Interactive Systems Worldwide Inc. Announces Fiscal 2005 Financial Resultstitle
WEST PATERSON, N.J., Dec. 29 /PRNewswire-FirstCall/ -- Interactive Systems
Worldwide Inc., (Nasdaq: ISWI) reported its audited financial results for its
fiscal year ended September 30, 2005. Revenues for the year were $162,000, as
compared to $45,000 during Fiscal 2004. Net loss applicable to common stock
and net loss per share applicable to common stock (basic and diluted) for
Fiscal 2005 were $7.3 million and $0.71, respectively, as compared to
$6.0 million and $0.64, respectively, during Fiscal 2004. The increase in the
net loss applicable to common stock in Fiscal 2005 is primarily the result of
the beneficial conversion feature associated with the Series B and Series C
Preferred Stock, which were recorded as a preferred stock dividend. These
preferred stock dividends did not require the payment of cash or the issuance
of additional shares of common stock.
MANAGEMENT DISCUSSION AND SHAREHOLDER UPDATE
Overall, the ISWI management team is disappointed that SportXction(R)
product in live operation in the UK has not seen a larger increase in both
utilization and revenues. There have been positive developments; including
the fact that the system has experienced a net hold of 6 percent since launch,
validating the risk management features of the system. In addition, when
consumers are exposed to the Companys product, data shows they like it, play
it and come back to play repeatedly.
The Companys most significant disappointment has been that our partners
have not marketed the product to the extent necessary to achieve critical
mass. Although there may be several reasons for this, one significant factor
is that the current Internet product is configured to run in a separate window
within the browser. That is, when a player is making bets or simply
monitoring the betting propositions managed by the SportXction(R) system,
he/she cannot also monitor or place bets on propositions maintained and
managed by our partner. Thus, even though our partners share in the revenue
generated by the SportXction(R) system, they may perceive that by marketing
our product they are actually decreasing the revenue derived from their own
offerings.
The Companys solution to this situation involves a new system
implementation methodology. In this approach, the product is fully integrated
into the partners existing betting system, keeping the users interface, look
and feel the same. This will provide the user with a significantly improved
and expanded offering of betting propositions to keep him engaged in the
sporting event. The Companys play-by-play betting propositions, controlled
from the SportXction(R) system, are therefore placed seamlessly within the
business partners betting offerings and the player places wagers in the same
manner as all other bets.
We believe that this approach will lead to a substantially better customer
experience. Other advantages are that both our partners and the Company are
better able to leverage the complementary offerings without the need for
separate branding, awareness campaigns, separate user registration, and other
logistical practices. The Company, in particular, will gain the full benefit
of all of the partners advertising, marketing and promotion campaigns, while
the partners need not commit special resources to marketing the Companys
product alone. The Companys management is very optimistic this new
methodology will yield significantly greater revenues.
The Companys marketing team is in discussions with several major
bookmakers regarding utilizing this new integrated approach to allow GIG to
manage in-run betting propositions on behalf of the bookmaker. These
bookmakers include several which are current contractual partners of GIG, and
others who would represent new relationships. Several of these discussions
are "far along" and we are optimistic that agreements will be signed with one
or more in early 2006.
In addition to the above, the Company is in the midst of designing and
developing exciting new products for betting on poker players continually
during live play, a fixed-odds/pari-mutuel hybrid racing product, a fantasy
version of the Companys play-by-play prediction product, among others.
The Company recently filed a patent application with the intent of
commercializing a product that will combine the advantages of fixed-odds
wagering while satisfying the current US pari-mutuel rules and regulations.
Management believes this new, unique offering will provide an improved
alternative to traditional pari-mutuel wagering in the intrastate and
interstate horse racing market. The Company intends to enter the horse race
wagering market with a partner and is currently in serious discussions with
potential candidates who already have a presence in that marketplace.
The Company has a non-gambling version of its SportXction(R) System that
offers sports fans an exciting new way to enhance their sports entertainment
by using their knowledge and instincts to predict the outcome of events during
a sporting event. Fans earn points for correct predictions, bonuses for
strings of successful predictions and for correct answers to sports trivia
questions. Discussions with multiple partners who would utilize this in a
number of different capacities are ongoing. Management remains optimistic
that a significant opportunity exists for this product, both in the US and
internationally. The Company is also in the process of enhancing this
competition product, with features that will appeal to the "fantasy sports"
enthusiast. This enhancement will allow fans to select players involved in
the live sporting event, and to earn bonus points based upon their
performance. The Company also intends to make this improved competition
product available for use on the next generation video game consoles.
Management is currently in discussions with several major game console
manufacturers regarding this initiative.
FINANCIAL RESULTS
Revenues for Fiscal 2005 were $162,000, as compared to $45,000 during
Fiscal 2004. The increase in Fiscal 2005 is due to new partners and an
increase in the number of events covered. The Company expects revenue to
continue to increase during Fiscal 2006.
Cost of revenues, research and development expense for Fiscal 2005 were
$1.92 million, as compared to $1.94 million during Fiscal 2004. The decrease
in Fiscal 2005 was primarily due to lower technical consulting and programming
costs partially offset by increased personnel costs associated with covering
more events.
General and administrative expenses during Fiscal 2005 were $3.2 million
as compared to $3.6 million during Fiscal 2004. The decrease in Fiscal 2005
was primarily due to lower consulting fees and a non-cash option charge
incurred in 2004, which did not recur.
During Fiscal 2004, the Company reversed $138,000 of a write-off recorded
in Fiscal 2003 related to certain software purchased by GIG prior to its
acquisition by ISWI.
Interest expense during Fiscal 2005 was $885,000, as compared to $606,000
during Fiscal 2004. During the year ended September 30, 2005, investors
converted $1.1 million of their outstanding Debentures into Common Stock. As
a result, the Company accelerated the amortization of $315,000 of the discount
recorded upon issuance of the Debentures and $127,000 of the debt issuance
costs, which were recorded as interest expense. In addition, the Company
recorded non-cash interest expense on the Companys outstanding Debentures
that was satisfied in shares of the Companys Common Stock, and additional
amounts to reflect a reduction in the debt discount which is being accreted
over the life of the debt using the effective interest method and amortization
of debt issuance costs.
In connection with the issuance of the Series B Convertible Preferred
Stock ("Series B") in November 2004, the Company recorded a dividend to Series
B shareholders of $552,000 representing the beneficial conversion feature. In
connection with the issuance of the Series C Convertible Preferred Stock
("Series C") in August 2005, the Company recorded a dividend to Series C
shareholders of $777,000 representing the beneficial conversion feature. In
each of these issuances, the beneficial feature resulted from the difference
between the effective conversion price and the quoted market price of the
Companys Common Stock at the date of issuance. These preferred stock
dividends did not require the payment of cash or the issuance of additional
shares of Common Stock.
The net loss applicable to common stock for Fiscal 2005 was $7.3 million,
or $0.71 per common share (basic and diluted), as compared to $6.0 million, or
$0.64 per common share (basic and diluted) for Fiscal 2004. The increase is
primarily the result of the beneficial conversion feature associated with the
Series B and Series C Preferred Stock (as described above).
As of September 30, 2005, the Company had liquid resources totaling
$6.6 million. These include cash and cash equivalents in the amount of
$5.7 million and investments in the amount of $980,000. Investments are
limited to investment grade marketable securities with maturities of less than
12 months.
SPORTXCTION(R) SOFTWARE
The Companys product, the SportXction(R) system, is a patented,
real-time, software system, which allows a player to make play-by-play wagers
during the course of a sporting event while viewing or listening to a
broadcast of the sporting event. The wagers have odds associated with them,
and the odds are adjusted automatically by the system in real time by
proprietary artificial intelligence software to reflect player sentiment, as
derived from the betting patterns. The system also supports traditional,
pre-game sports wagers.
This press release contains "forward-looking statements" made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 including, but not limited to: whether the Company will sustain its rate
of repeat play, whether the new system implementation methodology will provide
the user with significantly improved or substantially better customer
experience and whether it will generate significantly greater revenues,
whether the Company will sign one or more agreements in early 2006, whether
the work to support the new system implementation methodology will be
significant, whether the Company will sign any agreements with respect to its
new products, whether the Companys revenues will increase during fiscal year
2006, how long the Company will continue to incur significant losses and
negative cash flow, and whether the Company will need to raise additional
capital and if so whether it will be able to do so, on what terms and the
degree of dilution to existing shareholders that will result therefrom.
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
the Company and its business partners to attract adequate numbers of players
to its wagering system and the ability of the Company to develop and market
other opportunities for its products. 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 Companys 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, 2005. The forward-looking
statements contained herein represent the Companys judgment as of the date of
this press release, and the Company cautions the reader not to place undue
reliance on such matters.
CONTACTS:
For ISW: (973) 256-8181 For Investors: (858) 704-5065
Barry Mindes (Chairman and CEO) Matthew Hayden (President)
bmindes@sportxction.com matt@haydenir.com
Bernard Albanese (President)
balbanese@sportxction.com
James McDade (Chief Financial Officer)
jmcdade@sportxction.com
Interactive Systems Worldwide Inc. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands except share and per share data)
Years Ended
September 30,
2005 2004
Revenues $162 $45
Costs and expenses:
Cost of revenues, research
and development expense 1,917 1,935
General and administrative expense 3,207 3,630
Income related to impairment of software -- (138)
5,124 5,427
Operating loss (4,962) (5,382)
Interest expense, net 885 606
Other income (25) --
Net loss (5,822) (5,988)
Preferred Stock dividend (includes beneficial
conversion feature of $1,329,000) (1,492) --
Net loss applicable to common stock $(7,314) $ (5,988)
Net loss per share applicable to common
stock - basic and diluted $(0.71) $(0.64)
Weighted average basic and diluted
common shares outstanding 10,362,019 9,322,906
Interactive Systems Worldwide Inc.
Summary Consolidated Balance Sheet Data
(All amounts in thousands)
September 30, September 30,
2005 2004
Cash and short term investments
(including marketable securities) $6,635 $3,117
Total current assets $6,829 $3,313
Total assets $7,413 $4,505
Current liabilities $1,327 $1,075
Total liabilities $1,566 $2,613
Stockholders equity $5,847 $1,892
