<PAGE>

             U.S. SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C. 20549
                                
                           FORM 10-QSB

(Mark One)
[X]  QUARTERLY  REPORT  PURSUANT  TO  SECTION 13 OR 15 (D) OF THE
     SECURITIES EXCHANGE ACT OF 1934

     For the quarterly period ended:      September 30, 1998
                                    -----------------------------
                               OR
[ ]  TRANSITION  REPORT  PURSUANT  SECTION  13  OR  15(D) OF  THE
     SECURITIES EXCHANGE ACT OF 1934

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

Commission file number:                     
                       ------------------------------------------

                   CASINOVATIONS INCORPORATED
-----------------------------------------------------------------
             (Exact name of small business issuer as
                    specified in its charter)

           Washington                           91-1696010
---------------------------------         -----------------------
  (State or other jurisdiction               (I.R.S. Employer
of incorporation or organization)           Identification No.)
                                
 5240 S. Eastern Avenue, First Floor, Las Vegas, Nevada  89119
------------------------------------------------------------------
            (Address of principal executive offices)
                                
                         (702) 733-7195
------------------------------------------------------------------
                  (Issuer's telephone number)


------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
                       since last report)

     Check  whether the issuer (1) filed all reports required  to
be  filed  by Section 13 or 15(d) of the Exchange Act during  the
past  12  months (or for such shorter period that the  registrant
was  required to file such reports), and (2) has been subject  to
such filing requirements for the past 90 days.

     YES       NO   X
        ------   ------

        APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
           PROCEEDINGS DURING THE PRECEDING FIVE YEARS

     Check whether the registrant filed all documents and reports
required  to be filed by Section 12, 13 or 15(d) of the  Exchange
Act  after  the distribution of securities under a plan confirmed
by court.

     YES       NO  
        ------   ------

              APPLICABLE ONLY TO CORPORATE ISSUERS

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

    6,500,538 shares of Common Stock, $.001 par value, as of
                       September 30, 1998
------------------------------------------------------------------
     Transitional Small Business Disclosure Format (check one);

     YES       NO   X
        ------   ------

                                1
<PAGE>

                           FORM 10-QSB
                                
                        TABLE OF CONTENTS
                                

                                                                 PAGE
                                                                NUMBER

PART I. FINANCIAL INFORMATION

     Item 1. Financial Statements                                  3

             Balance Sheet                                         3

             Statement of Operations                               4

             Statement of Cash Flows                               5

             Notes to Financial Statements                         6

     Item 2. Management's Discussion and Analysis or Plan of
             Operations                                            9

PART II.  OTHER INFORMATION

     Item 1. Legal Proceedings                                    11

     Item 2. Changes in Securities                                11

     Item 3. Defaults Upon Senior Securities                      11

     Item 4. Submission of Matters to a Vote of Security Holders  11

     Item 5. Other Information                                    12

     Item 6. Exhibits and Reports on Form 8-K                     12

SIGNATURE                                                         13

EXHIBIT INDEX                                                     14

                                2
                                
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

<TABLE>
<CAPTION>
                   CASINOVATIONS INCORPORATED
                  (A Development Stage Company)
                          Balance Sheet
                       September 30, 1998

                                             September 30, 1998
                                                 (Unaudited)
                                             ------------------
                   ASSETS
<S>                                             <C>
Current assets:
  Cash                                          $     38,559
  Accounts receivable, trade                           1,605
  Accounts receivable - employees                     18,117
  Inventories                                        421,562
  Prepaid expenses                                    76,152
                                                -------------
      Total current assets                           555,995

Property and equipment, at cost, net of
  accumulated depreciation of $90,955                317,604

Intangible assets, at cost, net of
  accumulated amortization of $32,390                154,231
Deposits                                              93,579
                                                -------------
                                                $  1,121,410
                                                =============

    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Note payable - bank                           $    197,500
  Notes payable - other                              763,003
  Current portion of leases payable                  149,616
  Accounts payable                                   387,811
  Accrued wages                                       31,563
  Accrued interest                                    81,006
  Customer deposits                                   13,374
  Shareholder loans                                1,028,073
                                                ------------- 
      Total current liabilities                    2,651,947


Leases payable - non-current                         595,588

Stockholders' equity:
 Common stock, $.001 par value,
  20,000,000 shares authorized,
  6,500,538 shares issue and outstanding               6,501
 Additional paid-in capital                        4,871,999
 Unpaid subscriptions to common stock                      -
 Deficit accumulated during development stage     (7,004,626)
                                                -------------
                                                  (2,126,126)
                                                -------------
                                                $  1,121,410
                                                =============
</TABLE>

    See accompanying notes to unaudited financial statements.
                                
                                3
                                
<PAGE>

<TABLE>
<CAPTION>
                   CASINOVATIONS INCORPORATED
                  (A Development Stage Company)
                     Statement of Operations
 Three Months and Nine Months Ended September 30, 1998 and 1997
And Period From Inception (April 29, 1994) to September 30, 1998
                                
                                                                                                                      Period from
                                                                                                                       Inception
                                                                                                                   (April 29, 1994)
                                                      Three Months Ended                Nine Months Ended                  to
                                                 September 30    September 30     September 30    September 30       September 30
                                                     1998             1997            1998            1997                1998
                                                 ------------    ------------     ------------    ------------      --------------
<S>                                             <C>             <C>              <C>             <C>               <C>

Sales                                           $    11,045     $     1,296      $    11,390     $     1,928       $      16,351
Interest income                                           -           1,130                -           8,204              10,083
Other income                                              -               -                -          13,000               3,010
                                                 -----------     -----------      -----------     -----------       -------------
                                                     11,045           2,426           11,390          23,132              29,444

Other costs and expenses:
  General and administrative                      1,392,832         446,281        1,748,616       1,164,016           4,790,696
  General and administrative - related parties            -         154,000                -         357,092              76,768
  Research and development                          172,969          58,083          275,302         229,897           1,446,562
                                                 -----------     -----------      -----------     -----------       -------------
                                                  1,565,801         658,364        2,023,918       1,751,005           6,314,026
                                                 -----------     -----------      -----------     -----------       -------------  

(Loss) from operations                           (1,554,756)       (655,938)      (2,012,528)     (1,727,873)         (6,284,582)

  Interest expense                                        -               -           37,528               -              86,823
  Interest expense - related parties                 86,381          69,585          111,261         236,728             785,608
                                                 -----------     -----------      -----------     -----------       -------------  
                                                     86,381          69,585          148,789         236,728             872,431

(Loss) before income taxes                       (1,641,137)       (725,523)      (2,161,317)     (1,964,601)         (7,157,013)
Provision for income taxes                                -               -                -               -                   -
                                                 -----------     -----------      -----------     -----------       -------------

Net (loss)                                      $(1,641,137)    $  (725,523)     $(2,161,317)    $(1,964,601)      $  (7,157,013)
                                                 ===========     ===========      ===========     ===========       =============



 Basic (loss) per share                         $     (0.25)    $     (0.13)     $     (0.34)    $     (0.36)      $       (1.53)
                                                 ===========     ===========      ===========     ===========       =============

 Weighted average shares outstanding              6,468,271       5,673,971        6,310,516       5,486,905           4,670,172
                                                 ===========     ===========      ===========     ===========       =============

</TABLE>

    See accompanying notes to unaudited financial statements.
                                
                                4
                                
<PAGE>

<TABLE>
<CAPTION>

                        Casinovations Incorporated
                         Statements of Cash Flows
                      (A Development Stage Company)
              Nine Months Ended September 30, 1998 and 1997
    And Period From Inception (April 29, 1994) to September 30, 1998

                                                                                                             Inception
                                                                                                          (April 29, 1994)
                                                                                                                 to
                                                           September 30, 1998     September 30, 1997     September 30, 1998
                                                           ------------------     ------------------     ------------------
<S>                                                         <C>                    <C>                    <C>
                                                            $   (2,161,317)        $   (1,964,601)        $   (7,157,013)
Adjustments to reconcile net income (loss) to net
   cash provided by operating activities:
   Depreciation and amortization                                    80,119                 18,020                124,608
   Stock and options issued for services                           216,500                346,374              1,128,000
   Compensation value of cash stock sales                                -                154,000                177,000
   Stock and options issued for additional interest                      -                 22,561                117,332
   Equipment exchanged for services                                      -                      -                  2,903
   Stock issued in lieu of royalty payment                          51,250                      -                 51,250
   Writeoff of goodwill                                             54,238                      -                 54,238
   Amortization of deferred interest                                     -                139,500                232,500
Changes in assets and liabilities:
    (Increase) decrease in accounts receivable                      (1,561)                 1,677                (19,721)
    (Increase) decrease in inventory                               (89,269)               (11,181)              (271,562)
    (Increase) decrease in prepaid expenses                        (36,152)                   724                (76,152)
    (Increase) decrease in other assets                            (45,860)                (5,201)               (93,579)
    Increase (decrease) in accounts payable                        (54,501)               (28,527)               387,810
    Increase (decrease) in accrued expenses                         44,758                (75,367)               128,945
                                                           ------------------     ------------------     ------------------
       Total adjustments                                           219,521                562,580              1,943,571
                                                           ------------------     ------------------     ------------------
  Net cash (used in)
   operating activities                                         (1,941,796)            (1,402,021)            (5,213,442)
                                                           ------------------     ------------------     ------------------ 
Cash flows from investing activities:
   Acquisition of plant and equipment                              (59,470)              (208,383)              (374,873)
   Increase in patents and trademarks                              (10,360)               (18,614)              (185,343)
                                                           ------------------     ------------------     ------------------
Net cash (used in) investing activities                            (69,829)              (226,997)              (560,215)
                                                           ------------------     ------------------     ------------------

Cash flows from financing activities:
   Common stock sold for cash                                      626,000                865,510              2,576,569
   Capital contributions by partners                                     -                      -                402,950
   Proceeds from long-term debt                                    580,000                      -              1,199,100
   Proceeds from leases payable                                    423,750                      -                423,750
   Proceeds of shareholder loans                                   615,716                 45,000              1,385,884
   Repayment of shareholder loans                                  (28,660)               (20,000)               (87,526)
   Repayment of notes payable                                     (160,366)                (6,343)              (160,366)
   Repayment of leases payable                                    (125,646)                     -               (125,646)
   Proceeds from notes payable                                           -                197,450                197,500
                                                           ------------------     ------------------     ------------------
  Net cash provided by
   financing activities                                          1,930,795              1,081,617              5,812,216
                                                           ------------------     ------------------     ------------------

Increase (decrease) in cash                                        (80,830)              (547,401)                38,559

Cash and cash equivalents,
 beginning of period                                               119,389                552,878                      -
                                                           ------------------     ------------------     ------------------
Cash and cash equivalents,
 end of period                                              $       38,559         $        5,477         $       38,559
                                                           ==================     ==================     ==================

</TABLE>

        See accompanying notes to unaudited financial statements.

                                5
                                
<PAGE>

                   CASINOVATIONS INCORPORATED
                  (A Development Stage Company)
                  Notes to Financial Statements
                           (Unaudited)
                                
NOTE 1 - BASIS OF PRESENTATION.

The   accompanying  unaudited  financial  statements  have   been
prepared   in  accordance  with  generally  accepted   accounting
principles  for  interim  financial  information  and  with   the
instructions  incorporated in Regulation 10-SB of the  Securities
and Exchange Commission.  Accordingly, they do not include all of
the  information  and  footnotes required by  generally  accepted
accounting principles for complete financial statements.  In  the
opinion  of  management, all adjustments  (consisting  of  normal
recurring  adjustments and accruals) considered necessary  for  a
fair presentation have been included.

The  results  of  operations for the periods  presented  are  not
necessarily indicative of the results to be expected for the full
year.  The  accompanying financial statements should be  read  in
conjunction  with the Company's audited financial statements  for
the  year  ended December 31, 1997 as included in  the  Company's
Registration  Statement on Form SB-2/A as  last  filed  with  the
Securities   and   Exchange  Commission  on  October   16,   1998
(Commission File No. 333-31373).

Basic  loss  per  share was computed using the  weighted  average
number of common shares outstanding.

Certain of the shares issued to a consultant during 1997 were for
future  services  to  be provided to the  Company.   The  amounts
attributable  to  unearned services have been  accounted  for  as
unpaid  subscriptions to common stock in the accompanying balance
sheet.   The  Company  has  amortized  $66,500  of  the  unearned
services  to general and administrative expenses during the  nine
months ended September 30, 1998.

During   January  1998,  the  Company  received   proceeds   from
convertible debentures aggregating $400,000.  When added  to  the
proceeds  received  in  December 1997, the Company  has  received
total proceeds of $500,000 from its convertible debentures.   The
debentures bear interest at 6% per annum and are due on or before
January  31,  1999.   The principal amount of the  debentures  is
convertible  at the holder's option into shares of the  Company's
common  stock at a conversion price of $2.13 per share.   Of  the
gross proceeds received from the convertible debentures, $150,000
was  received  from the Company's principal stockholder  and  has
been  included  in shareholder loans in the accompanying  balance
sheet.   Additionally,  the  principal stockholder  made  working
capital  advances to the Company during the quarters ended  March
31,  1998,  June  30,  1998 and September 30,  1998,  aggregating
$140,000, $350,000, and $325,000 respectively.  The advances bear
interest at 9.5% per annum.

During  the  quarter  ended June 30, 1998, the  Company  sold  an
aggregate  of 176,000 shares of its $.001 par value common  stock
for   cash  proceeds  of   $430,000  and  $176,500  in  services.
Additionally,  20,000 shares of the common stock  were  sold  for
services  amounting to $50,000 in connection with the  completion
of an outstanding contract.

During the quarter ended September 30, 1998, the Company sold  an
aggregate  of 111,900 shares of its $.001 par value common  stock
for   cash   proceeds  of  $228,500  and  $51,250  in   services.
Additionally, 30,000 shares of the common stock were  issued  for
services amounting to $75,000 in connection with the purchase  of
Gaming 2000.

On  July 31, 1998, the Company and Technology Development Center,
LLC  amended  the terms of the exclusive license granted  to  the
Company  such  that  the Company will make  monthly  payments  of
$5,000 from August 1998 to October 1998, make a payment of $2,500
in November 1998, and convert the remaining balance of $51,250 in
principal  and future into 20,500 Common Shares at  a  conversion
rate  of  $2.50  per Common Share.  Through this  amendment,  the
Company reduces its cash payment requirements

                                6
                                
<PAGE>

and  related expenses.  The Company is current on its obligations
with Technology Development Center, LLC.

On  August  13, 1998, the Company entered into an agreement  with
Gaming  2000, L.L.C. ("Gaming 2000") for the purchase of  all  of
the  assets  of Gaming 2000 in exchange for $75,000,  payable  by
delivery  of  30,000 shares of the Company's  common  stock.   In
addition,  the Company has hired the following members of  Gaming
2000's  management team:  William O'Hara - Senior Vice President,
Dean  Barnett  -  Vice  President  of Sales,  and   Tom  Gaytan -
Account   Executive.     These   individuals   were   all  former
employees of Shuffle  Master,  Inc. with Mr. O'Hara as a founding
member of Shuffle Master, Inc., and Mr. Barnett as national sales
director for Shuffle Master, Inc.

NOTE 2 - STATEMENT REGARDING COMPUTATION OF LOSS PER SHARE.

Fully  diluted  loss per share excludes any dilutive  effects  of
options, warrants and convertible securities.  Fully diluted loss
per  share  is  not presented because the effect would  be  anti-
dilutive.

NOTE 3 - EMPLOYMENT AGREEMENT.

Effective June 1, 1998, the Company's president entered  into  an
employment  agreement  with  the  Company  for  a  term  expiring
December 31, 1999.  The officer will receive base pay of  $12,500
per month through December 31, 1998 and $18,500 per month for the
remainder  of the term.  The officer also was granted options  to
purchase  100,000 shares at $1.50 per share effective immediately
and is eligible to receive an additional stock option for 100,000
shares at $1.50 per share upon attaining the Company's goals  for
1998  as  determined  by the Board of Directors.   An  affiliated
entity  of  the  officer  also agreed to  the  termination  of  a
consulting  agreement  in exchange for $42,000,  payable  over  7
months,  and  10,000 shares of the Company's Common  Stock.   The
Company  recognized $100,000 of compensation expense  related  to
the  stock  option for 100,000 shares which is exercisable  at  a
price that is $1.00 per share less than the current fair value of
the  stock  and  $25,000 of compensation expense related  to  the
stock issuance of 10,000 shares during the quarter ended June 30,
1998.

NOTE 4 - SUBSEQUENT EVENTS.

On May 28, 1998, the Company entered into a letter agreement (the
"Letter  Agreement") with Steven L. Forte and Cheryl  Forte  with
respect  to,  among other things, the proposed severance  of  the
business relationship between the Company and Mr. Forte  and  the
purchase  by  the Company of all of the share of  Company  common
stock  held by either Steven L. Forte or Cheryl Forte (the "Forte
Shares").  The Forte Transaction also involves the termination of
the  employment  agreement with Steven Forte and the  gifting  of
82,000  Common  Shares  by  Steven and Cheryl  Forte  to  certain
individuals.   The  Company has negotiated the Forte  Transaction
due to the concerns of the Nevada State Gaming Control Board with
the prior gaming-related conviction of Steven Forte.  The Company
elected  to repurchase the Forte Shares instead of including  the
Forte  Shares  as part of the Offering because the  Nevada  State
Gaming Control Board required such divestiture as a condition  to
final  approval of the Shuffler for distribution in  Nevada.   In
addition, the Company did not want to subject this divestiture of
the  Forte  Shares  to the public market risks  that  affect  the
Offering.  On July 2, 1998, the Nevada State Gaming Control Board
approved of the terms of the Forte Transaction and permitted  the
Company to conduct field trials of the Shuffler at certain hotel-
casinos in Nevada.  Mr. Forte is no longer a consultant, director
or employee of the Company.

Pursuant  to  the  definitive agreement between the  Company  and
Steven  L.  Forte  and Cheryl Forte, the Company  has  agreed  in
principle  to,  among other things, (a) terminate the  employment
and  non-compete agreement between the Company and Mr. Forte; and
(b)  purchase (i) certain royalties granted to Mr. Forte from the
sale  of the Random Ejection Shuffler, Fantasy 21 and the Safety-
Peek  Playing Card for $200,000; (ii) options to purchase  20,000
shares  of  Company common stock for $30,000, and  (iii)  848,682
shares of Company common stock for $2,121,705.  As consideration,
the Company will issue a promissory note in

                                7
                                
<PAGE>

favor  of  Steven  L. Forte and Cheryl Forte  in  the  amount  of
$2,351,705.   The promissory note will be dated on the  date  the
Nevada  State Gaming Control Board grants its final  approval  of
the Random Ejection Shuffler.  The promissory note shall bear  an
interest  rate  of 6.5% during the first year and 8%  thereafter,
and  be  amortized  over  a ten-year schedule  with  payments  of
interest only during the first year, payable on the six-month and
twelve-month anniversary of the promissory note, and payments  of
principal  and  interest thereafter on a monthly basis.   On  the
fifth  anniversary of the promissory note, the  unpaid  principal
and interest will become due and payable.  The promissory note is
secured  by  a  security interest in the patents for  the  Random
Ejection  Shuffler and Fantasy 21 table game.   Therefore,  there
will be no interest payments in 1998.

Although  the  Forte Note will be secured by the  848,682  Common
Shares  and by a first security interest in the patents  for  the
Random Ejection Shuffler and Fantasy 21, Steven and Cheryl  Forte
have  agreed  to release their security interest in said  patents
for a principal reduction of 50% of the outstanding principal  of
the  Forte Note and for a due-on-sale amendment to the Forte Note
whereby the outstanding principal of the Forte Note will  be  due
and  owing upon a change of control of the Company.  In addition,
the Company has agreed to reduce the outstanding principal of the
Forte  Note by $750,000.00 if the Company completes the  Offering
of  1,500,000 Common Shares.  In the event the Company  fails  to
sell  all  1,500,000  Common Shares yet sells  at  least  500,000
Common  Shares  for cash, the Company has agreed  to  reduce  the
outstanding  principal of the Forte Note by an amount  calculated
by  multiplying $750,000.00 by the ratio of the number of  Common
Shares sold for cash by 1,500,000 Common Shares.  Further, in the
event  the Company issues and sells Common Shares in a subsequent
registered  public  offering, the Company and Steven  and  Cheryl
Forte  have agreed to a schedule whereby the Company will  reduce
specified  amounts  of outstanding principal of  the  Forte  Note
according  to specified proceeds received by the Company  through
such a public offering.

On  July 28, 1998, the Company and a third-party supplier entered
into  an  agreement to settle all claims between the two parties.
Pursuant  to the terms of the settlement, the parties  agreed  to
dismiss  the aforementioned matters with prejudice and agreed  to
mutually  release and indemnify each other with  respect  to  the
issues that were the subject matter of this litigation.  Further,
in  exchange for certain component parts and equipment  used  for
the  assembly of the Company's products, the Company  executed  a
demand note in the amount of $325,000 in favor of the third-party
supplier which note the Company (i) has already paid $50,000, and
(ii) will be able to satisfy in full at a discount if the Company
pays  an  additional  $150,000  to the  third-party  supplier  by
October  1, 1998. On October 1, 1998, the Company timely met  its
obligation  of  $150,000.   Accordingly,  the  demand  note   was
satisfied in full and will be cancelled.

The  Company  has  received  working capital  advances  from  its
principal  shareholder aggregating $615,000  in  the  first  nine
months  of  1998 for a total sum of $735,000 as of September  30,
1998.   These  amounts are in addition to a $150,000  convertible
debenture also held by its principal shareholder.  The conversion
rate for the convertible debentures was adjusted downward by  the
Company's  board of directors from $2.98 to $2.13 to reflect  the
reduction  of  the offering price of the Company's offering  from
$3.50 per share to $2.50 per share.

With  respect  to  the accounting presentation, the  Company  has
included  the $500,000 convertible debentures issued  to  certain
shareholders,  including  the  Company's  principal  shareholder,
under  "Notes payable - other" entry of the balance sheet.  These
convertible debentures have a conversion rate of $2.13 per share.

                                8

<PAGE>

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

        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 of 1933 and Section 21E of  the
Securities  Exchange Act of 1934, such as statements relating  to
plans  for  future  operations, 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  adequate  sources  of   cash,
manufacturing  and supply issues, marketing of and acceptance  of
the Company's products, dependence on existing management, gaming
regulations (including actions affecting licensing), leverage and
debt  service (including sensitivity to fluctuations in  interest
rates),  issues  related  to the Year 2000,  domestic  or  global
economic conditions and changes in federal or state tax  laws  or
the administration of such laws.

      PLAN OF OPERATION.  The Company has substantially completed
its  research  and  development  stage  of  the  Random  Ejection
Shuffler(TM)  (the  "Shuffler"), the  Fantasy  21(TM) table  game
("Fantasy  21")  and  the  SecureDrop   Coin   Bucket  System(TM)
("SecureDrop").   In  July  1998,   the  Company   established  a
manufacturing  facility  in  Boise,  Idaho  for  the  purposes of
producing  the  Shuffler  and  Fantasy   21   and  has  hired   a
production    manager   to   oversee   the   production  process.
The  Company  has 50 completed Fantasy 21 units  in  the  quality
assurance process which, upon assurance, will be shipped  to  the
Company's offices in Las Vegas, Nevada.  The Company will  employ
a   combination  of  employees  and  contract  laborers  in   the
manufacturing  process.  Through its manufacturing facility,  the
Company is producing approximately 300 units of the Shuffler with
delivery  of  the units to the Company's offices  in  Las  Vegas,
Nevada  from late November 1998 to January 1999.  The demand  for
the  Company's  products will be dependent  on  general  economic
conditions,  economic  conditions  in  the  gaming  industry  and
acceptance of new products in the marketplace.

       The   Company  is  developing  business  plans  that   are
anticipated to allow the Company to be self-supportive within the
first five to six months from the beginning of sales.  Should the
Company  be able to complete the successful offering of 1,500,000
shares of Common Stock presently pending pursuant to that certain
Registration Statement on Form SB-2/A (Commission File  No.  333-
31373)  (the  "Offering"), the Company expects that the  Shuffler
and  the  Fantasy   21  will   be   brought  to  market  and that
SecureDrop   development  will  be   completed  and   brought  to
market  as  well.   The  Company expects that  the  net  proceeds
from   the   Offering  and  cash  flow  from  operations  will be
sufficient  to   meet   the  Company's   liquidity   requirements
throughout  the remainder of the year.  In the event that  either
the  Offering  is  not  completed or that sales are inadequate to
generate  sufficient cash flow from operations, the  Company will
have to locate alternative sources of funds.

      At September 30,1998, the Company's working capital deficit
was  $2,095,952 compared to $1,031,024 at December 31, 1997.  The
current   ratio   (the  ratio  of  current  assets   to   current
liabilities)  as  of September 30, 1998 was 0.21:1,  compared  to
0.26:1  at December 31, 1997.  The Company is presently dependent
on  the  success  of  the Offering to fund its current  liquidity
needs  or  it will need to locate alternative sources of  funding
for  which  there may not be sources available.  The Company  has
also  relied  on  working  capital advances  from  its  principal
shareholder aggregating $615,000 in the first nine months of 1998
for a total sum of $735,000 as of September 30, 1998 (in addition
to  a  $150,000  convertible debenture  purchase)  for  liquidity
requirements, without which the Company would not have been  able
to  operate.  Since September 30, 1998, the Company has  received
proceeds  of  $105,000 from the sale of shares  pursuant  to  the
Offering  and has received an additional $400,000 loan  from  its
principal   shareholder.   Although  the  Company  is   currently
negotiating  with  certain   lenders   for   additional   sources
of  funds   and    anticipates    receiving    such    additional
sources  of  funds,  the  Company  may  not  be  able  to  locate

                                9

<PAGE>

alternative  liquidity sources in the event  that  the  principal
shareholder  ceases  to  make advances to  the  Company  and  the
Offering is not successful.

      The  ability of the Company to obtain any necessary  gaming
licenses,   authorizations   and   approvals   in   certain   key
jurisdictions,  such  as  Nevada and New Jersey,  may  materially
impact  the Company's ability to market its products.  Additional
new  products are in conceptual design stages and, with  adequate
funding, are expected to be brought to market within the next  12
months.   With  respect  to  the Nevada gaming  authorities,  the
Company has received approval for the distribution of Fantasy  21
and  has  successfully completed field trials for  the  Shuffler.
Final approval of the Shuffler is dependent upon, INTER ALIA, the
completion  of the that certain transaction between  the  Company
and  Steven  and  Cheryl Forte described in  Part  I,  "Financial
Statements  - Notes to Financial Statements - Note 4 - Subsequent
Events" and in Part II, "Item 5. Other Information."

      For  the three months ended March 31, 1998, the six  months
ended June 30, 1998, and the nine months ended September 30, 1998
the  Company did not make any significant acquisitions  of  plant
and equipment.  Inventory for parts to assemble product increased
$113,151  at  the  end  of  the  third  quarter.   There  are  no
expectations for the purchase of significant equipment or  plant.
Management of the manufacturing process for the Shuffler has been
re-located  to the Company's manufacturing facilities  in  Boise,
Idaho.

      For  the three months ended March 31, 1998, the six  months
ended  June  30,  1998, and the nine months ended  September  30,
1998,  the  Company  had  a net loss of  $520,180,  $739,880  and
$2,161,317, respectively.  For the three months ended  March  31,
1998,  the  six months ended June 30, 1998, and the  nine  months
ended  September  30,  1998,  the Company  had  depreciation  and
amortization of $6,965, $44,175, and $80,119, respectively.

      For  the three months ended March 31, 1998, the six  months
ended  June  30,  1998, and the nine months ended  September  30,
1998,  the  Company  had general and administrative  expenses  of
$355,787,  $1,045,867, and $1,748,616.  For these  time  periods,
these  expenses  consisted  of  salaries  and  related  costs  of
$96,110,   $203,383,   and  $452,037,  respectively;   consulting
services  of $78,501, $187,242, and $203,045, respectively;  cost
of  gaming  industry  shows  of $9,363,  $17,117,  and  $119,277,
respectively;   travel  and  entertainment  costs   of   $61,663,
$109,118,   and  $151,783,  respectively;  printing  and   office
expense,  including  rent  of  $34,110,  $70,642,  and  $111,842,
respectively;  and  legal  expenses of  $14,580,   $106,930,  and
$158,148, respectively.

     YEAR 2000.  During 1998, the Company undertook an assessment
of the information systems and software used in its operations to
determine  whether or not those systems were Year 2000 compliant,
and  assessed plans to upgrade systems and/or software  that  was
determined to not be Year 2000 compliant.  The Company has  begun
and  is  continuing  to assess potential issues  related  to  the
approach  of  the  Year  2000 other than those  relating  to  the
Company's internal information systems, such as critical supplier
readiness   and  potential  problems  associated  with   embedded
technologies, and will develop and implement plans to correct any
deficiencies found.

      Based  upon  the  Company's efforts to  date,  the  Company
believes  that  the costs of addressing the Company's  Year  2000
issues  have  not  been  and  are not currently  expected  to  be
material  to  the  Company's results of operations  or  financial
position;  however,  should  the  Company  and/or  its   critical
suppliers  fail  to  identify and/or correct material  Year  2000
issues,  such  failure  could impact  the  Company's  ability  to
operate as it did before the Year 2000, and subsequently  have  a
material  impact  on  the  Company's  results  of  operations  or
financial  position.  In such an event, the Company will  address
issues  as  they arise and strive to minimize any impact  on  the
Company's  operations.   The  impact  on  the Company's operating

                               10
                                
<PAGE>

results  of  such  failures and of any contingency  plans  to  be
designed  to  address such events cannot be  determined  at  this
time.

      RISK  FACTORS THAT MAY AFFECT FUTURE RESULTS.  The  Company
operates  in the highly competitive gaming industry that involves
a  number  of  risks,  some  of which are  beyond  the  Company's
control.   For  a  complete discussion of these  risks,  see  the
section  entitled,  "Risk  Factors," included  in  the  Company's
Registration  Statement on Form SB-2/A, as last  filed  with  the
Commission on October 16, 1998 (Commission File No. 333-31373).

PART II - OTHER INFORMATION
     
ITEM 1.  LEGAL PROCEEDINGS.
     
      On April 24, 1998, a complaint was filed in District Court,
Clark  County,  Nevada on behalf of the Company  against  Western
Electronics,  Inc.  ("Western") and its Chief Executive  Officer,
John  Wasden.  The Complaint alleges causes of action for  breach
of  contract, declaratory relief, unjust enrichment, interference
with  contractual  relations, conversion  and  fraud--intentional
misrepresentation, all stemming from purchase orders between  the
Company  and Western for the Shuffler.  The Complaint was  served
upon  Western on April 27, 1998, and service upon Mr.  Wasden  is
pending.   Through this litigation, the Company seeks to  recover
component parts purchased for the assembly of the Shuffler or  in
the alternative to recover the monies expended for their purchase
as  well as other money damages.  Subsequent to the filing of its
answer, Western filed an amended answer and counterclaim in which
Western alleged breach of contract and payment of amount.

      On  July 28, 1998, the Company and Western entered into  an
agreement to settle all claims between the two parties.  Pursuant
to the terms of the settlement, the parties agreed to dismiss the
aforementioned  matters  with prejudice and  agreed  to  mutually
release and indemnify each other with respect to the issues  that
were the subject matter of this litigation.  Further, in exchange
for  certain component parts and equipment used for the  assembly
of  the Company's products, the Company executed a demand note in
the amount of $325,000 in favor of Western which note the Company
(i) has already paid $50,000, and (ii) will be able to satisfy in
full at a discount if the Company pays an additional $150,000  to
Western  by  October 1, 1998.  The Company  paid the $150,000  by
October 1, 1998.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

        Pursuant  to  a  notice  dated September  11,  1998,  the
Company's board of directors determined that it was in  the  best
interests of the Company and the Company's stockholders  to  call
the  Company's Class B and Class C Warrants.  The holders of  the
Class  B  and  Class C Warrants were entitled  to  exercise  such
warrants  at  $4.00  and $6.00, respectively, until  October  11,
1998,  at  which time the holders of Class B and Class C Warrants
would be entitled to receive $.001 per underlying share of common
stock.   As  no  Class B and Class C Warrants were  exercised  by
October  11,  1998, the Company will send payment  of  $.001  per
underlying  share of common stock to each holder of Class  B  and
Class C Warrants.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.
     
        None.
     
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
     
        None.

                               11
                                
<PAGE>

ITEM 5.  OTHER INFORMATION.
     
     On May 28, 1998, the Company entered into a letter agreement
(the  "Letter  Agreement") with Steven L. Forte and Cheryl  Forte
with  respect  to, among other things, the proposed severance  of
the  business relationship between the Company and Mr. Forte  and
the purchase by the Company of all of the share of Company common
stock held by either Steven L. Forte and Cheryl Forte (the "Forte
Shares").  The effectiveness of the Letter Agreement was  subject
to  the  approval of the Nevada State Gaming Control  Board.   On
July 2, 1998, the Nevada State Gaming Control Board approved  the
terms of the Letter Agreement and authorized field trials for the
Shuffler.

      Pursuant  to definitive agreement between the  Company  and
Steven and Cheryl Forte, the Company has agreed in principle  to,
among  other things, (a) terminate the employment and non-compete
agreement between the Company and Mr. Forte; and (b) purchase (i)
certain  royalties  granted to Mr. Forte from  the  sale  of  the
Shuffler;  (ii)  options  to  purchase  20,000  shares of Company
common   stock,   and    (iii)   848,682    shares   of   Company
common stock.  As part of the transaction, the Company will issue
a promissory note in favor of Steven L. Forte and Cheryl Forte in
the  amount of $2,351,705.  The promissory note will be dated  on
the  date the Nevada State Gaming Control Board grants its  final
approval  for  the  Shuffler.  In  addition,  the promissory note
shall bear an interest rate of 6.5%  during  the first  year  and
8%  thereafter,  be  amortized  over   a  ten-year schedule  with
payments of interest only during the  first  year, payable on the
six-month and twelve-month anniversary  of  the promissory  note,
and  payments of  principal  and interest thereafter on a monthly
basis.   On the  fifth anniversary  of  the promissory  note, the
unpaid principal and interest will become due and  payable.   The
promissory note will  be  secured  by a security  interest in the
patents  for  the Shuffler and Fantasy 21.

      On  October 29, 1998, pursuant to the Company's bylaws, the
Company's board of directors unanimously appointed Ronald O. Keil
of  Vancouver, Washington as a member of the Company's  board  of
directors.   The Company's board of directors currently  consists
of six members.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.
     
         (a)  EXHIBITS.

         EXHIBIT NUMBER   DESCRIPTION
         --------------   -----------
             27.01        Financial Data Schedule

         (b) REPORT ON FORM 8-K.

         None.

                               12

<PAGE>

                          SIGNATURE

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


                                    CASINOVATIONS INCORPORATED
                                ---------------------------------


Date: November 13, 1998     By: /s/ Jay L. King
                                ---------------------------------
                           Its: Chief Financial Officer and
                                Secretary

                               13

<PAGE>

                           EXHIBIT INDEX

EXHIBIT NUMBER               DESCRIPTION              PAGE NUMBER
--------------               -----------              -----------
   27.01               Financial Data Schedule             15


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