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, 1997

                                    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 incorporation or organization)
                  (I.R.S. Employer Identification No.)
                                    
                                    
                                    
                                    
                                    
                   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. [   ]

     The issuer s revenues for its most recent fiscal year
(ended September 30, 1997) were $3,580.

     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 17, 1997 was
approximately $4,623,284.

     The number of shares of outstanding Common Stock, $.001 par value, as
of December 17, 1997 was 7,752,292.

     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,
1998.  If the definitive proxy statement is not filed on or prior to January
28, 1998, the information called for by Part III will be filed as an amendment
to this Form 10-KSB on or prior to January 28, 1998.

Transitional Small Business Disclosure Format (check one):       YES       NO<PAGE>

                             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 " and "Item 6. Plan of
Operation" 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 any needed gaming
licenses, the ability of the Company to attract adequate numbers of
players for its SportXction  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; agreement with hub
operator; 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" 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.
<PAGE>
                                   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  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.  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 continuously balancing 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 on 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. 

   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"). The
Company also 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 receives 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. On September 21, 1997, live operation of
the System commenced and as of December 17, 1997 there were
approximately 220 PBSs in operation at eight casinos and gaming
establishments in Las Vegas, Nevada.  See "Plan of Operation."

   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, will permit the Company to operate the Hub
and enable 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.  The
process of obtaining an OILS License is not expected to be completed
until the third or fourth quarter of the fiscal year ending September
30, 1998, at the earliest. There can be no assurance that the OILS
License will be granted to the Company, or if granted, that it will be
granted on a timely basis. See "Governmental Regulation."

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. 

   Wagers at these facilities 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 in order to achieve equalization 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 1995 . In 1996, there were approximately 115 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 eight casinos and gaming establishments in Las
Vegas, Nevada that are inter-linked with the Hub via telecommunications
lines, with approximately 220 PBSs. Under its current arrangements with
gaming establishments at which the System is operating and with the Hub
Operator, the Company receives a fixed fee per PBS used per game for
providing, servicing and maintaining the System and training gaming
establishment personnel in use and operation of the System. Until such
time as the Company receives an OILS License, it may not operate the
System.  The System is currently operated by Yarlow as the Hub Operator. 

   During the fiscal year ended September 30, 1997, the Company leased
a small facility in Las Vegas, Nevada.  This facility is used for sales,
training, maintenance, repairs and storage of equipment.

   The Company is in the process of seeking an OILS License in order,
among other reasons, to be in a position to provide the System to sports
wagering establishments in exchange for either a portion of the revenue
received by the establishment or on a transaction fee basis. The OILS
License will also allow the Company to operate one or more central hubs,
with casinos and other gaming establishments having only PBSs and
cashier terminals that would be controlled at the hubs. See
"Governmental Regulation." There can be no assurance that the Company
will be granted the OILS License; nor is there any assurance that if
such license is obtained, casinos and sports book operators will agree
to the form of compensation requested by the Company or to participate
in the Company's hub system. See "Governmental Regulation."

   The Company is pursuing 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  sports wagering system and game and increasing the
number of players of the game.  The Company is also working on new
features and enhancements to the System to attract additional players
and increase wagering through the System.

   In the future, the Company also intends to market the System in
foreign countries in which sports wagering is legal. In the future, the
Company also 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  Sports Wagering System

Overview of the System

   The SportXction  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
and wager throughout that event as it is underway. 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, a
pool 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 will
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, he deposits a sum of money (above a
minimum set by the house) with a cashier 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 alter
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. 

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 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 central processing unit 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 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 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 wager 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 approved for issuance as U.S. patents, and
the first patent has already issued. 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.  State of Nevada servicemark registration was issued,
however, Federal trademark registration has not yet been issued. There
can be no  assurance that the Company will obtain registered Federal
trademark protection for the name SportXction.  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. 

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. 

   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. 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 adopted by the Nevada
Commission, wagers from  other jurisdictions in which pari-mutuel
wagering is legal. However, the regulations of  the Nevada Commission
issued prior to July 1995 currently prohibit any licensed race books 
and sports pools in the State of Nevada from accepting any telephone
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 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. 

   The Company's SportXction  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.

   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 Nevada Gaming Authorities for the use of the
System. On January 6, 1997, the System was approved by the Nevada Gaming
Authorities for use in individual casinos. After additional
modifications to the System, the Company submitted the System to the
Nevada Gaming Authorities for approval for use in wide area operations.
On August 21, 1997, the Nevada Gaming Authorities approved the System
for use in wide area operations. Wide area operations permit wagering
during the course of sporting events at multiple inter-linked casinos
and gaming establishments, simultaneously, with betting pools on each
betting proposition consolidated at a central hub. The Company also made
arrangements to have Yarlow,  an operator of sports pools in Nevada, act
as the Hub Operator, at least until such time as the Company receives a
license 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 an OILS License thereby permitting Yarlow to operate the Hub. On
September 21, 1997 live operation of the System commenced and currently
there are approximately 220 PBSs in operation at eight casinos and
gaming establishments in Las Vegas, Nevada.

   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 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 is 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 will be
required to receive an exemption from provisions of the  Nevada Act that
render a Registered Corporation ineligible to hold a gaming license. The 
Company  has filed an application for such exemption in connection with
its application for registration and an OILS License. If a publicly
traded corporation applies for and is  approved for a Nevada gaming
license, the exemption is routinely granted as part of the  approval
process. Although there can be no assurances that the Company will be
registered  and licensed, the Company is unaware of any reason that it
should not receive such  exemption in the event that the Nevada Board
and Nevada Commission determine that it is  suitable to be registered
and licensed. 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. If the Company obtains such registration and an OILS license,
it will be a Registered Corporation and a gaming licensee ("Gaming
Licensee") and the following  regulatory requirements will apply to it. 

   As a Registered Corporation and Gaming Licensee, the Company will be
required  periodically to submit detailed financial and operating
reports to the Nevada Commission and furnish any other information which
the Nevada Commission may require. Substantially all material loans,
leases, sales of securities and similar financing  transactions would be
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. The
Company began this licensing process and the Company and several of its
directors and officers have submitted the information initially required
by the Nevada Gaming Authorities. The licensing process is not expected
to be completed until the third or fourth quarter of the year ending
September 30, 1998, although there can be no assurances in this regard.

   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. 

   After registration and licensing, the Company will be 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. 
   The United States Congress has recently passed legislation which
creates 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 now pending in the United
States 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."  Nevertheless, in its present form,
S.474 expressly exempts bets or wagers that are placed, made, or
received on any interactive computer service when each person placing,
making, or receiving the bet or wager is physically located at a state
or federally licensed wagering facility that is open to the general
public.  As it is now operated, the System appears to fall within this
exemption, but S. 474 would, in its current form, prohibit the expansion
of the System outside the licensed public wagering facilities.

   A companion bill now before the House of Representatives, H.R. 2380,
would 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
operate only within the State of Nevada.

   There can be no assurance that either S. 474 or H.R. 2380 will or
will not become law in their present or any other form.

   In its 1997 session, the Nevada Legislature passed into law Senate
Bill No. 318 which, among other things, prohibited persons 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.

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 35
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 100 of the 115 casinos and  sports book
operators in Nevada. On December 5, 1996, American Wagering, Inc.
announced a  joint venture with International Game Technology, the
largest supplier of slot machines,  to market and operate new pari-
mutuel sports wagering products. One such game, called MegaSports, has
begun operation and 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; Bally
Gaming Industry International, Inc. 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 twelve full-time employees, consisting of the
Chairman of the Board, President, Chief Financial Officer, General
Manager-Nevada Operations, Vice President-Software Development, four
software engineers and programmers 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 market
the System to casinos and sports book operators as well as additional
engineers and administrative personnel.

Research and Development

   During the fiscal years ended September 30, 1996 and September 30,
1997, the Company spent approximately $703,000 and $992,000,
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. Plan of Operation" 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 any needed gaming licenses, the ability of the
Company to attract adequate numbers of players of its SportXction 
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" 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 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 is pursuing an aggressive marketing and advertising campaign
to introduce the SportXction  sports wagering system to the gaming
public in Nevada and to increase the number of players of the game. It
has 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 is also working on new features and
enhancements to the System to attract players and increase wagering. The
System has only been in operation for approximately 90 days and has had
a limited number of players. Although the response from those who have
wagered through the System has been positive, 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 eight casinos and gaming establishments. 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 perform well in its initial evaluations
or 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, 1997, the Company had cumulative net losses
since inception of approximately $3.2 million and the Company expects to
continue to incur substantial losses and negative cash flow at least
through calendar 1998. 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 brief 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.
   Agreement with Hub Operator.  The System is currently operated by
Yarlow, as Hub Operator, pursuant to an agreement dated as of June 18,
1997.  In order to operate the System, Yarlow has been granted an OILS
license by the Nevada Gaming Authorities.  Yarlow has encountered
certain financial difficulties.  On October 20, 1997, the Company loaned
$50,000 to T&D, a Nevada general partnership that is an affiliate of
Yarlow, to assist it in resolving such difficulties.  This loan, which
carries interest at 10% per annum, is repayable at the rate of $5,000
per month commencing on February 1, 1998.  The loan is guaranteed by
certain of the principals involved in T&D.  If, as a consequence of its
financial difficulties or otherwise, Yarlow was unable or unwilling to
continue to operate the System, until such time as the Company received
an OILS License, it would not be permitted to operate the System.  Under
such circumstances, the System might have to cease operating, unless the
Company was able to make arrangements with another party who either had
an OILS License or was able to obtain one in order to operate the
System.  No assurance can be given that the Company could find another
party to act as Hub Operator 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 to 24 months
based upon the Company s current business plan. See  Plan of Operation. 
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 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 Nevada Gaming Authorities for the use of the
System. On January 6, 1997, the System was approved by the Nevada Gaming
Authorities for use in individual casinos. After additional
modifications to the System, the Company submitted the System to the
Nevada Gaming Authorities for approval for use in wide area operations.
On August 21, 1997, the Nevada Gaming Authorities approved the System
for use in wide area operations. Wide area operations permit wagering
during the course of sporting events at multiple inter-linked casinos
and gaming establishments, simultaneously, with betting pools on each
betting proposition consolidated at a central hub. The Company also made
arrangements to have Yarlow, an operator of sports pools in Nevada, act
as the Hub Operator, at least until such time as the Company receives a
license 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 an OILS License. On September 21, 1997, live operation of the
System commenced and currently there are approximately 220 PBSs in
operation at eight casinos and gaming establishments in Las Vegas,
Nevada. 

   In order for the Company to be compensated for use of the System by
gaming establishments on the basis of a percentage of revenue received
by a licensed gaming establishment or on a transaction fee basis, the
Company is required to obtain an OILS License and to be registered by
the Nevada Commission as a publicly traded corporation, a process which
has begun but is not expected to be completed before the third or fourth
quarter of the fiscal year ending September 30, 1998, at the earliest.
No assurance can be given that the investigation of the Company or its
directors and officers, which has begun, will continue in a timely
manner or will conclude before September 30, 1998. In addition, the
Nevada Commission has the discretion to require that the Company apply
for a finding of suitability to be a manufacturer and distributor of
associated equipment. The System is currently being operated through a
central Hub by a third party. The Company must receive an OILS License
in order to operate the Hub. There can be no assurance that the Company
will be granted such a license. 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
sought. Any Gaming License issued or granted is a revocable privilege,
and no holder acquires any vested rights therein or thereunder. The
Company has begun the process of applying for an OILS License but has
not received such a license. There can be no assurance that such a
License will be granted or maintained, or that no burdensome conditions,
limitations or restrictions will be imposed upon the Company. In
connection with the Company s application for 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
application for Gaming Licenses is denied, 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 such denial. 

   If the Company is licensed, no person will be permitted to acquire
control of the Company 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.

   The United States Congress recently 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 now pending in the United
States 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."  Nevertheless, in its present form,
S.474 expressly exempts bets or wagers that are placed, made, or
received on any interactive computer service when each person placing,
making, or receiving the bet or wager is physically located at a state
or federally licensed wagering facility that is open to the general
public.  As it is now operated, the System appears to fall within this
exemption, but S. 474 would, in its current form, prohibit the expansion
of the System outside the licensed public wagering facilities.

   A companion bill now before the House of Representatives, H.R. 2380,
would 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.

   There can be no assurance that either S. 474 or H.R. 2380 will or
will not become law in their present or any other form.
   In its 1997 session, the Nevada Legislature passed into law Senate
Bill No. 318 which, among other things, prohibited persons 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.

   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. Both  patent applications have been approved
for issuance as U.S. patents and the first patent has already been
issued.  Corresponding applications have been or will be filed in
certain foreign countries. No assurance can be given that any of the
Company s other 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, 1998.
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 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 35 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, 1997, 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 44.9% 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. 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 17, 1997 the Company had 7,752,292 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 are owned by
Barry Mindes, Mindes Family Limited Partnership, Bernard Albanese and
the Marie Albanese Trust and are currently eligible for sale.
Substantially all of the remaining 2,546,861 Restricted Shares are
either currently eligible for sale or will become eligible for sale at
various times through June 1998. 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
number of shares subject to the lock-up that expires on December 12,
1998 is 1,305,479. 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 1,500 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
administrative functions are currently conducted, during the fiscal year
ended September 30, 1997, were approximately $15,000.  For the fiscal
year ending September 30, 1998 lease payments for this facility are
expected to be approximately $18,500.   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 for sales,
training, maintenance, repairs and storage of equipment.  Lease payments
for this facility during the fiscal year ended September 30, 1997 were
approximately $8,700 and are expected to be approximately $35,000 during
the fiscal year ending September 30, 1998.

   In May 1997 the Company purchased a condominium unit in Las Vegas,
Nevada for use by its employees while traveling 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, 1997.<PAGE>
                                 
                             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 and one redeemable
Warrant to purchase one share of Common Stock at an exercise price of
$7.20 per share, were traded 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 sets 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      8.375           7
January 1, 1997 to March 31, 1997            10.5       7.125
April 1, 1997 to April 4, 1997              7.625         7.5


    The following table sets forth, for 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            5.75
July 1, 1997 to September 30, 1997           7.375        5.25
        
The closing bid and asked prices on December 17, 1997 were $1 and
$1.1875, 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 17,
1997 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 6.5 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
$770,000 for the purchase of computer equipment including PBSs;
approximately $220,000 for professional fees; approximately $176,000 for
directors and officers liability insurance premiums; approximately
$160,000 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 $69,000 was outstanding as of
September 30, 1997.  After other expenses, including product enhancement
and development, sales and administration, approximately $5,483,000
remained in cash and short-term, interest-bearing, investment grade
securities as of September 30, 1997.

Item 6.   Plan of Operation

      On January 6, 1997, the System was approved by the Nevada Gaming
Authorities for use in individual casinos or other sports wagering
establishments in the State of Nevada.  On August 21, 1997, the Nevada
Gaming Authorities approved the System for use in wide area operations,
permitting simultaneous wagering at multiple inter-linked casinos
throughout Nevada. Live operation of the System commenced on September
21, 1997 on a wide area basis, and the System is currently in operation
with approximately 220 PBSs, at eight casinos and gaming establishments
in Nevada.

   The System encountered certain software problems during its first few
weeks of live operation, as is the case with many complex computer
systems.  As any significant problems surfaced, they were dealt with and
resolved.  Although there can be no assurance that additional problems
will not be encountered in the future, the Company believes the
likelihood of encountering additional significant problems diminishes as
operation of the System continues. 

   As of September 30, 1997, the System had been in operation for only
ten days.  The System has been used for wagering on baseball, football
and basketball games.  Currently, the System is in use for wagering on
an average of approximately ten  sporting events each week.  Although
the general response from players of the SportXction  game has been
positive, the number of players for each sporting event has been modest,
as has the total amount wagered through the System.  The Company
believes that this is  a reflection of the fact that the SportXction 
sports wagering game is new and requires more time for the wagering
public to become familiar with it.

   The Company is pursuing 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
this new game and increasing the number of wagering participants.  In
order to encourage more potential players to wager through the
SportXction  sports wagering system and to raise their level of comfort
in familiarizing themselves with the game, the Company has modified the
System to allow free play with practice bets for 15 minutes.  It is also
working on other new features and enhancements to the System to attract
additional players and increase wagering.

   The Company's plan of operation during the next 12 months focuses
primarily on (i) attracting additional players of the game, and
increasing wagering through the System, (ii) continued sales and
marketing to casinos and other sportsbook operators in Nevada, (iii) the
hiring of additional personnel in the areas of sales and marketing,
product development, equipment installation, maintenance and training,
(iv) continued research and further product enhancement and development,
including adapting the System for new betting propositions, (v)
obtaining an OILS License which will enable the Company to operate the
Hub and provide the System to sports wagering establishments in exchange
for a portion of the revenue received by the establishment or on the
basis of a transaction fee, (vi) securing further intellectual property
protection, including additional patent, trademark and copyright
protections, and (vii) exploring opportunities in foreign markets and
alternative applications of the Company's proprietary technology,
including adaption of the System for use in non-wagering activities.

   In the future, the Company also intends to market the System in
foreign countries in which sports wagering is legal and to explore
alternative applications of its proprietary technology.  These include
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.

   For the year ended September 30, 1997, the Company had a net loss of
$2,191,321, or $0.29 per share on 7,475,996 weighted average common
shares outstanding, compared with a net loss of $868,188, or $0.13 per
share on 6,477,410 weighted average common shares outstanding, for the
prior year.  Revenues of $3,580 were reported for the year ended
September 30, 1997, compared with no revenues reported in the prior
period.  These revenues reflect the commencement of live operation of
the System on September 21, 1997.  The increased loss resulted primarily
from increased marketing activities, the interest expense and debt
discount ascribed to the Bridge Warrants issued as part of the bridge
financing consummated on October 28, 1996, as well as increased salary
expenses attributable to greater research and development,
administrative and marketing expenses, professional fees, insurance
expenses, and depreciation expenses associated with computer equipment
used in the operation of the System.  These expenses reflect, in part,
increased costs as a result of being a public company, the two trials of
the System in Nevada required for approval of its use in individual
gaming establishments and wide area operation, marketing of the System,
and the purchase and installation of computer equipment needed to
commence live operation.  The Company incurred approximately $992,000 in
research and development expenses for the year ended September 30, 1997,
compared with approximately $703,000 for the prior year.  This increase
is largely attributable to increased salary expenses and expenditures
associated with the two trials of the System in Nevada.

   The Company is in the development stage, with limited revenues
generated from the System.  As of September 30, 1997, the Company had
cumulative net losses since inception of approximately $3.2 million.  It
expects to continue to incur substantial losses and negative cash flow
at least through calendar 1998.  Contributing to this projection is the
Company's expectation that it will continue to incur substantial
research and development expenses for further product enhancement and
development activities, including adapting the System for use in
sporting events in addition to football, basketball and baseball;
developing new betting propositions; adapting the System for use in
foreign countries; and exploring alternative applications of the
Company's proprietary technology, including adaptation of the System for
use in non-wagering activities.

   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 the next 18
to 24 months.

Item 7.   Financial Statements

<PAGE>




                      International Sports Wagering Inc.
                        (A Development Stage Company)


                                    Index

                                                             Page      
                                                       
     INDEPENDENT AUDITORS' REPORT                            F-2 

     FINANCIAL STATEMENTS                                     

     Balance Sheets as of September 30, 1997 and 1996.       F-3
      
     Statements of Operations for the years ended    
     September 30, 1997 and 1996 and the period from   
     May 22, 1995 (date of inception) to September 30, 
     1997.                                                   F-4

     Statements of Stockholders' Equity for the period
     from May 22, 1995 (date of inception) to September
     30, 1997.                                               F-5

     Statements of Cash Flows for the years ended 
     September 30, 1997 and 1996 and the period from 
     May 22, 1995 (date of inception) to September 30, 
     1997.                                                   F-6

     Notes to Financial Statements                           F-7










                                         
                                       
       







             
                                     F-1









                         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,
1997 and 1996, and the related statements of operations, stockholders'
equity and cash flows for the years ended September 30, 1997 and 1996
and for the period from May 22, 1995(date of inception) to September 30,
1997.  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, 1997 and 1996, 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, 1997, in conformity with
generally accepted accounting principles.




New York, New York         KPMG Peat Marwick LLP
November 26, 1997

                                 F-2








                      International Sports Wagering Inc.
                        (A Development Stage Company)

                                Balance Sheets
                         September 30, 1997 and 1996

                                    ASSETS
                                                 1997         1996   
 
Current assets:
  Cash and cash equivalents                $ 1,026,313        537,546
  Accounts receivable                            2,950          --
  Investments                                4,457,118          --
  Current portion of notes receivable           34,615          --
  Prepaid expenses and other 
  current assets                               184,315         8,885   

      Total current assets                   5,705,311       546,431
 
Investments                                    618,120          --
Property and equipment, net                  1,055,196       304,466 
Notes receivable, less current portion          34,615          --
Other assets                                     6,358         4,258 
Deferred financing costs                         --           46,406 

      Total assets                         $ 7,419,600       901,561 
 
                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                        $    143,197        42,382 
  Accrued expenses                             222,345       143,265 

      Total current liabilities                365,542       185,647 

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; 7,749,269 
    in 1997 and 6,024,269 in 1996                7,749         6,024 
  Additional paid-in capital                10,214,829     1,687,089 
  Deficit accumulated during the 
    development stage                      (3,168,520)     (977,199)

      Total stockholders' equity            7,054,058       715,914 
Commitments and contingencies                                                   
      Total liabilities and stockholders'
        equity                            $ 7,419,600       901,561  

See accompanying notes to financial statements.


                                    F-3


                        International Sports Wagering Inc.
                          (A Development Stage Company)

                             Statements of Operations
              Years ended September 30, 1997 and 1996 and the period
            from May 22,1995 (date of inception) to September 30, 1997

                                                                  May 22, 1995
                                                                    (date of   
                               Year ended         Year ended     inception) to
                              September 30,      September 30,   September 30,
                                  1997                1996            1997    

Revenues                      $     3,580             --               3,580

Costs and expenses:
 Research and development
  expense                         992,224           702,952        1,783,519
 General and administrative
  expense                       1,215,039           196,256        1,440,946
                                2,207,263           889,208        3,224,465

   Operating loss              (2,203,683)         (899,208)      (3,220,885)

Other income (expense):
 Interest income                  311,460            31,020          351,463
 Interest expense                (299,098)             --           (299,098)
                                   12,362            31,020           52,365 

   Net loss                   $(2,191,321)         (868,188)      (3,168,520)

Net loss per share            $      (.29)             (.13)            (.46) 

Weighted average common
 shares and equivalents
 outstanding                    7,475,996         6,477,410        6,899,755  


                                








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, 1997


                                                      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,l91,321) 

Balance,           
 September 30,1997 7,749,269 $ 7,749   10,214,829   (3,l68,520)  7,054,058  
  



See accompanying notes to financial statements.


                                    F-5


                       International Sports Wagering Inc.
                         (A Development Stage Company)

                            Statements of Cash Flows
             Years ended September 30, 1997 and 1996 and the period
          from May 22, 1995 (date of inception) to September 30, 1997

                                                                  May 22, 1995 
                                                                   (date of 
                                 Year ended     Year ended      inception) to
                               September 30,    September 30,   September 30
                                  1997              1996            1997   
     
Cash flows from operating 
activities:
  Net loss                    $ (2,191,321)      (868,188)        (3,168,520)
  Adjustments to reconcile
    net loss to net cash 
    (used in) operating activities:
    Depreciation and
    amortization                   203,077         69,443            274,980
    Issuance of options to
    consultants                      --            14,500             14,500  
Changes in assets and liabilities:
    Accounts receivable            (2,950)           --               (2,950)
    Prepaid expenses and other
    current assets               (175,430)            978           (184,315)  
Other assets                       (2,885)             --             (8,190)
Accounts payable                  100,815          13,974            143,197    
Accrued expenses                   79,080         129,900            222,345
  Net cash used in operating
  activities                  (1,989,614)        (639,393)        (2,708,953) 

Cash flows from investing activities:
  Purchase of investments     (32,175,535)            --         (32,175,535)  
  Proceeds from sales of
  investments                  27,100,297             --          27,100,297    
  Purchase of property and
  equipment                     (953,022)        (333,464)       (1,328,344)
  Issuance of notes receivable  (100,000)             --           (100,000)
  Proceeds from repayments of
  notes receivable                30,770              --             30,770 
    Net cash used in investing
    activities                (6,097,490)        (333,464)       (6,472,812)

Cash flows from financing activities:
  Proceeds from issuance of
  common stock                 8,575,871           861,999       10,208,078     
  Deferred financing costs        --               (46,406)         --   
 
  Net cash provided by
  financing activities         8,575,871           815,593       10,208,078
  Net increase (decrease)
  in cash and cash equivalents   488,767          (157,264)       1,026,313
  Cash and cash equivalents, 
  beginning of period            537,546           694,810          --     

Cash and cash equivalents,
  end of period              $ 1,026,313           537,546        1,026,313

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, 1997 and 1996

(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.  As a consequence, there are no significant
operating revenues and there have been no significant product sales
from inception of the Company through September 30,1997.  There can
be no assurance that the Company will be able to manufacture 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 manufacture or market its
product.  Further, the Company's future operations are dependent on
the success of the Company's commercialization efforts, market
acceptance, and 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 $6.00 per Unit.  After underwriting discounts and
commissions, other expenses of the offering, and 

                                F-7

                    International Sports Wagering Inc.
                       (A Development Stage Company)

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

(1)  Description of Business (Continued)

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.

(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, 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.

                                F-8

                    International Sports Wagering Inc.
                       (A Development Stage Company)

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

(2)  Summary of Significant Accounting Policies (Continued)     

     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 1997 to May of 1998.  Investments classified as non-current
include investments with maturities ranging from October of 1998 to
February of 1999.

Deferred financing costs:

     Costs paid to the Company's attorneys associated with the
Company's private placement and IPO were deferred at September
30,1996 and were recorded as a reduction of the proceeds received
upon consummation of the private replacement and IPO.

     Research and development:

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

     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-


                                  F-9

                    International Sports Wagering Inc.
                       (A Development Stage Company)

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

(2)  Summary of Significant Accounting Policies (Continued)

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.

     Loss per share:

     Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletin Topic 4:D, stock issued and stock options and
warrants granted during the 12-month period preceding the date of
the IPO have been included in the calculation of weighted average
common shares outstanding for the periods prior to the IPO, even
when the impact of such incremental shares is antidilutive.  The
computation of weighted average common shares and equivalents
outstanding at September 30, 1997 is as follows:

     Weighted average common shares outstanding,
     exclusive of issuances within 12 months
     prior to the IPO                               4,791,522

     Shares, options and warrants issued in
     periods prior to and within 12 months prior
     to the IPO assumed to be outstanding for
     the entire period                              1,685,888
     
     Weighted average common shares applicable
     to ("IPO") and over-allotment option             998,586
 
     Weighted average common shares and equivalents
     outstanding at September 30, 1997              7,475,996

     Use of estimates: 
     
     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.

                                F-10

                    International Sports Wagering Inc.
                       (A Development Stage Company)

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

(2)  Summary of Significant Accounting Policies (Continued)

     New accounting pronouncements:

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

     In March 1995, the Financial Accounting Standards Board 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.

     Accounting for Stock Based Compensation:

     In October 1995, the Financial Accounting Standards Board
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).

(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.

     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.

                                   F-11

                    International Sports Wagering Inc.
                       (A Development Stage Company)

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

(3)  Preferred and Common Stock (Continued)

     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 of which all have been granted. 
ISOs and NQSOs may be granted to individuals, who, at the time of
grant, are directors, officers, employees or consultants of the
Company.  Additionally, NQSOs may be granted to directors, agents
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 income would have been reduced to the pro
forma amounts indicated below:

                                           1997        1996

Net (loss) - as reported               $(2,191,321) (868,188)
Net (loss) - pro forma                  (2,253,668) (869,925)     
      

Earnings (loss) per share - reported   $   (.29)      (.13)  
Earnings (loss) per share - pro forma      (.30)      (.13)  


                                  F-12


                    International Sports Wagering Inc.
                       (A Development Stage Company)

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

(3)  Preferred and Common Stock (Continued)

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

     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 6.5%, expected volatility of .11%,
and an expected life of 7 years.  The weighted average grant date
fair value of options granted in 1997, 1996 and 1995    was $2.96,
$.25, and $ none, respectively.

     Activity related to the 1995 Plan is as follows:

                                             Shares
  
     Outstanding, May 22, 1995                  --
        Granted ($.70 per share)             75,576
        Exercised                               --
     Outstanding, September 30, 1995         75,576
        Granted ($.70 per share)            574,379
        Exercised ($.70 per share)           (7,557)
     Outstanding, September 30, 1996        642,398  
        Granted                                --
        Exercised                              --  
     Outstanding, September 30, 1997
      (exercisable 314,392 shares)          642,398

     During fiscal 1996, the Company granted 60,459 options to
consultants for services at an exercise price of $.703 per option
to purchase common stock.  The estimated fair market value of such
options on the date of grant range from $.25 to $1.00. 
Accordingly, during fiscal 1996, the Company recorded $14,500 as
expense with a related creit to additional paid-in capital. 

     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.

                                F-13






                    International Sports Wagering Inc.
                       (A Development Stage Company)

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

(3)  Preferred and Common Stock (Continued)

     Activity related to the 1996 Plan is as follows:

                                            Shares
 
     Outstanding, September 30, 1996           --  
        Granted ($3.60 - $7.50 per share)   412,500   
        Exercised                              --
        Cancelled                           (58,000)
     Outstanding September 30,1997          
       (Exercisable 3,000 shares)           354,500  

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

     See note 2 with respect to the October 1996 stock split
effected by the Company.

     See note 1 with respect to the Company's private placement and
initial public offering.

(4)  Property and Equipment

     Property and equipment at September 30, 1997 and 1996 consist
of the following:

                                        1997          1996

     Furniture and fixtures         $   37,194        5,133
     Building and improvements         146,896          --
     Computer equipment              1,144,254      370,189 
                                     1,328,344      375,322
Less accumulated depreciation         (273,148)     (70,856)
                                   $ 1,055,196      304,466 


                                    F-14






                    International Sports Wagering Inc.
                       (A Development Stage Company)

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

(5)  Accrued Expenses

     Accrued expenses at September 30, 1997 and 1996 consist of the
following:
                                        1997          1996        
     Professional fees             $    28,500       60,749
     Payroll and related costs          68,645       82,116
     Bonuses                           125,000         --
     Other                                 200          400
                                   $   222,345      143,265
     
     Included in the accrued professional fees at September 30,
1996 is $58,610 due to the Company's attorney who is also a
stockholder of the Company.  Amounts due to this stockholder at
September 30, 1997 are included in accounts payable and total
$18,340.  The Company recognized $99,480 and $19,339 in expense
related to this stockholder in 1997 and 1996, respectively, and   
$127,031 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,
         1998                                  $  60,708
         1999                                     56,568 
         2000                                     44,154
         Thereafter                                 --  
                                               $ 161,430

     Rent expense under operating leases during 1997 and 1996 was
$30,945 and $19,342, respectively, and $55,148 since inception.

     Employment agreements:

     The Company entered into employment agreements with three of
its employees.  The agreements, two of which expire in June 1998
and one in January 2000, provide for an aggregate minimum
compensation of $398,750, $133,333 and $33,333 in fiscal years
1998, 1999 and 2000, respectively.  Compensation expense recognized
under these agreements for the years ended September 30, 1997 and
1996 and for the period from inception to September 
30, 1997 was $384,315, $110,000 and $509,315, respectively.


                                  F-15
                    International Sports Wagering Inc.
                       (A Development Stage Company)

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

(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, 
                                  1997      1996        1997     

     Computed tax benefit 
       at 34%                 $(745,049)  (295,l84)  (1,077,297)
     50% of meals and
       entertainment expense      1,610       --          1,610
     Increase in valuation
       allowance for Federal
       deferred tax assets      743,439    295,184    1,075,687 
     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, 1997 and 1996 are presented below:

     Deferred tax assets:
     Federal and state net oper-   
       ating loss carryforward     $ 1,l26,747      331,066 
     Book vs. tax basis
       accumulated depreciation         28,717       10,882
     Book vs. tax basis patent
       amortization                     37,491       28,109
     Compensated absences               16,669        1,713
     Bonus and other accruals           49,925       16,429     
     Book vs. tax basis software
       amortization                      4,712        2,739
         Total gross deferred
           tax assets                1,264,261      390,938
     Less valuation allowance       (1,264,261)    (390,938)
         Net deferred tax assets   $    --             --   


                                F-16
                    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, 1997, the Company had a net operating loss
carryforward of approximately $2,821,099 for Federal and state
income tax reporting purposes available to offset future taxable
income through the year 2012.  The Company has provided a valuation
allowance of $1,264,261 and $390,938 at September 30, 1997 and
1996, 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)  Hub Operator Agreement

     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 of the Company's sports wagering
system (the "Hub Operator"). The agreement terminates in March of
1999 or sooner as specified in the agreement.  Under the agreement,
the Hub Operator shall receive a fee based on a per-terminal use
basis, as specified in the agreement.

(9)  Line of Credit Agreement

     In September of 1997, the Company entered into an agreement
with a bank which provides 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 April of 1998, 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 line of credit expires in April
of 1998, unless otherwise amended or extended.

(10) Subsequent Event

     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,


                                   F-17

                   International Sports Wagering Inc.
                       (A Development Stage Company)

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

(10) Subsequent Event (Continued)

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.<PAGE>

                                    F-18

                    International Sports Wagering Inc.
                       (A Development Stage Company)
                            September 30, 1997



Amounts receivable from related parties and underwriters,
promoters, and employees other than related parties.

COL.A      COL.B      COL.C   COL.D        COL.E

                             Deductions
          Balance at        (1)     (2) Balances at end of period
          beginning       Amount   Amounts   (1)        (2)
Name of   of period      collected written   Current     Not
Debtor                              off                 Current

Sidney       -0-     100,000 30,770  -0-     34,615     34,615
Diamond  

                                   F-19
<PAGE>
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         Employment Agreement between the Company and Barry Mindes, dated as
             of May  22, 1995 (1)

10.1(a)      Amendment to Employment Agreement between the Company and Barry
             Mindes, dated as of September 25, 1997

10.2         Employment Agreement between the Company and Bernard Albanese,
             dated as of  June 1, 1995 (1)

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

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)

10.16        Agreement dated as of June 18, 1997 by and between Yarlow Inc.
             and the Company

10.17        Promissory Note Secured by Deed of Trust dated October 20, 1997
             issued by T&D, a Nevada general partnership

10.18        Guaranty dated as of October 20, 1997 of the obligations of T&D
             issued by Thomas W. Yarbrough and Michael C. Sommers

23.1         Consent of KPMG Peat Marwick LLP

24.1         Power of Attorney  (Included on signature page hereto)

27.1         Financial Data Schedule



(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).

     (b)  Reports on Form 8-K.
 
     No reports on Form 8-K were filed during the quarter ended September 30,
     1997.<PAGE>

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, 1998.  If the definitive proxy statement
is not filed on or prior to January 28, 1998, the information called for by
Part III will be filed as an amendment to this Form 10-KSB on or prior to
January 28, 1998.
<PAGE>
                                 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, 1997
                              
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                                                             
Barry Mindes
Chairman of the Board and Director
(Principal Executive Officer)
December 29, 1997







s/Bernard Albanese                                                         
Bernard Albanese
President and Director
December 29, 1997







s/Jeneene M. Norman                                                        
Jeneene M. Norman
Chief Financial Officer (Principal
Financial and Accounting Officer)
December 29, 1997







s/Fredric Kupersmith                                                       
Fredric Kupersmith
Director
December 29, 1997







s/Janet Mindes                                                             
Janet Mindes
Director
December 29, 1997







s/Harold Rapaport                                                  
Harold Rapaport
Director
December 29, 1997