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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB


[ X ]    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934

                   For the fiscal year ended     December 31, 2002
                                             ------------------------

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

              For the transition period from _________ to ________

                        Commission file number     000-25855
                                               ----------------

                             VendingData Corporation
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                 (Name of small business issuer in its charter)

            Nevada                                     91-1696010
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(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

           6830 Spencer Street, Las Vegas, Nevada                    89119
-------------------------------------------------------------     -----------
(Address and telephone number of principal executive offices)     (Zip Code)

Issuer's telephone number:         (702) 733-7195
                               ------------------------

Securities registered pursuant to Section 12(b) of the Act:

      Title of each class             Name of each exchange on which registered

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

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 par value
--------------------------------------------------------------------------------
                              (Title of each class)

--------------------------------------------------------------------------------
                              (Title of each class)

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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 in response to
Item 405 of Regulation S-K is not contained in this form, and no disclosure will
be contained, to the best of the 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. [ ]

         State issuer's revenues for its most recent fiscal year: $3,494,593

         State the aggregate market value of voting stock held by non-affiliates
computed by reference to the price at which the common equity was sold, or the
average bid and asked price of such common equity, as of a specified date within
the past 60 days. $3,514,137.75 ($2.25 per share as of February 26, 2003)

         State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

        Common Stock, $.001 par value      7,625,826 shares as of March 21, 2003

                       DOCUMENTS INCORPORATED BY REFERENCE

         The information required by Part III of this Annual Report on Form
10-KSB is incorporated by reference from the issuer's Proxy Statement on
Schedule 14A to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year covered by this report.

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                                TABLE OF CONTENTS

PART I.........................................................................3
    Item 1.       Description of Business......................................3
                      SecureDrop(TM)System.....................................4
                      Shuffler Product Line....................................9
                      Additional Products.....................................11
                      Regulations and Licensing...............................13
                      Marketing...............................................17
                      Distribution............................................17
                      Competition.............................................18
                      Product Development and Manufacturing...................19
                      Intellectual Property...................................20
                      Employees...............................................21
    Item 2.       Description of Property.....................................21
    Item 3.       Legal Proceedings...........................................21
    Item 4.       Submission of Matters to a Vote of Security Holders.........22
PART II.......................................................................23
    Item 5.       Market for Common Equity and Related Stockholder Matters....23
                      Market Information......................................23
                      Common Stock............................................24
                      Preferred Stock.........................................24
                      Options.................................................24
                      Warrants................................................24
                      Convertible Debentures..................................25
                      Dividend Policy.........................................26
                      Equity Compensation Plan Information....................26
    Item 6.       Management's Discussion and Analysis of Financial
                   Condition and Results of Operations........................26
                      Statement on Forward-Looking Information................26
                      Qualification Related to Reliance on Projections........27
                      Overview................................................27
                      Accounting Policies.....................................27
                      Results of Operations - Years Ended
                       December 31, 2002 and 2001.............................28
                      Liquidity and Capital Resources.........................30
                      Outlook.................................................31
                      Risk Factors and Forward-Looking Information............32
    Item 7.       Financial Statements........................................38
    Item 8.       Changes in and Disagreements with Accountants on
                   Accounting and Financial Disclosure........................54
PART III......................................................................55
    Item 9.       Directors, Executive Officers, Promoters and Control
                   Persons....................................................55
    Item 10.      Executive Compensation......................................55
    Item 11.      Security Ownership of Certain Beneficial Owners and
                   Management.................................55
    Item 12.      Certain Relationships and Related Transactions..............55
    Item 13.      Exhibits and Reports on Form 8-K............................55
    Item 14.      Controls and Procedures.....................................55
CERTIFICATIONS................................................................58
EXHIBIT INDEX.................................................................60

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                                CAUTIONARY NOTICE

         This Annual Report of VendingData Corporation on Form 10-KSB contains
forward-looking statements in which our management shares its knowledge and
judgment about factors which it believes may materially affect our performance
in the future. Terms expressing future expectations, outlook potential and
anticipated growth in gaming industries and markets, acceptance of our products
and services, estimates on revenues and earnings, and like expressions typically
identify such statements.

         All forward-looking statements, although made in good faith, are
subject to the uncertainties inherent in predicting the future. Such forward
looking statements involve known and unknown risks, uncertainties and other
important factors that could cause our actual results, performance or
achievements or industry results to differ materially from future results,
performance or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other important factors include, among
others: our liquidity requirements, our ability to locate necessary sources of
capital to sustain our operations, the continued growth of the gaming industry,
the success of our product development activities, the acceptance of our
products in the marketplace, vigorous competition in the gaming industry, our
dependence on existing management, changes in gaming laws and regulations
(including actions affecting licensing), our leverage and debt service
(including sensitivity to fluctuations in interest rates) and domestic or global
economic conditions.

         Forward-looking statements speak only as of the date they are made, and
readers are warned that we undertake no obligation to update or revise such
statements to reflect new circumstances or unanticipated events as they occur.

         Readers are urged to carefully review and consider the disclosures in
this and other reports which discuss factors relevant to our business. See Part
II. "Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Risk Factors and Forward-Looking Information."

                                     PART I

ITEM 1.       DESCRIPTION OF BUSINESS

         VendingData Corporation was originally incorporated in the State of
Washington on September 21, 1995, and reincorporated in Nevada on March 4, 1999.
In March 2000, we amended our Articles of Incorporation to change our corporate
name from "Casinovations Incorporated" to "CVI Technology, Inc." In June 2000,
we again amended our Articles of Incorporation to change our name from "CVI
Technology, Inc." to "VendingData Corporation."

         We are headquartered in Las Vegas, Nevada, and develop, manufacture and
distribute products that increase security, productivity and profitability for
the gaming industry. Our principal products are:

         o        The SecureDrop(TM)System, an electronically identified slot
                  revenue and data collection system for gaming machines;

         o        The Deck-Checker(R), an automated playing card scanning
                  machine;

         o        The Random Ejection Shuffler(TM), a computer-based shuffling
                  device that is capable of shuffling between one and eight
                  decks of cards; and

         o        The Continuous Random Ejection Shuffler, a computer-based
                  shuffling device that continuously shuffles and recycles the
                  same group of cards.

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         In addition, we are developing the PokerOne(TM) Shuffler, a
computer-based shuffling device that is designed for use with single deck poker
variation games. Since 1999, we have invested approximately $33 million to
complete the development of the SecureDrop(TM) System and our automated
shufflers. As part of this process, we have secured eight patents in the United
States, Australia and Canada with respect to different aspects of our automated
shufflers, have secured two patents in the United States with respect to certain
aspects of SecureDrop(TM) System and have filed additional patent applications
for our products. We are developing advancements for our current products as
well as additional technology for the expansion of our overall product line for
the gaming industry.

         We maintain our principal offices and manufacturing facilities at 6830
Spencer Street, Las Vegas, Nevada 89119. Our telephone number and facsimile
number are (702) 733-7195 and (702) 733-7197, respectively.

         SECUREDROP(TM) SYSTEM

         We launched the SecureDrop(TM) System in September 1999 to provide
casino operators with time and labor savings, enhanced security and
accountability in the slot machine coin collection process. We subsequently
adapted the SecureDrop(TM) System to apply to the paper currency collection
process as well. The coin collection process and the paper currency collection
process are referred to as the hard drop and the soft drop, respectively.

         The SecureDropTM System provides gaming operators with a reliable
method of tracking the currency and coin containers from the time currency and
coin are removed from the gaming machine to the time they arrive in the casino's
count room. The SecureDropTM identification and time stamp technology replaces
the existing manual methods still used throughout the gaming industry. The
SecureDropTM products are compatible with existing casino systems, including
operators with or without online slot accounting systems. The technology
utilizes specially designed bill canisters and drop buckets that house a memory
chip that works in conjunction with a sensor base beneath the gaming machine.
The electronic chip system automatically links the canister to the relevant
gaming machine and transfers the data for electronic processing. Using a
specially designed SecureDropTM Mobile Command Center with a built in
data-recording device, all of the relevant information is captured from the
memory chip.

         The SecureDrop(TM) System Control Software provides a complete tracking
and control system for all slot revenue containers on the gaming floor. The
SecureDrop(TM) System Control Software is responsible for running all of our
SecureDrop(TM) System Modules. The SecureDrop(TM) System Control Software is
designed to create a secure environment and maintains all databases and time
clocks throughout the system. Every function can be password protected, and each
user can have a completely customized profile for system access.

         SECUREDROP(TM) SOFT COUNT MODULE

         The SecureDrop(TM) Soft Count Module provides a bill (paper currency)
canister identification system that enables gaming operators to electronically
track, secure and identify all bill canisters on the casino floor and in the
count room. The SecureDrop(TM) time stamp system deters canister switching,
theft and loss by recording all phases of the soft drop process, accounting for
the bill canister's removal from the gaming machine, the time the bill canister
is in transport and the time of the bill canister's arrival in the casino's soft
count room. Through the comprehensive SecureDrop(TM) database system, all bill
canisters can be identified, tracked and accounted for with the highest degree
of security.

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         The SecureDrop(TM) Soft Count Module works as follows:

         1.       First, a new or "cold" electronic bill canister is placed on a
                  specially designed canister base in the gaming machine;

         2.       Second, once a new or "cold" electronic bill canister is
                  placed in the gaming machine, a green light is activated that
                  indicates the beginning of the audit trail.

         3.       Third, the full or "hot" electronic bill canister is removed
                  from the gaming machine and then secured in the SecureDrop(TM)
                  Canister Transport Vault, where a green light indicates the
                  "hot" electronic bill canister has been accepted.

         4.       Fourth, the full or "hot" electronic bill canister is
                  monitored by the SecureDrop(TM) Canister Transport Vault until
                  the electronic bill canister arrives at the casino's soft
                  count room, where the failure of the electronic bill canister
                  to arrive will generate a Missing Canister Report.

         5.       Fifth, the full or "hot" electronic bill canister is placed on
                  the SecureDrop(TM) Canister Docking Station, which downloads
                  the information stored in the "hot" electronic bill canister
                  and clears the memory of the "hot" electronic bill canister.

         6.       Sixth, the data is saved to the SecureDrop(TM)Software and can
                  then be used to generate reports or can be transferred to an
                  existing slot accounting program.

         7.       Seventh, a barcoded ticket with a hard copy of the audit trail
                  is printed for each "hot" electronic bill canister for
                  accounting purposes.

         8.       Lastly, the new or "cold" electronic bill canister is then
                  returned to any gaming machine to begin a new audit trail.

         With the SecureDrop(TM) Soft Count Module, canister security is
enhanced, canister movement is accounted for and soft count accuracy is
confirmed. The SecureDrop(TM) Soft Count Module creates a complete history of
each canister's movement from the gaming machine to the casino's soft count
room.

         SECUREDROP(TM) HARD COUNT MODULE

         The SecureDrop(TM) Hard Count Module provides a bucket identification
system that enables gaming operators to electronically track and identify all
buckets and slot machines, secure the coins immediately, and we believe, in
essence, brings the hard count room to the casino's slot floor. The heart of the
SecureDrop(TM) Hard Count Module is the electronic bucket featuring the patented
SecureDrop(TM) identification technology. The smart bucket works with enhanced
controls inside the slot machine to record the ID number and meter readings of
the slot machine. The specially designed SecureDrop(TM) Multi Bin Coin Vaults
are used to secure the coin on the casino's slot floor.

         The SecureDrop(TM) time stamp system helps to deter theft and loss by
recording all phases of the drop process. After the buckets are weighed, that
data gathered and the coins secured, the cleared buckets can be returned to any
slot machine. Any coin variance is immediately identified, and steps can be
taken to correct the problem. When used with the SecureDrop(TM) Mobile Command
Center, the SecureDrop(TM) Hard Count Module allows operators to utilize a
single-bucket drop system. Using the comprehensive SecureDrop(TM) database
system, all drop buckets can be identified, tracked and accounted for with a
high degree of security.

                                      -5-
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         The SecureDrop(TM) Hard Count Module works as follows:

         1.       First, an empty electronic bucket is placed on a specially
                  designed base in the gaming machine;

         2.       Second, once an empty electronic bucket is placed in the
                  gaming machine, a green light is activated that indicates the
                  beginning of the audit trail and the recording of the gaming
                  machine's identity through a memory chip affixed to the
                  electronic bucket.

         3.       Third, the electronic bucket is pulled from the gaming machine
                  and placed on the SecureDrop(TM) Mobile Command Center scale,
                  where a green light acknowledges that all data, including the
                  gaming machine number, the amount of coins in the electronic
                  bucket and any meter information, has been transferred to the
                  tracking program.

         4.       Fourth, after gathering data, the electronic bucket's contents
                  are deposited into the SecureDrop(TM) Multi Bin Coin Vault,
                  safely securing coins in seconds instead of hours.

         5.       Fifth, upon removal from the scale, the electronic bucket is
                  considered clean and can be placed in any other slot machine.

         6.       Sixth, before leaving the slot floor, the drop team can run a
                  Missing Machine Report to ensure the drop has been completed.

         7.       Seventh, the data saved to the SecureDrop(TM) Software can
                  then be used to generate reports or can be transferred to an
                  existing slot program for further analysis.

         With the SecureDrop(TM) Coin Transfer system, once the coins are
gathered, the only remaining task in the casino's hard count room is to wrap and
rack the coin. The SecureDrop(TM) conveyor belt system helps automate and
streamline this process. With the SecureDrop(TM) Hard Count Module, security is
enhanced, and hard count accuracy is confirmed.

         ELECTRONIC CANISTER

         Designed for use with the SecureDrop(TM) Soft Count Module, each
electronic bill canister is specially equipped with a memory chip that works
with the enhanced electronics inside the slot machine. Through the memory chip,
we can identify the slot machine, record the times the canister is placed in and
removed from the slot machine and notify an online system in the event of an
unauthorized removal of the bill canister. The canister also works in
conjunction with the secure SecureDrop(TM) Canister Transport Vault and the
SecureDrop(TM) Mobile Command Center to continue to electronically monitor and
track every movement of the bill canister.

         Our electronic canisters are available in a variety of sizes to fit all
bill acceptors, are encoded to prevent unauthorized access, are tamper-proof,
have sufficient memory to accommodate several days of tracking data and possess
alarms to indicate unauthorized canister removal.

         ELECTRONIC BUCKET

         The heart of the SecureDrop(TM) Hard Count Module is the electronic
bucket. Each electronic bucket is designed to straddle the slot base for easy,
positive placement and provide a time and date stamp audit trail of the
electronic bucket's placement in and removal from the slot machine. Each
electronic bucket is specially equipped with a memory chip that works with the
enhanced electronics inside the slot machine to identify the slot machine and
record meter readings. Once the electronic bucket has been placed on a base, the
memory chip electronically identifies the bucket with the particular slot
machine. After the electronic bucket has been weighed and the data transferred
to the tracking program, the cleared electronic bucket can be placed into any
slot machine.

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         Each electronic bucket is built of heavy polypropylene for durability,
has re-enforced handles for easy lifting of large weights, is molded of
anti-static material to protect the integrated electronics of slot machines and
is available in a variety of sizes to fit any machine.

         SECUREDROP(TM) MOBILE COMMAND CENTER

         The SecureDrop(TM) Mobile Command Center is designed to save time and
reduce labor by collecting data from each gaming machine, tracking the inventory
of all canisters collected, providing missing canister reports, eliminating
barcodes and slips and providing alarm and reporting capabilities. In addition,
the SecureDrop(TM) Mobile Command Center can be used with or without online slot
accounting systems, can serve as an integrated data back-up and recovery system
and can be used with either the SecureDrop(TM) Soft Count or Hard Count Modules.
The SecureDrop(TM) Mobile Command Center consists of a mobile data-recording
device along with an onboard computer and software built into the cart. The
SecureDrop(TM) Mobile Command Center consists of:

         o        A data gathering unit;

         o        A portable computer running the SecureDrop(TM)System;

         o        A tracking program;

         o        A power supply and charging unit;

         o        A mobile platform; and

         o        An optional video surveillance system.

         In addition, smaller transport systems can provide for emergency drops
while continuously monitoring the status of canisters or buckets and location
until the normal drop period begins.

         SECUREDROP(TM) CANISTER TRANSPORT VAULT

         The SecureDrop(TM) Canister Transport Vault immediately secures
canisters on the slot floor, reducing exposure and increasing security. The
vault is designed to include interchangeable canister shelves, which can be
fully customized for any slot floor layout or for any canister type. These
shelves accept the bill canisters, secure the currency and gather the
electronically stored information. Once a valid canister is secured in the
vault, the canister is monitored throughout the drop process. In this regard,
alarms may be customized to sound in the event of the unauthorized removal of a
canister, the incorrect placement of a cold canister or the invalid audit trail
detected in canister memory.

         SECUREDROP(TM) CANISTER DOCKING STATION

         In the count room, the SecureDrop(TM) Canister Docking Station gathers
the information electronically stored in each canister and prints a barcoded
ticket showing the machine ID number and a hard copy of the canister's audit
trail. Once a canister is removed from SecureDrop(TM) Canister Transport Vault
and placed on the SecureDrop(TM) Canister Docking Station, the data from the
canister is downloaded a final time into the database and verified. The canister
is then cleared and can be placed into any slot machine. The SecureDrop(TM)
Canister Docking Station then prints a barcoded ticket, which is bundled with
the currency, tickets or coupons from the canister. The barcoded ticket can then
be scanned by the currency counting equipment, thereby completing the electronic
data transfer. Multiple docking stations can be added for faster canister
processing.

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         SECUREDROP(TM) COIN VAULTS

         In conjunction with the SecureDrop(TM) Hard Count Module, we offer two
coin vaults, the SecureDrop(TM) Multi Bin Coin Vault and the SecureDrop(TM)
Single Bin Coin Vault. The SecureDrop(TM) Multi Bin Coin Vault accommodates up
to five coin denominations and navigates easily through most casino floors. The
SecureDrop(TM) Single Bin Coin Vault is designed for smaller casinos and cruise
ships and has only one compartment for coins. Both coin vaults immediately
secure coin on the slot floor, reduce coin exposure and increase security. Data
and coin collection functions are automatically combined in our mobile vaults.

         SECUREDROP(TM) VIDEO SURVEILLANCE OPTION

         The SecureDrop(TM) Video Surveillance Option includes a miniature black
and white surveillance camera and an on-board VCR. The VCR has a built-in
Time-of-Day clock and one line text annotation capability. The system runs on 12
volts, is built for mobile applications and can record an entire drop session.
The video surveillance system is designed to view the coin scale and computer
display during the drop process.

         SECUREDROP(TM) COIN TRANSFER OPTION

         The SecureDrop(TM) Coin Transfer Option quickly and efficiently
transports bulk coin from the SecureDrop(TM) Coin Vault to the automatic
wrappers. The result is a more efficient hard count room with less lifting and
coin handling by operators. The SecureDrop(TM) Coin Transfer Option is designed
to reduce coin wrap time, increase safety, improve security, improve operations
and decrease drop-related costs.

         MARKET FOR THE SECUREDROP(TM) SYSTEM

         Our management believes that the market for the SecureDrop(TM) System
encompasses all casinos, gaming halls or other venues that feature 100 machines
or more coin and/or paper money based gaming machines. The world gaming machine
market is complex and segmented based on different machines in terms of
technology, winnings, payout, range of bets and losses and regulatory
environments.

         We estimate that the potential market for the SecureDrop(TM) System
consists of approximately 24 million gaming machines, of which eight million
represent the market for SecureDrop(TM) in its current design. Through the
development of additional products and features for the SecureDrop(TM) System,
we believe that we will be able to expand the market for the SecureDrop(TM)
System to additional gaming machines.

         Our management estimates that some of the better operated casinos
experience a 0.5% to 0.9% shortfall in actual coins arriving in the count rooms
and that some operators have losses as high as several percentage points. Based
upon documented experience from our casino customers, with the SecureDrop(TM)
System, shortfalls in coins arriving in the casino's hard count room have been
reduced to 0.2% or less, and personnel and collection times have been cut by up
to 40%-60%.

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         INSTALLATIONS OF THE SECUREDROP(TM) SYSTEM

         As of December 31, 2002, we have installed 23,598 units of the
SecureDrop(TM) Hard Count Module. With respect to the SecureDrop(TM) Hard Count
Module, we have installed units at over 30 different gaming properties,
including the Pechanga Entertainment Center, Temecula, California; the Table
Mountain Casino & Bingo, Friant, California; the Viejas Casino & Turf Club,
Alpine, California; the Mystic Lake Casino, Prior Lake, Minnesota; Casino Magic
in Bay St. Louis and Biloxi, Mississippi; Caesar's Palace, Las Vegas, Nevada;
and Oneida Bingo & Casino, Oneida, Wisconsin. With respect to the SecureDrop(TM)
Soft Count Module, we installed 3,200 units at the Oneida Bingo & Casino in
Oneida, Wisconsin during 2002. In addition, we have completed the installation
of 4,718 units of the SecureDrop(TM) Soft Count Module at three casino
properties owned by Park Place Entertainment, Inc. during the first quarter of
2003. These casino properties are the Caesars Palace in Las Vegas, Nevada, the
Flamingo in Las Vegas, Nevada and Caesars Tahoe in Lake Tahoe, Nevada. The
Company anticipates the installation of the SecureDrop(TM) Soft Count system at
two additional Park Place Entertainment properties in the second quarter of
2003.

         SHUFFLER PRODUCT LINE

         We currently offer the Random Ejection Shuffler(TM), a batch shuffler,
and the Continuous Random Ejection Shuffler, a continuous shuffler. We are
currently developing a third shuffler, the PokerOne(TM) Shuffler, to provide
shuffles of pre-dealt hands of cards for specialty poker games.

         We believe that the motivating factors for casino operators to adopt
automatic shufflers on gaming tables include the desire to increase dealer
productivity, reduce exposure to fraud and cheating by dealers, players or both
and reduce reliance on experienced dealers. The ability to turn more hands, or
decisions, per hour and reduce the advantage knowledgeable players have with
respect to poor manual shuffles will more likely generate higher "holds" from
automated shufflers than from manual shuffles.

         RANDOM EJECTION SHUFFLER(TM) AND CONTINUOUS RANDOM EJECTION SHUFFLER

         The Random Ejection Shuffler(TM) is a batch shuffler that is capable of
shuffling between one and eight decks of cards. The Continuous Random Ejection
Shuffler is a continuous shuffler that continuously recycles the same group of
cards. Both shufflers can accommodate different games of blackjack or baccarat.

         The patented technology used in the Random Ejection Shuffler(TM) is
designed to produce an independent card selection in that any card may be
ejected from the card tray at any time and restacked in an unpredictable manner.
As a result, clumps, slugs or memorized sequences are eliminated from shuffles.
We believe that this technology negates advantages achieved by expert players.
While most shuffling machines repeat the same mechanical action, each shuffle in
the Random Ejection Shuffler(TM) is unique. In the batch mode, the Random
Ejection Shuffler(TM) can shuffle six decks of cards in approximately three
minutes and, due to the speed of the shuffler, neutralize card counting.
Further, through the use of a second batch of cards, the Random Ejection
Shuffler(TM) maintains productivity and reduces downtime due to manual card
shuffling. Through the use of the Random Ejection Shuffler(TM), we believe that
dealer productivity can be increased.

         With the Continuous Random Ejection Shuffler, all playing cards remain
in a continuous shuffle, except for a small batch used during play. After play,
this batch is returned to the shuffler, and a new batch is used for play. The
Continuous Random Ejection Shuffler provides operator security by neutralizing
card counters and locaters, while increasing player satisfaction derived from a
hand-held game. The cards may also be loaded and dealt from a traditional
card-dealing shoe.

         From a manufacturing perspective, we produce a batch shuffler that may
be converted to a continuous shuffler with a very slight and inexpensive
modification. Upon conversion, the shuffler may be used as either a batch
shuffler or a continuous shuffler. We began shipping the Random Ejection
Shuffler(TM) in the spring of 1999 and have spent considerable engineering time
and resources to improve its speed and reliability. In the fourth quarter of
2000, we began to ship the Continuous Random Ejection Shuffler. We believe that


                                      -9-
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our research and development are substantially complete and that our products
have begun to perform to or above design specifications that will satisfy
industry demands. In an attempt to improve on our shufflers, we began a
re-development of our shufflers that includes the switch in power from AC to DC,
the conversion to an external power supply, the re-design of the cabinet, the
addition of an external lever to adjust the shuffler for card thickness and the
incorporation of a video recognition system for checking the cards.

         We offer the Random Ejection Shuffler(TM) and the Continuous Random
Ejection Shuffler for rent only to properties located in the United States. For
properties located internationally, we offer the Random Ejection Shuffler(TM)
and the Continuous Random Ejection Shuffler for sale only.

         POKERONE(TM) SHUFFLER

         To complement our current shufflers, we have developed the PokerOne(TM)
Shuffler, a specialty game shuffler utilizing new and existing technology. We
believe that the PokerOne(TM) Shuffler will help us to better penetrate the
overall shuffler market. Specialty game shufflers are only used in single deck
poker variation games such as Caribbean Stud(TM), Let It Ride(TM), Pai Gow Poker
and Three Card Poker. The PokerOne(TM) Shuffler is designed to re-stack the deck
and deliver the required number of cards (either 3, 5 or 7 cards) into packets
using a batch system method. Our management has estimated that the potential
market worldwide for the PokerOne(TM) Shuffler is approximately 8,000 table
games. The prototype of the PokerOne(TM) Shuffler was completed in the first
quarter of 2003, and beta testing for the PokerOne(TM) Shuffler will begin in
the third quarter 2003. Initially, we will manufacture the units in China and
offer it for sale outside the United States.

         We believe that the PokerOne(TM) Shuffler will significantly raise the
standard for specialty game shufflers and will compete with the Ace(R) Shuffler,
manufactured by Shuffle Master, Inc. Currently, the Ace(R) Shuffler is the only
specialty game shuffler on the market that has the capability to shuffle a
single deck of cards and put the cards into individual packets. The Ace(R)
Shuffler is also able to verify the total quantity of cards shuffled and the
quantity of cards in each packet.

         In order to compete with the Ace(R) Shuffler in terms of the
capabilities offered, we have designed the PokerOne(TM) Shuffler to provide the
following:

         o        Shuffle and prepare the cards into the individual packets
                  required for the specialty poker game;

         o        Provide sufficient speed to maintain the pace of the game even
                  if just a single player is playing;

         o        Verify the overall quantity of the cards shuffled and the
                  number of cards in each packet; and

         o        Verify the actual cards dealt to each player.

         By incorporating digital imaging technology, the PokerOne(TM) Shuffler
is designed to record the individual cards that are dealt to each player and, as
a result, allow operators to verify winning hands that receive large payouts.
Since many specialty poker games offer payouts in excess of $100,000, the value
in verifying winning hands cannot be overstated. As a result of the
characteristics of the PokerOne(TM) Shuffler, we believe that we will be able to
provide speed and security in the specialty table game market that has never
before been available.

                                      -10-
<PAGE>

         SHUFFLER MARKET

         According to our estimates, there are over 70,000 gaming tables
worldwide, of which 40,000 have the potential to use electronic shuffling
products. We estimate that automatic shufflers are installed on approximately
15% of all gaming tables, with most of these installations on specialty gaming
tables. Several companies have introduced automatic shufflers for the general
market, but for the most part, these efforts have been unsuccessful. There is no
meaningful penetration by any competitor in the general gaming table market
(blackjack and baccarat tables) to date.

         There are several factors that have resulted in low acceptance of
automatic shufflers for the general market, including security issues,
reliability/productivity and player confidence. We believe that our technology
and ergonomic design will allow our products to overcome these industry
concerns:

         o        SECURITY. The design of existing shufflers has proven
                  vulnerable to cheating and card counting schemes. We believe
                  that our combination of patented computer and mechanical
                  technology safeguards against cheating schemes. The Random
                  Ejection Shuffler(TM) produces a computer-generated, random
                  and untrackable shuffle, and the Continuous Random Ejection
                  Shuffler eliminates advantage achieved by knowledgeable
                  players, as each card is available for the next round of play
                  by producing "full" decks of continuously shuffled random
                  cards. This has the added benefit of giving the casino a
                  higher hold from the gaming table since the shuffler preserves
                  the original odds of each game, which favor the casino.

         o        RELIABILITY/PRODUCTIVITY. Given the paper handling demands
                  placed on card shufflers, shufflers are prone to jamming and
                  breakdown. We have designed our shufflers to be easily
                  accessed by dealers so they can hand-deal cards until the unit
                  can be put back in service and prevent a table from shutting
                  down. In addition, the dealer, with little interruption, can
                  easily put the unit back into play in most cases.

         o        PLAYER CONFIDENCE. To reduce cheating schemes, many existing
                  shufflers completely cover or shield from players the deck(s)
                  being shuffled, thereby reducing player confidence in a fair
                  game. The design of our shufflers allows players to see the
                  cards being ejected and re-stacked through a frosted cover
                  without compromising security, which we believe will gain
                  better player acceptance.

         SHUFFLER INSTALLATIONS

         As of December 31, 2002, we had installed a net total of 537 units,
representing the number of revenue generating shufflers installed at casinos
through sale or rental agreements. Of the units installed as of December 31,
2002, 493 units were the Random Ejection Shuffler(TM), and 60 units were the
Continuous Random Ejection Shuffler. Further, of the units installed as of
December 31, 2002, 389 units were installed pursuant to rental agreements, and
148 units were sales. In terms of location, as of December 31, 2002, we have
installed our shuffler in 81 different gaming properties, including the
Greektown Casino in Detroit, Michigan; the Excalibur, the Luxor and the Monte
Carlo in Las Vegas, Nevada; the Viejas Casino in Alpine, California; the Silver
Dollar in Tacoma, Washington; and the Crystal Palace in the Bahamas.

     ADDITIONAL PRODUCTS

         Although we have focused our research and development on our
SecureDrop(TM) and shuffler product lines, we have additional products that are
designed to increase security, productivity and profitability for the gaming
industry.

                                      -11-
<PAGE>

         THE DECK-CHECKER(R)

         The Deck-Checker(R) is a card security device that specifically scans
playing cards to ensure an accurate count and verify that all of the cards are
present. This innovative product confirms the integrity of each card and will
reject any non-conforming cards. The Deck-Checker(R) has multiple uses and can
be used in the back of the house (casino support departments) to reduce labor
costs by expediting the verification process of used cards, or it can be used in
the front of the house (the casino floor) to ensure that all table games open
with complete and accurate decks, reducing the amount of time it takes to open a
table game, thereby increasing productivity. The Deck-Checker(R) allows the
re-use of playing cards by providing a secure and reliable method of putting
used cards back into play, reducing card usage and the associated costs. In
addition, the Deck-Checker(R) can scan from one deck to up to eight decks at a
time, can scan each deck in less than 15 seconds, is programmed for all standard
playing cards, accommodates plastic, paper and plastic coated playing cards and
is programmed with many standard card games.

         The Deck-Checker(R) has an integrated management system and an on-board
storage/vault system. The integrated management system gives a report for every
transaction to provide an audit trail. Further, the Deck-Checker(R) requires
limited training time, as the machine prompts the user throughout the entire
checking process. Since the Deck-Checker(R) does not require additional staff,
the Deck-Checker(R) is designed to increase efficiency and shorten the
start-of-the-day and the end-of-the-day procedures.

         The potential market for the Deck-Checker(R) is estimated at one
machine for every 10 table games, or approximately 4,000 machines installed at
various casinos around the world. We believe that the Deck-Checker(R) is the
only product of its kind in the gaming industry at this time. We currently
estimate that a large portion of the Deck-Checker(R) market segment is a rental
market that can potentially provide a source of recurring revenue. In November
2002, we announced a five-year agreement with the TCS Aces under which the
Deck-Checker(R) will be distributed internationally. As the filing date of this
report, we had eight units of the Deck-Checker(R) installed at six casinos, two
of which were purchased and six of which were rented. We have firm orders for an
additional 10 units with expected ship dates in the second quarter of 2003.

         THE SECUREHOPPER(TM)

         The SecureHopper(TM) is designed to work hand-in-hand with the
SecureDrop(TM) line of products. The SecureHopper(TM) can record and report
information regarding the hopper such as the amount of coins added to the
hopper, the open/closed status of the main door of the slot machine and the
filling of the slot machine. This information can be permanently recorded in the
SecureDrop(TM) bucket memory until the next data collection is performed. In
this manner, the SecureDrop(TM) System will act as a backup data system to the
SecureHopper(TM) System. With the SecureHopper(TM), it is known how many coins
enter and exit the game at all times, including when the door is open. The
SecureHopper(TM) utilizes technology that enables the hopper and its contents to
be "weighed." This weight is then translated into the number of coins in the
hopper.

         Before this technology, there was no automated way of knowing how many
coins were in a slot machine's hopper. The core of the SecureHopper(TM) is an
advanced weighing technology, which uses a "load cell" for weighing hopper
contents. The SecureHopper(TM) can be calibrated for any coin or token and
focuses on three major areas: hopper security, hopper fill notification and
hopper fill verification. Hopper security is enhanced by the SecureHopper(TM)'s
ability to monitor each slot door open and close, attaching a hopper level
quantity and a time stamp to every transaction. This allows the system to
isolate any variances occurring from door open to door close. This information
is a deterrent to pilfering, resulting in a more efficient slot floor operation.
Assessing hopper contents without opening the game is perhaps the
SecureHopper(TM)'s most important function. The ability to "pre-fill" games on


                                      -12-
<PAGE>

the floor, thus diminishing downtime for fills, may lead to an increase in slot
revenue and player satisfaction. In the 2003 fiscal year, we do not anticipate
to generate significant revenue from this product since we propose to
concentrate our limited resources on the SecureDrop(TM) System and the
development of new shuffler technology.

         OTHER PRODUCTS

         In an attempt to focus our resources on the SecureDrop(TM) and shuffler
product lines, we have reduced the number of table games and other products from
our portfolio. Our remaining products include:

         o        Fantasy 21(TM), a jackpot table game variation of standard
                  blackjack/21 involving a side wager of one dollar.

         o        Danny's Jackpot Dice, a variation of the standard craps game
                  that employs an additional side wager made on consecutive
                  points thrown by the shooter.

         o        Safety-Peek Cards, a type of playing card designed for
                  standard blackjack/21 that prevents the exposure of a dealer's
                  hole card, I.E. the card that is face down, when used with a
                  modified form of classic peeking action.

         We do not anticipate generating any significant revenue from these
products during the 2003 fiscal year.

     REGULATIONS AND LICENSING

         The gaming industry is a highly regulated industry and is subject to
numerous statutes, rules and regulations administered by the gaming commissions
or similar regulatory authorities of each jurisdiction. Generally, companies
that seek to introduce gaming products or concepts into such jurisdictions may
be required to submit applications relating to their activities or products
(including detailed background information concerning controlling persons within
their organization) which are then reviewed for approval. Our products generally
fall within the classification of "associated equipment." "Associated equipment"
is equipment which is not classified as a "gaming device," but which has an
integral relationship to the conduct of licensed gaming. Regulatory authorities
in some jurisdictions have discretion to require manufacturers and distributors
to meet licensing or suitability requirements prior to or concurrent with the
use of associated equipment. In other jurisdictions, associated equipment must
be approved by the regulatory authorities in advance of its use at licensed
locations. We have obtained, or are seeking to obtain, approval of our
associated equipment in each jurisdiction in which we conduct business that
requires such approval. As of December 31, 2002, we have been issued key product
approvals and approval waivers from governmental gaming regulators and Native
American tribes.

         With respect to the SecureDrop(TM) System, we have received approvals
or approval waivers from ten state gaming jurisdictions, various Native American
tribes and Saskatchewan, Canada. The state gaming jurisdictions include
Colorado, Illinois, Indiana, Iowa, Louisiana, Michigan, Mississippi, Nevada, New
Jersey and North Dakota. The Native American tribes that have issued approvals
or approval waivers are located in California, Minnesota and New Mexico. In
addition to the foregoing approvals or approval waivers, we have installed
various components of the SecureDrop(TM) System in Argentina, Peru, Russia and
Sweden, where the regulatory requirements are minimal.

         With respect to our shufflers, we have received approvals for the
Random Ejection Shuffler(TM) from five state gaming jurisdictions and approvals
for the Continuous Random Ejection Shuffler from three state gaming
jurisdictions. The state gaming jurisdictions that have approved the Random
Ejection Shuffler(TM) are Indiana, Michigan, Mississippi, Nevada and Washington.


                                      -13-
<PAGE>

The state gaming jurisdictions that have approved the Continuous Random Ejection
Shuffler are Indiana, Mississippi and Nevada. In addition, Gaming Laboratories
International, an independent product testing laboratory, has approved the
Random Ejection Shuffler(TM) for use in South Dakota and the Random Ejection
Shuffler(TM) and the Continuous Random Ejection Shuffler for use in Louisiana.
We are currently coordinating the necessary field trials with the Louisiana
regulatory authorities. We have also received approvals or approval waivers from
various Native American tribes. Although the PokerOne(TM) Shuffler is still in
development, the PokerOne(TM) Shuffler would be subject to similar regulatory
approvals to which the Random Ejection Shuffler(TM) and the Continuous Random
Ejection Shuffler were subject.

         With respect to the DeckChecker(R), product approvals or approval
waivers have been obtained from the state gaming jurisdictions of Connecticut,
Michigan, Nevada and New Jersey, as well as various Native American tribes.

         NEVADA. The manufacture, sale and distribution of gaming devices for
use or play in Nevada or for distribution outside Nevada and the manufacture and
distribution of associated equipment for use in Nevada are subject to the Nevada
Gaming Control Act and the regulations promulgated thereunder and various local
ordinances and regulations. Such activities are subject to the licensing and
regulatory control of the Nevada Gaming Commission, the Nevada Gaming Control
Board and various local, city and county regulatory agencies, where said
agencies are collectively referred to as the Nevada Gaming Authorities.

         The laws, regulations and supervisory practices of the Nevada Gaming
Authorities are based upon the following declarations of public policy:

         o        Preventing any involvement, direct or indirect, of any
                  unsavory or unsuitable persons in gaming or in the manufacture
                  or distribution of gaming devices at any time or in any
                  capacity;

         o        Strictly regulating all persons, locations, practices and
                  activities related to the operation of licensed gaming
                  establishments and the manufacture or distribution of gaming
                  devices and equipment;

         o        Establishing and maintaining responsible accounting practices
                  and procedures;

         o        Maintaining effective controls over the financial practices of
                  licensees (including requirements covering minimum procedures
                  for internal fiscal controls and safeguarding assets and
                  revenues, reliable record keeping and periodic reports to be
                  filed with Nevada Gaming Authorities);

         o        Preventing cheating and fraudulent practices; and

         o        Providing and monitoring sources of state and local revenue
                  based on taxation and licensing fees.

         Any changes in such laws, regulations and procedures, depending upon
their nature, could have an adverse effect on our operations.

         Although we are not registered with the Nevada Gaming Control Board as
a publicly traded corporation, we are currently required to provide a copy of
all periodic reports and other filings made with the Securities and Exchange
Commission to the Nevada Gaming Control Board. Further, even though applications
for the approval of associated equipment are subject to a less comprehensive
approval process, the Nevada Gaming Control Board may investigate any individual


                                      -14-
<PAGE>

who has a material relationship to, or material involvement with, VendingData in
order to determine whether such individual is suitable or should be licensed as
a business associate of VendingData. Our officers, directors and certain key
employees 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 that they deem reasonable. A finding of suitability is comparable
to licensing. Both require submission of detailed personal and financial
information, which is followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all costs of the investigation.

         In the event that the Nevada Gaming Authorities were to find an
officer, director or key employee unsuitable for licensing or unsuitable to
continue having a relationship with VendingData, we would have to sever all
relationships with that individual. In addition, the Nevada Commission may
require us to terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.

         In the event that we are found to have violated the Nevada Gaming
Control Act, the licenses and/or approvals we hold could be limited,
conditioned, suspended or revoked. In addition, we and the persons involved
could be required to pay substantial fines, at the discretion of the Nevada
Gaming Control Board, for each separate violation of the Nevada Gaming Control
Act. The limitation, conditioning or suspension of any license or approval held
by us could (and revocation of any license or approval would) materially
adversely affect our operations.

         As for security holders of VendingData, any beneficial holder of our
voting securities, regardless of the number of shares owned, may be required to
file an application, be investigated, and have the holder's suitability as a
beneficial holder of our voting securities determined if the Nevada Gaming
Control Board finds reason to believe that such ownership would otherwise be
inconsistent with the declared policies of the State of Nevada. The applicant
must pay all costs of investigation incurred by the Nevada Gaming Authorities in
conducting any such investigation. Any person who fails or refuses to apply for
a finding of suitability or a license within thirty days after being ordered to
do so by the Nevada Commission or the Chairman of the Nevada Gaming Control
Board may be found unsuitable. The same restrictions apply to a record owner if
the record owner, after request, fails to identify the beneficial owner.

         LOUISIANA, MICHIGAN, WASHINGTON AND OTHER JURISDICTIONS. We currently
distribute products in Louisiana, Michigan, Washington and other domestic gaming
jurisdictions and intend to distribute products in other states and
jurisdictions. Although the regulatory schemes in these jurisdictions are not
identical, their material attributes are substantially similar, as described
below.

         The manufacture, sale, distribution and ownership of associated
equipment in each jurisdiction are subject to various provincial, state, county
and/or municipal laws, regulations and ordinances, which are administered by the
relevant regulatory agency or agencies in that jurisdiction. These laws,
regulations and ordinances primarily concern the responsibility, financial
stability and character of gaming equipment manufacturers, distributors and
operators, as well as persons financially interested or involved in gaming or
liquor operations.

         In many jurisdictions, the manufacture or distribution of gaming
supplies may not be conducted unless proper licenses are obtained. An
application for a license may be denied for any cause which gaming regulators
deem reasonable. In order to ensure the integrity of manufacturers and suppliers
of gaming supplies, most jurisdictions have the authority to conduct background
investigations of VendingData, our key personnel, our significant stockholders
and our source of financing. Gaming regulators may, at any time, revoke,
suspend, condition, limit or restrict a license for any cause deemed reasonable


                                      -15-
<PAGE>

by such gaming regulators. Fines for violation of gaming laws or regulations may
be levied against the holder of a license and persons involved. We and our key
personnel have obtained all licenses necessary for the conduct of our business
in the jurisdictions in which we manufacture and lease or sell our casino
products. Suspension or revocation of such licenses could have a material
adverse effect upon our operations.

         NATIVE AMERICAN GAMING REGULATION. Gaming on Native American lands is
extensively regulated under federal law, tribal-state compacts and tribal law.
The Indian Gaming Regulatory Act of 1988, or IGRA, provides the framework for
federal and state control over all gaming on Native American lands. IGRA
regulates the conduct of gaming on Native American lands and the terms and
conditions of contracts with third parties for management of gaming operations.
IGRA is administered by the Bureau of Indian Affairs and the National Indian
Gaming Commission.

         IGRA classifies games that may be conducted on Native American lands
into three categories:

         o        Class I Gaming;

         o        Class II Gaming; and

         o        Class III Gaming.

         Class I Gaming includes social games solely for prizes of minimal
value, or traditional forms of Native American gaming engaged in by individuals
as part of, or in connection with, tribal ceremonies or celebrations. Class I
Gaming on Native American lands is within the exclusive jurisdiction of the
Native American tribes and is not subject to the provisions of IGRA.

         Class II Gaming includes bingo, pull-tabs, lotto, punchboards, tip
jars, instant bingo, and other games similar to bingo, if those games are played
at the same location where bingo is played. Class II Gaming is permitted on
Native American lands if: (i) the state in which the Native American lands are
located permits such gaming for any purpose by any person, organization or
entity; (ii) the gaming is not otherwise specifically prohibited on Native
American lands by federal law; (iii) the gaming is conducted in accordance with
a tribal ordinance or resolution which has been approved by the National Indian
Gaming Commission; (iv) a Native American tribe has sole proprietary interest in
and responsibility for the conduct of gaming; (v) the primary management
officials and key employees are tribally licensed; and (vi) other miscellaneous
requirements are met.

         Class III Gaming includes all other commercial forms of gaming, such as
table games, slots, video casino games and other commercial gaming, such as
sports betting and pari-mutuel wagering. Class III Gaming is permitted on Native
American lands if the conditions applicable to Class II Gaming are met and, in
addition, the gaming is conducted in conformance with the terms of a written
agreement between a tribal government and the government of the state within
whose boundaries the tribe's lands are located. Generally, this written
agreement is referred to as a tribal-state compact.

         IGRA requires states to negotiate in good faith with Native American
tribes that seek to enter into a tribal-state compact for the conduct of Class
III gaming. Such tribal-state compact may include provisions for the allocation
of criminal and civil jurisdiction between the state and the Native American
tribe necessary for the enforcement of such laws and regulations, taxation by
the Native American tribe of such activity in amounts comparable to those
amounts assessed by the state for comparable activities, remedies for breach,
standards for the operation of such activity and maintenance of the gaming
facility, including licensing, and any other subjects that are directly related
to the operation of gaming activities. The terms of tribal-state compacts vary
from state to state. Tribal-state compacts within one state tend to be
substantially similar to each other. Tribal-state compacts usually specify the
types of permitted games, entitle the state to inspect casinos, require
background investigations and licensing of casino employees, and may require the
tribe to pay a portion of the state's expenses for establishing and maintaining
regulatory agencies.

                                      -16-
<PAGE>

         On March 7, 2000, California voters approved California's tribal gaming
initiative known as Proposition 1A, and California's constitution was amended to
allow the Governor to compact with tribes for the operation of casinos including
the operation of traditional slot machines. Since then, the Governor, with
legislative approval, has entered into compacts with significant number of
California tribes. We have approvals for certain California Native American
casinos and applications for additional licenses are pending.

         UNITED STATES-FEDERAL. The Federal Gambling Devices Act of 1962 makes
it unlawful for a person to manufacture, deliver or receive gaming machines,
gaming machine type devices and components thereof across interstate lines
unless that person has first registered with the Department of Justice of the
United States.

         APPLICATION OF FUTURE OR ADDITIONAL REGULATORY REQUIREMENTS. In the
future, we intend to seek the necessary licenses, approvals and findings of
suitability for VendingData, our products and our personnel in other
jurisdictions throughout the United States and the world where significant sales
are anticipated. However, there can be no assurance that such licenses,
approvals or findings of suitability will be obtained, and if obtained that they
will not be revoked, suspended or conditioned or that we will be able to obtain
the necessary approvals in a timely manner, or at all, for our future products
as they are developed. If a license, approval or finding of suitability is
required by a regulatory authority and we fail to seek or do not receive the
necessary license, approval or finding of suitability, we may be prohibited from
selling our products for use in the respective jurisdiction or may be required
to sell our products through other licensed entities at a reduced profit.

     MARKETING

         As the gaming industry becomes increasingly more competitive, our
strategy is to develop cost-effective niche products and services, which
increase the security, productivity and profitability for the global gaming
industry. As part of our strategy, we offer to lease or sell our products to
casinos and other lawful gaming establishments.

         In order to maintain and expand the market presence of our products, we
are committed to providing a high level of customer service and support. In this
regard, we operate domestic regional service centers in Berkley, Michigan,
Gulfport, Mississippi and Tukwila, Washington, and have service personnel
located in New Jersey, Florida, and Mississippi, with a total of ten full-time
service personnel. These employees provide casinos with installation and
maintenance services domestically on all of our products. Service for the Nevada
and California markets are supported by ten corporate office service personnel.
In addition, we maintain a training center to provide support and training to
our distributors, who are responsible for servicing their own products.

     DISTRIBUTION

         We sell directly to gaming operators and indirectly through
distributors, where direct sales account for 55% of our revenue and
distributor-based sales account for 45%. We have a sales staff of four full-time
employees. In addition, our Chief Executive Officer and Vice President
SecureDrop(TM) both actively participate in sales efforts. We also market our
products at domestic and international trade shows.

                                      -17-
<PAGE>

         The basis for using distributors is to gain global exposure of our
products in certain geographic areas where distributors with a local presence
could be more effective than our own sales force. Accordingly, we have entered
into various distributorship agreements for Australia, New Zealand, Europe and
South America. In this regard, we have entered into a semi-exclusive
distributorship agreement with Vallasey, SA, a Uruguay company, with respect to
Uruguay, Argentina, Brazil, France, Italy, and Spain. We also have an exclusive
distributorship agreement with Mainstream Global Enterprises for the
distribution of the Random Ejection Shuffler(TM) in the Canadian Provinces of
Alberta, British Columbia, Manitoba, and Saskatchewan. Additionally, we have an
exclusive agreement with IndoPacific Gaming for the distribution of the Shuffler
in Australia and New Zealand. Further, we have entered into a five-year
agreement with TCS Aces for the worldwide distribution of the DeckChecker(R),
excluding North America and the Caribbean Islands.

         In addition to international distributors, we have entered into
relationships with domestic distributors. For example, we have entered into a
non-exclusive Independent Contractor Agreement with Money Processing Systems,
Inc., a New Mexico corporation, for the distribution of the SecureDrop(TM)
Systems in Arizona, Colorado, New Mexico and Texas. We have entered into an
exclusive distributorship agreement with Gitchi Gaming, Inc., a Minnesota
corporation, for the distribution of the Shuffler in Wisconsin and Minnesota.
And, we have entered into an exclusive distributorship agreement with Data
Financial Business Services Incorporated, a Wisconsin corporation, for the
distribution of the SecureDrop(TM) System in Wisconsin and to all Native
American casinos in Michigan.

     COMPETITION

         The gaming industry is extremely competitive. Although we have
assembled an experienced marketing team, which uses its knowledge of the gaming
industry to tailor our products and services to the needs of the gaming
industry, we compete with many established companies, which possess resources
substantially greater than those of VendingData. Generally, we compete with
other companies that are substantially larger, have more substantial histories,
backgrounds, experience and records of successful operations; greater financial,
technical, marketing and other resources; more employees and more extensive
facilities than we now have, or will have in the foreseeable future. Even though
our overall strategy is to compete on the basis of quality and price, the
competitive pressures of the gaming industry will require us to invest in
additional research and development. The constant need to update and innovate
may result in increased costs for and reduced margins on our products and
services.

         COMPETITION - SECUREDROP(TM) SYSTEM

         We believe that the SecureDrop(TM) System is the only method of
computerized bucket management and one-step processing of the coins on the
casino floor. One area of competition for the SecureDrop(TM) System Hard Count
Module could be coinless gaming. Since 1987 several companies have attempted to
develop coinless slot machines. To date, there has been limited acceptance of
coinless slot machine systems. California tribal casinos used "coinless" slots
for eight years until the Indian tribes executed compacts governing the terms of
gaming with the Governor of California beginning in May 2000, at which time the
California tribal casinos immediately began replacing coinless slot machines
with the traditional coin versions.

         In 2000, International Gaming Technology introduced the EZ-Pay(TM)
system. The EZ-Pay(TM) system attempts to reduce operating costs and machine
downtime by providing gaming operators with machines that drop coins for smaller
payouts and print tickets for larger, predetermined payouts. As a result of the
issuance of tickets, players are not required to wait for attendants in order to
be paid larger payouts and may use their tickets at other machines equipped with
the EZ-Pay(TM) system. As the number of slot operations with an online system
that use the EZ-Pay(TM) system grows, the customer response to the EZ-Pay(TM)
system has been positive. We believe that the use of the EZ-Pay(TM) system will
actually result in larger coin drops and enhance the need for the SecureDrop(TM)
System because payouts would be made by ticket, rather than in coin, resulting
in a larger coin drop.

                                      -18-
<PAGE>

         Despite the potential competition of coinless gaming with regard to the
SecureDrop(TM) Hard Count System, coinless gaming would cause potentially
greater use of our SecureDrop(TM) Soft Count System, which tracks bills, rather
then coins.

         COMPETITION - SHUFFLERS

         Competition in the shuffler market is more intense. We estimate that
Shuffle Master is the market leader with a penetration of approximately 15% of
the total market. The shuffler market is divided into two separate segments,
traditional table games and specialty table games. With respect to the
traditional table games market segment, we compete with Shuffle Master, Ten
Stix, Inc., a U.S. company marketing the Pro Shuffler(TM), and Casinos Austria
Research and Development, an Austrian company marketing the Shuffle Star(TM),
and John Huxley, a company based in the United Kingdom marketing the One2Six(TM)
Shuffler. We believe that as a result of Shuffle Master's acquisition of Quick
Draw(TM) shufflers, our other competitors have a collective market share of less
than 3% of the traditional table games market segment. With respect to the
specialty table games market segment, Shuffle Master offers the only product. In
fact, 85% - 90% of the installations of Shuffle Master are in this market
segment.

         We believe our shufflers have a competitive advantage over other
shufflers with respect to vulnerability to player cheating and card counting,
reliability and player satisfaction. In order to better compete in and to
meaningfully penetrate the overall shuffler market, we are developing the
PokerOne(TM) Shuffler, a specialty game shuffler, which will provide us with a
complete shuffler product line. The PokerOne(TM) Shuffler will provide the first
direct competition for Shuffle Master in the specialty game shuffler market, the
market segment in which it has proven most successful. As Shuffle Master and our
other competitors possess greater financial resources, greater industry
recognition, and more gaming licenses than we do, there is no guarantee that we
will continue to successfully compete in the shuffler market. In this regard,
Shuffle Master has instituted certain legal proceedings against us. See "Item 3.
Legal Proceedings."

     PRODUCT DEVELOPMENT AND MANUFACTURING

         At our principal offices, we maintain a state-of-the-art facility for
our product development and manufacturing divisions. We have nine full-time
employees and seven contract personnel in research and development and 50
full-time and 14 contract personnel in manufacturing and service. We hire
contract personnel on a varied basis depending upon production and installation
volume. To facilitate development and assure manufacturing quality control, we
maintain four dedicated laboratory facilities. Within these labs, we
continuously develop the SecureDrop(TM) System, conduct real-time testing for
our shufflers, develop and test the Deck-Checker(R) and prepare quality
assurance analyses and internal product trials. The service and refurbishment
center for our shufflers is also located on the premises.

         At the heart of our principal offices is the manufacturing center with
its state-of-the-art machine shop outfitted with robotic equipment, a receiving
lab featuring optical comparators to conduct components inspections and a series
of product assembly lines for the SecureDrop(TM) System, the Deck-Checker(R) and
the Shuffler product line.

         In an effort to improve gross margins, we use manufacturing facilities
in Zhongshan City, China to supply components for the SecureDrop(TM) System and
our shuffler line. In the second quarter of 2003, we will be setting up an
office and hiring staff in Zhongshan City, China. This presence will supply an
increased number of components at decreased costs to our manufacturing center in
Las Vegas, Nevada. Although we propose to outsource many components of the our
products, we intend to maintain a five to six month inventory of parts at our
principal office in Las Vegas in the event there is interruption in the
manufacture and receipt of components from China.

                                      -19-
<PAGE>

     INTELLECTUAL PROPERTY

         We have secured and endeavor to secure, to the extent possible,
exclusive rights in our products, primarily through federal and foreign
intellectual property rights, such as patents, copyrights and trademarks. We
have applied for various other patents with respect to other concepts and
products, including potential non-gaming application of our technology. We
believe that our intellectual property is critical to our future profitability
and growth.

         With respect to the SecureDrop(TM) System, the United States Patent and
Trademark Office has issued three patents, Patent Nos. 5,875,879, 6,213,277 and
6,336,544. In addition, there are six patent applications on file with the
United States Patent and Trademark Office. On June 26, 2001, we purchased from
Technology Development Center, LLC, the worldwide right, title and interest to
the patents, pending patent applications and all patent rights to the "Coin
Operated Machine Having An Electronically Identified Coin Collection Box and the
Electronically Identified Coin Collection Box." These intellectual property
rights relate to the technology utilized in our SecureDrop(TM) product line.

         With respect to our shufflers, the United States Patent and Trademark
Office has issued five patents, Patent Nos. 5,584,483, 5,676,372, 6019,368,
6,293,546 and 6,299,167. In addition, there are three patent applications on
file with the United States Patent and Trademark Office. Our shufflers have also
been issued two patents in Australia and one patent in Canada. For additional
information with respect to the ongoing litigation involving Shuffle Master, see
Part I. "Item 3. Legal Proceedings."

         With respect to the DeckChecker(R), we acquired the rights to the
DeckChecker(R) pursuant to a purchase and sale agreement dated December 23, 2002
in which we purchased all of the tangible and intangible assets related to the
DeckChecker(R). The purchase price is $1,009,800, where $504,900 is payable upon
the successful production of five fully operational and universal units of the
DeckChecker(R) and $504,900 is payable within six months after the first payment
is due. In addition to the purchase of these assets, we purchased tooling,
inventory and spare parts for $44,800. In exchange for the payments, the seller
has agreed to transfer all of the tangible and intangible assets related to the
DeckChecker(R) and to not compete with us for 60 months. We will also receive
technical knowledge, know-how, training and advice from a third party necessary
to assemble 75 fully operational and universal units. As of March 25, 2003, we
have not been required to make any payments with respect to the DeckChecker(R).

         With respect to our other products, we own two patents for our
Safety-Peek Cards and have exclusively licensed these patents to GEMACO and The
US Playing Card Company. In addition, we entered into an Acquisition and
Exclusive License Agreement with DigiDeal Corporation whereby we sold our
intellectual property rights relating to Fantasy 21(TM) and received, in part,
an exclusive license of the same with respect to paper and plastic playing
cards. As for the SecureHopper(TM), in March 2001, we purchased from a secured
creditor the tangible and intangible assets related to the SecureHopper(TM)
through the bankruptcy proceedings of Spintek Gaming Technologies, Inc., Spintek
Gaming, Inc. and Spinteknology, Inc. These assets include equipment, supplies,
inventory, and intellectual property, including all patent rights, pending
patent applications, registered trademarks, pending trademark applications,
copyrights, and other assets related to a slot machine hopper and the technology
for determining its contents and for transmitting collection and accounting data
under the registered names AccuSystem(R), including AccuHopper(R), the
AccuBoard, and the AccuDrop.

         There can be no assurance that any of the claims contained in our
pending United States or foreign patent or trademark applications will be
issued, that any of these rights will not be infringed by others or that already
issued patents or trademark registrations will not be invalidated or canceled.
Third parties could infringe on our rights or successfully duplicate our
products without infringing on our legal rights. Many elements incorporated in
our proprietary products are in the public domain or otherwise not amendable to
legal protection, and the steps taken by us will not, in and of themselves,
preclude competition with our proprietary products.

                                      -20-
<PAGE>

     EMPLOYEES

         As of December 31, 2002, we had 75 full-time employees and 22 contract
personnel. None of our employees are represented by a labor union, and we
consider our relationships with our employees to be satisfactory. All employees
have signed confidentiality agreements, which prohibit them from disclosing any
of our confidential information at any time during or after their employment
with us.

ITEM 2.       DESCRIPTION OF PROPERTY

         We lease approximately 58,725 square feet for our headquarters at 6830
Spencer Street, Las Vegas, Nevada, 89119, which houses our corporate offices,
including sales, engineering, and manufacturing departments. The current lease
requires payments of approximately $55,000 per month and expires in October
2006. We have an option for an additional term of five years. We are currently
assessing whether our current headquarters are sufficient for our operations.

         In addition to our principal offices, we lease our shuffler research
and development facility located in Boise, Idaho and our service centers in
Gulfport, Mississippi, Tukwila, Washington and Berkley, Michigan. The lease for
the Boise, Idaho facility is for approximately 1,105 square feet, requires
monthly lease payments of $1,200 and is leased on a month-to-month basis. The
lease for the Tukwila, Washington service center is for approximately 1,500
square feet, requires monthly lease payments of $1,512 and ends in November
2003. The lease for the Gulfport, Mississippi service center is for
approximately 1,500 square feet, requires monthly lease payments of $725 and
ends in August 2003. The lease for the Berkley, Michigan service center is for
approximately 1,150 square feet, requires monthly lease payments of $961 and
ends in March 2005.

         We are currently in negotiations with respect to the lease of
manufacturing facilities in Zhongshan City, Guangdong Province in China. The
manufacturing facilities consist of approximately 4,000 square feet, require
monthly lease payments of $590 per month and ends April 1, 2008. We estimate
that we will be able to occupy the Zhongshan City premises in April 2003.

ITEM 3.       LEGAL PROCEEDINGS

         On November 22, 1999, Moll Industries, Inc. filed a complaint (Case No.
817296) against VendingData in the Superior Court of the State of California for
the County of Orange, California. The parties have entered into a stipulation as
of December 2000, the fulfillment of which will lead to the dismissal of this
litigation.

         On May 18, 2000, Heath Electronics Manufacturing Corporation filed a
complaint (Case No. CV OC 00-02422D) against VendingData in the District Court
of the Fourth Judicial District of the State of Idaho, Ada County. We have
answered the Complaint, which requests payment for goods in the amount of
$89,569 plus interest and costs, and has filed a counterclaim alleging claims
for breach of contract, breach of express warranty, breach of the implied
warranty of merchantability, and breach of the implied warranty of fitness for a
particular purpose. The trial in this matter concluded on December 13, 2001 and
the court entered a judgment against us in the amount of $102,594.72. We are in
the process of negotiating a settlement on this matter.

         On March 27, 2002, Shuffle Master filed a complaint (Case No.
CV-S-02-0438-JCM-PAL) against VendingData in the United States District Court,
District of Nevada. The amended complaint alleges, among other things, claims
for patent infringement and requests treble damages, an injunction enjoining us
from infringing on two of Shuffle Master's patents, an accounting of our gains


                                      -21-
<PAGE>

and profits that resulted from our alleged infringement, and for interest, costs
and attorneys' fees. The Shuffle Master patents that are at issue in the
litigation concern registering of use of a playing card shuffler apparatus and
the displaying of the use on a display. We have filed our Answer, Counterclaims,
and Amended Counterclaims against Shuffle Master. In our Answer, we deny Shuffle
Master's allegation of patent infringement and request that Shuffle Master's
complaint be dismissed. We also seek, in our amended counterclaim, a declaration
that we do not infringe Shuffle Master's patent and that Shuffle Master's patent
and certain of its related patents are invalid. We further assert counterclaims
against Shuffle Master for breach of contract and violation of the Uniform Trade
Secrets Act. On May 20, 2002, the United States District Court, District of
Nevada denied Shuffle Master's Motion for Preliminary Injunction against us.
This litigation is now in the discovery phase.

         On June 7, 2002, Beth Thacker filed a complaint (Case No.
02-2-13207-3KNT) against VendingData in the Superior Court of Washington in and
for King County. The complaint alleges, among other things, claims for gender
discrimination, negligence, hostile work environment, and constructive discharge
and requests compensatory and punitive damages, attorneys' fees and costs. We
have removed this case (Case No. C02-1374P) to the United States District Court
for the Western District of Washington and filed motions for summary judgment in
February 2003. We intend to vigorously defend this litigation.

         On July 29, 2002, Contract Manufacturing Service, Inc., filed a
complaint (Case No. A454098) in the District Court of Clark County, Nevada. The
complaint alleges non-payment of product allegedly delivered, and requests
compensatory damages in the amount of $29,896.14, interest, attorneys' fees and
costs. The parties have entered into a stipulation as of February 2003, the
fulfillment of which will lead to the dismissal of this litigation.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.


                                      -22-
<PAGE>

                                     PART II

ITEM 5.       MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our authorized capital stock consists of 16,000,000 shares of common
stock, $0.001 par value, and 10,000,000 shares of preferred stock, $0.001 par
value. Our common stock and preferred stock may be issued from time to time
without action by the stockholders and may be issued for such consideration as
may be fixed from time to time by the Board. As of March 21, 2003, we had
outstanding 7,625,826 shares of common stock and zero shares of preferred stock.

         On December 23, 2002, we filed a Certificate of Change in Number of
Authorized Shares of VendingData Corporation with the Nevada Secretary of State
in which we consummated a reverse stock split of common stock. The Certificate
of Change in Number of Authorized Shares provided for an effective date of
January 3, 2003 for the reverse stock split. The 1-for-5 reverse stock split
affected the outstanding and authorized shares of our common stock. As a result
of the reverse stock, our authorized capital stock was decreased from 80,000,000
shares of common stock, $.001 par value, and 10,000,000 shares of blank
check-preferred stock, par value $.001, to 16,000,000 shares of common stock,
$.001 par value, and 10,000,000 shares of blank-check preferred stock, $.001 par
value, respectively. Since the reverse stock split decreased the outstanding and
authorized shares of our common stock on an equal basis, we were not required to
obtain stockholder approval of the reverse stock split. Accordingly, effective
January 3, 2003, our stockholders own one share of common stock for every five
shares of common stock owned prior to January 3, 2003.

         Since there were no agreements with anti-dilution provisions that
prevented the application of the 1-for-5 reverse stock split, the reverse stock
split was applied to all outstanding shares of our common stock and to all
shares of our common stock underlying convertible instruments, where, in the
case of the latter, the exercise or conversion price was increased by a factor
of five. In addition, as part of the reverse stock split, we distributed to our
stockholders written instructions describing the procedure for the exchange of
the pre-reverse stock split stock certificates for new stock certificates
reflecting the 1-for-5 reverse stock split.

         Although the 1-for-5 reverse stock split was effected on January 3,
2002, the information with respect to our common stock as described in this
Annual Report on Form 10-KSB, including the information dated as of December 31,
2002, reflects the 1-for-5 reverse stock split.

     MARKET INFORMATION

         Our common stock is not yet traded on a national or regional exchange
and is not yet quoted over an electronic medium. We are not aware of any
established market for the trading of our common stock. On March 11, 2003, a
Form 15c2-11 was filed with the National Association of Securities Dealers, Inc.
by Brockington Securities, Inc., a proposed market maker for our common stock.
Upon the clearance of comments from the National Association of Securities
Dealers, Inc., our common stock will be eligible for quotation on the OTC
Bulletin Board.

         We have entered into lockup agreements with certain stockholders and
directors. Through these lockup agreements, the relevant stockholders have
agreed to lockup 366,881 shares of common stock until such time as the
Commissioner of the Department of Corporations of the State of California
consents to the sale or transfer of such shares.

                                      -23-
<PAGE>

     COMMON STOCK

         As of March 21, 2003, there were 7,625,826 shares of our common stock
outstanding and approximately 399 stockholders of record. The holders of our
common stock are entitled to one vote per share on all matters submitted to a
vote of the shareholders. We do not allow cumulative voting of any kind, and are
not required to do so under Nevada law. Subject to preferences that may be
applicable to any then outstanding preferred stock, the holders of our common
stock will be entitled to receive dividends, if any, as may be declared from
time to time by our board out of legally available funds. Upon liquidation,
dissolution, or winding up of our operations, the holders of our common stock
will be entitled to a pro rata share of our assets that are legally available
for distribution after payment of all debts and other liabilities and subject to
the prior rights of any preferred stock then outstanding. The holders of our
common stock have no preemptive, subscription, redemption, or conversion rights.

     PREFERRED STOCK

         We are authorized to issue 10,000,000 shares of undesignated preferred
stock. We have not issued any shares of our undesignated preferred stock and
have no present plans to issue shares of undesignated preferred stock. Without
further action by our stockholders, our board is empowered to issue one or more
series of undesignated preferred stock with such rights, preferences,
restrictions and privileges as may be fixed by the board. The issuance of the
undesignated preferred stock could adversely affect the rights, including voting
rights, of the holders of our common stock and could impede an attempted
takeover of VendingData Corporation.

     OPTIONS

         As of December 31, 2002, there were options outstanding to purchase
926,770 shares of our common stock at exercise prices ranging from $1.75 to
$15.00 per share with a weighted average exercise price per share of $4.83. We
have issued options to purchase our common stock pursuant to our 1999 Stock
Option Plan and our 1999 Directors' Stock Option Plan and have issued options to
purchase our common stock outside of both plans. In accordance with our stock
option plans, we will not grant any options to purchase common stock at an
exercise price of less than 100% of the fair market value of our common stock on
the date of grant. The options granted outside of our stock option plans have
not been submitted to our stockholders for approval and were issued on terms as
determined and approved by our board.

     WARRANTS

         As of December 31, 2002, we had issued and outstanding warrants to
purchase an aggregate of 552,500 shares of our common stock at exercise prices
ranging from $0.05 to $50.00 per share with a weighted average exercise price
per share of $7.41. The warrants currently outstanding are as follows:

         o        Warrants to purchase 60,000 shares that have an exercise price
                  of $13.00 per share and were issued as part of our private
                  placement of convertible debentures in 2000;

         o        Warrants to purchase 50,000 shares that have an exercise price
                  of $12.50 per share, are exercisable until February 2006 and
                  were issued in February 2001 to third parties in conjunction
                  with a loan;

         o        Warrants to purchase 45,000 shares that were issued in March
                  2001 to Malcolm C. Davenport V in conjunction with our
                  purchase of the technology for the SecureHopper(TM), have an
                  exercise price of $50.00 per share and are exercisable until
                  March 2006;

                                      -24-
<PAGE>

         o        Warrants to purchase 10,000 shares that were issued in May
                  2002 with respect to the extension of a loan, are exercisable
                  until May 2007 and have an exercise price of $1.75;

         o        Warrants to purchase 237,500 shares that were issued in 2002
                  in conjunction with our 2002 private placement of convertible
                  debentures, have an exercise price of $1.75 and are
                  exercisable until one year after the repayment or conversion
                  of the relevant convertible debenture; and

         o        Warrants to purchase 150,000 shares that were issued pursuant
                  to a consulting agreement in 2002, have an exercise price of
                  $0.05 and are exercisable until December 2005.

         Subsequently, during the first quarter of 2003, we issued warrants to
purchase 600,000 shares of our common stock that have an exercise price of $2.25
per share, are exercisable beginning in December 2004 and until December 2007
and were issued in conjunction with our private placement of 10% senior notes.

         In terms of registration rights, we have issued registration rights to
the warrants issued in 2000, demand and piggy-back registration rights to the
warrants issued in February 2001, piggy-back registration rights to the warrants
issued in March 2001, and piggy-back registration rights to the warrants issued
in conjunction with our private placement of 10% senior notes.

     CONVERTIBLE DEBENTURES

         From February 1999 to November 2000, we issued two series of unsecured
convertible debentures, one series for $1,500,000 and another series for
$1,800,000. The remaining convertible debentures are convertible at a rate of
$13.00 per share into 123,317 shares of our common stock. A majority of the
outstanding convertible debentures are held by James E. Crabbe, our Chairman of
the Board and controlling stockholder. As noted above, these convertible
debentures were issued with warrants, of which warrants to purchase 60,000
shares of common stock at an exercise price of $13.00 per share remain. We used
the proceeds from this private placement for general corporate purposes and
working capital. We relied upon the exemption from registration provided by
Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder.

         On February 21, 2002, our board authorized a private placement of
$4,999,995 of convertible notes. The convertible debentures accrue interest at
9.5% per annum, mature one year from the date of issuance (where the holder has
the discretion to extend maturity date for up to four one-year periods) and are
convertible into shares of our common stock one year after issuance at a rate of
$1.75 per share. In addition, for each convertible note of $49,999.95, we issued
a warrant to purchase 2,500 shares of our common stock with an exercise price of
$1.75. Through this private placement, we issued convertible notes in the
aggregate principal amount of $4,749,995.20 and warrants to purchase 237,500
shares of our common stock. The convertible notes are convertible into 2,714,291
shares of our common stock. We used the proceeds from this private placement for
general corporate purposes and working capital. We have discontinued this
private placement of convertible debentures as of January 14, 2003. We relied
upon the exemption from registration provided by Section 4(2) of the Securities
Act.

         In the first quarter of 2003, we consummated the private placement of
10% senior notes in the aggregate principal amount of $5,000,000 and reserved
the issuance of an additional $2,000,000 in 10% senior notes. As part of the
private placement, we issued warrants to purchase 6,000 shares of our common
stock for each $50,000 invested. As a result, we issued warrants to purchase an
aggregate of 600,000 shares of our common stock and may issue warrants to
purchase an additional 240,000 shares of our common stock. The 10% senior notes
require the payment of accrued interest semi-annually in arrears with the
principal due on December 15, 2005. In addition, at any time after December 15,
2004 and until June 15, 2005, the holders of the 10% senior notes may convert up
to 15% of the then outstanding principal amount into shares of our common stock
at a conversion rate of $2.25 per share. We relied upon the exemption from
registration provided by Section 4(2) of the Securities Act, Rule 506 of
Regulation D thereunder and Regulation S.

                                      -25-
<PAGE>

     DIVIDEND POLICY

         We have never declared or paid cash dividends on our common stock. We
presently intend to retain earnings to finance the operation and expansion of
our business and do not anticipate declaring cash dividends in the foreseeable
future.

     EQUITY COMPENSATION PLAN INFORMATION

         With respect to our equity compensation plans, we have adopted the 1999
Stock Option Plan and the 1999 Directors' Stock Option Plan, which are
authorized to issue 100,000 shares and 20,000 shares of our common stock,
respectively. In addition to our stock option plans, we have issued options to
purchase an aggregate of 902,800 shares of our common stock to our employees.

         The following table summarizes our equity plan compensation that has
been approved by stockholders and has not been approved by stockholders as of
December 31, 2002.

<TABLE>
<CAPTION>
                                                                                                      (c)
                                          (a)                          (b)              NUMBER OF SECURITIES REMAINING
                                 NUMBER OF SECURITIES TO         WEIGHTED-AVERAGE      AVAILABLE FOR FUTURE ISSUANCE
                                 BE ISSUED UPON EXERCISE        EXERCISE PRICE OF      UNDER EQUITY COMPENSATION PLANS
                                 OF OUTSTANDING OPTIONS,       OUTSTANDING OPTIONS,     (EXCLUDING SECURITIES REFLECTED
PLAN CATEGORY                     WARRANTS AND RIGHTS          WARRANTS AND RIGHTS               IN COLUMN (a))
----------------------------    -------------------------    ----------------------    ---------------------------------
<S>                                        <C>                        <C>                                  <C>
Equity compensation plans
  approved by stockholders                 103,770                    $11.03                               16,230
Equity compensation plans
  not approved by
  stockholders                             823,000                     $4.33                                    0
----------------------------    -------------------------    ----------------------    ---------------------------------
TOTAL                                      926,770                     $5.09                               16,230

</TABLE>

ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS

     STATEMENT ON FORWARD-LOOKING INFORMATION

         Certain information included herein contains statements that may be
considered forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, such as statements relating
to plans for product development, product placement, capital spending and
financing sources. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, such results may differ from those expressed in any
forward-looking statements made herein. These risks and uncertainties include,


                                      -26-
<PAGE>

but are not limited to, those relating to our liquidity requirements, our
ability to locate necessary sources of capital to sustain our operations, the
continued growth of the gaming industry, the success of our product development
activities, the acceptance of our products in the marketplace, vigorous
competition in the gaming industry, our dependence on existing management,
changes in gaming laws and regulations (including actions affecting licensing),
our leverage and debt service (including sensitivity to fluctuations in interest
rates) and domestic or global economic conditions.

     QUALIFICATION RELATED TO RELIANCE ON PROJECTIONS

         In conjunction with certain advertising and marketing materials, we
provided projections of our financial results for the fiscal years ending
December 31, 2003, 2004 and 2005. These financial projections were based on
assumptions and circumstances believed accurate and reasonable by our management
at the time made that have changed and are no longer valid or applicable. As a
result, any financial projections previously used by us are not an accurate
portrayal of our future operating results. Further, we have advised the
recipients of these financial projections that said projections are no longer
valid and may not be relied upon for any purpose. In light of the foregoing, we
disclaim the reliability of any previously distributed projections of our
financial results and discourage the reliance by any party on any such
projections for any purpose.

     OVERVIEW

         Until January 2000, we were in the development stage and had limited
sales of our products. Prior to January 2000, we were characterized as a
"development stage company" performing research and development, product
prototyping, field testing of products, development of manufacturing
capabilities, inventory acquisition, development of distribution channels,
staffing and obtaining a building with sufficient capacity to house future
growth. During 2000, we had sufficient sales development and revenue growth such
that we were considered an operating company. Although we anticipate significant
sales development, revenue and profit growth, there is no guarantee that we will
generate sufficient revenue, cash flow or profit to sustain our operations.

         Our strategy is to develop cost-effective niche products and services
for the global gaming industry. We focus on products that increase the security,
productivity and profitability of casino operations. Our strategy involves
marketing certain of our products for sale or lease, depending on the product,
the geographic location of the customer or other factors. We rely on our
internal sales staff and our limited distributor relationships for the sale and
rental of our products.

     ACCOUNTING POLICIES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires our management to make estimates and
assumptions that affect reported amounts and disclosures, some of which may
require revision in future periods. Actual results could differ from these
estimates. The following is a summary of what our management believes are the
critical accounting policies related to our operations. The application of these
policies, in some cases, requires our management to make subjective judgments
regarding the effect of matters that are inherently uncertain. See Note 1,
"Significant Accounting Policies," to our Financial Statements included in Item
7 of this Annual Report on Form 10-KSB for a more detailed discussion of our
accounting policies.

         REVENUE RECOGNITION. We recognize revenue from the sale of our products
upon installation at customer locations. Revenue from rentals of shufflers is
recorded as revenue at the first of each month in accordance with lease terms.
Sales returns and allowances are recorded after returned goods are received and
inspected. We plan to provide currently for estimated product returns arising
therefrom.

                                      -27-
<PAGE>

         INVENTORY. Inventory is stated at the lower of cost or market using the
first in, first out method. Finished goods include raw materials, direct labor
and overhead. Raw materials include purchase and delivery costs.

         PROPERTY AND EQUIPMENT. Property and equipment are carried at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. When assets are retired or otherwise disposed of,
the cost and the related accumulated depreciation are removed from the accounts,
and any resulting gain or loss is recognized in operations for the period. The
cost of repairs and maintenance is charged to operations as incurred, and
significant renewals or betterments are capitalized. The useful lives for office
equipment, computer software and leasehold improvements is five years and for
tooling is three years.

         NEW ACCOUNTING PRONOUNCEMENTS. In June 2002, the Financial Accounting
Standards Board issued SFAS No. 146, Accounting for Costs Associated With Exit
or Disposal Activities (SFAS 146), which is required to be adopted for such
activities initiated after December 31, 2002. SFAS 146 establishes accounting
rules for recognizing certain costs associated with exit or restructuring
activities that are not associated with new business combinations or disposal
activities covered by FASB Statement No. 144. Our management believes that the
adoption of SFAS No. 146 will have no impact on us for the year ended December
31, 2002.

     RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 2002 AND 2001

         REVENUE

         For the year ended December 31, 2002, we generated total revenues of
$3,480,299, compared to $2,250,777 for the year ended December 31, 2001, an
increase of $1,229,522, or 54.6%. Our revenues for the year ended December 31,
2002 consisted of SecureDrop(TM) sales of $1,704,769, shuffler rentals of
$1,406,351, shuffler sales of $113,450 and miscellaneous other income of
$255,729. The increase in revenue was primarily due to an increase in
SecureDrop(TM) sales of $751,743, an increase in shuffler sales of $20,120, an
increase in shuffler rentals of $224,452 and an increase in other income of
$232,757.

         REVENUES - SECUREDROP(TM) SALES. For the year ended December 31, 2002,
we generated revenue related to the sale of our SecureDrop(TM) products of
$1,704,769, compared to $953,026 for the year ended December 31, 2001, an
increase of $751,743, or 78.9%.

         REVENUES - SHUFFLER SALES. For the year ended December 31, 2002, we
generated revenue related to the sale of our shufflers of $113,450, compared to
$93,330 for the year ended December 31, 2001, an increase of $20,120, or 21.6%.

         REVENUE - SHUFFLER RENTALS. For the year ended December 31, 2002, we
generated revenue related to the rental of our shufflers of $1,406,351, compared
to $1,181,899 for the year ended December 31, 2001, an increase of $224,452, or
19.0%. This increase is attributable to a decrease of free trials and an
increase in rental fee charges for our shufflers.

         REVENUE - OTHER INCOME. For the year ended December 31, 2002, we
generated other income of $255,729, compared to $22,522 for the year ended
December 31, 2001, an increase of $232,757. The increase in revenue during the
year ended December 31, 2002 reflected old customer deposits of $144,851
recognized as revenue, freight revenue of $59,773 and miscellaneous revenue of
$50,655.

                                      -28-
<PAGE>

         COST OF SALES

         For the year ended December 31, 2002, our cost of sales was $2,541,130,
compared to $2,956,425 for the year ended December 31, 2001, a decrease of
$415,295, or 14.1%. Our cost of sales for the year ended December 31, 2002
included cost of SecureDrop(TM) sales of $1,127,160, cost of shuffler sales of
$51,292, shuffler rental depreciation of $562,275, shuffler service costs of
$435,215, manufacturing costs of $351,535 and other expenses of $13,653. As we
transition from a development to an operating company, we are reducing the cost
of sales through more efficient purchasing and manufacturing. The outsourcing of
components from China will continue the trend of reducing cost of sales through
the second and third quarters of 2003.The gross margin on revenue for the year
ended December 31, 2002 was $939,169, or 27.0%, compared to the gross margin
deficit on revenue for the year ended December 31, 2001 of $705,648, or 31.3%.
The increase in gross margin of $1,644,817 from the year ended December 31, 2001
to the year ended December 31, 2002 reflected increased revenue, increased
proficiencies in the production and the installation of our products.

         COST OF SALES - SECUREDROP(TM) SALES. Our cost of SecureDrop(TM) sales
revenue was $1,127,160 for the year ended December 31, 2002 compared to $739,553
for the year ended December 31, 2001, representing an increase of $387,607, or
52.4%. The increase in the cost of SecureDrop(TM) sales revenue was due to the
increased placement of SecureDrop(TM) units during the year ended December 31,
2002. The gross margin percentage on revenue from SecureDrop(TM) sales revenue
was 33.9% in the year ended December 31, 2002 compared to 22.4% for the year
ended December 31, 2001. The increase in gross margin percentage on
SecureDrop(TM) sales revenue resulted primarily from increased proficiencies in
the production and the installation of our SecureDrop units.

         COST OF SALES - SHUFFLER SALES. Our cost of shuffler sales revenue was
$51,292 for the year ended December 31, 2002 compared to $46,806 for the year
ended December 31, 2001, representing an increase of $4,486, or 9.6%. The
increase in the cost of shuffler sales revenue was due to the increased
placement of shuffler units during the year ended December 31, 2002. The gross
margin percentage on revenue from shuffler sales revenue was 54.8% in the year
ended December 31, 2002 compared to 49.8% for the year ended December 31, 2001.

         GENERAL AND ADMINISTRATIVE EXPENSES

         For the year ended December 31, 2002, our general and administrative
expenses were $4,455,241, compared to $3,768,560 for the year ended December 31,
2001, an increase of $686,681, or 18.2%. The increase in general and
administrative expenses related primarily to a $213,061 increase in salaries and
related costs, a $115,272 increase in rent and a $247,012 increase in legal and
regulatory expenses.

         Our general and administrative expenses for the year ended December 31,
2002 consisted of the following: salaries and related costs of $1,511,991;
consulting services of $28,972; advertising and marketing costs of $76,686;
travel and entertainment costs of $501,346; gaming industry shows costs of
$78,263; rent of $639,392; repairs and maintenance expense of $101,168; supplies
of $54,180; legal and regulatory expenses of $486,226; insurance expenses of
$99,283; depreciation and amortization of $410,250; and other expenses of
$467,484.

         RESEARCH AND DEVELOPMENT EXPENSES

         For the year ended December 31, 2002, research and development expenses
were $810,327, compared to $1,364,264 for the year ended December 31, 2001, a
decrease of $553,937, or 40.6%. The decrease in research and development
expenses was primarily due to the substantial completion of our research and
development for the SecureDrop(TM) System and our transition from a development
to a revenue generating company.

                                      -29-
<PAGE>

         INTEREST EXPENSE

         For the year ended December 31, 2002, we incurred interest expenses of
$1,866,387, compared to $1,727,618 for the year ended December 31, 2001, an
increase of $138,769, or 8.0%. This increase was primarily attributable to the
additional debt service as a result of an increase in our outstanding
indebtedness during the year ended December 31, 2002.

         NET LOSS

         For the year ended December 31, 2002, we had a net loss of $ 6,192,786
compared to a net loss of $7,566,090 for the year ended December 31, 2001, a
decrease of $1,373,304, or 18.1%. The decrease in net loss was primarily due to
a $1,229,522 increase in revenue and a decrease of $415,295 in costs of sales,
offset, in part, by a $686,681 increase in general and administrative expenses.
Basic loss per share was $0.81 for the year ended December 31, 2002, compared
$1.72 for the year ended December 31, 2001.

     LIQUIDITY AND CAPITAL RESOURCES

         OVERVIEW. Because of our efforts to transition from a development stage
company to an operating company, we have generated substantial cash flow
deficits from operations, including cash used in operating activities of
$5,206,489 and $5,712,867 in the years ended December 31, 2002 and 2001,
respectively. In addition, to fund our development and operating activities, we
have been provided cash by financing activities of $6,683,001 and $6,430,282 in
the years ended December 31, 2002 and 2001, respectively. Consequently, we have
been substantially dependent on cash from financing activities to fund our
development and operating activities. We will continue to require cash from
financing activities for our current operating needs until our operations begin
to generate sufficient cash flow to provide for such cash requirements.

         During the year ended December 31, 2002, our sources of capital include
equipment financing from a third party, short-term notes from stockholders,
convertible debentures and other private sources of capital. With respect to our
equipment financing where we have sold and leased back most of our furniture,
equipment, tooling and shufflers, we have received proceeds of $2,988,385 and
repaid $2,823,331 for the year ended December 31, 2002. As of December 31, 2002,
there was outstanding equipment financing of $7,369,282. These equipment leases
have a term of 36 to 39 months and were not recorded as sales because the leases
included a mandatory buy back provision. With respect to our stockholders loans,
we have received proceeds of $3,917,948 and repaid $650,000 for the year ended
December 31, 2002 and have outstanding stockholders loans in the aggregate
amount of $896,743 as of December 31, 2002. With respect to our convertible
debentures, we received proceeds of $3,249,999 during the year ended December
31, 2002 and have outstanding convertible debentures in the aggregate amount of
$8,853,072 as of December 31, 2002.

         WORKING CAPITAL. At December 31, 2002, we had cash, cash equivalents
and investments of $1,778,297, compared to $866,998 at December 31, 2001. At
December 31, 2002, our working capital was a deficit of $3,369,928, compared to
a deficit of $2,940,604 at December 31, 2001. At December 31, 2002, our current
ratio, I.E. the ratio of current assets to current liabilities, was 0.55:1,
compared to 0.49:1 at December 31, 2001. During the year ended December 31,
2002, we relied substantially upon loans from certain stockholders and directors
and other private sources of debt and equity capital to sustain our operations.
Until normalized sales levels are achieved such that our revenue is sufficient


                                      -30-
<PAGE>

to sustain our operations, we will be relying upon loans from our principal
stockholder and other directors, and other private and institutional sources of
debt and equity capital for working capital purposes. Despite such reliance,
neither our principal stockholder nor our directors are obligated to provide
additional financing to us, and our principal stockholder and directors are free
to decline to make additional financings to us at any time. In such event, we
may have substantial difficulties in raising additional financings.

         CASH USED IN OPERATING ACTIVITIES. For the year ended December 31,
2002, net cash used in operating activities was $5,206,489, compared to
$5,712,867 for the year ended December 31, 2001. The cash used in operating
activities during the year ended December 31, 2002 resulted from a net loss of
$6,192,786, an increase in inventory of $335,978, an increase in other assets of
$65,138, an increase in deposits of $162,540 and a decrease in customer deposits
of $495,754, offset by depreciation and amortization of $972,525, amortization
of deferred interest of $402,492, a decrease in trade accounts receivable of
$22,814, a decrease in prepaid expenses of $35,354, an increase in accrued
expenses of $94,312 and an increase in accounts payable of $498,710. The
decrease of $506,378 in net cash used in operating activities from the year
ended December 31, 2001 to the year ended December 31, 2002 resulted primarily
from the $1,392,804 decrease in net loss, an increase in depreciation and
amortization, a decrease in prepaid expenses and an increase in accounts
payable, offset, in part, by a decrease in accounts receivable, an increase in
inventory and a decrease in customer deposits.

         NET CASH USED IN INVESTING ACTIVITIES. For the year ended December 31,
2002, we used net cash in investing activities of $565,213 compared to $282,487
for the year ended December 31, 2001. The net cash used in investing activities
during the year ended December 31, 2002 consisted of the acquisition of plant
and equipment of $562,168 and an increase in patents and trademarks of $3,045.
The increase of $282,726 resulted from a $489,301 increase in the acquisition of
plant and equipment offset by a $206,575 decrease in patents and trademarks.

         NET CASH PROVIDED BY FINANCING ACTIVITIES. For the year ended December
31, 2002, net cash from financing activities was $6,683,001, compared to
$6,430,282 for the year ended December 31, 2001, an increase of $252,719. The
net cash provided by financing activities during the year ended December 31,
2002 consisted of $3,917,948 from stockholder loans, $2,988,385 from capital
leases, $2,500,000 from long-term notes and $749,999 from convertible
debentures, offset by the repayment of stockholder loans of $650,000 and the
repayment of capital leases of $2,823,331. The increase of $252,719 in net cash
provided by financing activities resulted primarily from the repayment of
relatively less indebtedness in the year ended December 31, 2002 compared to the
year ended December 31, 2001. The continued reliance on cash provided by
financing activities is due to the inability to generate sufficient revenue to
sustain our operations.

         CONTRACTUAL CASH OBLIGATIONS. Our contractual cash obligations under
our debt agreements, capital leases and operating leases for the next five years
are as follows:

<TABLE>
<CAPTION>

 CONTRACTUAL                                               PAYMENTS DUE BY PERIOD
 OBLIGATIONS          TOTAL             1 YEAR          2-3 YEARS         4-5 YEARS      AFTER 5 YEARS
----------------      ------------     ------------     ------------     ------------     ------------
<S>                   <C>              <C>              <C>              <C>              <C>
Debt Agreements       $10,195,124      $ 1,238,045      $ 1,718,642      $ 4,726,107      $ 2,512,330
Capital Leases          7,369,282        3,342,209        2,495,733        1,531,340                0
Operating Leases           59,986           44,690           15,296                0                0
----------------      ------------     ------------     ------------     ------------     ------------
TOTAL                 $17,624,392      $ 4,624,944      $ 4,229,671      $ 6,257,447      $ 2,512,335

</TABLE>

     OUTLOOK

         Based on presently known commitments and plans, we believe that we will
be able to fund our operations and required expenditures through the second
quarter of 2003 through cash on hand, cash flow from operations, and cash from
private placements of debt or equity or from lease financing sources. In the


                                      -31-
<PAGE>

event that such sources are insufficient or unavailable, we will need to seek
cash from public or private placements of debt or equity, institutional or other
lending sources, sell certain assets or change operating plans to accommodate
such liquidity issues. No assurances can be given that we will successfully
obtain necessary liquidity sources necessary to fund our operations in the
upcoming year. If we continue to generate significant losses from our operations
and we are not able to located additional sources of liquidity, we may be unable
to continue as a going concern.

     RISK FACTORS AND FORWARD-LOOKING INFORMATION

         THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT. SUCH STATEMENTS REFER TO EVENTS THAT COULD OCCUR IN THE FUTURE AND MAY BE
IDENTIFIED BY THE USE OF WORDS SUCH AS "INTEND," "PLAN," "BELIEVE," CORRELATIVE
WORDS, AND OTHER EXPRESSIONS INDICATING THAT FUTURE EVENTS ARE CONTEMPLATED.
SUCH STATEMENTS ARE SUBJECT TO INHERENT RISKS AND UNCERTAINTIES, AND ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH BELOW AND
ELSEWHERE IN THIS ANNUAL REPORT. IN ADDITION TO THE OTHER INFORMATION CONTAINED
HEREIN, INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS.

RISKS RELATED TO VENDINGDATA

         WE HAVE A HISTORY OF SIGNIFICANT OPERATING LOSSES AND ANTICIPATE
CONTINUED OPERATING LOSSES, AND WE MAY BE UNABLE TO ACHIEVE PROFITABILITY.

         We have a history of significant operating losses and anticipate
continued operating losses for the foreseeable future. For the years ended
December 31, 2002 and 2001, we have incurred net losses of $6,192,786 and
$7,566,090, respectively, and our operations have used $5,206,489 and $5,712,867
of cash, respectively. As of December 31, 2002 and 2001, we had accumulated
deficits of $36,770,258 and $30,557,860, respectively.

         If our revenues decline or grow at a slower rate than we anticipate, or
if our spending levels exceed our expectations or cannot be adjusted to reflect
slower revenue growth, our business would be severely harmed. We cannot assure
you that revenues will grow in the future or that we will generate sufficient
revenues for profitability, or that profitability, if achieved, can be sustained
on an ongoing basis.

         GIVEN OUR RECURRING LOSSES AND ACCUMULATED DEFICITS, WE MAY BE UNABLE
TO CONTINUE AS A GOING CONCERN.

         Based on presently known commitments and plans, we believe that we will
be able to fund our operations and required expenditures through the second
quarter of 2003 from cash on hand, cash flow from operations, and cash from our
recent private placement of senior promissory notes. In the event that such
sources are insufficient, we will need to seek cash from private or public
placements of debt or equity, institutional or other lending sources, sell
certain assets or change operating plans to accommodate such liquidity issues.
No assurances can be given that we will successfully obtain necessary liquidity
sources necessary to fund our operations in the upcoming year. If adequate funds
are not available or are not available on acceptable terms, we may not be able
to fund operations or otherwise continue as a going-concern.

                                      -32-
<PAGE>

         WE HAVE LIMITED OPERATING RESULTS AND NO INDEPENDENT MARKET RESEARCH OF
POTENTIAL DEMAND FOR CURRENT OPERATIONS.

         Until January 2000, we were in the development stage and had limited
sales of our products. Our activities have been limited to analyzing the gaming
industry, consulting with persons in the gaming industry, negotiating interim
financing arrangements, developing products, establishing a distribution network
for our products, marketing our products to the gaming industry, manufacturing
our products and commencing product sales. Although we anticipate significant
sales development and revenue growth during 2003, there is no guarantee that we
will generate sufficient revenue to sustain our operations. No independent
organization has conducted market research providing management with independent
assurance from which to estimate potential demand for our business operations.

         DUE TO THE UNKNOWN IMPACT OF COINLESS GAMING ON OUR OPERATIONS, THE
ACCEPTANCE AND EXPANSION OF COINLESS GAMING MAY ADVERSELY AFFECT THE DEMAND FOR
OUR PRODUCTS.

         Certain gaming operators have tested and employed as part of their
current operations certain gaming devices that have totally eliminated the use
of coin or tokens, or use a combination of coin and "cashless" vouchers. The
acceptance and expansion of totally coinless gaming devices may reduce the
demand for the SecureDrop(TM) System Hard Count Module and may adversely affect
our operations in the future.

         WE DEPEND UPON OUR KEY EMPLOYEES AND CERTAIN MEMBERS OF OUR MANAGEMENT.

         Our success is substantially dependent upon the efforts and skills of
Steven J. Blad, our chief executive officer and president, and John R. Spina,
our chief financial officer. We have entered into employment agreements with
Messrs. Blad and Spina and seven other key employees. However, if we were to
lose the services rendered by any of our key employees, our operations could be
adversely affected. In addition, we compete with other potential employers for
employees, and we may not succeed in hiring and retaining the executives and
other employees that we need. An inability to hire and retain quality employees
could have a material adverse effect on our business, financial condition and
results of operations.

         WE ARE UNABLE TO PREDICT THE FUTURE IMPACT THAT EXTRAORDINARY EVENTS,
SUCH AS TERRORISM AND THE UNCERTAINTY OF WAR, MAY HAVE ON OUR BUSINESS AND
OPERATIONS.

         Extraordinary events, such as terrorist attacks or acts of war, may
cause damage or disruption to our operations, which, in turn, could
significantly impact our revenues, costs and expenses, and financial condition.
The terrorist attacks that took place in the United States on September 11, 2001
were unprecedented events that have created many economic and political
uncertainties, especially to the gaming industry, some of which have materially
adversely affected our business, results of operations, and financial condition
and may do so again in the future. In particular, the gaming industry has been
affected by the downturn in the tourist industry as a result of the September 11
attacks. Because our business is closely tied to the gaming industry, the
long-term effects from the September 11, 2001 attacks are unknown. The potential
for future terrorist attacks, the national and international responses to
terrorist attacks and other acts of war or hostility have created many economic
and political uncertainties, which could materially adversely affect our
business, results of operations and financial condition in ways that we
currently cannot predict.

         The strength and success of our business depends on the overall demand
for our products and growth in the gaming industry. Further, gaming industry
revenues are sensitive to general economic conditions and generally rise or fall
more rapidly in relation to the condition of the overall economy. Although we
cannot accurately estimate the economic impact of the recent terrorist attacks
at this time, the gaming industry has been negatively affected by the reduction


                                      -33-
<PAGE>

in air travel and tourism, and we expect that any significant decline in the
economic health or growth of the lodging industry will reduce demand for our
products.

         DUE TO OUR MANAGEMENT'S BENEFICIAL OWNERSHIP OF OUR COMMON STOCK, OUR
MANAGEMENT HAS THE POWER TO INFLUENCE ALL MATTERS SUBMITTED TO OUR STOCKHOLDERS.

         Our executive officers and members of our board beneficially own
9,485,048 shares of common stock, or approximately 85.86% of the outstanding
shares of our common stock, assuming exercise of options, warrants and
convertible debentures. These stockholders have the power to influence all
matters requiring approval by our stockholders, including the election of
directors and approval of mergers and other significant corporate transactions.
This concentration of ownership also has the effect to delay, prevent or
expedite, as the case may be, a change in control.

         DUE TO THE RECENT DEVELOPMENT OF OUR PRODUCTS, WE ARE NOT CERTAIN AS TO
WHETHER A MARKET EXISTS FOR OUR PRODUCTS.

         We have only recently completed development and begun distribution of
our shufflers and the SecureDrop(TM) System. Although the market appears to be
receptive to our products, there is no guarantee that the market will remain
receptive and that we will successfully compete in the target market for our
products.

         EVEN IF OUR OPERATIONS DO NOT BECOME PROFITABLE, OUR MANAGEMENT WILL
CONTINUE TO BE COMPENSATED THROUGH THE PAYMENT OF SALARIES AND BENEFITS.

         We currently compensate our management with substantial salaries and
other benefits and, in the future, may pay increased salaries and benefits. The
payment of such compensation and benefits may be a burden on us and may be a
factor in limiting or preventing our profitability. However, upon the expiration
of our existing employment agreements, we may elect to not continue to
compensate management with such substantial salaries and other benefits under
circumstances where to do so would have a material negative effect on our
financial condition.

         OUR PRODUCTS WILL BE SUBJECT TO CONSTANT SCRUTINY AND ATTEMPTS BY THIRD
PARTIES TO COMPROMISE THEIR SECURITY.

         Since our products are designed to increase security, productivity and
profitability for the gaming industry, our future success is dependent upon the
ability of our products to withstand attempts by third parties to undermine the
security of our products. In the event that our products become susceptible to
attacks by third parties, we will most likely be required to take back our
products from existing customers and will lose sales with prospective customers.
Although we have tested our products for security and although our products have
been tested by certain gaming regulators as part of the approval process, there
is no assurance that our products will not be susceptible to a scheme by third
parties to defraud the relevant gaming property.

         OUR PRODUCTS ARE SUBJECT TO THE RISKS RELATED TO PROPRIETARY PRODUCTS.

         We place our proprietary products, except for our SecureDrop(TM)
System, in casinos under short-term lease arrangements, making these products
susceptible to replacement due to pressure from competitors, changes in economic
conditions, obsolescence and declining popularity. We intend to maintain and
expand the number of installed proprietary products through enhancement of
existing products, introduction of new products and customer service, but there
can be no assurance that these efforts will be successful. The introduction of
new proprietary products involves significant risks, including whether we will
be able to place our products with gaming properties, the economic terms on


                                      -34-
<PAGE>

which these gaming properties will accept the products, and the popularity of
the products. We have filed trademark and patent applications to protect our
products. At this time, however, the United States Patent and Trademark Office
has not acted upon all of these applications. There can be no assurance that the
pending patent or trademark applications will actually issue as patents or
trademark registrations or that any of these rights will not be infringed by
others. Certain of our products and games do or may have independent protection
of the game itself, and it is possible that competitors could produce a similar
product or game without violating any of our legal rights. We intend to promote
aggressively our trademarks to build goodwill and customer loyalty. There can be
no assurance, however, that we will be successful in these efforts, that
innovations will be subject to legal protection or that the innovations will
give a competitive advantage to us. See Part I, "Item 1. Description of Business
- Intellectual Property."

         CERTAIN OF OUR SHUFFLER PATENTS ARE THE SUBJECT OF LITIGATION.

         As discussed in Part I, "Item 3. Legal Proceedings," Shuffle Master has
sued us for patent infringement and alleges that our shufflers violate two of
Shuffle Master's patents concerning registering use of a playing card shuffler
apparatus and the displaying of the use on a display. In addition to vigorously
defending this matter, we have asked the court to invalidate certain patents
asserted by Shuffle Master. Although we believe our position to be meritorious,
and hope that the court will invalidate the patents of Shuffle Master or certain
claims set forth therein, litigation of this nature is a drain on our cash
resources and our management's time. Since the nature of litigation is that the
outcome is rarely certain, we cannot give any assurance that the costs of the
litigation, our likely cash and time requirements or the outcome will not have
an adverse effect on us.

         INCREASED RELIANCE ON FOREIGN MANUFACTURED PRODUCTS COULD SUBJECT US TO
SUPPLY INTERRUPTION.

         We propose to expand our manufacturing presence in China by outsourcing
most phases of the manufacturing process to our own facility in Zhongshan City,
China. Although we intend to maintain a five to six month inventory of parts at
our principal offices, we will be adversely impacted if there is an interruption
in our ability to receive components from China.

RISKS RELATED TO OUR INDUSTRY

         WE FACE INTENSE COMPETITION FROM COMPANIES WITH LONGER OPERATING
HISTORIES, GREATER RESOURCES AND MORE ESTABLISHED BRAND NAMES.

         There is significant competition in the gaming industry. We compete
with established companies and other entities, many of which possess
substantially greater resources than we do. Almost all of the companies with
which we compete are substantially larger, have more substantial histories,
backgrounds, experience and records of successful operations, greater financial,
technical, marketing and other resources, more employees and more extensive
facilities than we now have, or will have in the foreseeable future. It is also
likely that other competitors will emerge in the near future. There is no
assurance that we will continue to compete successfully with other established
gaming product manufacturers. We shall compete on the basis of quality and
price. Inability to compete successfully might result in increased costs,
reduced yields and additional risks to the investors herein.

         WE FACE EXTENSIVE REGULATION FROM GAMING AND OTHER GOVERNMENT
AUTHORITIES.

         The gaming industry is a highly regulated industry and is subject to
numerous statutes, rules and regulations administered by the gaming commissions
or similar regulatory authorities of each jurisdiction. Generally, companies
that seek to introduce gaming products or concepts into such jurisdictions may
be required to submit applications relating to their activities or products
(including detailed background information concerning controlling persons within


                                      -35-
<PAGE>

their organization) which are then reviewed for approval. In this regard, we may
incur significant expenses in seeking to obtain licenses for our gaming products
and concepts, and no assurance can be given that our products will be approved
in any particular jurisdiction. The failure to obtain such approval in any
jurisdiction in which we may seek to introduce our products or concepts could
have a material adverse effect on our business.

         DUE TO OUR FOCUS ON PRODUCTS DESIGNED FOR THE GAMING INDUSTRY, OUR
OPERATIONS ARE NOT DIVERSIFIED AND ARE DEPENDENT SOLELY UPON THE GAMING
INDUSTRY.

         To date, we have designed, manufactured and sold products and concepts
solely to the gaming industry. In addition, our financial viability has depended
almost exclusively on our ability to generate revenues from the rental or sale
of our products. Accordingly, we do not have the benefit of reducing our
financial risks by relying on revenues derived from other operations. The
economic health of the gaming industry, and, therefore, our revenues, are
affected by a number of factors beyond our control, including:

         o        General economic conditions, such as inflation, business cycle
                  fluctuations and interest rates;

         o        Recession;

         o        Levels of disposable income of the hotel patrons;

         o        Acts of terrorism and anti-terrorism efforts;

         o        Increased transportation costs resulting in decreased travel
                  by patrons;

         o        Changes or proposed changes in tax laws;

         o        Legal and regulatory issues affecting the development,
                  operation and licensing of gaming; and

         o        Competitive conditions in the gaming industry.

         These factors may impact the demand for our products and could
materially affect revenues that we realize on the sale or placement of our
products.

         THE GAMING INDUSTRY HAS DEMONSTRATED A PREFERENCE TO RELY ON A SINGLE
PROVIDER OF SHUFFLERS.

         There is no guarantee that our development of the PokerOne(TM)
Shuffler, our specialty game shuffler, will be successfully completed. The
failure to successfully complete the development and marketing of our specialty
game shuffler could negatively impact our ability to distribute our other
shuffler products. Since our customers have demonstrated a strong preference to
conduct business with only one provider of automatic shuffler products, our
inability to complete our shuffler product line may adversely affect our
operating results.

         OUR ABILITY TO PLACE OUR PRODUCTS IS DEPENDENT UPON THE CONTINUED
CUSTOMER ACCEPTABLE OF OUR PRODUCTS.

         To our knowledge, although our shufflers have not proved vulnerable to
card counters or expert players, and although our casino customers have not
experienced financial loss from their use of our shufflers, there is no guaranty
that our shufflers will not become vulnerable to card counters or expert players
or that the use of our shufflers will not result in financial losses for our
customers. The occurrence of such events could have a material adverse effect on
our operations.

                                      -36-
<PAGE>

RISKS RELATED TO OUR COMMON STOCK

         THERE IS NO PUBLIC MARKET FOR OUR COMMON STOCK, SO OUR STOCKHOLDERS MAY
BE UNABLE TO DISPOSE OF THEIR INVESTMENT.

         Our common stock is at risk of complete loss if our operations are
unsuccessful. In addition, there has been no trading market for our common
stock. There can be no assurance that our common stock will ever be quoted, that
an active trading and/or a liquid market will ever develop or, if developed,
that it will be maintained. Persons should not invest unless they can afford to
lose their entire investment. Further, the transferability of our common stock
is restricted by the provisions of the Securities Act and the state securities
laws and regulations, which generally prohibit transfer absent a registration of
our common stock with the applicable regulatory authority or an exemption from
the registration requirements of such regulatory authority.

         WE HAVE NO INTENTION OF PAYING ANY DIVIDENDS SINCE WE INTEND TO USE ANY
EARNINGS, IF ANY, TO EXPAND OUR OPERATIONS.

         There can be no assurance that our operations will become profitable.
At the present time, we intend to use any earnings that may be generated to
finance the growth of our business.

         DUE TO OUR INABILITY TO GENERATE SUFFICIENT REVENUE TO SUPPORT OUR
OPERATIONS, WE INTEND TO ISSUE ADDITIONAL SECURITIES TO PROVIDE OUR OPERATIONS
WITH ADDITIONAL WORKING CAPITAL WHICH, IN TURN, WILL HAVE THE EFFECT OF DILUTING
THE RELATIVE OWNERSHIP OF OUR EXISTING STOCKHOLDERS

         We currently anticipate the need to supplement the revenue generated by
our operations from proceeds through private or public offerings of our equity,
convertible debt securities or other debt securities. The issuance of additional
equity or convertible debt securities will have the effect of reducing the
percentage ownership of our current stockholders. In addition, these equity or
convertible debt securities may have additional rights, preferences or
privileges to those of our common stock, such as registration rights. In the
event we are required to raise additional funds to support our operations, we
cannot assure our stockholders that the additional funds will be available on
terms favorable to VendingData, or at all. If adequate funds are not available
or are not available on acceptable terms, we may not be able to fund operations
or otherwise continue as a going-concern.

                                      -37-
<PAGE>


ITEM 7.       FINANCIAL STATEMENTS



         Independent Auditors' Report.........................................39

         Balance Sheet at December 31, 2002...................................40

         Statements of Operations for the Years Ended
         December 31, 2002 and 2001...........................................41

         Statements of Changes in Stockholders' Equity for the Years
         Ended December 31, 2002 and 2001.....................................42

         Statements of Cash Flows for the Years Ended
         December 31, 2002 and 2001...........................................43

         Notes to Consolidated Financial Statements...........................45

                                      -38-
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




Board of Directors and Stockholders
VendingData Corporation

We have audited the balance sheet of VendingData Corporation as of December 31,
2002, and the related statements of income, changes in stockholders' equity, and
cash flows for each of the two years in the period then ended. 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 auditing standards generally accepted
in the United States of America. 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 VendingData Corporation as of
December 31, 2002, and the results of its operations and cash flows for each of
the two years in the period then ended, in conformity with generally accepted
accounting principles.




                                                     James E. Scheifley
                                                     Certified Public Accountant

Dillon, Colorado
March 14, 2003

                                      -39-
<PAGE>

                             VENDINGDATA CORPORATION

                                  BALANCE SHEET
                                DECEMBER 31, 2002

                         ASSETS                                     DECEMBER 31,
                                                                       2002
                                                                   -------------

Current assets:
  Cash                                                             $  1,778,297
  Accounts receivable, trade                                            106,791
  Accounts receivable - other                                            39,305
  Due from affiliate                                                     30,593
  Inventories                                                         1,850,051
  Prepaid expenses                                                      236,579
                                                                   -------------
      Total current assets
                                                                      4,041,616

Property and equipment, at cost, net of
  accumulated depreciation of $2,828,887                              1,947,178

Intangible assets, at cost, net of
  accumulated amortization of $191,520                                  352,603
Due from affiliate - non current                                        118,800
Deferred financing costs                                                100,000
Deferred interest                                                       638,029
Deposits                                                                868,520
                                                                   -------------
                                                                   $  8,066,746
                                                                   =============

                  LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of leases payable                                $  2,286,243
  Accounts payable                                                    1,084,637
  Accrued expenses                                                      385,570
  Accrued wages                                                         249,147
  Accrued interest                                                      461,308
  Shareholder loans - due currently                                     904,743
  Customer deposits                                                     386,819
                                                                   -------------
      Total current liabilities
                                                                      5,758,467

Convertible debt                                                      8,853,072
Leases payable - non-current                                          3,497,859

Stockholders' equity:
 Preferred stock, $.001 par value, 10,000,000 shares authorized              --
 Common stock,  $.001 par value, 16,000,000 shares authorized,
   7,625,814 shares issued and outstanding                                7,626
 Additional paid-in capital                                          26,719,980
 Deficit accumulated during development stage                       (36,770,258)
                                                                   -------------
      Total Stockholders' Equity                                    (10,042,652)
                                                                   -------------
      Total Liabilities and Stockholders' Equity                   $  8,066,746
                                                                   =============

                SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                                      -40-
<PAGE>

                             VENDINGDATA CORPORATION

                            STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 2002 AND 2001


                                                           DECEMBER 31,
                                                     2002               2001
                                                 ------------       ------------

Sales                                            $ 3,463,677        $ 2,228,255
Interest income                                        1,172             11,755
Other income                                          15,450             10,767
                                                 ------------       ------------
                                                   3,480,299          2,250,777
                                                 ------------       ------------
Cost of sales                                      2,541,130          2,956,425
                                                 ------------       ------------
Gross margin                                         939,169           (705,648)

Other costs and expenses:
  General and administrative                       4,455,241          3,768,560
  Research and development                           810,327          1,364,264
                                                 ------------       ------------
                                                   5,265,568          5,132,824
                                                 ------------       ------------

(Loss) from operations                            (4,326,399)        (5,838,472)

  Interest expense                                 1,477,765          1,223,125
  Interest expense - related parties                 388,622            504,493
                                                 ------------       ------------
                                                   1,866,387          1,727,618

(Loss) before income taxes                        (6,192,786)        (7,566,090)
Provision for income taxes                                --                 --
                                                 ------------       ------------

Net (loss)                                       $(6,192,786)       $(7,566,090)
                                                 ============       ============


 Basic and diluted (loss) per share              $     (0.81)       $     (1.72)
                                                 ============       ============

 Weighted average shares outstanding               7,625,814          4,400,057
                                                 ------------       ------------

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                                      -41-
<PAGE>
<TABLE>

                                                      VENDINGDATA CORPORATION

                                           STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                              YEARS ENDED DECEMBER 31, 2002 AND 2001
<CAPTION>


                                                                     ADDITIONAL
                                           COMMON        STOCK        PAID-IN      UNPAID STOCK     ACCUMULATED
              ACTIVITY                     SHARES        AMOUNT       CAPITAL      SUBSCRIPTIONS      DEFICIT             TOTAL
------------------------------------------------------------------------------------------------------------------------------------
    <S>                                   <C>             <C>       <C>               <C>           <C>              <C>
    Balance, December 31, 2000            2,170,960       $ 2,171   $17,247,440       $     -       $(23,011,382)    $ (5,761,771)

    Issuance of stock for cash in
        private sale at $1.75             2,381,195         2,381     4,164,711             -                           4,167,092

    Stock issued for conversion of debt
        at $1.75                          2,992,759         2,993     5,234,335                                         5,237,328

    Stock issued for assets purchased        45,000            45        78,705                                            78,750

    Exercise of common stock options         40,000            40         1,960                                             2,000

    Stock reacquired and cancelled           (4,100)           (4)       (7,171)                                           (7,175)

Net (loss) for the year                            -             -             -             -        (7,566,090)      (7,566,090)
                                        --------------------------------------------------------------------------------------------
    Balance, December 31, 2001            7,625,814         7,626    26,719,980              -       (30,577,472)      (3,849,866)

Net (loss) for the year                           -             -             -              -        (6,192,786)      (6,192,786)
                                        --------------------------------------------------------------------------------------------
    Balance, December 31, 2002            7,625,814       $ 7,626   $26,719,980        $     -      $(36,770,258)    $(10,042,652)
                                        ============================================================================================

                                          SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>

                                                               -42-
<PAGE>

<TABLE>
                                       VENDINGDATA CORPORATION

                                      STATEMENTS OF CASH FLOWS
                               YEARS ENDED DECEMBER 31, 2002 AND 2001
<CAPTION>

                                                                   DECEMBER 31,
                                                             2002              2001
                                                         ------------      ------------
<S>                                                      <C>               <C>
Net (loss)                                               $(6,192,786)      $(7,566,090)
  Adjustments to reconcile net income (loss) to net
   cash provided by operating activities:
   Depreciation and amortization                             972,525           807,544
   Amortization of deferred interest                         402,492           353,531
Changes in assets and liabilities:
    (Increase) decrease in accounts receivable                22,814           731,279
    (Increase) decrease in inventory                        (335,978)           24,932
    (Increase) decrease in prepaid expenses                   35,354          (216,791)
    (Increase) decrease in other assets                      (65,138)          (34,862)
    (Increase) decrease in deposits                         (162,540)         (114,714)
    Increase (decrease) in accounts payable                  498,710          (386,085)
    Increase (decrease) in accrued expenses                   94,312            87,069
    Increase (decrease) in customer deposits                (495,754)          601,320
                                                         ------------      ------------
       Total adjustments                                     986,297         1,853,223
                                                         ------------      ------------
     Net cash (used in) operating activities              (5,206,489)       (5,712,867)
                                                         ------------      ------------

Cash flows from investing activities:
   Acquisition of plant and equipment                       (562,168)          (72,867)
   Increase in patents and trademarks                         (3,045)         (209,620)
                                                         ------------      ------------
Net cash (used in) investing activities                     (565,213)         (282,487)
                                                         ------------      ------------

Cash flows from financing activities:
   Common stock sold for cash                                     --         4,169,092
   Proceeds from leases                                    2,988,385         1,335,306
   Proceeds from shareholder loans                         2,264,871         4,029,402
   Proceeds from convertible debt                          4,903,076                --
   Repayment of leases                                    (2,823,331)       (1,824,118)
   Repayment of notes and line of credit                          --          (716,000)
   Repayment of shareholder loans                           (650,000)         (563,400)
                                                         ------------      ------------
  Net cash provided by financing activities                6,683,001         6,430,282
                                                         ------------      ------------

Increase (decrease) in cash                                  911,299           434,928
Cash and cash equivalents, beginning of period               866,998           432,070
                                                         ------------      ------------
Cash and cash equivalents, end of period                 $ 1,778,297       $   866,998
                                                         ============      ============
</TABLE>

                           SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                                                -43-
<PAGE>

                             VENDINGDATA CORPORATION

                            STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 2002 AND 2001


                                                             December 31,
                                                        2002             2001
                                                    -----------      -----------
Supplemental cash flow information:
   Cash paid for interest                           $1,341,044       $1,345,782
   Cash paid for income taxes                       $       --       $       --


Non-cash financing activities:
   Loans converted into common stock                $       --       $5,237,328
   Stock issued for asset acquisition               $       --       $   78,750


                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                                      -44-
<PAGE>

                             VENDINGDATA CORPORATION

                          NOTES TO FINANCIAL STATEMENT

NOTE 1.  ORGANIZATION

         The Company was incorporated on September 21, 1995, in the State of
Washington and reorganized as a Nevada corporation with Articles of Merger filed
on April 1, 1999, in Washington and on April 2, 1999, in Nevada. The Company is
in the business of developing and distributing products related to the gaming
industry. The Company's principal products are electronic card shuffling
devices, an electronically identified coin collection bucket and collection cart
for use with coin operated gaming and vending devices and a "softcount"
collection system for control over soft currency from gaming and vending
devices. The Company operates principally in the United States of America,
however a portion of its revenues are derived from sales to customers in foreign
countries. On December 17, 2002, the Company's Board of Directors approved a one
share for five share reverse stock split. All share and per share information
included in the foregoing financial statements and the accompanying footnotes
have been restated to reflect the reverse stock split.

     SIGNIFICANT ACCOUNTING POLICIES

         ESTIMATES

         The preparation of the Company's financial statements requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from these estimates.

         INVENTORY

         Inventory is stated at the lower of cost or market using the first in,
first out method. Finished goods include raw materials, direct labor and
overhead. Raw materials include purchase and delivery costs. Inventory consisted
of the following at December 31, 2002:

         Raw material                          $1,021,032
         Work in progress                         731,419
         Finished goods                            97,600
                                               -----------
                                               $1,850,051

         PROPERTY AND EQUIPMENT

         Property and equipment are carried at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
When assets are retired or otherwise disposed of, the cost and the related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in operations for the period. The cost of repairs and
maintenance is charged to operations as incurred, and significant renewals or
betterments are capitalized.

         Useful lives for property and equipment are as follows:

         Office equipment                        5 years
         Computer software                       5 years
         Tooling                                 3 years
         Leasehold improvements                  5 years

                                      -45-
<PAGE>

         INTANGIBLE ASSETS

         The Company has applied for patents for certain of its products. Patent
and trademark costs (aggregating $537,729 at December 31, 2002) are amortized
using the straight-line method over a period of ten years. Amortization for the
years ended December 31, 2002 and 2001 amounted to $53,520 and $45,567,
respectively.

         Organization costs aggregating $6,395 have been fully amortized.

         The Company makes reviews for the impairment of long-lived assets and
certain identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Under SFAS
No. 121, an impairment loss would be recognized when estimated future cash flows
expected to result from the use of the asset, and its eventual disposition is
less than its carrying amount. No such impairment losses have been identified by
the Company for the 2002 and 2001 fiscal years.

         EARNINGS PER SHARE (BASIC AND DILUTED)

         Basic earnings per share ("EPS") is computed by dividing net income
available to common stockholders by the weighted average number of common stock
shares outstanding during the year. Diluted EPS is computed by dividing net
income available to common stockholders by the weighted-average number of common
stock shares outstanding during the year plus potential dilutive instruments
such as stock options, warrants and convertible debt. The effect of stock
options on diluted EPS is determined through the application of the treasury
stock method, whereby proceeds received by the Company based on assumed
exercises are hypothetically used to repurchase the Company's common stock at
the average market price during the period.

         The basic loss per share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding for the
period. Loss per share is unchanged on a diluted basis since the assumed
exercise of common stock equivalents would have an anti-dilutive effect due to
the existence of operating losses.

         REVENUE RECOGNITION

         The Company recognizes revenue from the sale of its products upon
installation at customer locations. Revenue from rentals of shuffler machines is
recorded as revenue at the first of each month in accordance with lease terms.
Sales returns and allowances are recorded after returned goods are received and
inspected. The Company provides currently for estimated warranty repair costs
associated with sales contracts.

         FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company's short-term financial instruments consist of cash and cash
equivalents, accounts and loans receivable, and accounts payable and accruals.
The carrying amounts of these financial instruments approximate fair value
because of their short-term maturities. Financial instruments that potentially
subject the Company to a concentration of credit risk consist principally of
cash and accounts receivable trade. During the year, the Company maintained cash
deposits at financial institutions in excess of the $100,000 limit covered by
the Federal Deposit Insurance Corporation.

                                      -46-
<PAGE>

         ADVERTISING

         Advertising expenses are charged to expense upon first showing. Amounts
charged to expense were $76,686 and $43,742 for the years ended December 31,
2002 and 2001, respectively.

         STOCK-BASED COMPENSATION

         The Company adopted Statement of Financial Accounting Standard No. 123
("FAS 123"), Accounting for Stock-Based Compensation, and beginning with the
Company's first quarter of 1996. Upon adoption of FAS 123, the Company continued
to measure compensation expense for its stock-based employee compensation plans
using the intrinsic value method prescribed by APB No. 25, Accounting for Stock
Issued to Employees, and has provided in Note 7 pro forma disclosures of the
effect on net income and earnings per share as if the fair value-based method
prescribed by FAS 123 had been applied in measuring compensation expense.

         NEW ACCOUNTING PRONOUNCEMENTS

         In June 2002, the Financial Accounting Standards Board issued SFAS No.
146, Accounting for Costs Associated With Exit or Disposal Activities ("SFAS
146"), which is required to be adopted for such activities initiated after
December 31, 2002. SFAS 146 establishes accounting rules for recognizing certain
costs associated with exit or restructuring activities that are not associated
with new business combinations or disposal activities covered by FASB Statement
No. 144.

         Management believes that the adoption of SFAS No. 146 will have no
impact on the Company for the year ended December 31, 2002.

NOTE 2.  PROPERTY AND EQUIPMENT

         Property and equipment consist of the following at December 31, 2002:

         Furniture and fixtures                             $   240,655
         Equipment and vehicles                                 983,790
         Equipment held for rent                              2,760,500
         Tooling                                                541,896
         Leasehold improvements                                 249,224
                                                            ------------
                                                            $ 4,776,065
         Accumulated depreciation and amortization            2,828,887
                                                            ------------
                                                            $ 1,947,178
                                                            ============

         Depreciation expense charged to operations amounted to $919,005 and
$779,794 for the years ended December 31, 2002 and 2001, respectively.

         The Company owns tooling used in the manufacture of certain plastic
components of its shuffler product.

         Substantially all of the Company's fixed assets secure leases described
in Note 6.

NOTE 3.  LINE OF CREDIT

         The Company has obtained a $1,200,000 line of credit based on a
percentage of the Company's accounts receivable and inventory. At December 31,
2000, the Company had drawn $450,000 of the line. The line was collateralized by
the accounts receivable, inventory and most other unencumbered assets. The line
of credit was repaid in full and cancelled during the year ended December 31,
2001.

                                      -47-
<PAGE>

NOTE 4.  NOTES PAYABLE

         During the year ended December 31, 2001, the Company received proceeds
of $550,000, from an accredited investor at an interest rates of 10%. During the
year ended December 31, 2002, the Company received additional note proceeds from
members of its Board of Directors and another accredited investor amounting to
$2,264,871 and made repayments in cash of $650,000. An additional $4,074,995 of
the notes was converted into convertible notes of the Company as discussed in
Note 5. The balance of the notes amounted to $896,743 at December 31, 2002 of
which $736,743 is due currently. The remaining notes had interest rates of from
9.5% to 10%.

NOTE 5.  CONVERTIBLE DEBT AND WARRANTS

         With the approval of the Board of Directors, certain members of the
Board of Directors and accredited investors participated in the Company's
private placement of convertible notes in 2002. The following table summarizes
the purchases of convertible notes by the relevant members of the Board of
Directors and certain accredited investors.

<TABLE>
<CAPTION>
          NAME                     AMOUNT             WARRANTS              MATURITY                CONVERTIBILITY
--------------------------    -----------------    ---------------    ----------------------    ------------------------
<S>                                 <C>                   <C>           <C>                        <C>
The James E. Crabbe                 $3,949,996            197,500       December 31, 2003          December 31, 2003
    Revocable Trust
VIP's Industries, Inc.              $49,999.95              2,500       December 31, 2003          December 31, 2003
Richard S. Jaslow                   $99,999.90              5,000         May 13, 2003               May 13, 2003
Richard S. Jaslow                   $49,999.95              2,500         May 31, 2003               May 31, 2003
Richard S. Jaslow                   $99,999.90              5,000        April, 11, 2003            April 11, 2003
Richard S. Jaslow                   $49,999.95              2,500         June 27, 2003              June 27, 2003
Ronald O. Keil                      $49,999.95              2,500        April. 19, 2003            April 19, 2003
Richard S. Jaslow                   $49,999.95              2,500        August 2, 2003             August 2, 2003
Richard S. Jaslow                   $49,999.95              2,500        August 15, 2003            August 15,2003
Richard S. Jaslow                   $49,999.95              2,500      September 23, 2003         September 23, 2003
Richard S. Jaslow                   $49,999.95              2,500        October 1, 2003            October 1, 2003
Richard S. Jaslow                   $49,999.95              2,500        October 7, 2003            October 7, 2003
Richard S. Jaslow                   $49,999.95              2,500       November 22, 2003          November 22, 2003
I.C.D., Inc.                        $99,999.90              5,000       December 31, 2003          December 31, 2003
--------------------------    -----------------    ---------------
                 TOTAL           $4,749,995.20            237,500
</TABLE>

         The Company received a total of $675,000 in cash proceeds from the sale
of the convertible debt above with the remaining $4,074,995 was the rollover of
principal and interest. The proceeds from the private placement of convertible
debt were used for general working capital purposes. The exemptions from
registration relied upon by the Company for these private placements were
Section 4(2) of the Securities Act of 1933.

                                      -48-
<PAGE>

         On November 13, 2002, the Company's Board of Directors authorized a
private placement of $5,000,000 of convertible notes. $2,500,000 was received in
December of 2002 (warrants were issued in 2003) and an additional $2,500,000 was
placed in the first quarter of 2003. The convertible notes accrue interest at
10% per annum, mature in December, 2005 and are convertible into shares of the
Company's common stock between December 15, 2004 and June 15, 2005 at a rate of
$2.25 per share for up to 15% of the outstanding principal amount of the note.
The $5,000,000 of convertible notes are convertible into a maximum of 333,334
shares of the Company's common stock. In addition, for each convertible note
unit of $50,000, the Company issued a warrant to purchase 6,000 shares of the
Company's common stock with an exercise price of $2.25. If the average closing
price of the Company's common stock on a stock exchange or other quotation
medium over the twenty (20) previous business days before December 16, 2004 is
not at least $3.00 per share, the exercise price shall be adjusted to $1.50 per
share. On February 27, 2003 the private placement was increased to a maximum of
$7,000,000. The exemption from registration relied upon by the Company for these
private placements was Section 4(2) of the Securities Act of 1933.

NOTE 6.  LEASES PAYABLE

         From 1997 through 2002, the Company entered into financing type lease
transactions (capital leases) with leasing companies whereby the Company leased
or sold and leased back from the lessor all of its furniture and equipment,
tooling and some equipment.

         Scheduled maturities of the obligations as of December 31, 2002 are as
follows:


                            YEAR                                     AMOUNT
--------------------------------------------------------------    ------------
2003                                                              $ 3,342,209
2004                                                                2,495,733
2005                                                                1,531,340
                                                                  ------------
Minimum future lease payments                                       7,369,282
    Less interest component                                        (2,223,209)
    Plus deferred interest                                            638,029
                                                                  ------------
Present value of future net minimum lease payments                  5,784,102
Less current portion                                               (2,286,243)
                                                                  ------------
Due after one year                                                $ 3,497,859

         Property recorded under capital leases includes the following as of
December 31, 2001:

Capitalized leased equipment and shuffler machines, at cost       $ 2,346,665
Furniture and equipment                                               475,293
Tooling                                                               271,500
                                                                  ------------
                                                                    3,093,458
Less accumulated depreciation                                      (1,716,425)
                                                                  ------------
Total assets subject to capital leases                            $ 1,377,033

         The leases contain provisions for mandatory buy back of the inventory
and equipment at the end of the initial terms of the leases. The future minimum
lease payments scheduled above include the buy out provisions due at the end of
each lease term. The net present value of the buy out provisions, $638,029 as of
December 31, 2002, has been included in other assets, represents additional
interest on the leases, and will be amortized to interest expense during the
remaining lease terms.

                                      -49-
<PAGE>

NOTE 7.  STOCKHOLDERS' EQUITY

         On June 14, 2001, the Company's Board of Directors declared a
distribution of rights to purchase the Company's common stock to stockholders of
record as of June 15, 2001, or the record date, and holders of vested options,
warrants and convertible notes that possess anti-dilution rights as of the
record date. Through the Company's Registration Statement on Form S-3 (File No.
333-64012), as declared effective on July 13, 2001, the Company offered an
aggregate of 26,869,770 shares of its common stock upon the exercise of these
rights by rightsholders. All rights expired on or before 5:00 p.m., Las Vegas,
Nevada time on September 24, 2001. As of October 5, 2001, all 26,869,770 shares
offered in the rights offering had been purchased. Rightsholders purchased
8,566,584 shares of common stock. Rightsholders applied $1,883,325 in amounts
payable under short-term notes or bridge loans toward the purchase of the rights
shares, and the Company received a total of $1,114,977 in cash proceeds from the
exercise of these rights. The Company's standby purchaser, James E. Crabbe, the
Company's controlling stockholder and Chairman of the Board of Directors,
purchased 18,303,186 shares of common stock. Mr. Crabbe paid $3,052,115 in cash
and applied $850,000 in short-term notes and $2,504,000 in bridge loans for the
purchase of these shares. During the year ended December 31, 2001, $696,923 was
converted into 1,991,209 shares of the Company's common stock.

         CONVERTIBLE DEBT. For additional information with respect to the
Company's issuance of convertible debt in 2000, see Note 5.

         STOCK OPTIONS. The Company has an aggregate of 574,650 options to
purchase common stock at $1.75 per share, 150,000 options to purchase common
stock at $7.50 per share, 80,600 options to purchase common stock at $12.50 per
share, and 121,320 options to purchase common stock at $13.00 and 200 options to
purchase common stock at $15.00 per share outstanding at December 31, 2002.

         The following is a summary of transactions involving stock options:
<TABLE>
<CAPTION>
                                                             RANGE OF                   AVERAGE
                                    SHARES               EXERCISE PRICES                 PRICE
                                ----------------    ---------------------------   --------------------
<S>                  <C>                <C>               <C>                           <C>
Balance              12/31/00           253,320           $5.00 - $15.00                $10.00

    Granted                             652,150            $1.75-$13.00                  $4.20
    Cancelled                            70,800            $5.00-$15.00                  $5.75
Balance              12/31/01           834,670            $5.00-$15.00                  $5.40

    Granted                             117,550            $1.75-$13.00                  $3.80
    Cancelled                            25,450            $7.50-$13.00                  $9.68
Balance              12/31/02           926,770            $1.75-$15.00                  $5.09
</TABLE>

         The weighted average fair value at the date of grant for options
granted during 2002 and 2001 as described above was $0.41 per option in 2002 and
$0.65 per option in 2001. The fair value of the options at the date of grant was
estimated using the Black-Scholes model with assumptions as follows:

                                      -50-
<PAGE>

                                                2002                 2001
                                        -------------------    ----------------
         Market value                           $.35            $.35 and $1.50
         Expected life in years               3 to 10              3 to 10
         Interest rate                           7%                   7%
         Volatility                             10%                  10%
         Dividend yield                        0.00%                0.00%

         Stock based compensation costs would have increased pretax losses by
$48,152 ($0.01 per share) and $436,660 ($0.05 per share) in 2002 and 2001,
respectively, if the fair value of the options granted during those years had
been recognized as compensation expense.

         WARRANTS. The Company has outstanding an aggregate of 60,000 warrants
to purchase common stock at $13.00 per share, 50,000 warrants to purchase common
stock at $12.50 per share, 247,500 warrants to purchase common stock at $1.75
per share, 150,000 warrants to purchase common stock at $0.05 per share and
45,000 warrants to purchase common stock at $50.00 per share outstanding at
December 31, 2002.

NOTE 8.  INCOME TAXES

         Deferred income taxes may arise from temporary differences resulting
from income and expense items reported for financial accounting and tax purposes
in different periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are not related to an
asset or liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse. The deferred
tax asset resulting from the net operating loss ("NOL") carryforward described
below has been fully reserved.

         The Company has fully reserved approximately $12,239,000 for the asset
related to the portion of the loss carryforward that more likely than not will
not be utilized in future years. The reserve increased by approximately
$2,100,000 during the year ended December 31, 2002. To date, the Company has
generated taxable income in any of its years of operation and no tax liabilities
exist to utilize the NOL carryover.

         At December 31, 2002, the Company had net operating loss carryforwards
aggregating approximately $35,998,000, which expire as follows:

                  YEAR                       AMOUNT
         -----------------------     ------------------------
                 2015:                           $   172,303
                 2016:                           $ 1,721,318
                 2017:                           $ 2,534,394
                 2018:                           $ 3,040,719
                 2019:                           $ 8,133,370
                 2020:                           $ 6,656,561
                 2021:                           $ 7,566,090
                 2022:                           $ 6,173,286

         The principal difference between the Company's book operating losses
and income tax operating losses results from the issuance of common stock during
1996, 1997 and 1988 for services, interest and options to purchase common stock
at less than fair market value in exchange for debt conversion rights and other
services.

                                      -51-
<PAGE>

NOTE 9.  RELATED PARTY TRANSACTIONS

         In August 1999, the Company issued an employment agreement with Steven
J. Blad, the Company's chief executive officer, effective January 1, 2000. The
agreement provides monthly compensation of $23,500 through December 31, 2004,
upon which time the compensation is to be renegotiated. The agreement provides
that 20,000 options (exercisable at a price of $12.50 per share) be granted upon
the effective date of the agreement. The Company recorded compensation expense
related to the options granted for the excess of the fair value of the
underlying common stock at the grant date ($13.00 per share) over the exercise
price of $12.50 per share during January 2000. The agreement also provide for
the granting of 20,000 options ($12.50 per share) for each year (2000, 2001,
2002) based upon the Company meeting its goals provided by the Board of
Directors. Options were granted in January 2001 for 20,000 shares pursuant to
the contract. The exercise price of the January 2001 options was set by the
Board of Directors at $7.50 per share. During November 2001, additional options
were granted to Mr. Blad aggregating 400,000 shares at an exercise price of
$1.75 per share. No compensation expense was recorded in connection with the
options as the fair value of the underlying stock was not in excess of the price
of contemporaneous sales of common stock for cash at $1.75 per share.

         CONVERTIBLE DEBT. In 2001, the Company received proceeds of $4,029,402
from certain directors and controlling stockholders of the Company as part of a
private placement of notes payable. In addition, the Company cancelled an
aggregate of $5,237,328 in connection with a rights offering of common stock to
existing stockholders. The Company also received an aggregate of $4,169,092 in
cash for additional shares sold pursuant to the rights offering. In 2002, the
Company received aggregate proceeds from certain directors and controlling
stockholders of the Company of $2,961,070 and repaid $100,000 of notes
outstanding at December 31, 2001. Substantially all of the new notes were issued
pursuant to the convertible debt program. For additional information with
respect to the issuance of notes, shares and warrants to the certain directors
and controlling stockholders of the Company, see Notes 5 and 7.

NOTE 10. COMMITMENTS AND CONTINGENCIES

         During October 1997, the Company entered into a license agreement
whereby the Company would develop and market an electronically identified coin
collection box for use with coin operated gaming devices. The agreement provided
for royalty payments to the licensor for use of certain intellectual property
associated with the project. The Company had the right to terminate the
agreement upon sixty days written notice to the licensor should it determine
that the technology may be unpatentable or that the licensed products are
uneconomical. The patent application was filed for this product in 1996, and
notice of patent issuance was dated February 8, 1999.

         During the year ended December 31, 2001 the Company made a one-time
payment of $175,000 to the licensor for the purchase of the technology rights
and the patents associated with the project. In connection with the acquisition,
the licensor returned 20,500 shares of the Company's common stock that it had
previously been issued. The fair value of the stock received was $.35 per share
based upon the cash sale price of the stock.

         BUILDING LEASE. In September 1999, the Company agreed to lease,
beginning November 1999, from the Company's then current landlord, a new
building containing approximately 58,000 square feet. Under the terms of the
lease agreement, the Company was relieved from all obligations under its
pre-existing lease agreement with the landlord on the earlier of December 1,
2000, or the date upon which an assignment of the former leased premises lease
agreement became effective. The term under the new lease agreement is for 86
months with one (1) option to extend for a five-year period. The new lease
agreement provides for no rent for the first seven (7) months of the lease. Base
monthly rent during months eight (8) through twenty-six (26) shall be $42,968,


                                      -52-
<PAGE>

and during months twenty-seven (27) through eighty-six (86), base monthly rent
shall be $42,968 per month plus an annual Consumer Price Index increase not to
exceed 3% per annum. The other material terms of the lease agreement are
substantially similar to those of the Company's pre-existing lease agreement.
The Company expects the new facility to be adequate for its facility
requirements for the foreseeable future. The Company also leases four office
locations in Idaho, Washington, Mississippi and Michigan. The monthly rent
attributed for these locations aggregates $4,873. Rent expense was $639,392 and
$601,326 for the years ended December 31, 2002 and 2001, respectively.

         The Company also leases certain office equipment under non-cancelable
operating leases having monthly rentals of $4,770.

         Future minimum rentals, including escalation provisions, under the
leases are as follows:

         2003                         $551,870
         2004                         $527,146
         2005                         $518,499
         2006                         $515,616

         The Company has granted joint exclusive licenses to two entities for
marketing rights to one of its products which provide for royalty payments to
the Company of $0.04 and $0.075 per unit sold. Amounts paid pursuant to the
licenses have not been material.

         LEGAL MATTER. On March 27, 2002, Shuffle Master filed a complaint (Case
No. CV-S-02-0438-JCM-PAL) against the Company in the United States District
Court, District of Nevada. The complaint alleges, among other things, claims for
patent infringement and requests treble damages, an injunction enjoining the
Company from infringing Shuffle Master's patents, an accounting of gains and
profits that resulted from the alleged infringement, and for interest, costs and
attorneys' fees. The Company has filed counterclaims seeking declaratory relief
for invalidity of the patents and non-infringement. The Company, based on advise
of counsel, believes that it is unlikely that significant damages will be
awarded as a result of the proceeding.

NOTE 11. SALES TO MAJOR CUSTOMERS AND CERTAIN CONCENTRATIONS

         During the year ended December 31, 2001, the Company had no single
customer that accounted for more than 10% of its total sales. During the year
ended December 31, 2002, the Company made sales of $1,343,050 (39% of total
sales) to Oneida Bingo & Casino and had open accounts receivable from them of
$15,920 at December 31, 2002.

          At December 31, 2002, the Company had $1,668,000 on deposit in a bank
in excess of the FDIC insured limit of $100,000.

         The Company currently utilizes a single manufacturer in China for
certain of its molded plastic products. Should this manufacturer be unable to
meet the Company's demands it feels that it would be able to locate another
suitable manufacturer or manufacturers.

         The Company made sales to customers located in foreign countries
amounting to $133,370 during the year ended December 31, 2002.

                                      -53-
<PAGE>

NOTE 12. SUPPLEMENTAL STATEMENT OF OPERATIONS INFORMATION

         During the years ended December 31, 2002 and 2001, the Company incurred
$4,455,241 and $3,768,560 of general and administrative expenses respectively,
the components of which are as follows:

                                         2002                2001
                                    ---------------     ---------------
Salaries and related costs               1,511,991           1,298,930
Consulting services                         28,972              49,465
Advertising / Marketing                     76,686              43,742
Travel / Entertainment                     501,346             411,833
Gaming Industry shows                       78,263              43,117
Rent                                       639,392             524,120
Legal & regulatory expense                 486,226             239,214
Depreciation & amortization                410,250             374,998
Telephone                                   82,409              90,863
Printing                                    18,171              17,449
Bad Debt                                    38,167              17,134
Supplies                                    54,180             200,405
Repairs & maintenance                      101,168             101,860
Insurance                                   99,283             114,098
Sales Tax                                   63,522              14,048
Other Expenses                             265,215             227,284
                                    ---------------     ---------------
                                        $4,455,241          $3,768,560


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                      -54-
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

         This information is incorporated by reference from our proxy statement
to be filed with the Commission in connection with our Annual Meeting of
Stockholders to be held on May 21, 2003.

ITEM 10. EXECUTIVE COMPENSATION

         This information is incorporated by reference from our proxy statement
to be filed with the Commission in connection with our Annual Meeting of
Stockholders to be held on May 21, 2003.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         This information is incorporated by reference from our proxy statement
to be filed with the Commission in connection with our Annual Meeting of
Stockholders to be held on May 21, 2003.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         This information is incorporated by reference from our proxy statement
to be filed with the Commission in connection with our Annual Meeting of
Stockholders to be held on May 21, 2003.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits.
                  ---------

         See exhibits listed on the Exhibit Index following the signature page
of this Annual Report on Form 10-KSB, which is incorporated herein by reference.

         (b)      Reports on Form 8-K.
                  --------------------

         During the three months ended December 31, 2002, we did not file any
Current Reports on Form 8-K.

ITEM 14. CONTROLS AND PROCEDURES

         (a) Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported, within the time
periods specified in the Commission's rules and forms. Based on our evaluation
as of a date within 90 days of the filing date of this Form 10-KSB, our manager
has concluded that our disclosure controls and procedures (as defined in Rule
13a-14(c) and Rule 15d-14(c) under the Securities Exchange Act of 1934, as
amended) are effective.

         (b) Although there have been no significant changes in internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, we are currently evaluating means of
enhancing our internal controls. In this regard, we propose to form a disclosure
committee that will be designed to ensure the reliability of our financial
reporting, the effectiveness and efficiency of our operations and our compliance
with applicable laws and regulations. This committee will also be responsible
for providing our chief executive officer and our audit committee of its
assessments and recommendations with respect to our disclosure controls and


                                      -55-
<PAGE>

procedures. The disclosure committee will consist of our chief financial
officer, our corporate counsel, a representative from marketing and a
representative from operations. In addition to the formation of the disclosure
committee, we will be implementing MAS-500 integrated financial and
manufacturing software application. This software application will provide an
integrated control process for purchasing, inventory control and manufacturing
and will improve our financial reporting accuracy and timelines.


                                      -56-
<PAGE>


                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on our behalf by the
undersigned, thereunto duly authorized.

                                  VENDINGDATA CORPORATION


                                  By:   /s/ Steven J. Blad
                                        ----------------------------------------
                                        Steven J. Blad, Chief Executive Officer,
                                          President, Treasurer and Director

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>

             SIGNATURE                                   TITLE                                       DATE

<S>                                 <C>                                                           <C>
/s/ Steven J. Blad                  Chief Executive Officer, President, Treasurer and             March 27, 2003
---------------------------------   Director (Principal Executive Officer)
Steven J. Blad


/s/ John R. Spina                   Chief Financial Officer                                       March 27, 2003
---------------------------------   (Principal Financial and Accounting Officer)
John R. Spina


/s/ James E. Crabbe                 Chairman of the Board                                         March 27, 2003
---------------------------------
James E. Crabbe


/s/ Ronald O. Keil                  Director                                                      March 27, 2003
---------------------------------
Ronald O. Keil


/s/ Bob L. Smith                    Director                                                      March 27, 2003
---------------------------------
Bob L. Smith

</TABLE>

                                                     -57-
<PAGE>


CERTIFICATIONS

         I, Steven J. Blad, certify that:

         1. I have reviewed this annual report on Form 10-KSB of VendingData
Corporation, a Nevada corporation;

         2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

                  (a) designed such disclosure controls and procedures to ensure
         that material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

                  (b) evaluated the effectiveness of the registrant's disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this annual report (the "Evaluation Date"); and

                  (c) presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

                  (a) all significant deficiencies in the design or operation of
         internal controls which could adversely affect the registrant's ability
         to record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

                  (b) any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal controls; and

         6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:    March 27, 2003       /s/ Steven J. Blad
         ------------------   --------------------------------------------------
                              Steven J. Blad, Chief Executive Officer and
                              Treasurer of VendingData Corporation

                                      -58-
<PAGE>

I, John R. Spina, certify that:

         1. I have reviewed this annual report on Form 10-KSB of VendingData
Corporation, a Nevada corporation;

         2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

                  (a) designed such disclosure controls and procedures to ensure
         that material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

                  (b) evaluated the effectiveness of the registrant's disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this annual report (the "Evaluation Date"); and

                  (c) presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

                  (a) all significant deficiencies in the design or operation of
         internal controls which could adversely affect the registrant's ability
         to record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

                  (b) any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal controls; and

         6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:     March 27, 2003          /s/ John R. Spina
         ---------------------    --------------------------------------------
                                  John R. Spina, Chief Financial Officer of
                                  VendingData Corporation

                                      -59-
<PAGE>
<TABLE>
<CAPTION>

                                       EXHIBIT INDEX

Exhibit
 Number                            Exhibit Description                                   Page
 ------                            -------------------                                   ----
<C>      <C>                                                                              <C>
2.1      Agreement and Plan of Merger dated as of March 6, 1999, by and between           --
         the registrant and Casinovations Nevada Incorporated, incorporated by
         reference from the registrant's Annual Report on Form 10-KSB filed on
         March 26, 1999.
3.1      Amended and Restated Articles of Incorporation dated July 24, 2000,              --
         incorporated by reference from the registrant's Current Report on Form
         8-K filed on July 28, 2000.
3.2      Amended and Restated Bylaws of the registrant dated November 13, 2002,           --
         incorporated by reference from the registrant's Current Report on Form
         8-K filed on January 8, 2003.
3.3      Certificate of Change in Number of Authorized Shares filed on December           --
         23, 2002 and effective January 3, 2003, incorporated by reference from
         the registrant's Current Report on Form 8-K filed on January 8, 2003.
4.1      Specimen certificate for Common Stock, incorporated by reference from            --
         the registrant's Registration Statement on Form SB-2 filed on July 16,
         1997.
10.1     License Agreement with The United States Playing Card Company dated              --
         March 16, 1995, incorporated by reference from Form SB-2 filed on July
         16, 1997.
10.2     VendingData Corporation 1999 Stock Option Plan, incorporated by                  --
         reference from the registrant's Annual Report on Form 10-KSB filed on
         March 26, 1999.
10.3     Shareholder Agreement dated December 14, 1998, by and between                    --
         VendingData Corporation and Richard Huson, Bob Smith and Ron Keil,
         incorporated by reference from the registrant's Annual Report on Form
         10-KSB filed on March 26, 1999.
10.4     Form of 9.5% Convertible Note Due 2004, incorporated by reference from           --
         the registrant's Quarterly Report on Form 10-QSB filed on May 17, 1999.
10.5     Form of Warrant Associated with 9.5% Convertible Note Due 2004,                  --
         incorporated by reference from the registrant's Quarterly Report on
         Form 10-QSB filed on May 17, 1999.
10.6     First Security Bank of Nevada Master Equipment Lease Agreement,                  --
         incorporated by reference from the registrant's Quarterly Report on
         Form 10-QSB filed on August 13, 1999.
10.7     Lease Agreement dated August 19, 1999, by and between the registrant             --
         and Spencer Airport Center, LLC for 6830 Spencer incorporated by
         reference from the registrant's Quarterly Report on Form 10-QSB filed
         on November 15, 1999.
10.8     VendingData Corporation 1999 Directors' Stock Option Plan, incorporated          --
         by reference from the registrant's Quarterly Report on Form 10-QSB
         filed on November 15, 1999.
10.9     Durable Power of Attorney Granting Voting Rights of the registrant's             --
         Common Stock, incorporated by reference from the registrant's Quarterly
         Report on Form 10-QSB filed on November 15, 1999.
10.10    Wild Hold `em Fold `em Settlement Agreement dated February 18, 2000,             --
         incorporated by reference from the registrant's Current Report on Form
         8-K filed on March 16, 2000.
10.11    Bonus Blackjack Settlement Agreement dated February 18, 2000,                    --
         incorporated by reference from the registrant's Current Report on Form
         8-K filed on March 16, 2000.
10.12    Employment Agreement of Steven J. Blad dated August 10, 1999,                    --
         incorporated by reference from the registrant's Quarterly Report on
         Form 10-QSB filed on August 13, 1999.

                                      -60-
<PAGE>

Exhibit
 Number                            Exhibit Description                                   Page
 ------                            -------------------                                   ----

10.13    Agreement by and between the registrant and Josephthal & Co. Inc. dated          --
         December 14, 2000, incorporated by reference from the registrant's
         Annual Report on Form 10-KSB filed on March 30, 2001.
10.14    Stand-By Credit Agreement by and between the registrant and Josephthal           --
         & Co. Inc. dated as of February 6, 2001, incorporated by reference from
         the registrant's Annual Report on Form 10-KSB filed on March 30, 2001.
10.15    Form of Promissory Note, attached as an exhibit to the Stand-By Credit           --
         Agreement by and between the registrant and Josephthal & Co. Inc. dated
         as of February 6, 2001, incorporated by reference from the registrant's
         Annual Report on Form 10-KSB filed on March 30, 2001.
10.16    Form of Warrant, attached as an exhibit to the Stand-By Credit                   --
         Agreement by and between the registrant and Josephthal & Co. Inc. dated
         as of February 6, 2001, incorporated by reference from the registrant's
         Annual Report on Form 10-KSB filed on March 30, 2001.
10.17    Security Agreement by and between the registrant and Josephthal & Co.            --
         Inc. dated as of February 6, 2001, incorporated by reference from the
         registrant's Annual Report on Form 10-KSB filed on March 30, 2001.
10.18    Agreement of Purchase and Sale by and between the registrant and                 --
         Malcolm C. Davenport V dated March 15, 2001, incorporated by reference
         from the registrant's Quarterly Report on Form 10-QSB filed on May 14,
         2001.
10.19    Standby Purchase Agreement by and between the registrant and James E.            --
         Crabbe entered into June 15, 2001, incorporated by reference from the
         registrant's Registration Statement on Form S-3 filed on June 28, 2001.
10.20    Acquisition Agreement by and between the registrant and Technology               --
         Development Center, LLC entered into on June 26, 2001, incorporated by
         reference from the registrant's Current Report on Form 8-K filed on
         June 29, 2001.
10.21    Form of Employment Agreement, incorporated by reference from the                 --
         registrant's Quarterly Report on Form 10-QSB filed on August 14, 2001.
10.22    First Amendment to Employment Agreement by and between the registrant            --
         and Steven J. Blad entered into on November 20, 2001, incorporated by
         reference from the registrant's Annual Report on Form 10-KSB filed on
         April 1, 2002.
10.23    Agreement of Purchase and Sale by and among the registrant, Georgina              63
         Louise Sangster, William Purton, Dolphin Advanced Technologies Pty Ltd.
         and Dolphin Products Pty Ltd. dated December 23, 2002.
10.24    Form of 10% Note Due December 2005.                                               78
10.25    Form of Warrant, issued in conjunction with the Registrant's 10% Note             82
         Due December 2005.
21.1     Subsidiaries of Registrant.                                                       88
23.1     Consent of James E. Scheifley & Associates, P.C.                                  89
99.1     Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of               90
         2002, 18 U.S.C. Section 1350.
</TABLE>

                                      -61-