Interactive Systems Worldwide Inc/DE – ‘10KSB’ for 9/30/98

As of:  Tuesday, 12/29/98   ·   For:  9/30/98   ·   Accession #:  1025995-98-5   ·   File #:  0-21831

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Annual Report — Small Business   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB       Annual Report -- Small Business                       63±   296K 
 3: EX-10       Exhibit 10.1(B)                                        5±    21K 
 4: EX-10       Exhibit 10.2(A)                                        6±    24K 
 5: EX-23       Independent Auditor's Consent                          1      6K 
 2: EX-27       Financial Data Schedule (Pre-XBRL)                     1      6K 

10KSB   —   Annual Report — Small Business
Document Table of Contents

10KSB
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U.S. SECURITIES AND EXCHANGE COMMISSION     
Washington, DC  20549     

FORM 10-KSB       

(Mark One)                                                                      

x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
EXCHANGE ACT OF 1934                                        
For the fiscal year ended September 30, 1998      

OR        

       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934                                        
       For the transition period from ____________ to __________

    Commission file number 0-21831

  INTERNATIONAL SPORTS WAGERING INC.

    (Name of small business issuer in its charter)

Delaware                                 22-3375134         
(State or other jurisdiction of      (I.R.S. Employer Identification No.)       
incorporation or organization)                                                

201 Lower Notch Road, Suite 2B,  New Jersey         07424                     
(Address of principal executive offices)           (Zip Code)                   

Issuer s telephone number:  (973) 256-8181        

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

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

Common Stock,  $.001 par value      
Redeemable Warrants     
(Title of class)      

 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 reports),     
and (2) has been subject to such filing requirements for the past 90 days.      
Yes  X    No                                                                    

   Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will 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-   
KSB or any amendment to this Form 10-KSB. [X]                                   

    The issuer s revenues for its most recent fiscal year (ended September 30,
1998) were $36,418                                                              

The aggregate market value of the voting and non-voting common equity 
(consisting of Common Stock, par value $.001) held by non-affiliates computed   
using the average bid and asked price as of December 18, 1998 was               
approximately $7,919,995.                                                       

  The number of shares of outstanding Common Stock, $.001 par value, as of
December 18,1998 was 7,819,660.                                                 

   The issuer hereby incorporates by reference into Part III of this report,
its definitive proxy statement to be filed on or prior to January 28, 1999.     
If the definitive proxy statement is not filed on or prior to January 28,       
1999, the information called for by Part III will be filed as an amendment to   
this Form 10-KSB on or prior to January 28, 1999.                               

Transitional Small Business Disclosure Format (check one):                      
YES       NO x                                                        

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Introductory Note     

International Sports Wagering Inc. is a development stage company         
that has designed and developed an interactive, proprietary, PC-based           
computer system that enables users to wager during the course of a              
sporting event.                                                                 

Certain statements in this Report on Form 10-KSB ( Report ) under the     
captions "Item 1. Description of Business, " "Item 6.  Management's             
Discussion and Analysis" and elsewhere, constitute  forward-looking             
statements  within the meaning of the Private Securities Litigation             
Reform Act of 1995, including, without limitation, statements regarding         
potential market size, the likelihood that the Company will receive and         
maintain any needed gaming licenses or other approvals for use of its           
products, the ability of the Company to attract adequate numbers of             
players for its SportXction(TM)  sports wagering game and cash requirements.    
Such forward-looking statements involve known and unknown risks,                
uncertainties and other factors which may cause the actual results,             
performance or achievements of the Company, or industry results, to be          
materially different from any future results, performance, or                   
achievements, expressed or implied, by such forward-looking statements.         
Such factors include, among others, the following: single product;              
limited contracts; uncertain market acceptance; development stage               
company; expectation of losses; small wagering pools; capital                   
requirements; need for additional financing; governmental regulation;           
competition and rapid technological change; uncertainties regarding             
intellectual property; management for growth; dependence on key                 
personnel; limited marketing experience; need for additional personnel;         
limited market size; seasonality of sporting events; possible exclusive         
relationships between casinos and third parties; possible objections by         
leagues and broadcasters; control by management; possible volatility of         
market price of common stock and warrants; NASDAQ delisting; low stock          
price; and other factors referred to in this Report.  See "Item 1.              
Description of Business-Important Factors Regarding Forward- Looking            
Statements and Other Risks." When used in this Report, statements that          
are not statements of current or historical fact may be deemed to be            
forward-looking statements.  Without limiting the foregoing, the words          
"anticipates," "plans," "intends," "expects," "believes" and similar            
expressions are intended to identify such forward-looking statements.           
Readers are cautioned not to place undue reliance on these forward-             
looking statements, which speak only as of the date hereof.  The Company        
undertakes no obligation to publicly release the result of any revisions        
to these forward-looking statements that may be made to reflect events          
or circumstances after the date hereof or to reflect the occurrence of          
unanticipated events.                                                           

PART I    

Item 1.   Description of Business.                                              

History                                                                         

International Sports Wagering Inc., a Delaware corporation (the     
"Company"), is a development stage company.  The Company commenced              
operations in May 1995 and is the successor by merger to Systems                
Enterprises, Inc., which was organized in December 1992.  The Company's         
SportXction(TM)  sports wagering system (the "System") was conceived by the     
Company's founder, Mr. Barry Mindes, who together with Mr. Bernard              
Albanese, developed a simulation of the System for use in determining           
whether casinos had interest in the System.  Additionally, patent               
applications covering the System were prepared and filed with the U.S.          
Patent and Trademark Office ("PTO") and corresponding foreign patent            
applications were also filed.  Prior to its initial public offering,            
commencing in May 1995, the Company raised approximately $1,700,000 in          
equity capital and, subsequently, net proceeds of approximately $550,000        
through a bridge financing.  After the initial equity capital was               
raised, personnel, consisting primarily of software engineers and               
programmers, were recruited and hired and the Company engaged in                
research and development and testing of the System.  These activities           
included writing software, developing required mathematical algorithms,         
performing statistical modeling, selecting and configuring the hardware         
needed for the System and determining the initial betting propositions          
to be offered.  The Company tested the System in a non-wagering                 
environment and then conducted its own live trial in a wagering                 
environment using play money.  Thereafter, in mid 1996, the Company             
sought approval for use of the System from the Nevada Gaming Authorities        
(as hereinafter defined).  On December 11, 1996, the Company consummated        
its initial public offering (the "IPO") pursuant to which it sold               
1,725,000 Units (including over-allotments) for gross proceeds of               
$10,350,000.  Each Unit consisted of one share of the Company's Common          
Stock, par value $.001 per share (the "Common Stock"), and one                  
Redeemable Warrant (collectively, the "Warrants") to purchase one share         
of Common Stock at an exercise price of $7.20 per share.  The Common            
Stock and Warrants now trade separately on the NASDAQ Small Cap Market          
and no longer trade as a Unit.                                                  

General                                                                         

The Company has designed and developed an interactive, proprietary,       
PC-based computer system that enables users to wager during the course          
of a sporting event, such as football, baseball and basketball. The             
System accepts bets not only on the outcome of a sporting event but also        
on discrete parts of the event and on specific game situations, such as         
will a team get a first down, will a batter get on base, or will a              
player make two foul shots. The System is unique in that it permits             
betting while these game situations are in progress, such as between            
downs or pitches, permitting more frequent placing and cashing of               
wagers.                                                                         

The interactive element of the System is a Player Betting Station         
("PBS") that is a personal computer with a touch screen, operating a            
"windowing" system which displays a television picture of a live                
sporting event in the upper left-hand quadrant of the PC monitor. A list        
of available bets together with the terms of those bets (including the          
amount of the wager necessary to receive a particular payout and the            
contestants upon whom the wager is being placed) and other details              
relating to the event being watched and the bets previously placed are          
displayed on the remainder of the monitor. By touching the screen, a            
bettor can place a variety of bets within seconds on the sporting event         
then being viewed. The System is capable of permitting bettors to select        
from multiple sporting events being televised simultaneously, thereby           
allowing the bettor to bet on numerous games while using the System.            

The System's proprietary software permits fixed price betting during      
the course of a sporting event by attempting to continuously balance the        
betting pool on each betting proposition to within a pre-set level. In          
general, a balanced pool is achieved when the money bet on one side of          
a betting proposition is sufficient to pay off the winners on the other         
side of that proposition, should the other side win. Wagers may be              
placed simultaneously at computer terminals located at multiple inter-          
linked casinos and other sports wagering facilities. The System                 
maintains a record of all wagers placed by each bettor and keeps an             
account for each bettor, adding winnings and subtracting losses.  The           
Company recently announced that it had developed a version of its System        
for use by players betting from home using a PC and a modem.  The home          
version of the System is currently being tested by the Nevada Gaming            
Authorities and may not be introduced until it is approved by them.             
(See "Recent Developments" and "Governmental Regulation").                      

On October 24, 1996, the Company completed a pre-trial of the System      
(with play money) and, on November 25, 1996, the Company completed a            
live trial (with real money) at the Excalibur Hotel & Casino in Las             
Vegas, Nevada. Completion of the trial was one of the conditions for            
obtaining approval by the Nevada State Gaming Control Board (the "Nevada        
Board") for the use of the System. On January 6, 1997, the System was           
approved by the Nevada Board for use in individual casinos. After               
additional modifications to the System, the Company submitted the System        
to the Nevada Board for approval for use in wide area operations.  On           
August 21, 1997, the Nevada Gaming Commission (the "Nevada Commission")         
approved the System for use in wide area operations. (The Nevada Board          
and Nevada Commission are collectively referred to herein as the "Nevada        
Gaming Authorities.") Wide area operations permit wagering during the           
course of sporting events through PBSs located at multiple inter-linked         
casinos and gaming establishments, simultaneously, with betting pools on        
each betting proposition consolidated at a central hub (the "Hub").  In         
June 1997, the Company made arrangements to have Yarlow, Inc.                   
("Yarlow"), an operator of sports pools in Nevada, act as the Hub               
Operator, at least until such time as the Company received a license            
from the Nevada Gaming Authorities to operate the Hub. The Hub links,           
via telecommunications lines, the Company's PBSs located in individual          
casinos or other gaming establishments. On August 21, 1997, the Nevada          
Commission granted to Yarlow a gaming license as an operator of an              
inter-casino linked system ("OILS License"). An OILS License is a form          
of gaming license that permits the license holder to receive a share of         
revenue for linking games or devices electronically among various               
licensed casinos.  Yarlow was required to obtain an OILS License in             
order to be permitted to operate the System at the Hub.  Live operation         
of the System commenced on September 21, 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. When operation of the           
System was temporarily suspended in January, the System was in operation        
at eight inter-linked casinos and gaming establishments in Nevada, with         
simultaneous wagering conducted through approximately 220 PBSs installed        
at those eight establishments.  (See "Management's Discussion and               
Analysis").                                                                     

During the fiscal year ended September 30, 1997, the Company also         
commenced the application process needed to obtain an OILS License              
which, among other things, permits the Company to operate the Hub and           
enables the Company to provide the System to sports wagering                    
establishments in consideration for either a portion of the revenue             
received by the establishment or on a transaction fee basis.  As a              
consequence of the suspension of operation of the System due to Yarlow's        
financial problems, the Company asked the Nevada Gaming Authorities to          
expedite the processing of its OILS License application.  On April 23,          
1998, the Nevada Commission granted the Company an OILS License and             
registered it as a publicly-traded corporation.  The Nevada Commission          
further granted an exemption from the requirements of its Regulation            
16.100(1), which would have otherwise prohibited the Company, as a              
publicly-traded corporation, from holding a Nevada OILS License.  The           
Company's OILS License is limited to expire at midnight on the date of          
the November 1999 meeting of the Nevada Commission (unless renewed) and         
has a number of conditions, all of which were agreed to by the Company,         
relating to the Company's operations and the System's method of                 
operation and accounting.  (See "Governmental Regulation").                     

The Company re-commenced operations on May 11, 1998, on a limited         
basis in two wagering establishments with the Company performing the            
duties of Hub Operator.  By September 30, 1998, the System was in               
operation in a total of four locations with approximately 135 PBSs.             
Since the System has been in operation, wagers have been accepted on            
professional basketball, baseball, and college and professional football        
games.  During the hiatus in operations, between late January 1998 and          
late May 1998, the Company enhanced the SportXction(TM)   System with           
several new features, including an improved parlay of sequential bets           
and free practice bets. By September 30, 1998, the Company had further          
enhanced the SportXction(TM)  System with several new features including a      
one-sided, long shot betting proposition which offers to the bettors            
larger payoffs for relatively small wager amounts.  Despite these new           
features and enhancements, the number of players wagering through the           
System in casinos and the revenue generated by PBSs located in casinos          
has been disappointing.  Although the Company intends to continue to            
market the System to other casinos within Nevada, no assurance can be           
given that sufficient player use can be generated to make it profitable.        
(See "Marketing and Sales Strategy").                                           

Recent Developments                                                             

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 home 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          
a bettor from home within the State of Nevada. This System was designed         
to run on a third-party secure Intranet that assures that players are           
placing their wagers from within Nevada. On October 26, 1998, Alliance          
Gaming Corp. ("Alliance") announced that it had developed the Remote            
Access Verification Environment (RAVE)(TM)(1.) 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.  In October 1998, the Company's revised  version of its System          
in combination with the RAVE(TM)  technology was submitted for approval to      
the Nevada Board.  They are currently being tested and may not be               
introduced for service until such approval is obtained.  (See                   
"Governmental Regulation"). The Company believes that this System, when         
fully implemented, will be the first system which will allow account            
wagering by bettors from home PCS in Nevada.  No assurance can be given,        
however, that the System will be approved by the Nevada Board or, if            
approved, will generate sufficient player interest to become profitable.        
(See "Governmental Regulation").                                                

On November 2, 1998, the Nevada 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 is effective on March         
1, 1999.  It may have the effect of preventing race and sports books,           
which currently accept telephone wagers, from taking such wagers after          
March 1, 1999 unless they are able to fulfill the requirements of               
Regulation 22.  (See"Governmental Regulation").                                 

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      

1.  RAVE(TM) is a trademark of Alliance Gaming Corp.                            

on races or sports events in conjunction with licensed race and sports          
books in the State of Nevada.  The Company is currently expanding the           
capabilities of the System to allow other types of wagers, in addition          
to the play-by-play SportXction(TM)  wagers, including traditional pre-game     
side and totals wagering, parlays, teasers, futures, and other exotic           
wagers.  Future enhancements could include the ability to allow pari-           
mutuel wagers on races.  The Company believes that these expanded               
capabilities, in conjunction with the RAVE(TM)  technology, will provide an     
acceptable method for taking telephone wagers.  The Company intends to          
market this modified System for use for legal sports wagering from home         
in the State of Nevada.  The agreement to license the RAVE(TM)  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.  No assurance can be given           
that the license will be approved or that the RAVE(TM)  technology or the       
modified version of the System will be approved by the Nevada Gaming            
Authorities.                                                                    

On December 23, 1998, the Company announced that it was launching         
sports contests on the Internet.  It expects to have approximately 20           
contests through the end of the current professional football season.           
The contests are open to anyone over 18 years of age and are void where         
prohibited by law.  Single game and grand prize winners will be awarded         
cash prizes.  The Company intends to derive revenue from advertising,           
merchandising, data-mining and other sources in conjunction with its            
contests on the Internet.                                                       

Industry Overview                                                               

In Nevada, sports wagering currently takes place at large modern          
casinos and at dedicated sports wagering facilities ("sports books").           
Some casinos manage their own sports book and some contract with sports         
book operators to operate a sports book in the casino. Casinos currently        
conducting sports wagering typically have a room in which large                 
projection screens and television monitors display various sporting             
events while manual or electronic displays show the wagering odds.              
Wagers are placed and cashed at clerk-operated betting terminals located        
in the room.  Although the majority of wagers on sports are paid for in         
cash, a significant amount of wagering is made against pre-funded               
accounts.  If a pre-funded account has been established in a sports             
book, patrons may make wagers against that account via the telephone.           
Recently adopted regulations in Nevada require that effective March 1,          
1999, in order for race and sports books in Nevada to be permitted to           
accept wagers by telephone against pre-funded accounts, the race or             
sports book must be able to verify that the telephone call originated           
within the State of Nevada.  (See "Recent Developments" and                     
"Governmental Regulation").                                                     

Wagers placed at sports books are principally placed on the outcome       
of a game or event. Wagers also may be accepted on segments of a game,          
such as points scored in a half; however, the wager is accepted only            
before the segment begins. Since most sporting events take several hours        
to complete, bettors can place bets and cash winning bets to use on             
subsequent wagers, only a few times each day, thereby limiting the              
number of wagers bettors may be inclined to make each day. As a result,         
sports wagering facilities are frequently under-utilized for wagering,          
as opposed to being locations for merely viewing multiple sporting              
events.                                                                         

In sports wagering, the gaming establishment, or "house," generally       
seeks to maintain a "balanced book." A balanced book is achieved when           
the money bet on one side of a betting proposition is sufficient to pay         
off the winners on the other side of that proposition, should the other         
side win. To accomplish this, the house gives either a handicap (the            
point spread or margin by which the favorite must win) or odds (a               
greater than equal payout on winning to the underdog or a lesser one to         
the favorite) on the outcome of the event, or a combination of both. The        
house's goal in general is to have the funds paid to the winners equal          
the amount received from the losers, less the commissions that the house        
charges for brokering the transactions and the use of its facilities.           

Sports bettors want to know the odds or point spread (the "line") of      
the wager at the time the bet is placed. While the odds may change as           
the house attempts to balance its book, the terms for a previously              
placed bet remain the same. Thus, bettors who place several bets on the         
same team or contestant over a period of time could have different odds         
or point spreads on each wager depending upon when the bet was placed.          

The sports book's profit depends upon the reliability of the odds and     
its adjustment  of the odds when necessary. On occasion, the house's            
initial handicap or odds will not result in a balanced book because the         
players do not agree with the house's assessment of the outcome of the          
event. The house will attempt to attract bets on one side of the                
proposition by changing or moving the line up or down to induce betting         
patterns in order to balance the book. If this is not possible, the             
house may also refuse to accept wagers on one of the contestants or             
limit the maximum amount of money that will be accepted on a line to            
attempt to avoid the risk of taking an unacceptable number of bets on           
one side of a betting proposition. When the limit is reached, the line          
is moved. Currently, sports wagering establishments do not change odds          
or handicaps frequently in order to balance pools. The odds or handicaps        
are changed usually only after the book gets substantially out of               
balance, if at all. Sports books currently are rarely perfectly                 
balanced. To the extent that the book is not balanced, the sports book          
takes risk on the outcome of the game or event.                                 

Marketing and Sales Strategy                                                    

Sports wagering is currently legal only in the State of Nevada, and       
in several foreign countries, including England, Austria, Australia,            
Mexico, South Africa and Canada. Sports wagering in Nevada's gaming             
establishments increased from approximately $294 million in 1980 to $2.4        
billion in 1997.  In 1997, there were approximately 135 licensed gaming         
establishments in Nevada that offered sports wagering.                          

Licensed gaming establishments in Nevada include casinos of varying       
sizes, which offer a variety of gaming activities in addition to sports         
wagering, as well as gaming establishments which offer primarily                
wagering on sports and horse races. In some instances, the sports               
wagering activities of casinos or other gaming establishments are               
operated by licensed sports book operators, some of whom may also own           
sports wagering establishments. Most casinos and sports book operators          
are potential customers for the System, although sports book operators          
may also be competitors.  (See "Competition").                                  

The Company has marketed, and continues to market, the System to          
gaming establishments in Nevada with its own personnel.  The System is          
currently operating in four casinos and gaming establishments in Las            
Vegas, Nevada that are inter-linked with the Hub via telecommunications         
lines, with approximately 135 PBSs. Under its current arrangements with         
gaming establishments at which the System is operating, each gaming             
establishment receives as fees, a fixed percentage of the wagers placed         
at PBSs located at that gaming establishment.  The Company currently            
operates the Hub and it receives as compensation for providing,                 
servicing, maintaining and operating the System all revenues generated          
by the System, less the fees paid to the participating gaming                   
establishments.  As the operator of the System the Company has assumed          
all pool imbalance risks associated with being the house.                       

The Company has pursued an aggressive marketing and advertising           
campaign in order to introduce the System to the gaming public in               
Nevada.  It has retained the services of a market research firm                 
specializing in gaming, with the goal of increasing public awareness of         
the SportXction(TM)  sports wagering system and game and increasing the         
number of players of the game.  The Company has developed and will              
continue to develop new features and enhancements to the System to              
attract additional players and increase wagering through the System.            

The Company has developed a version of its SportXction(TM)  sports        
wagering system that is capable of being used for betting from home             
against pre-funded accounts, utilizing a PC and modem. This modified            
version of the System was designed to run on a third-party secure               
Intranet that assures that the wagers are being placed from within              
Nevada.  The System is currently being tested by the Nevada Board, and          
may not be introduced for service until such approval is obtained.  The         
Company intends to market this System for use for legal sports wagering         
from home in the State of Nevada.  (See "Recent Developments").                 

The Company intends to emphasize marketing the modified the version       
of its SportXction(TM) sports wagering system in combination with the RAVE(TM)  
technology for use by players from home PCS, assuming that it receives          
approval of the Nevada Gaming Authorities.  The Company believes that           
the convenience of betting from home will increase participation when           
compared to the participation from the casino environment. In addition,         
the Company believes that gaming regulation changes adopted on November         
2, 1998 by the Nevada Commission (see "Governmental Regulation"),               
coupled with the license agreement signed with Alliance providing               
exclusive rights to the RAVE(TM)  technology in the State of Nevada, will       
put the Company in strong position to aggressively pursue telephone             
wagering from home.  This marketplace includes not only the SportXction(TM)     
game from home, but traditional pre-game sports wagering and pari-mutuel        
race wagering.                                                                  

In addition to emphasizing wagering from home, in December 1998, the      
Company began to conduct sports contests over the Internet.  The Company        
intends to eventually derive revenue from advertising, merchandising,           
data-mining, user fees and corporate sponsorships in conjunction with           
its contests.                                                                   

The Company is also marketing the System in foreign countries in          
which sports wagering is legal and may explore alternative applications         
of its proprietary technology, including adaptation of the System for           
use in non-wagering activities such as interactive games in bars, and           
games and activities conducted over the Internet, cable television and          
other communications media.                                                     

The SportXction(TM)  Sports Wagering System                                     

Overview of the System                                                          

The SportXction(TM)  sports wagering system permits continuous fixed      
price betting during the course of a sporting event by continuously             
attempting to balance the betting pool on each betting proposition to           
within a pre-set level. It allows bettors to view a live sporting event,        
wager throughout that event as it is underway and cash winning bets. The        
period during which wagers may be placed is thereby extended.                   

The System accepts bets on the outcome of the sporting event, on          
discrete parts of the event, and on specific game situations, such as           
will a team get a first down, will a batter get on base, or will a              
player make two foul shots. The System also permits betting while these         
game situations are in progress, such as between downs, pitches or foul         
shots. Wagers may also be cashed-out before the outcome of the event is         
determined, at the then current value (the initial price modified by any        
change in odds). Betting is therefore nearly continuous, somewhat               
analogous to the situation which exists at a craps table, with each play        
being potentially a "new game."                                                 

Operation of the System                                                         

The System operator begins by setting up a number of pools or             
wagering propositions (for example, the winner of a game or the team            
leading at the end of a particular period of play, over or under scoring        
on the game or period, and wagers on specific events or games                   
situations). Prior to commencement of the sporting event, the System            
operator sets the odds or handicap (point spread) on certain betting            
propositions, with greater odds given to the less capable contestant.           
Once the sporting event begins, the System sets the initial odds on             
other betting propositions. The System changes the odds automatically as        
bets are made in order to induce a betting pattern which would lead to          
a balanced pool. The bettor may therefore make multiple wagers on the           
same betting proposition as the odds change. As wagering continues, one         
side of a betting proposition may become underfunded, that is, players          
have bet less money on one side of a particular betting proposition (the        
underfunded side) than players have bet on the opposite side of such            
betting proposition (the overfunded side). If this occurs, and if the           
overfunded side of the betting proposition wins, the house would have to        
pay out more money to the winning bettors on the overfunded side than           
the house would have received from the bettors on the underfunded side.         
To limit the house's exposure, the System is designed to automatically          
adjust the odds to induce bettors to wager on the underfunded side of           
the betting proposition,  thereby attempting to balance the pool to             
within a pre-set level. Since the System is designed for a fixed payout,        
the changing odds are reflected in the amount that the bettor must bet          
to receive the fixed amount (including return of his wager). For                
example, the odds of Team A winning a game may be set initially so that,        
in order to receive a $20 payout (including the return of his wager),           
the bettor must bet $12. If, during the game, Team A is ahead by 10             
points, the System would automatically change the odds so that in order         
to receive $20, the bettor might, at that point in the game, be required        
to bet $16. If a pool can no longer be kept to within a pre-set level of        
balance, it may be closed and another pool opened with a handicap or            
odds designed to lead to balance. This would happen dynamically during          
the entire event. There could be many different betting propositions            
available during the course of a sporting event; however, prior to              
establishing a new betting proposition, the house must believe that             
there will be sufficient player interest so that a balanced pool could          
be maintained.                                                                  

The System permits, and the sports wagering operator is likely to         
have, both long- and short-term propositions on a sporting event. Long-         
term propositions may be based upon the outcome of an entire game or            
discrete segments of a game. Wagering continues on the long-term                
propositions even as game conditions change, causing the odds on the            
outcome to change during the course of the event.  Examples of typical          
short-term propositions are, in football, will the offensive team make          
a first down on a specific possession; and in basketball, which team            
will be the next to score 10 points. Betting is almost continuous until         
the specific event occurs or the specific game situation is completed.          
Since short-term pools open and close rapidly, sometimes in several             
minutes or less, there are new propositions constantly available during         
the entire contest.                                                             

The System works on a "bet against deposited funds" basis. When 
a bettor desires to begin wagering at a sports book, he deposits a sum          
of money (above a minimum set by the sports book) with a cashier at the         
gaming establishment and receives an account number and a personal              
identification ("PIN") number. The bettor places wagers using his funds         
on deposit. The System automatically adds the bettor's winnings and             
subtracts losses from his account. When the player wishes to commence           
play, he signs on to a Player Betting Station using his account number          
and PIN number. The PBS will show credits equal to his deposit. As              
wagers are placed, the credit balance in the PBS is reduced by the              
amounts wagered. When the bettor wins, the monitor on the PBS shows that        
the bettor has won and his credit balance in the PBS is automatically           
increased by his winnings.                                                      

A player may also suspend wagering on a PBS. To do so, he touches the     
appropriate button on the PBS and operation of the PBS is suspended for         
a limited period of time. Upon the player's return, he reactivates his          
PBS by entering his PIN number. All bets which are open or undecided            
continue to be paid off as they are decided.                                    

Bettors may, in many circumstances, cash-out their wagers before the      
winner is determined or the betting proposition is complete. Cashed-out         
wagers are paid at their then current value. The System determines the          
then current value by placing a hedging bet on the other contestant at          
the odds in effect when the bet is being cashed. The player cashing-out         
a bet early would therefore not win as much as he might win if his team         
is ultimately victorious; nor would that player lose as much as he might        
if his team ultimately lost.                                                    

The System is a continuous action pool-balancing system. As such, it      
reacts by changing the odds on open or undecided betting propositions to        
reflect current bettor sentiment as expressed by their bets. This can           
result in rapid changes in odds, particularly if game conditions change         
abruptly as in the case of a sudden score, injury, or player ejection.          
Odds can even change while the bettor is in the process of entering a           
wager into the System. As betting is continuous, bets may be entered            
while game conditions are changing. At times, bets will be delayed until        
a play is completed and the results of the play are entered by those            
controlling the System to prevent past posting. Consequently, all bet           
entries are treated as "requests" to make a bet at the odds which were          
displayed when the bet entry process started. If the amount that must be        
wagered to win a fixed payout has changed after the request is made and         
before the bet is accepted, the player will be shown the new amount,            
asked to reconfirm his bet request and be given a short period of time          
to respond. If the bet is not reconfirmed within this time period, the          
bet is automatically cancelled. It is even possible that the amount may         
change again before the bettor's decision on the new price is made, in          
which event the process will be repeated. The player will either                
reconfirm his request at the new price, if he finds it acceptable, or           
the bet will automatically be cancelled. If the player finds an                 
acceptable price, and the System accepts the bet, the price on the bet          
stays fixed regardless of future changes in odds on that bet, the game          
or betting patterns.                                                            

As game conditions change, for example, the score changes or the time     
clock advances, the odds will usually change as a result of the betting         
pattern. This may result in existing pools closing if they can no longer        
be held to a desired level of balance. Such pools may then be replaced          
with new pools covering the same proposition. This is generally done            
automatically, although the house can override the System with manual           
pool opening and closing capability.                                            

For ease of player use, the System shows odds by displaying fixed         
payouts with corresponding bet sizes which must be placed to receive the        
fixed payout. The sum of the bet sizes on each side of a proposition            
will equal the fixed payout plus the house commission. For example, in          
a fixed payout of $20 with a hypothetical house commission of $2, if the        
amount that a bettor had to wager on the favorite was $16 in order to           
receive $20, the amount that the bettor would have to wager on the              
underdog to receive $20 would be $6.                                            

It is not necessary that the book be perfectly balanced, but only         
that the imbalances be less than some percentage of the pool or dollar          
amount set by the house. Under these circumstances, the house can               
generally ensure that its exposure is no more than a fixed percentage or        
dollar amount, which is an acceptable portion of the profit from its            
commissions. The System generally is able to automatically prevent the          
house exposure from exceeding a specified maximum amount by changing the        
betting terms in the pool to induce bettors to wager on the side which          
is underfunded, thereby attempting to induce a balancing of the pool.           
In extreme cases, the house or the System may automatically stop                
accepting bets on the underfunded side when the exposure limit is               
reached while continuing to accept bets on the other side. Under these          
circumstances, the pool will presumably tend to return to balance after         
which the house can resume taking bets on the contestant or proposition         
for which betting was suspended.                                                

The System is computerized, with complete, time-stamped records,          
providing regulatory authorities as well as gaming establishments with          
the ability to audit, analyze and control a game.                               

Since May 11, 1998, when the Company restarted operation of the           
System, and has been operating the System at the Hub, the Company has           
assumed all pool imbalance risks associated with being the house.               

System Components                                                               

The proprietary software and state-of-the-art, commonly available         
hardware, is configured in an arrangement designed specifically for the         
System. The innovative software continuously attempts to balance                
wagering pools to within pre-set levels, thereby permitting wagers to be        
made continuously during the course of a sporting event while generally         
assuring the gaming establishment of a pre-determined minimum                   
commission. The software permits the operator to make available a wide          
variety of betting propositions to players. By using statistical data           
and modeling within the System, the System automatically sets and               
adjusts odds on the betting propositions.                                       

The major elements of the System include the Transaction Processor,       
Pool Processor, plus numerous input and control computer terminals,             
including the Player Betting Station, Game Controller Terminal, Game            
Supervisor Terminal, Manager Terminal, Administrative Terminal, and             
Cashier Terminal, all of which are controlled by proprietary software.          
There are also a variety of printers for printing receipts and reports.         
The System processes secure messages exchanged between the various              
elements in real time and employs sophisticated mathematical algorithms         
in their functioning. These are used with event statistics and                  
statistical modeling. The television display is independent of the              
System, being merely a standard television signal which is picked up by         
the gaming establishment and shown for the convenience of the bettor.           
The System can operate without a television signal. A player could, for         
example, view any television or display while betting, or even bet              
without viewing the game, such as before the game begins. The System            
uses redundant hardware and re-start and recovery software to maximize          
System up-time upon component failure.                                          

All terminals are connected to the central processing unit via a          
client/server network. The Hub server is a computer that maintains all          
pools, calculates odds, opens and closes all wagering on all pools,             
controls all input and output devices (such as betting terminals,               
printers and management terminals) produces all management and                  
regulatory reports and is the repository of all current and historical          
data on the wagering system. The proprietary software permits                   
continuous, rapid recalculation of odds, based upon changing betting            
patterns and an evaluation of bets that have been placed.                       

The Player Betting Station, or PBS,  employs a personal computer with     
a touch screen, through which bettors are able to enter bets into the           
System. Utilizing a windowing system, the PBS shows a television picture        
of a live sporting event in the upper left quadrant of the monitor.             
Shown in the lower left quadrant of the monitor is status information           
appropriate to the sporting event being displayed, such as the score,           
inning or which team has ball possession, and a player's financial              
summary. On the right half of the display all of the betting                    
propositions which are available are shown vertically. Wagers are               
entered by touching sequentially the payout size button on the terminal         
screen (initially to select a given payout amount, and subsequently if          
the bettor changes the payout amount desired), the appropriate bet              
button and the bet confirmation button. Also on the screen are a series         
of housekeeping buttons for use in signing on, signing off, and tuning          
to the desired sporting event. An alternative display screen shows a            
list of the bettor's won, lost and open bets, his deposits, and his             
available betting balance. Shown on another selectable screen are the           
current value of bets previously placed. This screen may be used to             
immediately cash-out previously placed bets while the event on which the        
ager has been placed is still in process.                                       

Data relating to all substantive events during the course of a            
sporting event that affect the betting odds are entered into the System         
through the Game Controller Terminal by the game controller for each            
event. These events include points or runs scored, period, inning, outs,        
downs, team having possession of the ball, and the like, depending upon         
the sport. The System sends this information to the pool processor to           
open and close betting propositions, declare unofficial winners and set         
opening lines, among other things. Because the game controller is               
entering data during a live sporting event, bets are delayed briefly to         
enable the game controller to enter the data.                                   

The Game Supervisor Terminal is utilized by the game supervisor(s)        
of each sporting event to manage the wagering on that sporting event.           
The Game Supervisor Terminal is used to open betting lines, enter data          
to attempt to maintain the desired level of house commission as pool            
balances change, close or suspend one or both sides of a betting                
proposition, and declare official pool winners. This terminal is also           
utilized by the game supervisor to oversee the accuracy of the                  
information input by the game controller.                                       

The Manager Terminal is used by the manager to oversee the entire         
operation of the System at one time. This terminal allows the manager to        
monitor the overall house commission for each event, to view any event          
on which wagers are being taken and to observe in parallel the inputs by        
the operators and the operation of virtually any terminal in the System.        

The Administrative Terminal is the main management terminal in the        
System. It is  used to authorize personnel to operate the System, keep          
the chart of future events upon  which wagers will be accepted, together        
with when betting can commence and when the game   (day, date and time)         
actually begins. It also keeps the pools to be allowed in an event  and         
the sizes of the bets which will be accepted in each pool in each event.        
It is through this terminal that most reports are accessed. Reports             
produced by this terminal are used by the casino or sports book operator        
and  regulatory authorities.                                                    

The Cashier Terminal can access the status of every player account        
which is open.  When a player wishes to receive cash, he goes to the            
cashier and gives his account number  and enters his PIN number on a            
keypad. The Cashier Terminal verifies that the PIN number  is correct,          
as well as certain other information for security purposes.                     

Intellectual Property                                                           

The Company regards the System, including the software contained          
therein, as proprietary.                                                        

The Company filed two U.S. patent applications for its proprietary        
wagering methods and its related computer processing system.  Both              
patent applications have been issued as U.S. patents.  Corresponding            
applications have been or will be filed in certain foreign countries.           

It is the Company's policy that all employees and outside consultants     
involved in research or development activities sign proprietary                 
information, non-disclosure and patent  assignment agreements. This may         
not afford adequate protection for the Company's know-how  and                  
proprietary products. Other parties may develop products similar to the         
System or  otherwise attempt to duplicate the System in ways which              
circumvent the Company's  technology and existing or future patents.            

The Company has not received any claim that it is infringing any          
patent or other  proprietary right and is not currently aware of any            
claim that it is infringing any  intellectual property rights of others.        
However, there can be no assurance that third parties may not assert            
infringement claims against the Company, which claims the Company  would        
be required to defend at considerable expense or enter into arrangements        
requiring  the Company to pay royalties or other damages, any of which          
could materially and adversely  affect the Company's business. See              
"Uncertainties Regarding Intellectual Property."                                

The Company has applied for Federal trademark registration with the       
PTO and for State of Nevada servicemark registration for the name               
SportXction(TM).  State of Nevada servicemark registration was issued,          
however, Federal trademark registration has not yet been issued.  In            
August 1998 the Company received a "Notice of Allowance under Section           
10b3(b)(2) from the PTO" which requires that the Company file prior to          
January 28, 1999 a Statement of Use.  There can be no  assurance that           
the Company will obtain registered Federal trademark protection for the         
name SportXction(TM).  If the Company fails to obtain such  protection, the     
Company may be required to select a new name for the System and incur           
additional marketing and other expenses to promote its name.  (See              
"Recent Developments").                                                         

Governmental Regulation                                                         

The ownership and operation of casino gaming facilities in Nevada,        
including sports  pools, the operation of an  inter-casino linked               
system, the manufacture, sale and distribution of gaming devices for use        
or play in Nevada  or for distribution outside of Nevada, and the               
manufacture, sale and distribution of  associated equipment for use or          
play in Nevada is subject to The Nevada Gaming Control Act  and the             
regulations promulgated thereunder (collectively, the "Nevada Act") and         
various  local ordinances and regulations. Such activities are subject          
to the licensing and  regulatory control of the Nevada Commission, the          
Nevada Board, and various local, city and county  regulatory agencies.          

The laws, regulations and supervisory procedures of the Nevada Gaming     
Authorities  are based upon 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, or manufacturing or distribution of gaming devices at any time          
or  in any capacity; (ii) the strict regulation of all persons,                 
locations, practices,  associations and activities related to the               
operation of licensed gaming establishments and  the manufacture or             
distribution of gaming devices and equipment; (iii) the establishment           
and maintenance of responsible accounting practices and procedures; (iv)        
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; (v) the prevention of               
cheating and  fraudulent practices; and (vi) providing a source of state        
and local revenues through  taxation and licensing fees. Change in such         
laws, regulations and procedures could have a  material adverse effect          
on the Company's operations.                                                    

Within the United States, sports wagering is currently legal only in      
Nevada. Pursuant to the Professional and Amateur Sports Protection Act,         
28  U.S.C. Section 3701, et. seq. (hereinafter referred to as the               
"Sports Act"), which was  effective January 1, 1993, the proliferation          
of legalized sports books was significantly  curtailed. Although the            
Sports Act generally prohibits sports wagering in every  jurisdiction in        
the United States, including those jurisdictions subject to the Indian          
Gaming Regulatory Act (25 U.S.C. Section 2701 et. seq.), the Sports Act         
permits such  wagering in those jurisdictions that authorized sports            
wagering prior to the effective  date of the Act. 28 U.S.C. Section             
3704. Thus, sports books and wagering are permitted to  continue to             
operate in Nevada. Moreover, the Interstate Wire Act, 18 U.S.C. Section         
1084, 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.                                       

Under Federal law, a licensed race book or sports pool in Nevada may      
not accept bets received by use of  wire communications facilities,             
including telephones and computers, unless such bets originated in a            
jurisdiction wherein such betting or wagering is legal.  Under 1997             
Nevada legislation, persons are prohibited from accepting or placing            
wagers through any "medium of communication."  The term "medium of              
communication" is broadly defined and includes, without limitation,             
mail, telephone, television, telegraph, facsimile, cable, wire, the             
Internet or any other similar medium."  The network through which the           
System operates qualifies as a "medium of communication."  However, this        
statute specifically exempts wagers accepted or received by persons or          
establishments licensed to engage in wagering under Nevada law, provided        
such wagers are accepted or received within Nevada and otherwise comply         
with all  other applicable gaming laws and regulations.  This statute           
does not, therefore, prevent the System from being operated in its              
present form.                                                                   

Additionally, race book and sports pool wagers may be accepted only       
in person or by way of a transmission initiated within the State of             
Nevada.  NGC Regulation 22.140(1).  A recent amendment to this                  
regulation permits such transmissions to be made not only by telephone,         
but also by other forms of wagering communication systems, including            
those based on wire, cable, radio, microwave, lights, optics, or                
computer data networks, but excluding the Internet.  Approval to accept         
wagers by such communications systems must be received from the Nevada          
Board Chairman.  Beginning on March 1, 1999, and thereafter, race books         
and sports pools will be required to obtain written permission from the         
Nevada Board Chairman, on an annual basis, to continue using its                
communications technology.  In addition, effective March 1, 1999, a race        
book or sports pool will only be allowed to accept wagering                     
communications, other than in person, if it can demonstrate to the              
satisfaction of the Nevada Board Chairman that its wagering                     
communications originate from within the State of Nevada.                       

On July 1, 1995, the State of Nevada amended Chapter 464 of the           
Nevada Revised Statutes to allow persons  licensed to accept, pursuant          
to regulations to be adopted by the Nevada Commission, wagers from              
other jurisdictions in which pari-mutuel wagering is legal. However, no         
new regulations have been promulgated and the regulations of  the Nevada        
Commission currently prohibit any licensed race books  and sports pools         
in the State of Nevada from accepting any wagers from  interstate               
locations. In order for persons licensed to accept off-track pari-mutuel        
wagers  to be able to take advantage of the business opportunity                
provided by the new law, and for  the Company to benefit therefrom, the         
Nevada Commission must further amend its regulatory  restrictions. There        
can be no assurances that the Nevada Commission will amend or remove            
such regulatory restrictions or that any such amendment would not be            
burdensome to the  Company.                                                     

As of the present time, the SportXction(TM)  sports wagering game is not  
deemed by the Nevada Gaming Authorities to be either a sports pool or a         
pari-mutuel wagering pool.  If the SportXction(TM)  game was deemed to be a     
sports pool or pari-mutuel wagering pool, in order for the Company to           
receive a portion of the revenue obtained therefrom or to receive               
compensation on a transaction fee basis from either a sports pool or a          
pari-mutuel wagering pool, it might need to obtain appropriate licensing        
from the Nevada Gaming Authorities.  It is unclear whether the Nevada           
Gaming Authorities will in the future consider the SportXction(TM)  game or     
System utilized in casinos or the modified System to be used in                 
connection with wagering from home, to be a sports pool or pari-mutuel          
wagering pool and if so whether the Company would be required to obtain         
any additional licensing, or the conditions that might be imposed by the        
Nevada Gaming Authorities in connection with any such licensing.  There         
can be no assurances that the  Company will be able to receive the              
necessary licensing.                                                            

The Company's SportXction(TM)  sports wagering system qualifies as        
"associated  equipment" as that term is defined in the Nevada Act.              
Associated equipment is generally  defined in the Nevada Act as any             
equipment or mechanical, electromechanical or electronic  contrivance,          
component or machine used remotely or directly in connection with               
gaming, any  game, race book or sports pool that would not otherwise be         
classified as a gaming device.  A "gaming device" is generally defined          
as any equipment or mechanical electromechanical or  electronic                 
contrivance, component or machine used remotely or directly in                  
connection with  gaming, any game, race book or sports pool which               
affects the result of wagering by  determining win or loss. All                 
associated equipment that is manufactured, sold or distributed for use          
or play in Nevada must first be administratively approved by the                
Chairman of the Nevada Board. The administrative approval process for           
associated equipment  includes an evaluation by the Nevada Board's audit        
division (the "Audit Division") and, in  some cases, by the Board's             
electronic services laboratory, followed by a field trial.                      

Manufacturers and distributors of associated equipment are not            
subject to the  mandatory licensing requirements of the Nevada Act              
imposed upon manufacturers and  distributors of gaming devices, but may         
be required by the Nevada Commission, upon the  recommendation of the           
Nevada Board, to file an application for a finding of suitability to  be        
a manufacturer and distributor of associated equipment. It is unknown           
whether the  Nevada Board and Nevada Commission will require the Company        
to file an application for a  finding of suitability in addition to any         
present or future licenses that the Company may hold.                           

In order for the Company to be compensated for use of the System on       
the basis of a  percentage of the revenue received by a licensed gaming         
establishment or on a transaction  fee basis, the Company was required          
to obtain an OILS License and to be registered by the Nevada Commission         
as a publicly-traded corporation (a "Registered  Corporation"). In              
addition, because the Company qualifies as a Registered Corporation as          
a result of the consummation of its initial public offering, it was             
required to receive an exemption from provisions of the  Nevada Act that        
render a Registered Corporation ineligible to hold a gaming license. On         
April 23, 1998, the Nevada Commission granted the Company an OILS               
License and registered it as a Registered Corporation. The Nevada               
Commission further granted an exemption from the requirements of its            
Regulation 16.100(1), which would have otherwise prohibited the Company,        
as a Registered Corporation, from holding a Nevada OILS License.  The           
Company's OILS License is limited to expire (unless renewed) at midnight        
on the date of the November 1999 meeting of the Nevada Commission and           
has a number of conditions, all of which were agreed to by the Company,         
relating to the Company's operations and to the System's method of              
operation and accounting.  There can be no assurances that the Company          
will have its licensing, registration or exemption renewed in November          
1999.  The Nevada Gaming Authorities may deny an  application for any           
cause which they deem reasonable. A finding of suitability is comparable        
to licensing, and both require submission of detailed personal and              
financial  information followed by a thorough investigation. The                
applicant for licensing or a finding  of suitability must pay all costs         
of the investigation. Determination of suitability or of questions              
pertaining to licensing are not subject to judicial review in Nevada.           
As a Registered Corporation and a gaming licensee ("Gaming Licensee")           
the following regulatory requirements will apply to the Company:                

As a Registered Corporation and Gaming Licensee, the Company is           
required  periodically to submit detailed financial and operating               
reports to the Nevada Commission and to furnish any other information           
which the Nevada Commission may require. Substantially all material             
loans, leases, sales of securities and similar financing  transactions          
are required to be reported to or approved by the Nevada Commission.            

The Nevada Gaming Authorities may investigate any individual who has      
a material  relationship to, or material involvement with, a Registered         
Corporation and Gaming  Licensee 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 of the        
Company would be required to file applications with the Nevada Gaming           
Authorities and may also be required to be licensed or found suitable by        
the Nevada Gaming  Authorities. Officers, directors and key employees of        
the Company who are actively and  directly involved in gaming activities        
in respect of the operation of the System may be  required to be                
licensed or found suitable by the Nevada Gaming Authorities. The Nevada         
Gaming Authorities may deny an application for licensing for any cause          
which they deem  reasonable. A finding of suitability is comparable to          
licensing, and both require  submission of detailed personal and                
financial information followed by a thorough  investigation. The                
applicant for licensing or a finding of suitability must pay all the            
costs of the investigation. Determination of suitability or of questions        
pertaining to  licensing are not subject to judicial review in Nevada.          
Changes in licensed positions must be reported to the Nevada Gaming             
Authorities and, in addition to their authority to deny an  application         
for a finding of suitability of licensure, the Nevada Gaming Authorities        
have jurisdiction to disapprove a change in corporate position.  All of         
the Company's officers and directors, except for its outside directors,         
have been licensed.  Such licenses are limited for the same period as           
the Company's OILS License.  There can be no assurance that such                
licenses will be renewed 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 the Company,  it would have to sever all             
relationships with such person. In addition, the Nevada  Commission may         
require the Company to terminate the employment of any person who               
refuses  to file appropriate applications. Determination of suitability         
or of questions pertaining  to licensing are not subject to judicial            
review in Nevada.                                                               

If it were determined that the Nevada Act was violated by the             
Company, the  registration and OILS Licenses it held could be limited,          
conditioned, suspended or revoked,  subject to compliance with certain          
statutory and regulatory procedures. In addition, the  Company and the          
persons involved could be subject to substantial fines for each separate        
violation of the Nevada Act at the discretion of the Nevada Commission.         
Furthermore, the  Nevada Commission could revoke the approval of the            
System and could order the termination  of existing contracts for the           
System. Limitation, conditioning or suspension of the  registration and         
OILS Licenses held by the Company could (and revocation of any                  
registration and OILS Licenses would) materially adversely affect the           
Company's manufacturing, distribution and gaming operations.                    

Any beneficial holder of the Company's voting securities, regardless      
of the number or shares owned, may be required to file an application,          
be investigated, and have his suitability determined as a beneficial            
holder of the  Company's voting securities if the Nevada 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 investigation incurred by the Nevada Gaming Authorities        
in conducting any such investigation.                                           

The Nevada Act requires any person who acquires beneficial ownership      
of more than 5%  of a Registered Corporation's voting securities to             
report the acquisition to the Nevada  Commission. The Nevada Act                
requires that beneficial owners of more than 10% of a  Registered               
Corporation's voting securities apply to the Nevada Commission for a            
finding of  suitability within thirty days after the Chairman of the            
Nevada Board mails the written  notice requiring such filing. Under             
certain circumstances, an "institutional investor," as  defined in the          
Nevada Act, which acquires more than 10%, but not more than 15%, of the         
Registered Corporation's voting securities may apply to the Nevada              
Commission for a waiver  of such finding of suitability if such                 
institutional investor holds the voting securities  for investment              
purposes only. An institutional investor shall not be deemed to hold            
voting  securities for investment purposes 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 the board of           
directors of the Registered Corporation, any change in the Registered           
Corporation's  corporate charter, bylaws, management, policies or               
operations of the Registered  Corporation, or any of its gaming                 
affiliates, or any other action which the Nevada  commission finds to be        
inconsistent with holding the Registered Corporation's voting                   
securities for investment purposes only. Activities which are not deemed        
to be  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 of informational               
purposes and not to cause a change in its management policies or                
operations; and  (iii) such other activities as the Nevada Commission           
may determine to be consistent with  such investment intent. 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 beneficial owners. The                
applicant is required to  pay all costs of investigation.                       

Any person who fails or refuses to apply for a finding of suitability     
or a license  within thirty days after being ordered to do so by the            
Nevada Commission or the Chairman  of the Nevada Board, may be found            
unsuitable. The same restrictions apply to a record  owner if the record        
owner, after request, fails to identify the beneficial owner. Any               
stockholder found unsuitable and who holds, directly or indirectly, any         
beneficial  ownership of the common stock beyond such period of time as         
may be prescribed by the  Nevada Commission may be guilty of a criminal         
offense. The Company will be subject to  disciplinary action if, after          
it receives notice that a person is unsuitable to be a  stockholder or          
to have any other relationship with the Company, it (i) pays that person        
any dividend or interest upon voting securities of the Company, (ii)            
allows that person to  exercise, directly or indirectly, any voting             
right conferred through securities held by  that person, (iii) pays             
remuneration in any form to that person for services rendered or                
otherwise, or (iv) fails to pursue all lawful efforts to require such           
unsuitable person to  relinquish his voting securities including, if            
necessary, the immediate purchase of said voting securities for cash at         
fair market value.                                                              

The Nevada Commission may, in its discretion, require the holder of       
any debt  security of a Registered Corporation to file applications, be         
investigated and be found  suitable to own the debt security of a               
Registered Corporation if the Nevada Commission has  reason to believe          
that his acquisition of such debt security would otherwise be                   
inconsistent with the declared policy of the State of Nevada. If the            
Nevada Commission determines that a person is unsuitable to own such            
security, then pursuant to the Nevada  Act, the Registered Corporation          
can be sanctioned, including the loss of its approvals, if  without the         
prior approval of the Nevada Commission, it (i) pays to the unsuitable          
person any dividend, interest, or any distribution whatsoever, (ii)             
recognizes any voting right by such unsuitable person in connection with        
such securities, (iii) pays the unsuitable  person remuneration in any          
form, or (iv) makes any payment to the unsuitable person by way of              
principal, redemption, conversion, exchange, liquidation, or similar            
transaction.                                                                    

The Company is 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 disclosure may        
be ground for finding the record holder  unsuitable. The Company will           
also be required to render maximum assistance in determining  the               
identity of the beneficial owner. The Nevada Commission has the power to        
require the  stock certificates of the Company to bear a legend                 
indicating that the securities are  subject to the Nevada Act. It is            
unknown whether the Commission will impose such a requirement on the            
Company.                                                                        

A Registered Corporation may not make a public offering of its            
securities without  the prior approval of the Nevada Commission if the          
securities or proceeds therefrom are  intended to be used to construct,         
acquire or finance gaming facilities in Nevada, or to  retire or extend         
obligations incurred for such purposes. Such approval, if given, does           
not  constitute a finding, recommendation or approval by the Nevada             
Commission or the Nevada  Board as to the accuracy or adequacy of the           
prospectus or the investment merits of the  securities offered. Any             
representation to the contrary is unlawful. The regulations of the              
Nevada Board and Nevada Commission also provide that any entity which is        
not an  "affiliated company," as such term is defined in the Nevada Act,        
or which is not otherwise  subject to the provisions of the Nevada Act          
or such regulations, such as the Company,  which plans to make a public         
offering of securities intending to use such securities, or  the                
proceeds from the sale thereof for the construction or operation of             
gaming facilities  in Nevada, to finance the operation of gaming                
facilities in Nevada, or to retire or extend  obligations incurred for          
such purposes, may apply to the Nevada Commission for prior  approval of        
such offering. The Nevada Commission may find an applicant unsuitable           
based  solely on the fact that it did not submit such an application of         
approval, unless upon a  written request for a ruling, the Nevada Board         
Chairman has ruled that it is not necessary  to submit an application.          
The Company filed a written request for a ruling  (the "Ruling Request")        
that it was not necessary to submit its IPO for prior approval.  On             
November 25, 1996, the Nevada Board Chairman responded to the Ruling            
Request by issuing  a written ruling (the "Ruling") that the Company was        
not required to submit the IPO for prior approval. The Ruling did not           
constitute a finding, recommendation or approval by  the Nevada                 
Commission or the Nevada Board as to the accuracy or adequacy of the            
prospectus  or the investment merits of the securities offered. The             
Ruling also did not constitute a  finding that the Company has been or          
will be found qualified to be involved with gaming  activities in Nevada        
for which a separate Nevada Commission approval will be required. Any           
representation to the contrary is unlawful.                                     

Changes in control of a Registered Corporation through merger,            
consolidation, stock  or asset acquisitions, management or consulting           
agreements, or any act or conduct by a  person whereby he obtains               
control, may not occur without the prior approval of the Nevada                 
Commission. Entities seeking to acquire control of a Registered                 
Corporation must satisfy  the Nevada Board and the Nevada Commission in         
a variety of stringent standards prior to  assuming control of such             
Registered Corporation. The Nevada Commission may also require                  
controlling stockholders, officers, directors and other persons having          
a material  relationship or involvement with the entity proposing to            
acquire control, to be  investigated and licensed as part of the                
approval process relating to the transaction.                                   

The Nevada legislature has declared that some corporate acquisitions      
opposed by  management, repurchases of voting securities and corporate          
defense tactics affecting  Nevada corporate gaming licensees, and               
Registered Corporations that are affiliated with  those operations, may         
be injurious to stable and productive corporate gaming. The Nevada              
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 licensees 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 Nevada Commission  before the                  
Registered Corporation can make exceptional repurchases of voting               
securities  above the current market price thereof and before a                 
corporate acquisition opposed by  management can be consummated. The            
Nevada Act also requires prior approval of a plan or  recapitalization          
proposed by the Registered Corporation's Board of Directors in response         
to a tender offer made directly to the Registered Corporation's                 
stockholders for the purposes of acquiring control of the Registered            
Corporation.                                                                    

License fees and taxes, computed in various ways depending on the         
type of gaming or  activity involved, are payable to the State of Nevada        
and to the counties and cities in  which gaming operations are to be            
conducted. Depending upon the particular fee or tax  involved, these            
fees and taxes are payable either monthly, quarterly or annually and are        
based upon either (i) a percentage of the gross revenues received; or           
(ii) the number of  gaming devices operated. Annual fees are also               
payable to the State of Nevada for renewal of licenses as a manufacturer        
and distributor.                                                                

Any person who is licensed, required to be licensed, registered,          
required to be registered, or is under common control with such persons         
(collectively, "Licensees"), and who proposes to become involved in a           
gaming venture outside of Nevada, is required to  deposit with the              
Nevada Board, and thereafter maintain, a revolving fund in the amount of        
$10,000 to pay the expenses of investigation by the Nevada Board of             
their participation in such foreign gaming. The revolving fund is               
subject to increase or decrease in the discretion of the Nevada                 
Commission. Thereafter, Licensees are required to comply with certain           
reporting requirements imposed by the Nevada Act. A Licensee is also            
subject to disciplinary action by the Nevada Commission if it knowingly         
violates any laws of the foreign jurisdiction pertaining to the foreign         
gaming operation, fails to conduct the foreign gaming operation in              
accordance with the standards of honesty and integrity required of              
Nevada gaming operations, engages in activities that are harmful to the         
State of Nevada or its ability to collect gaming taxes and fees, or             
employs a person in the foreign operation who has been denied a license         
or finding of suitability in Nevada on the  ground of personal                  
unsuitability.                                                                  

The Company may also be required to make annual filings with the          
Attorney General of the United States in connection with the operation          
of the System.                                                                  

In August 1996, the United States Congress passed legislation which       
creates the National Gaming Commission. The National Gaming Commission          
generally has the duty to conduct a comprehensive legal and factual             
study of gambling in the United States and  existing Federal, state and         
local policies and practices with respect to the legalization  or               
prohibition of gambling activities, to formulate and propose changes in         
such policies  and practices and to recommend legislation and                   
administrative actions for such changes. It  is not possible to predict         
the future impact of these proposals on the Company and its  operations.        
Any such proposals could have a material adverse affect on the Company's        
business.                                                                       

Legislation is currently pending in the United States Congress to         
prohibit certain forms of betting or wagering or engaging in the                
business of gambling over the Internet. A bill which was recently passed        
by the Senate, S. 474, would also prohibit betting or wagering or               
engaging in the business of gambling over "interactive computer                 
services."  The System arguably fits within the definition of an                
"interactive computer service."  If enacted, S. 474 may prohibit the            
operation of the System in all or certain forms.                                

A companion bill now before the U.S. House of Representatives, H.R.       
2380, would also expand the existing federal prohibition against betting        
or wagering through interstate and foreign wire communication facilities        
to outlaw betting or wagering through a broad spectrum of interstate and        
foreign communication facilities.  Also included in H.R. 2380 are               
provisions placing specific duties on interactive computer service              
providers to "discontinue or refuse, the leasing, furnishing or                 
maintaining" of communication facilities used in transmitting or                
receiving gambling information, but the bill does not define the meaning        
of "interactive computer service provider."  Additionally, H.R. 2380            
contains language limiting its application to the use of communication          
facilities in interstate or foreign commerce and expressly exempts              
wagers between jurisdictions in which such wagering is not illegal.  The        
System currently operate only within the State of Nevada.                       

It does not appear that H.R. 2380 will be passed by the U.S. House        
of Representatives before the end of the current session.  There can be         
no assurance, however, that either S. 474 or H.R. 2380, or both, will           
not be reintroduced in the next Congress or that one or the other bill          
will not become law in its present or any other form.                           

Under 1997 Nevada legislation, persons are prohibited from accepting      
or placing wagers through any "medium of communication."  The term              
"medium of communication" is broadly defined and includes, without              
limitation, mail, telephone, television, telegraph, facsimile, cable,           
wire, the Internet or any other similar medium."  The network through           
which the System operates qualifies as a "medium of communication."             
However, this statute specifically exempts wagers accepted or received          
by persons or establishments licensed to engage in wagering under Nevada        
law, provided such wagers are accepted or received within Nevada and            
otherwise comply with all other applicable gaming laws and regulations.         
This statute does not, therefore, prevent the System from being operated        
in its present form or from homes pursuant to the revised Regulation 22.        
(See "Recent Developments").                                                    

Competition                                                                     

Sports wagering competes with other forms of gambling available to        
the general  public both within and outside of the State of Nevada,             
including, but not limited to, casino games (such as traditional slot           
machines, video slot, poker and blackjack machines,  roulette, card             
games, keno and craps), bingo, state-sponsored lotteries, on-and-off            
track  betting on horses and dogs, jai alai, offshore cruise ships,             
riverboats and Native  American gaming operations. In addition, the             
System competes with sports wagering as  it currently exists in Nevada.         
The Company is not aware of any system currently in  operation or under         
development that is similar to the System. No assurance can be given            
that such a system does not exist or is not under development.                  

The Company believes that sports wagering facilities in casinos are       
currently  operated either by the casino itself or pursuant to                  
contractual relationships with  licensed sports book operators. Such            
entities which operate sports books in casinos may  have exclusive              
relationships with casinos which could limit the ability of casinos to          
contract directly with the Company. As a result, the Company might be           
required to pay  substantial sums to such third parties for the                 
privilege of supplying the System to any  such casino, which could have         
a material and adverse effect on the Company's financial  condition and         
results of operations.  (See "Possible Exclusive Relationships Between          
Casinos and Third Parties").                                                    

American Wagering, Inc., through its subsidiary Leroy's Horse and         
Sports Place ("Leroy's"), is a licensed bookmaker with approximately 46         
sports books, the largest number of sports  book locations in the State         
of Nevada. Leroy's sports books are operated primarily in  casinos in           
major metropolitan areas in Nevada and in its own facilities. Leroy's           
offers  casinos a turnkey sports betting operation that allows casinos          
to offer sports wagering to  its patrons without bearing the risk and           
overhead associated with conducting the operation  themselves. In               
October 1996, American Wagering, Inc. acquired the subsidiary of                
Autotote  Corporation which sold sports wagering equipment and terminals        
to casinos and sports book  operators in Nevada. The Company believes           
that the subsidiary involved sold such  equipment, which was largely            
record keeping equipment, to virtually all of the approximately 135             
casinos and sports book operators in Nevada. American Wagering, Inc.            
also operates a new pari-mutuel sports wagering game, called MegaSports,        
which accepts pari-mutuel wagers on the outcomes of sports  contests,           
events that occur within or during those contests and the outcomes of a         
group of  sports contests. The Company believes that these sports               
wagering products only  accept wagers prior to commencement of events           
and, since they are in pari-mutuel  format, they will not include fixed         
price bets as is customary in sports wagering.                                  

In addition, the Company may compete with suppliers of other forms        
of gaming  equipment and services most of whom are substantially larger         
with greater technological,  financial and other resources than the             
Company. Among the companies currently producing  gaming equipment are          
International Game Technology; GTECH Corporation, the largest  supplier         
of equipment and systems to state sponsored lotteries; AmTote                   
International,  Inc., a supplier of equipment, systems and devices for          
pari-mutuel wagering on horses,  dogs and in jai alai; Video Lottery            
Technologies, Inc., which operates video lottery  systems and, through          
its subsidiary, United Wagering System, Inc., operates in the  pari-            
mutuel wagering business; WMS Industries Inc., which designs,                   
manufactures and sells coin-operated pinball and video games, home video        
games, casino gaming devices and video lottery terminals; Alliance              
Gaming Corp. which designs, manufactures  and distributes electronic            
slot machines, video gaming machines, video lottery terminals  and              
computer gaming management systems; and several smaller companies.              

Personnel                                                                       

The Company has thirteen full-time employees, consisting of the           
Chairman of the Board, President, General Manager-Nevada Operations,            
Vice President-Software Development, two software engineers and                 
programmers, an accountant, an audit clerk, two gaming operations               
personnel and three technicians.  The Company considers its  relations          
with its employees to be good.                                                  

The Company also utilizes individuals periodically to train gaming        
establishment personnel and players or prospective players in the use of        
the System. The Company also has used, and may from time to time in the         
future use, outside consultants on specific assignments or projects.            

The Company may seek to  hire marketing and sales personnel to            
develop other markets and to market the System to casinos and sports            
book operators as well as additional programmers, technicians and               
administrative personnel.                                                       

Research and Development                                                        

During the fiscal years ended September 30, 1997 and September 30,        
1998, the Company spent approximately $992,000 and $996,000,                    
respectively, on research and development activities.  These expenses           
included primarily, programmers' salaries and benefits, consultants'            
fees, patent fees, the depreciation expense associated with computer            
equipment used in the development of the System, and the costs of two           
trials of the System in Nevada required for approval of its use in              
individual gaming establishments and for wide area operation.  The              
Company intends to continue to expend significant sums on such                  
activities.                                                                     

Important Factors Regarding Forward Looking Statements and other Risks          

Certain statements in this Report under the captions "Item 1.             
Description of Business," "Item 6. "Management's Discussion and                 
Analysis" and elsewhere, constitute  forward-looking statements  within         
the meaning of the Private Securities Litigation Reform Act of 1995,            
including, without limitation, statements regarding potential market            
size, the likelihood that the Company will receive and maintain any             
needed gaming licenses or other approvals for use of its products, the          
ability of the Company to attract adequate numbers of players of its            
SportXction(TM)  sports wagering game and cash requirements.  Such forward-     
looking statements involve known and unknown risks, uncertainties and           
other factors which may cause the actual results, performance or                
achievements of the Company, or industry results, to be materially              
different from any future results, performance, or achievements                 
expressed or implied by such forward-looking statements. Such factors           
include, among others, those described below and those presented                
elsewhere by management from time to time.  When used in this Report,           
statements that are not statements of current or historical fact may be         
deemed to be forward-looking statements.  Without limiting the                  
foregoing, the words "anticipates," "plans," "intends," "expects,"              
"believes" and similar expressions are intended to identify such                
forward-looking statements.  Readers are cautioned not to place undue           
reliance on these forward-looking statements, which speak only as of            
the date hereof.  The Company undertakes no obligation to publicly release      
the result of any revisions to these forward-looking statements that may        
be made to reflect events or circumstances after the date hereof or to          
reflect the occurrence of unanticipated events.                                 

Single Product; Limited Contracts; Uncertain Market Acceptance. The       
Company s success will depend primarily on the success of a single              
product, the System. The Company's System was approved by the Nevada            
Commission for use in individual casinos on January 6, 1997 and for use         
in wide area operation on August 21, 1997. The System began live                
operation on September 21, 1997 in nine Nevada casinos. Simultaneous            
wagering is conducted through PBSs located at the inter-linked casinos,         
with betting pools consolidated at the Hub. The System commenced                
operation for both football and baseball games and added basketball when        
that season began. The Company has pursued an aggressive marketing and          
advertising campaign to introduce the SportXction(TM)  sports wagering          
system to the gaming public in Nevada and to increase the number of             
players of the game. It retained the services of a market research firm,        
with the goal of increasing public awareness of this new game and               
increasing the number of players of the game. The Company has added             
several new features and enhancements to the System to attract players          
and increase wagering. Thus far, the total number of players has been           
limited and the total amount wagered through the System has been modest.        
In addition, the System is currently only in operation in four casinos          
and gaming establishments. The Company has developed a version of the           
System that may be used for betting from home utilizing a PC and modem          
over a secure Intranet within Nevada that it licensed from another              
party. This revised version of the System is currently being tested by          
the Nevada Board, and may not be introduced for service until such              
approval is obtained.  The Company believes that having this System             
available, when fully implemented, for betting from home will provide a         
more convenient environment for players to try the SportXction(TM)  game.       
There is no assurance that there will be market acceptance of betting           
from home using PCS in the State of Nevada.  This has never been                
attempted previously in Nevada, although betting from home using PCS on         
the Internet has gained a fair degree of popularity.  To achieve                
commercial success, the System must be accepted both by casino and              
sports book operators and by gaming patrons. The Company believes that          
acceptance by casino and sports book operators will ultimately depend           
upon acceptance by patrons as a new and/or alternative form of sports           
wagering.  There can be no assurance that the System will be accepted by        
its intended market. If the System does not achieve sufficient market           
acceptance, the Company s business, financial condition and results of          
operations would be materially and adversely affected.                          

Development Stage Company; Expectation of Losses. The Company is in       
the development stage and has generated limited revenues from the               
System. As of September 30, 1998, the Company had cumulative net losses         
since inception of approximately $6.1 million and the Company expects to        
continue to incur substantial losses and negative cash flow at least            
through calendar 1999. There can be no assurance that the Company will          
become profitable or that cash flow will become positive at any time in         
the future. The likelihood of the Company s success must be considered          
in light of the problems, delays, expenses and difficulties encountered         
by an enterprise in the Company s stage of development, many of which           
may be beyond the Company s control. These include, but are not limited         
to, unanticipated problems relating to further product enhancement and          
development; software design, development and enhancement; acceptance of        
the System by the wagering public and casinos; testing; gaming                  
regulations and taxes; System assembly; the competitive and regulatory          
environment in which the Company plans to operate; marketing problems;          
and additional costs and expenses that may exceed current estimates.            

Small Wagering Pools.  The System was designed to operate most            
effectively when there are large numbers of players and a substantial           
number of wagers being placed through the System simultaneously.  When          
the number of players wagering through the System is modest, as has been        
the case during the period of time that the System has been in                  
operation, and there are relatively small amounts wagered on each               
available betting proposition, it is more difficult to attempt to create        
balanced pools.  Also under such circumstances, odds may change rapidly         
causing participants to be required to reconfirm bets at changing odds          
before a wager is accepted.  These circumstances could cause player             
dissatisfaction to this form of sports wagering resulting in  gaming            
establishments not wishing to have the System operated in their sports          
books, which could have a material adverse effect on the business of the        
Company and its prospects.  To avoid such rapidly changing odds, the            
System could be run with larger pre-set limits for the amount of                
imbalance the System will tolerate before changing the odds.  See               
"Operation of the System."  Increasing the size of these pre-set limits         
increases the Company's financial exposure to the players' ability to           
wager on the winning side of the betting propositions offered.  This            
could reduce the revenues generated by the System and could have a              
material adverse effect on the business of the Company and its                  
prospects.  Since May 11, 1998, the Company has been the operator of the        
System and thereby acts as the house.  The Company, therefore, has              
assumed all pool imbalance risks associated with being the house.               

Limited Number of Casinos.  The System is currently operating in only     
four gaming establishments. Each gaming establishment receives a fixed          
percentage of the handle generated through the System from its                  
establishment.  Because only a modest amount of money is currently being        
wagered through the System, one or several casinos may be unwilling or          
unable to continue to operate the System in their casino.  Under such           
circumstances the Company would be forced to cease operations in those          
casinos, thereby reducing the availability of the System to potential           
patrons.  No assurance can be given that the Company could make                 
arrangements with additional gaming establishments to install the System        
in a timely manner, or at all.                                                  

Capital Requirements; Need for Additional Financing. The Company          
anticipates that its existing resources will be adequate to fund its            
capital and operating requirements through the next 18 months based upon        
the Company s current business plan. See "Management Discussion and             
Analysis."  The Company s capital requirements may vary materially from         
those now planned due to a number of factors, including the rate at             
which the Company can introduce the System, the market acceptance and           
competitive position of the System, the response of competitors to the          
System and the ability of the Company and its management to satisfy             
applicable licensing requirements. The Company may need to raise                
additional capital to fund its future operations. There can be no               
assurance that additional financing will be available when needed on            
terms acceptable to the Company, or at all. If additional funds are             
raised by issuing equity securities, further dilution to existing               
stockholders will result and future investors may be granted rights             
superior to those of existing stockholders. Insufficient funds may              
prevent the Company from implementing its business strategy or may              
require the Company to limit its operations significantly.                      

Governmental Regulation.  The System qualifies as  associated             
equipment  as that term is defined in the Nevada Act. Associated                
equipment is generally defined as any equipment or mechanical,                  
electromechanical or electronic contrivance, component or machine used          
remotely or directly in connection with gaming, any game, race book or          
sports pool that would not otherwise be classified as a gaming device.          
All associated equipment that is manufactured, sold, transferred,               
offered or distributed for use or play in Nevada must first be                  
administratively approved by the Chairman of the Nevada Board. The              
administrative approval process for associated equipment includes an            
evaluation by the Nevada Board s audit division (the  Audit Division )          
and, in some cases, by the Nevada Board s electronic services                   
laboratory, followed by a field trial.                                          

On April 23, 1998, the Nevada Commission granted an OILS license to       
the Company and registered it as a publicly-traded corporation.  The            
Nevada Commission further granted an exemption from the requirements of         
its Regulation 16.100(1), which would have otherwise prohibited the             
Company, as a publicly-traded corporation, from a holding a Nevada OILS         
License.  The Company's OILS License is limited to expire at midnight on        
the date of the November 1999 meeting of the Nevada Commission and has          
a number of conditions, which were agreed to by the Company, relating to        
its method of operation and to the manner in which the System would             
account for gaming transactions.                                                

No assurance can be given that the Company's OILS License, or its         
registration and exemption will be renewed in November 1999, or that its        
directors and officers will be relicensed, or that no new burdensome            
conditions, limitations or restrictions will be imposed upon the                
Company.  In addition the Nevada Commission has the discretion, at any          
time, to require that the Company apply for a finding of suitability to         
be a manufacturer and distributor of associated equipment.  The                 
operation of licensed gaming in general, and the operation of race books        
and sports pools in particular, is subject to strict licensing and              
regulatory control by the Nevada Board, the Nevada Commission and               
various local, city and county regulatory agencies.  No applicant for a         
registration, license, finding of suitability or approval (individually,        
a "Gaming License" and collectively, "Gaming Licenses") has any right to        
the Gaming License.  Any Gaming License issued or granted is a revocable        
privilege, and no holder  acquire any vested rights therein or                  
thereunder.  In connection with the Company's application for renewal of        
its Gaming License, or any further Gaming Licenses, the Nevada                  
Commission will have the authority to require that any beneficial owner         
of the Company's voting securities be investigated and found suitable,          
although the Nevada Act does not require a finding of suitability unless        
a person is the beneficial owner of more than 10% of the outstanding            
voting securities.  In addition, if any of the Company's officers,              
directors, key employees or stockholders are denied a license or finding        
of suitability, or are found unsuitable to continue having a                    
relationship with the Company, the Company would have to sever its              
relationship with such persons.  Furthermore, if the Company's Gaming           
Licenses are not renewed, any existing approval for the System could be         
revoked and the Nevada Commission could order the termination of any            
existing contracts for the System.  Moreover, the Company would be              
prevented from selling or distributing the System for use or play in            
Nevada after the date of expiration of the Company's Gaming License.            

No person is permitted to acquire control of the Company, as the          
holder of a Gaming License, without the prior approval of the Nevada            
Commission upon the recommendation of the Nevada Board. The Nevada              
Commission may require controlling stockholders, officers, directors and        
other persons having a material relationship or involvement with the            
entity proposing to acquire control, to be investigated and licensed as         
part of the approval process relating to an acquisition of control. The         
applicant is required to pay all costs of investigation.                        

In August 1996, the United States Congress passed legislation which       
creates a national gaming study commission (the  National Gaming                
Commission ). The National Gaming Commission will generally have the            
duty to conduct a comprehensive legal and factual study of gambling in          
the United States and existing Federal, state and local policies and            
practices with respect to the legalization or prohibition of gambling           
activities, to formulate and propose changes in such policies and               
practices and to recommend legislation and administrative actions for           
such changes. It is not possible to predict the future impact of these          
proposals on the Company and its operations. Any such proposals could           
have a material adverse affect on the Company s business.                       

Legislation is currently pending in the United States Congress to         
prohibit certain forms of betting or wagering or engaging in the                
business of gambling over the Internet. A bill which was recently passed        
by the Senate, S. 474, would also prohibit betting or wagering or               
engaging in the business of gambling over "interactive computer                 
services."  The System arguably fits within the definition of an                
"interactive computer service."  If enacted, S. 474 may prohibit the            
operation of the System in all or certain forms.                                

A companion bill now before the U.S. House of Representatives, H.R.       
2380, would also expand the existing federal prohibition against betting        
or wagering through interstate and foreign wire communication facilities        
to outlaw betting or wagering through a broad spectrum of interstate and        
foreign communication facilities.  Also included in H.R. 2380 are               
provisions placing specific duties on interactive computer service              
providers to "discontinue or refuse, the leasing, furnishing or                 
maintaining" of communication facilities used in transmitting or                
receiving gambling information, but the bill does not define the meaning        
of "interactive computer service provider."  Additionally, H.R. 2380            
contains language limiting its application to the use of communication          
facilities in interstate or foreign commerce.  The System currently             
operates only within the State of Nevada.                                       

It does not appear that H.R. 2380 will be passed by the U.S. House        
of Representatives before the end of the current session.  There can be         
no assurance, however, that either S. 474 or H.R. 2380, or both,  will          
not be reintroduced in the next Congress or that one or the other bill          
will not become law in its present form or any other form.                      

Under 1997 Nevada legislation, persons are prohibited from accepting      
or placing wagers through any "medium of communication."  The term              
"medium of communication" is broadly defined and includes, without              
limitation, mail, telephone, television, telegraph, facsimile, cable,           
wire, the Internet or any other similar medium."  The network through           
which the System operates qualifies as a "medium of communication."             
However, this statute specifically exempts wagers accepted or received          
by persons or establishments licensed to engage in wagering under Nevada        
law, provided such wagers are accepted or received within Nevada and            
otherwise comply with all other applicable gaming laws and regulations.         
This statute does not, therefore, prevent the System from being operated        
in its present form or from home pursuant to the revised Regulation 22.         
(See "Recent Developments").                                                    

As of the present time, the SportXction(TM)  sports wagering game is not  
deemed by the Nevada Gaming Authorities to be either a sports pool or a         
pari-mutuel wagering pool.  If the SportXction(TM)  game was deemed to be a     
sports pool or pari-mutuel wagering pool, in order for the Company to           
receive a portion of the revenue obtained therefrom or to receive               
compensation on a transaction fee basis from either a sports pool or a          
pari-mutuel wagering pool, it might need to obtain appropriate licensing        
from the Nevada Gaming Authorities.  It is unclear whether the Nevada           
Gaming Authorities will in the future consider the SportXction(TM)  game or     
System utilized in casinos or the modified System to be used in                 
connection with wagering from home, to be a sports pool or pari-mutuel          
wagering pool and if so whether the Company would be required to obtain         
any additional licensing, or the conditions that might be imposed by the        
Nevada Gaming Authorities in connection with any such licensing.  There         
can be no assurances that the  Company will be able to receive the              
necessary licensing.                                                            

Competition and Rapid Technological Change. The Company s operations      
compete with other forms of gambling, both within and outside of Nevada,        
including, but not limited to, sports wagering as currently conducted in        
Nevada, casino games (such as traditional slot machines, video slot,            
poker and blackjack machines, roulette, card games, keno and craps),            
bingo, state-sponsored lotteries, on-and off- track betting on horses           
and dogs, jai alai, offshore cruise ships, riverboats and Native                
American gaming operations. The gaming industry is also subject to              
shifting consumer preferences and perceptions. A shift in consumer              
acceptance or interest in gaming could adversely affect the Company.            
Moreover, competition is intense and increasing among providers of              
wagering and gaming equipment, both hardware and software, and the              
Company believes that new competitors will emerge in the future. Many of        
the Company s competitors or potential competitors may have products            
that may compete directly with the System and such competitors may have         
significantly greater financial, technological, manufacturing,                  
marketing, operating and other resources than the Company. In addition,         
certain of the Company s potential competitors, including large                 
providers of wagering, gaming and computer equipment, may have                  
technological capabilities that would allow them to develop new or              
alternative systems. The wagering and gaming equipment industry is              
subject to rapid change and is characterized by constant technological          
innovation. There can be no assurance that future technological advances        
will not result in improved products or services that could adversely           
affect the Company s business or that the Company will be able to               
develop and introduce competitive uses for its products and to bring            
such uses to market in a timely manner. Increased competition is likely         
to result in price reductions, reduced operating margins and loss of            
market share, any of which could materially and adversely affect the            
Company s business, operating results or financial condition.                   
Furthermore, any success the Company might have may induce new                  
competitors to enter the market. There can be no assurance that the             
Company will be a successful competitor in the wagering and gaming              
equipment and service industry.                                                 

Uncertainties Regarding Intellectual Property. The Company regards        
the System and related technology as proprietary and relies primarily on        
a combination of patent, trademark, copyright and trade secret laws and         
employee and third-party non-disclosure agreements to protect its               
proprietary rights. The Company filed two United States patent                  
applications for its proprietary wagering methods and its related               
computer processing system and patents with respect to each application         
have issued.  Corresponding applications have been or will be filed in          
certain foreign countries and are pending.  No assurance can be given           
that any of the Company s foreign patent applications will issue as             
patents, that any issued patents will provide the Company with                  
significant competitive advantages, or that challenges will not be              
instituted against the validity or enforceability of any patent owned by        
the Company or, if instituted, that such challenges will not be                 
successful. Defense of intellectual property rights can be difficult and        
costly, and there can be no assurance that the Company will be able             
effectively to protect its technology from misappropriation by                  
competitors. Additionally, third party infringement claims may result in        
the Company being required to enter into royalty arrangements or pay            
damages, any of which could materially and adversely affect the                 
Company s business, financial condition and results of operations. It is        
the Company s policy that all employees and consultants involved in             
research and development activities sign non-disclosure agreements;             
however, this may not afford the Company sufficient protection for its          
know-how and its proprietary information and products. Other parties may        
independently develop similar or more advanced technologies or design           
around aspects of the Company s technology which may be patented or             
duplicate the Company s trade secrets.                                          

As the number of software products in the industry increases and the      
functionality of these products further overlaps, software developers           
and publishers may increasingly become subject to infringement claims.          
Although the Company has not received any claim that it is infringing           
any patent or other proprietary right and is not currently aware of any         
claim that it is infringing any intellectual property rights of others,         
there can be no assurance that the Company will not face such claims,           
with or without merit, in the future. Any such claims or litigation             
could be costly and could result in a diversion of management s                 
attention, which could have a material adverse effect on the Company s          
business, financial condition and results of operations. Any settlement         
of such claims or adverse determinations in such litigation could also          
have a material adverse effect on the Company s business, financial             
condition and results of operations.                                            

Management of Growth.  Execution and implementation of the Company s      
plan of operation will require significant growth. The Company s current        
plans for growth will place a significant strain on the Company s               
financial, managerial and other resources. The Company s ability to             
manage its growth effectively will require it to continue to improve its        
operational, financial and management information systems and to                
attract, motivate and train key employees. If the Company s executives          
are unable to manage growth effectively, the Company s business,                
operating results and financial condition would be materially and               
adversely affected.                                                             

Dependence on Key Personnel. The Company is dependent upon the            
continued efforts and abilities of its executive officers and other key         
personnel such as Barry Mindes, the Company s founder and Chairman of           
the Board, and Bernard Albanese, a director of the Company and the              
Company s President and Treasurer. The loss or unavailability of Messrs.        
Mindes or Albanese for any significant period could have a material and         
adverse effect on the Company s business, financial condition and               
results of operations. Messrs. Mindes and Albanese have entered into            
employment agreements with the Company which terminate on June 30, 1999         
and June 30, 2000, respectively. No assurance can be given that those           
agreements will be extended or renewed by the Company or the employees          
upon expiration of their term and if not extended or renewed whether            
individuals with similar backgrounds and experience could be hired to           
replace them.  The Company does not maintain and does not intend to             
obtain key person life insurance on the life of either Messrs. Mindes or        
Albanese. The Company s operations will also depend to a great extent on        
the Company s ability to attract new key personnel and retain existing          
key personnel in the future. Competition is intense for highly skilled          
employees and there can be no assurance that the Company will be                
successful in attracting and retaining such personnel, or that it can           
avoid increased costs in order to do so. The Company s failure to               
attract additional qualified employees or to retain the services of key         
personnel could have a material adverse effect on the Company s                 
operating results and financial condition.                                      

Limited Marketing Experience; Need for Additional Personnel. The          
Company has very limited marketing resources and limited experience in          
marketing and selling the System. The Company currently relies on its           
own personnel in marketing and selling the System. Presently, only the          
Chairman of the Board and the General Manager - Nevada Operations are           
devoting attention to marketing and sales, and the Company will need to         
hire additional personnel to market the System. There can be no                 
assurance that the Company will be able to establish adequate marketing         
and sales capabilities. Achieving market penetration will require               
significant efforts by the Company to create awareness of, and demand           
for, the System. The failure by the Company to successfully develop its         
marketing capabilities would have a material adverse effect on the              
Company s business, financial condition and results of operations.              
Further, there can be no assurance that the development of such                 
marketing capabilities will lead to sales or leases of the System. See          
Business-Marketing and Sales Strategy.                                          

Limited Market Size. Presently, the market for the System in the          
United States is limited to casinos and sports book operations in the           
State of Nevada. No assurance can be given that new markets will develop        
or that legislation permitting sports wagering in other states within           
the United States will be adopted. In addition, while sports wagering           
exists outside of the United States, no assurance can be given that the         
System would be accepted in such foreign markets or that compliance with        
any regulatory conditions imposed by foreign jurisdictions will be              
achieved.                                                                       

Seasonality of Sporting Events. The Company s operations are              
substantially dependent on a continuous supply of broadcast sporting            
events on which bettors can wager. The Company believes that certain            
sports (such as professional football) or certain sporting events (such         
as the World Series in baseball and the Superbowl in football) may              
generate more wagering revenue than others. A concentration in any              
calendar period of sports or sporting events which induce higher                
wagering, will, to the extent the Company s revenue is derived based on         
wagering revenue, result in higher revenue for such periods. The Company        
is aware of one company whose revenue from sports book operations has           
been seasonal, with more than half of the wagers received being placed          
between September and January, and with wagers on professional and              
college football games historically comprising approximately 40% of the         
bets placed. In addition, strikes in professional sports may result in          
a significant loss of revenue and adversely affect the Company s results        
of operations for the periods in which they occur.                              

Possible Exclusive Relationships Between Casinos and Third Parties.       
The Company has focused its marketing efforts on casinos and sports book        
operations in Nevada. The Company believes that sports wagering                 
facilities in casinos are currently operated either by the casino itself        
or pursuant to contractual relationships with licensed sports book              
operators. The Company is aware of one entity which owns and operates           
sports book facilities in approximately 46 casinos and other gaming             
establishments. Such entity or any other entity which operates sports           
books in casinos may have exclusive relationships with casinos which            
could limit the ability of casinos to contract directly with the                
Company. As a result, the Company might be required to pay substantial          
sums to such third parties for the privilege of supplying the System to         
any such casino, which could have a material and adverse effect on the          
Company s financial condition and results of operations.                        

Possible Objections by Leagues and Broadcasters. The System operates      
in conjunction with live broadcasts of sporting events shown in casinos         
or other gaming establishments. The broadcast of sporting events by             
television stations is typically covered by agreements with players             
leagues such as the National Football League or the National Basketball         
Association. In addition, display by casinos within their sports betting        
parlors of sporting events is typically subject to agreement with               
broadcasters of sporting events. Players  leagues could attempt to              
enjoin use of the System in conjunction with broadcasts of such sporting        
events and sue the Company for damages, whether or not such claims have         
merit. In the event either leagues or sporting event broadcasters object        
to wagering on sporting events in general, or use of the System in              
particular, and in the event that the Company could not eliminate such          
objections by modification of the System or otherwise, the Company s            
financial condition and results of operations could be materially and           
adversely affected.                                                             

Control by Management. As of December 17, 1998, Barry Mindes, Mindes      
Family Limited Partnership, of which Mr. Mindes is general partner,             
Bernard Albanese and the Marie Albanese Trust, a trust for the benefit          
of Mr. Albanese s wife, together beneficially own approximately 44.5% of        
the outstanding shares of Common Stock (excluding any stock options held        
by Mr. Albanese which could, in the future, be exercised) . As a result         
of such ownership, such stockholders are likely to have the ability to          
control the election of the directors of the Company and the outcome of         
issues submitted to a vote of the stockholders of the Company.                  

Possible Volatility of Market Price of Common Stock and Warrants. The     
market price of securities of development stage companies and many              
emerging companies has been highly volatile, experiencing wide                  
fluctuations not necessarily related to the operating performance of            
such companies. Factors such as the Company s operating results,                
announcements by the Company or its competitors concerning technological        
innovations, new products or systems may have a significant impact on           
the market price of the Company s securities.                                   

NASDAQ Delisting; Low Stock Price. The trading of the Company s           
Common Stock and Warrants on NASDAQ will be conditioned upon the Company        
meeting certain asset, capital and surplus earnings and stock price             
tests set forth by NASDAQ. To maintain eligibility for trading on               
NASDAQ, the Company will be required to, among other things, maintain           
net tangible assets of at least $2,000,000 and a minimum bid price of           
$1.00 per share and adhere to certain corporate governance provisions.          
If the Company fails any of the tests, the Common Stock or Warrants may         
be delisted from trading on NASDAQ. The effects of delisting include the        
limited release of the market prices of the Company s securities and            
limited news coverage of the Company. Delisting may restrict investors          
interest in the Company s securities and materially adversely affect the        
trading market and prices for such securities and the Company s ability         
to issue additional securities or to secure additional financing.  On           
March 10, 1998, the Company received notice from NASDAQ indicating that         
because the Company's shares of Common Stock failed to maintain a               
closing bid price of $1.00 or more for a period of 30 days, it would be         
subject to delisting.  The Company was given a period of 90 days in             
which to regain compliance with the minimum bid price requirement.              
Prior to the end of such 90-day period, the Company's shares of Common          
Stock met the minimum bid price requirement and, therefore, its shares          
of Common Stock were not delisted.  If in the future the Company's              
shares of Common Stock failed to meet the minimum bid price requirement,        
it might have to consider a reverse stock split or any other means              
permissible to attempt to meet the minimum bid price requirement, or its        
shares could be deleted.  In addition to the risk of volatile stock             
prices and possible delisting, low price stocks are subject to the              
additional risks of federal and state regulatory requirements and the           
potential loss of effective trading markets. In particular, if the              
Common Stock or Warrants were delisted from trading on NASDAQ and the           
trading price of the Common Stock was less than $5.00 per share, the            
Common Stock or Warrants could be subject to Rule 15g-9 under the               
Exchange Act which, among other things, requires that broker/dealers            
satisfy special sales practice requirements, including making                   
individualized written suitability determinations and receiving                 
purchasers  written consent, prior to any transaction. If the Company s         
securities were also deemed penny stocks under the Securities                   
Enforcement and Penny Stock Reform Act of 1990, this would require              
additional disclosure in connection with trades in the Company s                
securities, including the delivery of a disclosure schedule explaining          
the nature and risks of the penny stock market. The Securities and              
Exchange Commission regulations define a  penny stock  to be any                
non-Nasdaq equity security that has a market price (as therein defined)         
of less than $5.00 per share or with an exercise price of less than             
$5.00 per share, subject to certain exceptions.  Such requirements could        
severely limit the liquidity of the Company s securities.                       

Future Sales of Restricted Securities; Registration Rights.  As of        
December 18, 1998 the Company had 7,819,660 shares of Common Stock              
outstanding. Of these shares, 1,725,000 were registered in the Company's        
IPO in December, 1996 and generally are freely tradable by persons other        
than affiliates of the Company, without restriction or further                  
registration under the Securities Act. Of the balance, 6,024,269 shares         
of Common Stock (the  Restricted Shares ) outstanding, were sold by the         
Company prior to its initial public offering in reliance on exemptions          
from the registration requirements of the Securities Act and are                
restricted securities  as defined in Rule 144 promulgated under the           
Securities Act and may not be sold in the absence of registration under         
the Securities Act unless an exemption therefrom, including an exemption        
afforded by Rule 144, is available. Under Rule 144 (and subject to the          
conditions thereof), 3,477,408 of the Restricted Shares owned by Barry          
Mindes, Mindes Family Limited Partnership, Bernard Albanese and the             
Marie Albanese Trust and are currently eligible for sale.  All of the           
remaining 2,546,861 Restricted Shares are also currently eligible for           
sale.  Prior to the IPO, the Company s officers, directors and existing         
stockholders entered into agreements ("lock-up") which prohibited them          
from selling stock in the Company without the prior written consent of          
Barington Capital Group, L.P., the Company's managing underwriter for           
its IPO, until December 12, 1997.  On August 27, 1997 Barington released        
948,135 shares of the 6,024,269 shares locked up (none of which released        
shares were held by directors,  officers or employees of the Company).          
In consideration therefor, those shareholders who had a portion of their        
shares released agreed to extend the lock up on their remaining shares          
until December 12, 1998.  The Company s existing stockholders and the           
holders of the Bridge Warrants and the options issued to the                    
Underwriters in the IPO are also entitled to certain rights with respect        
to the registration under the Securities Act of the securities held by          
them. The sale of a substantial number of shares of Common Stock or the         
availability of Common Stock for sale could adversely affect the market         
price of the Common Stock and Warrants prevailing from time to time.            

Federal and State Registration Requirements; Possible Inability to        
Exercise Warrants; Possible Redemption of Warrants. Holders of Warrants         
will have the right to exercise them only if there is a current                 
registration statement in effect with the Securities and Exchange               
Commission (the  Commission ) and such shares are qualified with or             
approved for sale by various state securities agencies, or if in the            
opinion of counsel for the Company, there is an effective exemption from        
registration. There can be no assurance that the Company will be able to        
keep a registration statement covering the shares underlying the                
Warrants current. If a registration statement covering such shares of           
Common Stock is not kept current for any reason, or if the shares               
underlying the Warrants are not registered in the state in which a              
holder resides, the Warrants will not be exercisable and may be deprived        
of any value. The Warrants are redeemable after the Separation Date by          
the Company at a price of $.05 per Warrant if the trading price of the          
Common Stock is at least $12.00 (200% of the initial Unit offering              
price) for a period of 15 consecutive trading days ending within 15 days        
of the date upon which the Warrants are called for redemption. If the           
Company elects to redeem the Warrants, such redemption could force the          
holders to exercise the Warrants and pay the exercise price at a time           
when the holders might not otherwise wish to do so or at a time when the        
holders might not be financially able to do so; to sell the Warrants at         
their then current market price when they might otherwise wish to hold          
the Warrants; or to accept the redemption price of $.05 per Warrant             
which, at the time the Warrants are called for redemption, is likely to         
be substantially less than the market value of the Warrants.                    

Absence of Dividends. The Company has not paid any dividends on its       
outstanding Common Stock since its inception and does not intend to pay         
any dividends to its stockholders in the foreseeable future. The Company        
currently intends to reinvest earnings, if any, in the development and          
expansion of its business.                                                      

Anti-Takeover Effects of Certain Provisions of Certificate of             
Incorporation and Delaware Law. The Company s Certificate of                    
Incorporation authorizes the issuance of 2,000,000 shares of Preferred          
Stock with such designations, rights and preferences as may be                  
determined from time to time by the Board of Directors. Accordingly, the        
Board of Directors is empowered, without obtaining stockholder approval,        
to issue such Preferred Stock with dividend, liquidation, conversion,           
voting or other rights that could adversely affect the voting power or          
other rights of the holders of the Common Stock. In the event of                
issuance, the Preferred Stock could be utilized, under certain                  
circumstances, as a method of discouraging, delaying or preventing a            
change in the control of the Company. Certain provisions of Delaware law        
may also discourage third party attempts to acquire control of the              
Company.                                                                        

Item 2.      Description of Property                                            

The Company currently leases approximately 2,350 square feet of space     
in Little Falls, New Jersey under a lease expiring on June 30, 2000.            
Annual lease payments for this facility, at which all development and           
most administrative functions are currently conducted, during the fiscal        
year ended September 30, 1998, were approximately $19,700.  For the             
fiscal year ending September 30, 1999 lease payments for this facility          
are expected to be approximately $28,900.  The Company also entered into        
a three year lease ending on April 30, 2000 for approximately 2,000             
square feet of space in Las Vegas, Nevada.  This facility is used as the        
Hub for operating the System and for sales, training, maintenance,              
repairs and storage of equipment.  Lease payments for this facility             
during the fiscal year ended September 30, 1998 were approximately              
$36,600 and are expected to be approximately $38,100 during the fiscal          
year ended September 30, 1999.  The Company also leases off-site                
facilities in Nevada for the storage of equipment.                              

In May 1997 the Company purchased a condominium unit in Las Vegas,        
Nevada for use by its employees while travelling to Nevada on the               
business of the Company.                                                        

Item 3.      Legal Proceedings                                                  

The Company is not a party to any material  legal proceedings.            

Item 4.      Submission of Matters to a Vote of Security Holders.               

No matters were submitted to a vote of security holders during the        
quarter ended September 30, 1998.                                               

PART II     

Item 5.      Market for Common Equity and Related Shareholder Matters.          

Market Information                                                              

From December 11, 1996, the effective date of the Company's               
Registration Statement on Form SB-2, until April 4, 1997, Units                 
consisting of one share of the Company's Common Stock, par value $.001          
per share, and one redeemable Warrant to purchase one share of Common           
Stock at an exercise price of $7.20 per share were on the NASDAQ Small          
Cap Market ("NASDAQ").  Commencing on April 7, 1997, Units were no              
longer traded and the Company's Common Stock and Warrants began to trade        
separately.                                                                     

The following tables set forth, for the periods indicated and as          
reported by NASDAQ, the high and low bid prices for the Units.  The             
quotations reflect inter-dealer prices without retail mark-up, mark-down        
or commission and may not represent actual transactions.                        

Quarter (or Period)                     High            Low                     

December 12, 1996 to December 31, 1996  8 3/8           7                       
January 1, 1997 to March 31, 1997       10 1/2          7 1/8                   
April 1, 1997 to April 4, 1997          7 5/8           7 1/2                   

The following table sets forth the periods indicated and as reported      
by NASDAQ, the high and low bid prices for shares of the Company's              
Common Stock.  The quotations reflect inter-dealer price without retail         
mark-up, mark-down or commission and may not represent actual transactions.     

Quarter (or Period)                     High            Low                     
April 7 to June 30, 1997                7               5 3/4                   
July 1, 1997 to September 30, 1997      7 3/8           5 1/4                   
October 1, 1007 to December 31, 1997    6               1                       
January 1, 1998 to March 31, 1998       1 3/16          1/2                     
April 1, 1998 to June 30, 1998          4 1/2           27/32                   
July 1, 1998 to September 30, 1998      2 9/32          1                       

The closing bid and asked prices on December 18, 1998 were $1 25/32 and         
$1 15/16, respectively.                                                         

Current Holders of Common Stock                                                 

Based upon information supplied to the Company by its transfer agent,     
the number of stockholders of record of the Common Stock on December 18,        
1998 was 66. The Company believes there are in excess of 900 beneficial         
owners of its Common Stock whose shares are held in  Street Name.               

Dividends                                                                       

The Company has never paid cash dividends with respect to its Common      
Stock. The Company intends to retain future earnings, if any, that may          
be generated from the Company s operations to help finance the                  
operations and expansion of the Company and accordingly does not plan,          
for the foreseeable future, to pay dividends to holders of Common Stock.        
Any decision as to the future payment of dividends on Common Stock will         
depend on the results of operations and financial position of the               
Company and such other factors as the Company s Board of Directors, in          
its discretion, deems relevant.                                                 

Recent Sales of Unregistered Securities                                         

On October 28, 1996 the Company issued 6 1/2 units in a bridge financing  
(the "Bridge Units"), each Bridge Unit consisting of (i) a 10%  Senior          
Promissory Note (the "Bridge Notes") in the principal amount of $100,000        
and (ii) warrants to purchase 30,000 shares of the Company's Common             
Stock (the "Bridge Warrants"), at an exercise price equal to the lesser         
of $3.60 or 60% of the initial Unit offering price in the Company's             
subsequent IPO.  Barington Capital Group, L.P. acted as placement agent         
for the offering of Bridge Units which were made to a limited number of         
accredited investors pursuant to the exemption from the registration            
requirements of the Securities Act of 1933, as amended, afforded by             
Section 4(2) thereof.  The aggregate offering price was $650,000, of            
which net proceeds received by the Company amounted to approximately            
$550,000.  An aggregate of 195,000 Bridge Warrants were issued in the           
bridge financing. The Bridge Warrants entitle the holders thereof to            
purchase, in the aggregate, up to 195,000 shares of Common Stock at an          
exercise price of $3.60 per share, subject to adjustment.  The Bridge           
Warrants may be exercised at any time after issuance and expire on              
October 28, 2001.  The shares underlying the Bridge Warrants were               
registered concurrently with the IPO, and are subject to a two-year             
lock-up with Barington.  The holders of the Bridge Warrants are entitled        
to certain "piggyback" and demand registration rights.                          

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 the Bridge Notes; approximately         
$1,318,000 for the purchase of computer equipment including PBSs;               
approximately $296,000 for professional fees; approximately $311,000 for        
directors and officers liability insurance premiums; approximately              
$450,000 for marketing the System; approximately $132,000 for the               
purchase of a condominium in Henderson, Nevada for use by its employees         
while traveling on business in Nevada; and approximately $100,000 for a         
loan to an officer, of which approximately $33,650 was outstanding as of        
September 30, 1998.  After other expenses, including product enhancement        
and development, sales and administration, approximately $3,460,000             
remained in cash and short-term, interest-bearing, investment grade             
securities as of September 30, 1998.                                            

Item 6.      Management Discussion and Analysis                                 

In June of 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 on a limited basis in two wagering establishments with the Company         
performing the duties of Hub Operator.  By September 30, 1998, the              
System was in operation in a total of four locations.  Wagers were              
accepted on both professional basketball, baseball, and college and             
professional football.  During the hiatus in operations, between late           
January, 1998 and late 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.                                                                   

For the year ended September 30, 1998 the Company had a net loss of       
$2,935,002 or $0.38 loss per share on a basic and fully diluted basis           
on the 7,780,722 weighted average common shares outstanding, compared           
with a net loss of $2,191,321, or $0.29 loss per share on a basic and           
fully diluted basis on the 7,475,996 weighted average common shares             
outstanding for the year ended September 30, 1997.  Revenues of $36,418         
were reported for the year ended September 30, 1998, compared with              
revenues of $3,580 reported for 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.  The System was operated for         
approximately eight months of the year ended September 30, 1998, and for        
approximately 10 days of the year ended September 30, 1997.                     

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 year ended September 30, 1998 resulted         
primarily from:  marketing expenses which increased by $238,474 to              
$450,219, primarily reflecting advertising to promote awareness of the          
SportXction(TM)  game; depreciation expenses, which increased by $217,126       
from the prior year to $419,418, reflecting the purchase of additional          
computer equipment used in the operation of the System; salary expenses,        
which increased by $105,205 to $1,131,478, attributable to increased            
administrative, marketing, technical support activities and a severance         
payment to a former officer; a decline in interest income which                 
decreased by $90,201 to $221,259 due to reduced investments; a bad debt         
write-off of $79,497 (consisting of a $50,000 loan and $29,497 of               
accounts receivable), due to the financial difficulties of Yarlow; and          
rent expense which increased by $41,434 to $55,390 due to opening an            
office in Las Vegas.                                                            

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 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 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 approximately $996,000 in research and               
development costs for the year ended June 30, 1998, compared with               
approximately  $992,000 for the comparable prior year period.                   

The Company continues to be in the development stage, with limited        
revenues generated from the System. As of September, 1998, the Company          
had cumulative net losses since inception of $6,061,022.  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, 1998 have been insignificant 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 September 30, 1998 the Company had liquid resources totaling        
$3,473,570. These include cash and cash equivalents in the amount of            
$198,607, and short term investments in the amount of $3,274,963                
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 18 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 home in          
Nevada.  (See "Business - Recent Developments"). Existing resources will        
fund these requirements.                                                        

Utilization of the SportXction(TM)  sports wagering system in casinos and 
other gaming establishments has been disappointing to date.  The Company        
believes this is due to a variety of factors including players having to        
learn a new game, lack of effective advertising means to address players        
in casinos who are largely tourists and the disinclination of local             
players to visit major casinos in Las Vegas and the fact that after the         
System had been operational from late September 1997 to January 1998,           
the System ceased operating for four months when Yarlow, the then Hub           
Operator, suffered financial difficulties.  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 a           
one-sided, long shot proposition which offers to the players larger             
payoffs for relatively small wager amounts.  Despite these new features         
and enhancements, the revenue generated by the casino based PBSs remains        
small, and is likely to remain insufficient to avoid continuing loses by        
the Company for the foreseeable future.                                         

The Company intends to focus primarily on adapting the System for         
opportunities in new markets including; (i) wagering from home within           
the State of Nevada, (ii) wagering in those foreign countries where it          
is legal, and (iii) non-wagering applications, including games and              
contests over the Internet (See "Recent Developments"). 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.                           

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.                                      

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 July 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 September 30, 1998 the Company estimates that it has spent        
approximately $35,000 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.       

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, the        
words "believes," "expects," "estimates" 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         
rededicate all date sensitive 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.                                                                      

Item 7.      Financial Statements                                               

International Sports Wagering Inc.      
(A Development Stage Company)       

Index           

                                                  Page

INDEPENDENT AUDITORS' REPORT                              F-2         

FINANCIAL STATEMENTS                                                  

Balance Sheets as of September 30, 1998 and 1997.         F-3         

Statements of Operations for the years ended                          
September 30, 1998 and 1997 and the period from                       
May 22, 1995 (date of inception) to September 30,                     
1998.                                                     F-4         

Statements of Stockholders' Equity for the period                     
from May 22, 1995 (date of inception) to September                    
30, 1998.                                                 F-5         

Statements of Cash Flows for the years ended                          
September 30, 1998 and 1997 and the period from                       
May 22, 1995 (date of inception) to September 30,                     
1998.                                                     F-6         

Notes to Financial Statements                             F-7         

F-1                   

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INDEPENDENT AUDITORS' REPORT              

The Board of Directors and Stockholders                                         
International Sports Wagering Inc.                                              

 We have audited the accompanying balance sheets of International Sports
Wagering Inc. (a development stage company) as of September 30, 1998 and 1997,  
and the related statements of operations, stockholders' equity and cash flows   
for the years ended September 30, 1998 and 1997 and for the period from May     
22,1995 (date of inception) to September 30, 1998.  These financial statements  
are the responsibility of the Company's management.  Our responsibility is to   
express an opinion on these financial statements based on our audits.           

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to       
obtain reasonable assurance about whether the financial statements are free of  
material misstatement.  An audit includes examining, on a test basis, evidence  
supporting the amounts and disclosures in the financial statements. An audit    
also includes assessing the accounting principles used and significant          
estimates made by management, as well as evaluating the overall financial       
statement presentation. We believe that our audits provide a reasonable basis   
for our opinion.                                                                

In our opinion, the financial statements referred to above present    
fairly, in all material respects, the financial position of International       
Sports Wagering Inc. (a development stage company) as of September 30, 1998     
and 1997, and the results of its operations and its cash flows for the years    
then ended, and for the period from May 22, 1995 (date of inception) to         
September 30, 1998, in conformity with generally accepted accounting            
principles.                                                                     

New York, New York                 KPMG Peat Marwick LLP                        
November 25, 1998                                                               

F-2                   

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International Sports Wagering Inc.    
(A Development Stage Company)       

Balance Sheets      
September 30, 1998 and 1997       

ASSETS      

                                   1998         1997
Current Assets:                                                             
Cash and cash equivalents               $   198,607   1,026,313         
Accounts receivable                           3,401       2,950         
Investments                               3,274,963   4,457,118         
Current portion of notes receivable          25,000      34,615         
Prepaid expenses and other current                                      
assets                                     105,486     184,315        

Total current assets                  3,607,457   5,705,311     

Investments                                      --       618,120           
Property and equipment, net                   800,070   1,055,196           
Notes receivable less current portion           8,620      34,615           
Other assets                                   13,423       6,358           

Total assets                        $ 4,429,570   7,419,600     

LIABILITIES AND STOCKHOLDERS' EQUITY      

Current liabilities:                                                        
Deposits payable                        $    10,490         --          
Accounts payable                             94,629     143,197         
Accrued expenses                            155,910     222,345         

Total current liabilities               261,029     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 outstanding; 7,819,660                                   
in 1998 and 7,749,269 in 1997              7,820        7,749       
Additional paid-in capital              10,264,243   10,214,829         
Deficit accumulated during the                                          
development stage                     (6,103,522)  (3,168,520)      

Total stockholders' equity           4,168,541    7,054,058     

Total liabilities and                                           
stockholders' equity             $ 4,429,570    7,419,600   

See accompanying notes to financial statements.                             
F-3                   

International Sports Wagering Inc.  
(A Development Stage Company)   

Statements of Operations  
Years ended September 30, 1998 and 1997 and the period  
from May 22,1995 (date of inception) to September 30, 1998  

                                                                May 22, 1995
                                                                (date of
                             Year ended         Year ended     inception) to
                            September 30,      September 30,   September 30,
                            1998                1997            1998

Revenues                      $    36,418             3,580            39,998   

Costs and expenses:                                                             
Research and development                                                      
expense                         996,104           992,224         2,779,623 
General and administrative                                                    
expense                       2,196,575         1,215,039         3,637,521 
                             3,192,679         2,207,263         6,417,144

 Operating loss              (3,156,261)       (2,203,683)       (6,377,146)

Other income (expense):                                                         
Interest income                  221,259           311,460           572,722  
Interest expense                     --           (299,098)         (299,098) 
                               221,259            12,362           273,624

 Net loss                   $(2,935,002)       (2,191,321)       (6,103,522)

 Net loss per share         $     (0.38)            (0.29)            (0.85)

Weighted average common                                                         
shares and equivalents                                                        
outstanding-basic and                                                         
diluted                        7,780,722         7,475,996         7,161,595  

See accompanying notes to financial statements.                                 
F-4                   

International Sports Wagering Inc.        
(A Development Stage Company)       

Statement of Stockholders' Equity       
For the period from May 22, 1995        
(date of inception) to September 30, 1998       

                                                        [Enlarge/Download Table]


                                                                             Deficit                  
                                                                            accumulated               
                                                           Additional        during the               
                                    Common stock             paid-in        development               
                                Shares        Amount         capital            stage          Total  

                                                                                                      
                                                                                                      
Issuance of shares                                                                                    
 of common stock                                                                                      
 upon incorporation                                                                                   
 (May 22, 1995)                  907   $          1    $          2    $       --           $       3 
Issuance of common                                                                                    
 stock upon merger         3,023,048          3,023          (2,023)           --               1,000 
Issuance of common                                                                                    
 stock                     1,767,567          1,768         813,843            --             815,611 
Net loss                         --             --             --           (109,011)        (109,011)

Balance, September 30,1995 4,791,522          4,792         811,822         (109,011)         707,603 
Issuance of common                                                                                    
 stock                        60,461             60          42,440            --              42,500 
Issuance of common                                                                                    
 stock through exercise of                                                                            
 warrants                  1,164,729          1,165         813,021            --             814,186 
Issuance of common                                                                                    
 stock through                                                                                        
 exercise of options           7,557              7           5,306            --               5,313 
Issuance of options                                                                                   
 to consultants                --                --          14,500            --              14,500 
Net loss                       --                --            --           (868,188)        (868,188)

Balance, September 30,1996 6,024,269          6,024       1,687,089         (977,199)         715,914 
Issuance of common                                                                                    
 stock                     1,725,000          1,725       8,527,740            --           8,529,465 
Net loss                       --                --          --           (2,191,321)      (2,191,321)

Balance, September 30,1997 7,749,269          7,749      10,214,829       (3,168,520)       7,054,058 
Issuance of common                                                                                    
 stock through                                                                                        
 exercise of options          70,391             71          49,414           --               49,485 
Net Loss                       --                --            --         (2,935,002)      (2,935,002)

Balance, September 30,1998 7,819,660    $     7,820   $  10,264,243      $(6,103,522)    $  4,168,541 


See accompanying notes to financial statements.                                 
F-5                     

International Sports Wagering Inc.        
(A Development Stage Company)       

Statements of Cash Flows        
Years ended September 30, 1998 and 1997 and the period        
from May 22, 1995 (date of inception) to September 30, 1998       

                                                        [Enlarge/Download Table]


                                                                                      May 22, 1995 
                                                                                       (date of    
                                                    Year ended       Year ended      inception) to 
                                                    September 30,    September 30,     September 30
                                                    1998             1997                 1998     

                                                                                                   

                                                                                                   
Cash flows from operating activities:                                                              
  Net loss                                           $ (2,935,002)  $  (2,191,321)  $  (6,103,522) 
  Adjustments to reconcile  net loss to net cash                                                   
  (used in) operating activities:                                                                  
    Depreciation and amortization                         420,203         203,077         695,183  
    Bad debt expense                                       79,497           --             79,497  
    Issuance of options to consultants                       --             --             14,500  
Changes in assets and liabilities:                                                                 
   Accounts receivable                                    (79,948)        (2,950)         (82,898) 
   Prepaid expenses and other current assets               78,829       (175,430)        (105,486) 
   Other assets                                            (7,850)        (2,885)         (16,040) 
   Customer deposits                                       10,490            --            10,490  
   Accounts payable                                       (48,568)       100,815           94,629  
   Accrued expenses                                       (66,435)        79,080          155,910  
   Net cash used in operating activities               (2,548,784)    (1,989,614)      (5,257,737) 

Cash flows from investing activities:                                                              
  Purchase of investments                              (7,293,918)   (32,175,535)     (39,469,453) 
  Proceeds from sales of investments                    9,094,193     27,100,297       36,194,490  
  Purchase of property and equipment                     (164,292)      (953,022)      (1,492,636) 
  Issuance of notes receivable                              --          (100,000)        (100,000) 
  Proceeds from repayments of notes receivable             35,610         30,770           66,380  
  Net cash provided by (used in) investing activities   1,671,593     (6,097,490)      (4,801,219) 

Cash flows from financing activities:                                                              
  Proceeds from issuance of common stock                   49,485      8,575,871       10,257,563  
  Net cash provided by  financing activities               49,485      8,575,871       10,257,563  

  Net (decrease) increase in cash and cash equivalent    (827,706)       488,767          198,607  
  Cash and cash equivalents, beginning of period        1,026,313        537,546            --     

  Cash and cash equivalents, end of period            $   198,607    $ 1,026,313       $  198,607  

Supplemental disclosures:                                                                          
 Cash paid for interest                               $      --      $     9,098       $    9,098  


See accompanying notes to financial statements.                                 
F-6                           

International Sports Wagering Inc.      
(A Development Stage Company)       

Notes To Financial Statements       
September 30, 1998 and 1997       

(1)   Description of Business                                                   

  International Sports Wagering Inc. (the Company) was incorporated in the
State of Delaware on May 22, 1995 to develop and market an interactive,         
client/server based computer system for purposes of wagering on sporting        
events.  The Company is the successor by merger to Systems Enterprises, Inc.    
(SEI), an S-corporation incorporated in the State of New Jersey on December     
17, 1992, 100% owned by the Company's founding shareholder, that had nominal    
operating activities during its existence.  Subsequent to the merger, the       
Company reimbursed the founding shareholder for certain legal fees incurred by  
SEI that were specific to the Company's planned business activities.            

The Company is a development stage company which has not commenced    
generating significant revenue from its planned primary business activities.    
Since the Company's inception, it has been primarily engaged in product         
research and development, market testing its intended product, recruitment of   
key personnel, and raising capital.  In the fiscal year ended September 30,     
1998 the Company s system was operational for approximately 8 months, however   
there are no significant operating revenues and there have been no significant  
product sales from inception of the Company through September 30,1998. There    
can be no assurance that the Company will be able to enhance or market its      
product in the future, that future revenues will be significant, that any       
sales will be profitable, or that the Company will have sufficient funds        
available to enhance or market its product.  Further, the Company's future      
operations are dependent on the success of the Company's commercialization      
efforts, market acceptance, and maintaining regulatory approval of its          
product.                                                                        

On October 28,1996, the Company raised approximately $550,000, net of 
expenses, from the sale of 6.5 units in a private placement for $100,000 per    
unit, each unit consisting of a 10% senior promissory note in the principal     
amount of $100,000 and warrants to purchase 30,000 shares of the Company's      
common stock at an exercise price equal to the lesser of $3.60 per share or     
60% of the initial public offering (the "IPO") price per share in its IPO.      
The senior promissory notes were due on the consummation of the Company's IPO.  

On December 17,1996, the Company closed its IPO of 1,500,000 units    
("Units"), each Unit consisting of one share of common stock, par value $.001   
per share ("Common Stock"), and one redeemable warrant to purchase one share    
of Common Stock ("Warrant"), at a price of $7.20 per Unit.  After underwriting  
discounts and commissions, other expenses of the offering, and the repayment    
of promissory notes issued in connection with the bridge financing consummated  
on October 28, 1996, the Company received net proceeds of approximately $7.2    
million.  On January 22, 1997, the underwriters exercised an over-allotment     
option for an additional 225,000 Units, yielding additional net proceeds to     
the Company of approximately $1.2 million.                                      

F-7                 

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International Sports Wagering Inc.    
 (A Development Stage Company)

Notes To Financial Statements (Continued)   
September 30, 1998 and 1997   

(2)  Summary of Significant Accounting Policies                               

Cash and cash equivalents:                                            

 Cash and cash equivalents consist of funds held on deposit with banking
institutions with original maturities of less than 90 days.                     

Property and equipment:                                               

Property and equipment are stated at cost, net of accumulated         
depreciation. Depreciation is provided over the estimated useful lives of the   
respective assets, generally three to twenty five years, using the straight-    
line method.                                                                    

Expenditures for repairs and maintenance are charged to expense as    
incurred.                                                                       

Investments:                                                          

Investments at September 30, 1998 and 1997 consist of debt securities 
issued by the Federal government and corporate entities.  The Company accounts  
for these investments pursuant to Statement of Financial Accounting Standards   
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"     
(FAS 115).                                                                      

   Under FAS 115, debt securities are classified as either held to maturity,
trading or available-for-sale. Securities that an enterprise has the positive   
intent and ability to hold to maturity are classified as held to maturity.      
Trading securities are bought and held principally for the purpose of selling   
them in the near future.  All securities not classified as either held to       
maturity or trading are classified as available-for-sale.  Held to maturity     
securities are reported at amortized cost, while trading and available-for-     
sale securities are recorded at fair value pursuant to FAS 115.  For trading    
securities, unrealized holding gains and losses are included in earnings.  All  
of the Company's debt securities are classified as available-for-sale.          

The current investments include those debt securities which are       
scheduled to mature within twelve months of the balance sheet date, and         
include investments with maturities ranging from October of 1998 to September   
of 1999.                                                                        

Research and development:                                             

 All research and development, patent application and patent maintenance
costs are charged to expense as incurred.                                       

F-8                       

International Sports Wagering Inc.        
(A Development Stage Company)       

Notes To Financial Statements (Continued)       
September 30, 1998 and 1997       

(2) Summary of Significant Accounting Policies (Continued)                      

Fair value of financial instruments:                                  

Statement of Financial Accounting Standards No.107, "Disclosures About
Fair Value of Financial Instruments", defines the fair value of a financial     
instrument as the amount at which the instrument could be exchanged in a        
current transaction between willing parties and requires disclosure of the      
fair value of certain financial instruments.  The Company believes that there   
is no material difference between the fair value and the reported amounts of    
financial instruments in the balance sheets.                                    

Income taxes:                                                         

Deferred income taxes reflect the net tax effects of temporary        
differences between the carrying amounts of assets and liabilities for          
financial reporting purposes and the amounts used for income tax purposes.      
Deferred income taxes are measured using the enacted tax rates and laws that    
are anticipated to be in effect when the differences are expected to reverse.   

Stock split:                                                          

On October 24, 1996, the Company effected a stock split related to its
common stock, whereby each common share outstanding was converted by a factor   
of 3.0230479, thus increasing the number of common shares outstanding from a    
pre-split amount of 1,992,788 at September 30, 1996 to 6,024,269.  The Board    
of Directors voted to increase the total number of shares of common stock       
authorized at September 30, 1996 to 20,000,000 in connection with this stock    
split.  All share and per share information contained in the accompanying       
financial statements has been retroactively adjusted to reflect the stock       
split.                                                                          

The preparation of financial statements in conformity with generally accepted   
accounting principles requires management to make estimates and assumptions     
that affect the reported amounts of assets and liabilities and disclosure of    
contingent assets and liabilities at the date of the financial statements and   
the reported amounts of revenues and expenses during the reporting period.      
Actual results could differ from those estimates.                               

New accounting pronouncements:                                                  

Accounting for the Impairment of Long-Lived and Intangible Assets:    

The Financial Accounting Standards Board ( FASB )issued SFAS No. 121. 
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets   
to be Disposed Of" which requires that long-lived assets, certain identifiable  
intangible assets and goodwill related to those assets be reviewed for          
impairment whenever events or changes in circumstances indicate that the        
carrying amount of an asset may not be recoverable.  The adoption of this       
statement during fiscal 1997, did not have any significant impact on the        
Company's financial position or results of operations.                          

F-9                       

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International Sports Wagering Inc.      
(A Development Stage Company)       

Notes To Financial Statements (Continued)       
September 30, 1998 and 1997       

(2)  Summary of Significant Accounting Policies (Continued)                     

Accounting for Stock Based Compensation:                                

  The FASB issued SFAS No. 123, "Accounting for Stock-based Compensation."
This statement requires companies to make pro forma disclosures in a footnote   
of net income as if the fair value based method of accounting for stock         
options, as defined in the statement, had been applied.  The Company adopted    
this statement during fiscal 1997. (See Note 3).                                

Accounting for Net Income Per Share                                   

 During June 1997, The FASB released SFAS No. 128,  Earnings per Share
( SFAS 128 ). SFAS 128 and the SEC Staff Accounting Bulletin NO.98,             
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 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.                                      

 The weighted average shares used in the net loss per share computations
for the years ended September 30, 1998 and 1997 were 7,780,722 and 7,475,996    
for the period from May 22, 1995 (date of inception) to September 30, 1998 was  
7,161,595.                                                                      

 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 2,328,456 and 2,262,367 as  
of September 30, 1998 and 1997, respectively.                                   

(3) Preferred and Common Stock                                                  

In May 1995, the Company's Chairman of the Board and principal        
shareholder established the Company by purchasing shares and exchanging the     
shares of SEI for additional shares of Company stock.  Also in May 1995, the    
Company issued shares to certain other founding shareholders.                   

F-10                

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International Sports Wagering Inc.        
(A Development Stage Company)       

Notes To Financial Statements (Continued)       
September 30, 1998 and 1997       

(3) Preferred and Common Stock (Continued)                                      

  In June and July 1995, the Company sold a total of 399,997 units, each
consisting of 3.0230479 shares of common stock and one warrant to purchase      
3.0230479 additional shares of common stock for an aggregate of approximately   
$850,000 or approximately $.70 per unit to an investor group. Such amounts      
were reduced by certain costs of issuance.  Between February and April 1996     
warrants to purchase an aggregate of 1,164,729 shares were exercised and        
proceeds of approximately $814,000 ($.70 per share) were received by the        
Company.  All unexercised warrants issued in June and July 1995 expired by      
their own terms.                                                                

In June 1996, the Company sold 60,461 shares to seven individuals     
including employees, directors and investors resulting in proceeds of $42,500   
($.70 per share) to the Company.                                                

   In May 1995, the Board of Directors adopted and the stockholders approved
the 1995 Stock Option Plan (the 1995 Plan).  The 1995 Plan provides for the     
grant of incentive stock options (ISOs) and nonqualified stock options          
(NQSOs).  The total number of shares of common stock with respect to which      
options may be granted under the 1995 Plan is 649,955.  ISOs may be granted to  
individuals, who, at the time of grant, are employees of the Company.  NQSOs    
may be granted to officers, directors, agents, employees and consultants of     
the Company, whether or not the individual is an employee of the Company.  The  
1995 Plan provides that the administrator must establish an exercise price for  
ISOs that is no less than the fair market value per share of the common stock   
at the date of grant.  The exercise price of NQSOs shall be determined by the   
Board of Directors.  Options granted under the 1995 Plan may not be             
exercisable for terms in excess of ten years from the date of grant, with       
vesting periods varying for option grants.                                      

The Company has adopted the disclosure-only provisions of SFAS No. 123, 
"Accounting for Stock-based Compensation" and applies APB Opinion 25 in         
accounting for its plans in its financial statements.  Had the Company          
determined compensation cost based on the fair value at the grant date          
consistent with the provisions of SFAS NO. 123, the Company's net loss would    
have been increased to the pro forma amounts indicated below:                   

                                          1998        1997

Net (loss) - as reported                         $(2,935,002) (2,191,321)       
Net (loss) - pro forma                            (3,111,696) (2,253,668)       
Loss per share basic and diluted - as reported   $   (.38)      (.29)           
Loss per share-basic and diluted - pro forma         (.40)      (.30)           

The pro forma amounts as noted above may not be representative of the 
effects on reported income/loss(es) for future years.                           

F-11                

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International Sports Wagering Inc.    
(A Development Stage Company)       

Notes To Financial Statements (Continued)       
September 30, 1998 and 1997       

(3)  Preferred and Common Stock (Continued)                                     

The fair value of the stock options granted is estimated at grant date
using the Black-Scholes option pricing model with the following weighted        
average assumptions: expected dividend yield 0.0%, risk free interest rate of   
6.25%, expected volatility of 1.72%, and an expected life of 7 years.  The      
weighted average grant date fair value of options granted in 1998, 1997 and     
1996 was $.72, $2.96, and $.25, respectively.                                   

Activity related to the 1995 Plan is as follows:                      
                                                              Weighted
                                                     Shares    Average Price

Outstanding, September 30, 1995                   75,576       $0.70  
 Granted                                       574,372       $0.70
 Exercised                                      (7,557)      $0.70
Outstanding, September 30, 1996                  642,391       $0.70  
Granted                                          --             
Exercised                                        --             
Outstanding, September 30, 1997                  642,391       $0.70  
 Exercised                                     (70,391)      $0.70
 Cancelled                                    (105,805)      $0.70
Outstanding, September 30, 1998                  466,195       $0.70  

Vested at September 30, 1998                     317,311              

Options available at September 30, 1998          105,805              

In October 1996, the Board of Directors adopted and the stockholders  
approved the 1996 Stock Option Plan (the 1996 Plan). The 1996 Plan is           
substantially similar to the 1995 Plan, except that there are 825,000 shares    
of Common Stock authorized and available for issuance pursuant to options       
which may be granted thereunder.  The 1996 Plan is administered by the Stock    
Option Committee.                                                               

Activity related to the 1996 Plan is as follows:                      
                                                              Weighted
                                                    Shares     Average Price
Outstanding, September 30, 1996                     --                
   Granted                                       412,500         $6.06
Exercised                                        --             
   Cancelled                                     (58,000)        $3.99
Outstanding September 30,1997                    354,500         $6.40
   Granted                                       446,000         $1.24
Exercised                                        --             
   Cancelled                                    (430,500)        $5.77
Outstanding September 30,1998                    370,000         $0.82

Vested at September 30, 1998                      15,000              

Options available at September 30, 1998          455,000              

F-12              

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International Sports Wagering Inc.        
   (A Development Stage Company)

       Notes To Financial Statements (Continued)
   September 30, 1998 and 1997

(3)  Preferred and Common Stock (Continued)                                     

The following table summarizes information about stock options        
outstanding at September 30, 1998.                                              

                   Options Outstanding                 Options Exercisable

Weighted                
                           Average     Weighted                     Weighted
Range of                    Remaining     Average                      Average  
Exercise         Number    Contractual   Exercise          Number     Exercise  
Price       Outstanding      Life        Price         Outstanding     Price

.67 -  .81      806,195        8            .70           332,311        .70  
2.08   2.125      30,000        9           2.10              -            -    
   836,195                                   332,311

  At September 30, 1998, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $.672 - $2.125 and 8      
years respectively.                                                             

 The designations, rights, and preferences of the preferred stock are to
be determined by the Board of Directors at the time of issuance.                

(4)  Property and Equipment                                                     

Property and equipment at September 30, 1998 and 1997 consist of the  
following:                                                                      

                       1998           1997

Furniture and fixtures          $   38,397     $   37,194             
Building and improvements          136,394        146,896             
Computer equipment               1,317,845      1,144,254             
                    1,492,636      1,328,344

Less accumulated depreciation      (692,566)      (273,148)             
                   $  800,070     $1,055,196

F-13              

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International Sports Wagering Inc.        
(A Development Stage Company)       

Notes To Financial Statements (Continued)       
September 30, 1998 and 1997       

(5)  Accrued Expenses                                                           

   Accrued expenses at September 30, 1998 and 1997 consist of the following:

                           1998                     1997

Professional fees              $ 30,000                 $ 28,500      
Payroll and related costs       105,432                   68,645      
Bonuses                          20,083                  125,000      
Other                               295                      200      
                         $155,810                 $222,345

Payroll and related costs representing accrued salaries and vacations 
earned but not yet taken in 1998, and 1997 was approximately 57,110, and        
41,735, respectively.                                                           

The Company recognized $149,715 and $99,480 in expenses relating to   
their attorney who is also a stockholder of the Company in 1998 and 1997,       
respectively, and $276,746 since inception.                                     

(6) Commitments                                                                 

Leases:                                                               

The Company leases office facilities and equipment under operating    
leases.  Minimum rental commitments are as follows:                             

Year ending                                                         
September 30,                                                         

1999                                 $ 73,288                   
2000                                   77,179                   
Thereafter                               --                   
                  $150,417

Rent expense under operating leases during 1998 and 1997 was $55,390, 
$30,945 respectively, and $110,538 since inception.                             

Employment agreements:                                                

The Company entered into employment agreements with three of its      
employees. The agreements, one of which expires in June 1999, one of which      
expires in January 2000, and one of which expires June 2000 provide for an      
aggregate minimum compensation of $448,333, and $232,083, in fiscal years       
1999, and 2000, respectively.  Compensation expense recognized under these      
agreements for the years ended September 30, 1998 and 1997 and for the period   
from inception to September 30, 1998 was $602,500, $384,315, and $1,111,815,    
respectively.                                                                   
F-14                

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International Sports Wagering Inc.
(A Development Stage Company) 

Notes To Financial Statements (Continued) 
September 30, 1998 and 1997   

(6) Commitments (Continued)                                                     

 The agreements also provide for severance payments upon certain events,
as defined.                                                                     

(7)  Income Taxes                                                               

Income tax benefit for the years ended September 30, 1997 and 1996 and
the period from May 22, 1995 (date of inception) to September 30, 1997          
differed from the amounts computed by applying the U.S. Federal income tax      
rate of 34% to pre-tax loss as a result of the following:                       

                    Years ended     Inception to
                    September 30,    September 30,
              1998      1997        1998

Computed tax benefit                                                  
at 34%                 $(997,901)  (745,049)  (2,072,477)         
50% of meals and                                                      
entertainment expense        421      l,610        2,030          
Expected state tax                                                    
benefit net of Federal  (170,907)  (129,888)    (362,201)         
Increase in valuation                                                 
allowance for deferred                                            
tax assets             1,168,387    873,327    2,432,648          
Income tax expense       $    --        --           --               

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September   
30, 1998 and 1997 are presented below:                                          

Deferred tax assets:                                                  
Federal and state net                                                 
operating loss carryforward    $2,234,316   $ 1,l26,747           
Depreciation and amortization       155,224        70,920             
Employee compensation and                                             
Benefits                           43,108        66,594           
Total gross deferred tax                                              
assets                          2,432,648     1,264,261           
Less valuation allowance         (2,432,648)   (1,264,261)            

Net deferred tax assets     $     --      $     --          

F-15        

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International Sports Wagering Inc.        
(A Development Stage Company)       

Notes To Financial Statements (Continued)       
September 30, 1997 and 1996       

(7)  Income Taxes (Continued)                                                   

As of September 30, 1998, the Company had a net operating loss        
carryforward of approximately $5,588,000 for Federal and state income tax       
reporting purposes available to offset future taxable income through the year   
2018 and future state taxable income through the year 2005.  The Company has    
provided a valuation allowance of $2,432,648 and $1,264,261 at September 30,    
1998 and 1997, respectively, against its deferred tax assets since it is more   
likely than not that the Company will not realize such assets due to the        
Company's development stage nature of operations and the pre-tax loss since     
inception.                                                                      

(8)  Bad Debt Write-off                                                         

In June of 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. Under the  
agreement, the Company was to receive a fixed fee based on a per-terminal use   
basis.  In October of 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 provides 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 of 1998 and continuing thereafter, with     
all amounts fully due by September of 1998. The note is guaranteed by two       
principals of the affiliate of the Hub Operator. The Hub Operator agreement     
was to terminate in March of 1999 or sooner as specified in the agreement. In   
January of 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 posted a reserve of $79,497, which   
represents the above loan of $50,000, and $29,497 in receivables.               

(9)  Line of Credit Agreement                                                   

 In September of 1997, the Company entered into an agreement with a bank
which provided for a total line of credit of $3,000,000, with interest at       
Libor plus 1% or the bank's alternate base rate as defined in the agreement.    
Borrowings under this line of credit are at the convenience of the Company's    
management and may be repaid at any time prior to the expiration of the         
facility, with interest payable monthly.  This line of credit is secured by     
the Company's investments, and expires in June of 1999, unless otherwise        
amended or extended. The amount of such borrowings are required to be secured   
by the Company's investments, and are limited to specified marginal             
percentages of certain investment vehicles maintained in a separate, specified  
investment management account with the lending bank. The agreement currently    
provides a line of credit of $2,400,000 and there were no borrowings during     
the year.                                                                       
F-16      

Item 8.      Changes in and Disagreements with Accountants on Accounting        
and Financial Disclosure                                                        

None.                                                                     

Item 13.          Exhibits and Reports on Form 8-K                              
(a)  Exhibits.                                                            
(a) The following exhibits are filed herewith:        

3.1     Certificate of Incorporation of the Company (1)                         

3.1(a)  Amendment, filed October 24, 1996, to Certificate of Incorporation      
of the  Company (1)                                             

3.2     By-Laws of the Company (1)                                              

10.1(b) Employment Agreement between the Company and Barry Mindes, dated as     
of July 1, 1998                                                 

10.2(a) Employment Agreement between the Company and Bernard Albanese,          
dated as of  July 1, 1998                                       

10.3    Employment Agreement between the Company and Sidney Diamond, dated      
as of February 3, 1997 (2)                                      

10.3(a) Promissory Note dated February 6, 1997 issued by Sidney Diamond and     
Arlene Diamond to the Company (5)                               

10.4    Form of Proprietary Information, Inventions and Non-Solicitation        
Agreement (1)                                                   

10.5    Form of Subscription Agreement (1)                                      

10.6    Rights Agreement among the Company and the investors listed on          
Schedule A therein, dated as of June 2, 1995 (1)                

10.7    Stock and Warrant Purchase Agreement among the Company and the          
     investors  listed on Schedule A therein, dated as of June 2, 1995 (1)

10.8    Rights Agreement between the Company and Barry Mindes, dated as         
of June 20,  1996 (1)                                           

10.9    Form of Stockholders Agreement among the Company, Barry Mindes and      
all stockholders of the Company (other than stockholders who are
party to the  Rights Agreement referred to in 10.6 above) (1)   

10.10   Lease between Eastern American Mortgage Company, Inc. and the           
Company, dated June 9, 1995(1)                                  

10.11   Form of Indemnification Agreement to be entered into between the Company
and its directors and executive officers (1)                    

10.12   1995 Stock Option Plan (1)                                              

10.13   1996 Stock Option Plan (1)                                              

10.14   Form of Incentive Stock Option Agreement (3)                            

10.15   Form of Non-Qualified Stock Option Agreement (4)                        

23.1    Consent of KPMG Peat Marwick LLP                                        

24.1    Power of Attorney  (Included on signature page hereto)                  

27.1    Financial Data Schedule                                                 

(b) Reports on Form 8-K.                                                        

No reports on Form 8-K were filed during the quarter ended              
September 30, 1998.                                                     

(1)   Incorporated by reference to the exhibit with the corresponding           
number contained in the Company's Registration Statement on Form    
SB-2 (Reg. No. 333-15005) which was declared effective by the       
Securities and Exchange Commission on December 11, 1996.            

(2)   Incorporated by reference to Exhibit 10.1 of the Company's                
Quarterly Report on Form 10-QSB for the quarter ended March 31,     
1997.                                                               

(3)   Incorporated by reference to Exhibit 4.3 of the Company's                 
Registration Statement on Form S-8 (Reg. No. 333-41847).            

(4)   Incorporated by reference to Exhibit 4.4 of the Company's                 
Registration Statement on Form S-8 (Reg. No. 333-41847).            

(5)   Incorporated by reference to Exhibit 10.3(a) of the Company's             
Annual Report on Form 10-KSB for the year ended September 30, 1997. 

PART III  

The information required by Part III is hereby incorporated by            
reference from the Company's definitive proxy statement involving the           
election of directors to be filed on or prior to January 28, 1999.  If          
the definitive proxy statement is not filed on or prior to January 28,          
1999, the information called for by Part III will be filed as an                
amendment to this Form 10-KSB on or prior to January 28, 1999.                  

SIGNATURES    

In accordance with Section 13 or 15(d) of the Exchange Act, the           
Registrant caused this Report to be signed on its behalf by the                 
undersigned, thereunto duly authorized.                                         

              INTERNATIONAL SPORTS WAGERING INC.

 By:  /s/ Barry Mindes
               Barry Mindes, Chairman of the Board
         (Principal Executive Officer)
December 29, 1998   

POWER OF ATTORNEY                                                               

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature          
appears below hereby severally constitutes and appoints Barry                   
Mindes and Bernard Albanese, and each of them, his true and lawful              
attorneys-in-fact and agents, with full power of substitution and               
resubstitution, for him and in his name, place and stead, in any                
and all capacities, to sign any and all amendments to this Report               
and all documents relating thereto, and to file the same, with all              
exhibits thereto, and other documents in connection therewith, with             
the Securities and Exchange Commission, granting unto said                      
attorneys-in-fact and agents, full power and authority to do and                
perform each and every act and thing necessary or advisable to be               
done in and about the premises, as fully to all intents and                     
purposes as he might or could do in person, hereby ratifying and                
confirming all that said attorneys-in-fact and agents, or his                   
substitute or substitutes, may lawfully do or cause to be done by               
virtue hereof.                                                                  

In accordance with the requirements of the Exchange Act, this             
Report has been signed by the following persons in the capacities               
and on the dates stated.                                                        
Signature               Title                       Date        

/s/ Barry Mindes     Chairman of the Board and              December 29, 1998   
Barry Mindes     Director (Principal Executive Officer)                 

/s/ Bernard Albanese President, Treasurer and Director      December 29, 1998   
Bernard Albanese (Principal Financial and Accounting                    
Officer)                              

/s/ Fredric Kupersmith Director                             December 29, 1998   
Fredric Kupersmith                                                      

/s/ Janet Mindes     Director                               December 29, 1998   
Janet Mindes                                                            

/s/ Harold Rapaport  Director                               December 29, 1998   
Harold Rapaport                                                         

Dates Referenced Herein   and   Documents Incorporated by Reference

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Filed on:		12/29/98		12
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		12/11/96		2		12
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		10/24/96		2		12
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		5/22/95		2		11
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