**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **FORM
        10-QSB/A**
 (Mark
        One)
 x
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
  For
                  the quarterly period ended:
              March
                  31, 2004
  OR
  o
              **TRANSITION
                  REPORT PURSUANT SECTION 13 OR 15(d) OF THE EXCHANGE
                  ACT**
  For
                  the transition period from:
              
              to
 
 Commission
                  file number:
              001-32161
 
 VendingData
                  Corporation(Exact
                  name of small business issuer as specified in its
                  charter)Nevada
              
              91-1696010(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)6830
                  Spencer Street, 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
                  xNo
                  o**APPLICABLE
                  ONLY TO CORPORATE ISSUERS**State
                  the number of shares outstanding of each of the issuer’s classes of common
                  equity, as of the latestpracticable
                  date:
              17,187,799shares
                  of common stock, $.001 par value, as ofMarch
                  31, 2004Transitional
                  Small Business Disclosure Format (check one): Yes oNo
                  x
  
  **EXPLANATORY
        NOTE**
 
 VendingData
        Corporation is filing this Amendment No. 1 to its Quarterly Report on Form
        10-QSB for the quarter ended March 31, 2004 to reverse $507,000 of revenue
        recognized during the three months ended March 31, 2004 with respect to three
        contracts and to restate inventory as of, and cost of sales during the three
        months ended, March 31, 2004 by $43,541 and $65,858, respectively, and to
        make
        other resulting adjustments to its financial statements. The effect of the
        restatements was to increase previously reported net loss by $550,440 ($0.03)
        for the three-month period ended March 31, 2004.These adjustments will not
        result in present or future cash expenditures. (See the disclosure under
        the
        heading “Restatement” in Note 1 to the financial statements in this
        Quarterly Report on Form 10-QSB/A)
  The
        Items
        in our Form 10-QSB for the quarter ended March 31, 2004 that are amended
        and
        restated are as follows: Part I: Item 1 - Financial Statements; Item 2 -
        Management’s Discussion and Analysis of Financial Condition and Results of
        Operations; and Part II: Item 6 - Exhibits and Reports on Form 8-K.
  The
        remaining Items contained within this Amendment No. 1 to Quarterly Report
        on
        Form 10-QSB/A consist of all other Items originally contained in our Quarterly
        Report on Form 10-QSB for the quarter ended March 31, 2004 in the form filed
        on
        April 17, 2004. This Form 10-QSB/A does not reflect events occurring after
        the
        filing of the original Form 10-QSB, or modify or update those disclosures
        in any
        way other than as required to reflect the effects of the restatement.
  -i-
  **VENDINGDATA
        CORPORATION**
 
 **FORM
        10-QSB**
 
 **TABLE
        OF CONTENTS**
  **Page**
 **PART
                    I - FINANCIAL INFORMATION**
                
                **1**ITEM
                    1. FINANCIAL STATEMENTS
                
                1Balance
                    Sheets
                
                1Statements
                    of Operations
                
                2Statements
                    of Cash Flows
                
                3ITEM
                    2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
                    OPERATIONS
                
                7OVERVIEW
                
                7CRITICAL
                    ACCOUNTING POLICIES AND ESTIMATES
                
                7RESULTS
                    OF OPERATIONS
                
                9LIQUIDITY
                    AND CAPITAL RESOURCES
                
                11RISK
                    FACTORS
                
                13ITEM
                    3. CONTROLS AND PROCEDURES
                
                22**PART
                    II - OTHER INFORMATION**
                
                **23**ITEM
                    1. LEGAL PROCEEDINGS
                
                23ITEM
                    2. CHANGES IN SECURITIES
                
                24ITEM
                    3. DEFAULTS UPON SENIOR SECURITIES
                
                24ITEM
                    4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                
                24ITEM
                    5. OTHER INFORMATION
                
                24ITEM
                    6. EXHIBITS AND REPORTS ON FORM 8-K
                
                24
 -ii-
  **PART
        I - FINANCIAL INFORMATION**
  **Item
        1. Financial Statements.**
  **VENDINGDATA
        CORPORATION**
 **Balance
        Sheets**
  **March
                  31, 2004**
              
              **December
                  31,****2003****ASSETS**
              
              **(unaudited)**
                **restated**Current
                  assets:Cash
                  and cash equivalents
              
              $
              5,830,540
              
              $
              11,526,664Current
                  portion of accounts receivable, trade, net of allowance for uncollectables
                  of $125,530
              
              
              1,919,199
              
              
              2,354,054Due
                  from affiliate
              
              
              31,802
              
              
              31,802Other
                  receivables
              
              
              137,867
              
              
              29,836Inventories
              
              
              4,725,401
              
              
              4,150,414Prepaid
                  expenses
              
              
              80,202
              
              
              52,02812,725,011
              
              
              18,144,798Equipment
                  rented to customers, net of accumulated depreciation of $378,467
                  and
                  $316,245
              
              
              551,263
              
              
              608,555Property
                  & equipment, net of accumulated depreciation of $1,977,416 and
                  $1,859,206
              
              
              1,017,029
              
              
              1,063,951Intangible
                  assets, net of accumulated amortization of $327,272 and
                  $288,203
              
              
              1,242,354
              
              
              1,282,088Due
                  from affiliate - non current
              
              
              118,800
              
              
              118,800Accounts
                  receivable, trade, net of current portion, less unamortized
                  discount
              
              
              1,329,296
              
              
              1,140,984Deferred
                  expenses
              
              
              225,232
              
              
              250,697Deposits
              
              
              1,599,731
              
              
              1,284,827Other
                  assets
              
              
              236,026
              
              
              265,478$
              19,044,742
              
              $
              24,160,178**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilities:Current
                  portion of leases payable
              
              $
              2,069,470
              
              $
              2,237,073Accounts
                  payable
              
              
              1,086,905
              
              
              1,727,460Accrued
                  expenses
              
              
              471,561
              
              
              824,307Deferred
                  revenues, current portion
              
              
              216,480
              
              
              171,875Short-term
                  debt
              
              
              236,350
              
              
              270,743Current
                  portion of convertible debt
              
              
              —
              
              
              2,368,077Customer
                  deposits
              
              
              181,400
              
              
              178,8054,262,166
              
              
              7,778,340Deferred
                  revenues, net of current portion
              
              
              227,370
              
              
              219,890Leases
                  payable, net of current portion
              
              
              1,480,716
              
              
              1,916,7235,970,252
              
              
              9,914,953Stockholders'
                  equity:Preferred
                  stock, $.001 par value, 10,000,000 shares authorized, no shares
                  issued and
                  outstanding
              
              
              —
              
              
              —Common
                  stock, $.001 par value, 25,000,000 shares authorized, 17,187,799
                  and
                  16,765,580 shares issued and outstanding
              
              
              17,188
              
              
              16,766Additional
                  paid-in capital
              
              
              59,659,307
              
              
              58,810,806Deficit
              
              
              (46,602,005
              )
              
              (44,582,347
              )Total
                  stockholders' equity
              
              
              13,074,490
              
              
              14,245,225Total
                  liabilities and stockholders' equity
              
              $
              19,044,742
              
              $
              24,160,178
  See
        accompanying notes to financial
        statements.
 -
            1
            -
  **VENDINGDATA
        CORPORATION**
 **Statements
        of Operations**
  **(UNAUDITED)**
  **Three
                  Months Ended March 31,****2004**
                **restated**
              
              **2003**Revenues:Sales
              
              $
              486,151
              
              $
              1,575,086Rental
              
              
              211,063
              
              
              331,803Other
              
              
              88,773
              
              
              28,469785,987
              
              
              1,935,358**Operating
                  expenses:**Cost
                  of sales
              
              
              714,879
              
              
              1,355,646Selling,
                  general and administrative
              
              
              1,470,484
              
              
              1,082,444Research
                  and development
              
              
              343,702
              
              
              285,9892,529,065
              
              
              2,724,079Loss
                  from operations
              
              
              (1,743,078
              )
              
              (788,721
              )Interest
                  expense, unrelated parties
              
              
              262,622
              
              
              497,676Interest
                  expense, related parties
              
              
              14,523
              
              
              159,821Gain
                  on disposition of assets
              
              
              (567
              )
              
              —Total
                  interest expense, net
              
              
              276,578
              
              
              657,497Net
                  loss
              
              $
              (2,019,656
              )
              $
              (1,446,218
              )Basic
                  and Diluted loss per share
              
              $
              (0.12
              )
              $
              (0.19
              )Weighted
                  average shares outstanding
              
              
              17,105,700
              
              
              7,625,814
 
 See
        accompanying notes to financial
        statements.
  -
            2
            -
  **VENDINGDATA
        CORPORATION**
 **Statements
        of Cash Flows**
  **(UNAUDITED)**
  **Three
                  Months Ended March 31,****2004**
                **restated**
              
              **2003**Operating
                  Activities:Net
                  cash used in operating activities
              
              $
              (3,415,833
              )
              $
              (3,071,606
              )Cash
                  flows from investing activities:Acquisition
                  of plant and equipment
              
              
              (76,790
              )
              
              (23,147
              )Disposition
                  of equipment produced for rental
              
              
              —
              
              
              134,400Disposition
                  of plant and equipment
              
              
              183
              
              
              —Disposition
                  of intangible assets
              
              
              665
              
              
              —Deposits
              
              
              —
              
              
              33,402Net
                  cash from investing activities
              
              
              (75,942
              )
              
              144,655Cash
                  flows from financing activities:Reimbursement
                  of offering expense
              
              
              36,731
              
              
              —Proceeds
                  from leases payable
              
              
              —
              
              
              862,500Repayment
                  of leases payable
              
              
              (603,610
              )
              
              (833,205
              )Repayment
                  of shareholder loans
              
              
              —
              
              
              (218,000
              )Repayment
                  of short-term debt
              
              
              (34,393
              )
              
              —Proceeds
                  from convertible debt
              
              
              —
              
              
              2,650,000Repayment
                  of convertible debt
              
              
              (1,603,077
              )
              
              —Net
                  cash provided by financing activities
              
              
              (2,204,349
              )
              
              2,461,295Increase
                  (decrease) in cash
              
              
              (5,696,124
              )
              
              (465,656
              )Cash
                  and cash equivalents at beginning of period
              
              
              11,526,664
              
              
              1,778,297Cash
                  and cash equivalents at end of period
              
              $
              5,830,540
              
              $
              1,312,641
 
 See
        accompanying notes to financial
        statements.
  -
            3
            -
  **VENDINGDATA
        CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO FINANCIAL STATEMENTS (UNAUDITED)**
  **Note 1—Basis
        of Presentation**
  The
        accompanying unaudited financial statements of VendingData Corporation (the
        "Company") have been prepared in accordance with generally accepted accounting
        principles for interim financial information and with the instructions
        incorporated in Regulation S-B 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, 2003, as included in the
        Company's Annual Report on Form 10-KSB as filed with the Securities
        and
        Exchange Commission from which the accompanying balance sheet information
        as of
        that date was derived. Certain
        reclassifications have been made to amounts presented in prior periods for
        comparability to the current period presentation.
 
 **Restatement**
  As
        reported on our Form 8-K dated November 1, 2005, filed with the SEC, we
        concluded, after consultation with our independent auditors, that errors
        in
        revenue recognition practices and in allocation of labor and overhead costs
        to
        inventory costs require us to restate previously reported financial results
        for
        fiscal 2004. We have reversed $507,000 of revenue recognized during the three
        months ended March 31, 2004 with respect to three contracts and restated
        inventory as of, and cost of sales during the three months ended, March 31,
        2004
        by $43,541 and $65,858, respectively, and made other resulting adjustments
        to
        its financial statements. The effect of the restatements was to increase
        previously reported net loss by $550,444 ($0.03 per share) for the three
        month
        periods ended March 31, 2004. These adjustments have not resulted and will
        not
        result in past, present or future cash expenditures.
  **Note 2—Segments**
  The
        segments identified for geographic region-based enterprise-wide data are
        as
        follows:
  **Three
                  Months Ended****March
                  31,**
                **2004**
                **(Restated)**
              
              **March
                  31,**
                **2003**United
                  States
              
              $
              537,653
              
              $
              1,759,466Asia
              
              $
              38,334
              
              $
              134,392Europe
              
              $
              210,000
              
              $
              —South
                  America
              
              $
              —
              
              $
              41,500
 
 -
            4
            -
 
 The
        Company's revenues, depreciation and operating income distributed by product
        are
        as follows:
 **Three
                    Months
                    Ending****March
                    31,**
                  **2004**
                  **(Restated)**
                
                **March
                    31,**
                  **2003**RevenuesSecure
                    DropR
                
                $
                47,063
                
                $
                1,149,509Shuffler
                
                
                457,275
                
                
                744,817Deck
                    CheckerTM
                
                
                192,876
                
                
                12,563Other
                    revenue
                
                
                88,773
                
                
                28,469$
                785,987
                
                $
                1,935,358Depreciation
                    and amortizationSecure
                    DropR
                
                $
                ----
                
                $
                ----Shuffler
                
                
                55,200
                
                
                155,788Deck
                    CheckerTM
                
                
                6,660
                
                
                ----Selling,
                    general & administration
                
                
                162,594
                
                
                42,289$
                224,454
                
                $
                198,077Operating
                    income (loss)Secure
                    DropRgross margin
                
                $
                (56,906
                )
                $
                680,951Shuffler
                    gross margin
                
                
                362,515
                
                
                483,807Deck
                    CheckerTMgross margin
                
                
                148,418
                
                
                3,083Other
                    cost of goods sold
                
                
                (382,919
                )
                
                (588,129
                )Selling,
                    general & administration
                
                
                (1,470,484
                )
                
                (1,082,444
                )Research
                    and development
                
                
                (343,702
                )
                
                (285,989
                )$
                (1,743,078
                )
                $
                (788,721
                )
 
 **Note 3—Loss
        per Share (Basic and Diluted)**
  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.
  **Note 4—Debt**
  The
        Company retired $2,368,077 of convertible debt during the period ended March
        31,
        2004, with cash payments and conversions to common stock.
  **Note 5—Options**
  The
        Company currently has two stock option plans. No stock-based employee
        compensation expense for stock options was reflected in net income for years
        prior to 2003, as all stock options granted under those plans had an exercise
        price equal to or greater than the fair market value of the underlying common
        stock on the date of grant. The exercise price range is between $1.75 and
        $15
        with a weighted average exercise price of $3.50. There were 2,089,520 options
        outstanding as of March 31, 2004.
  -
            5
            -
 **Note 6—Liquidity
        Issues**
  The
        Company’s ability to maintain adequate liquidity may be dependent upon the
        success of management’s plans to address and overcome prior operating losses.
        Management has developed and refined its 2004 operating plan to increase
        its
        sales by expanding its product line and improving its sales efforts domestically
        and internationally. Increased sales in the year ended December 31,
        2003
        show increased acceptance of the Company’s product line. Management has adopted
        a program to reduce operating costs through the transfer of manufacturing
        operations to China and restructuring service functions to reduce labor and
        rental expense. Management has focused on financial condition and liquidity
        improvements through its capital raising efforts in 2003 along with substantial
        debt reduction and debt conversion, resulting in an improved cash position
        and
        substantially reduced indebtedness at March 31, 2004. As a result
        of
        anticipated sales improvements and operating cost initiatives, management
        believes that the Company will begin to generate positive operating cash
        flow
        during the second half of 2004. In addition, the Company’s financial advisors
        have expressed confidence that additional capital can be raised by the Company,
        if necessary, in 2004, and the Company has received a one-year commitment
        for a
        $3.0 million lease line of credit.
  **Note 7—Trade
        Receivables From Major Customers**
  As
        of and
        during the three months ended March 31, 2004, approximately 19.6% of trade
        receivables and 18.4 % of total sales and, as of and during the year ended
        December 31, 2003, approximately 17.6% of trade receivables and 13.3%
        of
        total sales were concentrated in the Nevada gaming industry among five customers
        under common ownership. The Company's future operations could be affected
        by
        adverse changes in the financial condition of, or the Company's relationships
        with, the commonly owned Nevada gaming customers, or economic, competitive
        and
        political conditions in our customers' respective local areas or the gaming
        industry, in general.
  The
        Company manages its concentrations of credit risk by evaluating the
        creditworthiness of customers before credit is extended and monitoring it
        thereafter. The maximum losses that the Company would incur if a customer
        failed
        to pay amounts owed would be limited to the recorded receivables after any
        allowances provided.
  **Note 8—Contingencies**
  The
        Company is a party to certain claims, legal actions, and complaints, including
        a
        patent infringement action between the Company and one of its main competitors.
        The Company cannot predict the likely outcome of any such litigation or whether
        any such substantial litigation would have a material adverse effect on its
        business as presently conducted or as anticipated.
  **Note 9—Subsequent
        Events**
  In
        early
        February 2004, the State of Nevada initiated a sales/use tax audit of Central
        and Madison Leasing. As of this filing the State of Nevada has not made a
        determination if there has been a shortfall in the payment of the sales/use
        tax.
        The Company has sold and leased back shufflers and Deck Checkers over the
        last
        five years. The auditor for the State of Nevada is trying to determine at
        what
        level a sales/use tax needs to be collected. The Company now collects from
        our
        customers in Nevada and remits payments to the State of Nevada. If the State
        of
        Nevada determines that the sales of the products to the leasing companies
        is the
        level at which sales/use tax should have been collected, liability of the
        leasing companies would be passed to the Company. The amount of this potential
        liability could range from a refund of $144,000 to the payment of sales/use
        tax
        with interest and penalties of up to $500,000. The Company intends to defend
        its
        position in this matter.
  -
            6
            -
  **Item
        2. Management’s Discussion and Analysis or Plan of
        Operations.**
  **Statement
        on Forward-Looking Information**
  Certain
        information included herein contains statements that may be considered
        forward-looking statements within the meaning of Section 27A of the Securities
        Act and Section 21E of the Exchange Act, such as statements relating
        to
        plans for product development, product placement, capital spending and financing
        sources. Such forward-looking information involves important risks and
        uncertainties that could significantly affect anticipated results in the
        future
        and, accordingly, such results may differ from those expressed in any
        forward-looking statements made herein. These risks and uncertainties include,
        but are not limited to, those relating to our liquidity requirements, our
        ability to locate necessary sources of capital to sustain our operations,
        the
        continued growth of the gaming industry, the success of our product development
        activities, the acceptance of our products in the marketplace, vigorous
        competition in the gaming industry, our dependence on existing management,
        changes in gaming laws and regulations (including actions affecting licensing),
        our leverage and debt service (including sensitivity to fluctuations in interest
        rates) and domestic or global economic conditions.
  **Overview**
  Our
        strategy is to develop cost-effective niche products for the global gaming
        industry. We focus on products that increase the security, productivity and
        profitability of casino operations. Our strategy involves marketing certain
        of
        our products for sale or lease, depending on the product, the geographic
        location of the customer and other factors. We rely on our internal sales
        staff
        and distributor relationships for the sale and rental of our products. Although
        we anticipate significant sales development and revenue growth, there is
        no
        assurance that we will generate sufficient revenue, cash flow or profit to
        sustain our operations.
  **Critical
        Accounting Policies and Estimates**
  Following
        is a summary of what our management believes are the critical accounting
        policies related to our operations. The application of these policies, in
        some
        cases, requires our management to make subjective judgments regarding the
        effect
        of matters that are inherently uncertain.
  The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires our management to make estimates and assumptions
        that affect reported amounts and disclosures, some of which may require revision
        in future periods. Actual results could differ from these estimates. The
        following is a summary of what our management believes are the critical
        accounting policies related to our operations. The application of these
        policies, in some cases, requires our management to make subjective judgments
        and estimates regarding the effect of matters that are inherently uncertain.
        See
        Note 1, “Basis of Presentation,” to the notes to financial statements
        included in this annual report for a discussion of our accounting
        policies.
  ***Allowance
        for Doubtful Accounts.***
  In
        connection with the preparation of our financial statements, management reviews
        and evaluates the collectibility of our trade receivables and adjusts our
        allowance for estimated uncollectible accounts as deemed necessary in the
        circumstances. These estimates have the potential for critically affecting
        the
        determination of results of operations for any given period. Factors considered
        by management in making such estimates and adjustments include any
        concentrations among customers, changes in our relationships therewith, payment
        history and the apparent financial condition thereof.
  -
            7
            -
 ***Revenue
        Recognition.***
  We
        recognize revenue from the sale of our products upon installation and functional
        testing at customer locations because that is when the customer’s obligation
        becomes fixed and certain pursuant to our standard contracts for the sale
        of
        units of the SecureDrop® System, shufflers and Deck CheckersTM. Sales are
        recognized immediately when shufflers that are rented are converted to purchases
        depending on the creditworthiness and payment history of the casino company
        since payment terms are from 20 to 48 months. The extended warranty and
        maintenance components that are part of long term sales contracts are unbundled
        and recognized as deferred revenue amortized over the remaining life of the
        sales agreement after the initial 90-day warranty as required by the *Emerging
        Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple
        Deliverables* .
        The
        useful life of our shufflers and Deck CheckersTM is five years with proper
        maintenance; the life can be extended with the replacement of component parts.
        If the customer does not possess the required creditworthiness or an established
        payment history with us, we would then book the revenue as an installment
        sale
        and recognize it over time as payments are received. Revenue from shuffler
        rentals is recorded at the first of each month in accordance with rental
        contract terms. All rental contracts are cancelable upon 30-day written notice
        by the customer. Maintenance expense for rental units is recorded in the
        period
        it is incurred. Although sales are not generally made with a right to return,
        upon occasion, usually associated with the performance warranty, sales returns
        and allowances are recorded after returned goods are received and inspected.
        We
        provide currently for estimated warranty repair costs associated with sales
        contracts. Although there are no extended warranties offered for our products,
        we do provide for maintenance contracts that are billed and recognized on
        a
        monthly basis.
  ***Intangible
        Assets.***
  We
        have
        acquired patent rights for various products since 2001 and acquired the patent
        rights for the Deck CheckerTM for $1,004,900 in the third quarter of 2003. We
        have estimated an economic useful life of 10 years for the Deck CheckerTM
        patents. We currently amortize our intangible assets on a straight-line basis
        over the estimated useful lives of 10 years.
  **Financial
        Condition** (Certain
        2004 amounts have been restated.)
  During
        the three months ended March 31, 2004, total assets decreased by $5,115,436
        from
        $24,160,178 at December 31, 2003 to $19,044,742 at March 31,
        2004. The
        decrease in total assets was due primarily to the $5,696,124 decrease in
        cash.
        Accounts receivable (trade) decreased from $2,354,054 to $1,919,199 between
        December 31, 2003 and March 31, 2004. The primary reason for the decrease
        in trade receivables was the reduction in shuffler rentals. Inventories
        increased during the current period by $574,987 from $4,150,414 at
        December 31, 2003 to $4,725,401 at March 31, 2004. The increase is
        primarily due to the ramping up of manufacturing in China for Deck CheckerTM
        units, shuffler production and the PokerOneTM Shuffler.
  Total
        liabilities decreased from $9,914,953 at December 31, 2003 to $5,970,252
        at
        March 31, 2004. Accounts payable decreased from $1,727,460 at December 31,
        2003 to $1,086,905 at March 31, 2004 primarily due to the payment of the
        final
        $500,000 for the intellectual property rights for the Deck CheckerTM and the
        payment of outstanding payables with funds received from the public offering
        in
        December of 2003. Convertible debt decreased from $2,368,077 at
        December 31, 2003 to $0 at March 31, 2004 due to the retirement
        of
        long- and short-term convertible debt through cash payments and conversion
        to
        common stock. Short-term debt decreased from $270,743 at December 31,
        2003
        to $236,350 at March 31, 2004 due to the repayment of short-term debt.
  -
            8
            -
 **Results
        of Operations** ****
  ***Comparison
        of Three Months Ended March 31, 2004 and 2003***  (Certain
        2004 amounts have been restated.)
  **Revenue**
  For
        the
        three months ended March 31, 2004, we generated total revenues of $785,987,
        compared to $1,935,358 for the three months ended March 31, 2003, a decrease
        of
        $1,149,371, or 59.4%. Our revenues for the three months ended March 31, 2004
        consisted of SecureDrop® sales of $47,063, shuffler rentals of $154,183,
        shuffler sales of $303,092, Deck Checker TM rentals
        of $56,880, Deck Checker TM sales of
        $135,996 and miscellaneous other revenues of $88,773. The decrease in revenue
        was primarily due to a decrease in SecureDrop® sales of $1,102,446, a decrease
        in shuffler rentals of $177,620, and a decrease in shuffler sales of $109,922
        offset by an increase in Deck Checker TM sales
        of
        $123,433.
  **Revenues
        - SecureDrop® Sales.** For
        the
        three months ended March 31, 2004, we generated revenue related to
        the sale
        of our SecureDrop® products of $47,063, compared to $1,149,509 for the three
        months ended March 31, 2003, a decrease of $1,102,446, or 95.9%. Due
        to the
        long lead time nature of SecureDrop® installations and the lack of executed
        contracts, the Company believes that the near term outlook will remain
        consistent with the first quarter of 2004.
  **Revenues
        - Shuffler Sales.** For
        the
        three months ended March 31, 2004, we generated revenue related to
        the sale
        of our shufflers of $303,092, compared to $413,014 for the three months ended
        March 31, 2003, a decrease of $109,922, or 26.6%. The majority of
        these
        sales were from the conversion of shufflers on rent to purchases through
        long-term sales agreements that range from 24-48 months. We made a strategic
        decision to offer our customers the choice to either continue renting or
        instead
        to purchase our shufflers for the same monthly payments. This decision was
        based
        on competitive forces in the marketplace and the anticipated introduction
        of our
        next generation shufflers in 2004. By offering some of our customers the
        ability
        to trade up to our new shuffler, the RandomPlus Ô Shuffler, when approved by the relevant regulatory bodies, we will be able
        to
        obtain binding purchase commitments for our shufflers and ensure that our
        products are not readily replaced with those of our competitors. We believe
        that
        conversions will not contribute to shuffler sales in the future to the same
        extent conversions did in 2003. The introduction of the new
        RandomPlus Ô Shuffler
        in the second half of 2004 will provide a needed addition to our product
        line. ****
  **Revenue
        - Shuffler Rentals.** For the
        three months ended March 31, 2004, we generated revenue related to
        the
        rental of our shufflers of $154,183, compared to $331,803 for the three months
        ended March 31, 2003, a decrease of $177,620, or 53.5%. The conversion
        of
        rental units to purchases reduced the number of shufflers that were rented
        throughout this quarter compared to the first quarter of 2003. The new
        RandomPlus Ô Shuffler
        that we anticipate introducing in the second half of 2004 will reverse the
        trend
        and increase the number of units that are rented.
  **Revenue
        - Deck Checker** **TM** **.** For
        the
        three months ended March 31, 2004, we generated revenue related to
        the sale
        of our Deck Checker TM of
        $135,996 and revenue related to the rental of Deck Checkers TM of
        $56,880. As the Deck Checker TM was
        introduced in the second quarter of 2003, we expect Deck Checker TM sales
        will continue to grow as the number of jurisdictions where we can sell the
        product increases and with the anticipated acceptance of the product in the
        casino industry.
  **Revenue
        - Other Income.** For
        the
        three months ended March 31, 2004, we generated other revenues of
        $88,773,
        compared to income of $28,469 for the three months ended March 31,
        2003, an
        increase of $60,304. The primary driver for the increase was the sale of
        supplies for SecureDrop® and the Deck CheckerTM. The upward trend will continue
        for these consumables as we increase the installed base.
  -
            9
            -
 **Cost
        of Sales**
  For
        the
        three months ended March 31, 2004, our cost of sales was $714,879,
        compared
        to $1,355,646 for the three months ended March 31, 2003, a decrease
        of
        $640,767, or 47.3%. Our cost of sales for the three months ended March 31,
        2004 included cost of SecureDrop® sales of $103,969, cost of shuffler sales of
        $39,560, shuffler rental depreciation of $55,200, shuffler service costs
        of
        $325,483, manufacturing costs of $90,270, Deck Checker TM costs of
        $37,798, Deck Checker TM rental
        depreciation of $6,660, warranty costs of $7,901 and other expenses of $48,038.
        The manufacturing of products in China will continue the trend of reducing
        cost
        of sales. The gross margin on revenue for the three months ended March 31,
        2004 was $71,108, or 9.0%, compared to the gross margin on revenue for the
        year
        ended March 31, 2003 of $579,712, or 30.0%. The decrease in gross
        profit of
        $508,604 from the three months ended March 31, 2003 to the three months
        ended March 31, 2004 reflects the decreased revenue.
  **Cost
        of Sales - SecureDrop** ® **Sales.** Our cost
        of SecureDrop® **** sales
        revenue was $103,969 for the three months ended March 31, 2004 compared
        to
        $468,558 for the three months ended March 31, 2003, representing a
        decrease
        of $364,589, or 77.8%. The gross margin percentage on revenue from
        SecureDrop® **** sales
        revenue was (120.9%) in the three months ended March 31, 2004 compared
        to
        59.2% for the three months ended March 31, 2003. The decrease in gross
        margin percentage on SecureDrop® is attributed to the fixed costs associated
        with the installation team combined with the low revenue. The introduction
        of
        components built at our China facility and increased revenue volume in the
        longer term will improve the margins in the future.
  **Cost
        of Sales - Shuffler Sales.** Our cost
        of shuffler **** sales
        revenue was $39,560 for the three months ended March 31, 2004 compared
        to
        $105,222 for the three months ended March 31, 2003, representing a
        decrease
        of $65,662, or 62.4%. The decrease in the cost of shuffler **** sales
        revenue was due to the decreased placement of shuffler **** units
        during the three months ended March 31, 2004. The gross margin percentage
        on revenue from shuffler **** sales
        revenue was 86.9% in the three months ended March 31, 2004 compared
        to
        74.5% for the three months ended March 31, 2003. The conversion of
        existing
        rental shufflers to purchases that had low book values due to depreciation
        reduced the product cost.
  **Cost
        of Sales - Deck Checker** **TM** **Sales.** Our
        cost
        of Deck Checker TM sales
        revenue was $37,798 for the quarter ended March 31, 2004. The gross
        margin
        percentage on revenue from Deck Checker TM sales
        revenue was 72.2%. The year 2003 was the introductory year for the Deck
        Checker TM product.
        We anticipate the move of the manufacture of the Deck Checker TM to China
        will improve the current margins.
  **General
        and Administrative Expense**
  For
        the
        three months ended March 31, 2004, our general and administrative
        expenses
        were $1,470,484, compared to $1,082,444 for the three months ended
        March 31, 2003, an increase of $388,040, or 35.8%. The increase in
        general
        and administrative expenses related primarily to a $425,200 increase in salaries
        and related costs, a $64,600 increase in consulting and accounting expense,
        a
        $51,200 increase in travel and entertainment expenses, a $99,200 increase
        in
        depreciation , offset by a $54,900 decrease in legal and regulatory expenses,
        a
        $94,600 decrease in rent, and a $130,300 decrease in other expenses. The
        addition of new staff in the finance and executive departments is responsible
        for the majority of the increase in payroll expenses.
  Our
        general and administrative expenses for the three months ended March 31,
        2004 consisted of the following: salaries and related costs of $786,600;
        consulting and accounting services of $101,300; advertising and marketing
        costs
        of $5,900; travel and entertainment costs of $180,200; gaming industry show
        costs of $41,100; rent of $50,900; repairs and maintenance expense of $13,900;
        supplies of $25,400 legal and regulatory expenses of $197,900; insurance
        expenses of $27,700; depreciation and amortization of $161,400; and other
        expenses of $(121,700).
  -
            10
            -
 **Research
        and Development Expense**
  For
        the
        three months ended March 31, 2004, research and development expenses
        were
        $343,702, compared to $285,989 for the three months ended March 31,
        2003, a
        increase of $57,713, or 20.2%. The development of the RandomPlusTM shuffler and
        PokerOneTM will require an increase in R&D expenses in the near term. The
        transition of the R&D staff from Las Vegas has begun and will accelerate to
        the point that most development will occur at our facility in China.
  **Interest
        Expense**
  For
        the
        three months ended March 31, 2004, we incurred interest expenses of
        $277,145, compared to $657,497 for the three months ended March 31,
        2003, a
        decrease of $380,352, or 57.8%. This decrease was primarily attributable
        to the
        reduced debt service as a result of a decrease in our outstanding indebtedness
        during the three months ended March 31, 2004. The retirement and conversion
        of $20,331,995 in 2003 and early 2004 will continue to reduce this expense
        if we
        do not incur additional debt.
  **Net
        Loss**
  For
        the
        three months ended March 31, 2004, we had a net loss of $2,019,656
        compared
        to a net loss of $1,446,218 for the three months ended March 31, 2003,
        an
        increase of $573,438, or 39.7%. The increase in net loss was primarily due
        to a
        $508,604 decrease in gross margin and a $388,040 increase in general and
        administrative expenses. Basic loss per share was $0.12 for the three months
        ended March 31, 2004, compared to $0.19 for the three months ended
        March 31, 2003.
  **Liquidity
        and Capital Resources**
  Because
        of our efforts to transition from a development stage company to an operating
        company, we have generated substantial cash flow deficits from operations,
        including cash used in operating activities of $3,415,833, $11,731,150 and
        $5,206,489 in the three months ended March 31, 2004 and the years
        ended
        December 31, 2003 and 2002, respectively. In addition, to fund our
        development and operating activities, we have been provided cash by financing
        activities of $23,047,432 and $6,683,001 during the years ended
        December 31, 2003 and 2002, respectively. We have used cash of $2,204,349
        in financing activities during the three months ending March 31, 2004
        for
        the repayment of leases payable, short-term debt, and convertible
        debt.
  Consequently,
        we have been substantially dependent on cash from financing activities to
        fund
        our development and operating activities. We will continue to require cash
        from
        financing activities for our current operating needs until our operations
        generate sufficient cash flow to provide for such cash requirements.
  **Sources
        of Capital**
  In
        the
        event our cash on hand plus cash from operations be insufficient during future
        periods, we anticipate relying upon private and institutional sources of
        debt
        and equity, and we may seek public, private and institutional sources of
        capital
        for working capital purposes. During the years ended December 31, 2003 and
        2002,
        our sources of capital included a public stock offering, equipment financing
        from a third party, short-term notes from stockholders, convertible debentures
        and other private sources of capital.
  -
            11
            -
 With
        respect to our equipment financing where we have sold and leased back most
        of
        our furniture, equipment, tooling and shufflers held for rent, we have repaid
        $603,610 for the three months ending March 31, 2004, received proceeds
        of
        $2,988,385 and repaid $2,823,331 for the year ended December 31, 2002
        and
        have received proceeds of $989,820 and repaid $2,754,607 for the year ended
        December 31, 2003. As of March 31, 2004, we had outstanding
        equipment
        financing of $3,550,186. These equipment leases have terms of 36 to 39 months
        and were not recorded as sales because each of the leases included a mandatory
        buy-back provision.
  With
        respect to our short-term debt, we have received proceeds of $2,264,871 and
        repaid $650,000 for the year ended December 31, 2002 and have received
        proceeds of $7,400,000 and repaid $1,310,000 for the year ended December
        31,
        2003 and have repaid $34,393 for the three months ended March 31,
        2004. As
        of March 31, 2004, we had outstanding short-term loans in the aggregate
        amount of $236,350. Prior to 2003, we were substantially dependent on short-term
        loans from our principal stockholder and other directors. Despite such reliance,
        neither our principal stockholder nor our directors are obligated to provide
        additional financing to us, and our principal stockholder and directors are
        free
        to decline to fund additional financings to us at any time. In such event
        and in
        the absence of third party financing sources, we may have substantial
        difficulties in raising additional financings.
  With
        respect to our convertible debentures, we received proceeds of $4,903,076
        and
        $11,050,000 during the years ended December 31, 2002 and 2003,
        respectively, and have completely retired the convertible debentures as of
        March 31, 2004.
  With
        respect to the public offering of common stock in December 2003, we sold
        5,500,000 shares at $5.00 per share to raise approximately $27,500,000. The
        net
        proceeds after all offering and commission expenses were
        $24,800,000.
  **Outlook**
  Our
        ability to maintain adequate liquidity may be dependent upon the success
        of
        management’s plans to address and overcome prior operating losses. Management
        has developed and refined its 2004 operating plan to increase its sales by
        expanding its product line and improving its sales efforts domestically and
        internationally. Increased sales in the year ended December 31, 2003
        show
        increased acceptance of our product line. Management has adopted efforts
        to
        reduce operating costs through the transfer of manufacturing operations to
        China
        and restructuring service functions to reduce labor and rental expense.
        Management has focused on financial condition and liquidity improvements
        through
        its capital raising efforts in 2003 along with substantial debt reduction
        and
        debt conversion, resulting in an improved cash position and substantially
        reduced indebtedness at March 31, 2004. As a result of anticipated
        sales
        improvements and operating cost initiatives, management believes that we
        will
        begin to generate positive operating cash flow by the end of 2004. In addition,
        our financial advisors have expressed confidence that additional capital
        can be
        raised by us, if necessary, in 2004 and we have received a one-year commitment
        for a $3.0 million lease line of credit.
  Based
        on
        presently known commitments and plans, we believe that we will be able to
        fund
        our operations and required expenditures through the fourth quarter of 2004
        through cash on hand, cash flow from operations, and cash from private
        placements of debt or equity or from lease financing sources. **** In
        the
        event that such sources are insufficient or unavailable, we will need to
        seek
        cash from public or private placements of debt or equity, institutional or
        other
        lending sources, sell certain assets or change operating plans to accommodate
        such liquidity issues. No assurances can be given that we will successfully
        obtain liquidity sources necessary to fund our operations in the upcoming
        year.
        If we continue to generate significant losses from our operations and we
        are not
        able to located additional sources of liquidity, we may be unable to continue
        as
        a going concern.
  -
            12
            -
 **Risk
        Factors**
  **Risks
        Related to VendingData**
  ***Given
        our recurring losses and accumulated deficits, we must manage our
        liquidity.***
  Our
        financial statements report recurring losses and accumulated deficits. Based
        on
        presently known commitments and plans, we believe that we will be able to
        fund
        our operations and required expenditures through the fourth quarter of 2004
        from
        cash on hand, cash flow from operations and cash from debt or equity financings
        or from lease financing sources. The completion of the offering of 5,500,000
        shares of common stock in December 2003 allowed us to pay off all bridge
        financing, to convert approximately $5,730,000 of our convertible debt and
        accrued interest, to repay our convertible debt, to retire $7,500,000 of
        our
        convertible 10% senior notes and still have adequate funds available with
        which
        to fund additional product inventory, and use for general corporate purposes.
        If
        we are unable to generate a sufficient amount of sales of our products to
        fund
        our operations, we will need to seek cash from private or public placements
        of
        debt or equity, institutional or other lending sources, to sell certain assets
        or to change operating plans to accommodate our liquidity issues. We may
        not be
        able to obtain other liquidity sources as may be necessary to fund our
        operations in the future.
  ***We
        have a history of significant operating losses and anticipate continued
        operating losses, and we may be unable to achieve
        profitability.***
  We
        have a
        history of significant operating losses and anticipate continued operating
        losses for the foreseeable future. For the three months ended March 31, 2004
        and
        years ended December 31, 2003 and 2002, we have incurred net losses
        of
        $2,019,656, $7,812,089 and $6,192,786, respectively, and our operations have
        used $3,415,833, $11,731,150 and $5,206,489 of cash, respectively. As of
        March
        31, 2004, December 31, 2003 and 2002, we had accumulated deficits
        of
        $46,602,005, $44,582,347 and $36,770,258, respectively. If we are unable
        to
        generate a positive cash flow in 2004, we will be required to locate additional
        sources of capital. If our revenues do not increase very substantially, or
        if
        our spending levels exceed our expectations, we will not become profitable.
        Revenues may not grow in the future, and we may not generate sufficient revenues
        for profitability. If we become profitable, we may not be able to sustain
        profitable operations.
  ***Even
        if our operations do not become profitable, we will continue to be obligated
        to
        pay our management substantial salaries and benefits.***
  We
        currently compensate our executive officers and significant employees with
        substantial salaries and other benefits and, in the future, may pay increased
        salaries and benefits. In 2003, we paid an aggregate amount equal to
        approximately $1,300,000 to our executive officers and significant employees.
        In
        June and July 2003, we extended our employment agreements for an additional
        five
        years with Mr. Blad and an additional three years with seven other
        key
        employees. In February 2004, we expanded our management team with the hiring
        of
        H. Michael Jahnke as our Chief Operating Officer. We intend to continue to
        pay
        substantial salaries and benefits to Mr. Blad and certain of our other
        executive officers and employees. The payment of such compensation and benefits
        may be a burden on us and may be a factor in limiting or preventing our
        profitability. Upon the expiration of those employment agreements, we may
        elect
        to continue compensating management with similar or higher salaries and other
        benefits.
  ***The
        demand for our products may be insufficient to generate enough revenues to
        sustain our operations.***
  If
        we
        fail to generate sufficient demand for our products, we may be unable to
        sustain
        operations or generate a return to investors. Until January 2000, we were
        in the
        development stage and derived minimal revenues from our products. Currently
        we
        are an operating company that continues to develop new products. Since January
        2000, our activities have been limited to analyzing and consulting with persons
        in the gaming industry, developing and manufacturing new products, establishing
        distribution networks for our products, marketing our products to the gaming
        industry, and commencing product sales. During such time, we have derived
        only
        limited revenues, which have been insufficient to sustain our operations.
        We may
        not generate sufficient revenue to sustain our operations. No independent
        organization has conducted market research providing management with independent
        assurance from which to estimate potential demand for our products. The overall
        market may not be receptive to our products, and we may not successfully
        compete
        in the target market for our products.
  -
            13
            -
 ***The
        market has not yet demonstrated significant acceptance of our SecureDrop® System
        or the Deck Checker*** **Ô** **,
        and these products may never receive market acceptance.**
  We
        have
        not yet demonstrated significant market acceptance of our SecureDrop® System or
        the Deck CheckerTM and may be unable to do so. We have only sold our SecureDrop®
        Hard Count Module to a small number of casinos. The SecureDrop® System Soft
        Count Module has been slow to sell outside Nevada. Even though we have sold
        units of the SecureDrop® System to various customers in prior periods, newer
        versions of SecureDrop® products were in beta tests through most of 2002. We
        believe that certain barriers and problems occurred that caused us to have
        problems breaking into the market, including a longer than expected sales
        cycle,
        product flaws that we subsequently corrected, and the resistance of gaming
        company customers to the implementation of unproven technologies. We have
        only
        placed 77 Deck CheckerTM units (including 19 rentals) as of March 31, 2004.
        The commercial success of our SecureDrop® System and Deck CheckerTM will depend
        upon the degree of market acceptance of these products in the gaming community
        and will depend on a number of factors, including:
  ·
              demonstration
                  of effectiveness and reliability;
  ·
              the
                  prevalence and severity of any quality problems or defects in the
                  early
                  stage of introduction that were not anticipated in the design of
                  those
                  products;
  ·
              effectiveness
                  of our marketing and distribution capabilities;
  ·
              ability
                  to promptly service and repair the products; and
  ·
              receipt
                  of approval by respective gaming
                  jurisdictions.
  If
        we
        fail to expand our sales and leases for our SecureDrop® System and our Deck
        CheckerTM, we may be unable to generate sufficient revenues to continue to
        operate our business.
  ***Our
        revenues and receivables are concentrated among a few major customers, which
        means that our financial condition could deteriorate if any meaningful reduction
        in the level of sales to any of these customers occurs.***
  We
        are
        substantially dependent upon sales to a few major customers. In the first
        quarter 2004 and in the fiscal year 2003, Caesars Entertainment, Inc. (formerly
        Park Place Entertainment Corporation), our largest customer, accounted for
        more
        than 10% of our revenues. During the three months ending March 31, 2004,
        approximately 19.6% of trade receivables and 18.4% of total sales and during
        the
        year ended December 31, 2003, approximately 17.6% of trade receivables
        and
        13.3% of total sales were concentrated in the Nevada gaming industry among
        five
        customers under the common ownership of Caesars Entertainment, Inc. Any adverse
        changes in the financial condition of our major customers, any loss of our
        major
        customers, or any meaningful reduction in the level of sales to any of these
        customers could have a materially adverse impact on us.
  -
            14
            -
 ***The
        acceptance and expansion of coinless gaming may adversely affect the demand
        for
        our SecureDrop® Hard Count Module.***
  Certain
        gaming operators have tested and employed as part of their current operations
        certain gaming devices that have totally eliminated the use of coins or tokens,
        or use a combination of coins and “cashless” vouchers. The acceptance and
        expansion of totally coinless gaming devices may reduce the demand for the
        SecureDrop® Hard Count Module, which is based on coin usage, and may adversely
        affect our operations in the future. For example, International Game Technology
        has introduced the EZ-PayTM system, which 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-PayTM system or similar systems. Due to positive customer
        response, the number of slot operations with online systems that use coinless
        gaming systems continues to grow. However, while SecureDrop® Hard Count Module
        sales may be adversely impacted, we believe demand for our SecureDrop® Soft
        Count Module has been enhanced.
  ***We
        place our leased shufflers in casinos under short-term lease arrangements,
        which
        make these products susceptible to replacement due to pressure from competitors,
        changes in economic conditions, obsolescence and declining
        popularity.***
  All
        of
        our leased shufflers are placed with customers under short-term lease
        arrangements, which, unlike long-term leases or permanent sales of our products,
        can easily be terminated by a dissatisfied customer. The manner in which
        such
        short-term leases are structured puts our shufflers at greater risk of
        replacement due to pressure from competitors, changes in economic conditions,
        obsolescence and declining popularity. Casino operators may terminate the
        use of
        our products, and we may not be able to maintain and expand the number of
        installed shufflers through enhancement of existing shufflers, introduction
        of
        new shufflers, customer service or otherwise. Our ability to compete may
        be
        damaged, and our revenues may be reduced if we are unable to protect our
        intellectual property rights adequately.
  Our
        success depends upon maintaining the confidentiality and proprietary nature
        of
        our intellectual property rights. Our ability to compete may be damaged,
        and our
        revenues may be reduced if we are unable to protect our intellectual property
        rights adequately. To protect these rights, we rely principally on a combination
        of:
  ·
              contractual
                  arrangements providing for non-disclosure and prohibitions on
                  use;
  ·
              patents
                  and pending patent applications;
  ·
              trade
                  secret, copyright and trademark laws;
                  and
  ·
              certain
                  built-in technical product
                  features.
  Patent,
        trade secret, copyright and trademark laws provide limited protection. The
        protections provided by laws governing intellectual property rights do not
        prevent our competitors from developing, independently, products similar
        or
        superior to our products and technologies. In addition, effective protection
        of
        copyrights, trade secrets, trademarks, and other proprietary rights may be
        unavailable or limited in certain foreign countries. We may be unaware of
        certain non-publicly available patent applications, which, if issued as patents,
        could relate to our services and products as currently designed or as we
        may
        modify them in the future. Legal or regulatory proceedings to enforce our
        patents, trademarks or copyrights could be costly, time consuming, and could
        divert the attention of management and technical personnel.
  -
            15
            -
 ***Adverse
        results in current litigation could result in substantial monetary damages
        and
        adversely impact the manufacture and sale of certain of our shuffler products.***
  Shuffle
        Master, Inc., our principal competitor in the shuffler market, has sued us
        for
        patent infringement and alleges that our shufflers violate two of its patents
        concerning registering use of a playing card shuffler apparatus and the
        displaying of the use on a display. Shuffle Master seeks treble damages,
        which,
        if awarded, could result in us owing it substantial sums of money, and, if
        large
        enough, could have a material adverse effect on our liquidity and our ability
        to
        conduct operations. Although we believe our position to be meritorious,
        litigation of this nature is a drain on our cash resources and our management’s
        time. Inasmuch as Shuffle Master has asserted patent infringement claims
        and we
        have reasonable defenses to the same, we cannot determine whether we will
        prevail in this litigation, nor whether damages, if awarded, would significantly
        impact our ability to continue to manufacture and sell particular products
        within the United States and its territories. If we do not prevail, we will
        be
        unable to sell our shuffler products unless we change certain components
        used in
        the shufflers or obtain a license from Shuffle Master to use the playing
        card
        shuffler apparatus and the display. Similarly, we cannot determine whether
        Shuffle Master will assert other litigation claims based upon other patents
        it
        may currently or in the future own, nor can we determine the likely outcome
        of
        any such litigation or whether any such substantial litigation would have
        a
        material adverse effect on our business as presently conducted or as
        anticipated.
  ***We
        believe that it is likely that our PokerOneTM Shuffler will be the subject of
        future patent litigation if the product is sold and installed in the United
        States and, if commenced, could subject us to continuing litigation costs
        and
        risks.***
  Other
        than the allegations made by Shuffle Master, Inc. discussed above, we are
        not
        aware of any claims or basis for our current products infringing on the
        proprietary rights of third parties. To the extent that we introduce new
        products that incorporate the same or similar technology, it is likely that
        Shuffle Master, Inc. will bring one or more claims against us seeking damages,
        injunctive or other equitable relief, or both. Moreover, we believe that
        it is
        reasonably likely that if we introduce the PokerOneTM Shuffler in the United
        States, Shuffle Master will bring one or more claims against us seeking various
        remedies at equity or law. We cannot predict the outcome of any future
        litigation that may occur.
  If
        our
        future products incorporate technology that infringes the proprietary rights
        of
        third parties and we do not secure licenses from them, we could be liable
        for
        substantial damages that would cause a material reduction in revenues and
        impair
        our prospects for achieving growth and profitability.
  In
        furtherance of the development of our services or products, we may need to
        acquire licenses for intellectual property to avoid infringement of third
        party
        rights or claims of infringement. These licenses may not be available on
        commercially reasonable terms, if at all. Claims for infringement, if made,
        could damage our business prospects, our results of operations and financial
        condition, whether or not the claims have merit, by:
  ·
              consuming
                  substantial time and financial resources required to defend against
                  them;
  ·
              diverting
                  the attention of management from growing our business and managing
                  operations;
  ·
              resulting
                  in costly litigation; and
  ·
              disrupting
                  product sales and shipments.
  If
        any
        third party prevails in an action against us for infringement of its proprietary
        rights, we could be required to pay damages and either enter into costly
        licensing arrangements or redesign our products so as to exclude the infringing
        technology. As a result, we would incur substantial costs and delays in product
        development, sales and shipments, our revenues may decline substantially
        and we
        may not be able to achieve the growth required for us to achieve
        profitability.
  -
            16
            -
 ***Our
        failure to compete successfully against innovative competitors or new entrants
        could adversely impact our ability to sell our products and generate revenues.***
  Our
        market is characterized by changing technology, periodic product obsolescence
        and continuous protection of proprietary technology. Our success will depend
        upon our ability to sell our current products, and to develop successor systems.
        We will need to introduce new products and features in a timely manner to
        meet
        evolving customer requirements. We may not succeed in these efforts. Even
        if we
        succeed, products or technologies developed by others may render our products
        or
        technologies noncompetitive or obsolete, which would impair our ability to
        sell
        our products and reduce our revenue.
  ***Our
        inability to complete the development of our specialty game shuffler could
        adversely impact potential revenue growth.***
  We
        may
        not be able to complete development of the PokerOneTM Shuffler. We are continuing
        to fine tune this product, and we plan to start the testing phase in Asia
        by the
        end of the second quarter of 2004. We have expended significant time and
        resources into the development of this product, and our failure to bring
        about a
        viable product may limit our long-term revenue growth in our shuffler product
        line.
  ***Scrutiny
        and attempts by third parties to compromise our products’ security, if
        successful, could injure product demand and force us to take back impacted
        products.***
  In
        the
        event that our products become susceptible to attacks by third parties that
        result in a decrease or compromise of the security of our customers’ operations,
        we will most likely be required to take back our products from existing
        customers and will lose sales and rentals from prospective customers. Although
        we have tested our products for security and our products have been tested
        by
        certain gaming regulators as part of the approval process, our products may
        be
        susceptible to schemes by third parties to defraud the properties where our
        products are used. Vulnerabilities in the security of our products will almost
        certainly reduce demand for these products. Our shufflers may become vulnerable
        to card counters or expert players, and the use of our shufflers may result
        in
        financial losses for our customers. The occurrence of any of these events
        would
        likely have a material adverse effect on our sales revenues.
  ***Any
        conditions that adversely affect the gaming industry could also have a material
        adverse effect on demand for our products.***
  The
        success of our business depends solely on the gaming industry where revenues
        are
        sensitive to general economic conditions and generally rise or fall rapidly
        in
        relation to the condition of the overall economy. Although we cannot accurately
        estimate the economic impact of past or future terrorist attacks or current
        international conflicts at this time, the gaming industry has been negatively
        affected by the reduction in air travel and tourism, and we expect that any
        significant decline in the economic health or growth of the gaming industry
        will
        reduce demand for our products.
  ***We
        are unable to predict the future impact that extraordinary events, such as
        terrorism, the uncertainty of war and worldwide health concerns, may have
        on our
        business and operations.***
  Extraordinary
        events, such as terrorist attacks, acts of war or worldwide health concerns,
        may
        cause damage or disruption to our operations, which, in turn, could
        significantly impact our revenues, costs and expenses, and financial condition.
        The terrorist attacks that took place in the United States on September 11,
        2001 were unprecedented events that have created many economic and political
        uncertainties, especially to the gaming industry, some of which have materially
        adversely affected our business, results of operations, and financial condition
        and may do so again in the future. In particular, the gaming industry has
        been
        affected by the downturn in the tourist industry as a result of the
        September 11, 2001 attacks. Because our business is directly tied
        to the
        gaming industry, the long-term effects from the September 11, 2001
        attacks
        are unknown. The potential for future terrorist attacks, the national and
        international responses to terrorist attacks, other acts of war or hostility
        and
        concerns about the spread of certain diseases, including severe acute
        respiratory syndrome, or SARS, have created many economic and political
        uncertainties, which could materially adversely affect our business, results
        of
        operations and financial condition in ways that we currently cannot
        predict.
  -
            17
            -
 ***Supply
        interruption from our manufacturing facility in China could cause us to fail
        to
        supply customer orders on a timely basis.***
  We
        have
        centralized most phases of the manufacturing process for our products at
        our own
        facility in Xiaolan Town in Zhongshan City, China. We will be adversely impacted
        if there is an interruption in our ability to receive components or inventory
        from, or a material increase in labor costs in, China. Factors that may cause
        a
        supply interruption include political unrest, closure of ports, worldwide
        health
        concerns, including SARS, and other events beyond our control. In the event
        that
        our manufacturing operations in Xiaolan Town are interrupted, our ability
        to
        fill orders, ship such orders and realize the revenues therefrom could be
        adversely affected.
  ***Our
        efforts to expand into international markets pose special risks that could
        adversely affect all of our business.***
  As
        a
        result of the opening of our manufacturing facility in China, we are currently
        operating in international markets, and we propose to further expand our
        international sales and operations. Engaging in business outside the United
        States will subject us to the customary risks of doing business in foreign
        countries. These risks include fluctuations in foreign currency exchange
        rates
        and controls, competitive disadvantages to established foreign businesses
        with
        significant current market share and business/customer relationships,
        nationalization and other economic, tax and regulatory policies of local
        governments and the possibility of trade embargoes, political instability
        or war
        or other hostility, as well as the laws and policies of the United Sates
        affecting foreign trade and investment. Any one or more of these factors
        could
        materially adversely affect our ability to conduct business outside the United
        States and therefore our business as whole.
  ***Our
        reliance on distributors in international markets and our limited sales
        experience in foreign countries could cause us to lose sales and collections
        on
        such sales.***
  In
        general, substantially all sales of our products outside the United States
        are
        achieved through distributor relationships. We believe the distributors that
        we
        have engaged are experienced and reputable, however, if we are unable to
        manage
        these relationships, our ability to generate revenue and profits in the non-U.S.
        market may be adversely affected. To the extent that we engage in direct
        sales
        outside the United States, we have limited sales experience and history in
        foreign markets.
  ***Due
        to our management’s controlling interest in our common stock, our management has
        the power to control all matters submitted to our stockholders, which renders
        non-management stockholders’ efforts to effect substantial changes in our
        company more difficult.***
  Our
        executive officers and members of our board beneficially own approximately
        9,139,944 shares of common stock, or approximately 50.5% of the outstanding
        shares of our common stock, assuming exercise or conversion of all options,
        warrants and convertible debentures held by our executive officers and members
        of our board that are exercisable within 60 days of March 1, 2004. Accordingly,
        these stockholders have the power to control **** all
        matters requiring approval by our stockholders, including the election of
        directors and approval of mergers and other significant corporate transactions.
        This concentration of ownership also has the effect of delaying, preventing
        or
        expediting, as the case may be, a change in control of our company.
  -
            18
            -
 ***The
        loss of our executive officers, significant employees or certain members
        of our
        management could adversely impact our operations.***
  Our
        success is substantially dependent upon the efforts and skills of Steven J.
        Blad, our chief executive officer and president, H. Michael Jahnke, our chief
        operating officer, and John R. Spina, our chief financial officer
        and
        treasurer. We have entered into employment agreements with Messrs. Blad
        and
        Spina and nine other executive officers and significant employees. However,
        if
        we were to lose the services rendered by any of our executive officers or
        significant employees, key management, product development and sales functions
        could be adversely affected. In addition, we compete with other potential
        employers for employees, and we may not succeed in hiring and retaining the
        executives and other employees that we need. An inability to hire and retain
        quality employees could have a material adverse effect on our business,
        financial condition and results of operations.
  **Risks
        Related to Our Industry**
  ***We
        face intense competition from companies with longer operating histories,
        greater
        resources and more established brand names that could use such advantages
        to
        lower our market share and reduce our revenues.***
  There
        is
        significant competition in the shuffler market, where we compete with
        established companies and other entities, most of which possess substantially
        greater resources than we do. Almost all of the companies with which we compete
        in the shuffler market are substantially larger, have more substantial
        histories, backgrounds, experience and records of successful operations,
        greater
        financial, technical, marketing and other resources, more employees and more
        extensive facilities than we now have, or will have in the foreseeable future.
        It is also likely that other competitors will emerge in the near future.
        Other
        companies may develop products competitive to our SecureDrop® System. We may not
        be able to compete successfully with other established gaming product
        manufacturers. If we are unable to compete successfully it will likely result
        in
        loss of market share and lower revenues, or increases in operating costs,
        such
        as marketing costs.
  ***We
        face extensive regulation from gaming and other government
        authorities.***
  The
        gaming industry is a highly regulated industry and is subject to numerous
        statutes, rules and regulations administered by the gaming commissions or
        similar regulatory authorities of each jurisdiction. Generally, companies
        that
        seek to introduce gaming products or concepts into such jurisdictions may
        be
        required to submit applications relating to their activities or products
        (including detailed background information concerning controlling persons
        within
        their organization), which are then reviewed for approval. In this regard,
        we
        may incur significant expenses in seeking to obtain licenses for our gaming
        products and concepts, and our products may not be approved in all
        jurisdictions. The failure to obtain such approval in any jurisdiction in
        which
        we may seek to introduce our products or concepts could have a material adverse
        effect on our business. In addition, any change to the applicable statutes,
        rules and regulations that restricts or prevents our ability to operate could
        have an adverse effect on us.
  ***Any
        person who is the beneficial owner of our common stock or with whom we have
        a
        material relationship that fails or refuses to apply for a finding of
        suitability, or that is found unsuitable for licensing, would be required
        to
        dispose of all of our stock.***
  Certain
        gaming regulatory agencies to which we are subject may investigate any
        beneficial holder of our voting securities (regardless of the numbers of
        shares
        owned), and any individual who has a material relationship or involvement
        with
        us, in order to determine whether such individual is suitable or should be
        licensed as a business associate of ours. In addition, the gaming authorities
        of
        various jurisdictions may require our officers, directors and certain key
        employees to be licensed or found suitable by these gaming authorities, which
        would require these officers, directors and key employees to submit detailed
        background information. Any person who fails or refuses to apply for a finding
        of suitability or a license after being ordered to do so by gaming regulatory
        agencies may be found unsuitable, and we could be subject to adverse regulatory
        action. In the event that the gaming authorities were to find an officer,
        director, key employee, stockholder, or any other individual that has a material
        relationship with us, unsuitable for licensing or unsuitable to continue
        having
        a relationship with us, we would have to sever all relationships with that
        individual, and that individual would be required to dispose of all of our
        stock. This could result in the loss of key persons critical to our success
        or
        in significant selling pressure on our stock if such persons are required
        to
        dispose of shares of our common stock in an amount that exceeds typical trading
        volumes in our shares.
  -
            19
            -
 ***Our
        focus on products for the gaming industry subjects us to greater risk than
        we
        would have if we marketed our products to multiple industries.***
  We
        design
        and manufacture products and concepts solely for the gaming industry and
        depend
        almost exclusively on our ability to generate revenues from the rental or
        sale
        of our products to customers in the gaming industry. The economic health
        of the
        gaming industry, and, therefore, our revenues, are affected by a number of
        factors beyond our control, including:
  ·
              general
                  economic conditions, such as recession, inflation, business cycle
                  fluctuations and interest rates;
  ·
              levels
                  of disposable income of gaming property
                  patrons;
  ·
              acts
                  of terrorism and anti-terrorism
                  efforts;
  ·
              increased
                  transportation costs resulting in decreased travel by gaming
                  patrons;
  ·
              changes
                  or proposed changes in tax laws;
  ·
              legal
                  and regulatory issues affecting the development, operation and
                  licensing
                  of our gaming customers; and
  ·
              competitive
                  conditions in the gaming industry.
  These
        factors may adversely impact the demand for our products and materially affect
        the revenues that we realize on the sale or placement of our
        products.
  **Risks
        Related to Our Common Stock**
  ***There
        has only recently been a public market for our common stock, so our stockholders
        may be unable to dispose of their investment, or may lose the total value
        of
        their investment.***
  There
        had
        been no trading market for our common stock until September 10, 2003,
        when
        our common stock became eligible for quotation on the OTC Bulletin Board.
        Due to
        the limited trading history of our common stock, an active trading and/or
        a
        liquid market may not be maintained. Moreover, in the event that we are unable
        to continue as a going concern and we are dissolved or otherwise terminated,
        you
        could lose your entire investment in our common stock. Investment in our
        common
        stock is at risk of complete loss if our operations are unsuccessful.
  Historically,
        our common stock has been deemed to be “penny stock” as that term is defined in
        Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, or the
        Exchange Act. Penny stock may be more difficult for investors to resell.
        Penny
        stocks are stocks:
  ·
              with
                  a price of less than $5.00 per
                  share;
  ·
              that
                  are not traded on a “recognized” national exchange (exchange-listed
                  securities must still have a price of not less than $5.00 per
                  share);
  ·
              whose
                  prices are not quoted on the Nasdaq automated quotation system
                  (Nasdaq-listed stock must still have a price of not less than $5.00
                  per
                  share); or
  ·
              from
                  issuers with net tangible assets less than $2.0 million (if the
                  issuer has
                  been in continuous operation for at least three years) or $5.0
                  million (if
                  in continuous operation for less than three years), or with average
                  revenues of less than $6.0 million for the last three
                  years.
  -
            20
            -
 Although
        our AMEX listing application has been approved and our common stock began
        trading on the AMEX on May 4, 2004, since the closing price for our common
        stock
        is less than $5.00 per share, our common stock is deemed to be penny stock
        for
        purposes of Section 15(b)(6) of the Exchange Act. Federal rules and regulations
        generally impose additional sale practice and disclosure requirements and
        penalties on broker/dealers and persons associated with or seeking to become
        associated with such broker/dealers who sell or recommend penny stocks to
        certain investors. These requirements may reduce the potential market for
        our
        common stock by reducing the number of potential investors, and any or all
        of
        these factors may make it more difficult for investors in our common stock
        to
        sell shares to third parties or to otherwise dispose of them and could cause
        our
        stock price to decline. Moreover, broker/dealers are required to determine
        whether an investment in a penny stock is a suitable investment for a
        prospective investor and receive the investor’s written consent to the
        transaction.
  ***Investors
        seeking guaranteed dividend-paying investments should not invest in our common
        stock.***
  Our
        operations may not become profitable. If we become profitable, we intend
        to use
        any earnings that may be generated to finance the growth of our business.
        Any
        payment of future dividends will be at the discretion of our board of directors
        and will depend on, among other things, our earnings, financial condition,
        capital requirements, level of indebtedness, statutory and contractual
        restrictions applying to the payment of dividends, and other considerations
        that
        our board of directors deems relevant. Accordingly, stockholders may have
        to
        sell some or all of their common stock in order to generate cash flow from
        their
        investment. Stockholders may not realize a gain on their investment, and
        they
        may lose all or a significant amount of their investment when they sell their
        common stock.
  ***If
        we are unable to generate sufficient revenue to provide the cash required
        to
        fund our operations in the future, we may be required to issue additional
        equity
        or convertible debt securities to provide our operations with additional
        working
        capital, which, in turn, will have the effect of diluting the relative ownership
        of our existing stockholders.***
  We
        have
        supplemented the cash deficit arising from our operations with the proceeds
        of
        our December 2003 offering of 5,500,000 shares of common stock and have received
        a one-year commitment for a $3 million lease line of credit, and will, if
        necessary, continue to supplement with cash from private or public placements
        of
        debt or equity, institutional or other lending sources. We have also utilized
        convertible debt securities and warrants to raise capital in the past. The
        issuance of additional equity or convertible debt securities will have the
        effect of reducing the percentage ownership of our current stockholders.
        In
        addition, these equity or convertible debt securities may have additional
        rights, preferences or privileges to those of our common stock, such as
        registration rights and preferences in liquidation. In the event we are required
        to raise additional funds to support our operations, additional funds may
        not be
        available on terms favorable to our company, or at all. If adequate funds
        are
        not available or are not available on acceptable terms, we may not be able
        to
        fund our operations or otherwise continue as a going concern.
  ***Shares
        eligible for sale in the near future may cause the market price for our common
        stock to decline.***
  In
        addition to the number of shares registered on behalf of the Selling
        Stockholders, we have approximately 7,595,200 shares of common stock that
        are
        either freely tradable pursuant to Rule 144(k) of the Securities Act of 1933,
        or
        the Securities Act, or have previously been registered by us through a
        registration statement filed with the SEC. As such, the future sale of a
        substantial number of shares of our common stock in market transactions,
        or the
        perception that these sales could occur, may depress the market price for
        our
        common stock. These sales could also impair our ability to raise additional
        capital through the sale of our equity securities in the future.
  ***Our
        board of directors may issue blank check preferred stock, which may affect
        the
        voting rights of our holders and could deter or delay an attempt to obtain
        control of us.***
  Our
        board
        of directors is authorized, without stockholder approval, to issue preferred
        stock in series and to fix and state the voting rights and powers, designation,
        preferences and relative, participating, optional or other special rights
        of the
        shares of each such series and the qualifications, limitations and restrictions
        thereof. Preferred stock may rank prior to our common stock with respect
        to
        dividends rights, liquidation preferences, or both, and may have full or
        limited
        voting rights. Accordingly, issuance of shares of preferred stock could
        adversely affect the voting power of holders of our common stock and could
        have
        the effect of deterring or delaying an attempt to obtain control of
        us.
  -
            21
            -
 **Item
                  3.**
              **Controls
                  and Procedures**
  (a)  *Evaluation
        of Disclosure Controls.* In our
        quarterly report on Form 10-QSB for the period ended March 31, 2004 filed
        by us
        with the SEC on May 17, 2004 (“Original Quarterly Report”),  we
        evaluated the effectiveness of our disclosure controls and procedures as
        of the
        end of the three months ended March 31, 2004. This evaluation was done with
        the
        participation of our chief executive officer and our chief financial officer.
        Disclosure controls and procedures are controls and other procedures that
        are
        designed to ensure that information required to be disclosed by us in the
        reports that we file or submit under the Exchange Act is recorded, processed,
        summarized and reported within the time periods specified in the SEC’s rules and
        forms. Disclosure controls and procedures include, without limitation, controls
        and procedures designed to ensure that information required to be disclosed
        by
        us in the reports that we file under the Exchange Act is accumulated and
        communicated to our management, as appropriate to allow timely decisions
        regarding required disclosure.
  In
        the
        Original Quarterly Report, we disclosed that based on the evaluation conducted
        as of March 31, 2004, we concluded that, subject to certain limitations noted
        in
        the Original Quarterly Report, our disclosure controls and procedures are
        effective to ensure that information we are required to disclose in reports
        that
        we file or submit under the Exchange Act is recorded, processed, summarized,
        and
        reported within the time periods specified in the SEC’s rules and forms. In
        connection with analysis that led up to the restatements set forth in this
        Amendment No. 1 to the Original Quarterly Report, we concluded that the
        circumstances underlying the restatements indicate that our disclosure controls
        and procedures as of and for the three months ended March 31, 2004 were
        deficient in respect of certain actions by former senior management to override
        established financial controls and procedures. We believe that all such
        deficiencies were corrected prior to September 30, 2005.
  (b)  *Changes
        in Disclosure Controls and Procedures.* In the
        Original Quarterly Report we disclosed that although there have been no
        significant changes in internal controls or in other factors that could
        significantly affect these controls subsequent to the date of their evaluation,
        we are continuously evaluating means of enhancing our internal controls.
        During
        the twelve months ended December 31, 2003, we added qualified staff
        to our
        accounting department, we improved our approval process for accounting entries,
        and we commenced implementation of MAS-500 integrated financial and
        manufacturing software application. MAS-500 has been implemented in Las Vegas
        to
        provide an integrated control process for purchasing, inventory control and
        manufacturing and should improve the accuracy and timeliness of our financial
        reporting. The training of staff at our China facility commenced in the second
        quarter of 2004 and full implementation is expected to be complete by the
        end of
        the quarter.
  -
            22
            -
  **PART
        II - OTHER INFORMATION**
  **Item
        1. Legal Proceedings**
  On
        March 27, 2002, Shuffle Master, Inc., or Shuffle Master, filed
        a
        complaint (Case No. CV-S-02-0438-JCM-PAL) against VendingData in the
        United
        States District Court, District of Nevada. The amended complaint alleges,
        among
        other things, claims for patent infringement and requests treble damages,
        an
        injunction enjoining us from infringing on two of Shuffle Master’s patents, an
        accounting of our gains and profits that resulted from our alleged infringement,
        and for interest, costs and attorneys’ fees. The Shuffle Master patents that are
        at issue in the litigation concern registering use of a playing card shuffler
        apparatus and the displaying of the use on a display. We have filed our answer,
        counterclaims, and amended counterclaims against Shuffle Master. In our answer,
        we deny Shuffle Master’s allegation of patent infringement and request that
        Shuffle Master’s complaint be dismissed. We also seek, in our amended
        counterclaim, a declaration that we do not infringe Shuffle Master’s patents and
        that Shuffle Master’s patents and certain of its related claims are invalid. We
        further assert counterclaims against Shuffle Master for breach of contract
        and
        violation of the Uniform Trade Secrets Act. On May 20, 2002, the United
        States District Court, District of Nevada denied Shuffle Master’s motion for
        preliminary injunction against us. Discovery in this litigation is now closed.
        On May 28, 2003, we filed a motion for summary judgment requesting
        that the
        court dismiss the case against us. The hearing for our motion for summary
        judgment was taken off calendar pending a ruling by a magistrate judge with
        respect to an October 24, 2003 claim construction hearing to determine
        the
        scope and definition of the patent claims at issue. On March 31, 2004, the
        magistrate judge issued an order with regard to claim interpretation, to
        which
        the Company has filed written objections. The court has not yet scheduled
        oral
        argument regarding the objections to claim interpretation.
  On
        July 22, 2003, Shuffle Master, Inc. filed a petition (Case
        No. 20003-11016) against VendingData Corporation and Casinovations,
        Inc.,
        an inactive wholly-owned subsidiary of VendingData Corporation, in the Civil
        District Court for the Parish of Orleans, State of Louisiana. The petition
        alleges that VendingData and/or Casinovations violated the Louisiana Unfair
        Sales Law by offering to sell or lease the Random Ejection ShufflerTM at a price
        that is below the cost of producing and selling or leasing the Random Ejection
        ShufflerTM. The petition further alleges that VendingData and/or Casinovations
        violated the Louisiana Unfair Trade Practices Act by intending to “dump” Random
        Ejection ShufflersTM into the market with the intent to “steal” customers from
        Shuffle Master. The third claim asserted by Shuffle Master is that the actions
        of VendingData and/or Casinovations constitute fraud, theft by conversion,
        misappropriation, intentional misrepresentation and/or general negligence.
        The
        petition requests the court to enter a preliminary and permanent injunction
        against VendingData and/or Casinovations from selling or leasing the Random
        Ejection ShufflerTM and other automatic playing card shufflers to Harrah’s Jazz
        Casino located in New Orleans, reasonable attorneys’ fees and costs, and all
        other relief in law or in equity that the circumstances merit. This matter
        has
        been settled by the parties, however, as of May 10, 2004, we have not received
        the fully-executed settlement documents.
  On
        September 8, 2003, we received a Notice of Administrative Charges
        and
        Opportunity for an Adjudicative Proceeding from the State of Washington Gambling
        Commission. The administrative charges arose out of our failure to timely
        deliver certain detailed financial and other information about certain of
        our
        larger debtholders, (who were all subsequently repaid in December 2003).
        As a
        result of our failure to timely and completely reply, the Notice of
        Administrative Charges asserted violations of Washington regulatory provisions
        that could carry penalties including up to the suspension or revocation of
        our
        Washington license. We attempted to obtain the requested information from
        our
        debtholders but were unable to satisfy the agents of the State of Washington
        Gambling Commission. While we have continued to cooperate and make efforts
        to
        comply with the information requests, we engaged Washington legal counsel
        to
        respond to the alleged violations and advise us on procedural and substantive
        steps we must take. The State of Washington Gambling Commission issued an
        amended Notice of Administrative Charges, which reflected technical
        modifications to the lender-related charges and included a charge relating
        to
        the provision of an automatic card shuffler device to an unlicensed dealer
        school in Washington. In April 2004, we entered into an Agreed Order of
        Settlement and Agreed Order with the State of Washington Gambling Commission
        that provided for the forfeiture of the shuffling device to the State of
        Washington Gaming Commission. In addition, the settlement provided for a
        ten day
        license suspension, seven days of which were vacated pursuant to the payment
        of
        a fine and three days of which were deferred for a period of one year, provided
        we do not violate the gambling statutes or regulations of Washington State,
        or
        the terms of the Agreed Order.
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            23
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  **Item
          2. Changes in Securities.**
  Not
        applicable.
  **Item
        3. Defaults Upon Senior Securities.**
  Not
        applicable.
  **Item
        4. Submission of Matters to a Vote of Security Holders.**
  Not
        applicable.
  **Item
        5. Other Information.**
  On
        May 4,
        2004, our common stock began trading on the American Stock Exchange under
        the
        trading symbol, “VNX.” Previously, our common stock was quoted on the OTC
        Bulletin Board under the trading symbol, “VNDC.”
  **Item
        6. Exhibits and Reports on Form 8-K.**
  (a)  Exhibits .
  31.1
              Certifications
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.
  31.2
              Certifications
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.
  32.1
              Certification
                  of President and Chief Financial Officer Pursuant to Section 906
                  of the
                  Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
                  1350).
  (b)  Reports
        on Form 8-K .
  During
        the three months ended March 31, 2004, we filed the following:
  ·
              Current
                  Report on Form 8-K filed on February 18, 2004 reporting the appointment
                  of
                  H. Michael Jahnke as our Chief Operating Officer;
  ·
              Current
                  Report on Form 8-K filed on February 19, 2004 reporting our preliminary
                  revenues for the year ended December 31, 2003;
                  and
  ·
              Current
                  Report on Form 8-K filed on March 26, 2004 reporting our financial
                  results
                  for the 2003 fiscal year and fourth quarter of 2003.
   -
            24
            -
  **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.
  **VendingData
                  Corporation**(Registrant)Date:
              December
                  9, 2005
              By:
              /s/
                  Mark R. NewburgMark
                  R. NewburgIts:
              President,
                  Chief Executive Officer and Treasurer (Principal Executive
                  Officer)Date:
              December
                  9, 2005
              By:
              /s/
                  Arnaldo F. GalassiArnaldo
                  F. GalassiIts:
              Chief
                  Financial Officer and Secretary (Principal Financial
                  Officer)
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