SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 0-21831
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 7,852,993 shares of Common Stock outstanding at July 30, 1999.
Transitional Small Business Disclosure Format (check one):
Yes No X
International Sports Wagering Inc.
June 30, 1999
FORM 10-QSB
Index
Page
Part I: Financial Information
Item 1. Financial Statements,
Balance Sheets at June 30, 1999 (Unaudited)
and September 30, 1998. 2
Statement of Operations for the Three and Nine
Months Ended June 30, 1999 and 1998 and May 22,
1995 (date of inception) to June 30, 1999
(Unaudited) 3
Statement of Changes in Stockholder s Equity for
the Nine Months Ended June 30, 1999
(Unaudited) 4
Statements of Cash Flows for the Nine Months
Ended June 30, 1999 and 1998 and May 22,
1995 (date of inception) to June 30, 1999
(Unaudited) 5
Notes to Financial Statements 6-7
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations or Plan of
Operation. 8-14
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Part I: Financial Information
Item 1. Financial Statements
International Sports Wagering Inc.
(A Development Stage Company)
Balance Sheets
June 30, 1999 Sept.30, 1998
(Unaudited) (Note 1)
Current assets:
Cash and cash equivalents $ 133,438 $ 198,607
Accounts receivable 2 3,401
Investments 1,851,140 3,274,963
Notes receivable 5,984 25,000
Prepaid expenses and other current assets 78,406 105,486
Total current assets 2,068,970 3,607,457
Property and equipment, net 564,880 800,070
Notes receivable, less current portion - 8,620
Other assets 5,006 13,423
Total assets $ 2,638,856 $ 4,429,570
Liabilities and Stockholders' Equity
Current liabilities:
Deposits payable $ 9,196 $ 10,490
Accounts payable 18,544 94,629
Accrued expenses 67,494 155,910
Total current liabilities 95,234 261,029
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 outstanding 7,841,660
and 7,819,660 shares, respectively 7,842 7,820
Additional paid-in capital 10,280,061 10,264,243
Deficit accumulated during the
development stage (7,744,281) (6,103,522)
Total stockholders' equity 2,543,622 4,168,541
Total liabilities and
stockholders' equity $ 2,638,856 $ 4,429,570
See accompanying notes to financial statements
2
International Sports Wagering Inc.
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
May 22, 1995
Three Months Ended Nine Months Ended (Date of Inception)
June 30, June 30, to June 30,
1999 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 1,413 $ 2,193 $ 9,616 $ 29,343 $ 49,614
Costs and expenses
Research and development
expense 228,012 221,158 610,797 740,818 3,390,420
General and administrative
expense 290,659 650,063 1,153,316 1,878,016 4,790,837
518,671 871,221 1,764,113 2,618,834 8,181,257
Operating loss (517,258) (869,028) (1,754,497) (2,589,491) (8,131,643)
Other income (expense)
Interest income 17,572 54,667 113,738 196,571 686,460
Interest expense - - - - (299,098)
17,572 54,667 113,738 196,571 387,362
Net loss $(499,686) $(814,361) $(1,640,759) $(2,392,920) $(7,744,281)
Net loss per share-
basic and diluted $ (0.06) $ (0.10) $ (0.21) $ (0.31) $ (1.06)
Weighted average common
shares outstanding-
basic and diluted 7,835,374 7,802,881 7,824,898 7,707,622 7,282,225
</TABLE>
See accompanying notes to financial statements
3
International Sports Wagering Inc.
(A Development Stage Company)
Statement of Stockholders' Equity
For the Nine Months Ended June 30, 1999
(Unaudited)
Deficit
Accumulated
Additional During The
Common Stock Paid-In Development
Shares Amount Capital Stage Total
Balance at
September 30,1998 7,819,660 $7,820 $10,264,243 $(6,103,522) $4,168,541
Net loss for the
nine months ended
June 30, 1999 -- -- -- (1,640,759) (1,640,759)
Issuance of common
Stock through
exercise of
options 22,000 22 15,818 -- 15,840
Balance at
June 30,1999 7,841,660 $7,842 $10,280,061 $(7,744,281) $2,543,622
See accompanying notes to financial statements
4
International Sports Wagering Inc.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
May 22, 1995
Nine Months Ended (Date of Inception)
June 30, to June 30,
1999 1998 1999
Cash Flows from
Operating Activities:
Net loss $ (1,640,759) $ (2,392,920) $ (7,744,281)
Adjustment to reconcile net
loss to net cash (Used in)
operating activities:
Depreciation and amortization 246,608 313,871 941,791
Provision for doubtful accounts - 25,124 79,497
Reserve for uncollectibility - 50,000
Issuance of options
to consultants - - 14,500
Changes in assets and liabilities:
Accounts receivable 3,399 (24,797) (79,499)
Prepaid expenses and other
current assets 27,080 86,292 (78,406)
Customer deposits (1,294) 8,461 9,196
Other assets 8,417 (742) (7,623)
Accounts payable (76,085) (1,751) 18,544
Accrued expenses (88,416) (109,888) 67,494
Net Cash (Used In)
Operating Activities (1,521,050) (2,046,350) (6,778,787)
Cash Flows from Investing
Activities:
Proceeds from sales of
investments 5,276,400 8,744,900 41,470,890
Short-term investments (3,852,577) (7,144,625) (43,322,030)
Purchase of property
and equipment (11,418) (155,862) (1,504,054)
Proceeds from repayments
of notes receivable 27,636 28,845 94,016
Issuance of notes receivable - (50,000) (100,000)
Net Cash Provided By (Used In)
Investing Activities 1,440,041 1,423,258 (3,361,178)
Cash Flows from Financing
Activities:
Net proceeds from issuance
of common stock 15,840 47,377 10,273,403
Net Cash Provided By Financing
Activities 15,840 47,377 10,273,403
Net (Decrease) Increase in
Cash and Cash Equivalents (65,169) (575,715) 133,438
Cash and Cash Equivalents,
Beginning of Period 198,607 1,026,313 -
Cash and Cash Equivalents,
End of Period $ 133,438 $ 450,598 $ 133,438
See accompanying notes to financial statements.
5
International Sports Wagering Inc.
Notes To Financial Statements
Note l Basis of Presentation:
The information at June 30, 1999 and for the three and nine months ended
June 30, 1999 and 1998, is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) which in the opinion of
management, are necessary to state fairly the financial information set
forth therein in accordance with generally accepted accounting principles.
The interim results are not necessarily indicative of results to be
expected for the full fiscal year period. These financial statements
should be read in conjunction with the audited financial statements for
the year ended September 30, 1998 included in the Company s Annual Report
on Form 10-KSB filed with the Securities and Exchange Commission.
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.
Note 2 - Net Loss per Share:
During March 1997, the Financial Accounting Standards Board ( FASB )
Released statement of Financial Accounting Standards No. 128, Earnings Per
Share ( SFAS128 ). 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, 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 Securities and Exchange Commission, Staff
Accounting Bulletin No. 98, which is effective Feb. 1998.
Basic net loss per share was 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 anti-dilutive for all periods presented.
6
International Sports Wagering Inc.
Notes To Financial Statements
Note 2 - Net Losses per Share of Common Stock(continued):
The weighted average number of shares used in the basic and diluted net
loss per share computations for the three month periods ended June 30,
1999 and 1998, for the nine month periods ended June 30, 1999 and 1998,
and the period from May 22, 1995 (date of inception) to June 30, 1999
were 7,835,374, 7,802,881, 7,824,898, 7,707,622, 7,282,225, respectively.
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 anti- dilution were 2,810,217 and
2,773,695 for three and nine month periods ending June 30, 1999 and 1998,
respectively.
Note 3 - Accounts and Notes Receivable:
In June 1997, the Company entered into an agreement with a Nevada casino
whereby the Company granted the casino a license to function as the hub
operator(the "Hub Operator")of the Company's sports wagering system
( System ). Under the agreement, the Company was to receive a fixed fee
based on a per-terminal use basis. In October 1997, an affiliate of the
Hub Operator executed a promissory note to the Company for $50,000 loaned
to the Hub Operator by the Company. The note provided for principal in
the amount of $5,000 and accrued interest at the rate of 10% per annum to
be paid in consecutive monthly installments commencing in February 1998
and continuing thereafter, with all amounts fully due by September 1998.
The note was guaranteed by two principals of the affiliate of the Hub
Operator. The Hub Operator agreement was to terminate in March 1999 or
sooner as specified in the agreement. In January 1998, the Hub Operator
ceased doing business as a result of financial difficulties unrelated to
the operation of the System. For the year ending September 30, 1998, the
Company has recorded a reserve of $79,497, which represents the above loan
of $50,000, and $29,497 in receivables.
7
Item 2. Management s Discussion and Analysis of Financial
Condition and Results of Operations or Plan of Operation.
Financial Results
For the three months ended June 30, 1999 the Company had a net loss of
$499,686 or $0.06 loss per share on a basic and fully diluted basis on the
7,835,374 weighted average common shares outstanding, compared with a net loss
of $814,361 or $ 0.10 loss per share on a basic and fully diluted basis on the
7,802,881 weighted average common shares outstanding for the three months ended
June 30, 1998. Revenues of $1,413 were reported for the three months ended June
30, 1999, compared with revenues of $2,193 reported for the prior period. Prior
to being granted an OILS license, the Company charged fixed fees for the use of
the System to the System operator (see Background ). Subsequent to the
granting of the OILS license to the Company, including during the three
months ended June 30, 1999 and 1998, while the Company was operating the
System, the Company's revenues represented the net win (i.e. total amount
wagered less total amount paid out) of the System.
The net win is affected by the success (or lack thereof) of the players in
making sports wagering bets. The System automatically seeks to induce balanced
betting action for play-by-play type wagers. 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 a lower net win.
The decreased loss for the three months ended June 30, 1999, compared with
the three months ended June 30, 1998, resulted primarily from: marketing
expenses which decreased by $99,767 to $3,277, primarily reflecting a
decrease in advertising to promote the SportXction(TM) game; salary expenses,
which decreased by $63,099 to $248,269; severance pay expense which decreased by
$43,500 to $0;depreciation expenses, which decreased by $25,302 from the prior
year to $82,797; general liability insurance, which decreased $18,215 to $27,428
due to lower renewal rates; travel expenses, which decreased by $12,103 to
$12,869; recruitment expense which decreased by $21,534; bad debt expense
which decreased $6,107 to $0; rent expense which increased by $2,774 to
$16,305 due to increased lease rates; and a decline in interest income which
decreased by $28,225 to $17,572 due to reduced investments.
The Company incurred approximately $228,012 in research and development
costs for the three months ended June 30, 1999, compared with approximately
$221,158 for the comparable prior period.
The Company continues to be in the development stage, with limited revenues
generated from the System. As of June 30, 1999, the Company had cumulative net
losses since inception of $7,744,281. It expects to continue to incur
substantial losses and negative cash flow at least through the fiscal period
ended March 31, 2000. Contributing to this are the fact that revenues currently
being generated since the resumption of the operation of the System in mid-May,
1998 have been insignificant and the Company's expectation that it will continue
to incur substantial research and development expenses for further product
8
8
enhancement and development activities. As of June 30, 1999, the Company had
liquid resources totaling $1,984,578. These include cash and cash equivalents in
the amount of $133,438, and short term investments in the amount of $1,851,140.
Investments are limited to investment grade marketable securities with
maturities of less than 18 months. 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 12 months. Capital expenditures are expected to be limited to
purchase of additional computer equipment and leasing additional computer
equipment, most of which will be required in connection with its activities
relating to legal wagering from remote (non-casino) locations in Nevada.
Existing resources will fund these requirements.
Recent Developments
The Company announced on July 20, 1999 that it signed agreements with seven
Nevada casino based sports books to jointly market the Company s newest version
of its SportXction(TM)wagering system. This new version will allow players
to make legal sports wagers from PC s linked via telephone lines from remote
(non-sportsbook) locations anywhere throughout the State of Nevada. The
system will accept wagers by bettors who have established and funded accounts
at gaming establishments. This System was designed to run on a third-party
secure private network that assures that players are placing their wagers
from within Nevada, as required by regulations of the Nevada Gaming Authorities.
On May 13, 1999 The Company announced that it had received approval from
the Nevada Gaming Control Board to begin a live money trial of this revised
version of the SportXction(TM) wagering system. This live trial commenced on
August 2, 1999 with four participating sports books, two in Las Vegas, and
two in Reno and environs. The live trial is currently ongoing. The live money
trial is a part of the process by which the Nevada Gaming Authorities test the
revised system and determine whether to grant final approval for its use. The
revised version will accept both traditional pre-game wagers as well as play-by-
- -play wagers made during the course of the sporting event from remote
(non-casino) locations within the State of Nevada through means of a personal
computer("PC"). This is the first and only system thus far, which has received
either final or live money trial approval by Nevada Gaming Authorities, which
allows players to place sports wagers from PC's at remote sites. The sports
book would sign up patrons, allowing them to establish accounts, deposit and
withdraw funds. The Company would operate the centralized system, running
consolidated wagering pools across the many participating sports books. The
Company would provide the sports books with a share of the revenue. No
assurance can be given that the revised system will be approved by the Nevada
Gaming Authorities.
On December 26, 1998, the Company launched free sports contests on the
Internet using its SportXction(TM) System as a non-wagering game. It conducted
approximately 20 contests through January 31,1999 as a trial of the technology
without any marketing. The technology trial was successful with modest player
participation.
Utilization of the SportXction(TM) sports wagering system in casinos and
other gaming establishments has been disappointing to date. In order to
encourage more potential players to wager through the System, the Company
introduced several new features and enhancements to the System to attract
additional players and increase wagering. Despite these new features and
enhancements, the revenue generated by the casino based Player Betting
Stations ("PBSs") remains small, and is likely to remain insufficient to
avoid continuing loses by the Company for the
9
foreseeable future. Management has therefore strategically repositioned the
Company from being solely the provider of the in-casino SportXction(TM) play-
by-play sports wagering game, into a Nevada state-wide sports wagering
service. To the extent that the at home wagering marketplace may compete for
the same players with the in-casino wagering terminals, it may not be
economically prudent to continue to maintain the dual wagering environments.
On December 14, 1998, the Company and Alliance signed an agreement pursuant
to which the Company received an exclusive license to use the RAVE(TM)
technology in connection with legal on-line or telephone betting on races or
sports events in conjunction with licensed race and sports books in the State
of Nevada. The agreement to license the RAVE technology is conditioned upon
approval by the Nevada Gaming Authorities and remains in effect for a period of
seven years after final approval by the Nevada Gaming Authorities is obtained.
On November 2, 1998, the Nevada State Gaming Commission adopted amendments
to several of its regulations, including Regulation 22 "Race Books and Sports
Pools." This revised regulation disallows the acceptance of wagers by race and
sports books made by means of telephone or other communications systems, unless
they "... can demonstrate to the chairman's satisfaction that the wagering
communications originate from within the State of Nevada." This new regulation
became effective on March 1, 1999. This regulation may ultimately have the
effect of preventing race and sports books, which currently accept telephone
wagers, from taking such wagers unless they are able to fulfill the requirements
of Regulation 22. At the present time, sports books which have implemented
procedures to call back patrons who have placed wagers by telephone have
received permission from the Nevada Gaming Authorities to continue accepting
such wagers. It is unknown whether or not patron call back procedures will
continue to be an acceptable solution in the future. The purpose of the
RAVE(TM) technology is to fulfill the requirements of the new regulation.
On October 26, 1998, Alliance Gaming Corp. ("Alliance") announced that it
had developed the Remote Access Verification Environment (RAVE)(TM)* technology
which provides the geographic call origination verification of its PC users and
is designed to comply with recently adopted Nevada legislation regarding on-line
gaming.
The Company is currently expanding the capabilities of the System to allow
other types of wagers. The first phase of this software development has been
completed and allows the acceptance by the System of traditional pre-game side
and totals wagering and parlays. This phase is now undergoing a live money
trial for the Nevada Gaming Control Board. Ongoing software development is
intended to allow the inclusion of teasers, futures, and other exotic wagers.
Future enhancements could include the ability to allow pari-mutuel wagers on
races. Another possible option is fixed (as opposed to pari-mutuel) odds race
wagering, which is very popular in foreign venues. As these enhancements are
completed, the Company intends to market the enhanced System, for use for
legal sports wagering from remote (non-casino) sites in the State of Nevada
as well as internationally where such forms of wagering are legal. All
enhancements would have to be approved by the Nevada Gaming Authorities
before use for live money wagering in the State of Nevada.
The wagering pools for traditional pre-game, including parlays, teasers,
and other exotic wagers, are more difficult to balance than play-by-play wagers
due to the larger size of those wagers, as well as the decreased likelihood of
multiple wagers being placed simultaneously. As the proportion of traditional
wagers increases, the Company s revenues, to the extent they are based on net
win, may be subject to increased volatility related to the success (or lack
thereof) of the players in making these types of sports wagers.
* RAVE(TM) is a trademark of Alliance Gaming Corporation
10
The Company has intensified its marketing focus in several areas; (i) pre-
game and play-by-play wagering from remote (non-casino) locations within the
State of Nevada using the RAVE(TM) technology, (ii) pre-game and play-by-play
wagering on the Internet or private networks in those foreign countries where it
is legal, and (iii) non-wagering applications, including games and contests
nationally, over the Internet, where the Company intends to derive revenue from
advertising, merchandising, and data-mining. All wagering products and systems
may require approval by the appropriate local gaming authorities. The Company
has recently added soccer, the most popular foreign sport, to the list of sports
contests supported by the System.
Background
In June 1997, the Company retained Yarlow, Inc. ("Yarlow") d/b/a Tom's
Sunset Casino to operate the Company's SportXction(TM) sports wagering 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 SportXction(TM) System, as a result of financial difficulties unrelated
to the System.
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.
On April 23, 1998, the Nevada Gaming Authorities granted an OILS license
to the Company. The Company re-commenced operations on May 11, 1998 with the
Company performing the duties of Hub Operator. During the three months ended
June 30, 1999, the System was in operation in a total of three locations.
During the hiatus in operations, between mid January, 1998 and mid May, 1998,
the Company enhanced the SportXction(TM) System with several new features
including an improved parley of sequential bets which had initial testing
last winter, and free practice bets. By September 30, 1998, the Company
again enhanced the SportXction(TM) System with several new features
including one-sided, long-shot propositions.
On September 23, 1998, the Company announced that it had developed a
version of its SportXction(TM) sports wagering System that could be used for
betting from remote (non-casino) locations utilizing a PC and modem by
bettors who have established and funded accounts at gaming establishments.
This modified version of the System is designed for use for legal sports
wagering by bettors from locations anywhere throughout the State of Nevada.
This System was designed to run on a third-party secure private network that
assures that players are placing their wagers from within Nevada, as required
by regulations of the Nevada Gaming Authorities. The Company further enhanced
the System to permit acceptance of traditional pre-game side and totals wagering
and parlays. The Company's revised version of its System, including all of the
enhanced capabilities, in combination with the RAVE(TM) technology, was
submitted to the Nevada Gaming Authorities for approval.
11
Use of Proceeds from Initial Public Offering
On December 11, 1996, the Company's Registration Statement on Form SB-2 (Reg.
No. 333-15005) relating to its IPO was declared effective, pursuant to which it
sold 1,725,000 units (including over-allotments) consisting of one share of
Common Stock and one redeemable warrant to purchase Common Stock at an exercise
price of $7.20 per share, for gross proceeds of $10,350,000. After underwriting
discounts and commissions, expenses paid to or for the benefit of underwriters,
and other costs of the IPO, net proceeds were approximately $8,576,000.
At or subsequent to the closing of the IPO, the Company expended
approximately $659,000 for repayment of certain Bridge Notes; approximately
$1,328,000 for the purchase of computer equipment including player betting
stations; approximately $572,000 for professional fees; approximately
$388,000 for directors and officers liability insurance premiums;
approximately $555,000 for marketing the System; approximately $132,000 for
the purchase of a condominium in Henderson, Nevada for use by its employees
while tRAVE(TM)ling on business in Nevada; and approximately $100,000 for a loan
to an officer, of which approximately $6,000 was outstanding as of June 30,
1999. After other expenses, including product enhancement and development,
sales and administration, approximately $1,985,000 remained in cash and
short-term, interest-bearing, investment grade securities as of June 30,
1999.
Year 2000 Issue
The term "Year 2000 ('Y2K') Issue" is a general term used to describe the
various problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000's" from the date in the "1900's." These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field. The Y2K
computer software compliance issues may affect the Company and most companies in
the world. The Company's SportXction(TM) sports wagering System was designed
and developed during the past several years. As such, the Company recognized
Y2K problem and has attempted to write all of its proprietary software utilizing
four digits in order to avoid a Y2K problem. The Company also utilizes a
variety of software products in its database manufactured by Microsoft
Corporation, all of which are reported to be Y2K compliant.
The Company's technical staff of software engineers and programmers are
continuing to analyze and test the hardware and peripheral products that it
utilizes in its System to determine whether they are Y2K compliant. The
Company's staff attempts to identify any hardware or software with potential Y2K
problems; assess the magnitude of such problems, if any; remedy any such
problems that are found and test the solutions; and plan for any contingencies.
12
Based upon its efforts to date, the Company does not believe that its System
requires any material modifications or replacements in order to be Y2K
compliant. The Company does not believe that the readiness of its customers
and suppliers to be Y2K compliant will have a material impact on the Company.
The Company is in the process of developing contingency plans relating to the
Y2K problems to the extent such plans are possible. Such plans are expected to
be developed by September 1, 1999. These plans will attempt to mitigate both
internal risks of the Y2K problem with any risks that may be impacted by the
Company's customers and suppliers. The Company believes, however, that due
to the widespread nature of potential Y2K issues, the contingency planning
process is an ongoing one which may require further modifications as the
Company obtains additional information regarding any Y2K problems affecting
the Company's systems and equipment and regarding the status of its suppliers
and customers regarding their becoming Y2K compliant.
Through June 30, 1999 the Company estimates that it has spent approximately
$40,000 in its efforts to achieve Y2K compliance, all of which has been
recognized as an expense in the Company's Statement of Operations. The Company
does not expect that any additional costs to be incurred in its efforts to
achieve Y2K compliance will have a material effect on its liquidity or financial
condition. The Company intends to fund the costs of becoming Y2K compliant from
its available liquid assets.
The failure to correct a material Y2K problem could result in an interruption
in, or failure of, certain normal business activities or operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Y2K problem, resulting in part from the uncertainty of the Y2K
readiness of the Company's customers and suppliers, the Company is unable to
determine at this time whether the consequences of any Y2K failures will have a
material impact on the Company's results of operations, liquidity or financial
condition.
Safe Harbor Statement
The preceding "Y2K problem" discussion contains various forward-looking
statements which represent the Company's beliefs or expectations regarding
future events. When used in the "Y2K problem" discussion and elsewhere in this
Management's Discussion and Analysis, the words "believes," "expects,"
"estimates," "may" and similar expressions are intended to identify forward-
looking statements Forward-looking statements include, without limitation, the
estimated cost of becoming Y2K compliant and the Company's belief that its
Systems and equipment will be Y2K compliant in a timely manner and that the
readiness of its customers and suppliers to be Y2K compliant will not have a
material impact on the Company. All forward-looking statements involve a number
of risks and uncertainties that could cause the actual results to differ
materially from the projected results, including problems that may arise on the
part of third parties. Factors that may cause these differences include, but
are not limited to, the availability of qualified personnel and other
information technology resources; the ability to identify and irradiate all
date sensitive
13
lines of computer code or to replace embedded computer chips in affected systems
or equipment; and the actions of governmental agencies or other third parties
with respect to Y2K problems. If the modifications and conversions required to
make the Company Y2K compliant are not made or are not completed on a timely
basis, the resulting problems could have a material impact on the operations of
the Company. This impact could, in turn, have a material adverse effect on the
Company's results of operations and financial condition.
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 SportXction(TM) game, the ability of the Company to develop and
market other opportunities for its product, the length of time that the
Company's liquid resources will last, the likelihood that the RAVE(TM)
technology and the Company's modified system for betting from remote
locations will be approved by the Nevada Gaming Authorities, the ability of
the Company to generate revenue from wagering at remote locations in Nevada
or from advertising in conjunction with non-wagering applications of the
Company's technology, including contests, the ability of the Company to adapt
its System for pre-game betting and to attract a sufficient number of players
and the ability of the Company to utilize its System for wagering on the
Internet or private networks in those foreign countries where it is legal to
do so and to attract a sufficient number of players. 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, ability of the Company to
attract adequate numbers of players to the SportXction(TM) 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, 1998. The forward-
looking statements contained herein represent the Company s judgement as of
the date of this report, and the Company cautions reader not to place undue
reliance on such matters.
14
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, 1999.
15
SIGNATURES
In accordance with the requirements of the Securities Exchange Act or 1934,
the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
International Sports Wagering Inc.
Dated: August 4, 1999 By: /s/ Barry Mindes
Barry Mindes, Chairman of
the Board of Directors
(Principal Executive Officer)
Dated: August 4, 1999 By: /s/ Bernard Albanese
Bernard Albanese, President,
Treasurer and Director
(Principal Financial Officer)
16
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