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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, 2000
                                                        -----------------------

[ ]      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
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

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

         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-K
or any amendment to this Form 10-KSB. [X]

         State issuer's revenues for its most recent fiscal year:    $4,432,769

         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. $9,541,253 ($2.60 per share as of January 31, 2001)

         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      10,854,801 shares as of January 31, 2001

                       DOCUMENTS INCORPORATED BY REFERENCE

         None.

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                                CAUTIONARY NOTICE

         This Annual Report of VendingData Corporation on Form 10-KSB contains
forward-looking statements in which the management of VendingData Corporation
shares its knowledge and judgment about factors which it believes may materially
affect the performance of VendingData Corporation in the future. Terms
expressing future expectations, outlook potential and anticipated growth in
gaming and non-gaming industries, 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 & unknown risks, uncertainties and other
important factors that could cause actual results, performance or achievements
of the Company 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: general economic and business conditions; industry trends; competition;
changes in business strategies and development plans; availability of capital,
changes in or the failure or inability to comply with governmental regulations;
dependence on key personnel and other factors.

         Forward-looking statements speak only as of the date they are made, and
readers are warned that VendingData Corporation undertakes 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 disclosures made by
VendingData Corporation in this and other reports which discuss factors germane
to the business of VendingData Corporation. 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, a Nevada corporation (the "Company"),
maintains its principal offices and manufacturing facilities at 6830 Spencer
Street, Las Vegas, Nevada 89119. Its telephone number and facsimile number are
(702) 733-7195 and (702) 733-7197, respectively. The Company's primary business
is the development, manufacturing and marketing of various concepts and products
focused primarily on products that increase security, productivity and
profitability for the gaming industry. The Company's initial product research
and development included playing cards, several table games, video machines,
card shufflers, video recognition systems and automated dealing shoes. In 1998,
new management shifted the Company's focus to a few main products representing
the largest potential for growth. The Company's principal products are the
Random Ejection Shuffler(TM), a computer-based card shuffling device introduced
in early 1999, and the SecureDrop(TM) Slot Accounting System (the
"SecureDrop(TM) System"), which was introduced in September 1999. In addition to
these product lines, the Company also offers other gaming-related products, such
as table games and playing cards.

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

                                      -2-
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         The Company has three wholly-owned Nevada subsidiaries, Casinovations
Sales Incorporated, which has received approval from the Mississippi Gaming
Commission for the conduct of business in Mississippi; Casinovations, Inc.,
which focuses on the Company's Shuffler-related products and services; and
VendingData.com, Inc., which will focus on expanding the Company's
technology-based products to certain non-gaming markets.

         RECENT DEVELOPMENTS

         On March 26, 2001, the Company purchased out of bankruptcy proceedings,
the tangible and intangible assets belonging to Spintek Gaming Technologies,
Inc., a California corporation, Spintek Gaming, Inc., a Nevada corporation, and
Spinteknology, Inc., a Nevada corporation (collectively "Spintek"). 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 the AccuHopper(R), the AccuBoard, and the AccuDrop (collectively the
"AccuSystem"). The Company plans to reintroduce these products under the trade
name SecureHopper(TM). The Company paid $150,000 in cash and issued 225,000
shares of restricted common stock with piggyback registration rights and 225,000
Warrants exercisable at $10.00 per share, plus 50% of gross revenue in excess of
$175,000 for the sale of inventory from the assets purchased.

         The Company's Board of Directors (the "Board") presently consists of
six persons. As of February 1, 2001, the Company reconfigured the Board through
an amendment to its Bylaws that removed the classification of directors from the
Board. As a result of this reconfiguration, the terms of Richard S. Jaslow and
Ronald O. Keil will expire upon the election of their respective successors, who
shall be nominated to the Board. In addition, Eric S. Huson shall resign from
the Board, reducing the number of the Company's directors from six to five.
However, since Bob L. Smith and James E. Crabbe have each been elected to terms
of three years, expiring in 2002 and 2003, respectively, the classification of
the Board shall be eliminated in its entirety in 2003. For additional
information, see Part III, "Item 9. Directors, Executive Officers, Promoters and
Control Persons."

         On December 14, 2000, the Company entered into an agreement with
Josephthal & Co. Inc. ("Josephthal") to act as its exclusive agent with respect
to the Company's proposed private placement of convertible debentures. As
compensation, the Company agreed to provide Josephthal with, among other things,
a retainer, transaction fees on the amounts raised and warrants to purchase
shares of the Company's common stock. In addition, as part of this agreement, an
affiliate of Josephthal has provided the Company with a $500,000 secured credit
facility. For additional information, see Part II, "Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations - Risk
Factors and Forward-Looking Information - Influence by Josephthal."

         SECUREDROP(TM) SYSTEM

         Almost every slot machine in the world accepts coins in order to play
the game. These coins drop into a container inside the slot machine called a
"drop bucket" which contains the profits from the slot machine. Traditionally,
the procedure in most casinos is that the drop buckets are collected from each
gaming machine, stacked on an open cart, brought to the count room, correlated
to a specific machine and weighed. The coins are counted, and the actual amounts
are reconciled with the electronic data from each machine. This process is time
consuming, labor intensive, inefficient, error prone and vulnerable from a
security perspective. For example, a casino with 200 slot machines may take 4-6
hours to complete the process, and a Las Vegas mega-size casino with 2,000 slot
machines may take up to 11 hours to complete the coin collection process.

                                      -3-
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         The Company 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. The technology
utilizes a specially designed bucket that houses a memory chip, which works in
conjunction with a sensor base beneath the gaming machine. The electronic chip
system tracks each coin dropped during play, automatically tracks to which
machine the drop bucket belongs and transfers the data for electronic
processing. Using a cart with a built-in scale, data recording device and
lock-box (the "Mobile Scale"), the coins are weighed using a highly sensitive
electronic scale, all of the relevant information is captured from the bucket's
memory chip, the coins are emptied into a mobile coin vault, the drop bucket is
cleared of its data and reset, the drop bucket is replaced in any machine, and
the machine becomes immediately available for play.

         Since gaming machine operators experience some loss of revenues through
lack of financial accountability, a key function of the SecureDrop(TM) System is
to provide the operator with reliable information to track the number of coins
in the coin bucket from the time it is removed from the machine to the time the
coins are secured in the Mobile Scale's secured vault and brought to the count
room.

         Once the Mobile Scale's coin vault is transported to the secure count
room of the casino, the coins are moved to a coin wrapping machine using
automated conveyor systems provided by the Company. These conveyor systems are
designed and built to interface with the existing coin wrapping equipment
already owned by the casino, allowing for easy installation. The collected data
is then electronically transferred to the casino's accounting system.

         Management estimates that some of the best run 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. With the
SecureDrop(TM) System, discrepancies are negligible (0.2% or less), and
personnel and collection times are cut by 40%-60%. These factors provide the
potential for a rapid return on investment.

         In order to address the differing needs of its customers, the Company
has created a product series for the SecureDrop(TM) System that currently
consists of the 2000 and 3000 series and will soon include the 5000 series.

         SECUREDROP(TM) 2000 SYSTEM

         The SecureDrop(TM) 2000 System offers electronic identification and
time/date stamps and interfaces with the customer's current data system. It also
enables gaming operators to electronically track all buckets and slot machines
on the floor and provide gaming operators with more accurate data collection and
labor savings.

         The Company has received approval or approval waivers for
SecureDrop(TM) 2000 System from the Nevada Gaming Control Board (the "Nevada
Board") and gaming regulators in Colorado, Illinois, Indiana, Iowa, Michigan,
Mississippi, North Dakota, Saskatchewan, Canada, and from various Native
American gaming regulators.

         SECUREDROP(TM) 3000 SYSTEM

         The SecureDrop(TM) 3000 System adds the ability to track and record up
to five `hard meters' from a slot machine for gaming properties that do not have
on-line accounting systems. The system will record data such as (1) coins in,
(2) coins out, and (3) coins paid by the attendant. The system determines any
variance between the machine's recorded coin count and the actual weight amount
and provides an efficient method to collect key data from the machines on the
floor.

                                      -4-
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         SECUREDROP(TM) MOBILE SCALE SYSTEM

         The SecureDrop(TM) Mobile Scale System was introduced in March 2000 and
consists of a highly accurate mobile scale and data recording device along with
a coin lock-box area built into the cart. The Mobile Scale System can be can be
integrated with the SecureDrop(TM) 2000, 3000 and 5000 Systems. The Mobile Scale
System allows for the collection of the data and the coins at each gaming
machine. Productivity and security are improved while buckets are pulled and
weighed, data is collected, coins are secured and the cleared buckets are
returned to the machines. The Mobile Scale System is separately approved. Gaming
regulators have issued the Company key product approvals, which include most
recent approvals or approval waivers of the Mobile Scale System from the Nevada
(October 2000), Mississippi (November 2000), Michigan (December 2000), Illinois
(December 2000), Iowa (January 2001) and Louisiana (March 2001) regulators. In
addition, the Company has 18 tribal gaming licenses/approvals, of which nine are
in California. Due to the numerous approvals or approval waivers received, the
Company has experienced a significant increase in interest and orders.

         SECUREDROP(TM) 5000 SYSTEM

         The SecureDrop(TM) 5000 System adds the ability to read soft meters,
which are meters provided by the software that controls the gaming machines.
This system functions as an advanced data collection system for up to 100 soft
meters. Since a major portion of the worldwide market is composed of casinos
without on-line systems, both the 3000 and 5000 series are important additions
to the product line. Management believes that in certain locations, the 5000
series will be used as the casino's central database system and expects strong
demand from international markets. A prototype system was developed and
displayed to a limited audience in October 2000, at the World Gaming Congress
and final development should be complete in mid-2001. The Company expects to
ship units in the second half of 2001.

         INSTALLATIONS OF THE SECUREDROP(TM) SYSTEM

         Since the beginning of 2001, the Company has installed an additional
4,380 SecureDrop(TM) units. Currently, the Company has a total installed base of
22,000 SecureDrop(TM) units in over 28 different gaming properties, including
Joker's Wild Casino, Henderson, NV (a property of Boyd Gaming Corporation);
Casino Magic, Bay St. Louis, MS; Mystic Lake Casino, Prior Lake, MN; Viejas
Casino and Turf Club, Alpine, CA; Genting Highlands, Malaysia (the largest
casino in the world); and Lima Marriott, Peru.

         MARKET FOR THE SECUREDROP(TM) SYSTEM

         The market for the SecureDrop(TM) System is coin based gaming machines
in casinos, gaming halls or other venues with 100 machines or more. 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.

         There are an estimated 8 million gaming machine installed world-wide
and include casino-style slot machines, amusement with payout ("AWP") machines,
Pachinko machines (found mostly in Japan) and video lottery terminals ("VLT's").
Of the installed world-wide base, management estimates that at least 3 million
gaming machines are in locations with at least 100 units and represent the
principal market for the Company's SecureDrop(TM) System.

                                      -5-
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-------------------------   --------------------   ---------------------
                              TOTAL ESTIMATED         SECUREDROP(TM)
          REGION              GAMING MACHINES        POTENTIAL MARKET
-------------------------   --------------------   ---------------------
United States                      800,000                700,000
-------------------------   --------------------   ---------------------
Canada                              62,000                 50,000
-------------------------   --------------------   ---------------------
Europe                           1,000,000                400,000
-------------------------   --------------------   ---------------------
Australia/New Zealand              225,000                150,000
-------------------------   --------------------   ---------------------
Japan                            5,000,000              1,100,000
-------------------------   --------------------   ---------------------
Other                            1,000,000                600,000
-------------------------   --------------------   ---------------------
         TOTAL                   8,087,000              3,000,000
-------------------------   --------------------   ---------------------

         SOURCE: PRODUCTIVITY COMMISSION (AN INDEPENDENT COMMONWEALTH AGENCY)
REPORT TO AUSTRALIAN GAMING MACHINE MANUFACTURERS ASSOCIATION (AGMMA) DEC 1999,
UPDATED TO REFLECT ESTIMATED GROWTH FOR YEAR 2000; MANAGEMENT ESTIMATES, ANNUAL
REPORT OF IGT.

         In the United States, there are approximately 800,000 gaming machines,
the majority of which are situated in casinos, or venues with more than 100
units. There are an additional 62,000 gaming machines in Canada, mostly located
in casinos. Since a majority of these North American machines are linked to the
relevant property's central computers, they are the target market for the
SecureDrop(TM) 2000 System.

         Internationally, the majority of gaming machines are not linked to
central computers. Those machines are the target market for the SecureDrop(TM)
3000 and 5000 Systems, which can collect electronically a wide variety of the
data from the gaming machine at the collection point and transfer the data to
the gaming property's accounting software.

         In Europe, there are approximately one million machines that consist
mainly of AWP or jackpot style machines. Although approximately 300,000 machines
are located in the Great Britain, these machines are principally found in pubs
and small clubs. In contrast, the remaining European market limits access to
gaming machines to large clubs and casinos. As for the Australian/New Zealand
market, there are approximately 300,000 gaming machines, the majority of which
are located in casinos and clubs. The largest international market is the
Japanese market with an estimated five million machines. The majority of these
machines are Pachinko machines, Japanese pinball machines where winning balls
can be exchanged for cash prizes, or Pachislo machines, Japanese slot machines
with reels and skill stops. These machines are located in approximately 17,000
gambling parlors, giving an average of 280 machines per parlor. As for other
international markets, there are smaller but rapidly growing markets throughout
Asia and South America. Further, as additional jurisdictions approve gaming
activities and as new properties open, the overall number of gaming machines
will continue to grow.

         SHUFFLER PRODUCT LINE

         The motivating factors for casino operators to adopt automatic
shufflers on gaming tables include: increasing dealer productivity in terms of
the number of games played per hour; reducing the exposure to fraud and cheating
by dealers, players or both; and reducing the need for experienced dealers,
especially in newer gaming markets. In addition, casino operators are more
likely to have higher "holds" from automatic shufflers than from manual shuffles
as knowledgeable players may take advantage of manual shuffles.

                                      -6-
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         The Company's computer-based shufflers are available in two different
types: batch shufflers (Random Ejection Shuffler(TM)), which incorporates two
separate and distinct groups of cards, and continuous shufflers (Continuous
Random Ejection Shuffler), which continuously recycle the same group of cards.
Each type of shuffler accommodates different blackjack/baccarat card games. From
a manufacturing perspective, the Company produces one shuffler that performs as
a batch shuffler capable of shuffling between one and eight decks of cards that
may be converted to a continuous shuffler with a very slight and inexpensive
modification. Even when converted, the continuous shuffler may still be used as
a batch shuffler with the flip of a switch. The Company believes that its
product line is the most versatile line on the market and allows operators to
change game applications as determined by customer demand. Currently,
competitors produce different models to meet the needs imposed by various game
applications, which increases the customer's capital cost and reduces an
operator's flexibility.

         The Company began shipping its initial batch shuffler in the spring of
1999 and has spent considerable engineering time and resources to improve its
speed and reliability. In the fourth quarter of 2000, the Company began to ship
its continuous shuffler. The Company believes that its research and development
are substantially complete and that its products have begun to perform to or
above specifications. However, in order to meaningfully penetrate the overall
shuffler market, the Company is developing a specialty shuffler, utilizing its
existing shuffler technology.

         Specialty shufflers are used only in single deck poker variation games
such as Caribbean Stud(TM), Let It Ride(TM), Pai Gow Poker, and Three Card
Poker. The specialty shuffler re-stacks the deck and delivers into packets the
required number of cards (either 3, 5 or 7 cards) using a batch system method.
Management expects that the software and hardware design of the unit will be
complete in the third quarter 2001 and that beta testing will begin in the
fourth quarter 2001, with customer shipments beginning around the second quarter
2002.

         In many markets, shufflers require regulatory approval before being
leased or sold. The Company has actively pursued numerous regulatory or
licensing approvals over the past two years. The Company has received approvals
or approval waivers for the Random Ejection Shuffler(TM) in 19 jurisdictions,
and approval for the Continuous Random Ejection Shuffler from the Nevada Board
in August 2000.

         SHUFFLER MARKET

         There are 40,000 gaming tables worldwide. Presently, automatic
shufflers are installed on approximately 15% of all gaming tables. Most of these
installations are on specialty gaming tables, which represent about 20% of the
40,000 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. The Company believes that its
technology and ergonomic design will allow it to overcome industry concerns and
that its shuffler will successfully penetrate the blackjack/baccarat market for
the following reasons:

         SECURITY. The design of existing shufflers has proven vulnerable to
cheating and card counting schemes. The Company believes that its combination of
patented computer and mechanical technology safeguards against cheating schemes.
The Random Ejection Shuffler(TM) produces a computer generated, truly random and
completely untrackable shuffle, and the Continuous Random Ejection Shuffler
eliminates advantage achieved by knowledgeable players, as each card is

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available for the next round of play by producing a "full" deck(s) 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 that favor the "house".

         RELIABILITY/PRODUCTIVITY. Given the paper handling demands placed on
card shufflers, they are prone to jamming and breakdown. The Company has
designed its shufflers to be easily accessed by dealers so they can hand-deal
cards until the unit can be put back in service and not shut down the table. In
addition, the dealer, with little interruption, can easily put the unit back
into play in most cases. In contrast, competitive units cannot accommodate
hand-dealing, thereby shutting down table play until the units are put back in
service. Dealer productivity and uptime of playing tables (one of the benefits
of using shufflers) has an important impact on casino operator's revenues and
profitability.

         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 the Company's shufflers
allows players to see the cards being ejected and re-stacked through a frosted
cover without compromising security, which the Company believes will gain better
player acceptance.

         SHUFFLER INSTALLATIONS

         Through the year ended December 31, 2000, the cumulative installation
of the Company's shuffler products increased from 295 units to 481 units. The
cumulative number of shuffler installations represents the number of shufflers
installed at casinos through sale or rental agreements. In addition, the Company
installed 12 units of the Continuous Random Ejection Shuffler in the fourth
quarter of 2000. Since the beginning of the year, the Company has installed an
additional 31 shufflers. As of March 2001, the Company has 512 shufflers
installed at over 65 different gaming properties. Recent customers include
several large casino properties that have standardized on the Company's
shuffler. Customers include The London Club Casinos, Sault St. Marie Tribal
Casinos, Mandalay Bay Resorts, Park Place Entertainment, Inc., Station Casinos,
Inc. and Boyd Gaming Corporation.

         ADDITIONAL PRODUCTS

         In an attempt to focus its resources on the SecureDrop(TM) Systems and
shuffler product line, the Company has reduced the number of table games from
its portfolio. In this regard, on May 12, 2000, the Company entered into an
Acquisition and Exclusive License Agreement with DigiDeal Corporation whereby
the Company sold its intellectual property rights relating to Fantasy 21(TM) and
became the exclusive licensee of the intellectual property rights for paper and
plastic playing cards. The Company's remaining products are Fantasy 21(TM),
Danny's Jackpot Dice and the Safety-Peek Card.

         FANTASY 21(TM). Fantasy 21(TM) is a jackpot table game variation of
standard blackjack/21 involving a side wager of one dollar. If the player places
the side wager and receives a hand of 19, 20, 21 or blackjack (a "High Hand")
during five consecutive hands, the player is eligible for a jackpot round of up
to $25,000 (the "Showdown Round"). In the Showdown Round, the player is dealt
six hands simultaneously. If the player receives six High Hands, and the dealer
receives a hand of blackjack, the player wins the jackpot. Fantasy 21(TM) also
offers other jackpots for other combinations of High Hands. In the year 2001,
the Company does not expect to generate significant revenue from this product.

         DANNY'S JACKPOT DICE. Danny's Jackpot Dice, a variation of the standard
craps game, employs an additional side wager made on consecutive points thrown
by the shooter. The wager must be made prior to the shooter establishing the
first "point" to be made. Once the shooter establishes the first point, no one
else can make this wager until the shooter throws a seven and goes out. This

                                      -8-
<PAGE>

side wager will pay odds to the player based on how many consecutive points were
made during the shooter's turn. The shooter must make at least three points
before the player receives any odds on his wager. In the year 2001, the Company
does not expect to generate significant revenue from this product.

         SAFETY-PEEK CARD. The Safety-Peek Card is a type of playing card
designed for blackjack/21. The key feature of its design is that it 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. The Safety-Peek Card permits the
dealer to "peek" at the opposite corner of the playing card in order to
determine the value of the hole card without revealing the value of the playing
card. The Safety-Peek Card is licensed to the George C. Matheson Company
("GEMACO") and US Playing Card Company, under which the Company receives certain
royalties. In the year 2001, the Company does not expect to generate significant
revenue from this product.

         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, the Company
and other entities which 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. The Company's 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. The Company
has obtained, or is seeking to obtain, approval of its associated equipment in
each jurisdiction in which it conducts business that requires such approval.

         Domestic gaming regulators have issued the Company key product
approvals, which include approvals or approval waivers of the SecureDrop(TM)
2000 and Mobile Scale Systems from the Illinois (August 2000), Nevada (October
2000), Iowa (November 2000), Mississippi (November 2000), Michigan (December
2000) and Louisiana (March 2001) regulators. The SecureDrop(TM) 2000 is also
approved in the states of Colorado (November 1999) and Indiana (June 2000), with
the Mobile Scale System eligible for field trial in Colorado.

         The Random Ejection Shuffler(TM) is approved for use in Nevada
(December 1998), Mississippi (May 1999), Michigan (June 1999), South Dakota
(January 1998) and Washington (January 1999). The Continuous Random Ejection
Shuffler is approved in Nevada (August 2000), and may be placed in all tribal
casinos where the Company is currently licensed.

         Various tribal casinos throughout the United States, which have formed
their own gaming regulatory structures and which operate in connection with the
requirements of the National Indian Gaming Commission, also utilize the
Company's products. Presently, the Company has been approved to conduct business
and holds 18 tribal gaming licenses for its products in the states of
California, Iowa, Michigan, Minnesota, New Mexico, North Dakota, and Washington.
Requests for nine additional licenses are currently pending in California.

         Internationally, the Company's SecureDrop(TM) 3000 System is currently
in use in Argentina, Burma, Columbia, Czechoslovakia, Korea, Malaysia, Peru, and
Sweden. These international jurisdictions typically represent minimal regulatory
barriers. The Random Ejection Shuffler(TM) has been approved in the Bahamas, and
the SecureDrop(TM) 2000 and Mobile Scale(TM) Systems were approved in the
province of Saskatchewan, Canada.

                                      -9-
<PAGE>

         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 (i) the
Nevada Gaming Control Act and the regulations promulgated thereunder
(collectively, the "Nevada Act") and (ii) various local ordinances and
regulations. Such activities are subject to the licensing and regulatory control
of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada Board, and
various local, city and county regulatory agencies (collectively referred to as
the "Nevada Gaming Authorities").

         The laws, regulations and supervisory practices of the Nevada Gaming
Authorities are based upon declarations of public policy having as their
objectives: (i) 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; (ii) 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; (iii) establishing and maintaining responsible accounting practices
and procedures; (iv) 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); (v) preventing
cheating and fraudulent practices; and (vi) providing and monitoring sources of
state and local revenue based on taxation and licensing fees. Changes in such
laws, regulations and procedures, depending upon their nature, could have an
adverse effect on the Company's operations.

         Although the Company is not registered with the Nevada Board as a
publicly traded corporation, the Company is currently required to provide a copy
of all periodic reports and other filings made with the Securities and Exchange
Commission to the Nevada Board. Further, even though applications for the
approval of associated equipment are subject to a less comprehensive approval
process, the Nevada Board may investigate any individual who has a material
relationship to, or material involvement with, the Company in order to determine
whether such individual is suitable or should be licensed as a business
associate of the Company. Officers, directors and certain key employees of the
Company 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 the Company, the Company would have to sever
all relationships with that individual. In addition, the Nevada Commission may
require the Company 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 the Company be found to have violated the Nevada Act,
the licenses and/or approvals it holds could be limited, conditioned, suspended
or revoked. In addition, the Company and the persons involved could be required
to pay substantial fines, at the discretion of the Nevada Board, for each
separate violation of the Nevada Act. The limitation, conditioning or suspension
of any license or approval held by the Company could (and revocation of any
license or approval would) materially adversely affect the Company's operations.

                                      -10-
<PAGE>

         As for security holders of the Company, any beneficial holder of the
Company's voting securities, regardless of the number of shares owned, may be
required to file an application, be investigated, and have his or her
suitability as a beneficial holder of the Company's voting securities determined
if the Nevada 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 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, MISSISSIPPI, WASHINGTON AND OTHER JURISDICTIONS.
The Company currently distributes products in Louisiana, Michigan, Mississippi,
and Washington, and intends 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 and the ownership 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 (the "Gaming Regulators"). 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 the 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 the Company, its key personnel and
significant stockholders. The Gaming Regulators may, at any time, revoke,
suspend, condition, limit or restrict a license for any cause deemed reasonable
by the Gaming Regulators. Fines for violation of gaming laws or regulations may
be levied against the holder of a license and persons involved. The Company and
its key personnel have obtained all licenses necessary for the conduct of the
Company's business in the jurisdictions in which it manufactures and leases or
sells its casino products. Suspension or revocation of such licenses could have
a material adverse effect upon the Company's 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 ("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 ("NIGC").

         IGRA classifies games that may be conducted on Native American lands
into three categories: (i) Class I Gaming; (ii) Class II Gaming; and (iii) 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, pulltabs, lotto, punch boards, 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

                                      -11-
<PAGE>

a tribal ordinance or resolution which has been approved by the NIGC; (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) miscellaneous other 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 (e.g. 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 (a "tribal-state compact").

         IGRA requires states to negotiate in good faith with Native American
tribes which 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.

         Since 1996, the Nevada Gaming Authorities have taken the position that
any Native American tribe operating Class III Gaming within the state of
California, absent a valid compact with the State of California, was operating
illegally. The legality of certain California Native American compacts has been
the subject of legal and other challenges. 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 61 California tribes. The Company has 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, the Company intends to seek the necessary licenses, approvals and
findings of suitability for the Company, its products and its personnel in other
jurisdictions throughout the United States and the world where significant sales
are anticipated to be made. 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 the Company will
be able to obtain the necessary approvals for its future products as they are
developed in a timely manner, or at all. If a license, approval or finding of
suitability is required by a regulatory authority and the Company fails to seek
or does not receive the necessary license, approval or finding of suitability,
the Company may be prohibited from selling its products for use in the
respective jurisdiction or may be required to sell its products through other
licensed entities at a reduced profit to the Company.

                                      -12-
<PAGE>

         MARKETING

         As the gaming industry becomes increasingly more competitive, the
Company's 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 its strategy, the Company offers to lease or sell
its products to casinos and other lawful gaming establishments.

         In order to maintain and expand the market presence of its products,
the Company is committed to providing a high level of customer service and
support. In this regard, the Company operates three domestic regional service
centers in Berkley, Michigan, Gulfport, Mississippi and Tukwila, Washington,
with a total of seven full-time service personnel. These employees provide
casinos with installation and maintenance services domestically on all the
Company's products. Service for the Nevada and California markets are supported
by the corporate office service personnel. In addition, the Company maintains a
training center to provide support and training to its distributors, who are
responsible for servicing their own products.

         DISTRIBUTION

         The Company sells directly to gaming operators and indirectly through
distributors with direct sales accounting for 95% of the Company's revenue. The
Company has a sales force of six full-time employees. In addition, the Company's
Chief Executive Officer and Vice President SecureDrop(TM) both actively
participate in sales efforts. The Company also markets its products at domestic
and international trade shows.

         Sales by distributors account for 5% of the Company's revenue. As a
means of increasing the global exposure of the Company's products, the Company
has entered into various distributorship agreements for the entire Pacific Rim,
Europe and South America. The Company plans to utilize distributors in certain
geographic areas where distributors with a local presence could be more
effective than the Company's sales force. In this regard, in February 1997, the
Company entered into an exclusive five-year distributorship agreement with RGB
SDN BHD, a Malaysia corporation, whereby the Company offers to RGB SDN BHD a
minimum discount of twenty-five percent (25%) off the promoted retail price in
Nevada for the entire Asian Rim area, including, but not limited to, Malaysia,
Singapore, China, Hong Kong, Korea, Vietnam, Indonesia, Thailand, the
Philippines, Nepal, Cambodia, India, Sri Lanka, Macau, Myanmar, Laos, and cruise
ships based in Malaysia, Singapore and Hong Kong. The territory specifically
excludes Japan, Australia and New Zealand. Additionally, the Company has a
semi-exclusive two-year distributorship agreement with London Casino Supplies,
which currently expires December, 2001. The Company offers to London Casino
Supplies a discount similar to that given to RGB SDN BHD for a territory
consisting of Belgium, Germany, France, Italy, Luxembourg, the Netherlands,
Denmark, Ireland, United Kingdom, Greece, Spain, Portugal, Austria, Finland,
Sweden, Hungary, Czechoslovakia, Poland, Malta, Monaco, Lebanon, Palestine and
Egypt. The Company has also entered into a semi-exclusive distributorship
agreement with Vallasey, SA, a Uruguay company, with respect to Uruguay,
Argentina, France, Italy, and Spain. The Company also has 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. In July, 2000 the Company
entered into an exclusive three year agreement with IndoPacific Gaming for the
distribution of the Shuffler in Australia and New Zealand. In addition, the
Company has entered into a non-exclusive Independent Contractor Agreement with
Casino Gaming Corporation, a Nevada corporation, for sales of the Company's
products in Spanish-speaking countries not subject to exclusivity restrictions,

                                      -13-
<PAGE>

including, but not limited to, Argentina, Brazil, the Canary Islands, the
Caribbean Islands, Chile, Curacao, Ecuador, Portugal, Puerto Rico, Spain, and
Venezuela. Domestically, the Company has 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.

         COMPETITION

         The gaming industry is extremely competitive. Although the Company has
assembled an experienced marketing team which uses its knowledge of the gaming
industry to tailor the Company's products and services to the needs of the
gaming industry, the Company competes with many established companies which
possess resources substantially greater than those of the Company. Generally,
the Company competes 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 the Company now has, or will have
in the foreseeable future. Even though the Company's overall strategy is to
compete on the basis of quality and price, the competitive pressures of the
gaming industry will require the Company to invest in additional research and
development. The constant need to update and innovate may result in increased
costs for and reduced margins on the Company's products and services.

         The SecureDrop(TM) System is the only method of computerized bucket
management and one-step processing of the coins on the floor. The existing coin
collection method utilizes handwritten slips of paper or bar code tickets to
identify which bucket came from what machine. Full buckets are replaced with
empty buckets and "hauled" into the count room where they are processed one at a
time. The slip of paper or bar code ticket must be located, so the information
can be entered into the casino's accounting system when the bucket is weighed.

         One area of competition for the SecureDrop(TM) System 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 8 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 ("IGT") began "beta testing"
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. IGT has installed the EZ Pay(TM)
system on certain machines located at the SunCoast Hotel & Casino and Terrible's
Hotel & Casino, both in Las Vegas. Although there are a very limited number of
slot operations with an online system that permits the use of the EZ Pay(TM)
system, the concept behind the EZ Pay(TM) system has received positive customer
responses. The Company believes 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.

         Competition in the shuffler market is more intense. Presently, Shuffle
Master, Inc. ("Shuffle Master") is the market leader with a penetration of 15%
of the total market. Of the Shuffle Master installations, 85% is in poker and
other specialty games. In the specialty market, Shuffle Master offers the only
product. Other competitors include International Thunderbird Gaming Corporation,
Casinos Austria International, QuickDraw, Inc. and ProShuffle, which have a
collective market share of less than 3%.

                                      -14-
<PAGE>

         The Company believes its shufflers have a competitive advantage over
other shufflers with respect to vulnerability to player cheating and card
counting, reliability, and player dissatisfaction. The shufflers' ergonomic
design and ease of operation increase customer satisfaction and reduce the need
for experienced dealers, a concern which has arisen in emerging gaming markets.
In order to better compete in and to meaningfully penetrate the overall shuffler
market, the Company is developing a specialty shuffler which will provide the
Company with a complete shuffler product line and which will provide the first
direct competition for Shuffle Master in the specialty shuffler market, the
market segment in which it has proven most successful. As Shuffle Master
possesses greater financial resources, greater industry recognition, and more
gaming licenses than the Company, there is no guarantee that the Company will
continue to successfully compete in the shuffler market.

         RESEARCH AND DEVELOPMENT; MANUFACTURING

         At its principal offices, the Company maintains a state-of-the-art
facility for its product development and manufacturing divisions. In addition,
the Company has seven employees in research and development and thirty-seven
employees in manufacturing and service.

         To facilitate development and assure manufacturing quality control, the
Company maintains four dedicated laboratory facilities. Within these labs, the
Company continuously develops the SecureDrop(TM) Systems, conducts real-time
testing for the Random Ejection Shufflers(TM), and prepares quality assurance
analyses and internal product trials. The service and refurbishment center for
the Company's shufflers is also located on the premises.

         At the heart of the Company's 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 Random Ejection Shuffler(TM),
Mobile Scale System, coin vaults, and bucket identification system. In addition,
the Company has contracted with a third party to provide various parts and
supplies for its products, primarily for the SecureDrop(TM) System products.

         INTELLECTUAL PROPERTY

         The Company has secured and endeavors to secure, to the extent
possible, exclusive rights in its products, primarily through federal and
foreign intellectual property rights, such as patents, copyrights and
trademarks. The United States Patent and Trademark Office has issued patents
covering the SecureDrop(TM) System and the Company's shufflers. In addition, the
Company possesses an exclusive license from Technology Development Center, LLC,
("Technology Center") to a patent issued by the United States Patent and
Trademark Office relating to the SecureDrop(TM) System. The geographical scope
of the license is the United States and all foreign countries. The Company has
applied for various other patents with respect to other concepts and products,
including potential non-gaming application of its technology.

         Further, in order to protect potential foreign sources of income, the
Company has filed patent applications and trademark applications in
strategically selected foreign countries. There can be no assurance that any of
the claims contained in the Company's pending U.S. 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 the
Company's rights, or the Company's proprietary products and could be
successfully duplicated without infringing on the Company's legal rights. Many
elements incorporated in the Company's proprietary products are in the public
domain or otherwise not amendable to legal protection, and the steps taken by
the Company will not, in and of themselves, preclude competition with the
Company's proprietary products.

                                      -15-
<PAGE>

         The Company has granted joint exclusive licenses to GEMACO and to The
US Playing Card Company for the Safety-Peek Playing Card. The GEMACO agreement
provides for a royalty equal to $.04 per deck of playing cards being paid to the
Company on a quarterly basis. Additionally, GEMACO agreed that during the term
of the agreement, it will use $.02 on each deck for promotion and advertising of
the product. The US Playing Card Company pays to the Company a royalty of $.075
per deck.

         EMPLOYEES

         As of March 9, 2001, the Company had 65 full-time employees. None of
the Company's employees are represented by a labor union, and the Company
considers its relationships with its employees to be satisfactory. All employees
have signed confidentiality agreements, which prohibit them from disclosing any
of the Company's confidential information at any time during or after their
employment with the Company.

ITEM 2.  DESCRIPTION OF PROPERTY

         The Company leases approximately 58,725 square feet for its
headquarters at 6830 Spencer Street, Las Vegas, Nevada, 89119, which houses the
Company's corporate offices, including sales, engineering, and manufacturing
departments. The current lease is approximately $50,000 per month, expires in
October, 2006, and has an option exercisable by the Company for an additional
term of five years. The Company believes its current headquarters are sufficient
for the Company's operations through 2005.

         The Company also leases approximately 1,105 square feet in Boise, Idaho
for its shuffler research and development facility and leases approximately
1,500 square feet for each of its service centers in Gulfport, Mississippi, and
Tukwila, Washington. The Company leases approximately 1,150 square feet for its
service center in Berkley, Michigan and intends to renew its current leases.

ITEM 3.  LEGAL PROCEEDINGS

         On November 22, 1999, Moll Industries, Inc. ("Moll") filed a complaint
(Case No. 817296) against the Company in the Superior Court of the State of
California for the County of Orange, California. Parties have entered into a
settlement agreement, the fulfillment of which will lead to the dismissal of
this litigation.

         On May 18, 2000, Heath Electronics Manufacturing Corporation ("Heath")
filed a complaint (Case No. CV OC 00-02422D) against the Company in the District
Court of the Fourth Judicial District of the State of Idaho, Ada County. The
Company has 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. Trial has been set for June 18, 2001.

         On August 16, 2000, Bon Temps Roule, Inc. and other plaintiffs
(collectively "Bon Temps") filed a complaint (Case No. 00CC09840) against the
Company, Joe Stapley, and Travis Morgan Securities, Inc. in the Superior Court
of the State of California, Orange County. The complaint alleges claims for the
sale and purchase of securities based upon misrepresentations and requests
rescission of certain stock purchase transactions. The court granted the
Company's demurrer to plaintiffs' complaint, and the Company has filed a
demurrer to plaintiffs' first amended complaint. Trial has been set for
September 10, 2001.

                                      -16-
<PAGE>

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

         No matters were submitted to the Company's security holders during the
fourth quarter of 2000.

                                      -17-
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's authorized capital stock consists of 40,000,000 shares of
common stock, $0.001 par value and 10,000,000 shares of preferred stock, $0.001
par value. The Company's 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.

         MARKET INFORMATION

         The Company's common stock is not traded on a national or regional
exchange and is not quoted over an electronic medium. The Company is not aware
of any established market for the trading of its common stock. The Company has
entered into lockup agreements with certain stockholders and directors. Through
these lockup agreements, the relevant stockholders have agreed to lockup
1,834,402 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.

         COMMON STOCK

         As of February 9, 2001, there were 10,854,801 shares of the Company's
common stock outstanding and approximately 390 holders of the Company's common
stock. Holders of common stock are entitled to one vote per share on all matters
submitted to a vote of the shareholders. The Company does not allow cumulative
voting of any kind, and is not required to do so under Nevada law. Subject to
preferences that may be applicable to any then outstanding preferred stock, the
holders of common stock will be entitled to receive dividends, if any, as may be
declared from time to time by the board out of legally available funds. Upon
liquidation, dissolution, or winding up of the Company, the holders of the
Company's common stock will be entitled to a pro rata share of the Company's
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. Holders of the Company's common stock have no preemptive,
subscription, redemption, or conversion rights.

         From April 1998 through January 1999, the Company conducted a public
offering of up to 1,500,000 shares of its common stock pursuant to a
Registration Statement on Form SB-2. In conjunction with this offering, the
Company also registered its common stock pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result of
this registration, the Company became subject to the reporting requirements of
the Exchange Act and has filed the appropriate reports, proxy statements and
other information with the Commission. Although the Company had begun
negotiations with various market makers with respect to its common stock, the
Board determined that the Company should be affiliated only with credible market
makers and terminated discussions with those market makers that did not meet the
Board's scrutiny.

         PREFERRED STOCK

         The Company is authorized to issue 10,000,000 shares of undesignated
preferred stock. None of the undesignated preferred stock is issued or
outstanding, and the Company has no present plans to issue shares of
undesignated preferred stock. Without further action by the Company's
stockholders, the 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
the Company's common stock and could impede an attempted takeover of the
Company.

                                      -18-
<PAGE>

         OPTIONS

         As of February 9, 2001, there were options outstanding to purchase
1,754,600 shares of the Company's common stock at exercise prices ranging from
$1.00 to $3.00 per share with a weighted average exercise price per share of
$1.77. The Company will not grant any options to purchase common stock at an
exercise price of less than 85% of the fair market value of the Company's common
stock on the date of grant.

         WARRANTS

         As of March 23, 2001, the Company issued warrants to purchase 900,000
shares of the Company's common stock at an exercise price of $2.60. These
warrants were granted as part of the Company's private placement of convertible
debentures in 2001 and are exercisable beginning on the six-month anniversary of
their respective issuance. In addition to these warrants, the Company has issued
warrants to Josephthal to purchase 50,000 shares of the Company's common stock
at an exercise price of $2.50 and, in conjunction with any draws pursuant to its
credit line with Josephthal, will issue additional warrants to purchase shares
of the Company's common stock equal to the amount of the relevant draw divided
by $2.50.

         CONVERTIBLE DEBENTURES

         As of February 9, 2001, the Company had issued two series of unsecured
convertible debentures, one series for $1,500,000 and another series for
$1,800,000. These convertible debentures are convertible at a rate of $2.60 per
share into 1,269,231 shares of the Company's common stock. A majority of the
outstanding convertible debentures are held by James E. Crabbe, the Company's
Vice-Chairman of the Board and controlling stockholder. In addition, these
convertible debentures were issued with warrants to purchase 937,291 shares of
the Company's common stock at an exercise price of $2.60 per share.

         On December 14, 2000, the Company entered into an agreement with
Josephthal & Co. Inc. ("Josephthal") to act as its exclusive agent with respect
to the Company's proposed private placement of $2 to $5 million of convertible
debentures. As compensation, the Company agreed to provide Josephthal with,
among other things, a retainer, transaction fees on the amounts raised and
warrants to purchase shares of the Company's common stock. In addition, as part
of this agreement, an affiliate of Josephthal has provided the Company with a
$500,000 secured credit facility. For additional information, see Part II, "Item
6. Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Factors and Forward-Looking Information - Influence by
Josephthal."

         DIVIDEND POLICY

         The Company has never declared or paid cash dividends on its common
stock. The Company presently intends to retain earnings to finance the operation
and expansion of its business and does not anticipate declaring cash dividends
in the foreseeable future.

                                      -19-
<PAGE>

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 future expansion, 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, but are not limited to,
those relating to liquidity requirements for the Company, the continued growth
of the gaming industry, the success of the Company's product-development
activities, vigorous competition in the gaming industry, dependence on existing
management, gaming regulations (including actions affecting licensing), leverage
and debt service (including sensitivity to fluctuations in interest rates),
domestic or global economic conditions and changes in federal or state tax laws
or the administration of such laws.

         OVERVIEW

         The Company is headquartered in Las Vegas, Nevada, and develops,
manufactures and distributes products that increase security, productivity and
profitability for the gaming industry. Its principal products are an
electronically identified coin collection and accounting system for gaming
machines and computer-based card shuffling devices. The Company is developing
advancements for its present product line as well as additional technology for
the expansion of its products to the vending and amusement industries.

         Until January 2000, the Company was in the development stage and had
limited sales of its products. Prior to January 2000, the Company was
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, the Company had sufficient sales development and
revenue growth such that the Company was considered an operating company.
Although the Company anticipates significant sales development, revenue and
profit growth, there is no guarantee that the Company will generate sufficient
revenue, cash flow or profit to sustain its operations. No independent
organization has conducted market research providing management with independent
assurance from which to estimate potential demand for the Company's business
operations.

         In December 1998, the Company received its first gaming approval from
the Nevada Board for the Random Ejection Shuffler(TM). As of January 15, 2001,
the Company had sold or placed under rental contracts 456 of its shufflers. As
for the SecureDrop(TM) System, gaming regulators have issued to the Company key
product approvals, which include approvals or approval waivers of the
SecureDrop(TM) 2000 and Mobile Scale Systems from the Illinois (August 2000),
Nevada (October 2000), Iowa (November 2000), Mississippi (November 2000),
Michigan (December 2000) and Louisiana (March 2001) regulators. In addition, the
Company has 18 tribal gaming licenses, of which nine are in California. The
increase in licenses and international acceptances has resulted in a significant
increase in product orders. License applications are pending and should open up
additional markets in 2001. The Company believes that customer interest in both
the shufflers and SecureDrop(TM) products continues to be strong.

         The following discussion summarizes the Company's results of operations
for the years ended December 31, 2000 and 1999, and the Company's liquidity and
capital resources.

                                      -20-
<PAGE>

         RESULTS OF OPERATIONS

         YEARS ENDED DECEMBER 31, 2000 AND 1999

         REVENUES. For the year ended December 31, 2000, the Company generated
total revenues of $4,432,769 compared to $767,729 for the year ended December
31, 1999. The revenues for the year ended December 31, 2000, consisted of
shuffler rentals of $1,056,780, shuffler sales of $667,670, SecureDrop(TM) sales
of $2,594,430, table game rentals of $67,969, and miscellaneous other income of
$45,920. The increase in total revenues is due primarily to the $2,564,070
increase in SecureDrop(TM) sales, the $619,258 increase in shuffler rentals and
the $562,895 increase in shuffler sales.

         COST OF SALES. For the year ended December 31, 2000, cost of sales
increased $2,022,180 to $4,995,639 compared to $2,973,459 for the year ended
December 31, 1999. This increase was primarily due to the cost of sales for
SecureDrop(TM) which was a new product in 2000. Cost of sales included:
SecureDrop(TM) cost of sales of $2,020,483, Shuffler cost of sales of $248,249,
Shuffler depreciation of $396,770, Shuffler service costs of $866,621, and
manufacturing costs of $1,463,516.

         GROSS MARGIN. The gross margin on revenue was ($2,205,730) for the year
ended December 31, 1999 compared to ($562,870) for the year ended December 31,
2000. The increase of $1,642,860 in gross margin on revenue was due primarily to
the increase in revenues generated by and the relatively higher gross margin on
the SecureDrop(TM) product line.

         GENERAL AND ADMINISTRATIVE EXPENSES. For the year ended December 31,
2000, general and administrative expenses increased approximately $47,465, or
0.99%, to $3,617,319 compared to $3,569,854 for the year ended December 31,
1999. For the year ended December 31, 2000, general and administrative expenses
primarily included: salaries and related costs of $1,377,808; advertising and
marketing costs of $87,354; consulting services of $25,421; cost of gaming
industry shows of $420,698; travel and entertainment costs of $370,770; printing
and office expenses, including rent of $359,354; and legal expenses of $147,029.
In addition, for the year ended December 31, 2000, the Company had depreciation
and amortization of $817,692 and amortized deferred interest of $314,117
compared to $434,832 and $158,328, respectively, for the year ended December 31,
1999.

         INTEREST EXPENSE. For the year ended December 31, 2000, the Company
incurred interest expenses of $1,213,824 compared to $767,850 for the year ended
December 31, 1999. This increase of $445,974 was primarily attributable to the
increased borrowings of the Company.

         NET INCOME (LOSS). For the year ended December 31, 2000, the Company
had a net loss of $6,656,561, a decrease of $1,476,809, compared to a net loss
of $8,133,370 for the year ended December 31, 1999. The decrease in net loss was
primarily due to the increased revenues generated by and the relatively higher
gross margin from SecureDrop(TM), which was a new product in 2000. Basic loss
per share was $0.62 for the year ended December 31, 2000, compared to $0.98 for
the year ended December 31, 1999.

         LIQUIDITY AND CAPITAL RESOURCES

         OVERVIEW. Because of the Company's efforts to transition from a
development stage company to an operating company, it has generated substantial
cash flow deficits from operations, including cash used in operating activities
of $5,099,492 and $8,458,637 in the years ended December 31, 2000 and 1999,
respectively. In addition, to fund its development activities, the Company used
cash in investing activities of $516,754 and $3,355,221 in the years ended
December 31, 2000 and 1999, respectively. Consequently, the Company has been
substantially dependent on cash from financing activities to fund development

                                      -21-
<PAGE>

and operating activities, receiving cash from financing activities of $4,878,392
and $12,783,032 in the years ended December 31, 2000 and 1999, respectively. The
Company will continue to require cash from financing activities for both its
current operating needs and to fund its anticipated expansion into non-gaming
areas until operations begin to generate sufficient cash flow to provide for
such cash requirements.

         WORKING CAPITAL. At December 31, 2000, the Company had cash, cash
equivalents and investments of $432,070 compared to $1,169,924 at December 31,
1999. At December 31, 2000, the Company's working capital was a deficit of
$1,423,868 compared to $599,944 at December 31, 1999. At December 31, 2000, the
Company's current ratio, I.E. the ratio of current assets to current
liabilities, was 0.7:1 compared to 1.21:1 at December 31, 1999. During the year
ended December 31, 2000, the Company relied upon loans from certain
stockholders, directors, and other private sources of debt and equity capital of
$6,456,177. Until the Company's normalized sales levels are achieved, the
Company will be relying upon loans from the Company's principal stockholder and
other directors, and other private and institutional sources of debt and equity
capital for working capital purposes.

         LEASE FINANCING. For the three years ended December 31, 2000, the
Company has received proceeds of $5,050,892 from certain lease financing with an
unrelated leasing company whereby the Company sold and leased back most of its
furniture, equipment, tooling, and shufflers. These leases were not recorded as
sales because the leases included a mandatory buy back provision.

         CASH FLOW. For the year ended December 31, 2000, net cash used in
operating activities was $5,099,492 compared to $8,458,637 for the year ended
December 31, 1999. The cash used in operating activities was offset by
depreciation and amortization of $817,692 compared to $434,832 for the year
ended December 31, 1999; amortization of deferred interest of $314,117 for the
year ended December 31, 2000 compared to $158,328 for the year ended December
31, 1999; increases in accounts payable of $99,450 for the year ended December
31, 2000 compared to $42,711 for the year ended December 31, 1999; increases in
accrued expenses of $265,801 for the year ended December 31, 2000 compared to
$349,936 for the year ended December 31, 1999; increases in customer deposits of
$110,185 compared to $155,194 for the year ended December 31, 1999;; decreases
in inventory of $103,190 for the year ended December 31, 2000, compared to an
increase of $885,533 for the year ended December 31, 1999; decreases in prepaid
expenses of $235,799 for the year ended December 31, 2000, compared to an
increase of $252,025 for the year ended December 31, 1999 and increases of
deferred charges of $198,769 for the year ended December 31, 2000 compared to $0
for the year ended December 31, 1999. Cash usage was increased by increases in
accounts receivable of $587,915 for the year ended December 31, 2000 compared to
$328,711 for the year ended December 31, 1999.

         For the year ended December 31, 2000, net cash from financing
activities was $4,878,392 compared to $12,783,032 for the year ended December
31, 1999. The decrease is primarily attributable to a decrease in cash needs as
the company began selling SecureDrop. The cash from financing activities
consisted of $282,502 from the sale of common stock, $1,800,000 in convertible
debt, $2,166,000 in Notes and proceeds of $2,207,675 from leases, offset by
repayment of leases of $1,543,572, and repayment of stockholder loans of
$34,213.

         For the year ended December 31, 2000, the Company used net cash in
investing activities of $516,754 consisting of: acquired plant and equipment
valued at $406,563; increased patent and trademark expenses of $26,747; and an
increase in deposits of $83,443. For the year ended December 31, 1999, the
Company used net cash in investing activities of $3,355,221 consisting of:
acquired plant and equipment valued at $2,935,696; increased patent and
trademark expenses of $54,522; and an increase in deposits of $365,002.

                                      -22-
<PAGE>

         PRIVATE PLACEMENT OF COMMON STOCK. On April 14, 2000, the Company
entered into subscription agreements with four individuals whereby these
individuals agreed to purchase in the aggregate 108,655 shares of common stock
for $2.60 per share for an aggregate subscription amount of $282,503. The
Company received the funds on April 18, 2000, and used the proceeds from this
private placement for general working capital purposes. The exemptions from
registration relied upon by the Company for this private placement was Section
4(2) of the Securities Act and Rule 506 of Regulation D.

         CONVERTIBLE DEBT. On May 25, 2000, the Board authorized a private
placement of $2.2 million of convertible notes. The convertible notes accrue
interest at 9.5% per annum, mature two years from the date of issuance (where
the holder has the discretion to extend maturity date for up to three one-year
periods) and are convertible into shares of the Company's common stock one year
after issuance at a rate of $2.60 per share. The $2.2 million of convertible
notes are convertible into a maximum of 846,153 shares of the Company's common
stock. In addition, for each convertible note of $50,000, the Company issued a
warrant to purchase 12,500 shares of the Company's common stock with an exercise
price of $2.60.

         With the approval of the Board, certain members of the Board and a
controlling stockholder, the Huson Trust, participated in the Company's private
placement of convertible notes. The following table summarizes the purchases of
convertible notes by the relevant members of the Board and certain stockholders.

<TABLE>
<CAPTION>
          NAME                 AMOUNT         WARRANTS            MATURITY             CONVERTIBILITY
------------------------    ------------    -----------     -------------------    ---------------------
<S>                          <C>               <C>           <C>                     <C>
The James E. Crabbe          $1,000,000        250,000          May 30, 2002            May 30, 2001
    Revocable Trust
VIP's Industries, Inc.        $200,000         50,000           May 31, 2002            May 31, 2001
Eric Huson                    $100,000         25,000           June 1, 2002            June 1, 2001
The Huson Trust               $150,000         37,500           June 9, 2002            June 9, 2001
Richard S. Jaslow             $100,000         25,000           July 20, 2002          July 20, 2001
Richard S. Jaslow             $100,000         25,000          August 18, 2002        August 18, 2001
Ronald O. Keil                $100,000         25,000        September 28, 2002      September 28, 2001
Richard S. Jaslow              $50,000         12,500         November 10, 2002      November 10, 2001
------------------------    ------------    -----------
            TOTAL           $1,800,000        450,000
</TABLE>

         The $200,000 in convertible notes purchased by and the warrants to
purchase 50,000 shares of the Company's common stock issued to VIP's Industries,
Inc., an entity controlled by the Chairman of the Board, were in exchange for
the cancellation of a prior convertible note dated March 22, 2000 in the
original principal amount of $200,000.

         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 is
collateralized by the accounts receivable, inventory and most other
non-collateralized assets.

         EQUIPMENT FINANCING. For the 12 months ending December 31, 2000, the
Company received proceeds of $2,161,467 from a third-party leasing company
through which the Company has financed most of its furniture, equipment, and
tooling. The leases have a mandatory buyout and a term of 36 to 39 months.

                                      -23-
<PAGE>

         SHORT TERM NOTES PAYABLE. For the 12 months ending December 31, 2000,
the Company received proceeds of $1,700,000, from members of the Board, a
current stockholder and an individual. The terms of the notes range from 9% to
10.5%. The notes also range from 16 months to 24 months in term.

         Additionally the Company has entered into a $500,000 secured credit
facility with an affiliate of Josephthal. The credit facility has a one-year
term, bears an interest rate of 10% per annum, is secured by the Company's
accounts receivable, investment property, instruments and chattel paper,
equipment, inventory and all proceeds related to the same, and is subject to
mandatory prepayment upon the consummation of a registered offering with minimum
gross proceeds of $5,000,000, a change of control of the Company or the
consummation of a private placement with minimum gross proceeds of $2,000,000.
As part of the credit facility, the Company issued a warrant to purchase 50,000
shares of the Company's common stock at an exercise price of $2.50 and, in
conjunction with a draw pursuant to the credit line, has agreed to issue
warrants to purchase shares of the Company's common stock equal to the amount of
the draw divided by $2.50. As of March 1, 2001, the Company has drawn $500,000
against the credit line.

         OUTLOOK

         Based on presently known commitments and plans, the Company believes
that it will be able to fund its operations and required expenditures for the
remainder of 2001 through cash on hand, cash flow from operations, a $500,000
bridge loan from an affiliate of Josephthal, and cash from private placements of
debt or equity or from lease financing sources, including the Company's proposed
private placement of secured senior convertible notes through Josephthal. In the
event that such sources are insufficient or unavailable, the Company 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 the Company
will successfully obtain necessary liquidity sources necessary to fund the
Company's operations in the upcoming year.

         RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS

         SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines
for all items that are to be recognized under accounting standards as components
of comprehensive income to be reported in the financial statements. The
statement is effective for all periods beginning after December 15, 1997, and
reclassification financial statements for earlier periods will be required for
comparative purposes. To date, the Company has not engaged in transactions which
would result in any significant difference between its reported net loss and
comprehensive net loss as defined in the statement.

         In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides
authoritative guidance on when internal-use software costs should be capitalized
and when these costs should be expensed as incurred. Effective January 1, 1998,
the Company adopted SOP 98-1. Costs capitalized by the Company during the year
ended December 31, 1998, in accordance with these guidelines, were not
significant.

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which is required to be adopted in years beginning after June 15, 1999. SFAS 133
will require the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of hedged assets, liabilities, or firm commitments

                                      -24-
<PAGE>

through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The Company has not
yet determined what the effect of SFAS 133 will be on earnings and the financial
position of the Company, however it believes that it has not to date engaged in
significant transactions encompassed by the statement.

         Effective December 31, 1998, the Company adopted SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 superseded SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise. SFAS 131 establishes standards for the way that public
business enterprises report information concerning operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did not affect
results of operations or financial position. To date, the Company has operated
in one business segment only.

         Effective December 31, 1998, the Company adopted the provisions of SFAS
No. 132, Employers' Disclosures about Pensions and Other Post-retirement
Benefits ("SFAS 132"). SFAS 132 supersedes the disclosure requirements in SFAS
No. 87, Employers' Accounting for Pensions, and SFAS No. 106, Employers'
Accounting for Post-retirement Benefits Other Than Pensions. The overall
objective of SFAS 132 is to improve and standardize disclosures about pensions
and other post-retirement benefits and to make the required information more
understandable. The adoption of SFAS 132 did not affect results of the Company's
operations or financial position.

         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.

         ADDITIONAL FINANCING WILL BE REQUIRED. Based on presently known
commitments and plans, the Company believes that it will be able to fund its
operations and required expenditures for the remainder of 2001 through cash on
hand, cash flow from operations, a $500,000 bridge loan from an affiliate of
Josephthal, and cash from private placements of debt or equity or from lease
financing sources, including the Company's proposed private placement of secured
senior convertible notes through Josephthal. In the event that such sources are
insufficient or unavailable, the Company will need to seek cash from 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 the Company will successfully obtain necessary
liquidity sources necessary to fund the Company's operations in the upcoming
year.

         LIMITED OPERATING RESULTS; NO INDEPENDENT MARKET RESEARCH OF POTENTIAL
DEMAND FOR CURRENT OPERATIONS. Until January 2000, the Company was in the
development stage and had limited sales of its products. The Company's
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 its products,
marketing its products to the gaming industry, manufacturing its products and
commencing product sales. Although the Company anticipates significant sales

                                      -25-
<PAGE>

development and revenue growth during 2001, there is no guarantee that the
Company will generate sufficient revenue to sustain its operations. No
independent organization has conducted market research providing management with
independent assurance from which to estimate potential demand for the Company's
business operations.

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

         FOCUS ON NON-GAMING MARKETS. The Company has recently begun to explore
the shift of its focus to the non-gaming application of certain of its products
and technology. The refocus to non-gaming markets will have significant risks
for the Company, including, but not limited to, management's lack of experience
in non-gaming markets, the need to hire sales and technical persons with
expertise in non-gaming markets, additional research, development, distribution
and marketing expenses necessary to proceed into non-gaming application of the
Company's products and technology, significant competitive factors and forces
applicable to non-gaming markets and a variety of other factors. There is no
assurance that the Company will be able to successfully execute the strategy to
refocus a significant portion of its marketing and product technology strategies
to the non-gaming markets.

         REGULATION. 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,
the Company and other entities which 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. The Company may incur significant expenses in seeking to
obtain licenses for its gaming products and concepts, and no assurance can be
given that its products will be approved in any particular jurisdiction. The
failure to obtain such approval in any jurisdiction in which the Company may
seek to introduce its products or concepts could have a material adverse effect
on the Company's business.

         INFLUENCE BY CONTROLLING STOCKHOLDERS. The executive officers and
members of the Board beneficially own 8,957,010.5 shares of common stock, or
approximately 73.2% of the outstanding shares of common stock, assuming exercise
of options, warrants and convertible debentures. These stockholders have the
power to influence all matters requiring approval by the Company's 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 of
the Company.

         UNCERTAINTY OF MARKET FOR COMPANY'S PRODUCTS. The Company has only
recently completed development and begun distribution of the shuffler and the
SecureDrop(TM) System. Although the market appears to be receptive to the
Company's products, there is no guarantee that the market will remain receptive
and that the Company's future products will be received by the market in the
same manner.

         CUSTOMER PREFERENCE FOR ONE SHUFFLER VENDOR. There is no guarantee the
Company's development of the specialty shufflers will be successfully completed.
The failure to successfully complete the development and marketing of the
specialty shuffler could negatively impact the Company's ability to distribute
its remaining shuffler products. Since the Company's customers have demonstrated
a strong preference to conduct business with only one provider of automatic
shuffler products, the Company's inability to complete its shuffler product line
may adversely affect the Company.

                                      -26-
<PAGE>

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

         BENEFIT TO MANAGEMENT. The Company may, in the future, compensate the
Company's management with substantial salaries and other benefits. The payment
of future larger salaries, commissions and the costs of these benefits may be a
burden on the Company and may be a factor in limiting or preventing the Company
from achieving profitable operations in the future. However, the Company would
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 the Company's financial condition.

         NO DIVERSIFICATION. To date, the Company has intended to manufacture
and market certain gaming products and concepts. Therefore, the Company's
financial viability has depended almost exclusively on its ability to generate
revenues from its operations, and the Company has not had the benefit of
reducing its financial risks by relying on revenues derived from other
operations.

         ILLIQUID INVESTMENT; RISK OF LOSS. The capital stock of the Company is
at risk of complete loss if the Company's operations are unsuccessful. In
addition, there has been no trading market for the Company's common stock. There
can be no assurance that the Company's 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. There are material risks in connection with the Company's
common stock.

         COMPETITION. There is significant competition in the gaming industry.
The Company competes with established companies and other entities (many of
which possess substantially greater resources than the Company). Almost all of
the companies with which the Company competes 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 the Company now has, 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 the Company will continue to
compete successfully with other established gaming product manufacturers. The
Company 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.

         RISKS OF PROPRIETARY PRODUCTS AND GAMES. The Company places its
proprietary products, except SecureDrop(TM), 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. The Company intends 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. Introduction of new proprietary products involves
significant risks, including whether the Company will be able to place its
products with casinos and non-gaming industries, the economic terms on which
these industries will accept the products, and the popularity of the products.
The Company has filed trademark and patent applications to protect its
intellectual property rights in certain of its trademarks and innovations on
certain of its proprietary products, respectively. 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

                                      -27-
<PAGE>

applications will actually issue as patents or trademark registrations or that
any of these rights will not be infringed by others. Certain of the Company's
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 legal rights of the Company. The Company intends to promote
aggressively its trademarks to build goodwill and customer loyalty. There can be
no assurance, however, that the Company will be successful in these efforts,
that innovations will be subject to legal protection, or that the innovations
will give a competitive advantage to the Company. See Part I. "Item 1.
Description of Business - Intellectual Property."

         LACK OF DIVIDENDS. There can be no assurance that the operations of the
Company will become profitable. At the present time, the Company intends to use
any earnings which may be generated to finance the growth of the Company's
business.

         DEPENDENCE ON KEY INDIVIDUALS. The future success of the Company is
highly dependent upon the management skills of its key employees and the
Company's ability to attract and retain qualified key employees. The inability
to obtain and employ these individuals would have a serious effect upon the
business of the Company. The Company has entered into an employment agreement
with Steven J. Blad. There can be no assurance that the Company will be
successful in retaining its key employees or that it can attract or retain the
additional skilled personnel required.

         VULNERABILITY TO FLUCTUATIONS IN THE ECONOMY. The demand for the
Company's products is dependent on, among other things, certain economic and
business factors to which the economy is subject. These factors are beyond the
control of the Company. Such factors include, without limitation: (a) general
economic conditions, such as inflation, business cycle fluctuation, interest
rates, and the availability of financing; (b) the possibility of recession; (c)
increases in operating expenses, taxes, insurance or maintenance costs which
might not be offset by increased revenues from the Company's business; and (d)
international currency fluctuations.

         INFLUENCE BY JOSEPHTHAL. On December 14, 2000, the Company entered into
an agreement with Josephthal to act as its exclusive agent with respect to the
Company's proposed private placement of convertible debentures (the "Private
Placement"). As compensation, the Company has agreed to provide Josephthal with
a non-refundable retainer of $25,000, a 10% transaction fee for all proceeds
generated in the Private Placement from investors who are not directors or 5%
stockholders of the Company, a 5% transaction fee for all proceeds generated in
the Private Placement from investors who are directors or 5% stockholders of the
Company, warrants to purchase 133,500 shares of the Company's common stock
exercisable at $0.01 per underlying share and warrants to purchase up to an
additional 333,750 shares of the Company's common stock exercisable at $0.01 per
underlying share. In addition, the Company has agreed to grant to Josephthal a
break-up fee of $200,000 upon the closing of a control transaction, has provided
to Josephthal a one-year right of first refusal with respect to any subsequent
private placement of the Company's securities. The agreement with Josephthal has
a term of six months that is extended another twelve months upon the
consummation of the Private Placement prior to the expiration of the initial
six-month period. Additionally the Company has entered into a $500,000 secured
credit facility with an affiliate of Josephthal.

         The credit facility has a one-year term, bears an interest rate of 10%
per annum, is secured by the Company's accounts receivable, investment property,
instruments and chattel paper, equipment, inventory and all proceeds related to
the same, and is subject to mandatory prepayment upon the consummation of a
registered offering with minimum gross proceeds of $5,000,000, a change of
control of the Company or the consummation of a private placement with minimum
gross proceeds of $2,000,000. As part of the credit facility, the Company issued
a warrant to purchase 50,000 shares of the Company's common stock at an exercise
price of $2.50 and, in conjunction with a draw pursuant to the credit line, has
agreed to issue warrants to purchase shares of the Company's common stock equal
to the amount of the draw divided by $2.50. As of March 1, 2001, the Company has
drawn $500,000 against the credit line.

                                      -28-
<PAGE>

         As a result of the Company's agreements and obligations with
Josephthal, Josephthal may be able to influence the Company's future operations
and restrict the Company's access to capital markets. If the Company's ability
to raise additional capital is impaired, the Company may not be able to support
its operations in the future.

         "PENNY" STOCK REGULATION OF BROKER-DEALER SALES OF COMPANY SECURITIES.
The Company does not presently meet the requirements for a NASDAQ Small Cap
Market listing. The OTC Bulletin Board has no quantitative written standards and
is not connected with the NASD. Until the Company obtains a listing on the
NASDAQ Small Cap Market, if ever, the Company's securities may be covered by
Rule 15g-9 under the Exchange Act which imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and institutional accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse). For transactions covered by the rule, the broker-dealer must
furnish to all investors in penny stocks, a risk disclosure document required by
Rule 15g-9 of the Exchange Act, make a special suitability determination of the
purchaser and have received the purchaser's written agreement to the transaction
prior to the sale. In order to approve a person's account for transactions in
penny stock, the broker or dealer must (i) obtain information concerning the
person's financial situation, investment experience and investment objectives;
(ii) reasonably determine, based on the information required by paragraph (i)
that transactions in penny stock are suitable for the person and that the person
has sufficient knowledge and experience in financial matters that the person
reasonably may be expected to be capable of evaluating the rights of
transactions in penny stock; and (iii) deliver to the person a written statement
setting forth the basis on which the broker or dealer made the determination
required by paragraph (ii) in this section, stating in a highlighted format that
it is unlawful for the broker or dealer to effect a transaction in a designated
security subject to the provisions of paragraph (ii) of this section unless the
broker or dealer has received, prior to the transaction, a written agreement to
the transaction from the person, and stating in a highlighted format immediately
preceding the customer signature line that the broker or dealer is required to
provide the person with the written statement and the person should not sign and
return the written statement to the broker or dealer if it does not accurately
reflect the person's financial situation, investment experience and investment
objectives and obtain from the person a manually signed and dated copy of the
written statement. A penny stock means any equity security other than a security
(i) registered, or approved for registration upon notice of issuance on a
national securities exchange that makes transaction reports available pursuant
to 17 CFR 11Aa3-1; (ii) authorized or approved for authorization upon notice of
issuance, for quotation in the NASDAQ system; (iii) that has a price of five
dollars or more; or (iv) whose issuer has net tangible assets in excess of
$2,000,000 demonstrated by financial statements dated less than fifteen months
previously that the broker or dealer has reviewed and has a reasonable basis to
believe are true and complete in relation to the date of the transaction with
the person. Consequently, the rule may affect the ability of broker-dealers to
sell the Company's securities.

                                      -29-
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

         Independent Auditors' Report

         Balance Sheet at December 31, 2000

         Statements of Operations for the Years Ended December 31, 2000 and 1999
         Inception (April 29, 1994) to December 31, 2000.

         Statements of Changes in Stockholders' Equity for the Period from
         December 31, 1998 to December 31, 2000.

         Statements of Cash Flows for the Years Ended December 31, 2000 and
         1999.

         Notes to Consolidated Financial Statements

                                      -30-
<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,
2000, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of VendingData Corporation as of
December 31, 2000, 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 & Associates, P.C.
                                          Certified Public Accountants

Englewood, Colorado
February 2, 2001

                                      -31-
<PAGE>

                             VENDINGDATA CORPORATION
                                  BALANCE SHEET
                                DECEMBER 31, 2000


                                     ASSETS

Current assets:
   Cash                                                            $    432,070
   Accounts receivable, trade (net of $274,908 allowance)               885,338
   Accounts receivable - other                                           45,445
   Inventories                                                        1,539,005
   Prepaid expenses                                                      55,142
                                                                   -------------
     Total current assets                                             2,956,999

Property and equipment, at cost, net of
   accumulated depreciation of $1,312,591                             2,440,508

Intangible assets, at cost, net of
   accumulated amortization of $93,053                                  239,186
Deferred interest                                                       631,672
Deposits                                                                591,266
                                                                   -------------
                                                                   $  6,859,631
                                                                   =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Notes and line of credit                                        $    716,000
   Current portion of leases payable                                  1,715,227
   Accounts payable                                                     952,512
   Accrued expenses                                                     405,722
   Accrued interest                                                     310,152
   Customer deposits                                                    281,253
                                                                   -------------
     Total current liabilities                                        4,380,867

Leases payable - non-current                                          3,030,572
Convertible debt                                                      3,300,000
Stockholder loans                                                     1,711,194
Deferred charges                                                        198,769
                                                                   -------------
     Total Liabilities                                               12,621,402

Stockholders' equity:
   Common stock, $.001 par value,
     40,000,000 shares authorized,
     10,854,801 shares issued and outstanding                            10,855
   Additional paid-in capital                                        17,238,756
   Deficit                                                          (23,011,382)
                                                                   -------------
     Total stockholders' equity                                      (5,761,771)
                                                                   -------------
                                                                   $  6,859,631
                                                                   =============

                 See Accompanying Notes to Financial Statements

                                      -32-
<PAGE>

                             VENDINGDATA CORPORATION
                            STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 2000 AND 1999


                                                  December 31,      December 31,
                                                      2000              1999
                                                 -------------     -------------

SecureDrop(TM)sales                              $  2,594,430      $     30,360
Shuffler sales                                        667,670           104,775
Shuffler rentals                                    1,056,780           437,522
Game rentals                                           67,969           146,239
Other income                                           45,920            48,833
                                                 -------------     -------------
                                                    4,432,769           767,729

Cost of sales                                       4,995,639         2,973,459
                                                 -------------     -------------
Gross margin                                         (562,870)       (2,205,730)

General and administrative                          3,617,319         3,569,854
Research and development                            1,260,684         1,589,935
                                                 -------------     -------------
                                                    4,878,003         5,159,880
                                                 -------------     -------------

(Loss) from operations                             (5,440,873)       (7,365,520)

Interest expense                                      955,481           648,467
Interest expense - related parties                    258,343           119,383
                                                 -------------     -------------
                                                    1,213,824           767,850

(Loss) before income taxes                         (6,654,697)       (8,133,370)
Provision for income taxes                              1,864                --
                                                 -------------     -------------

Net (loss)                                       $ (6,656,561)     $ (8,133,370)
                                                 =============     =============


Basic and diluted (loss) per share               $      (0.62)     $      (0.98)
                                                 =============     =============

Weighted average shares outstanding                10,822,740         8,095,065
                                                 =============     =============

                 See Accompanying Notes to Financial Statements

                                      -33-
<PAGE>
<TABLE>

                                                       VENDINGDATA CORPORATION
                                            STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                     FOR THE PERIOD ENDED DECEMBER 31, 1998 TO DECEMBER 31, 2000

<CAPTION>
                                                                                                        Deficit
                                                                                                       Accumulated
                                                                        Additional        Unpaid        During
                                          Common          Stock         Paid -in          Stock         Develop-
             ACTIVITY                     Shares          Amount         Capital       Subscriptions    ment Stage        Total
                                      -------------   -------------   -------------   -------------   -------------   -------------
<S>                                      <C>          <C>             <C>             <C>             <C>             <C>
   Balance, December 31, 1998            6,767,106    $      6,767    $  6,681,428    $   (125,000)   $ (8,221,451)   $ (1,658,256)

Issuance of stock for cash in
  public offering at $2.50                 527,780             527       1,209,995                                       1,210,522
   (Less expenses of offering)

Rescission and cancellation of
   subscription                           (200,000)           (200)       (449,800)                                       (450,000)

Exercise of common stock warrants
   for cash:
   May 1999 at $2.60                        72,800              73         218,327                                         218,400

Issuance of stock for conversion of
   indebtedness:
   May 1999 at $2.60                       538,458             539       1,399,452                                       1,399,990

   Redemption of stock subscription
     for services                                                                           125,000                        125,000

Issuance of stock for cash in
   private sales:
   May 1999 at $2.60                     2,000,000           2,000       5,198,000                                       5,200,000
   September 1999 at $2.60               1,000,000           1,000       2,599,000                                       2,600,000
   December 1999 at $2.50                   40,000              40          99,960                                         100,000

Net (loss) for the year                         --              --              --              --      (8,133,370)     (8,133,370)
                                      -------------   -------------   -------------   -------------   -------------   -------------

   Balance, December 31, 1999           10,746,144          10,746      16,956,362              --     (16,354,821)        612,289

Issuance of stock for cash in
   private sale at $2.60                   108,657             109         282,394                                         282,502

Net (loss) for the year                                                                                 (6,656,561)     (6,656,561)

   Balance, December 31, 2000           10,854,801          10,855      17,238,756                     (23,011,382)     (5,761,771)
                                      =============   =============   =============   =============   =============   =============

                                           See Accompanying Notes to Financial Statements
</TABLE>

                                                                -34-
<PAGE>

                             VENDINGDATA CORPORATION
                            STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 2000 AND 1999


                                                     December 31,   December 31,
                                                         2000           1999
                                                    -------------  -------------

Net (loss)                                          $ (6,656,561)  $ (8,133,370)
Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
     Depreciation and amortization                       817,692        434,832
     Amortization of deferred interest                   314,117        158,328
  Changes in assets and liabilities:
     (Increase) decrease in accounts receivable         (587,915)      (328,711)
     (Increase) decrease in inventory                    103,190       (885,533)
     (Increase) decrease in prepaid expenses             235,779       (252,025)
     Increase (decrease) in accounts payable              99,450         42,711
     Increase (decrease) in accrued expenses             265,801        349,936
     Increase (decrease) in customer deposits            110,185        155,196
     Increase (decrease) in deferred charges             198,769
                                                    -------------  -------------
       Total adjustments                               1,557,069       (325,266)
                                                    -------------  -------------
  Net cash (used in)
     operating activities                             (5,099,492)    (8,458,637)
                                                    -------------  -------------

Cash flows from investing activities:
  Acquisition of plant and equipment                    (406,563)    (2,935,696)
  Increase in patents and trademarks                     (26,747)       (54,522)
  Increase in deposits                                   (83,443)      (365,002)
                                                    -------------  -------------
Net cash (used in) investing activities                 (516,754)    (3,355,221)
                                                    -------------  -------------

Cash flows from financing activities:
  Common stock sold for cash                             282,502     10,403,916
  Proceeds from leases                                 2,207,675      2,889,425
  Repayment of leases                                 (1,543,572)      (723,333)
  Proceeds of stockholder loans
  Repayment of stockholder loans                         (34,213)    (1,089,593)
  Proceeds from notes payable & line of credit         2,166,000
  Repayment of notes payable                                           (197,383)
  Proceeds from convertible debt                       1,800,000      1,500,000
                                                    -------------  -------------
Net cash provided by
  financing activities                                 4,878,392     12,783,032
                                                    -------------  -------------

Increase (decrease) in cash                             (737,854)       969,175
Cash and cash equivalents,
  beginning of period                                  1,169,924        200,749
                                                    -------------  -------------
Cash and cash equivalents,
  end of period                                     $    432,070   $  1,169,924
                                                    =============  =============

                 See Accompanying Notes to Financial Statements

                                      -35-
<PAGE>

                             VENDINGDATA CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999


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 an electronic card shuffling device, a
table game similar to the card game "blackjack", an electronically identified
coin collection bucket for use with coin operated gaming devices and playing
cards designed to assist the dealer in the game of "blackjack". The Company is
the successor of a partnership known as Sharps International, ("Sharps") which
was formed in April 1994, and whose principal business activity was the
development of an electronic card shuffler. Pursuant to a funding agreement
dated January 15, 1996, the partners of Sharps received shares of the Company's
common stock on a pro rata basis in exchange for their partnership interests.
The assets and liabilities of Sharps have been carried forward at their
historical basis. Additional shares were issued to partners of the Sines-Forte
general partnership ("Sines") in exchange for the assets of Sines. Such assets
consisted of certain intellectual property rights for products, which the
Company plans to exploit. The transaction was accounted for as a reorganization
of partnerships into corporate form. The foregoing financial statements present
the operations of the Company and the partnerships from their inception, since
the partnership interests of Sharps and Sines are vested in the same
individuals. Values assigned to the acquired intellectual property rights were
limited to professional fees paid for patents and trademarks. During 1998, Randy
Sines and Steven Forte, in separate transactions, sold to the Company and others
all of their respective shares of the Company's common stock, stock options and
license rights. As of January 15, 1999, neither Randy Sines nor Steven Forte
have no ongoing financial relationship with the Company. The Company was
previously reported on as a development stage enterprise.

         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, 2000:

                         Raw material       $1,170,654
                         Work in progress       23,451
                         Finished goods        344,900
                                            -----------
                                            $1,539,005

         The Company's inventory is pledged as collateral for a line of credit.
See note 3.

                                      -36-
<PAGE>

         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

         INTANGIBLE ASSETS

         The Company has applied for patents for certain of its products. Patent
and trademark costs aggregating $325,845 are amortized using the straight-line
method over a period of ten years beginning in 1997. Amortization for the years
ended December 31, 2000 and 1999 amounted to $31,506 and $21,620, respectively.

         Organization costs aggregating $6,395 are amortized using the
straight-line method over a period of five years and are stated net of
accumulated amortization of $6,395 at December 31, 2000, and amortization
expense in each of the two years then ended amounted to $1,279.

         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 2000 and 1999 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.

                                      -37-
<PAGE>

         REVENUE RECOGNITION

         The Company recognizes revenue from the sale of its products upon
installation to the customer. 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 plans to provide currently for estimated product returns
arising therefrom.

         STATEMENT OF CASH FLOW INFORMATION

         Cash and cash equivalents consist of cash and other highly liquid debt
instruments with a maturity of less than three months. Cash paid for interest
expense amounted to $608,088, and $365,790 for the years ended December 31, 2000
and 1999, respectively. No cash was paid for income taxes during any period
presented.

         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.

         ADVERTISING

         Advertising expenses are charged to expense upon first showing. Amounts
charged to expense were $70,886 and $398,050 for the years ended December 31,
2000 and 1999, 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 8 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

         SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines
for all items that are to be recognized under accounting standards as components
of comprehensive income to be reported in the financial statements. The
statement is effective for all periods beginning after December 15, 1997 and
reclassification of financial statements for earlier periods will be required
for comparative purposes. To date, the Company has not engaged in transactions
which would result in any significant difference between its reported net loss
and comprehensive net loss as defined in the statement.

         In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides
authoritative guidance on when internal-use software costs should be capitalized
and when these costs should be expensed as incurred.

                                      -38-
<PAGE>

         Effective January 1, 1998, the Company adopted SOP 98-1. Costs
capitalized by the Company during the year ended December 31, 1998, in
accordance with these guidelines were not significant.

         Effective December 31, 1998, the Company adopted SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 superseded SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise. SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did not affect
results of operations or financial position. To date, the Company has operated
in one business segment only.

         Effective December 31, 1998, the Company adopted the provisions of SFAS
No. 132, Employers' Disclosures about Pensions and Other Post-retirement
Benefits ("SFAS 132"). SFAS 132 supersedes the disclosure requirements in SFAS
No. 87, Employers' Accounting for Pensions, and SFAS No. 106, Employers'
Accounting for Post-retirement Benefits Other Than Pensions. The overall
objective of SFAS 132 is to improve and standardize disclosures about pensions
and other post-retirement benefits and to make the required information more
understandable. The adoption of SFAS 132 did not affect results of operations or
financial position. The Company is in its development stage and has not
initiated benefit plans to date, which would require disclosure under the
statement.

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which is required to be adopted in years beginning after June 15, 1999. SFAS 133
will require the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The Company has not
yet determined what the effect of SFAS 133 will be on earnings and the financial
position of the Company, however it believes that it has not to date engaged in
significant transactions encompassed by the statement.


NOTE 2. PROPERTY AND EQUIPMENT

         Property and equipment consist of the following at December 31, 2000:

            Furniture and fixtures                            181,757
            Manufacturing equipment                           732,023
            Equipment held for rent                         2,123,000
            Tooling                                           467,095
            Leasehold improvements                            249,224
                                                          ------------
                                                          $ 3,753,099
            Accumulated depreciation and
              amortization                                  1,312,591
                                                          ------------
                                                          $ 2,440,508
                                                          ============

         Depreciation expense charged to operations amounted to $779,794 and
$434,832 for the years ended December 31, 2000 and 1999, respectively.

                                      -39-
<PAGE>

         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 is collateralized by
the accounts receivable, inventory and most other non-collateralized assets.


NOTE 4. NOTES PAYABLE

          For the 12 months ending December 31, 2000, the Company received
proceeds of $1,700,000, from members of the Board of Directors, a current
stockholder and an individual. The terms of the notes range from 9% to 10.5%.
The notes also range from 16 month to 22 months in term.


NOTE 5. CONVERTIBLE DEBT AND WARRANTS

         The Company placed $1,900,000 in convertible debt in the first quarter
of 1999. The convertible debt accrues interest at 9.5% per annum and is
convertible into restricted shares of common stock after six months at $2.60 per
share. Each purchaser of a $50,000 unit of convertible debt also received
warrants for the purchase of 9,100 shares of common stock at $3.00 per share. In
May 1999, pursuant to notices distributed by the Company to holders of the
Company's 9.5% Convertible Notes Due 2004 (the "Convertible Notes"), the Company
offered to provide a one-time two week window that expired on May 31, 1999, for
the early conversion of the Convertible Notes into shares of common stock at the
stated conversion rate of $2.60 per share. Pursuant to their terms, the
Convertible Notes may be converted beginning on the later of six (6) months from
the date of issuance or September 1, 1999.

         Concurrently, and pursuant to notices distributed by the Company to
holders of the Company's Class E Warrants, the Company issued a voluntary call
of the Class E Warrants to expire on May 31, 1999, at the stated exercise price
of $3.00 per share. In exchange for the conversion of the Convertible Notes and
the exercise of the Class E Warrants, the Company offered to issue an additional
set of warrants equal to the number of and on similar terms and conditions as
the Class E Warrants exercised.

         At the expiration of the conversion window and call period, holders of
the Convertible Notes converted $400,000 of Convertible Notes into 153,843
shares of common stock and exercised 72,800 Class E Warrants into 72,800 shares
of common stock for an aggregate of 226,643 shares of common stock. In exchange
for the conversion and exercise, the Company issued 72,800 warrants to the
persons who converted their Convertible Notes and exercised their Class E
Warrants. As a result, $1,500,000 of the Convertible Notes and 273,000 of the
Class E Warrants issued to holders of the Convertible Notes remain outstanding.
Through the conversion of the Convertible Notes and the exercise of the Class E
Warrants, the Company converted $400,000 of indebtedness into common stock and
received proceeds of $218,400. The Company used such proceeds for general
working capital purposes.

         On May 25, 2000, the Company's Board of Directors authorized a private
placement of $2.2 million of convertible notes. The convertible notes accrue
interest at 9.5% per annum, mature two years from the date of issuance (where
the holder has the discretion to extend maturity date for up to three one-year
periods) and are convertible into shares of the Company's common stock one year
after issuance at a rate of $2.60 per share. The $2.2 million of convertible
notes are convertible into a maximum of 846,153 shares of the Company's common
stock. In addition, for each convertible note of $50,000, the Company issued a
warrant to purchase 12,500 shares of the Company's common stock with an exercise
price of $2.60.

                                      -40-
<PAGE>

         With the approval of the Board, certain members of the Board and a
controlling stockholder, the Huson Trust, participated in the Company's private
placement of convertible notes. The following table summarizes the purchases of
convertible notes by the relevant members of the Board and certain stockholders.

<TABLE>
<CAPTION>
         NAME                 AMOUNT        WARRANTS          MATURITY             CONVERTIBILITY
-----------------------    ------------    ----------    --------------------    --------------------
<S>                         <C>              <C>          <C>                      <C>
The James E. Crabbe         $1,000,000       250,000         May 30, 2002             May 30, 2001
  Revocable Trust
VIP's Industries, Inc.        $200,000        50,000         May 31, 2002             May 31, 2001
Eric Huson                    $100,000        25,000         June 1, 2002             June 1, 2001
The Huson Trust               $150,000        37,500         June 9, 2002             June 9, 2001
Richard S. Jaslow             $100,000        25,000         July 20, 2002           July 20, 2001
Richard S. Jaslow             $100,000        25,000        August 18, 2002         August 18, 2001
Ronald O. Keil                $100,000        25,000      September 28, 2002       September 28, 2001
Richard S. Jaslow              $50,000        12,500       November 10, 2002       November 10, 2001
-----------------------    ------------    ----------
            TOTAL           $1,800,000       450,000
</TABLE>

         The $200,000 in convertible notes purchased by and the warrants to
purchase 50,000 shares of the Company's common stock issued to VIP's Industries,
Inc., an entity controlled by the Chairman of the Board, were in exchange for
the cancellation of a prior convertible note dated March 22, 2000 in the
original principal amount of $200,000.

         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 and Rule 506 of Regulation D.


NOTE 6. LEASES PAYABLE

         During 2000 and 1999 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 most of its furniture and equipment,
tooling and some equipment.

                                      -41-
<PAGE>

         Scheduled maturities of the obligations as of December 31, 2000 are as
follows:

                      Year                       Amount
                      ----                       ------

          2001                               $ 2,153,339
          2002                                 1,870,901
          2003                                   599,058
          2004                                    16,116
                                             ------------
          Minimum future lease payments        4,639,415
          Less interest component               (456,502)
                                             ------------
          Present value of future net
            minimum lease payments             4,182,913
                                             ------------
          Less current portion                (2,043,713)
          Due after one year                 $ 2,139,200


         Property recorded under capital leases includes the following as of
December 31, 2000:

          Capitalized leased equipment and
          Shuffler machines, at cost               $ 1,276,434
          Furniture and equipment                      312,338
          Tooling                                      271,500
                                                   ------------
                                                     1,860,272
          Less accumulated depreciation               (700,671)
                                                   ------------
          Total assets subject to capital leases   $ 1,159,601

         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, $611,119 as of
December 31, 2000, has been included in other assets and represents additional
interest on the leases which will be amortized to interest expense during the
remaining lease terms.


NOTE 7. STOCKHOLDER LOANS

         During the years ended December 31, 2000, 1999, 1998 and 1997,
stockholders who were also directors of the Company made advances to the Company
for working capital purposes. The balance payable by the Company was $295,407 at
December 31, 1999, including accrued interest of $2,338. One of the Company's
principal stockholders had outstanding advances to the Company aggregating
$1,235,000 at December 31, 1998. In May 1999, $999,999 of this aggregate amount
plus accrued interest was converted to common stock at a rate of $2.60. The
remaining balance at December 31, 2000 of $261,194 is to be repaid on April
15,2002 with an interest rate of 9.5%. The advances during 2000 amounted to
$1,450,000 in the form of long term notes with interest rates of 9% or 9.5%.


NOTE 8. STOCKHOLDERS' EQUITY

         During the first quarter of 1999, the Company issued 527,780 shares of
its common stock for cash aggregating $1,211,772 ($2.50 per share) after direct
offering expenses of $107,678 in connection with a public sale of common stock.
On April 30, 1999, through an agreement dated March 24, 1999, the Company
rescinded the sale of 200,000 shares issued in a public sale and returned
$450,000 to the stockholder.

                                      -42-
<PAGE>

         CONVERSION OF CONVERTIBLE NOTES; VOLUNTARY CALL OF CLASS E WARRANTS. In
May 1999, pursuant to notices distributed by the Company to holders of the
Company's 9.5% Convertible Notes Due 2004 (the "Convertible Notes"), the Company
offered to provide a one-time two week window that expired on May 31, 1999, for
the early conversion of the Convertible Notes into shares of common stock at the
stated conversion rate of $2.60 per share. Pursuant to their terms, the
Convertible Notes may be converted beginning on the later of six (6) months from
the date of issuance or September 1, 1999. Concurrently, and pursuant to notices
distributed by the Company to holders of the Company's Class E Warrants, the
Company issued a voluntary call of the Class E Warrants to expire on May 31,
1999 at the stated exercise price of $3.00 per share. In exchange for the
conversion of the Convertible Notes and the exercise of the Class E Warrants,
the Company offered to issue an additional set of warrants equal to the number
of and on similar terms and conditions as the Class E Warrants exercised.

         At the expiration of the conversion window and call period, holders of
the Convertible Notes converted $400,000 of Convertible Notes into 153,843
shares of common stock and exercised 72,800 Class E Warrants into 72,800 shares
of common stock for an aggregate of 226,643 shares of common stock. In exchange
for the conversion and exercise, the Company issued 72,800 warrants to the
persons who converted their Convertible Notes and exercised their Class E
Warrants. As a result, $1,500,000 of the Convertible Notes and 273,000 of the
Class E Warrants issued to holders of the Convertible Notes remain outstanding.
Through the conversion of the Convertible Notes and the exercise of the Class E
Warrants, the Company converted $400,000 of indebtedness into common stock and
received proceeds of $218,400. The Company intends to use such proceeds for
general working capital purposes.

         CONVERSION OF OUTSTANDING INDEBTEDNESS. In May 1999, the Company and
the Richard S. Huson Revocable Trust U/T/A dated 09/04/98 (the "Trust"), of
which Richard S. Huson, a former director and principal stockholder of the
Company, was a co-trustee, entered into a subscription agreement whereby the
Trust agreed to convert a certain portion of indebtedness owed by the Company to
the Trust in exchange for shares of common stock at a conversion rate of $2.60
per share. Pursuant to the terms of the subscription agreement, the Trust
converted $999,999 of outstanding indebtedness into 384,615 shares of common
stock and received a replacement promissory note for the balance of the
indebtedness outstanding.

         PRIVATE PLACEMENTS. In May 1999, the Company entered into a
subscription agreement with a stockholder of the Company whereby the stockholder
agreed to purchase 2,000,000 shares of the Company's common stock for $2.60 per
share for an aggregate subscription amount of $5,200,000. Pursuant to the terms
of the subscription agreement, the stockholder delivered $1,300,000 upon
execution of the subscription agreement and agreed to pay the balance of
$3,900,000 in no more than three equal installments of not less than $1,300,000,
by July 10, 1999. The Company received the payment of the balance of $3,900,000
prior to July 10, 1999.

         On September 22, 1999, the Company entered into subscription agreements
with certain current stockholders of the Company whereby the stockholders agreed
to purchase 1,000,000 shares of the Company's common stock for $2.60 per share
for an aggregate subscription amount of $2,600,000 of the 1,000,000 shares
purchased, three directors of the company purchased an aggregate of 140,000
shares, and Mr. Crabbe's Trust purchased 860,000 shares.

         On December 29, 1999, a member of the Board of Directors exercised
40,000 options to purchase common stock from the Company for $2.50 per share for
an aggregate amount of $100,000.

         On April 14, 2000 the Company entered into subscription agreements with
four individuals whereby these individuals agreed to purchase in the aggregate
108,655 shares of Common Stock for $2.60 per share for an aggregate subscription
amount of $282,503. The Company received the funds on April 18, 2000, and used
the proceeds from this private placement for general working capital purposes.
The exemptions from registration relied upon by the Company for this private
placement were Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D.

                                      -43-
<PAGE>

         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 320,000 options to
purchase common stock at $1.00 per share, 825,000 options to purchase common
stock at $1.50 per share, 430,500 options to purchase common stock at $2.50 per
share, and 114,100 options to purchase common stock at $2.60 and 2,000 options
to purchase common stock at $3.00 per share outstanding at January 31, 2001.

         The following is a summary of transactions involving stock options:

                                                    Range of         Average
                                    Shares       Exercise Prices      Price
                              -------------------------------------------------
Balance           12/31/95               -

Granted                            320,000            $1.00           $1.00
Balance           12/31/96         320,000            $1.00           $1.00

Granted                            200,000            $1.50           $1.50
Balance           12/31/97         520,000        $1.00 - $1.50       $1.19

Granted                            330,000        $1.50 - $2.50       $1.59
Balance           12/31/98         850,000        $1.00 - $2.50       $1.35

Granted                            467,333        $2.50 - $2.60       $2.52
Canceled                           103,833            $2.50           $2.50
Exercised                           40,000            $2.50           $2.50
Balance           12/31/99       1,173,500        $1.00 - $2.60       $1.67

Granted                            169,500         $2.50-$3.00        $2.75
Canceled                            76,400            $2.60           $2.60
Balance           12/31/00       1,266,600        $1.00 -$3.00        $2.00

         The weighted average fair value at the date of grant for options
granted during 1999 and 1998 as described above was $0.71 per option in 2000 and
$0.50 per option in 1999 (after recording the additional compensation attributed
to options issued at $1.50 as described above). The fair value of the options at
the date of grant was estimated using the Black-Scholes model with assumptions
as follows:

                                                    2000                1999
                                           --------------------   --------------
               Market value                $2.50, 2.60 and 3.00   $2.50 and 2.60
               Expected life in years                3                   3
               Interest rate                        7%                  7%
               Volatility                           10%                 10%
               Dividend yield                      0.00%               0.00%

         Stock based compensation costs would have increased pretax losses by
$119,616 ($0.01 per share) and $161,703 ($0.02 per share) in 2000 and 1999,
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 450,000 warrants
to purchase common stock at $2.60 per share.

                                      -44-
<PAGE>

NOTE 9. 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 which 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 $5,304,715 for the asset
related to the portion of the loss carryforward which more likely than not will
not be utilized in future years. To date, the Company has operated as a start-up
operation, and no tax liabilities exist to utilize the NOL carryover.

         At December 31, 2000, the Company had net operating loss carryforwards
aggregating approximately $22,258,665, which expire as follows:

              2010:      $   172,303
              2011:      $ 1,721,318
              2012:      $ 2,534,394
              2013:      $ 3,040,719
              2014:      $ 8,133,370
              2015:      $ 6,656,561

         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.


NOTE 10. RELATED PARTY TRANSACTIONS

         In August 1999, the Company issued a new agreement with Steve Blad,
CEO, effective January 1, 2000 to December 31, 2002. The agreement provides
monthly compensation of $23,500 through December 31, 2000, upon which time the
compensation is to be renegotiated. The agreement provides that 100,000 options
(exercisable at a price of $2.50 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 ($2.60 per share) over the exercise price of $2.50 per share
during January 2000. The agreement also provide for the granting of 100,000
options ($2.50 per share) for each year (2000, 2001, 2002) based upon the
Company meeting its goals provided by the Board of Directors.

         At December 31, 1999 and 2000 the Company had a note payable to a
stockholder in the amount of $295,407 and $261,194, respectively. Also, in 1999,
the Company entered into equity transactions with current stockholders, see Note
6.

         Advances to the Company from shareholders and Board Members during 2000
amounted to $1,450,000 in the form of long term notes with interest rates of 9%
or 9.5%.

                                      -45-
<PAGE>

         CONVERSION OF OUTSTANDING INDEBTEDNESS. In May 1999, the Company and
the Richard S. Huson Revocable Trust U/T/A dated 09/04/98 (the "Trust"), of
which Richard S. Huson, a former director and principal stockholder of the
Company, was a co-trustee, entered into a subscription agreement whereby the
Trust agreed to convert a certain portion of indebtedness owed by the Company to
the Trust in exchange for shares of common stock at a conversion rate of $2.60
per share. Pursuant to the terms of the subscription agreement, the Trust
converted $999,999 of outstanding indebtedness into 384,615 shares of common
stock and received a replacement promissory note for the balance of the
indebtedness outstanding.

         PRIVATE PLACEMENTS. In May 1999, the Company entered into a
subscription agreement with a stockholder of the Company whereby the stockholder
agreed to purchase 2,000,000 shares of the Company's common stock for $2.60 per
share for an aggregate subscription amount of $5,200,000. Pursuant to the terms
of the subscription agreement, the stockholder delivered $1,300,000 upon
execution of the subscription agreement and agreed to pay the balance of
$3,900,000 in no more than three equal installments of not less than $1,300,000,
by July 10, 1999. The Company received the payment of the balance of $3,900,000
prior to July 10, 1999.

         On September 22, 1999, the Company entered into subscription agreements
with certain current stockholders of the Company whereby the stockholders agreed
to purchase 1,000,000 shares of the Company's common stock for $2.60 per share
for an aggregate subscription amount of $2,600,000 of the 1,000,000 shares
purchased, three directors of the Company purchased an aggregate of 140,000
shares, and Mr. Crabbe's Trust purchased 860,000 shares.

         On December 29, 1999, a member of the Board of Directors exercised
40,000 options to purchase common stock from the Company for $2.50 per share for
an aggregate amount of $100,000.

         CONVERTIBLE DEBT. In 2000, the Company received proceeds of $1,600,000
from and issued warrants to purchase 400,000 shares of Common Stock to certain
directors and controlling stockholders of the Company as part of a private
placement of convertible notes. In addition, the Company cancelled a 10%
convertible note dated March 22, 2000 in the original principal amount of
$200,000 held by VIP's Industries, Inc., an entity controlled by the Chairman of
the Board of the Company, in exchange for the issuance of a 9.5% convertible
note dated May 31, 2000 and warrants to purchase 50,000 shares of Common Stock.
For additional information with respect to the issuance of convertible notes and
warrants to the certain directors and controlling stockholders of the Company,
see Note 5.


NOTE 11. 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 provides
for payments to the licensor for use of certain intellectual property associated
with the project as follows:

        1999 Minimum royalties               $64,000
        2000 Minimum royalties               $75,000
        Thereafter                          $150,000

         The Company has 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.

                                      -46-
<PAGE>

         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,
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 is $1,200, $1,245, $1,200 and $1,200
respectively. Rent expense was $559,376 and $188,156 for the years ended
December 31, 2000 and 1999, respectively.

         The Company also leases certain office equipment under non-cancelable
operating leases having monthly rentals of $6,474.

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

         2001                    $627,098
         2002                    $573,262
         2003                    $551,870
         2004                    $515,616
         2005                    $515,616
         Thereafter            $1,074,200

         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.

                                      -47-
<PAGE>

NOTE 12. SUPPLEMENTAL STATEMENT OF OPERATIONS INFORMATION

         During the years ended December 31, 2000 and 1999, the Company incurred
$3,617,319 and $3,569,854 of general and administrative expenses respectively,
the components of which are as follows:

                                                      2000              1999

      Salaries and related costs                   1,377,808        $1,407,184
      Consulting services                             25,421            15,870
      Advertising / Marketing                         87,354           398,051
      Travel / Entertainment                         370,770           408,326
      Gaming Industry shows                          420,698           342,207
      Rent                                           354,020            80,210
      Legal Expense                                  147,029           304,813
      Depreciation & amortization                    252,553           434,832
      Amortization-Deferred Interest                       -           158,328
      Printing                                          5334                 -
      Bad Debt                                       321,059                 -
      Insurance                                       45,442                 -
      Sales Tax                                       97,767                 -
      Other Expenses                                 112,064            20,033
                                                 ============      ============
                                                   3,617,319        $3,569,854


NOTE 13. SUBSEQUENT EVENTS

         The Company has obtained and drawn the full amount of a $500,000 line
of credit in connection with agreement with its investment-banking firm, which
is engaged in the private placement of securities for the Company. The Company
has issued a total of 250,000 warrants to purchase commons stock at $2.50 in
relation to the line of credit. During March the Company also received $150,000
($300,000 total) from two affiliates of Josephthal in the form of short term
notes.

         273,000 warrants to purchase commons stock, which were held by
Convertible Notes due 2004, expired on February 1, 2001.

         Effective March 19, 2001, Michael C. McDonald is no longer employed as
the Chief Financial Officer of the Company. Mr. McDonald will remain in the
Company's employ through March 30, 2001. His departure is on terms mutually
acceptable to Mr. McDonald and the Company.

         In March 2001, the Company purchased assets formerly belonging to
Spinteknology, Inc., Spintek Gaming Technologies, Inc. and Spintek Gaming, Inc.
(collectively, "Spintek") related to the AccuHopper(TM)technology. This
technology is currently in the development phase, and later this year the
Company plans to release the SecureHopper(TM)product. SecureHopper(TM)will be a
device that will allow gaming organizations to monitor the number of coins in
the machine's hopper (coin dispenser). The SecureHopper(TM)will become a module
of the SecureDrop(TM) Systems.

                                      -48-
<PAGE>

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

         None.


                                    PART III

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

         BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

         The following table sets forth information regarding the Company's
current executive officers and directors.

         NAME           AGE                        POSITION
---------------------   ---      ---------------------------------------------

Steven J. Blad          49       Chief Executive Officer, President & Director
James E. Crabbe         55       Vice-Chairman of the Board
Eric S. Huson           30       Director
Richard S. Jaslow       54       Director
Ronald O. Keil          67       Director
Bob L. Smith            62       Chairman of the Board

         STEVEN J. BLAD joined the Company in October 1996 and served as Vice
President of Sales and Marketing until April 30, 1997, when he was named
President of the Company. Mr. Blad served in that position until May 27, 1998,
when he became Chief Executive Officer, President and Director of the Company.
Previously, Mr. Blad was President and Chief Executive Officer of Flagship Games
International from 1987 to July 1991. From July 1991 to September 1994, Mr. Blad
was a consultant for Marketing and Gaming in Atlanta, Georgia. From October 1994
to September 1996, Mr. Blad was a consultant for Spintek Gaming Technologies.
Mr. Blad received a bachelor's degree in 1973 from Carson Newman. He obtained a
Masters of Education degree in 1975 from Southern Baptist Graduate School. From
1975 to 1976, Mr. Blad attended additional graduate studies at the University of
Alabama.

         JAMES E. CRABBE became a member and Vice-Chairman of the Board on May
25, 2000. Since 1980, and until November, 2000, Mr. Crabbe has been the
President of the Crabbe Huson Group, Inc., an investment management company in
Portland, Oregon. Mr. Crabbe was granted a Series 63 Securities Dealer License
in 1989 and earned a bachelor's degree from the University of Oregon in 1967.

         ERIC S. HUSON became a member of the Board on May 25, 2000. Mr. Huson
was an Equities Researcher with Despain & Coby LLC. Prior to working at Despain
& Coby, LLC, Mr. Huson was Operations Manager at Rendova Boats LLC, Port
Orchard, Washington. Mr. Huson has a bachelor's degree in History from Linfield
College.

         RICHARD S. JASLOW has been a member of the Board since April 1999.
Since 1978, Dr. Jaslow has been in private practice as an orthopedic surgeon.
Dr. Jaslow received his bachelor's degree and his M.D. from Tufts University in
1968 and 1972, respectively. In 1978, Dr. Jaslow completed his orthopedic
residency at White Memorial Medical Center in 1978.

         RONALD O. KEIL has been a member of the Board since April 1999. Since
July 1999, Mr. Keil has owned and operated two supermarkets in San Diego,
California. Mr. Keil was also Managing Partner of RJL Properties, Inc., which
owned and operated four hotels and a mini-storage facility. In addition, Mr.

                                      -49-
<PAGE>

Keil owned a 142 room Holiday Inn in Idaho Falls and owned and operated Keil's
Food Stores, a regional chain of supermarkets in Washington and Oregon. Mr. Keil
is a founder and director of the Bank of Clark County, Oregon. He earned a
bachelor's degree in Business Administration from Lewis and Clark College and
has completed graduate work towards an MBA from the University of Oregon.

         BOB L. SMITH joined the Board in May 1998 and has served as Chairman of
the Board since April 29, 1999. Mr. Smith also serves as Chairman of the Board
and Chief Executive Officer of VIP's Industries, Inc., a company co-founded by
Mr. Smith in 1968 that oversees restaurant, hotel and real estate development in
five Western states. In 1966, he founded the Bob L. Smith Real Estate Company,
and was also Real Estate Analyst and Marketing supervisor with the American Oil
Company. Mr. Smith serves on the Board of Directors of Centennial Bank and
Regency of Oregon (formerly Blue Cross and Blue Shield of Oregon), and
previously served on the Board of Directors of the Crabbe-Huson Funds, Inc., an
investment management company, and Flying J. Inc., an integrated oil company.
Mr. Smith received a bachelor's degree in Business Administration from the
University of Oregon in 1962.

         The Board of Directors intends to nominate Daniel Purjes, Chief
Executive Officer and Chairman of Josephthal & Co., Inc. to the Board's slate of
directors that will be voted upon by the Company's stockholders at the 2001
Annual Meeting of Stockholders. Upon the election of Mr. Purjes, the Board
intends to appoint Mr. Purjes to serve as the Company's Chairman of the Board of
Directors.

         Mr. Purjes is Chairman and Chief Executive Officer of Josephthal Group,
Inc., the parent company of Josephthal & Co. Inc., an investment banking and
brokerage firm and a member of the New York Stock Exchange and other principal
exchanges. Previously, Mr. Purjes was the President and Chief Executive Officer
of Josephthal & Co. Mr. Purjes began his tenure at Josephthal in 1985 as its
Director of Investment Banking. Prior to joining Josephthal, Mr. Purjes was with
a number of securities firms including Bear Stearns & Co. and L.F. Rothschild
Unterberg Towbin. Mr. Purjes began his Wall Street career at Morgan Stanley in
1978. Mr. Purjes is also the Chairman and Chief Executive Officer of FAS
Holdings, Inc., the parent company of First Allied Securities, Inc., an NASD
member brokerage firm with approximately 200 offices throughout the country. He
is also Chairman of Nur Macroprinters Ltd., a leading manufacturer of
wide-format digital printers and consumables that is publicly traded (NASDAQ
NMS: NURM). Mr. Purjes also serves on the Board of Directors of several
privately held corporations and non-profit organizations. Mr. Purjes has
bachelor's and master's degrees in Computer Sciences from the City College of
N.Y., School of Engineering.

         The following section sets forth information regarding the key
employees of the Company.

          NAME              AGE                      POSITION
-------------------------   ---      -----------------------------------------
Stacie L. Brown             30       Corporate Counsel
Robert G. Pietrosanto       38       President of Casinovations, Inc.
D. Dean Barnett             42       Vice President Sales
Kenneth R. Dickinson        44       Vice President SecureDrop(TM)Systems
William B. Roquemore        46       Vice President Manufacturing and Service
Joseph D. Corradino         51       Director of Shuffler Sales
Bruce W. Raabe              51       Director of SecureDrop(TM)Sales

*THE COMPANY IS CURRENTLY SEARCHING FOR A CHIEF FINANCIAL OFFICER. IN THE
INTERIM, THE COMPANY'S CONTROLLER, DONALD CUNNINGHAM, IS HANDLING THE
RESPONSIBILITY FOR THE COMPANY'S FINANCIAL AFFAIRS UNDER THE DIRECTION OF THE
CEO.

                                      -50-
<PAGE>

         STACIE L. BROWN joined the Company in July 1999, as Corporate Counsel.
Previously, she was in private practice with Dickerson, Dickerson, Consul &
Pocker in Las Vegas, Nevada, from 1995 to 1999, where she assisted in the
representation of the Las Vegas Convention and Visitors Authority. Ms. Brown has
been admitted to the State Bar of Nevada and the District of Columbia Bar and is
admitted to practice before the U.S. District Court, District of Nevada, the
U.S. Courts of Appeal for the Ninth and District of Columbia Circuits and the
United States Supreme Court. Ms. Brown earned her Juris Doctor from the
University of Michigan Law School in 1995 and received a bachelor's degree from
Ball State University in 1992 majoring in French, Political Science and
Telecommunications.

         ROBERT G. PIETROSANTO has been the President of Casinovations, Inc.
since September 6, 2000, and joined the Company in January 1999 as Director of
North American Sales. Prior to joining the Company, Mr. Pietrosanto was the
top-performing sales executive for Shuffle Master from 1992 to 1999. Before
joining Shuffle Master, Mr. Pietrosanto began his career in the gaming business
as a card dealer in 1984 and went on to work in several casinos, including
Binion's Horseshoe, the Continental, the Sands and the Showboat, holding various
key management positions. Mr. Pietrosanto studied business administration at
Alfred University in Alfred, New York from 1980 to 1983.

         D. DEAN BARNETT has been Vice President Sales since August 1998 and has
over seven years of sales experience in the gaming industry. Mr. Barnett
formerly held the position of National Sales Manager for Shuffle Master from
1992 to 1997. Prior to his employment with Shuffle Master, he worked for Bally's
Las Vegas, from 1984 to 1992, as part of a special management team focused on
fraudulent player practices, such as card counting and shuffle tracking. Mr.
Barnett studied business management at the University of Nevada, Las Vegas from
1978 to 1980 and spent two years (1983 and 1984) in the National Football League
with the Denver Broncos as a tight end before injuries forced an early
retirement.

         KENNETH R. DICKINSON has been Vice President SecureDrop(TM) Systems
since 1998. Before joining the Company, he was Engineering Manager at Bally
Gaming from 1989 to 1998, where he was responsible for the design and
development of Bally's first Touchscreen Lottery game and the GameMaker, the
first of its kind with a multi-game touch screen gaming device. Before entering
the gaming industry, Mr. Dickinson was in the video communications field from
1986 to 1989 as Director of Engineering for Datapoint Corporation in San
Antonio, Texas and was also an Engineering Manager for Interand Corporation in
Chicago, Illinois from 1981 to 1986. Mr. Dickinson assisted in developing the
"Telestrator," which gained fame as the CBS chalkboard seen every Sunday
afternoon on NFL football. Mr. Dickinson attended Michigan Technical University
and graduated in 1977.

         WILLIAM B. ROQUEMORE joined the Company in January 1999, and serves as
Vice President Manufacturing and Service. Before joining the Company, Mr.
Roquemore worked for Softbank as Site Manager from 1997 to 1999, and served 20
years in the production and service areas of computer electronics manufacturing.
Mr. Roquemore earned a degree in Applied Electronics from the United Electronics
Institute in Dallas, Texas in 1978 and also studied manufacturing and quality
control at Richland College in Dallas, Texas in 1980.

         JOSEPH D. CORRADINO joined the Company in November 2000 as Director of
Shuffler Sales. Mr. Corradino has over 26 years of casino experience and has
held positions in international and domestic casino management. Prior to joining
the Company, Mr. Corradino served as Vice President of Casino Operations for the
Santa Fe Hotel and Casino from 1993 to 2000. Before his employment with the
Santa Fe Hotel and Casino, he held numerous positions in the gaming industry,
including Casino Manager at the Hacienda Hotel from 1989 to 1993, Shift Manager
at the Sahara Hotel Casino from 1985 to 1989, and Casino and Assistant Casino
Manager at the Flamingo Beach Casino in the Netherland Antilles from 1983 to
1984. Mr. Corradino earned a bachelor's degree in Transportation, Tourism and
Travel from Niagara University in 1971.

                                      -51-
<PAGE>

         BRUCE W. RAABE joined the Company in February of 2001 as Director of
SecureDrop(TM) Sales. From 1996 to 2000, Mr. Raabe served as International Sales
Manager for Bally Systems, a division of the Alliance Gaming Corporation, where
he worked with the international sales and implementation of the Bally SDS Slot
Accounting System. Additionally, Mr. Raabe was the original Product Manager for
Alliance Gaming's Progressive Jackpot Systems. From 1993 to 1996, Mr. Raabe was
the Director of Sales and Marketing for GRIPS Systems, Inc., where he marketed
and sold products both in the US and internationally. Before venturing into the
gaming industry, Mr. Raabe held several positions in the computer industry. Mr.
Raabe completed four years at the University of Nevada, Reno, where he studied
social psychology, marketing and business administration.

         COMPOSITION OF THE BOARD

         The Board presently consists of six persons. Directors are to serve
until their successors are elected and have qualified. The Company's Bylaws
provide for a Board consisting of one to ten persons.

         Effective February 1, 2001, the Company reconfigured the Board through
an amendment to its Bylaws. The amendment removed the classification of the
Company's Board of Directors. As a result of the Company's reconfiguration of
the Board, the terms of Richard S. Jaslow and Ronald O. Keil will expire upon
the election of their respective successors, who shall be nominated to the Board
of Directors. Eric S. Huson shall resign from the Board, reducing the number of
the Company's directors from six to five. However, since Bob L. Smith and James
E. Crabbe have each been elected to terms of three years, expiring in 2002 and
2003, respectively, the classification of the Board shall be eliminated in its
entirety in 2003.

         COMMITTEES OF THE BOARD

         The Board has two standing committees, the Executive Committee, which
performs the functions of a compensation committee, and the Audit Committee.

         The Executive Committee is comprised of Messrs. Blad, Crabbe and Smith.
This committee has the responsibility of reviewing the Company's financial
records to determine overall compensation and benefits for executive officers
and establishing and administering the policies which govern employee salaries
and benefit plans. The Audit Committee is comprised of Messrs. Jaslow, Keil and
Huson. This committee has the responsibility of recommending the firm that will
serve as the Company's independent public accountants, reviewing the scope and
results of the audit and services provided by the independent public accountants
and meeting with the Company's financial staff to review accounting procedures
and policies.

         DIRECTOR COMPENSATION

         Non-employee directors of the Company receive an attendance fee of $500
per meeting attended. In addition, non-employee directors receive stock options
to purchase 1,000 shares of common stock at the annual meeting at which they
were elected to serve as director and additional stock options to purchase 1,000
shares of common stock on January 1 of each successive year of service on the
Board. Directors who are employees of the Company or its subsidiaries do not
receive compensation for their services as directors.

         MEETINGS OF THE BOARD

         The Board generally meets quarterly, and in the year ended December 31,
2000, the Board held three meetings. All directors attended at least 75% of the
meetings held.

                                      -52-
<PAGE>

         STOCK OPTION PLANS

         1999 STOCK OPTION PLAN

         The Company's 1999 Stock Option Plan (the "1999 Plan") was adopted by
the board on January 5, 1999, and approved by the stockholders on March 29,
1999. The 1999 Plan provides the Company with the vehicle to grant to employees,
officers and consultants stock options and bonuses in the form of stock and
options. Under the 1999 Plan, the Company can grant awards for the purchase of
up to 500,000 shares of the Company's common stock in the aggregate, including
"incentive stock options" within the meaning of Section 422 of the United States
Internal Revenue Code of 1986 and non-qualified stock options. To date, the
Company has issued options to purchase 399,500 shares of common stock under the
1999 Plan, 141,900 of which have reverted back to the 1999 Plan, and 257,600 of
which are outstanding. The Company's executive committee has authority to
determine the persons to whom awards will be granted, the nature of the awards,
the number of shares to be covered by each grant, the terms of the grant and
with respect to options, whether the options granted are intended to be
incentive stock options, the duration and rate of exercise of each option, the
option price per share, the manner of exercise and the time, manner and form of
payment upon exercise of an option.

         DIRECTORS' STOCK OPTION PLAN

         The Company's Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the board on December 13, 1999, and approved by the stockholders on
July 14, 2000. The Directors' Plan provides the Company with the vehicle to
grant to directors stock options and bonuses in the form of stock and options.
Under the Directors' Plan, the Company can grant awards for the purchase of up
to 100,000 shares of the Company's common stock in the aggregate, including
"incentive stock options" within the meaning of Section 422 of the United States
Internal Revenue Code of 1986 and non-qualified stock options. To date, the
Company has issued options to purchase 24,000 shares of common stock under the
Directors' Plan, of which 22,000 remain outstanding and 2,000 have been
cancelled. The Directors' Plan committee, comprised of Messrs. Crabbe and Smith,
has authority to determine the number of shares to be covered by each grant, the
terms of the grant and with respect to options, whether the options granted are
intended to be incentive stock options, the duration and rate of exercise of
each option, the option price per share, the manner of exercise and the time,
manner and form of payment upon exercise of an option.

         SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's common
stock (collectively, "Reporting Persons") to file with the SEC initial reports
of ownership and changes in ownership of the Company's common stock. Reporting
Persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) reports they file.

         To the Company's knowledge, based solely on its review of the copies of
such reports received or written representations from certain Reporting Persons
that no other reports were required, the Company believes that during its fiscal
year ended December 31, 2000, all Reporting Persons complied with all applicable
filing requirements.

                                      -53-
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

         The following table sets forth compensation received by Steven J. Blad,
the Company's Chief Executive Officer. No other executive officer of the Company
received total compensation for the year ended December 31, 2000 that exceeded
$100,000.

<TABLE>
                                               SUMMARY COMPENSATION TABLE
<CAPTION>

------------------------------------------------------------------------------------------------------------------------
                                            Annual Compensation                           Long Term Compensation
                                                                                ----------------------------------------
                                                                                           Awards              Payouts
                                                                                ----------------------------- ----------
                                                                  Other          Restricted     Securities
                                                                  Annual           Stock        Underlying      LTIP
                                           Salary      Bonus   Compensation       Award(s)      Options/       Payouts
  Name and Principal Position     Year       ($)        ($)         ($)              ($)          SARs (#)        ($)
------------------------------------------------------------------------------------------------------------------------
<S>                               <C>     <C>          <C>         <C>             <C>           <C>             <C>
Steven J. Blad,                   2000    280,888      -0-         -0-              -0-          100,000         -0-
Chief Executive Officer,          1999    218,363      -0-         -0-              -0-            600           -0-
     President and Director       1998    102,520      -0-         -0-             10,000        200,000         -0-
------------------------------------------------------------------------------------------------------------------------
</TABLE>

         In addition, the Company paid $91,500 to Steven J. Blad in the fiscal
year ended December 31, 1998, for sales, marketing and management consulting
services. This amount is disclosed under the column, "All Other Compensation."
In addition to the annual compensation disclosed above, the Company provides
certain perquisites and other personal benefits to some or all of the
executives. The unreimbursed incremental cost to the Company of providing
perquisites and other personal benefits did not exceed, as to any of the
executives for any year, the lesser of $50,000 or 10% of the total salary and
bonus paid to such executive for such year.

                     OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

         The following table sets forth information regarding grants of stock
options during the fiscal year ended December 31, 2000 made to the named
executive officers. There are no stock appreciation rights.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                            Individual Grants
                     ------------------------------------------------------------------------------------------------
                        Number of Securities             Percent of Total          Exercise or
                       Underlying Options/ SARs        Options/SARs Granted to       Base Price
      Name                   Granted (#)             Employees in Fiscal Year       ($/Share)       Expiration Date
---------------------------------------------------------------------------------------------------------------------
<S>                             <C>                              <C>                   <C>          <C>
Steven J. Blad                  100,000                          59%                   $2.50        January 1, 2005
---------------------------------------------------------------------------------------------------------------------
</TABLE>

         The shares of common stock underlying the options granted to Steven J.
Blad represented approximately 59% of the total number of options granted to the
Company's employees. The total number of options granted by the Company for the
year ended December 31, 2000 was 169,500.

               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                      AND FISCAL YEAR-END OPTION/SAR VALUES

         In the fiscal year ended December 31, 2000, the Company's named
executive officer did not exercise any stock options. The following table sets
forth information related to the fiscal year-end value of unexercised stock
options held by Steven J. Blad. Although the Company's common stock is not
traded on an exchange or quoted on an electronic medium, the Company has
recently sold securities that are convertible into shares of the Company's
common stock at a rate of $2.50 per share.

                                      -54-
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                    Number of securities underlying                    Value of unexercised
                                   unexercised options/SARs at fiscal              in-the-money options/SARs at
                                                year-end                                  fiscal year-end
                              ---------------------------------------------------------------------------------------
          Name                     Exercisable              Unexercisable          Exercisable        Unexercisable
---------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                          <C>            <C>                     <C>
Steven J. Blad                         55,000                      0              $  89,650               N/A
Steven J. Blad                        625,000                      0              $ 625,000               N/A
Steven J. Blad                        200,000                      0              $       0               N/A
---------------------------------------------------------------------------------------------------------------------
          Total                       880,000                      0              $ 714,650               N/A
---------------------------------------------------------------------------------------------------------------------
</TABLE>

             LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR

         As the Company's named executive officer did not receive any stock
options under a long-term incentive plan during the fiscal year ended December
31, 2000, a table reflecting the same has been intentionally omitted.

         EMPLOYMENT AGREEMENTS

         In August 1999, the Company entered into a new agreement with Steven J.
Blad with an effective date of January 1, 2000 and a term of three years.
Pursuant to the employment agreement, Mr. Blad shall receive a monthly base
salary of $23,500 and 400,000 stock option rights with an exercise price of
$2.50. With respect to the vesting of the options, 100,000 stock options vested
as of the effective date of the employment agreement with the balance to vest
over a three-year period thereafter as long as Mr. Blad remains employed as the
Company's President and Chief Executive Officer and satisfies certain
performance goals to be established by the Board. As with the prior employment
agreement with Mr. Blad, the present employment agreement contains provisions
with respect to confidentiality and non-competition. 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 ($2.60 per share) over
the exercise price of $2.50 per share during January 2000.

         INSURANCE

         The Company maintains directors and officers liability insurance of
$3,000,000 on behalf of its officers and directors insuring them against
liability that they may incur in such capacities or arising out of such status.

         LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

         Sections 78.7502 and 78.751 of the Nevada Revised Statutes provide for
the indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities, including reimbursement for expenses incurred, arising under the
Securities Act. The Company's articles of incorporation provides for
indemnification of its directors, officers, employees and other agents to the
extent and under the circumstances permitted by Sections 78.7502 and 78.751 of
the Nevada Revised Statutes.

                                      -55-
<PAGE>

         Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to the Company's directors, officers and controlling
persons pursuant to the provisions contained in its articles of incorporation,
bylaws, Nevada law or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities, other than the payment by the Company
of expenses incurred or paid by one of the Company's directors, officers or
controlling persons in the successful defense of any action, suit, or
proceeding, is asserted by such director, officer or controlling person, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by the Company is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of this issue.

         There is no pending litigation or proceeding involving any of our
directors or officers as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or officer.

                                      -56-
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth the beneficial ownership of the
Company's common stock as of March 9, 2001 by: (i) its executive officers and
its directors, individually; (ii) its executive officers and directors, as a
group; and (iii) all persons who beneficially owned more than 5% of the
outstanding shares of the Company's common stock. The beneficial ownership is
calculated based on 10,854,801 shares of our common stock outstanding as of
March 9, 2001. Beneficial ownership is determined in accordance with the rules
of the Commission and generally includes voting or investment power with respect
to securities.

         Unless otherwise indicated, each person or entity named in the table
has sole voting power and investment power, or shares voting and investment
power with his or her spouse, with respect to all shares of capital stock listed
as owned by such person. Shares issuable upon the exercise of options, warrants
or other securities convertible into the Company's common stock that are
currently exercisable or become exercisable within sixty days of March 9, 2001
are considered outstanding for the purpose of calculating the percentage of
outstanding shares of our common stock held by the individual, but not for the
purpose of calculating the percentage of outstanding shares of our common stock
held by another individual. Unless otherwise indicated, the address of the
following stockholders is c/o VendingData Corporation, 6830 Spencer Street, Las
Vegas, Nevada 89119.

  NAME OF EXECUTIVE OFFICERS        NUMBER OF SHARES        PERCENTAGE OF SHARES
      AND DIRECTORS                BENEFICIALLY OWNED        BENEFICIALLY OWNED
--------------------------------------------------------------------------------
Steven J. Blad (1)                      1,066,316.0                9.09%
James E. Crabbe (2)                     6,554,994.0               58.02%
Eric S. Huson (3)                          87,506.5                0.81%
Richard S. Jaslow (4)                     379,083.0                3.49%
Ronald O. Keil (5)                        289,680.0                2.67%
Bob L. Smith (6)                          579,431.0                5.31%
                                      ------------------------------------------
Executive officers and
  directors as a group (6 persons)      8,957,010.5               73.17%

----------
         (1) Reflects 175,100 shares of common stock owned by Mr. Blad; 1,216
shares of common stock owned by Joanna Blad (spouse); 10,000 shares of common
stock owned by Gametek, Inc., an entity controlled by Mr. Blad; and options to
purchase 880,000 shares of common stock.
         (2) Reflects 3,138,570 shares of common stock owned by the James E.
Crabbe Revocable Trust; 2,973,117 shares of common stock owned by certain
individuals for which Mr. Crabbe possesses the voting power; 826,922 shares of
common stock issuable upon conversion of certain outstanding convertible
debentures; and options to purchase 1,000 shares of common stock.
         (3) Reflects 70,000 shares of common stock owned by Tower Rock
Partners, LLC, an entity in which Mr. Huson holds an interest; 16,506.5 shares
of common stock owned by the Richard S. Huson Marital Trust U/T/A dated 9/4/98
for which Mr. Huson is a beneficiary; and options to purchase 1,000 shares of
common stock.
         (4) Reflects 227,083 shares of common stock owned by Mr. Jaslow;
100,000 shares of common stock owned by Richard S. Jaslow IRA; 50,000 shares of
common stock owned by Susan Jaslow (spouse); and options to purchase 2,000
shares of common stock.
         (5) Reflects 258,350 shares of common stock owned by Mr. Keil; 28,330
shares of common stock owned by Susan Keil (spouse); and options to purchase
3,000 shares of common stock.
         (6) Reflects 344,195 shares of common stock owned by Mr. Smith; 176,236
shares of common stock owned by VIP's Industries, Inc., an entity controlled by
Mr. Smith; 1,000 shares of common stock owned jointly with Christina Smith
(daughter); and options to purchase 58,000 shares of common stock.

                                      -57-
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         During the years ended December 31, 1999 and 1998, Richard S. Huson,
former Chairman of the Board and controlling stockholder of the Company, made
loans to the Company for working capital purposes. The balances payable by the
Company aggregated $295,407 at December 31, 1999 and $261,194 at December 31,
2000. The Company executed a replacement promissory note representing the
aggregate amount of advances made by Mr. Huson where the outstanding principal
and interest is to be repaid at an interest rate of 9.5% per annum in monthly
installments of $10,791 beginning July 1, 1999.

         CONVERSION OF OUTSTANDING INDEBTEDNESS. In May 1999, the Company and
the Richard S. Huson Revocable Trust U/T/A dated 09/04/98 (the "Huson Trust"),
of which Richard S. Huson, a former director and principal stockholder of the
Company, was co-trustee, entered into a subscription agreement whereby the Huson
Trust agreed to convert a certain portion of indebtedness owed by the Company to
the Huson Trust in exchange for shares of common stock at a conversion rate of
$2.60 per share. Pursuant to the terms of the subscription agreement, the Huson
Trust converted $999,999 of outstanding indebtedness into 384,615 shares of
common stock and received a replacement promissory note for the balance of the
outstanding indebtedness.

         PRIVATE PLACEMENT OF COMMON STOCK. In May 1999, the Company entered
into a subscription agreement with a stockholder of the Company whereby the
stockholder agreed to purchase 2,000,000 shares of the Company's common stock
for $2.60 per share for an aggregate subscription amount of $5,200,000. Pursuant
to the terms of the subscription agreement, the stockholder delivered $1,300,000
upon execution of the subscription agreement and agreed to pay the balance of
$3,900,000, in no more than three equal installments of not less than
$1,300,000, by July 10, 1999. The Company received the payment of the balance of
$3,900,000 prior to July 10, 1999. The Company used proceeds from this private
placement for general working capital purposes.

         On September 22, 1999, the Company entered into subscription agreements
with certain stockholders of the Company whereby the stockholders agreed to
purchase 1,000,000 shares of the Company's common stock for $2.60 per share for
an aggregate subscription amount of $2,600,000. Of the 1,000,000 shares
purchased, three directors of the company purchased an aggregate of 140,000
shares and Mr. Crabbe Trust purchased 860,000 shares. The Company used the
proceeds from the private placement for working capital purposes.

         For the 12 months ending December 31, 2000, the Company received
proceeds of $1,700,000, from members of the Board, a current shareholder and an
individual. The terms of the notes range from 9% to 10.5%. The notes also range
from 16 months to 22 months in term.

         CONVERTIBLE DEBT. On May 25, 2000, the Board authorized a private
placement of $2.2 million of convertible notes. The convertible notes accrue
interest at 9.5% per annum, mature two years from the date of issuance (where
the holder has the discretion to extend maturity date for up to three one-year
periods) and are convertible into shares of the Company's common stock one year
after issuance at a rate of $2.60 per share. The $2.2 million of convertible
notes are convertible into a maximum of 846,153 shares of the Company's common
stock. In addition, for each convertible note of $50,000, the Company issued a
warrant to purchase 12,500 shares of the Company's common stock with an exercise
price of $2.60.

         With the approval of the Board, certain members of the Board and a
controlling stockholder, the Huson Trust, participated in the Company's private
placement of convertible notes. The following table summarizes the purchases of
convertible notes by the relevant members of the Board and certain stockholders.

                                      -58-
<PAGE>

<TABLE>
<CAPTION>
            NAME                     AMOUNT           WARRANTS               MATURITY                CONVERTIBILITY
------------------------------    --------------    ------------     ----------------------      ---------------------
<S>                               <C>                 <C>               <C>                       <C>
The James E. Crabbe               $1,000,000          250,000              May 30, 2002               May 30, 2001
    Revocable Trust
VIP's Industries, Inc.              $200,000           50,000              May 31, 2002               May 31, 2001
Eric Huson                          $100,000           25,000              June 1, 2002               June 1, 2001
The Huson Trust                     $150,000           37,500              June 9, 2002               June 9, 2001
Richard S. Jaslow                   $100,000           25,000              July 20, 2002             July 20, 2001
Richard S. Jaslow                   $100,000           25,000             August 18, 2002           August 18, 2001
Ronald O. Keil                      $100,000           25,000           September 28, 2002         September 28, 2001
Richard S. Jaslow                    $50,000           12,500            November 10, 2002         November 10, 2001
------------------------------    --------------    --------------
            TOTAL                 $1,800,000          450,000
</TABLE>

         The $200,000 in convertible notes purchased by and the warrants to
purchase 50,000 shares of the Company's common stock issued to VIP's Industries,
Inc., an entity controlled by the Chairman of the Board, were in exchange for
the cancellation of a prior convertible note dated March 22, 2000 in the
original principal amount of $200,000.

         COMPENSATION OF AND TRANSACTIONS WITH JOSEPHTHAL. The Company proposes
to nominate Daniel Purjes to the Board's slate of directors that will be voted
upon by the Company's stockholders at the 2001 Annual Meeting of Stockholders.
Mr. Purjes is the Chief Executive Officer and Chairman of Josephthal. On
December 14, 2000, the Company entered into an agreement with Josephthal to act
as its exclusive agent with respect to the Private Placement. As compensation,
the Company has agreed to provide Josephthal with a non-refundable retainer of
$25,000, a 10% transaction fee for all proceeds generated in the Private
Placement from investors who are not directors or 5% stockholders of the
Company, a 5% transaction fee for all proceeds generated in the Private
Placement from investors who are directors or 5% stockholders of the Company,
and warrants to purchase shares of the Company's common stock equal to 10% of
the aggregate number of common stock into which the Notes are convertible. In
addition, the Company has agreed to grant to Josephthal a break-up fee of
$200,000 upon the closing of a control transaction, and has provided to
Josephthal a one-year right of first refusal with respect to any subsequent
private placement of the Company's securities. The agreement with Josephthal has
a term of six months that is extended another twelve months upon the
consummation of the Private Placement prior to the expiration of the initial
six-month period.

         Apart from the services provided by Josephthal, the Company has entered
into a $500,000 secured credit facility with an affiliate of Josephthal. The
credit facility has a one-year term, bears an interest rate of 10% per annum, is
secured by the Company's accounts receivable, investment property, instruments
and chattel paper, equipment, inventory and all proceeds related to the same,
and is subject to mandatory prepayment upon the consummation of a registered
offering with minimum gross proceeds of $5,000,000, a change of control of the
Company or the consummation of a private placement with minimum gross proceeds
of $2,000,000. As part of the credit facility, the Company issued a warrant to
purchase 50,000 shares of the Company's common stock at an exercise price of
$2.50 and, in conjunction with a draw pursuant to the credit line, has agreed to
issue warrants to purchase shares of the Company's common stock equal to the
amount of the draw divided by $2.50.

                                      -59-
<PAGE>

         TRANSACTION REVIEW

         The Company has adopted a policy that any transactions with directors,
officers or entities of which they are also officers or directors or in which
they have a financial interest, will only be on terms consistent with industry
standards and approved by a majority of the disinterested directors of the
Board. The Bylaws of the Company provide that no such transactions by the
Company shall be either void or voidable solely because of such relationship or
interest of directors or officers or solely because such directors are present
at the meeting of the Board or a committee thereof which approves such
transactions, or solely because their votes are counted for such purpose if: (i)
the fact of such common directorship or financial interest is disclosed or known
by the Board or committee and noted in the minutes, and the Board or committee
authorizes, approves or ratifies the contract or transaction in good faith by a
vote for that purpose without counting the vote or votes of such interested
directors; or (ii) the fact of such common directorship or financial interest is
disclosed to or known by the stockholders entitled to vote, and they approve or
ratify the contract or transaction in good faith by a majority vote or written
consent of stockholders holding a majority of the shares of common stock
entitled to vote (the votes of the common or interested directors or officers
shall be counted in any such vote of stockholders); or (iii) the contract or
transaction is fair and reasonable to the Company at the time it is authorized
or approved. In addition, interested directors may be counted in determining the
presence of a quorum at a meeting of the Board or a committee thereof which
approves such transactions. If there are no disinterested directors, the Company
shall obtain a majority vote of the stockholders approving the transaction.


                                     PART IV

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.
                  -------------------

         None.

                                      -60-
<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 its behalf by the
undersigned, thereunto duly authorized.

                                 VENDINGDATA CORPORATION


                                 By:   /S/ Steven J. Blad
                                       -----------------------------------------
                                       Steven J. Blad, Chief Executive Officer,
                                         President 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 and Director      March 30, 2001
---------------------------   (Principal Executive Officer and Acting Principal
Steven J. Blad                Financial Officer)



 /s/ Bob L. Smith             Chairman of the Board                                March 30, 2001
---------------------------
Bob L. Smith


 /s/ James E. Crabbe          Director                                             March 29, 2001
---------------------------
James E. Crabbe


 /s/ Ronald O. Keil           Director                                             March 26, 2001
---------------------------
Ronald O. Keil


 /s/ Richard S. Jaslow        Director                                             March 26, 2001
---------------------------
Richard S. Jaslow


 /s/ Eric S. Huson            Director                                             March 29, 2001
---------------------------
Eric S. Huson
</TABLE>

                                      -61-
<PAGE>

                                  EXHIBIT INDEX

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

2.1      Agreement and Plan of Merger dated as of March 6, 1999, by
         and between the Company and Casinovations Nevada
         Incorporated, incorporated by reference from the Company'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 Form 8-K filed on July
         28, 2000, Exhibit 10.1.                                             --

3.2      Amended and Restated Bylaws of VendingData Corporation dated
         June 19, 2001, incorporated by reference from Form 8-K filed
         on July 28, 2000, Exhibit 10.2.                                     --

3.3      Amended and Restated Bylaws of VendingData Corporation,
         incorporated by reference from Form 8-K filed on February 7,
         2001, Exhibit 10.1.                                                 --

4.1      Specimen certificate for Common Stock, incorporated by
         reference from Form SB-2 filed on July 16, 1997.                    --

4.2      VendingData Corporation 1999 Stock Option Plan, incorporated
         by reference from the Company's Annual Report on Form 10-KSB
         filed on March 26, 1999.                                            --

4.3      Form of 9.5% Convertible Note Due 2004, incorporated by
         reference from the Company's Quarterly Report on Form 10-QSB
         filed on May 17, 1999.                                              --

4.4      Form of Warrant Associated with 9.5% Convertible Note Due
         2004, incorporated by reference from the Company's Quarterly
         Report on Form 10-QSB filed on May 17, 1999.                        --

10.1     Consulting Agreement of Gametek and Steven J. Blad dated
         February 1, 1997, incorporated by reference from Form SB-2
         filed on July 16, 1997.                                             --

10.2     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.                                        --

10.3     Exclusive License Agreement with Technology Development
         Center, LLC, incorporated by reference from Amendment No. 2
         to Form SB-2 filed on November 12, 1997.                            --

10.4     Employment Agreement of Steven J. Blad dated June 1, 1998,
         incorporated by reference to Post-Effective Amendment No.1 on
         Form SB-2/A filed on June 5, 1998.                                  --

10.5     Lease Agreement dated August 19, 1999, by and between the
         Company and Spencer Airport Center, LLC for 6830 Spencer
         incorporated by reference from the Company's Quarterly Report
         on Form 10-QSB filed on November 15, 1999.                          --

10.6     Shareholder Agreement dated December 14, 1998, by and between
         VendingData Corporation and Richard Huson, Bob Smith and Ron
         Keil, incorporated by reference from the Company's Annual
         Report on Form 10-KSB filed on March 26, 1999.                      --

10.7     Agreement dated March 24, 1999, by and between VendingData
         Corporation and Dominion Income Management, incorporated by
         reference from the Company's Annual Report on Form 10-KSB
         filed on March 26, 1999.                                            --

10.8     First Security Bank of Nevada Master Equipment Lease
         Agreement, incorporated by reference from the Company's
         Quarterly Report on Form 10-QSB filed on August 13, 1999.           --

                                      -62-
<PAGE>

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

10.9     VendingData Corporation 1999 Directors' Stock Option Plan,
         incorporated by reference from the Company's Quarterly Report
         on Form 10-QSB filed on November 15, 1999.                          --

10.10    Durable Power of Attorney Granting Voting Rights of the
         Company's Common Stock, incorporated by reference from the
         Company's Quarterly Report on Form 10-QSB filed on November
         15, 1999.                                                           --

10.11    Wild Hold `em Fold `em Settlement Agreement dated February
         18, 2000, incorporated by reference from the Company's
         Current Report on Form 8-K filed on March 16, 2000.                 --

10.12    Bonus Blackjack Settlement Agreement dated February 18, 2000,
         incorporated by reference from the Company's Current Report
         on Form 8-K filed on March 16, 2000.                                --

10.13    Employment Agreement of Steven J. Blad dated August 10, 1999,
         incorporated by reference from the Company's Quarterly Report
         on Form 10-QSB filed on August 13, 1999.                            --

10.14    Agreement by and between the Company and Josephthal & Co.
         Inc. dated December 14, 2000.                                       64

10.15    Stand-By Credit Agreement by and between the Company and
         Josephthal & Co. Inc. dated as of February 6, 2001.                 77

10.16    Form of Promissory Note, attached as an exhibit to the
         Stand-By Credit Agreement by and between the Company and
         Josephthal & Co. Inc. dated as of February 6, 2001.                 82

10.17    Form of Warrant, attached as an exhibit to the Stand-By
         Credit Agreement by and between the Company and Josephthal &
         Co. Inc. dated as of February 6, 2001.                              92

10.18    Security Agreement by and between the Company and Josephthal
         & Co. Inc. dated as of February 6, 2001.                           104

21.1     Subsidiaries of Registrant.                                        112

23.1     Consent of James E. Scheifley & Associates, P.C.                   113

                                 -63-