the Company
reserved an additional $25,000, in this quarter representing 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.
Live operation of the Company's SportXctionTM sports wagering system
the ("System") commenced on September 21, 1997. As of January 11, 1998, 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. During the quarter ended March 31, 1998, the System was
used for approximately 11 days, for wagering on football and basketball
games. For the period from September 21, 1997 through January 11, 1998 the
total amount wagered through the System was approximately $1,364,000.
In June of 1997, the Company retained Yarlow, Inc. d/b/a Tom's Sunset
Casino ("Yarlow") to operate 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. 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. The System has not been in use since then.
The Company applied for an OILS license in July 1997 and the
investigation by the Nevada gaming authorities proceeded since early fall
of 1997. The Company was granted an OILS license on April 23, 1998. The
Company recommenced operations again on May 11, 1998. During the hiatus in
operations, the Company enhanced the SportXctionTM System with several new
features including an improved parlay of sequential bets which had initial
testing last winter, and free practice bets.
For the three months ended March 31, 1998, the Company had a net loss
of $602,320, or $0.08 loss per share on the 7,752,292 weighted average
common shares outstanding, compared with a net loss of $350,864, or $0.05
loss per share on 7,696,769, weighted average common shares outstanding for
the three months ended March 31, 1997. Revenues of $2,455 were reported
for the three months ending March 31, 1998, compared with no revenues
reported for the comparable prior year. The revenues represented the
Company's fees for use of the System during the quarter, (approximately
eleven days), in accordance with the agreements between the Company,
Yarlow, as hub operator, and sports wagering establishments at which the
System was in operation before it was shut down due to Yarlow's financial
difficulties. 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 ended March 31, 1998, $20,459 of the revenue for the
three months ended December 31, 1997 as well as $2,930 of the revenue
reported for the year ended September 30, 1997 (reflecting operation of the
System from September 21 through September 30) represented accounts
receivable from Yarlow. In view of Yarlow's financial difficulties and the
suspension of operations of Tom's Sunset Casino, the Company has
established a reserve to cover the full amount of these accounts
receivable.
9
In addition to the bad debt expense of $1,735, an additional reserve
of $25,000 was provided for in this quarter for a loan made October 20,
1997 to T & D, a Nevada general partnership that is an affiliate of Yarlow.
The increased loss for the three months ended March 31, 1998 resulted
primarily from: depreciation expense, which increased $72,539 from the
prior year period to $103,739, reflecting the purchase of additional
computer equipment used in the operation of the System; salary expense,
which increased $19,696 to $258,218, attributable to increased
administrative, marketing, and technical support activities; professional
fees, which increased by $36,254 to $83,136; rent expense, which increased
by $10,023 to $13,206, due to opening an office in Las Vegas; marketing
expenses, which increased by $5,103 to $29,489, primarily reflecting
advertising early in the quarter to promote awareness of the SportXctionTM
game; and a decline in interest income which decreased by $26,976 to
$76,382, due to reduced investments.
The Company incurred $255,697 in research and development costs for
the three months ended March 31, 1998, compared with approximately $232,832
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 March 31, 1998, the Company had
cumulative net losses since inception of $4,747,079. It expects to
continue to incur substantial losses and negative cash flow at least
through calendar year 1998. Contributing to this are the fact that no
revenues are currently being generated pending the resumption of the
operation of the System which is anticipated to be mid May, 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 March 31, 1998, the Company had liquid resources totaling
$4,052,175. These include cash and cash equivalents in the amount of
$884,623, and short-term investments in the amount of $3,167,552.
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 while it was in operation was generally favorable,
although the number of players participating in wagering on each sporting
event did not meet the Company's expectations. The Company believes that
this resulted from the fact that the game was entirely new; since wagering
during the course of a sporting event had not been tried previously, either
in Las Vegas or elsewhere, and because more promotion of the System is
required in order to have the wagering public become familiar with the
game.
10
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 promotional credits for new players 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. In
January 1998, the Company hired a Director of Marketing to develop and
implement a new marketing plan in order to attempt to increase public
awareness and participation in the SportXctionTM game.
The Company is in the process of adapting the System for use in legal
wagering and 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 12 months focuses
primarily upon (i) re-commencement of operation of the System and
providing the System to sports wagering establishments in exchange for a
portion of the revenue received by the establishment, (ii) attracting
additional players of the game, and increasing wagering through the System,
(iii) continued sales and marketing to casinos and other sportsbook
operators in Nevada, (iv) hiring additional personnel in the area of sales
and marketing, product development, equipment installation, maintenance and
training, (v) continued research and further product enhancement and
development, including adapting the System for new betting propositions,
(vi) securing further intellectual property protection, including
additional patents, trademarks and copyright protections, and (vii)
exploring opportunities in foreign markets and 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 needed gaming licenses, being able to continue
operation of 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 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, inability
of the Company to attract adequate numbers of players to the SportXctionTM
game, and inability 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
11
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 March 31, 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: May 12, 1998 By: S/ BARRY MINDES
Barry Mindes, Chairman of the
Board of Directors
(Principal Executive Officer)
Dated: May 12, 1998 S/BERNARD ALBANESE
Bernard Albanese, President
Treasurer and Director
(Principal Financial Officer)
14
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<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,322,217
<SECURITIES> 4,457,548
<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 8,004,111
<PP&E> 395,859
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<TOTAL-ASSETS> 8,320,681
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<OTHER-SE> 8,236,174
<TOTAL-LIABILITY-AND-EQUITY> 8,320,681
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<TOTAL-REVENUES> 122,228
<CGS> 0
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