<PAGE>

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

(Mark One)
|X|      AMENDMENT NO. 1 TO ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended September
         30, 1999
                                       OR
| |      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934 for the transition period from __________
         to ________
                      -------------------------------------

                         Commission file number 0-21831
                       INTERNATIONAL SPORTS WAGERING INC.
                 (Name of small business issuer in its charter)

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

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

                    Issuer's telephone number: (973) 256-8181

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

      Securities registered pursuant to Section 12(g) of the Exchange Act:
                          Common Stock, $.001 par value
                               Redeemable Warrants
                               -------------------
                                (Title of class)

                      -------------------------------------

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
                                                                      ---  ---

         Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.  | |
         The issuer's revenues for its most recent fiscal year (ended September
30, 1999) were $10,990.
         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, 1999 was approximately
$8,771,000.
         The number of shares of outstanding Common Stock, $.001 par value, as
of December 17, 1999 was 7,853,993.


         Transitional Small Business Disclosure Format (check one):
YES  | | NO |X|
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                                Introductory Note

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

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

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                                     PART I

         Item 1.           Description of Business

         Subsequent Event

         On January 12, 2000, the Company sold to accredited investors
("Investors") in a private transaction not registered under the Securities Act
of 1933, as amended (the "Act"), 800,000 shares (the "Shares") of the Company's
Common Stock, par value $.001 per share, for $1,000,000, or $1.25 per share. The
Company also agreed that if by April 11, 2000 it did not enter into a
transaction (the "Subsequent Transaction") relating to the licensing of its
proprietary software and intellectual proprietary, pursuant to which Subsequent
Transaction the Company is to receive at least $7.5 million during the period of
three years after the date of the Subsequent Transaction, then it would either
(a) refund to the Investors a total of $520,000 or (b) deliver to the Investors
a total of 866,667 additional shares (the "Additional Shares"). The Company must
determine by no later than February 11, 2000 which of the foregoing alternatives
it would elect if the Subsequent Transaction does not occur. The Company also
agreed to promptly file a Registration Statement with the Securities and
Exchange Commission in order to register the Shares and Additional Shares, if
any, under the Act. The Company believes that it was in the best interest of the
Company and its stockholders to enter into this transaction because the proceeds
of this transaction plus the Company's existing resources (a) provide the
Company with the funds necessary to continue its business and its research and
development activities while pursuing negotiation of several domestic and
international licensing opportunities; and (b) help the Company in its attempt
to meet the Net Tangible Asset requirements for continued listing on NASDAQ (see
"Important Factors Regarding Forward Looking Statements and Other Risks - NASDAQ
Delisting; Low Stock Price; Net Tangible Assets").

         History

         International Sports Wagering Inc., a Delaware corporation (the
"Company"), is a development stage company. The Company commenced operations in
May 1995 and is the successor by merger to Systems Enterprises, Inc., which was
organized in December 1992. The Company's SportXction(TM) sports wagering system
(the "System") was conceived by the Company's founder, Mr. Barry Mindes, who
together with Mr. Bernard Albanese, developed a simulation of the System for use
in determining whether casinos had interest in the System. Additionally, patent
applications covering the System were prepared and filed with the U.S. Patent
and Trademark Office ("PTO") and corresponding foreign patent applications were
also filed. Prior to its initial public offering, commencing in May 1995, the
Company raised approximately $1,700,000 in equity capital and, subsequently, net
proceeds of approximately $550,000 through a bridge financing. After the initial
equity capital was raised, personnel, consisting primarily of software engineers
and programmers, were recruited and hired and the Company engaged in research
and development and testing of the System. These activities included writing
software, developing required mathematical algorithms, performing statistical
modeling, selecting and configuring the hardware needed for the System and
determining the initial betting propositions to be offered. The Company tested
the System in a non-wagering environment and then conducted its own live trial

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in a wagering environment using play money. Thereafter, in mid-1996, the Company
sought approval for use of the System from the Nevada Gaming Authorities (as
hereinafter defined). On December 11, 1996, the Company consummated its initial
public offering (the "IPO") pursuant to which it sold 1,725,000 Units (including
over-allotments) for gross proceeds of $10,350,000. Each Unit consisted of one
share of the Company's Common Stock, par value $.001 per share (the "Common
Stock"), and one Redeemable Warrant (collectively, the "Warrants") to purchase
one share of Common Stock at an exercise price of $7.20 per share, which
Warrants expire on December 11, 2001. The Common Stock and Warrants now trade
separately on the NASDAQ Small Cap Market and no longer trade as a Unit.

         General

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

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

         The System's proprietary software permits fixed price betting during
the course of a sporting event by attempting to continuously balance the betting
pool on each betting proposition to within a pre-set level. In general, a
balanced pool is achieved when the money bet on one side of a betting
proposition is sufficient to pay off the winners on the other side of that
proposition, should the other side win. Wagers may be placed simultaneously at

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computer terminals located at multiple inter-linked casinos and other sports
wagering facilities. The System maintains a record of all wagers placed by each
bettor and keeps an account for each bettor, adding winnings and subtracting
losses. The Company recently developed a version of its System for use by
players betting from remote (non-casino or sportsbook) locations using a
personal computer ("PC") and a modem. This version of the System, which was
recently approved for use by the Nevada Gaming Authorities, accepts both
traditional pre-game wagers as well as play-by-play wagers (see "Recent
Developments" and "Governmental Regulation").

         On October 24, 1996, the Company completed a pre-trial of the System
(with play money) and, on November 25, 1996, the Company completed a live trial
(with real money) at the Excalibur Hotel & Casino in Las Vegas, Nevada.
Completion of the trial was one of the conditions for obtaining approval by the
Nevada State Gaming Control Board (the "Nevada Board") for the use of the
System. On January 6, 1997, the System was approved by the Nevada Board for use
in individual casinos. After additional modifications to the System, the Company
submitted the System to the Nevada Board for approval for use in wide area
operations. On August 21, 1997, the Nevada Gaming Commission (the "Nevada
Commission") approved the System for use in wide area operations. (The Nevada
Board and Nevada Commission are collectively referred to herein as the "Nevada
Gaming Authorities.") Wide area operations permit wagering during the course of
sporting events through PBSs located at multiple inter-linked casinos and gaming
establishments, simultaneously, with betting pools on each betting proposition
consolidated at a central hub (the "Hub"). In June 1997, the Company made
arrangements to have Yarlow, Inc. ("Yarlow"), an operator of sports pools in
Nevada, act as the Hub Operator, at least until such time as the Company
received a license from the Nevada Gaming Authorities to operate the Hub. The
Hub links, via telecommunications lines, the Company's PBSs located in
individual casinos or other gaming establishments. On August 21, 1997, the
Nevada Commission granted to Yarlow a gaming license as an operator of an
inter-casino linked system ("OILS License"). An OILS License is a form of gaming
license that permits the license holder to receive a share of revenue for
linking games or devices electronically among various licensed casinos. Yarlow
was required to obtain an OILS License in order to be permitted to operate the
System at the Hub. Live operation of the System commenced on September 21, 1997.
On January 13, 1998, the Company announced that Yarlow had suspended operation
of Tom's Sunset Casino, including operation of the SportXction(TM) System, as a
result of financial difficulties unrelated to the System (see "Management's
Discussion and Analysis").

         During the fiscal year ended September 30, 1997, the Company also
commenced the application process needed to obtain an OILS License which, among
other things, permits the Company to operate the Hub and enables the Company to
provide the System to sports wagering establishments in consideration for either
a portion of the revenue received by the establishment or on a transaction fee
basis. On April 23, 1998, the Nevada Commission granted the Company an OILS
License and registered it as a publicly-traded corporation. The Nevada
Commission further granted an exemption from the requirements of its Regulation
16.100(1), which would have otherwise prohibited the Company, as a
publicly-traded corporation, from holding an OILS License. The Company's OILS
License was limited and was due to expire at midnight on the date of the
November 1999 meeting of the Nevada Commission (unless renewed) and has a number
of conditions, all of which were agreed to by the Company, relating to the
Company's operations and the System's method of operation and accounting. On
November 18, 1999, the Nevada Commission renewed the Company's OILS License
without a time limitation (see "Recent Developments" and "Governmental
Regulation").

         The Company re-commenced operations on May 11, 1998, on a limited basis
in two wagering establishments with the Company performing the duties of Hub
Operator. During the hiatus in operations, between late January 1998 and late
May 1998, the Company enhanced the SportXction(TM) System with several new
features, including an improved parlay of sequential bets and free practice
bets. The Company has further enhanced the SportXction(TM) System with several
new features including a one-sided, long shot betting proposition which offers

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to the bettors larger payoffs for relatively small wager amounts. Despite these
new features and enhancements, the number of players wagering through the System
in casinos and the revenue generated by PBSs located in casinos has been
disappointing, and no assurance can be given that sufficient player use can be
generated to make it profitable (see "Marketing and Sales Strategy").

         On September 23, 1998, the Company announced that it had developed a
version of its SportXction(TM) sports wagering system that could be used for
betting from remote, non-casino or sportbook, locations, including a bettor's
home, utilizing a PC and modem by bettors who have established and funded
accounts at gaming establishments. This modified version of the System is
designed for use for legal sports wagering by a bettor from remote sites within
the State of Nevada. This System was designed to run on a third-party secure
Intranet that assures that players are placing their wagers from within Nevada.
On October 26, 1998, Alliance Gaming Corp. ("Alliance") announced that it had
developed the Remote Access Verification Environment (RAVE)(TM)1 technology
which provides the geographic call origination verification of its PC users and
is designed to comply with recently adopted Nevada legislation regarding on-line
gaming. In October 1998, the Company's revised version of its System in
combination with the RAVE(TM) technology was submitted for approval to the
Nevada Board.

         On November 2, 1998, the Nevada Commission adopted amendments to
several of its regulations, including Regulation 22 "Race Books and Sports
Pools." This revised regulation disallows the acceptance of wagers by race and
sports books made by means of telephone or other communications' systems, unless
they "... can demonstrate to the chairman's satisfaction that the wagering
communications originate from within the State of Nevada." This new regulation
took effect on March 1, 1999.

         On December 14, 1998, the Company and Alliance signed an agreement
pursuant to which the Company received an exclusive license to use the RAVE(TM)
technology in connection with legal, on-line or telephone betting on races or
sports events in conjunction with licensed race and sports books in the State of
Nevada. The Company has expanded the capabilities of the System to allow other
types of wagers, in addition to the play-by-play SportXction(TM) wagers,
including traditional pre-game side and totals, and some forms of parlay wagers.
The Company is currently in the process of enhancing the System to include
additional types of parlay wagers including teasers and round-robins. Future
enhancements could include the ability to allow futures, and fixed odds and
pari-mutuel wagers on racing. The agreement to license the RAVE(TM) technology
remains in effect for a period of seven years after final approval by the Nevada
Gaming Authorities.

         From December 1998 through January 1999, the Company conducted a series
of trials to verify the technical feasibility of running the SportXction(TM)
software over the Internet using a player's home PC. To this end, the Company
conducted contests on 20 football games where cash prizes were offered. The
trials were a success in that they confirmed the use of the SportXction(TM)
software in this environment.

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

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         In January 1999, the Nevada Gaming Authorities approved the use of the
RAVE(TM) technology as a communications technology. Nevada Regulations require
that communications technologies be reviewed on an annual basis.

         On May 13, 1999, the Company received approval from the Nevada Board to
begin a live money trial of its revised version of the SportXction(TM) wagering
system. This live trial commenced on August 2, 1999 with four participating
sports books, two in Las Vegas, and two in Reno and environs. This revised
version accepts both traditional pre-game wagers, and play-by-play wagers made
during the course of the sporting event, from remote locations within the State
of Nevada through means of a PC and utilizing the RAVE(TM) technology. On
November 30, 1999, the Nevada Board granted final approval for use of this
revised system in Nevada. The Company believes that this System is the first
approved system which allows bettors who have established and funded accounts to
place wagers from home PCs in Nevada.

         Recent Developments

         For a discussion of recent developments see "Business - Subsequent
Event" and "Management's Discussion and Analysis."

         Industry Overview

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

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

         In sports wagering, the gaming establishment, or "house," generally
seeks to maintain a "balanced book." A balanced book is achieved when the money
bet on one side of a betting proposition is sufficient to pay off the winners on
the other side of that proposition, should the other side win. To accomplish

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this, the house gives either a handicap (the point spread or margin by which the
favorite must win) or odds (a greater than equal payout on winning to the
underdog or a lesser one to the favorite) on the outcome of the event, or a
combination of both. The house's goal in general is to have the funds paid to
the winners equal the amount received from the losers, less the commissions that
the house charges for brokering the transactions and the use of its facilities.

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

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

         The SportXction(TM) Sports Wagering System

         Overview of the System

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

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

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         Operation of the System

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

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

         The System works on a "bet against deposited funds" basis. When a
bettor desires to begin wagering at a sports book, he deposits a sum of money
(above a minimum set by the sports book) with a cashier at the gaming

                                       9
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establishment and receives an account number and a personal identification
number ("PIN"). 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. The PBS will show credits equal to his
deposit. As wagers are placed, the credit balance in the PBS is reduced by the
amounts wagered. When the bettor wins, the monitor on the PBS shows that the
bettor has won and his credit balance in the PBS is automatically increased by
his winnings.

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

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

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

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

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

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

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

         Since May 11, 1998, when the Company began operating the System at the
Hub, the Company has assumed all pool imbalance risks associated with being the
house.

         System Components

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

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

                                       11
<PAGE>

television or display while betting, or even bet without viewing the game, such
as before the game begins. The System uses redundant hardware and re-start and
recovery software to maximize System up-time upon component failure.

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

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

                                       12
<PAGE>

         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.

         Remote Wagering

         The software which runs on the in-casino PBSs has been configured to
run on a player's PC so that the PBS functionality is available from computers
in remote locations. This software can be pre-loaded on a PC through a CD-ROM,
or can be downloaded over telecommunications lines. On the player's PC, the
software runs within Microsoft's Internet Explorer, a widely used web browser.
Within Nevada, the player's PC communicates with the Hub using telecommunication
lines within a private network. For systems located outside of Nevada, for use
in non-wagering contests, or for use in wagering in those venues where it is
legal, the player's PC can use the Internet to communicate with the Hub. The
remote wagering software accommodates both play-by-play and traditional pre-game
wagering.

         In Nevada, the System utilizes the RAVE(TM) technology in conjunction
with a private closed-loop network, to provide the geographic call origination
verification of the PC users in order to comply with Nevada regulations
regarding on-line gaming. The RAVE(TM) technology authenticates the user,
verifies that the call originated from within Nevada and that it was made from a
pre-approved phone line. The use of the Internet for on-line wagering in Nevada
is prohibited.

         Players who wish to wager remotely must first establish a account at a
participating casino or gaming establishment, and deposit money into that
account. This function is performed at a Cashier Station. The system components
required at the casino are essentially the same as those which are required for
those casinos which offer the Company's play-by-play wagering, except that the
PBSs are not required.

                                       13
<PAGE>

         Traditional Pre-game Wagering

         The System also accepts traditional pre-game side and totals wagers as
well as some forms of parlays. Pre-game wagers are treated by the System in the
same way as the play-by-play wagers. They are transmitted to the Hub where the
system software processes both the play-by-play and the pre-game wagers
simultaneously, and are then stored into an integrated database. However, for
ease of use, and to be consistent with the prevailing wagering practices in
Nevada, certain cosmetic changes have been made to the remote PBSs to
accommodate this type of wager. Currently, pre-game wagering is not available on
the in-casino PBSs.

         For pre-game wagering, the PBS display has been reorganized to make
better use of the screen space since room is no longer needed to accommodate a
window for the television image, nor is the sporting event status area needed.
Propositions for all games are displayed in one, not multiple, windows. The
system also displays the odds in a "money line" representation, which is the
representation used in virtually all Nevada sports books. Other changes have
been made consistent with the goal of making pre-game wagering easy and
convenient for the player.

         Because pre-game wagers arrive at a slower pace that play-by-play
wagers, less reliance is needed on the automatic line movement features of the
Company's System. Additional financial analysis programs are available for
manual review and control of the wagering pools.

         Marketing and Sales Strategy

         In the United States, sports wagering is currently legal only in the
State of Nevada. It is also legal in many foreign countries, including England,
Austria, Australia, Mexico and South Africa.

         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").
Sports wagering in Nevada's gaming establishments increased from approximately
$294 million in 1980 to $2.3 billion in fiscal 1999, earning more than $99
million. In 1999, there were approximately 138 licensed gaming establishments in
Nevada that offered sports wagering.

         The Company has marketed, and continues to market, the System to gaming
establishments in Nevada with its own personnel. The Company has two
inter-related products that it is marketing, the in-casino play-by-play wagering
system and the remote wagering system, which includes traditional pre-game
wagering in addition to the play-by-play wagering. The play-by-play wagering
System is currently operating in two gaming establishments in Las Vegas, Nevada,
with approximately 78 PBSs. The Company has signed agreements with seven casinos
and gaming establishments to operate the remote wagering system, and is
currently operational in four of them. One of these four establishments also

                                       14
<PAGE>

includes the in-casino PBSs. These establishments are inter-linked with the Hub
via telephone lines. One Hub system services both the in-casino and remote
wagering systems. Under its current arrangements with gaming establishments at
which the System is operating, each gaming establishment receives as fees, a
fixed percentage of the wagers placed at PBSs located at that gaming
establishment, or a fixed percentage of the gross wagering profit generated by
players wagering remotely which were signed up through the particular
establishment. The Company currently operates the Hub and it receives as
compensation for providing, servicing, maintaining and operating the System all
revenues generated by the System, less the fees paid to the participating gaming
establishments. As the operator of the System, the Company has assumed all pool
imbalance risks associated with being the house.

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

         The Company believes that the convenience of betting from home will
increase participation when compared to the participation from the casino
environment. In addition, the Company believes that gaming regulation changes
adopted on November 2, 1998 by the Nevada Commission (see "Governmental
Regulation"), coupled with the license agreement signed with Alliance providing
exclusive rights to the RAVE(TM) technology in the state of Nevada, will place
the Company in a strong position to aggressively pursue telephone wagering from
home. This marketplace could include pari-mutuel race wagering in the future.

         SportXction(TM) can also be used legally throughout the country in
conjunction with contests for prizes, and for wagering in much of the world
outside of the United States. The Company believes that the most significant
market for its products exists on the Internet in foreign venues, where such
wagering is legal, or on the Internet in the U.S. for non-wagering applications.
The Company is aggressively pursuing foreign and domestic licensing
opportunities of these types. All opportunities specifically exclude accepting
wagers from the U.S., or from other venues, where it is illegal.

         The Company believes that its future growth and income is largely tied
to its success with wagering in foreign venues and with non-wagering contests in
the United States. The Company is currently redirecting its sales and marketing
strategy to reflect this belief. Thus, the Company's primary focus will shift
from Nevada to these other opportunities (see "Management's Discussion and
Analysis - Recent Developments").

         Intellectual Property

         The Company regards the System, including the software contained
therein, as proprietary. The Company has two U.S. patents covering for its
proprietary wagering methods and its related computer processing system.

                                       15
<PAGE>


Corresponding applications have been filed in certain foreign countries and some
of those have been issued or are pending. 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, however, 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
patents. 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 applied for Federal trademark registration and for State of
Nevada servicemark registration for the name SportXction(TM) both of which have
been issued.

         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

                                       16
<PAGE>


was significantly curtailed. Although the Sports Act generally prohibits sports
wagering in every jurisdiction in the United States, including those
jurisdictions subject to the Indian Gaming Regulatory Act (25 U.S.C. Section
2701 et. seq.), the Sports Act permits such wagering in those jurisdictions that
authorized sports wagering prior to the effective date of the Act. 28 U.S.C.
Section 3704. Thus, sports books and wagering are permitted to continue to
operate in Nevada. Moreover, the Interstate Wire Act, 18 U.S.C. Section 1084,
also prohibits those in the business of betting and wagering from utilizing a
wire communication facility for the transmission in interstate or foreign
commerce of any bets, wagers or information assisting in the placing of such
bets and wagers on any sporting event or contest unless such betting or wagering
activity is specifically authorized in each jurisdiction involved.

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

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

         As of the present time, the SportXction(TM) sports wagering game is not
deemed by the Nevada Gaming Authorities to be either a sports pool or a
pari-mutuel wagering pool. If the SportXction(TM) game were deemed to be a
sports pool or pari-mutuel wagering pool, in order for the Company to receive a
portion of the revenue obtained therefrom or to receive compensation on a
transaction fee basis from either a sports pool or a pari-mutuel wagering pool,
it might need to obtain appropriate licensing from the Nevada Gaming
Authorities. It is unclear whether the Nevada Gaming Authorities will in the
future consider the SportXction(TM) game or System utilized in casinos or the
modified System to be used in connection with wagering from home, to be a sports
pool or pari-mutuel wagering pool and if so whether the Company would be

                                       17
<PAGE>

required to obtain any additional licensing, or the conditions that might be
imposed by the Nevada Gaming Authorities in connection with any such licensing.
There can be no assurances that the Company will be able to receive the
necessary licensing.

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

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

         In order for the Company to be compensated for use of the System on the
basis of a percentage of the revenue received by a licensed gaming establishment
or on a transaction fee basis, the Company was required to obtain an OILS
License and to be registered by the Nevada Commission as a publicly-traded
corporation (a "Registered Corporation"). In addition, because the Company
qualifies as a Registered Corporation as a result of the consummation of its
initial public offering, it was required to receive an exemption from provisions
of the Nevada Act that render a Registered Corporation ineligible to hold a
gaming license. On April 23, 1998, the Nevada Commission granted the Company an
OILS License and registered it as a Registered Corporation. The Nevada
Commission further granted an exemption from the requirements of its Regulation
16.100(1), which would have otherwise prohibited the Company, as a Registered
Corporation, from holding a Nevada OILS License. The Company's OILS License was
renewed, without time limitation, on November 18, 1999, and has a number of
conditions, all of which were agreed to by the Company, relating to the
Company's operations and to the System's method of operation and accounting. As
a Registered Corporation and a gaming licensee ("Gaming Licensee") the following
regulatory requirements will apply to the Company:

         As a Registered Corporation and Gaming Licensee, the Company is
required to maintain a regulatory compliance committee and periodically to
submit detailed financial and operating reports to the Nevada Commission and to
furnish any other information which the Nevada Commission may require.

                                       18
<PAGE>

Substantially all material loans, leases, sales of securities and similar
financing transactions are required to be reported to or approved by the Nevada
Commission.

         The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, a Registered Corporation
and Gaming Licensee in order to determine whether such individual is suitable or
should be licensed as a business associate of a Gaming Licensee. Officers,
directors and certain key employees of the Company were 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 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. Determination of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada. All of the Company's
current executive officers and directors, except for its outside directors, have
been licensed.

         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, the Company 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


                                       19
<PAGE>

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
Nevada Board Chairman 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 Nevada Board Chairman, 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.

                                       20
<PAGE>

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

         The Company is required to maintain a current stock ledger in Nevada
which may be examined by the Nevada Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder may
be required to disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be ground for finding
the record holder unsuitable. The Company will also be required to render
maximum assistance in determining the identity of the beneficial owner. The
Nevada Commission has the power to require the stock certificates of the Company
to bear a legend indicating that the securities are subject to the Nevada Act.
To date, the Commission has not imposed 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 initial public offering ("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

                                       21
<PAGE>

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.

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

         The Company has recently obtained approval, pursuant to Regulation
22.130, for the use the RAVE(TM) technology as a "communications technology" (as
defined in Regulation 22.010(5)), in connection with a system for wagering
outside licensed gaming establishments, but within the state of Nevada. This
approval permits both pre-game sports wagering and wagering using the System
during the course of an event. In order to use the RAVE(TM) technology in this

                                       22
<PAGE>

manner, however, the Company will need to operate under agreements with licensed
Nevada sports pools, which will in turn be required to comply with a number of
strict requirements set forth in Regulation 22.140. Furthermore, there can be no
assurance that future regulations will not be placed upon remote wagering
through the use of "communication technology."

         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. Under
1999 Nevada legislation, operators of inter-casino linked systems are required
to share a proportionate percentage of such taxes. Annual fees are also payable
to the State of Nevada for renewal of licenses as a manufacturer and
distributor.

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

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

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

         Legislation is currently pending in the United States Congress to
prohibit certain forms of betting or wagering or engaging in the business of
gambling over the Internet. A bill which was passed by the Senate, would also
prohibit betting or wagering or engaging in the business of gambling over
"interactive computer services." Although the System does not appear to fit

                                       23
<PAGE>

within the definition of an "interactive computer service" a contrary
interpretation may be adopted by the courts in the future. Therefore if enacted,
this bill may prohibit the operation of the System in all or certain forms. To
date, the U.S. House of Representatives, has not passed this or any similar bill
and it is uncertain if it will so.

         Competition

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

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

         American Wagering, Inc., through its subsidiary Leroy's Horse and
Sports Place ("Leroy's"), is a licensed bookmaker with approximately 46 sports
books, the largest number of sports book locations in the State of Nevada.
Leroy's sports books are operated primarily in casinos in major metropolitan
areas in Nevada and in its own facilities. Leroy's offers casinos a turnkey
sports betting operation that allows casinos to offer sports wagering to its
patrons without bearing the risk and overhead associated with conducting the
operation themselves. In October 1996, American Wagering, Inc. acquired the
subsidiary of Autotote Corporation which sold sports wagering equipment and
terminals to casinos and sports book operators in Nevada. The Company believes
that the subsidiary involved sold such equipment, which was largely record
keeping equipment, to virtually all of the approximately 138 casinos and sports
book operators in Nevada. American Wagering, Inc. also operates a pari-mutuel
sports wagering game, called MegaSports, which accepts pari-mutuel wagers on the
outcomes of sports contests, events that occur within or during those contests
and the outcomes of a group of sports contests. The Company believes that these
sports wagering products only accept wagers prior to commencement of events and,
since they are in pari-mutuel format, they will not include fixed price bets as
is customary in sports wagering.

         The Company may also 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

                                       24
<PAGE>

state sponsored lotteries; and AmTote International, Inc., suppliers of
equipment, systems and devices for pari-mutuel wagering on horses, dogs and in
jai alai; Video Lottery Technologies, Inc., which operates video lottery systems
and, through its subsidiary, United Wagering System, Inc., operates in the
pari-mutuel wagering business; WMS Industries Inc., which designs, manufactures
and sells coin-operated pinball and video games, home video games, casino gaming
devices and video lottery terminals; Alliance Gaming Corp. which designs,
manufactures and distributes electronic slot machines, video gaming machines,
video lottery terminals and computer gaming management systems; and several
smaller companies.

         There are also a large number of operators of Internet wagering systems
which accept traditional wagers on sporting events. They all operate from
foreign locations (typically in the Caribbean and Central America), as this type
of wagering is illegal in the United States. Most of such activities are
considered illegal by U.S. authorities as they accept wagers from persons in the
U.S. There is, however, an emerging market for legal Internet wagering, in which
foreign bookmakers only accept wagers from persons in countries where such
wagering is permitted, including England, Ireland, and Australia among others.
It is this legal wagering market which the Company is addressing.

         Personnel

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

         The Company also utilizes individuals on a part-time basis periodically
to augment its gaming operations personnel. The Company also utilizes outside
consultants on specific assignments or projects.

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

         Research and Development

         During the fiscal years ended September 30, 1998 and September 30,
1999, the Company spent approximately $996,000 and $1,017,000, 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 several trials of the System in Nevada required
for approval of its use in individual gaming establishments, for wide area
operation and remote wagering. The Company intends to continue to expend
significant sums on such activities.

                                       25
<PAGE>

         Important Factors Regarding Forward Looking Statements and Other Risks

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

         Single Product; Limited Contracts; Uncertain Market Acceptance. The
Company's success will depend primarily on the success of a single product, the
System. The Company has pursued an aggressive marketing and advertising campaign
to introduce the SportXction(TM) sports wagering system to the gaming public in
Nevada and to increase the number of players of the game. It retained the
services of a market research firm, with the goal of increasing public awareness
of this new game and increasing the number of players of the game. The Company
has added several new features and enhancements to the System to attract players
and increase wagering. Thus far, the total number of players has been limited
and the total amount wagered through the System has been modest. In addition,
the System is currently only in operation in two casinos and gaming
establishments. The Company has developed a version of the System that may be
used for betting from remote (non-casino) locations utilizing a PC and modem
over a secure Intranet within Nevada that it licensed from another party. This
revised version of the System was approved by the Nevada Board, on November 30,
1999. The Company believes that having this System available, for betting from
remote locations, including from home, will provide a more convenient
environment for players to try the SportXction(TM) game. The Company has
agreements pursuant to which seven casinos participate in signing up players and
establishing accounts. Of those seven, only four are operational. There is no
assurance that there will be market acceptance of betting from home using PCs in
the State of Nevada, since this has never been attempted previously in Nevada.
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

                                       26
<PAGE>

the System does not achieve sufficient market acceptance, the Company's
business, financial condition and results of operations would be materially and
adversely affected.

         Development Stage Company; Expectation of Losses. The Company is in the
development stage and has generated limited revenues from the System. As of
September 30, 1999, the Company had cumulative net losses since inception of
approximately $8.5 million and the Company expects to continue to incur
substantial losses and negative cash flow at least through calendar 2000. 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; the competitive and regulatory environment in which the Company plans to
operate; marketing problems; and additional costs and expenses that may exceed
current estimates.

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

         Limited Number of Casinos. The System is currently operating in only
five gaming establishments. One sports book has in-casino PBSs only, one
sports-book has both in-casino PBSs and also participates in signing up accounts
for the Company's remote wagering product. Three other sports-books (two of
which are affiliated) participate in only the remote wagering business. Each
gaming establishment receives a fixed percentage of either the handle (the
amount wagered through the System) or the hold (the handle minus the amount paid
to winners of wagers) generated through the System from its establishment.
Because only a modest amount of money is currently being wagered through the
System, one or several casinos may be unwilling or unable to continue to operate
the System in their casino. Under such circumstances, the Company would be

                                       27
<PAGE>

forced to cease operations in those casinos, thereby reducing the availability
of the System to potential patrons. No assurance can be given that the Company
could make arrangements with additional gaming establishments to install the
System in a timely manner, or at all.

         Capital Requirements; Need for Additional Financing. The Company
anticipates that its existing resources will be adequate to fund its capital and
operating requirements through the next 12 months based upon the Company's
current business plan (see "Management's Discussion and Analysis"). The
Company's capital requirements may vary materially from those now planned due to
a number of factors, including the rate at which the Company can introduce the
System, the market acceptance and competitive position of the System, the
response of competitors to the System and the ability of the Company and its
management to satisfy applicable licensing requirements. The Company may need to
raise additional capital to fund its future operations since, as of September
30, 1999, the Company had cash and short term investments equal to approximately
$1,557,000. 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 Nevada Board Chairman. The administrative
approval process for associated equipment includes an evaluation by the Nevada
Board's audit division and, in some cases, by the Nevada Board's electronic
services laboratory, followed by a field trial.

         On April 23, 1998, the Nevada Commission granted an OILS license to the
Company and registered it as a publicly-traded corporation. The Nevada
Commission further granted an exemption from the requirements of its Regulation
16.100(1), which would have otherwise prohibited the Company, as a
publicly-traded corporation, from a holding a Nevada OILS License. The Company's
OILS License was renewed without time limitation and has a number of conditions,
which were agreed to by the Company, relating to its method of operation and to
the manner in which the System would account for gaming transactions.

         The Nevada Commission has the discretion, at any time, to require that
the Company apply for a finding of suitability to be a manufacturer and
distributor of associated equipment. The operation of licensed gaming in
general, and the operation of race books and sports pools in particular, is
subject to strict licensing and regulatory control by the Nevada Board, the
Nevada Commission and various local, city and county regulatory agencies. No
applicant for a registration, license, finding of suitability or approval
(individually, a "Gaming License" and collectively, "Gaming Licenses") has any
right to the Gaming License. Any Gaming License issued or granted is a revocable

                                       28
<PAGE>

privilege, and no holder acquire any vested rights therein or thereunder. In
connection with the Company's application for renewal of its Gaming License, or
any further Gaming Licenses, the Nevada Commission will have the authority to
require that any beneficial owner of the Company's voting securities be
investigated and found suitable, although the Nevada Act does not require a
finding of suitability unless a person is the beneficial owner of more than 10%
of the outstanding voting securities. In addition, if any of the Company's
officers, directors, key employees or stockholders are denied a license or
finding of suitability, or are found unsuitable to continue having a
relationship with the Company, the Company would have to sever its relationship
with such persons. Furthermore, if the Company's Gaming Licenses are not
renewed, any existing approval for the System could be revoked and the Nevada
Commission could order the termination of any existing contracts for the System.
Moreover, the Company would be prevented from selling or distributing the System
for use or play in Nevada after the date of expiration of the Company's Gaming
License.

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

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

         The Company has recently obtained approval, pursuant to Regulation
22.130, for the use of the RAVE(TM) technology as a "communications technology"
(as defined in Regulation 22.010(5)), in connection with a system for wagering
outside licensed gaming establishments, but within the state of Nevada. This
approval permits both pre-game sports wagering and wagering using the System
during the course of an event. In order to use the RAVE(TM) technology in this
manner, however, the Company will need to operate under agreements with licensed
Nevada sports pools, which will in turn be required to comply with a number of
strict requirements set forth in Regulation 22.140. Furthermore, there can be no
assurance that future regulations will not be placed upon remote wagering
through the use of "communication technology."

         In August 1996, the United States Congress passed legislation which
created 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

                                       29
<PAGE>

practices with respect to the legalization or prohibition of gambling
activities, to formulate and propose changes in such policies and practices and
to recommend legislation and administrative actions for such changes. It is not
possible to predict the future impact of these proposals on the Company and its
operations. Any such proposals could have a material adverse affect on the
Company's business.

         Legislation is currently pending in the United States Congress to
prohibit certain forms of betting or wagering or engaging in the business of
gambling over the Internet. A bill which has been passed by the Senate would
also prohibit betting or wagering or engaging in the business of gambling over
"interactive computer services." Although the System does not appear to fit
within the definition of an "interactive computer service" a contrary
interpretation may be adopted by the courts in the future. Therefore if enacted,
this bill may prohibit the operation of the System in all or certain forms. To
date, the U.S. House of Representatives has not passed this or any similar bill
and it is unclear whether it will do so.

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

         Competition and Rapid Technological Change. The Company's operations
compete with other forms of gambling, both within and outside of Nevada,
including, but not limited to, sports wagering as currently conducted in Nevada,
casino games (such as traditional slot machines, video slot, poker and blackjack
machines, roulette, card games, keno and craps), bingo, state-sponsored
lotteries, on-and off- track betting on horses and dogs, jai alai, offshore
cruise ships, riverboats, illegal wagering of all types including that conducted
over the Internet 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.

                                       30
<PAGE>

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

         As the number of software products in the industry increases and the
functionality of these products further overlaps, software developers and
publishers may increasingly become subject to infringement claims. Although the
Company has not received any claim that it is infringing any patent or trade
secrets and is not currently aware of any claim that it is infringing any such
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

                                       31
<PAGE>

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, 2000. 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
an outside consultant are devoting attention to marketing and sales, and the
Company may 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 for wagering
in the United States is limited to casinos and sports book operations in the
State of Nevada. No assurance can be given that new markets will develop or that
legislation permitting sports wagering in other states within the United States
will be adopted. In addition, while sports wagering exists outside of the United
States, no assurance can be given that the System would be accepted in such
foreign markets or that compliance with any regulatory conditions imposed by
foreign jurisdictions will be achieved.

         Seasonality of Sporting Events. The Company's operations are
substantially dependent on a continuous supply of broadcast sporting events on
which bettors can wager. The Company believes that certain sports (such as

                                       32
<PAGE>

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

         Possible Exclusive Relationships Between Casinos and Third Parties. The
Company has focused its marketing efforts on casinos and sports book operations
in Nevada. The Company believes that sports wagering facilities in casinos are
currently operated either by the casino itself or pursuant to contractual
relationships with licensed sports book operators. The Company is aware of one
entity which owns and operates sports book facilities in approximately 48
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.

         Reliance on Third Party Products. The Company's remote wagering
utilizes Alliance Gaming Corp's RAVE(TM) technology, in conjunction with a
private closed-loop network, to provide the geographic call origination
verification of the PC users in order to comply with Nevada regulations
regarding on-line gaming. The Company has a seven year license with respect to
the RAVE(TM) technology, after which it would have no rights thereto. The
RAVE(TM) system authenticates the user, verifies that the call originated from
within Nevada and that it was made from a pre-approved phone line. The Nevada
Gaming Authorities approved the use of the RAVE(TM) technology on January 25,
1999 for one year. There is no assurance that the RAVE(TM) technology will be
able to retain its approval in the future, or that if changes are required due
to new technologies, changed regulations, tightened security requirements, or
for any other reason, that Alliance or the Company will be able to comply with
those changes. If the RAVE(TM) technology does not continue to be approved in
Nevada, there is no assurance that the Company will be able to find a substitute
technology from another vendor, or that it would be able to develop a
replacement technology internally, or that even if a replacement technology is
found that it could be procured on the same cost basis as the RAVE(TM)
technology. If the RAVE(TM) technology does not continue to be approved, and a
replacement technology is not found, the Company may be forced to discontinue
operations of the remote wagering features of its product.

         Possible Objections by Leagues and Broadcasters. The in-casino System
has operated 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

                                       33
<PAGE>

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, 1999, 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 44.3% 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; Net Tangible Assets. 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. As of September 30, 1999, the Company's
net tangible assets were below the $2,000,000 minimum. If the Company fails any
of the tests, the Common Stock or Warrants may be delisted from trading on
NASDAQ. On December 20, 1999, the Company received a letter from NASDAQ stating
that the Company no longer met the net tangible asset requirement for continued
listing on the NASDAQ Small Cap Market, and that NASDAQ was reviewing the
Company's eligibility for continued listing thereon. The Company intends to
provide NASDAQ with a plan for achieving compliance with all NASDAQ listing
requirements by January 3, 2000, as requested by NASDAQ. The effects of
delisting include the limited release of the market prices of the Company's
securities and limited news coverage of the Company. Delisting may restrict
investors' interest in the Company's securities and materially adversely affect
the trading market and prices for such securities and the Company's ability to
issue additional securities or to secure additional financing. On March 10,
1998, the Company received notice from NASDAQ indicating that because the
Company's shares of Common Stock failed to maintain a closing bid price of $1.00
or more for a period of 30 days, it would be subject to delisting. The Company
was given a period of 90 days in which to regain compliance with the minimum bid
price requirement. Prior to the end of such 90-day period, the Company's shares
of Common Stock met the minimum bid price requirement and, therefore, its shares

                                       34
<PAGE>

of Common Stock were not delisted. If in the future the Company's shares of
Common Stock failed to meet the minimum bid price requirement, it might have to
consider a reverse stock split or any other means permissible to attempt to meet
the minimum bid price requirement, or its shares could be deleted. In addition
to the risk of volatile stock prices and possible delisting, low price stocks
are subject to the additional risks of federal and state regulatory requirements
and the potential loss of effective trading markets. In particular, if the
Common Stock or Warrants were delisted from trading on NASDAQ and the trading
price of the Common Stock was less than $5.00 per share, the Common Stock or
Warrants could be subject to Rule 15g-9 under the Exchange Act which, among
other things, requires that broker/dealers satisfy special sales practice
requirements, including making individualized written suitability determinations
and receiving purchasers' written consent, prior to any transaction. If the
Company's securities were also deemed penny stocks under the Securities
Enforcement and Penny Stock Reform Act of 1990, this would require additional
disclosure in connection with trades in the Company's securities, including the
delivery of a disclosure schedule explaining the nature and risks of the penny
stock market. The Securities and Exchange Commission regulations define a "penny
stock" to be any non-Nasdaq equity security that has a market price (as therein
defined) of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. Such requirements could severely
limit the liquidity of the Company's securities.

         Future Sales of Restricted Securities; Registration Rights. As of
December 18, 1999, the Company had 7,853,993 shares of Common Stock outstanding.
Of these shares, 1,725,000 were registered in the Company's IPO in December 1996
and generally are freely tradable by persons other than affiliates of the
Company, without restriction or further registration under the Securities Act.
Of the balance, 6,024,269 shares of Common Stock (the "Restricted Shares")
outstanding, were sold by the Company prior to its initial public offering in
reliance on exemptions from the registration requirements of the Securities Act
and are "restricted securities" as defined in Rule 144 promulgated under the
Securities Act and may not be sold in the absence of registration under the
Securities Act unless an exemption therefrom, including an exemption afforded by
Rule 144, is available. Under Rule 144 (and subject to the conditions thereof),
3,477,408 of the Restricted Shares owned by Barry Mindes, Mindes Family Limited
Partnership, Bernard Albanese and the Marie Albanese Trust and are currently
eligible for sale. All of the remaining 2,546,861 Restricted Shares are also
currently eligible for sale. Prior to the IPO, the Company's officers, directors
and existing stockholders entered into agreements ("lock-up") which prohibited
them from selling stock in the Company without the prior written consent of
Barington Capital Group, L.P., the Company's managing underwriter for its IPO,
until December 12, 1997. On August 27, 1997, Barington released 948,135 shares
of the 6,024,269 shares locked up (none of which released shares were held by
directors, officers or employees of the Company). In consideration therefor,
those shareholders who had a portion of their shares released agreed to extend
the lock up on their remaining shares until December 12, 1998. Certain of 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.

                                       35
<PAGE>

         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 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. The Warrants and the Underwriters' options expire on December 11,
2001.

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

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

         Item 2.           Description of Property

         The Company currently leases approximately 2,350 square feet of space
in Little Falls, New Jersey under a lease expiring on June 30, 2000. Annual
lease payments for this facility, at which all development and most
administrative functions are currently conducted, during the fiscal year ended
September 30, 1999, were approximately $22,600. For the fiscal year ending
September 30, 2000 lease payments for this facility are expected to be
approximately $22,600. The Company also entered into a three year lease expiring
on April 30, 2000 for approximately 2,000 square feet of space in Las Vegas,

                                       36
<PAGE>

Nevada. This facility is used as the Hub for operating the System and for sales,
training, maintenance, repairs and storage of equipment. Lease payments for this
facility during the fiscal year ended September 30, 1999 were approximately
$35,700 and are expected to be approximately $40,200 during the fiscal year
ended September 30, 2000. The Company also leases off-site facilities in Nevada
for the storage of equipment.

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

         Item 3.     Legal Proceedings

         None.

         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, 1999.

                                     PART II

         Item 5.      Market for Common Equity and Related Shareholder Matters

         Market Information

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

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

    Quarter                                            High            Low
    -------                                            ----            ---
    October 1, 1997 to December 31, 1997               6               1
    January 1, 1998 to March 31, 1998                  1 3/16          1/2
    April 1, 1998 to June 30, 1998                     4 1/2           27/32
    July 1, 1998 to September 30, 1998                 2 9/32          1
    October 1, 1998 to December 31, 1998               3 1/8           3/4
    January 1, 1999 to March 31, 1999                  2 1/8           7/8
    April 1, 1999 to June 30, 1999                     2 13/32         5/8
    July 1, 1999 to September 30, 1999                 1 7/32          25/32

         The closing bid and asked prices on January 11, 2000 were $1 23/32 and
$1 7/8, respectively.

                                       37
<PAGE>

         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, 1999
was 40. The Company believes there are in excess of 2,000 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

         See "Business - Subsequent Event."

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

                                       38
<PAGE>

which it sold 1,725,000 units (including over-allotments) consisting of one
share of Common Stock and one redeemable warrant to purchase Common Stock at an
exercise price of $7.20 per share, for gross proceeds of $10,350,000. After
underwriting discounts and commissions, expenses paid to or for the benefit of
underwriters, and other costs of the IPO, net proceeds were approximately
$8,576,000.

         At or subsequent to the closing of the IPO, the Company expended
approximately $659,000 for repayment of the Bridge Notes; approximately
$1,335,000 for the purchase of computer equipment including PBSs; approximately
$813,000 for professional fees; approximately $404,000 for directors and
officers liability insurance premiums; approximately $622,000 for marketing the
System and approximately $132,000 for the purchase of a condominium in
Henderson, Nevada for use by its employees while traveling on business in
Nevada. After other expenses, including product enhancement and development,
sales and administration, approximately $1,557,000 remained in cash and
short-term, interest-bearing, investment grade securities as of September 30,
1999.

         Item 6.           Management's Discussion and Analysis

         Financial Results

         See "Business - Subsequent Event" for a description of a recent
transaction relating to a private sale of shares of Common Stock of the Company.

         For the year ended September 30, 1999, the Company had a net loss of
$2,393,239, compared with a net loss of $2,935,002 for the year ended September
30, 1998. Revenues of $10,990 were reported for the year ended September 30,
1999, compared with revenues of $36,418 reported for the prior year. Prior to
April 23, 1998, when the Company was granted an OILS license, the Company was
restricted to charging fixed fees for the use of the System. Subsequent to the
granting of the OILS license, the Company's revenues represent the net win (i.e.
total amount wagered less total amount paid out) of the System. The System was
operated for the entire year ended September 30, 1999, and for approximately
eight months of the year ended September 30, 1998.

         The net win is affected by the success (or lack thereof) of the players
in making sports wagering bets. The System automatically seeks to induce
balanced betting action for play-by-play type wagers. It operates most
efficiently when there are a substantial number of wagers being placed through
the System simultaneously. When the number of wagers through the System is
modest, as it has been most of the time the System has been in operation, it is
more difficult to attempt to create balanced pools. This tends to result in a
lower net win.

         The Company's net loss decreased by approximately $541,800 for the year
ended September 30, 1999. This resulted primarily from: marketing expenses,
which decreased by $278,600 to $171,618, primarily reflecting decreased
advertising to promote awareness of the SportXction(TM) game; a bad debt
write-off reduction of $79,497 to zero; salary expenses, which decreased by
$50,208 to $1,081,270, attributable to decreased administrative, marketing,
technical support activities; licensing expenses which decreased by $49,578 to

                                       39
<PAGE>

$42,555 due to reduced investigatory expenses associated with Nevada gaming
license applications; a decrease in general liability insurance by $35,638 to
$117,885 attributable primarily to reductions in directors and officers
liability insurance; depreciation expenses, which decreased by $33,234 from the
prior year to $386,184; a reduction in travel expenses by $27,208 to $44,715;
and a reduction in recruitment fees by $22,272 to $302, reflecting decreases in
employee hiring activity. These expense reductions were offset somewhat by a
decline in interest income which decreased by $95,546 to $125,713 due to reduced
investments.

         The Company incurred approximately $1,017,000 in research and
development costs for the year ended September 30, 1999, compared with
approximately $996,000 for the comparable prior year period.

         The Company continues to be in the development stage, with limited
revenues generated from the System. As of September 30, 1999, the Company had
cumulative net losses since inception of $8,496,761. It expects to continue to
incur substantial losses and negative cash flow at least through fiscal year
ended September 30, 2000. Contributing to this are the fact that revenues
currently being generated since the resumption of the operation of the System in
mid-May 1998 have been insignificant and the Company's expectation that it will
continue to incur substantial research and development expenses for further
product enhancement and development activities.

         As of September 30, 1999, the Company had liquid resources totaling
$1,557,030. These include cash and cash equivalents in the amount of $121,505,
and short term investments in the amount of $1,435,525. Investments are limited
to investment grade marketable securities with maturities of less than 18
months. The Company is in late stage negotiations with several companies who
wish to license the SportXction(TM) software for both domestic and foreign
markets. These license opportunities include wagering as well as non-wagering
(primarily contests) uses of the software. The Company expects that these
agreements, when signed, will produce revenue that, in conjunction with its
existing resources, will be able to satisfy its cash requirements for at least
36 months. There is no assurance however, that any of these agreements will be
signed. If these agreements are not signed, it may be necessary for the Company
to seek additional funding, or reduce its expenses by curtailing its operations
in Nevada, or both. If these agreements are not signed and the Company is unable
to raise additional funding on terms deemed reasonable, then the Company will be
required to curtail certain operations in order to reduce its expenses. Based
upon the anticipated reduction in its expenses, the Company believes that
existing resources will be sufficient to satisfy its contemplated cash
requirements for approximately 12 months. Capital expenditures are expected to
be limited to the purchase of additional computer equipment and leasing
additional computer equipment, most of which will be required in connection with
its activities relating to legal wagering from remote sites in Nevada (see
"Business - General"). Existing resources will fund these requirements (see
"Business - Subsequent Event").

                                       40
<PAGE>

         Recent Developments

         See "Business - Subsequent Event."

         The Company announced on July 20, 1999 that it signed agreements with
several Nevada casino based sports books to jointly market the Company's newest
version of its SportXction(TM) wagering system. This new version allows players
to make legal sports wagers from PC's linked via telephone lines from remote
(non-sports book) locations anywhere throughout the State of Nevada. The system
accepts wagers by bettors who have established and funded accounts at gaming
establishments. This System was designed to run on a third-party secure private
network that assures that players are placing their wagers from within Nevada,
as required by regulations of the Nevada Gaming Authorities.

         The Company announced on December 6, 1999, that it had received final
approval for the remote wagering system. The Company believes that this is the
first and only system thus far, which has received either final or live money
trial approval by Nevada Gaming Authorities, which allows players to place
sports wagers from PC's at remote sites. The sports book signs up patrons,
allowing them to establish accounts, deposit and withdraw funds. The Company
operates the centralized system, running consolidated wagering pools across the
participating sports books, which receive share of the revenue. Remote wagering
by means of a PC is currently available through four sports books (one of these
four establishments also has Player Betting Stations in one of its casinos,
permitting play-by-play wagering). These establishments are inter-linked with
the Hub via telephone lines. One Hub system services both the in-casino and
remote wagering systems.

         Utilization of the SportXction(TM) sports wagering system in casinos
and other gaming establishments has been disappointing to date. The Company
believes this is due to a variety of factors including players having to learn a
new game, lack of effective advertising means to address players in casinos who
are largely tourists, the inconvenience for local players to have to visit a
major casino in order to play and the fact that the system is currently
operational in only two casinos. In order to encourage more potential players to
wager through the System, the Company adapted the System to permit limited time
periods of free play and practice betting during the course of a sporting event.
It also introduced other new features and enhancements to the System to attract
additional players and increase wagering. Despite these new features and
enhancements, the revenue generated by the casino based PBSs remains small, and
is likely to remain insufficient to avoid continuing loses by the Company for
the foreseeable future.

         The Company is currently expanding the capabilities of the System to
allow other types of wagers. Ongoing software development has recently been
completed to allow the inclusion of teasers, futures, and other exotic wagers.
Future enhancements could include the ability to allow pari-mutuel wagers on
races. Another possible option is fixed (as opposed to pari-mutuel) odds race
wagering, which is very popular in foreign venues. All enhancements would have
to be approved by the Nevada Gaming Authorities before use for live money
wagering in the State of Nevada would be permitted.

         The wagering pools for traditional pre-game wagers, including parlays,
teasers and other exotic wagers, are more difficult to balance than play-by-play
wagers due to the larger size of those wagers, as well as the decreased
likelihood of multiple wagers being placed simultaneously. As the proportion of

                                       41
<PAGE>

traditional wagers increases, the Company's revenues, to the extent they are
based on net win, may be subject to increased volatility related to the success
(or lack thereof) of the players in making these types of sports wagers.

         On December 26, 1998, the Company launched free sports contests on the
Internet using its SportXction(TM) System as a non-wagering game. It conducted
approximately 20 contests through January 31,1999 as a trial of the technology
without any marketing. The technology trial was successful with modest player
participation.

         Although the current version of the System can be, and has been used
for contests by accumulating "play dollars", the Company is in the process of
enhancing the product by creating a version specifically for use for
non-wagering contests. This contest version allows the player to earn points for
making correct picks. The number of picks which can be made can be limited. The
points earned will be related to the odds of the outcome occurring, such that
picking the underdog side would earn more points than picking the favorite side,
if the pick turns out to be correct. The contest version can be connected to an
advertising module through which the player can earn the right to make more
picks, by watching advertisements, thereby increasing his ability to earn
contest points.

         SportXction(TM) can also be used legally throughout the country in
conjunction with contests for prizes, and for wagering in much of the world
outside of the U.S. The Company believes that these venues represent the most
significant market for its products, which have been successfully adapted for
use on the Internet. The Company is aggressively pursuing several foreign and
non-Nevada domestic marketing opportunities. All opportunities specifically
exclude accepting wagers from players in the U.S., or from other venues, where
it is illegal. The Company's marketing is focused in several areas; (i) pre-game
and play-by-play wagering from remote (non-casino) locations within the State of
Nevada using the RAVE(TM) technology, (ii) pre-game and play-by-play wagering on
the Internet or private networks in those foreign countries where it is legal,
and (iii) non-wagering applications, including games and contests nationally,
over the Internet, where the Company intends to derive revenue from advertising,
merchandising, and data-mining. All wagering products and systems may require
approval by the appropriate local gaming authorities.

         Furthermore, it is possible that the Company will close its in-casino
SportXction(TM) play-by-play wagering installations. The Company now provides
that capability from homes and other remote (non-casino) locations, where the
economics are far more favorable as the Company does not have to purchase,
supply and maintain the player's equipment (PCs, modems, monitors, printers,
etc) and telephone lines. The Company will no longer emphasize the marketing of
the in-casino version of its System to gaming establishments in Nevada.

         Year 2000 Issue

         The term "Year 2000 (`Y2K') Issue" is a general term used to describe
the various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail

                                       42
<PAGE>

to distinguish dates in the "2000's" from the date in the "1900's." These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field. The Y2K
computer software compliance issues may affect the Company and most companies in
the world. The Company's SportXction(TM) sports wagering System was designed and
developed during the past several years. As such, the Company recognized Y2K
problem and has attempted to write all of its proprietary software utilizing
four digits in order to avoid a Y2K problem. The Company also utilizes a variety
of software products in its database manufactured by Microsoft Corporation, all
of which are reported to be Y2K compliant. In addition to information provided
by Microsoft Corporation, the Company's technical staff had discussions with
vendors in order to determine whether such vendors' products were Y2K compliant.

         The Company's technical staff of software engineers and programmers are
continuing to analyze and test the hardware and peripheral products that it
utilizes in its System to determine whether they are Y2K compliant. The
Company's staff attempts to identify any hardware or software with potential Y2K
problems; assess the magnitude of such problems, if any; remedy any such
problems that are found and test the solutions; and plan for any contingencies.

         Based upon its efforts to date, the Company does not believe that its
System requires any material modifications or replacements in order to be Y2K
compliant. The Company does not believe that the readiness of its customers and
suppliers to be Y2K compliant will have a material impact on the Company. The
Company has developed contingency plans relating to the Y2K problems to the
extent such plans are possible. These plans attempt to mitigate both internal
risks of the Y2K problem with any risks that may be impacted by the Company's
customers and suppliers. The Company believes, however, that due to the
widespread nature of potential Y2K issues, the contingency planning process is
an ongoing one which may require further modifications as the Company obtains
additional information regarding any Y2K problems affecting the Company's
systems and equipment and regarding the status of its suppliers and customers
regarding their becoming Y2K compliant.

         Through September 30, 1999, the Company estimates that it has spent
approximately $46,000 in its efforts to achieve Y2K compliance, all of which has
been recognized as an expense in the Company's Statement of Operations. The
Company does not expect that any additional costs to be incurred in its efforts
to achieve Y2K compliance will have a material effect on its liquidity or
financial condition. The Company intends to fund the costs of becoming Y2K
compliant from its available liquid assets.

         The failure to correct a material Y2K problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Y2K problem, resulting in part from the uncertainty
of the Y2K readiness of the Company's customers and suppliers, the Company is
unable to determine at this time whether the consequences of any Y2K failures
will have a material impact on the Company's results of operations, liquidity or
financial condition.

                                       43
<PAGE>

         Safe Harbor Statement

         The preceding "Y2K problem" discussion contains various forward-looking
statements which represent the Company's beliefs or expectations regarding
future events. When used in the "Y2K problem" discussion and elsewhere in this
Management's Discussion and Analysis, the words "believes," "expects,"
"estimates," "may" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements include, without
limitation, the estimated cost of becoming Y2K compliant and the Company's
belief that its System and equipment will be Y2K compliant in a timely manner
and that the readiness of its customers and suppliers to be Y2K compliant will
not have a material impact on the Company. All forward-looking statements
involve a number of risks and uncertainties that could cause the actual results
to differ materially from the projected results, including problems that may
arise on the part of third parties. Factors that may cause these differences
include, but are not limited to, the availability of qualified personnel and
other information technology resources; the ability to identify and radicate all
date sensitive lines of computer code or to replace embedded computer chips in
affected systems or equipment; and the actions of governmental agencies or other
third parties with respect to Y2K problems. If the modifications and conversions
required to make the Company Y2K compliant are not made or are not completed on
a timely basis, the resulting problems could have a material impact on the
operations of the Company. This impact could, in turn, have a material adverse
effect on the Company's results of operations and financial condition.

         Item 7.    Financial Statements

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

         None.

                                    PART III

         Item 9.    Directors, Executive Officers, Promoters and Control
                    Persons; Compliance with Section 16(a) of the Exchange Act

         The Board of Directors

         The following table sets forth the names of the current directors and
executive officers of the Company and certain information with regard to each
such person.

      Name                      Age       Position with the Company
      ----                      ---       -------------------------
 Barry Mindes                   68        Chairman of the Board and Secretary

 Bernard Albanese               52        President, Treasurer (Chief Financial
                                            Officer) and Director

 Fredric Kupersmith (1)         66        Director

 Janet Mandelker (2)            32        Director

 Harold Rapaport (1)(2)         77        Director

-----------------
(1)  Member of the Audit Committee.
(2)  Member of the Stock Option Committee.

         Barry Mindes is the founder of the Company and has served as Chairman
of the Board of the Company since inception. Since December 1998, he has also
served as Secretary of the Company. From inception through August 1996, he also
served as Chief Executive Officer, President and Secretary of the Company, and
from inception to July 1995, he also served as Treasurer of the Company. Mr.
Mindes founded Systems Enterprises Inc., a predecessor to the Company, in
December 1992, and from its inception until its merger with the Company in May
1995, served as its only officer, director and stockholder.

                                       44
<PAGE>

         Bernard Albanese has served as President of the Company since September
1996, as Treasurer since July 1995, as Vice President-Systems from July 1995
until August 1996, and as a director since October 1996. From 1993 to 1995, Mr.
Albanese was Vice President--Operations of Advanced Data Systems Inc., a
provider of medical-related computer systems, in which position he was
responsible for all installation, training and telephone support for an
installed base of over 1,000 customers.

         Fredric Kupersmith has served as a director of the Company since
October 1996. Since 1977, Mr. Kupersmith has been President of Polsim
Consultants Inc., a private company that provides consulting services in
communications, computer and television systems. From 1971 to 1992, Mr.
Kupersmith held various executive positions at New York City Off-Track Betting
Corporation, including Vice President of Computers and Communications Systems.

         Janet Mandelker has served as a director of the Company since July
1995. Since March 1999, she has been pursuing graduate studies. From June 1998
until March 1999, she was an independent consultant. From December 1997 until
June 1998, Ms. Mandelker served as a financial analyst with DePuy ACE Medical
Company. From October 1996 through November 1997, she was an independent
consultant. From 1992 until October 1996, Ms. Mandelker served as Assistant
Managing Director of KuwAm Corporation, a private investment firm. Barry Mindes
is the father of Janet Mandelker.

         Harold Rapaport has served as a director of the Company since July
1995. Mr. Rapaport is an electronics, communications and computer executive with
over 40 years experience in management, technology and marketing. He is
President of Rapaport Associates, management consultants to high technology
businesses. From 1982 until 1995, he was Chairman of Control Transaction
Corporation, a manufacturer of computer-based point of sale systems. Mr.
Rapaport served as Chairman of the Board of RE Harrington Inc. from 1987 to
1996, when it was acquired by Health Plan Services Inc.

         The Board of Directors and Committees

         The business and affairs of the Company are managed by the Board, which
met four times and acted by unanimous written consent numerous times during the
fiscal year ended September 30, 1999. During such fiscal year, all current
directors attended all of the meetings of the Board and the Committees on which
they served except for Ms. Mandelker who was unable to attend one meeting of the
Board. The Board maintains two standing committees: the Audit Committee and the
Stock Option Committee.

         The Audit Committee, consisting of Fredric Kupersmith and Harold
Rapaport, has authority to recommend annually to the Board the engagement of the
Company's independent public accountants and to review the independence of the
accounting firm, the audit and non-audit fees of the independent accountants and
the adequacy of the Company's internal control procedures. The Audit Committee
held no meetings during the fiscal year ended September 30, 1999, but acted by
unanimous written consent shortly after the end of such fiscal year in order to
approve the retention of KPMG LLP as the Company's independent public
accountants for the fiscal year ending September 30, 2000.

         The Stock Option Committee, consisting of Janet Mandelker and Harold
Rapaport, has authority to administer the Company's 1995 and 1996 Stock Option
Plans, (the "Plans") and in this capacity determines the persons to whom options
should be granted under such Plans and the number of options to be granted to
such persons. The Stock Option Committee held one meeting during the fiscal year
ended September 30, 1999, and acted by unanimous written consent numerous times
during such year.

         The Company does not have a nominating or a compensation committee.

                                       45
<PAGE>

         Executive Officers and Key Personnel

         Set forth below is certain information, as of January 21, 2000,
regarding the executive officers and key personnel of the Company.

   Name                      Age           Position with the Company
   ----                      ---           -------------------------
Barry Mindes                 68            Chairman of the Board and Secretary

Bernard Albanese             52            President, Treasurer (Chief Financial
                                             Officer) and Director

Andrew Harbison              41            Vice President-Software
                                             Development

         Information with regard to Mr. Mindes and Mr. Albanese is set forth
under "The Board of Directors."

         Andrew Harbison has served as Vice President-Software Development of
the Company since October 1996. From June 1995 to October 1996, Mr. Harbison
served as Manager of Software Development of the Company. From 1993 to 1995, Mr.
Harbison served as Vice President of Programming of Infomed Holdings, Inc., in
which position he was in charge of the programming and data conversion
department consisting of 25 individuals involved in developing computer systems
for medical billing, clinical records and managed care systems.

         In addition to the above, Sidney Diamond served as General
Manager-Nevada Operations of the Company from February 1997 until May 1999, when
he left the employ of the Company. For five years prior thereto, Mr. Diamond was
in charge of the race and sports book operations at Excalibur Hotel and Casino
in Las Vegas, Nevada.

         Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and persons who own
beneficially more than 10% of the Company's Common Stock to file reports of
ownership and changes in ownership of such stock with the Securities and
Exchange Commission (the "SEC"). Directors, executive officers and greater than
10% stockholders are required by SEC regulations to furnish the Company with
copies of all such reports they file. To the Company's knowledge, based solely
on a review of the copies of such reports furnished to the Company and written
representations that no other reports were required, its directors, executive
officers and greater than 10% stockholders complied with these requirements
during the fiscal year ended September 30, 1999, except that Sidney Diamond,
formerly the General Manager, Nevada Operations, filed one Form 4 with respect
to the sale of shares of the Company's Common Stock, approximately 10 days late.
Mr. Diamond left the employ of the Company in May 1999.

                                       46
<PAGE>

         Item 10. Executive Compensation

         Summary Compensation Table

         The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company for the fiscal years ended September
30, 1999, 1998 and 1997 to Barry Mindes, the Company's Chairman of the Board and
Principal Executive Officer, and to each of the most highly compensated
executive officers and key personnel, whose annual base salary and bonus
compensation exceeded $100,000.

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                         Annual Compensation                            Long Term Compensation

                                                                                         Awards         Payouts
                                                                                         ------         -------
                                                                                       Securities
Name and Principal                                                 Other Annual        Underlying      All Other
Position                     Year         Salary      Bonus       Compensation(1)       Options       Compensation
                                           ($)         ($)             ($)                (#)              ($)
<S>                          <C>         <C>         <C>            <C>                 <C>            <C>
Barry Mindes                 1999        166,250       -0-           15,690(2)            -0-              -0-
Chairman of the Board        1998        127,500       -0-           19,600(2)            -0-              -0-
                             1997        115,000     100,000         25,122(2)            -0-              -0-
                             ---------------------------------------------------------------------------------------
Bernard Albanese             1999        152,500       -0-              -0-             45,000(4)          -0-
President and Treasurer      1998        150,000       -0-              -0-             80,000(4)          -0-
                             1997        137,008      25,000            -0-             80,000             -0-
                             ---------------------------------------------------------------------------------------
Sidney Diamond               1999        102,408       -0-              -0-                -0-             -0-
General Manager-Nevada       1998        200,000       -0-              -0-            100,000(4)          -0-
Operations(3)                1997        132,308       -0-              -0-            100,000             -0-
                             ---------------------------------------------------------------------------------------
Andrew Harbison              1999        122,423       -0-              -0-             30,000(5)          -0-
Vice President-Software      1998        104,606       6,694            -0-             30,000(5)          -0-
Development                  1997         96,528      10,000            -0-             30,000             -0-

--------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Excludes personal benefits which did not exceed the lesser $50,000 or 10%,
     on annual basis, of such person's salary and bonus.

(2)  Represents benefits attributable to the Company's payments or
     reimbursements for lease of a car (approximately $7,220 in the fiscal year
     ended September 30, 1999; $11,330 in the fiscal year ended September 30,
     1998 and $10,300 in the fiscal year ended September 30, 1997, other
     expenses relating to such car, life insurance premiums ($6,746 in the
     fiscal year ended September 30, 1999), medical insurance and related
     expenses and certain other perquisites.

(3)  Mr. Diamond became an officer of the Company in February 1997. The salary
     shown for Mr. Diamond includes a base salary at the rate of $100,000 per
     annum plus a non-refundable draw of $100,000 per annum, against certain
     commissions to which he might have become entitled. Mr. Diamond left the
     employ of the Company on May 21, 1999.

(4)  On December 21, 1998, Mr. Albanese was granted options to purchase 45,000
     shares of Common Stock at $1.41 per share, the fair market value of the
     Company's Common Stock on that date. On March 16, 1998, Mr. Albanese and
     Mr. Diamond were granted options to purchase 80,000 and 100,000 shares of
     Common Stock, respectively, at an exercise price of $0.72 per share, the
     fair market value of the Common Stock on such date, upon the surrender of
     options to purchase a similar number of shares previously granted to them
     at a higher exercise price.

(5)  On December 21, 1998 Mr. Harbison was granted options to purchase 30,000
     shares of the Company's Common Stock at $1.41 per share, the fair market
     value of the Company's Common Stock on that date. On February 23, 1998, Mr.
     Harbison was granted an option to purchase 30,000 shares of Common Stock at
     an exercise price of $0.672 per share, the fair market value of the Common
     Stock on such date, upon the surrender of options to purchase a similar
     number of shares previously granted to him at a higher exercise price.

                                       47
<PAGE>

Stock Option Tables

                        Option Grants in Last Fiscal Year

         The following tables sets forth for the fiscal year ended September 30,
1999, the options to purchase Common Stock granted to the executives named
below.

<TABLE>
<CAPTION>
                                  Number of        Individual Grants
                                  Securities       Percent of Total
                                  Underlying       Options Granted      Exercise
                                  Options          to Employees in      Price
  Name                            Granted          Fiscal Year(1)       ($/Sh)(2)    Expiration Date
---------------------------------------------------------------------------------------------------------
<S>                               <C>              <C>                  <C>          <C>
  Barry Mindes, Chairman of
  the Board                          -0-                 -0-               ___                ___

  Bernard Albanese,
  President and Treasurer        45,000(3)               23.6              1.41        December 20, 2008

  Sidney Diamond, General
  Manager-Nevada Operations
                                     -0-                 -0-               ___                ___
  Andrew Harbison,
  Vice President-Software
  Development                    30,000(3)               15.7              1.41        December 20, 2008

----------------------------------------------------------------------------------------------------------
</TABLE>

(1)  During the fiscal year ended September 30, 1999, the Company granted a
     total of 191,000 options to employees under the 1996 Stock Option Plan.
     This number was used in calculating the percentages set forth above.

(2)  The exercise price is equal to the fair market value of the Common Stock on
     the date of the grant of such options.

(3)  Represents options granted on December 21, 1998, which vest in four equal
     annual installments, commencing on the first anniversary of the date of
     grant (see Notes 4 and 5 to Summary Compensation Table).

                                       48
<PAGE>

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

         The following table sets forth, as of September 30, 1999, information
concerning outstanding options to purchase Common Stock held by the executives
named below.

<TABLE>
<CAPTION>
                                                  Number of Securities             Value of Unexercised
                                                  Underlying Unexercised           "In-the Money" Options
                                                  Options at September 30, 1999    at September 30, 1999(1)
                                                  ------------------------------   --------------------------
                          Shares        Value     Exercisable      Unexercisable   Exercisable  Unexercisable
                          Acquired on   Realized
                          Exercise      (2)
-------------------------------------------------------------------------------------------------------------
<S>                            <C>         <C>           <C>             <C>            <C>           <C>
Barry Mindes                  -0-         -0-           -0-             -0-            -0-           -0-
Chairman of the Board


Bernard Albanese              -0-         -0-         151,367         139,900        16,122         9,485
President and Treasurer

Sidney Diamond               33,000     $23,745         -0-             -0-            -0-           -0-
General Manager-Nevada
Operations

Andrew Harbison               -0-         -0-         103,714          50,000        11,667         3,810
Vice President-Software
Development

-------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Options are "in-the-money" at the fiscal year-end if the fair market value
     of the Common Stock on such date exceeds the exercise price of the option.
     The last sales price of the securities underlying the options on September
     30, 1999, was $0.8125 per share.

(2)  Value realized is the closing market price of the Common Stock on the date
     of exercise less the option price, multiplied by the number of shares
     acquired, or that could be acquired, on exercise.

         Employment Agreements

         The Company entered into a one-year employment agreement with Barry
Mindes dated as of July 1, 1999, for the period from July 1, 1999 through June
30, 2000, pursuant to which (i) Mr. Mindes receives a base salary of not less
than $170,000 per annum; (ii) such salary increases, bonuses or other incentive
compensation as may be approved by the Board; (iii) such health and life
insurance and other fringe benefits as may be provided to other executives of
the Company; (iv) six weeks of vacation each year; and (v) severance equal to
one year's base salary and continuation of fringe benefits at the end of the
term of the Agreement. In the event that, during the term (a) the Company
requests that he relocate and, as a consequence, he voluntarily terminates his
employment, or (b) the Company terminates his employment other than for "cause"
(as defined in the Agreement), or his employment terminates as a result of his
death or disability, he or his representative is entitled to continued payment
of his base salary and benefits for a period of one year. In addition, in the
event of a "change of control" (as defined in the Agreement) of the Company
during the term, followed by termination of his employment either (i) by the
Company, other than as a result of death or disability or for cause, or (ii) by
him for "good reason" (as defined in the Agreement), he is entitled to continued
payment of base salary and benefits until the end of the term, but not for less
than six months. In addition, Mr. Mindes is entitled to payment of such
severance if, after a change of control, he elects voluntarily to terminate his
employment with the Company. Mr. Mindes is also entitled, at the Company's
expense, to the use of a leased automobile, including all operating, maintenance
and insurance expenses. In addition, in lieu of participating in the health
insurance program provided by the Company, Mr. Mindes may elect to participate
in other health insurance (including Medicare), in which case the Company shall
pay or reimburse him for (i) any deductible or co-payments required to be paid
by him, (ii) any medical or hospitalization costs not reimbursed to him by such
other health insurance (and/or Medicare) and (iii) the premiums for his existing
life insurance policies in the amount of $200,000, provided that the aggregate
payment to which he shall be entitled for all of the foregoing during the term
of the Agreement shall not exceed $13,400.

                                       49
<PAGE>

         The Company entered into a two-year employment agreement with Bernard
Albanese dated as of July 1, 1998 for the period from July 1, 1998 through June
30, 2000, pursuant to which (i) Mr. Albanese receives a base salary of not less
than $150,000 per annum; (ii) such salary increases, bonuses or other incentive
compensation as may be approved by the Board; (iii) such health and life
insurance as may be provided to other executives of the Company; and (iv)
severance equal to six months' base salary (one year's base salary after
reaching age 55) in the event (a) the Company requests that he relocate and, as
a consequence, he voluntarily terminates his employment, or (b) the Company
terminates his employment other than for cause (as defined in the Agreement) or
if his employment terminates as a result of his death or disability during the
term or after the term but while he continues to be employed by the Company, or
(c) upon expiration of the term of the Agreement without the Agreement being
renewed or replaced. In addition, in the event of a "change of control" (as
defined in the Agreement) of the Company, followed by termination of his
employment either (i) by the Company, other than as a result of death or
disability or for cause, or (ii) by him for "good reason" (as defined in the
Agreement), he is entitled to (a) if termination occurs during the term,
continued payment of base salary and benefits until the end of the term but not
for less than six months, or (b) if termination occurs after the term, but while
he is still employed by the Company, payment of six months' base salary and
benefits. The Agreement also provides that if his employment terminates for any
reason whatsoever, including his death or disability, other than by the Company
for cause or by him voluntarily (other than as permitted by the Agreement), all
stock options theretofore granted to him which have not become exercisable shall
vest and become exercisable and remain exercisable in accordance with the
Company's 1995 and 1996 Stock Option Plans and related stock option agreements.

                  Each of Messrs. Mindes and Albanese have entered into
agreements restricting competitive activities for 12 months following
termination of their employment and prohibiting disclosure of confidential
information of the Company.

                  On February 3, 1997 the Company entered into a three-year
employment agreement with Sidney Diamond, pursuant to which Mr. Diamond served
the Company in the capacity as General Manager-Nevada Operations. During the
term of the agreement, Mr. Diamond received an annual base salary of $100,000,
and during the first two years of the term an additional non-refundable draw at
the rate of $100,000 per year against certain commissions to which might have
become entitled. In the third year of the term, he is entitled to certain
commissions earned by him as specified in the Agreement. Mr. Diamond was
entitled to severance equal to six months' base salary if the Company terminates
his employment without cause during the term. As an integral part of the
employment agreement, the Company loaned to Mr. Diamond $100,000, which loan
accrued no interest and was repayable in bi-weekly installments such that during
the first year of the term $50,000 was repaid and during each of the second and
third year of the term $25,000 would be repaid to the Company. If Mr. Diamond's
employment had been terminated by the Company other than as a result of his
death, disability or for cause, prior to the end of the term, the unpaid balance
of the loan was to be forgiven. During the fiscal year ended September 30, 1999,
the largest amount that was outstanding on this loan was $33,687 Mr. Diamond
left the employ of the Company on May 21, 1999. Shortly after he left the
Company's employ, the remaining balance of the loan was repaid.

         Director Compensation

                  Prior to October 1, 1998, outside directors did not receive
any cash compensation for their services as members of the Board or Committees
of the Board, although they were reimbursed for their out-of-pocket expenses
incurred in attending Board and Committee meetings. Effective as of October 1,
1998, the Company pays each outside director $1,000 for each Board meeting
attended, up to a maximum of $4,000 per fiscal year. The Company also
compensates outside directors by means of grants of options at fair market value
on the date of grant. During the fiscal year ended September 30, 1999, each the
outside directors, Mr. Kupersmith, Ms. Mandelker and Mr. Rapaport, were granted
options to purchase 24,000 shares of the Company's Common Stock at a price equal
to the fair market value of such shares on the date the options were granted.
Each of such outside directors have been granted options in prior fiscal years,
all of which have been described in proxy statements previously furnished to the
Company's shareholders (see "Security Ownership of Certain Beneficial Owners
and Management").

                                       50
<PAGE>

Item 11. Security Ownership  of Certain Beneficial Owners and Management

         The following table sets forth, as of January 21, 2000, certain
information regarding beneficial ownership of the Company's outstanding Common
Stock, par value $.001 per share ("Common Stock") by (i) each person known by
the Company to beneficially own more than five percent of the outstanding Common
Stock, (ii) each current director and executive officer of the Company and (iii)
all directors and executive officers as a group. As of January 21, 2000, there
were outstanding 8,659,326 shares of the Company's Common Stock. No shares of
the Company's Preferred Stock, par value $.001 per share, were outstanding.

Name and Address of                       Amount and Nature of        Percent of
Beneficial Owner (1)                      Beneficial Ownership(2)      Class(3)

Barry Mindes (4)                                3,023,952                34.9

Mindes Family Limited Partnership               1,511,523                17.5

Bernard Albanese (5)                              353,525                 4.0

The Marie Albanese Trust,
Marie Albanese and Christine                      302,304                 3.5
Albanese, trustees (6)

Fredric Kupersmith (7)                             62,696                 *

Janet Mandelker (8)                                58,661                 *

Harold Rapaport (9)                                81,322                 *

Barry Rubenstein (10)                             593,000                 6.8

Andrew Harbison (11)                              159,990                 1.8

All directors and executive officers            3,740,146                40.9
as a group (6 persons) (12)
-------------------------------------------------------------------------------

*    Less than 1%

(1)  The address of each beneficial owner identified is c/o International Sports
     Wagering Inc., 201 Lower Notch Road, Suite 2B, Little Falls, NJ 07424,
     except as indicated in Note 10.

(2)  Unless otherwise indicted, the Company believes that all persons named in
     the table have sole voting and investment power with respect to all shares
     of Common Stock beneficially owned by them. A person is deemed to be the
     beneficial owner of Common Stock that can be acquired by such person within
     60 days of the date hereof upon the exercise of options, warrants or
     convertible securities.

(3)  Each beneficial owner's percentage ownership is determined by assuming that
     (i) options, warrants or convertible securities that are held by such
     person (but not those held by any other person) and which are exercisable
     within 60 days of the date hereof have been exercised or converted and are
     outstanding and (ii) 8,659,326 shares of Common Stock are outstanding,
     before any consideration is given to options, warrants or convertible
     securities.

(4)  Includes 1,511,523 shares held by Mindes Family Limited Partnership, the
     general partner of which is an entity wholly-owned by Mr. Mindes. Mr.
     Mindes disclaims beneficial ownership of the shares owned by Mindes Family
     Limited Partnership to the extent such shares exceed his proportionate
     interest therein. Does not include shares beneficially owned by Mr. Mindes'
     daughter, Janet Mandelker, as to which Mr. Mindes disclaims beneficial
     ownership.

(5)  Includes 202,373 shares underlying options held by Mr. Albanese which are
     exercisable within 60 days of the date hereof.

                                       51
<PAGE>

(6)  Marie Albanese and Christine Albanese are the wife and daughter,
     respectively, of Mr. Albanese. Mr. Albanese disclaims beneficial ownership
     of the shares of Common Stock held in such Trust.

(7)  Includes 43,500 shares underlying options held by Mr. Kupersmith which are
     exercisable within 60 days of the date hereof.

(8)  Represents 58,661 shares underlying options held by Ms. Mandelker which are
     exercisable within 60 days of the date hereof. Does not include any shares
     held by Mindes Family Limited Partnership, in which Ms. Mandelker has a
     beneficial interest. Ms. Mandelker disclaims beneficial interest in shares
     held by Mindes Family Limited Partnership to the extent such shares exceed
     her proportionate interest therein.

(9)  Includes (i) 52,604 shares underlying options held by Mr. Rapaport which
     are exercisable within 60 days of the date hereof and (ii) 21,161 shares
     owned by Rapaport Family Limited Partnership, of which Mr. Rapaport is the
     General Partner. Mr. Rapaport disclaims beneficial ownership of the shares
     owned by Rapaport Family Limited Partnership to the extent such shares
     exceed his proportionate interest therein.

(10) Includes 193,000 shares owned by Woodland Partners, 40,000 shares owned by
     Brookwood Partners, L.P., 120,000 shares owned by Seneca Ventures and
     240,000 shares owned by Woodland Venture Fund, each of which Barry
     Rubenstein, or entities controlled by him, is general partner. The address
     for Barry Rubenstein and the investment partnerships of which he or
     entities controlled by him is general partner is 68 Wheatley Road,
     Brookville, NY 11545.

(11) Includes 123,714 shares underlying options held by Mr. Harbison which are
     exercisable within 60 days of the date hereof.

(12) Includes (i) 1,511,523 shares held by Mindes Family Limited Partnership
     (see Note 4 above), (ii) 21,161 shares held by Rapaport Family Limited
     Partnership (see Note 9 above) and (iii) an aggregate of 480,852 shares
     underlying options held by all directors and executive officers as a group
     which are exercisable within 60 days of the date hereof. Does not include
     302,304 shares held by The Marie Albanese Trust (see Note 6 above).

         Item 12. Certain Relationships and Related Transactions

         On January 12, 2000 Barry Rubenstein, investment partnerships in which
Mr. Rubenstein is general partner and certain other accredited investors
(collectively the "Investors") purchased 800,000 shares of the Company's Common
Stock (the "Shares"), at a price of $1.25 per share, a total of $1,000,000, in a
private transaction that was not registered under the Securities Act of 1933, or
amended ("Act"). The Company also agreed as part of the sale of the Shares, that
if by April 11, 2000, it did not enter into a transaction (the "Subsequent
Transaction") relating to the licensing of its proprietary software and
intellectual proprietary, pursuant to which Subsequent Transaction the Company
is to receive at least $7.5 million during the period of three years after the
date of the Subsequent Transaction, then the Company would either (a) refund to
the Investors a total of $520,000 or (b) deliver to the Investors a total of
866,667 additional shares (the "Additional Shares"). The Company must determine
by no later than February 11, 2000 which of the foregoing alternatives it would
elect if the Subsequent Transaction does not occur. The Company also agreed to
promptly file a Registration Statement with the SEC in order to register the
Shares and Additional Shares, if any, under the Act. The Company believes that
it was in the best interest of the Company and its stockholders to enter into
this transaction because the proceeds of this transaction plus the Company's
existing resources (a) provide the Company with the funds necessary to continue
its business and its research and development activities while pursuing
negotiation of several domestic and international licensing opportunities; and
(b) help the Company in its attempt to meet the Net Tangible Asset requirements
for continued listing of the Company's Common Stock on NASDAQ (see "Important
Factors Regarding Forward Looking Statements and Other Risks - NASDAQ Delisting;
Low Stock Price; Net Tangible Assets").

                                       52
<PAGE>

         Item 13.   Exhibits and Reports on Form 8-K

         (a)        Exhibits

                  (a)      The following exhibits are filed herewith:

<TABLE>
<S>               <C>
3.1               Certificate of Incorporation of the Company (1)
3.1(a)            Amendment, filed October 24, 1996, to Certificate of Incorporation of the Company (1)
3.2               By-Laws of the Company (1)
10.1(b)           Employment Agreement between the Company and Barry Mindes, dated as of July 1, 1999 (previously filed)
10.2(a)           Employment Agreement between the Company and Bernard Albanese, dated as of  July 1,
                  1998 (2)
10.3              Form of Proprietary Information, Inventions and Non-Solicitation Agreement (1)
10.4              Form of Subscription Agreement (1)
10.5              Rights Agreement among the Company and the investors listed on Schedule A  therein,
                  dated as of June 2, 1995 (1)
10.6              Stock and Warrant Purchase Agreement among the Company and the investors listed on
                  Schedule A therein, dated as of June 2, 1995 (1)
10.7              Rights Agreement between the Company and Barry Mindes, dated as of June 20,  1996 (1)
10.8              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)
10.9              Lease between Eastern American Mortgage Company, Inc. and the Company,  dated June 9,
                  1995(1)
10.10             Form of Indemnification Agreement to be entered into between the Company and  its
                  directors and executive officers (1)
10.11             1995 Stock Option Plan, as amended January 7, 1999 (previously filed)
10.12             1996 Stock Option Plan, as amended January 7, 1999 (previously filed)
10.13             Form of Incentive Stock Option Agreement (3)
10.14             Form of Non-Qualified Stock Option Agreement (4)
23.1              Consent of KPMG LLP
24.1              Power of Attorney  (included on signature page hereto)
27.1              Financial Data Schedule (previously filed)
</TABLE>

                  (b)      Reports on Form 8-K.

         No reports on Form 8-K were filed during the quarter ended September
30, 1999.

     (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 10.2(a) of the Company's Annual
Report on Form 10-KSB for the year ended September 30, 1998.
     (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).


                                       53
<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)

                                        January 28, 2000

                                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.
<TABLE>
<CAPTION>
               Signature                                       Title                              Date
               ---------                                       -----                              ----
<S>                                      <C>                                                 <C>
                                         Chairman of the Board and Director (Principal       January 28, 2000
           /s/ Barry Mindes              Executive Officer)
----------------------------------------
             Barry Mindes


                                         President, Treasurer and Director  (Principal       January 28, 2000
         /s/ Bernard Albanese            Financial and Accounting Officer)
----------------------------------------
           Bernard Albanese


        /s/ Fredric Kupersmith           Director                                            January 28, 2000
----------------------------------------
          Fredric Kupersmith


          /s/ Janet Mandelker            Director                                            January 28, 2000
----------------------------------------
            Janet Mandelker


          /s/ Harold Rapaport            Director                                            January 28, 2000
----------------------------------------
            Harold Rapaport
</TABLE>

                                       54
<PAGE>

                       International Sports Wagering Inc.
                          (A Development Stage Company)


                          Index to Financial Statements


                                                              Page
                                                              ----
     Independent Auditors' Report                             F-2

     Balance Sheets as of September 30, 1999 and 1998.        F-3

     Statements of Operations for the years ended
     September 30, 1999 and 1998 and the period from
     May 22, 1995 (date of inception) to September 30,
     1999.                                                    F-4

     Statements of Stockholders' Equity for the period
     from May 22, 1995 (date of inception) to September
     30, 1999.                                                F-5

     Statements of Cash Flows for the years ended
     September 30, 1999 and 1998 and the period from
     May 22, 1995 (date of inception) to September 30,
     1999.                                                    F-6

     Notes to Financial Statements                            F-7











                                      F-1
<PAGE>



                          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, 1999 and 1998,
and the related statements of operations, stockholders' equity and cash flows
for the years ended September 30, 1999 and 1998 and for the period from May
22,1995 (date of inception) to September 30, 1999. 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, 1999 and 1998,
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, 1999,
in conformity with generally accepted accounting principles.

                                              /s/ KPMG LLP

New York, New York
November 23, 1999, except as
to Note 10 which is as of
January 12, 2000




                                      F-2
<PAGE>

                       International Sports Wagering Inc.
                          (A Development Stage Company)

                                 Balance Sheets
                           September 30, 1999 and 1998


                                     ASSETS


                                                   1999        1998
                                                   ----        ----
    Current assets:
      Cash and cash equivalents               $   121,505     198,607
      Accounts receivable                          12,081       3,401
      Investments                               1,435,525   3,274,963
      Current portion of notes receivable           --         25,000
      Prepaid expenses and other current
       assets                                      35,340     105,486
                                               ----------   ---------

          Total current assets                  1,604,451   3,607,457

    Property and equipment, net                   430,910     800,070
    Notes receivable, less current portion           --         8,620
    Other assets                                    5,131      13,423
                                              -----------   ---------

          Total assets                        $ 2,040,492   4,429,570
                                              ===========  ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
      Deposits payable                        $    20,176      10,490
      Accounts payable                             99,156      94,629
      Accrued expenses                            121,858     155,910
                                              -----------   ---------

          Total current liabilities               241,190     261,029
                                              -----------   ---------

    Stockholders' Equity:
      Preferred stock, par value $.001 per
        share; 2,000,000 shares authorized,
        none issued or outstanding                    --          --
      Common stock, par value $.001 per
        share; 20,000,000 shares authorized,
        issued and outstanding; 7,852,993
        in 1999 and 7,819,660 in 1998              7,853        7,820
      Additional paid-in capital              10,288,210   10,264,243
      Deficit accumulated during the
        development stage                     (8,496,761)  (6,103,522)
                                              ----------- -----------


          Total stockholders' equity           1,799,302    4,168,541
                                             -----------  -----------

    Commitments and contingencies

          Total liabilities and
            stockholders' equity             $ 2,040,492    4,429,570
                                             ===========   ==========






See accompanying notes to financial statements.

                                      F-3
<PAGE>

                       International Sports Wagering Inc.
                          (A Development Stage Company)

                            Statements of Operations
             Years ended September 30, 1999 and 1998 and the period
           from May 22,1995 (date of inception) to September 30, 1999


<TABLE>
<CAPTION>
                                                                           May 22, 1995
                                                                             (date of
                                        Year ended         Year ended     inception) to
                                       September 30,      September 30,   September 30,
                                           1999                1998            1999
                                       ------------      --------------   --------------
<S>                                    <C>                <C>               <C>
         Revenues                      $    10,990        $   36,418        $   50,988
                                       ------------       -----------       ----------

         Costs and expenses:
          Research and development
           expense                       1,017,471           996,104         3,797,094
          General and administrative
           expense                       1,512,471         2,196,575         5,149,992
                                       ------------       -----------       ----------
                                         2,529,942         3,192,679         8,947,086
                                       ------------       -----------       ----------

            Operating loss              (2,518,952)       (3,156,261)       (8,896,098)
                                       ------------       -----------       -----------

         Other income (expense):
          Interest income                  125,713           221,259           698,435
          Interest expense                     --                --           (299,098)
                                       ------------       -----------       -----------
                                           125,713           221,259           399,337
                                       ------------       -----------       ----------

            Net loss                   $(2,393,239)       (2,935,002)       (8,496,761)
                                       ============       ===========       ===========

         Net loss per share            $     (0.31)            (0.38)            (1.16)
                                       ============       ===========       ===========

         Weighted average common
          shares and equivalents
          outstanding-basic and
          diluted                        7,831,824         7,780,722         7,315,153
                                       ============       ===========      ===========
</TABLE>




         See accompanying notes to financial statements.

                                      F-4
<PAGE>


                       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, 1999


<TABLE>
<CAPTION>
                                                                        Deficit
                                                                      accumulated
                                  Common stock           Additional   during the
                                  ------------            paid-in     development
                               Shares        Amount       capital        stage          Total
                              ----------   ---------     ----------   -----------     ----------
<S>                            <C>        <C>            <C>          <C>           <C>
Issuance of shares
 of common stock
 upon incorporation
 (May 22, 1995)                      907  $       1   $          2   $     --       $        3
Issuance of common
 stock upon merger             3,023,048      3,023         (2,023)        --             1,000
Issuance of common
 stock                         1,767,567      1,768        813,843         --           815,611
Net loss                            --           --            --      (109,011)       (109,011)
                              ----------   ---------     ----------   -----------     ----------

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

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

Balance, September 30, 1997     7,749,269      7,749     10,214,829    (3,168,520)     7,054,058
Issuance of common
 stock through
 exercise of options              70,391         71         49,414          --           49,485
Net loss                             --          --            --     (2,935,002)    (2,935,002)
                             -----------    ---------   -----------   ------------   -----------
Balance, September 30, 1998    7,819,660      7,820     10,264,243    (6,103,522)     4,168,541
Issuance of common
 stock through
 exercise of options              33,333         33         23,967          --           24,000
Net loss                             --          --            --     (2,393,239)    (2,393,239)
                             -----------    ---------   -----------   ------------   -----------

Balance, September 30, 1999    7,852,993  $   7,853   $ 10,288,210   $(8,496,761)   $ 1,799,302
                              ==========  =========   ============   ============   ===========
</TABLE>




See accompanying notes to financial statements.

                                      F-5
<PAGE>


                       International Sports Wagering Inc.
                          (A Development Stage Company)

                            Statements of Cash Flows
             Years ended September 30, 1999 and 1998 and the period
           from May 22, 1995 (date of inception) to September 30, 1999

<TABLE>
<CAPTION>
                                                                                      May 22, 1995
                                                                                        (date of
                                                   Year ended         Year ended      inception) to
                                                  September 30,      September 30,    September 30
                                                       1999               1998           1999
                                                 --------------      -------------   ---------------
<S>                                             <C>                 <C>               <C>
Cash flows from operating activities:
 Net loss                                       $   (2,393,239)     $  (2,935,002)       (8,496,761)
 Adjustments to reconcile net loss to net
 cash (used in) operating activities:
  Depreciation and amortization                        386,969            420,203         1,082,152
  Bad debt expense                                         --              79,497            79,497
  Issuance of options to consultants                       --                 --             14,500
 Changes in assets and liabilities:
  Accounts receivable                                   (8,680)           (79,948)          (91,578)
  Prepaid expenses and other current assets             70,146             78,829           (35,340)
  Other assets                                           7,507             (7,850)           (8,533)
  Customer deposits                                      9,686             10,490            20,176
  Accounts payable                                       4,527            (48,568)           99,156
  Accrued expenses                                     (34,052)           (66,435)          121,858
                                                   ------------           ---------    ------------
     Net cash used in operating activities          (1,957,136)        (2,548,784)       (7,214,873)
                                                   ------------        -----------       -----------

Cash flows from investing activities:
 Purchase of investments                            (3,684,665)        (7,293,918)      (43,154,118)
 Proceeds from sales of investments                  5,524,103          9,094,193        41,718,593
 Purchase of property and equipment                    (17,024)          (164,292)       (1,509,660)
 Issuance of notes receivable                              --                 --           (100,000)
 Proceeds from repayments of notes receivable           33,620             35,610           100,000
                                                  -------------        -----------       ----------
    Net cash provided by (used in) investing
    activities                                       1,856,034           1,671,593       (2,945,185)
                                                   ------------          ---------       -----------

Cash flows from financing activities:
 Proceeds from issuance of common stock                 24,000              49,485        10,281,563
                                                   ------------            --------       ----------
    Net cash provided by  financing activities          24,000              49,485        10,281,563
                                                   ------------             ------       -----------

 Net (decrease) increase in cash
 and cash equivalents                                  (77,102)           (827,706)          121,505
 Cash and cash equivalents, beginning of period        198,607           1,026,313                --
                                                    -----------        -----------        ----------

 Cash and cash equivalents, end of period          $   121,505         $   198,607        $  121,505
                                                   ============        ===========        ==========

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

</TABLE>





See accompanying notes to financial statements.


                                      F-6
<PAGE>




                       International Sports Wagering Inc.
                          (A Development Stage Company)

                          Notes to Financial Statements
                           September 30, 1999 and 1998

(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. The Company's system was operational the entire
fiscal year ended September 30, 1999, however there are no significant operating
revenues and there have been no significant product sales from inception of the
Company through September 30, 1999. There can be no assurance that the Company
will be able to enhance or market its product in the future, that future
revenues will be significant, that any sales will be profitable, or that the
Company will have sufficient funds available to enhance or market its product.
Further, the Company's future operations are dependent on the success of the
Company's commercialization efforts, market acceptance, and maintaining
regulatory approval of its product.

     On October 28,1996, the Company raised approximately $550,000, net of
expenses, from the sale of 6 1/2 units in a private placement for $100,000 per
unit, each unit consisting of a 10% senior promissory note in the principal
amount of $100,000 and warrants to purchase 30,000 shares of the Company's
common stock at an exercise price equal to the lesser of $3.60 per share or 60%
of the initial public offering (the "IPO") price per share in its IPO. The
senior promissory notes were due on the consummation of the Company's IPO.

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

(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.



                                      F-7
<PAGE>


                       International Sports Wagering Inc.
                          (A Development Stage Company)

                    Notes To Financial Statements (Continued)
                           September 30, 1999 and 1998

 (2)  Summary of Significant Accounting Policies (Continued)

         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, 1999 and 1998 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
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115).

     Under SFAS 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 SFAS 115. For trading
securities, unrealized holding gains and losses are included in earnings. All of
the Company's debt securities are classified as available-for-sale.

     The current investments include those debt securities which are scheduled
to mature within twelve months of the balance sheet date, and include
investments with maturities ranging from October 1999 to September 2000.

         Revenue Recognition:

         Prior to May 11, 1998, the Company's revenues represent fixed fees the
Company charged for the use of the System. Starting on May 11, 1998, the
Company's revenues represent the net win (i.e. the total amount wagered less
total amount paid out) of the System.

     Research and development:

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

     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

                                      F-8
<PAGE>

                       International Sports Wagering Inc.
                          (A Development Stage Company)

                    Notes To Financial Statements (Continued)
                           September 30, 1999 and 1998

(2) Summary of Significant Accounting Policies (Continued)

reporting period.  Actual results could differ from those estimates.

Fair value of financial instruments:

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

     Income taxes:

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

     Stock split:

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

         Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of:

      The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measures by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

         Accounting for Stock Based Compensation:

     The Company accounts for its stock-based compensation in accordance with
the provisions of the Accounting Principles Board Opinion NO. 25, "Accounting
for Stock Issued to Employees". In October 1995, the Financial Accounting
Standards Board issued SFAS NO. 123, "Accounting for Stock-Based

                                      F-9
<PAGE>

                       International Sports Wagering Inc.
                          (A Development Stage Company)

                    Notes To Financial Statements (Continued)
                           September 30, 1999 and 1998

(2)  Summary of Significant Accounting Policies (Continued)

Compensation", which is effective for fiscal years beginning after December 15,
1995. SFAS NO.123 establishes a fair-value-based method of accounting for
stock-based compensation plans. The Company has adopted the disclosure-only
alternative under SFAS No. 123, which requires the disclosure of the pro forma
effects on earnings and earnings per share as if the accounting prescribed by
SFAS NO. 123 had been adopted, as well as certain other information.

         Basic and Diluted Net Loss per Common Share:

         Basic and diluted net loss per common share is presented in accordance
SFAS No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 was effective for
financial statements for both interim and annual periods ending after December
15, 1997.

         Basic net loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding during the applicable
reporting periods. The computation of diluted net loss per share is similar to
the computation of basic net loss per share except that the denominator is
increased to include the number of additional common shares that would have been
issued. However, the Company's computations of dilutive net loss per share does
not assume any conversion or exercise of securities as their effect is
antidilutive for all periods presented.

         The weighted average shares used in the net loss per share computations
for the years ended September 30, 1999 and 1998 were 7,831,824 and 7,780,722 for
the period from May 22, 1995 (date of inception) to September 30, 1999 was
7,315,153.

      Common equivalent shares that could potentially dilute basic earnings per
share in the future and that were not included in the computation of diluted
loss per share because of antidilution were 2,922,712 and 2,328,456 as of
September 30, 1999 and 1998, respectively.

         Comprehensive Loss:

         On October 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and net
unrealized gains (loses) on securities and is presented in the statements of
stockholders equity and comprehensive income. The Statement requires only
additional disclosures in the financial statements; it does not affect the
Company's financial position or results of operations. There were no differences
between the Company's comprehensive loss and its net loss for all periods
presented.

(3) Preferred and Common Stock

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

                                      F-10
<PAGE>

                       International Sports Wagering Inc.
                          (A Development Stage Company)

                    Notes To Financial Statements (Continued)
                           September 30, 1999 and 1998

(3) Preferred and Common Stock (Continued)

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

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

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

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

                                                         1999        1998
                                                         ----        ----
Net loss - as reported                               $(2,393,239) (2,935,002)
Net loss - pro forma                                  (2,460,331) (3,111,696)

Net loss per share basic and diluted - as reported      $  (0.31)      (0.38)
Net loss per share basic and diluted - pro forma           (0.31)      (0.40)

     The pro forma amounts as noted above may not be representative of the
effects on reported income/loss(es) 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% (for both periods), risk free interest
rate of 6.25% (for both periods), expected volatility of 88% and 172% in 1999
and 1998, respectively, and an expected life of 7 years (for both periods). The
weighted average grant date fair value of options granted in 1999, 1998, 1997
and 1996 was $1.15, $0.72, $2.96, and $0.25, respectively.

                                      F-11
<PAGE>

                       International Sports Wagering Inc.
                          (A Development Stage Company)

                    Notes To Financial Statements (Continued)
                           September 30, 1999 and 1998

(3)  Preferred and Common Stock (Continued)


         Activity related to the 1995 Plan is as follows:

                                                                  Weighted
                                                      Shares    Average Price
                                                      ------    -------------
     Outstanding, September 30, 1995                   75,576       $0.70
        Granted                                       574,372       $0.70
        Exercised                                      (7,557)      $0.70
                                                     --------
     Outstanding, September 30, 1996                  642,391       $0.70
        Granted                                          --
        Exercised                                        --
                                                     --------
     Outstanding, September 30, 1997                  642,391       $0.70
        Exercised                                     (70,391)      $0.70
        Cancelled                                    (105,805)      $0.70
                                                     --------
     Outstanding, September 30, 1998                  466,195       $0.70
        Exercised                                        --
        Cancelled                                        --
                                                     --------
     Outstanding, September 30, 1999                  466,195       $0.70
                                                     ========

     Vested at September 30, 1999                     401,200

     Options available at September 30, 1999          105,805

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

     Activity related to the 1996 Plan is as follows:
                                                                   Weighted
                                                       Shares    Average Price
                                                       ------    -------------
     Outstanding, September 30, 1996                     --
        Granted                                       412,500         $6.06
        Exercised                                        --
        Cancelled                                     (58,000)        $3.99
                                                      --------
     Outstanding September 30,1997                    354,500         $6.40
        Granted                                       446,000         $1.24
        Exercised                                        --
        Cancelled                                    (430,500)        $5.77
                                                     ---------
     Outstanding September 30,1998                    370,000         $0.82
                                                     =========
        Granted                                       263,000         $1.40
        Exercised                                     (33,333)        $0.72
        Cancelled                                     (80,667)        $0.83
                                                      --------
     Outstanding September 30,1999                    519,000         $1.12
                                                     =========

     Vested at September 30, 1998                     119,333

     Options available at September 30, 1998          272,667

                                      F-12
<PAGE>

                       International Sports Wagering Inc.
                          (A Development Stage Company)

                    Notes To Financial Statements (Continued)
                           September 30, 1999 and 1998

(3)  Preferred and Common Stock (Continued)

     The following table summarizes information about stock options outstanding
at September 30, 1999.

                      Options Outstanding                 Options Exercisable
              -----------------------------------       ----------------------
                            Weighted
                             Average     Weighted                     Weighted
Range of                    Remaining     Average                      Average
Exercise         Number    Contractual   Exercise          Number     Exercise
  Price       Outstanding      Life        Price         Outstanding     Price
--------      -----------  -----------   ---------       -----------  --------
0.67  - 0.72     698,195        7           0.70           514,533       0.70
1.063 - 1.41     263,000        9           1.40              -            -
2.08  - 2.125     24,000        9           2.10             6,000       2.10
               -----------                                 -------
                 985,195                                   520,533

     At September 30, 1999, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $0.672 - $2.125 and 8
years respectively.

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

(4)  Property and Equipment

     Property and equipment at September 30, 1999 and 1998 consist of the
following:

                                          1999           1998
                                          ----           ----

     Furniture and fixtures          $   38,510     $   38,397
     Building and improvements          136,394        136,394
     Computer equipment               1,334,756      1,317,845
                                     ----------      ---------
                                      1,509,660      1,492,636

    Less accumulated depreciation    (1,078,750)      (692,566)
                                     -----------    -----------
                                     $  430,910     $  800,070
                                     ===========    ==========

                                      F-13
<PAGE>

                       International Sports Wagering Inc.
                          (A Development Stage Company)

                    Notes To Financial Statements (Continued)
                           September 30, 1999 and 1998

(5)  Accrued Expenses

     Accrued expenses at September 30, 1999 and 1998 consist of the following:

                                       1999                     1998
                                       ----                     ----

     Professional fees              $ 30,000                 $ 30,000
     Payroll and related costs        87,358                  105,432
     Bonuses                           4,500                   20,083
     Other                               --                       295
                                    --------                  -------
                                    $121,858                 $155,810
                                    ========                 ========

     Payroll and related costs representing accrued salaries and vacations
earned but not yet taken in 1999, and 1998 was approximately $44,635, and
$57,110, respectively.

         The Company recognized $150,481 and $149,715 in expenses relating to
their attorney who is also a stockholder of the Company in 1999 and 1998,
respectively, and $427,227 since inception.

(6) Commitments

     Leases:

     The Company leases office facilities and equipment under operating leases.
These leases are due to expire in May and June of 2000. The Company's remaining
minimum rental commitments are $51,219.

     Rent expense under operating leases during 1999 and 1998 was $66,349 and
$55,390, respectively, and $176,887 since inception.

     Employment agreements:

     The Company entered into employment agreements with two of its employees.
The agreements, both of which expire in June 2000 provide for an aggregate
minimum compensation of $247,500, in fiscal year 2000, respectively.
Compensation expense recognized under these agreements and an agreement with a
former officer, for the years ended September 30, 1999 and 1998 and for the
period from inception to September 30, 1999 was $331,116, $602,500, and
$1,442,431, respectively. The agreements also provide for severance payments
upon certain events, as defined.

                                      F-14
<PAGE>

                       International Sports Wagering Inc.
                          (A Development Stage Company)

                    Notes To Financial Statements (Continued)
                           September 30, 1999 and 1998

(6)   Commitments (Continued)

         License agreements:

         The company entered into a software license agreement which calls for
the Company to purchase certain equipment, and take over lease payments for
other equipment, upon receiving certain approvals from Nevada gaming
authorities. The aggregate payments required under this agreement, assuming
imminent approvals, are expected to be $179,345 and $67,072, in fiscal years
2000, and 2001, respectively.

(7)   Income Taxes

     The income tax benefit for the years ended September 30, 1999 and 1998 and
the period from May 22, 1995 (date of inception) to September 30, 1999 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,
                                1999       1998         1999
                                ----       ----         ----

     Computed tax benefit
       at 34%                 $(813,701)  (997,901)  (2,886,178)
     50% of meals and
       entertainment expense      1,673        421        3,703
     Expected state tax
       benefit net of Federal  (143,206)  (170,907)    (505,407)
     Increase in valuation
       allowance for deferred
       tax assets               955,234   1,168,387    3,387,882
                              ---------- -----------  ----------
     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, 1999 and 1998 are presented below:

     Deferred tax assets:                1999          1998
     Federal and state net
       operating loss carryforward    $3,137,700   $ 2,234,316
     Depreciation and amortization       211,164       155,224
     Employee compensation and
       benefits                           37,018        43,108
                                       ---------      --------
     Total gross deferred tax
       assets                          3,387,882     2,432,648
     Less valuation allowance         (3,387,882)   (2,432,648)
                                      -----------   -----------

          Net deferred tax assets     $     --      $     --
                                      ===========   ===========

                                      F-15
<PAGE>

                       International Sports Wagering Inc.
                          (A Development Stage Company)

                    Notes To Financial Statements (Continued)
                           September 30, 1999 and 1998

(7)      Income Taxes (Continued)

     As of September 30, 1999, the Company had a net operating loss carryforward
of approximately $7,861,000 for Federal and state income tax reporting purposes
available to offset future taxable income through the year 2018 and future state
taxable income through the year 2005. The Company has provided a valuation
allowance of $3,387,882 and $2,432,648 at September 30, 1999 and 1998,
respectively, against its deferred tax assets since it is more likely than not
that the Company will not realize such assets due to the Company's development
stage nature of operations and the pre-tax loss since inception.


(8)  Bad Debt Write-off

     In June of 1997, the Company entered into an agreement with a Nevada casino
whereby the Company granted the casino a license to function as the hub
operator(the "Hub Operator")of the Company's sports wagering system. Under the
agreement, the Company was to receive a fixed fee based on a per-terminal use
basis. In October of 1997, an affiliate of the Hub Operator executed a
promissory note to the Company for $50,000 loaned to the Hub Operator by the
Company. The note provides for principal in the amount of $5,000 and accrued
interest at the rate of 10% per annum to be paid in consecutive monthly
installments commencing in February of 1998 and continuing thereafter, with all
amounts fully due by September of 1998. The note is guaranteed by two principals
of the affiliate of the Hub Operator. The Hub Operator agreement was to
terminate in March of 1999 or sooner as specified in the agreement. In January
of 1998, the Hub Operator ceased doing business as a result of financial
difficulties unrelated to the operation of the system. For the year ending
September 30, 1998, the Company reserved the full amount of the above loan of
$50,000, and $29,497 in receivables.


(9)  Line of Credit Agreement

     In September of 1997, the Company entered into an agreement with a bank
which provided for a total line of credit of $3,000,000, with interest at Libor
plus 1% or the bank's alternate base rate as defined in the agreement.
Borrowings under this line of credit were to be at the convenience of the
Company's management and may have been repaid at any time prior to the
expiration of the facility, with interest payable monthly. 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. This agreement expired in September of 1999.

                                      F-16
<PAGE>

                       International Sports Wagering Inc.
                          (A Development Stage Company)

                    Notes To Financial Statements (Continued)
                           September 30, 1999 and 1998


(10)     Subsequent event

         On January 12, 2000, the Company sold to accredited investors
("Investors") in a private transaction not registered under the Securities Act
of 1933, as amended (the "Act"), 800,000 shares (the "Shares") of the Company's
Common Stock, par value $.001 per share, for $1,000,000, or $1.25 per share. The
Company also agreed that if by April 11, 2000 it did not enter into a
transaction (the "Subsequent Transaction") relating to the licensing of its
proprietary software and intellectual proprietary, pursuant to which Subsequent
Transaction the Company is to receive at least $7.5 million during the period of
three years after the date of the Subsequent Transaction, then it would either
(a) refund to the Investors a total of $520,000 or (b) deliver to the Investors
a total of 866,667 additional shares (the "Additional Shares"). The Company must
determine by no later than February 11, 2000 which of the foregoing alternatives
it would elect if the Subsequent Transaction does not occur. The Company also
agreed to promptly file a Registration Statement with the Securities and
Exchange Commission in order to register the Shares and Additional Shares, if
any, under the Act.



























                                      F-17