<PAGE>

COINLESS SYSTEMS, INC.-10QSB-QUARTERLY RPT               Date Filled: 11/14/2001


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(Mark One)

      (X)   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES AND EXCHANGE ACT OF 1934

            For the Annual period ended September 30, 2001

      (__)  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES AND EXCHANGE ACT OF 1934

            For the transition period _________________  to  ___________________

                         Commission File Number 0-25127

                             COINLESS SYSTEMS, INC.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

          Nevada                                      91-1715373
----------------------------------           -----------------------------------
(State or other jurisdiction                  (IRS Employer Identification No.)
of Incorporation or organization)

             3720 West Oquendo Road, Suite 101, Las Vegas, NV 89118
--------------------------------------------------------------------------------
                    (Address of principal executive offices)
                                  702 891-9195
                                  ------------
                           (Issuer's telephone number)

                                 NOT APPLICABLE
--------------------------------------------------------------------------------
 (Former name, former address and former fiscal year, if changed since last
                                     report)

          Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 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 __________
                                                    -------

As of September 30, 2001, the Company had 26,514,002 shares of its $.0001 par
value common stock issued and outstanding.

                                                                          Page 1

<PAGE>

                      COINLESS SYSTEMS, INC. AND SUBSIDIARY
              Notes to Unaudited Consolidated Financial Statements

1.  BASIS OF PRESENTATION AND ORGANIZATION:

Basis of Presentation

The accompanying consolidated financial statements of Coinless Systems Inc and
its subsidiary ("the Company") for the nine months ended September 30, 2001 and
September 30, 2000 have been prepared in accordance with generally accepted
accounting principles and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. These financial statements have not been audited by an
independent accountant, but include all adjustments (consisting of normal
recurring adjustments), which are, in Management's opinion, necessary for a fair
presentation of the financial condition, results of operations and cash flows
for such periods. However, these results are not necessarily indicative of
results for any other interim period or for the full year.

Certain information and footnote disclosures normally included in financial
statements, in accordance with generally accepted accounting principles, have
been omitted pursuant to requirements of the Securities and Exchange Commission.
Management believes that the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Form 10K for the
preceding fiscal year.

Organization

The accompanying consolidated financial statements consist of Coinless Systems
Inc, a Nevada Corporation and DSG, Inc., a California Corporation.

Principals of Consolidated

______________________

The accompanying consolidated financial statements include the amounts of the
Company's wholly owned subsidiary, DSG, Inc. (100%). All significant
inter-company transactions have been eliminated in consolidation.

CSI has a patent entitled "Cashless Peripheral For A Gaming Device" bearing
serial number 6,012,832 (referred to as `832'). The `832' patent describes a
peripheral device and method usable by gaming devices where player payouts are
made using tickets.

CSI has established and executed a licensing program for gaming industry
manufacturers desiring the "832" patent technology.


                                                                         Page 2

<PAGE>

Devices designed to use the `832' patent provide the benefit of ensuring the
validity of the printed information on the tickets prior to presentation to the
player. The `832' patent also provides for "ticket redemption" at the gaming
device. This means that the credit value represented by the ticket is placed on
the gaming device into which the ticket is inserted.

Interim periods

_________________

The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10QSB, to the best of the company's
ability due to a lack of some information of the prior operations of the
Company, and do not include all of the information required by generally
accepted accounting principles for complete financial statements. In the opinion
of the Company's management, all adjustments (consisting of normal recurring
adjustment) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 2001 are not
necessarily indicative of results for future periods. These statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K for the year ended December 31, 2000.

                                                                          Page 3

<PAGE>

                         PART 1 - FINANCIAL INFORMATION

ITEM 1                        Financial Statements
------                        --------------------

Unaudited Condensed Consolidated Balance Sheet at September 30, 2001
Unaudited Condensed Consolidated Statements of Operations for the nine-month
    Periods ended September 30, 2001 and September 30, 2000
Unaudited Condensed Consolidated Statements of Cash Flows for the nine-month
    Period ended September 30, 2001
Notes to Condensed Consolidated Financial Statements

                                        1
                      COINLESS SYSTEMS, INC. AND SUBSIDIARY
                 Consolidated Balance Sheet - September 30, 2001
                                    Unaudited

<TABLE>
                                     ASSETS
<S>                                                                                     <C>
Current Assets:
          Cash and Equivalent                                                                     986,383
                                                                                        -----------------
          Deposits                                                                                 94,482

                                                                                        -----------------
               Total Current Assets                                                             1,080,865
                                                                                        -----------------
          Equipment, Net of Accumulated Depreciation of $74,604.                                  134,619
                                                                                        -----------------
          Other Intangible Assets, Net of Accumulated
                                                                                        -----------------
          Amortization of $5,750                                                                   25,727
                                                                                        -----------------

               Total Assets                                                                     1,241,211
                                                                                        =================

                            LIABILITIES & SHAREHOLDER EQUITY

Current Liabilities:
          Accounts Payable                                                                      1,382,733
                                                                                        -----------------
Notes Payable (Current Portion)                                                                    74,400
                                                                                        -----------------
Long-Termination Liabilities                                                                      422,044
                                                                                        -----------------

               Total Liabilities                                                                1,879,177
                                                                                        -----------------

Shareholders Equity
           Common Stock, 75,000,000 authorized $.001 per value
           26,514,002 shares issued and Outstanding                                                28,514
                                                                                        -----------------
           Additional Paid in Capital                                                           3,858,428
                                                                                        -----------------
           Deficit Accumulated during the development stage                                    (4,524,908)
                                                                                        -----------------

                       Total Shareholders Equity                                                 (637,966)
                                                                                        -----------------

Total Liabilities and Shareholders Equity                                                       1,241,211
                                                                                        =================
</TABLE>

                                                                         Page 4








<PAGE>

                     COINLESS SYSTEMS, INC. AND SUBSIDIARIES
                      Consolidated Statement of Operations
                                    Unaudited

<TABLE>
<CAPTION>
                                                  Three Months Ended                   Nine Months Ended
                                           Sept 30, 2001      Sept 30, 2000    Sept 30, 2001       Sept 30, 2000
                                           -------------      -------------    -------------       -------------

<S>                                        <C>                <C>              <C>                 <C>
Revenue                                          7,581                  0             7,581                   0

Cost of Goods Sold                               4,692                  0             4,692                   0
                                             ---------          ---------       -----------         -----------

Gross Profit                                     2,889                  0             2,889                   0

Operating Expenses                            (357,185)          (381,636)       (1,159,178)         (1,107,738)
                                             ---------          ---------       -----------         -----------

Operating Loss                                (354,296)          (381,636)       (1,156,289)         (1,107,738)

Other Income and Expenses
    Interest Income                              1,916             16,695            29,754              44,984
    Interest Expense                           (14,707)           (21,659)          (56,068)            (63,832)
    Other Income                                     0                  0                 0                 995
                                             ---------          ---------       -----------         -----------

Total Other Income (Expense)                   (12,791)            (4,964)          (26,314)            (17,853)
                                             ---------          ---------       -----------         -----------

Net Loss                                      (367,087)          (386,600)       (1,182,603)         (1,125,591)

Basic & Diluted Net                              0.003             (0.004)           (0.003)             (0.007)
Loss Per Share

    Basic & Diluted Weighted
Average Number of Common Shares Outstanding  26,514,002
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements

                                                                          Page 5

<PAGE>

                      COINLESS SYSTEMS INC. & SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED
                               September 30, 2001

CASH FLOW FROM OPERATING ACTIVITIES
          NET LOSS                                              (1,182,603)
          ADJUSTMENTS TO RECONCILE LOSS TO NET

CASH PROVIDED BY OPERATING ACTIVITIES:
          DEPRECIATION & AMORTIZATION                               29,108
          INCREASE IN ACCOUNTS RECEIVABLE                           (4,943)
          STOCK FOR STOCK PROMOTION                                      0
          STOCK FOR MERGER COMMISSION                                    0
          STOCK FOR SERVICES                                            50
          INCREASE IN INTANGIBLE ASSETS                                  0
          INCREASE PATENT RIGHTS                                    (2,320)
          DECREASE IN PREPAIDS                                     185,614
          DECREASE IN INVENTORIES                                   27,330
          DECREASE DEPOSITS                                            155
          DECREASE ACCCOUNTS PAYABLE                               (46,915)
          INCREASE ACCRUED EXPENSES                                172,660
                                                                ----------

NET CASH USED BY OPERATING ACTIVITIES                             (821,864)

CASH FLOW FROM INVESTING ACTIVITIES
          DECREASE IN LOANS RECEIVABLE                             175,135
          INCREASE IN FIXED ASSETS                                   3,096
          SALES OF ASSETS                                                0
                                                                ----------

NET CASH USED BY INVESTING ACTIVITIES                              178,231

CASH FLOW FROM FINANCING ACTIVITIES
          INCREASE IN NOTES PAYABLE                                 75,207
          CAPITAL LEASES                                                 0
          SALE OF TREASURY STOCK                                   354,672
                                                                ----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                          429,879

NET INCREASE/(DECREASE) IN CASH                                   (213,754)

CASH AT BEGINNING OF YEAR                                          208,593

CASH AT END OF YEAR                                                 (5,161)
                                                                ==========

SUPPLEMENTAL DISCLOSURE
                                                                    56,068

          INTEREST PAID

          TAXES PAID                                                61,167


Consolidated-Unaudited                                               Page 6

<PAGE>

                     COINLESS SYSTEMS, INC. AND SUBSIDIARIES
              (Notes to Unaudited Consolidated Financial Statement)

RECLASSIFICATION

Certain amounts in the previously presented financial statement have been
reclassified to conform to the current period presentation.

SUPPLEMENTAL CASH FLOW INFORMATION

     Supplemental Cash Flow Information   Three Month
                                          Period Ended        Nine Months Ending
                                          September 30, 2001  September 30, 2001

     Cash paid for:
        Interest                              $  14,707.           $ 56,068

NET INCOME (LOSS) PER SHARE

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share", basic net income per share is computed by dividing the net
income attributable to common shareholders by the weighted average number of
common shares outstanding during the period.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In April 1998, the American Institute of Certified Public Accounts ("AICPA")
issued Statement of Position ("SOP") 98-5 entitled "Reporting on the Costs of
Start-Up Activities". SOP 98-5 requires entities to expense as incurred all
start-ups that are not otherwise capitalizable as long-lived. The Company had
previously accepted this "SOI" as to Patent and R&D expenses. No
Reclassification is necessary.

     Stock options

     ___________

There are no outstanding stock options

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

During this quarter, the Annual Shareholder's Meeting was held and it was
announced that the Company's new direction into its patent licensing program and
ticket manufacturing operation for Coinless gaming and Internet Services
Development as revenue streams for the company.

                                                                          Page 7

<PAGE>

The patent licensing program evolved from a previously announced cross-licensing
agreement with IGT for the company's "Scan After Print(TM)" ticket verification
technology. "Scan After Print" verifies the cash out ticket before it is
presented by the machine to the player. The company is now in negotiations with
the five Coinless gaming printer manufacturers for the licensing of our patented
"Scan After Print" technology.

The planned ticket manufacturing facility is a result of the faster than
projected onset of coinless gaming and will be built in Las Vegas to better
service the needs of the local market. Tickets manufactured at the facility will
be offered in custom printed multi-color formats and available with CSI's
patented "UVASHIELD(TM)" coating. The UVASHIELD coating protects the ticket
against sun, light, alcohol, and water and reduces wear and tear on the printer.

Due to the economic downturn, management has taken the necessary steps to cut
operational expenses. These reductions will be reflected in the Operational
results of the 4/th/ quarter 2001

ITEM 3. Management's Discussion and Analysis of Financial Conditions and Results
of Operations.

RESULTS OF OPERATIONS

Nine months ended September 30, 2001 compared to nine months ended September 30,
2000.

Revenues for the nine months ended, September 30, 2001 were $7,581 created by
sale of tickets.

Operating expenses increased $51,440 this period over same period 2000.

The increase was caused by:

(1)  Decrease in Marketing Expenses of ($26,974);
(2)  Increase in Engineering Expenses of $22,428;
(3)  Increase in Administrative Expenses of $33,969;
(4)  Increase in Salaries of $73,726;
(5)  Increase in Insurance Coverages of $2,234;
(6)  Decrease in Taxes of ($55,175);
(7)  Increase in Professional Services of $17,999;
(8)  Decrease in Stock Promotion Expenses of $(7,366);
(9)  Decrease in Depreciation & Amortization of $(9,401).

                                                                          Page 8

<PAGE>

Other income and expenses: Decrease in Interest Income of $15,230. and decrease
of $7,677. for internet expense.

The following table presents the nine months ending September 30, 2001 and 2000,
the Consolidated Statements of Operation of the Company expressed as percentages
(%) of total revenue. The results of operations for the first nine months of
2001 are not necessarily indicative of the results to be expected for the full
year ending December 31, 2001.

                           PERCENTAGE OF TOTAL REVENUE

<TABLE>
<CAPTION>
                                       Three months Ended             Nine Months Ended
                                          September 30                   September 30

                                      2001            2000           2001            2000
                                      ----            ----           ----            ----
<S>                                 <C>             <C>          <C>             <C>
  Revenues                           100.0               0          100.0               0
  Cost of Goods Sold                  61.9               0           61.9               0
  Gross Profit                        38.1               0           38.1               0

  Operating Expense:                (471.2)         (381.6)      (1,529.0)       (1,107.7)
  Operating Profit (Loss)           (467.3)         (381.6)      (1,525.2)       (1,107.7)
  Other Income (Expense):
      Interest Expense              (193.9)         (216.6)        (560.1)         (638.3)
      Interest Income                 25.2           166.9          392.5           449.8
      Other Income                       0               0              0              .9
  Total Other Income (Expense)      (168.7)           (4.9)        (167.6)         (187.6)

  Net Income (Loss)                 (484.2)         (386.6)      (1,559.9)       (1,125.6)
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES:

Additional capital requirements for the installation of a ticket printing plant
and continuing operations will be raised from related party financing and
possible sale of capital stock as well as sale order deposits.

Statements made herein are not historical facts but are forward-looking
statements and are subject to a number of risk factors, including the gaming's
public acceptance of the Coinless System's technology into Coinless gaming. The
costs and delays experienced in the course of developing software, the amount
and rate of growth of administrative expenses associated with building the
infrastructure needed for future growth, the availability, amount, type and cost
of financing for the company and general economic conditions and other factors.

                                                                          Page 9

<PAGE>

PART II - OTHER INFORMATION


Item 1.    Legal Proceeding

Under the date of July 26, 2001, TransAct Technologies, Inc. filed a Civic
Action against the Company in the United States District Court, District of
Connecticut.

TransAct is a developer and manufacturer of a thermal printer used by the gaming
and lottery industry.

CSI had entered into negotiations with TransAct concerning the potential
licensing of Scan After Print Technology. The parties failed to reach an
agreement concerning licensing.

TransAct has produced a new printer, and is now on the verge of bringing the
product to market.

CSI has put TransAct on Notice of its `832' Patent. TransAct does not believe
their new printer module infringes the `832' Patent. Accordingly, TransAct seeks
judgment from the court declaring that it does not infringe the `832' Patent.

CSI is being defended by Halloran & Sage LLP of Hartford, CT.

Item 2.    Changes in Securities and Use of Proceeds
           _______________

<TABLE>
<CAPTION>
                                                                        Common                Paid-In
                                                                 Shares          Stock        Capital
                                                                 ------          -----        -------
<S>                                                             <C>             <C>         <C>
           Balance at June 30,  2001                            26,305,429       26,305     $3,959,044

           Issuance of Common Stock For Stock Exchange             158,573      $   159          ($159)

           Issuance Stock for Services Rendered                     50,000      $    50           ($50)

           Issuance of Stock for Notes Payable                           0      $     0     $        0

           Private Offering                                              0      $     0     $        0

           Balance at September 30, 2001                        26,514,002      $26,514     $3,958,835
</TABLE>

                                                                       Page 10

<PAGE>

Item 3.    Defaults Upon Senior Securities
           --------------------------------

           Inapplicable

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

The annual Shareholders' Meeting was held on August 10, 2001. At this meeting,
the shareholders re-elected Dennis Sorenson; Dr. Alfred Doi and Daniel Weyker to
serve on the Board of Directors for the coming year. The shareholders also
increased the number of Board seats to five and elected Michael Saunders and Dr.
Rolf Carlson for the coming year.

The Board of Directors immediately following the Shareholders' Meeting, held a
Meeting to select the Corporate Officers for the coming year. These officers
were:

                Dennis Sorenson, CEO; Michael Saunders, President and
                Darryl Dorsett, CFO/Corporate Secretary

Item 5.    Other Information
           -----------------

           Inapplicable

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

           Inapplicable

                                                                        Page 11

<PAGE>
                                    SIGNATURE

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

                                                    COINLESS SYSTEMS, INC.
                                ------------------------------------------
                                                         (Registrant)




Date:  November 14, 2001        By:    /s/  Darryl D. Dorsett
                                    ------------------------------------------
                                    Darryl D. Dorsett, Chief Financial Officer

                                                                        Page 12