<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB


(X)      QUARTERLY REPORT UNDER SECTION OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934

         For the quarterly period ended June 30, 2001

                                       OR

( )      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

         For the transition period from             to
                                         -----------    ------------


                         Commission file number 0-21831
                                                -------

                       Interactive Systems Worldwide Inc.
                    f/k/a International Sports Wagering Inc.

       (Exact name of Small Business Issuer as specified in its charter)

                 Delaware                              22-3375134

     (State or other jurisdiction of                  (IRS Employer
     incorporation or organization)                Identification No.)

 2 Andrews Drive, West Paterson, NJ                    07424

    (Address of principal executive
              offices)                                (Zip Code)

Issuer's telephone number, including area code:  (973) 256-8181
                                                 --------------

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

There were 8,801,492 shares of Common Stock outstanding at July 31, 2001.

Transitional Small Business Disclosure Format (check one):
Yes          No   X
   -----       -----







<PAGE>


Interactive Systems Worldwide Inc.
f/k/a International Sports Wagering Inc.
June 30, 2001
FORM 10-QSB

Index

                                                                           Page

Part I:  Financial Information

Item 1.  Financial Statements,

                  Balance Sheets at June 30, 2001 (Unaudited)
                  and September 30, 2000                                      2

                  Statements of Operations for the Three and Nine
                  Months Ended June 30, 2001 and 2000 (Unaudited)             3

                  Statement of Changes in Stockholders' Equity for
                  the Nine Months Ended June 30, 2001 (Unaudited)             4

                  Statements of Cash Flows for the Nine Months
                  Ended June 30, 2001 and 2000
                  (Unaudited)                                                 5

                  Notes to Financial Statements (Unaudited)                 6-9

Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations or Plan of
                  Operation                                               10-13

Part II: Other Information

Item 6.  Exhibits and Reports on Form 8-K                                    14

Signatures                                                                   15


<PAGE>


           Part I: Financial Information

Item 1. Financial Statements

                       Interactive Systems Worldwide Inc.
                    f/k/a International Sports Wagering Inc.
                                 Balance Sheets


<TABLE>
<CAPTION>

                                                                  June 30, 2001   September 30, 2000
                                                                   (Unaudited)          (Note 1)
                                                                  -------------   -----------------
<S>                                                               <C>             <C>
Current assets:
  Cash and cash equivalents                                       $  2,985,462       $    140,724
  Accounts receivable                                                    9,741              2,217
  Investments in marketable securities                               1,242,843          2,713,878
  Prepaid expenses and other current assets                             68,340             66,537
                                                                  ------------       ------------
       Total current assets                                          4,306,386          2,923,356

Property and equipment, net                                             49,016             78,535
Other assets                                                            20,393             15,262
                                                                  ------------       ------------
       Total assets                                               $  4,375,795       $  3,017,153
                                                                  ============       ============


        Liabilities and Stockholders' Equity

Current liabilities:
  Accounts payable                                                $      4,956       $     16,291
  Deferred revenues                                                    625,000            375,000
  Accrued expenses                                                      79,144             68,558
                                                                  ------------       ------------
      Total current liabilities                                        709,100            459,849
                                                                  ------------       ------------

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,
   9,030,992 issued and 8,788,992
   outstanding, and 9,030,992 shares
   issued and outstanding, respectively                                  9,031              9,031
  Additional paid-in capital                                        13,299,809         13,283,309
  Treasury stock, at cost
   242,000 and 0 shares, respectively                                 (441,329)                --
  Deferred expense, net                                             (1,316,700)        (1,394,100)
  Accumulated deficit                                               (7,884,116)        (9,340,936)
                                                                  ------------       ------------

     Total stockholders' equity                                      3,666,695          2,557,304
                                                                  ------------       ------------

      Total liabilities and
        stockholders' equity                                      $  4,375,795       $  3,017,153
                                                                  ============       ============

</TABLE>

See accompanying notes to financial statements

                                       2

<PAGE>


                       Interactive Systems Worldwide Inc.
                    f/k/a International Sports Wagering Inc.
                            Statements of Operations
                                   (Unaudited)


<TABLE>
<CAPTION>


                                          Three Months Ended                    Nine Months Ended
                                              June 30,                              June 30,
                                       2001               2000              2001               2000
                                       ----               ----              ----               ----
<S>                                 <C>                <C>                <C>                <C>
Revenues, net                       $ 1,224,200        $   724,650        $ 2,922,600        $   856,526
                                    -----------        -----------        -----------        -----------

Costs and expenses:
 Cost of revenues, research
  and development expense               226,489            280,441            715,705            760,543
 General and
  administrative expense                281,907            359,975            866,776          1,415,064
                                    -----------        -----------        -----------        -----------
                                        508,396            640,416          1,582,481          2,175,607
                                    -----------        -----------        -----------        -----------

   Operating income (loss)              715,804             84,234          1,340,119         (1,319,081)
                                    -----------        -----------        -----------        -----------

Interest income                          22,176             33,826            116,701             99,967
                                    -----------        -----------        -----------        -----------

   Net income (loss)                $   737,980        $   118,060        $ 1,456,820        $(1,219,114)
                                    ===========        ===========        ===========        ===========

Net income (loss)
   per share- basic                 $      0.08        $      0.01        $      0.16        $     (0.14)
                                    ===========        ===========        ===========        ===========

Weighted average basic
 common shares outstanding            8,850,892          8,998,025          8,938,894          8,473,805
                                    ===========        ===========        ===========        ===========

Net income (loss)
   per share- diluted               $      0.08        $      0.01        $      0.16        $     (0.14)
                                    ===========        ===========        ===========        ===========

Weighted average diluted
 common shares outstanding            9,557,770          9,414,182          9,374,844          8,473,805
                                    ===========        ===========        ===========        ===========

</TABLE>

See accompanying notes to financial statements

                                       3

<PAGE>


                       Interactive Systems Worldwide Inc.
                    f/k/a International Sports Wagering Inc.
                  Statement of Changes in Stockholders' Equity
                     For the Nine Months Ended June 30, 2001
                                   (Unaudited)

<TABLE>
<CAPTION>




                               Common Stock            Additional
                           ------------------------     Paid-In           Treasury     Deferred     Accumulated
                             Shares         Amount       Capital            Stock     Expense, net    Deficit          Total
                           -----------     ---------   ----------         ---------   -----------   ------------     ------------
<S>                        <C>             <C>         <C>               <C>         <C>            <C>              <C>
Balance at
 September 30, 2000         9,030,992      $   9,031   $ 13,283,309           $--    $ (1,394,100)   $ (9,340,936)   $  2,557,304

Purchase of
 242,000 shares
 of Treasury
 Stock                             --             --             --      (441,329)             --              --        (441,329)

Net income
 for the nine
 months ended
 June 30, 2001                     --             --             --            --              --       1,456,820       1,456,820

Options issued
 to third party                    --             --         25,200            --         (25,200)             --              --

Changes in
 fair value of
 unvested options                  --             --         (8,700)           --           8,700              --              --

Amortization of
 options issued
 to third party                    --             --             --            --          16,500              --          16,500

Amortization of
 GIG warrant
 charges                           --             --             --            --          77,400              --          77,400
                         ------------      ---------   ------------  ------------    ------------    ------------    ------------
Balance at
 June 30, 2001           $  9,030,992      $   9,031   $ 13,299,809  $   (441,329)   $ (1,316,700)   $ (7,884,116)   $  3,666,695
                         ============      =========   ============  ============    ============    ============    ============

</TABLE>

                                       4

See accompanying notes to financial statements



<PAGE>


                       Interactive Systems Worldwide Inc.
                    f/k/a International Sports Wagering Inc.
                            Statements of Cash Flows
                                   (Unaudited)

                                                          Nine Months Ended
                                                               June 30,
                                                         2001             2000
                                                    ---------------------------
Cash flows from operating activities:
  Net income (loss)                                $ 1,456,820      $(1,219,114)
  Adjustment to reconcile net income
   (loss) to net cash provided by
   (used in) operating activities:
  Depreciation and amortization                         42,497          242,116
  Non-cash warrant/option charges                       93,900           30,100
 Changes in assets and liabilities:
  Accounts receivable                                   (7,524)          12,081
  Prepaid expenses and other
   current assets                                       (1,803)         (42,746)
  Customer deposits                                          -          (20,176)
  Other assets                                          (5,131)         (10,248)
  Accounts payable                                     (11,335)         (85,371)
  Deferred revenues                                    250,000          375,000
  Accrued expenses                                      10,586           (4,425)
                                                   -----------      -----------
Net cash provided by (used in)
 operating activities                                1,828,010         (722,783)
                                                   -----------      -----------

Cash flows from investing activities:
  Proceeds from sales of
   investments                                       9,822,993        3,797,612
  Purchase of investments                           (8,351,958)      (4,523,394)
  Purchase of property
   and equipment                                       (12,978)         (17,522)
                                                   -----------      -----------
Net cash provided by (used in)
 investing activities                                1,458,057         (743,304)
                                                   -----------      -----------

Cash flows from financing activities:
  Net proceeds from issuance
   of common stock                                           -        1,546,277
  Purchase of treasury stock                          (441,329)               -
                                                   -----------      -----------
Net cash (used in) provided
 by financing activities                              (441,329)       1,546,277
                                                   -----------      -----------
Net increase in
 cash and cash equivalents                           2,844,738           80,190

Cash and cash equivalents,
 Beginning of period                                   140,724          121,505
                                                   -----------      -----------

Cash and cash equivalents,
 End of period                                     $ 2,985,462      $   201,695
                                                   ===========      ===========

See accompanying notes to financial statements

                                       5

<PAGE>


                       Interactive Systems Worldwide Inc.
                    f/k/a International Sports Wagering Inc.
                          Notes To Financial Statements
                                   (Unaudited)


Note l - Basis of Presentation:


         The information at June 30, 2001 and for the three and nine months
         ended June 30, 2001 and 2000, is unaudited, but includes all
         adjustments (consisting only of normal recurring adjustments) which in
         the opinion of management, are necessary to state fairly the financial
         information set forth therein in accordance with generally accepted
         accounting principles. The interim results are not necessarily
         indicative of results to be expected for the full fiscal year period.
         Certain information and footnote disclosures have been omitted pursuant
         to rules and regulations published by the Securities and Exchange
         Commission ("SEC"), although the Company believes that the disclosures
         are adequate to make the information presented not misleading. These
         financial statements should be read in conjunction with the audited
         financial statements for the year ended September 30, 2000 included in
         the Company's Annual Report on Form 10-KSB filed with the SEC.


Note 2 - Revenue Recognition:


         The Company recognizes revenue under its license agreements dated as of
         March 17, 2000 (the "Agreements") with Global Interactive Gaming LLC
         and Global Interactive Gaming Limited (collectively "GIG") based upon
         the computations stipulated in the Agreements, however not less than
         the guaranteed annual minimum amounts due under the Agreements. The
         Company receives payments at predetermined dates as stipulated in the
         Agreements. Accordingly, collections received in advance of recognizing
         revenue are recorded as deferred revenue on the balance sheet.


Note 3 - Basic and Diluted Net Income (Loss) per Share:


         Basic and diluted net income (loss) per common share is presented in
         accordance with SFAS 128, "Earnings Per Share". Basic net income (loss)
         per share is computed by dividing net income (loss) by the weighted
         average number of common shares outstanding during the applicable
         reporting periods. The computation of diluted net income (loss) per
         share is similar to the computation of basic net income (loss) per
         share except that the denominator is increased to include the number of
         additional common shares that would have been outstanding if the
         dilutive potential common shares had been issued.

         The Company's computation of dilutive net loss per share for the nine
         months ended June 30, 2000 does not assume any conversion or exercise
         of securities as their effect is antidilutive.

                                       6

<PAGE>


                       Interactive Systems Worldwide Inc.
                    f/k/a International Sports Wagering Inc.
                          Notes To Financial Statements
                                   (Unaudited)

Note 3 - Basic and Diluted Net Income (Loss) per Share (continued):

         The following represents the calculations of the basic and diluted net
         income (loss) per common share for the three and nine months ended June
         30, 2001 and 2000.

<TABLE>
<CAPTION>


                                 Three Months Ended          Nine Months Ended
                                       June 30,                  June 30,
                                  2001        2000           2001         2000
                                  ----        ----           ----        ----
<S>                          <C>           <C>           <C>           <C>
Net income (loss)            $   737,980   $   118,060   $ 1,456,820   $(1,219,114)
                             ===========   ===========   ===========   ===========

Weighted average basic
 common shares outstanding     8,850,892     8,998,025     8,938,894     8,473,805

Effect of dilutive
 securities: stock options
 and warrants                    706,878       416,157       435,950            --
                             -----------   -----------   -----------   -----------


Weighted average diluted
 common shares outstanding     9,557,770     9,414,182     9,374,844     8,473,805
                             ===========   ===========   ===========   ===========

Net income (loss)
 per share- basic            $      0.08   $      0.01   $      0.16   $     (0.14)
                             ===========   ===========   ===========   ===========

Net income (loss)
 per share- diluted          $      0.08   $      0.01   $      0.16   $     (0.14)
                             ===========   ===========   ===========   ===========
</TABLE>


         Options to purchase 47,000 shares of common stock at prices ranging
         from $2.08 to $2.75 and warrants to purchase 2,658,166 shares of common
         stock at prices ranging from $3.39 to $11.88 were outstanding at June
         30, 2001 but were not included in the computation of net income per
         share- diluted because the exercise prices were greater than the
         average market price of the common shares.

Note 4 - License Agreements:


         On March 17, 2000, the Company signed the Agreements with GIG, whose
         majority shareholders are Prisma iVentures Ltd., a UK company and a
         subsidiary of The Kirch Group, a German media conglomerate, and
         Multi-Games Development, Inc., a Delaware corporation. Pursuant to the
         Agreements, the Company granted to GIG exclusive licenses to market,
         distribute and use the Company's interactive SportXction(TM) system
         software, technology and patents (the "System") on the Internet and
         interactive television, in all business activities in which such
         technology is legally usable, including contests and wagering on
         sporting events world-wide. Excluded from the licenses are the
         continued use of the System in Nevada for wagering, and the application
         of the Company's basic technology and patents to lotteries and
         financial transactions (i.e., stock, bond, option and currency
         trading).

                                       7

<PAGE>


                       Interactive Systems Worldwide Inc.
                    f/k/a International Sports Wagering Inc.
                          Notes To Financial Statements
                                   (Unaudited)

Note 4 - License Agreements (continued):


         Under these Agreements, the Company will be paid 25% of the gross
         profit, less direct expenses (such as credit card fees, prizes and
         taxes) for the use of its technology for contests and other
         non-wagering transactions. For wagering, the Company will be paid the
         lesser of 25% of the gross profit as defined, or 1% of the gross
         handle, also less direct expenses. The Company will bear no share of
         the cost of equipment, facilities or other operating expenses of GIG,
         all of which will be borne by GIG. These percentage fees are subject to
         guaranteed minimum annual license fees, payable quarterly. The minimum
         in the first year was $3 million; increasing to $5 million in the
         second year; $6 million in the third year; and continuing to increase
         by 20% per year thereafter during the 14-year term, after which the
         licenses are fully paid. At all times the minimum license fee for the
         next four quarters is kept in a third party escrow account. As of June
         30, 2001, the Company had received an aggregate of $5,250,000 in
         connection with the Agreements, and there was $5,500,000 being held in
         the third party escrow account.

         The terms of the Agreements require the Company to make certain
         modifications to the SportXction(TM) System to enhance its use on the
         Internet and other interactive media as an international application.
         These enhancements are scheduled to be delivered over a 30-month
         schedule. The first phase of the project, which will allow deployment
         of the System in the first market area to be targeted, has a 10-month
         implementation schedule. The Company is entitled to earn a bonus up to
         $600,000 for early completion of this phase. The Company is currently
         being paid at the minimum rates since the modifications to the
         SportXction(TM) System software have not passed final Acceptance
         Testing in accordance with the Agreements and because GIG has not yet
         commenced commercial use of the SportXction(TM) System software.

         Coincident with the signing of the Agreements, GIG was granted a
         Warrant to purchase 426,087 shares of the Company's Common Stock, at an
         exercise price of $4.38 per share. The value of the Warrant using a
         Black-Scholes option pricing model was $1,450,000. Such amount is being
         amortized over the term of the Agreements and is being offset against
         the revenue recorded from these Agreements. The fully vested Warrant is
         exercisable 18 months after issuance, is non-transferable other than to
         affiliates of GIG and remains exercisable for five years from the date
         of issuance, subject to the terms of the Warrant Agreement. The
         $1,450,000 has been accounted for as an increase in additional paid-in
         capital with a corresponding offset amount recorded as deferred expense
         within stockholders' equity. Amortization expense related to the
         Warrant for the three and nine months ended June 30, 2001 was $25,800
         and $77,400, respectively, and has been netted against revenue
         generated from the Agreements.

                                       8

<PAGE>


                       Interactive Systems Worldwide Inc.
                    f/k/a International Sports Wagering Inc.
                          Notes To Financial Statements
                                   (Unaudited)


Note 5 - Consulting Agreement:

         The Company issued options to purchase 40,000 shares of its Common
         Stock at exercise prices ranging from $1.75 per share to $2.75 per
         share to a third party consultant in connection with an agreement
         between the Company and the consultant to provide investor relations
         and other services to the Company for a one-year period commencing
         October 1, 2000. The options vest as follows: 10,000 options vested as
         of October 1, 2000, 10,000 options vested as of January 1, 2001, 10,000
         options vested as of April 1, 2001, and the final 10,000 options vested
         as of July 1, 2001. The options remain exercisable until one year after
         termination of the agreement. The Company accounted for these options
         in accordance with Emerging Issues Task Force Abstract No. 96-18,
         "Accounting for Equity Instruments That are Issued to Other Than
         Employees for Acquiring, or in Conjunction with Selling, Goods or
         Services." Pursuant to EITF 96-18, the Company valued the options at
         the balance sheet date using a Black-Scholes pricing model. The $25,200
         value ascribed to the options reflects the market value at October 1,
         2000 and has been recorded as deferred expense within stockholders'
         equity on the Company's balance sheet. The value ascribed to these
         options was adjusted by $8,700 at June 30, 2001 to change the total
         ascribed value of the options to the then current fair value. This cost
         is being ratably amortized over the vesting periods for each option. As
         a result, the Company amortized $2,746 and $16,500 of the deferred
         costs for the three and nine months ended June 30, 2001, respectively,
         which have been recorded as a component of general and administrative
         expenses in the accompanying Statements of Operations.


                                       9

<PAGE>


Item 2. Management`s Discussion and Analysis of Financial
        Condition and Results of Operations or Plan of Operation


Financial Results


         For the three months ended June 30, 2001, the Company had net income of
$737,980 or $0.08 per share on a basic and fully diluted basis using 8,850,892
and 9,557,770 weighted average common shares outstanding basic and diluted,
respectively, compared with net income of $118,060 or $ 0.01 per share on a
basic and fully diluted basis using 8,998,025 and 9,414,182 weighted average
common shares outstanding basic and diluted, respectively, for the three months
ended June 30, 2000. This represents the largest quarterly profit in the
Company's history, as well as the Company's fifth consecutive profitable
quarter. Net revenues of $1,224,200 were reported for the three months ended
June 30, 2001, compared with net revenues of $724,650 reported for the
comparable prior year period. This increase in net revenues is attributable to
the increase in minimum quarterly license fees to $1,250,000 from the Company's
agreements with Global Interactive Gaming, LLC and Global Interactive Gaming
Limited (collectively "GIG"), signed on March 17, 2000, net of $25,800 deferred
expense amortization resulting from Warrants granted in connection with the GIG
Agreements (see "License Agreements"). A small amount of the revenues for the
prior period represents the net win (i.e. total amount wagered less total amount
paid out) of the System while it operated in Nevada. The net win is affected by
the success (or lack thereof) of the players in making sports wagering bets.

         The increased net earnings for the three months ended June 30, 2001,
compared with the three months ended June 30, 2000, resulted primarily from:
revenues, which increased by $499,550 to $1,224,200 due to increased minimum
license fees received under the GIG Agreements; general and administrative
expenses which decreased by $78,069 to $281,907, primarily as a result of the
closing of the Nevada office; and depreciation expense, which decreased by
$70,286 to $5,026.

         The Company incurred approximately $226,000 in cost of revenues for the
three months ended June 30, 2001, compared with approximately $280,000 for the
comparable prior year period.

         For the nine months ended June 30, 2001, the Company had net income of
$1,456,820 or $0.16 per share on a basic and fully diluted basis using 8,938,894
and 9,374,844 weighted average common shares outstanding basic and diluted,
respectively, compared with a net loss of $1,219,114 or $ 0.14 loss per share on
a basic and fully diluted basis using 8,473,805 weighted average common shares
outstanding for the nine months ended June 30, 2000. Net revenues of $2,922,600
were reported for the nine months ended June 30, 2001, compared with net
revenues of $856,526 reported for the comparable prior year period.

         The increased net earnings for the nine months ended June 30, 2001,
compared with the nine months ended June 30, 2000, resulted primarily from:
revenues, which increased by $2,066,074 to $2,922,600 due to the GIG Agreements;
general and administrative expenses, which decreased by $548,288 to $866,776,
primarily as a result of the closing of the Nevada office; and depreciation
expense, which decreased by $199,096 to $42,497.

         The Company incurred approximately $716,000 in cost of revenues,
research and development costs for the nine months ended June 30, 2001, compared
with approximately $761,000 for the comparable prior year period.


                                       10

<PAGE>

         As of June 30, 2001, the Company had liquid resources totaling
$4,228,305. These include cash and cash equivalents in the amount of $2,985,462,
and short-term investments in the amount of $1,242,843. Cash and cash
equivalents consist of funds held on deposit with banking institutions with
original maturities of less than 90 days. Investments are limited to investment
grade marketable securities with maturities of less than 18 months. In January
2000, the Company raised an additional $1,000,000 as a result of the sale of
800,000 shares of its Common Stock, par value $.001 per share, in a private
transaction to accredited investors, not registered under the Securities Act of
1933, as amended (the "Act"). Also, in April 2000, the Company raised an
additional $500,000 as a result of the sale of 333,333 shares of its Common
Stock, in a private transaction to other accredited investors, not registered
under the Act. All of these shares were subsequently registered on a
registration statement on Form S-3 filed with the SEC on April 20, 2000 and
declared effective on May 5,2000.

         The Company believes that existing resources will be sufficient to
satisfy its contemplated cash requirements for at least the next 18 months and
longer subject to continuation of the payment by GIG of the minimum payments
under the Agreement. Capital expenditures are expected to be limited to the
purchase of additional computer equipment in connection with research and
development activities. Existing resources are expected to be able to fund these
requirements.

         On December 20, 2000, the Company announced that its Board of Directors
had authorized the repurchase of up to $500,000 worth of the Company's Common
Stock. The repurchase plan will be used as a means of enhancing shareholder
value, and to provide shares to satisfy outstanding Company obligations for
employee options and warrants. As of June 30, 2001, the Company had purchased
242,000 shares of Common Stock at an aggregate purchase price of $441,329. In
June 2001, the Board of Directors suspended the repurchase plan.

Recent Developments

         On July 10, 2001, GIG announced that it was in advanced negotiations
with several leading interactive Digital TV broadcasters in the UK and mainland
Europe, and stated that an announcement of the first service will shortly
follow. GIG's ultimate aim is to also provide its service via Web-enhanced TV,
broadband Internet and 3G mobile handsets.

         On April 9, 2001, the Company elected to change its independent public
accountants based upon cost considerations. As of April 9, 2001 it retained
Richard A. Eisner & Company, LLP as its independent public accountants.

         On February 28, 2001, at the Company's annual meeting of stockholders,
an amendment to the Company's Certificate of Incorporation, to change the
Company's name to Interactive Systems Worldwide Inc. was approved. The purpose
of the name change was to reflect the changes in the business focus of the
Company that have occurred during the past year. The Company believed that the
existing name was too limiting and that the new name is more descriptive of the
Company's business and technology. The change in corporate name did not affect
the status of the Company or the rights of any stockholder in any respect, or
the validity or transferability of outstanding stock certificates. The Company
has retained the trading symbol "ISWI".

         On October 30, 2000, the Company announced that it had completed the
first phase of Acceptance Testing for the first software deliverable under the
GIG Agreements approximately four months ahead of schedule (see "License
Agreements"). During March and April 2001, GIG conducted more extensive

                                       11

<PAGE>

functional testing of the software. The SportXction(TM) System software
satisfactorily performed all of the functions tested. The final phase of
Acceptance Testing will be held at GIG's site, and will test the Functional
Requirements and System Loading using GIG's computers and will be used to test a
variety of other conditions that may be encountered in a live, commercial
environment including interfaces to third-party software. The final phase of
Acceptance Testing will be held when GIG has its system available for such
testing which the Company estimates is not likely until September 2001. The
Company is entitled to earn a bonus of up to $600,000 for early completion of
the Acceptance Testing.


License Agreements

         On March 17, 2000, the Company signed the License Agreements with GIG,
whose majority shareholders are Prisma iVentures Ltd., a UK company and a
subsidiary of The Kirch Group, a German media conglomerate, and Multi-Games
Development, Inc., a Delaware corporation. Pursuant to the Agreements, the
Company granted to GIG exclusive licenses to use the Company's interactive
SportXction(TM) software, technology and patents on the Internet and interactive
television, in all business activities in which such technology is legally
usable, including on contests and wagering on sporting events world-wide.
Excluded from the licenses are the continued use of the SportXction(TM) System
in Nevada for wagering, and the application of the Company's basic technology
and patents to lotteries and financial transactions (stock, bond, option and
currency trading and the like). The Company has several projects under
consideration in those markets using its patented and proprietary software.

         Under these Agreements, the Company will be paid 25% of the gross
profit, less direct expenses (such as credit card fees, prizes and taxes), for
the use of its technology for contests and other non-wagering transactions. For
wagering, the Company will be paid the lesser of 25% of the gross profit, as
defined, or 1% of the gross handle, also less direct expenses. The Company will
bear no share of the cost of equipment, facilities or other operating expenses
at GIG, all of which will be borne by GIG. These percentage fees are subject to
guaranteed minimum annual license fees, payable quarterly. The minimum in the
first year was $3 million; increasing to $5 million in the second year; $6
million in the third year; and continuing to increase by 20% per year thereafter
during the 14-year term, after which the licenses are fully paid. At all times
the minimum license fee for the next four quarters is kept in a third party
escrow account. As of June 30, 2001, the Company had received an aggregate of
$5,250,000 in connection with the Agreements, and there was $5,500,000 being
held in the third party escrow account.

         The terms of the Agreements require the Company to make certain
modifications to the SportXction(TM) System to enhance its use on the Internet.
These modifications are scheduled to be delivered over a 30-month period. The
first phase of the project, which will allow deployment of the System using
industry standard browsers over the Internet, has a 10-month implementation
schedule. The Company is entitled to earn a bonus for early completion of this
phase.

         Coincident with the signing of the Agreements, GIG was granted a
Warrant to purchase 426,087 shares of the Company's Common Stock, at an exercise
price of $4.38 per share. The value of the Warrant using a Black-Scholes option
pricing model was $1,450,000. Such amount is being amortized over the term of
the Agreements and is being offset against the revenue recorded from these
Agreements. The fully vested Warrant is exercisable 18 months after issuance, is
non-transferable other than to affiliates of GIG and remains exercisable for
five years from the date of issuance, subject to the terms of the Warrant
Agreement. Amortization expense related to the Warrant for the three and nine

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<PAGE>

months ended June 30, 2001 was $25,800 and $77,400, respectively, which has been
netted against revenue generated from the Agreements.


Safe Harbor Statement

         Except for the historical information contained herein, this Quarterly
Report on Form 10-QSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements
include, but are not limited to: whether the Company will be successful in
making the required modifications to adapt the System for wagering or for use in
contests in domestic and foreign markets utilizing the Internet as required by
the GIG License Agreements; whether the Company will be successful in meeting
the software and throughput requirements of the GIG License Agreements; whether
the System will result in a marketable product; whether the System will generate
significant amounts of revenue or if significant amounts of revenue are not
generated, whether the Company will be able to collect the license fees required
by the GIG License Agreements; the ability of the Company to develop and market
other opportunities for its products; whether the licensed software will pass
the Acceptance Tests sufficiently early to enable the Company to earn all or any
portion of the $600,000 bonus for early delivery; and the length of time that
the Company's liquid resources will last. Investors are cautioned that
forward-looking statements are inherently uncertain. Actual performance and
results of operations may differ materially from those projected or suggested in
the forward-looking statements due to certain risks and uncertainties,
including, without limitation, the ability of GIG to attract adequate numbers of
players to its wagering system and the ability of the Company to develop and
market other opportunities for its product. Additional information concerning
certain risks or uncertainties that would cause actual results to differ
materially from those projected or suggested in the forward-looking statements
is contained in the Company's filings with the Securities and Exchange
Commission, including those risks and uncertainties discussed in its Form 10-KSB
for the fiscal year ended September 30, 2000. The forward-looking statements
contained herein represent the Company's judgment as of the date of this report,
and the Company cautions reader not to place undue reliance on such matters.

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<PAGE>



II:      Other Information


Item 6.  Exhibits and Reports on Form 8-K


         (a)      Exhibits

                  None


         (b)      Reports on Form 8-K

                  No reports on Form 8-K were filed by the Company during the
                  quarter ended June 30, 2001

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<PAGE>


                                   SIGNATURES

         In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                            Interactive Systems Worldwide Inc.






Dated:  August 10, 2001                   By: /s/ Barry Mindes
                                              ---------------------------------
                                              Barry Mindes, Chairman of
                                              the Board of Directors
                                              (Principal Executive Officer)



Dated:  August 10, 2001                   By: /s/ Bernard Albanese
                                              ---------------------------------
                                              Bernard Albanese, President,
                                              Treasurer and Director
                                              (Principal Financial Officer)


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