<PAGE>

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

                                   FORM 10-QSB

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

         For the quarterly period ended:             June 30, 2002
                                          --------------------------------------
                                       OR

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

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

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

                             VendingData Corporation
--------------------------------------------------------------------------------
                     (Exact name of small business issuer as
                            specified in its charter)

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

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

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

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


     38,129,072 shares of common stock, $.001 par value, as of June 30, 2002
--------------------------------------------------------------------------------

         Transitional Small Business Disclosure Format (check one);

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

<PAGE>

                                   FORM 10-QSB

                                TABLE OF CONTENTS


                                                                           PAGE
                                                                          NUMBER
                                                                          ------

PART I.  FINANCIAL INFORMATION

     Item 1.      Financial Statements                                        3

                  Balance Sheet                                               3

                  Statement of Operations                                     4

                  Statement of Cash Flows                                     5

                  Notes to Financial Statements                               6

     Item 2.      Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                       7

PART II. OTHER INFORMATION

     Item 1.      Legal Proceedings                                          17

     Item 2.      Changes in Securities and Use of Proceeds                  18

     Item 3.      Defaults Upon Senior Securities                            18

     Item 4.      Submission of Matters to a Vote of Security Holders        18

     Item 5.      Other Information                                          18

     Item 6.      Exhibits and Reports on Form 8-K                           19

SIGNATURE                                                                    20


                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

<TABLE>
                                           VENDINGDATA CORPORATION
                                                BALANCE SHEET
<CAPTION>

                                                                                   June 30,       December 31,
                                                                                     2002             2001
                                                                                 -------------   -------------
                                       ASSETS                                     (UNAUDITED)
<S>                                                                              <C>             <C>
Current assets:
   Cash and cash equivalents                                                     $    478,659    $    866,998
   Accounts receivable, trade                                                         149,388         159,065
   Other receivables                                                                   40,038          40,438
   Inventories                                                                      1,449,701       1,514,073
   Prepaid expenses                                                                    72,611         271,933
                                                                                 -------------   -------------
     Total current assets                                                           2,190,397       2,852,507

Property and equipment, including revenue producing equipment, at cost, net of
   accumulated depreciation of  $2,385,473 and $2,081,582, respectively             2,152,140       2,150,291

Intangible assets, at cost, net of
   accumulated amortization of $164,702 and $131,606, respectively                    376,377         403,078
Other Assets                                                                          529,862          34,862
Deferred interest                                                                     526,114         542,790
Deposits                                                                              764,620         705,980
                                                                                 -------------   -------------
                                                                                 $  6,539,510    $  6,689,508
                                                                                 =============   =============

                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of leases payable                                                2,994,535       2,721,607
   Accounts payable                                                                   889,571         566,427
   Accrued expenses                                                                   764,885         441,538
   Accrued wages                                                                      195,366         221,718
   Accrued interest                                                                   537,522         338,457
   Shareholder loans - due currently                                                2,399,991         620,791
   Customer deposits                                                                  243,195         882,573
                                                                                 -------------   -------------
     Total current liabilities                                                      8,025,065       5,793,111

Leases payable - non-current                                                        1,878,802       2,127,186
Convertible debt                                                                    2,953,076       2,603,077
Stockholder loans - non-current                                                        16,000          16,000
                                                                                 -------------   -------------
     Total liabilities                                                             12,872,945      10,539,374

Stockholders' equity:
   Common stock, $.001 par value,
     80,000,000 shares authorized, 38,129,072 shares and
     38,129,072 shares issued and outstanding, respectively                            38,129          38,129
   Additional paid-in capital                                                      26,689,477      26,689,477
   Deficit accumulated during development stage                                   (33,061,040)    (30,577,472)
                                                                                 -------------   -------------
     Total stockholders' equity (deficit)                                          (6,333,434)     (3,849,866)
                                                                                 -------------   -------------
                                                                                 $  6,539,510    $  6,689,508
                                                                                 =============   =============

                          See accompanying notes to unaudited financial statements.

                                                      3
</TABLE>
<PAGE>

<TABLE>
                                          VENDINGDATA CORPORATION
                                          STATEMENT OF OPERATIONS
                          THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
                                                (UNAUDITED)
<CAPTION>

                                               Three Months Ended                  Six Months Ended
                                        June 30, 2002     June 30, 2001     June 30, 2002     June 30, 2001
                                        -------------     -------------     -------------     -------------
<S>                                     <C>               <C>               <C>               <C>
Sales                                   $    504,708      $    205,591      $  1,527,871      $    818,371
Rental income                                360,807           322,529           715,434           614,546
Other income                                   5,915                --            11,637                --
                                        -------------     -------------     -------------     -------------
                                             871,430           528,120         2,254,942         1,432,917

Cost of sales                                659,391         1,000,711         1,764,473         2,150,404
                                        -------------     -------------     -------------     -------------
Gross margin                                 212,040          (472,591)          490,470          (717,487)

Selling, general and administrative          782,003           922,428         1,451,036         1,639,883
Research and development                     347,703           314,871           720,924           553,213
                                        -------------     -------------     -------------     -------------
(Loss) from operations                      (917,667)       (1,709,890)       (1,681,491)       (2,910,583)

Interest expense, net                        325,315           289,264           616,565           591,295
Interest expense - related parties            98,612           157,115           184,169           288,864
                                        -------------     -------------     -------------     -------------
      Total interest expense net             423,927           446,379           800,734           880,159
                                        -------------     -------------     -------------     -------------
(Loss) before income taxes                (1,341,594)       (2,156,269)       (2,482,225)       (3,790,742)
Provision for income taxes                       647               427             1,343               441
                                        -------------     -------------     -------------     -------------
Net income (loss)                       $ (1,342,241)     $ (2,156,696)     $ (2,483,568)     $ (3,791,183)
                                        =============     =============     =============     =============

Basic earnings (loss) per share         $      (0.04)     $      (0.19)     $      (0.07)     $      (0.35)
                                        =============     =============     =============     =============

Weighted average shares outstanding       38,129,072        11,100,654        38,129,072        10,982,136
                                        =============     =============     =============     =============

                         See accompanying notes to unaudited financial statements.

                                                     4
</TABLE>
<PAGE>

<TABLE>
                                 VENDINGDATA CORPORATION
                                 STATEMENT OF CASH FLOWS
                         SIX MONTHS ENDED JUNE 30, 2002 AND 2001
                                       (UNAUDITED)
<CAPTION>

                                                                 Six Months Ended
                                                          -------------------------------
                                                          June 30, 2002     June 30, 2001
                                                          -------------     -------------
<S>                                                       <C>               <C>
Net (loss)                                                $ (2,483,568)     $ (3,791,183)
   Adjustments to reconcile net income (loss) to net
     cash used in operating activities:
     Depreciation and amortization                             431,793           387,577
     Amortization of deferred interest                         198,726           160,645
   Changes in assets and liabilities:
     (Increase) decrease in trade accounts receivable            9,677           214,054
     (Increase) decrease in other receivables                      400          (140,983)
     (Increase) decrease in inventory                           64,372          (444,922)
     (Increase) decrease in prepaid expenses                   199,322            40,900
     (Increase) decrease in other assets                      (495,000)               --
     Increase (decrease) in accounts payable                   323,144           126,726
     Increase (decrease) in accrued expenses                     3,904            (6,983)
     Increase (decrease) in customer deposits                 (639,378)          242,383
     Increase (decrease) in deferred charges                   492,157           (35,983)
                                                          -------------     -------------
       Total adjustments                                       589,116           543,414
                                                          -------------     -------------

Net cash (used in) operating activities                     (1,894,452)       (3,247,769)
                                                          -------------     -------------

Cash flows from investing activities:
   Acquisition of plant and equipment                         (123,089)         (119,261)
   Equipment produced and held for rental                     (297,202)               --
   Increase in patents and trademarks                           13,350          (174,739)
   Deposits                                                    (58,640)          (55,267)
                                                          -------------     -------------
Net cash (used in) investing activities                       (465,581)         (349,267)
                                                          -------------     -------------

Cash flows from financing activities:
   Common stock sold for cash                                       --           587,000
   Proceeds from stockholder loans                           1,990,000         3,629,358
   Repayment of stockholder loans                             (210,799)               --
   Proceeds from leases payable                              1,022,846           802,769
   Repayment of leases payable                              (1,180,352)         (873,926)
   Proceeds from convertible debentures                        349,999                --
   Proceeds from notes payable                                      --                --
   Repayment of notes payable                                       --          (725,358)
                                                          -------------     -------------

Net cash provided by financing activities                    1,971,694         3,419,844
                                                          -------------     -------------

Increase (decrease) in cash                                   (388,339)         (177,192)
Cash and cash equivalents, beginning of period                 866,998           432,070
                                                          -------------     -------------
   Cash and cash equivalents, end of period               $    478,659      $    254,878
                                                          =============     =============

                See accompanying notes to unaudited financial statements.

                                            5
</TABLE>
<PAGE>

                             VendingData Corporation
                          Notes to Financial Statements
                                   (Unaudited)


NOTE 1 - BASIS OF PRESENTATION.

The accompanying unaudited financial statements of VendingData Corporation (the
"Company") and its wholly-owned subsidiaries (collectively with the Company, 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, 2001, as included in the
Company's Annual Report on Form 10-KSB as filed with the Securities and Exchange
Commission on April 1, 2002.

Certain reclassifications have been made to amounts presented in prior periods
for comparability to the current period presentation.

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

NOTE 2 - STATEMENT REGARDING COMPUTATION OF LOSS PER SHARE.

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

NOTE 3 - NOTES PAYABLE.

For the three months ended June 30, 2002, the Company borrowed $990,000 from a
member of the Board of Directors. The notes memorializing the loans bear an
interest rate of 9.5% per annum, mature on demand thirty (30) days after the
dates of the notes and are unsecured. The proceeds from these notes were used
for general working capital purposes.

NOTE 4 - EQUIPMENT FINANCING.

For the three months ended June 30, 2002, the Company received proceeds of
$523,185 from a third-party leasing company. The leases have a mandatory buyout
and terms of 36 months.

NOTE 5 - OTHER ASSETS.

Effective February 26, 2002, the Company transferred, on terms and conditions to
be mutually agreed upon, one hundred (100) units of its shuffling machines, at a
price of $4,950.00 per unit, to Casinovations Sales Incorporated for the conduct
of business in Mississippi.

                                            6
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.

STATEMENT ON FORWARD-LOOKING INFORMATION

         Certain information included herein contains statements that may be
considered forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, such as statements relating
to plans for future expansion, capital spending and financing sources. Such
forward-looking statements may be identified by the use of terminology such as
"believe," "may," "will," "expect," "anticipate," "intend," "designed,"
"estimate," "should" or "continue" or the negatives thereof or other variations
thereon or comparable terminology. Such forward-looking statements involve known
or unknown risks, uncertainties and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, but are not limited to,
the following: strict regulation and changes in regulations imposed by gaming
authorities; the limitation, conditioning, suspension or revocation of gaming
licenses and entitlements held by the Company; vigorous competition in the
gaming industry; the continued acceptance of the Company's products and
services; the successful development of the Company's additional products and
services; a decline in the public acceptance of gaming; unfavorable public
referendums or legislation, particularly as they relate to gaming; the ability
of the Company to continue to obtain adequate equity or debt financing on
acceptable terms; the ability of the Company to service its indebtedness;
resolution of the Company's ongoing legal proceedings; the Company's dependence
on existing management; potential fluctuations in the Company's quarterly
results; general economic and business conditions; and other factors detailed
from time to time in the Company's reports filed with the Securities and
Exchange Commission.

OVERVIEW

         The Company is headquartered in Las Vegas, Nevada, and develops,
manufactures and distributes products that increase security, productivity and
profitability for the gaming industry. One of the Company's principal products
includes the SecureDrop(TM) Slot Accounting System (the "SecureDrop(TM)
System"), an electronically identified coin collection and accounting system and
a bill canister tracking system for gaming machines. In addition, the Company
offers two computer-based card shuffling devices, the Random Ejection
Shuffler(TM) (the "Shuffler") and the Continuous Random Ejection Shuffler(TM)
(the "Continuous Shuffler"). The Company is developing advancements for its
present product line as well as additional technology for the expansion of its
products to the vending and amusement industries.

         As of June 30, 2002, the Company had placed 375 of the Shufflers and 57
of the Continuous Shufflers under rental contracts. In addition, the Company
has, to date, and from inception, sold 127 Shufflers and 6 Continuous Shufflers.
The Company maintains parts inventories required to build additional shufflers.
As for the SecureDrop(TM) System, the Company has 9,225 Hard Count Module units
installed and is currently completing the installation of an additional 207
units of the Hard Count Module and the first installation of the Soft Count
Module, which consists of 3,169 units.

ACCOUNTING POLICIES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's 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 management believes are the
critical accounting policies related to the Company. The application of these
policies, in some cases, requires the Company's management to make subjective
judgments regarding the effect of matters that are inherently uncertain. See
Note 1, "Significant Accounting Policies," to the Company's Financial Statements

                                       7
<PAGE>

included in Item 7 of the Company's Form 10-KSB, as filed with the Securities
and Exchange Commission on April 1, 2002, for a more detailed discussion of the
Company's accounting policies.

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

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

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

RESULTS OF OPERATIONS

         The following discussion summarizes the Company's results of operations
for the three months ended June 30, 2002 and 2001, the Company's results of
operations for the six months ended June 30, 2002 and 2001, and the Company's
liquidity and capital resources.

     THREE MONTHS ENDED JUNE 30, 2002 AND 2001

         REVENUES. For the three months ended June 30, 2002, the Company
generated total revenues of $871,430 compared to $528,120 for the three months
ended June 30, 2001. The revenues for the three months ended June 30, 2002,
consisted of Shuffler rentals of $360,807, SecureDrop(TM) sales of $504,708 and
other income of $5,915. The increase of $343,310 or 65%, in revenues from the
three months ended June 30, 2001, to the three months ended June 30, 2002,
resulted primarily from the increase of $299,117 in SecureDrop(TM) sales over
the same period. The Company believes revenue will increase through additional
SecureDrop(TM) sales, as the SecureDrop(TM) Soft Count Module gains additional
regulatory approvals and customer acceptance, and through placements of
additional Shufflers in prospective territories to be opened for the Company,
such as Louisiana and Indiana.

         COST OF SALES. For the three months ended June 30, 2002, the cost of
sales was $659,391 compared to $1,000,711 for the three months ended June 30,
2001, a decrease of $341,320, or 34%. The cost of sales for the three months
ended June 30, 2002, consisted of approximately $278,611 for the Company's
SecureDrop(TM) products, $124,200 for depreciation expense associated with the
Shufflers held for rental, $228,207 for costs related to servicing the Shufflers
held for rental, and $28,373 for labor and other manufacturing costs. The 34%
decrease in cost of sales is the result of more efficient operation of the
manufacturing and service areas.

                                       8
<PAGE>

         GROSS MARGIN. For the three months ended June 30, 2002, the gross
margin was $212,040 compared to a gross margin deficit of $(472,591) for the
three months ended June 30, 2001, an increase of $684,631. As a result, the
gross margin percentage on revenues for the three months ended June 30, 2002 was
24% compared to (89)% for the three months ended June 30, 2001. The increase in
gross margin and in gross margin percentage resulted primarily from the increase
in revenues coupled with the reduction in cost of sales.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three months
ended June 30, 2002, selling, general and administrative expenses decreased
approximately $140,425 or approximately 15%, to $782,003, compared to $922,428
for the three months ended June 30, 2001. For the three months ended June 30,
2002, selling, general and administrative expenses included: salaries and
related costs of $294,616; advertising and marketing services of $35,246; travel
and entertainment costs of $94,200; printing and office expenses of $18,123;
depreciation and amortization of $61,230; office rent and utilities of $108,112;
professional fees of $91,454; bad debt accrual of $3,866; regulatory expense of
$40,004 and $35,152 in other miscellaneous expenses. The decrease of $140,425
resulted from a decrease in salaries of $56,749, a decrease in advertising and
marketing costs of $71,739, a decrease in printing and office expense of $7,892,
a decrease in professional fees of $26,134, a decrease in bad debt accrual of
$26,134, and a decrease in regulatory costs of $22,708, offset by an increase in
office rent and utilities of $32,569, an increase in travel and entertainment
expense of $29,763, an increase of $6,055 in depreciation expense, and an
increase of $9,616 in miscellaneous expenses.

         RESEARCH AND DEVELOPMENT. For the three months ended June 30, 2002,
research and development expenses increased $32,832, or approximately 10%, to
$347,703, compared to $314,871 for the three months ended June 30, 2001. The
increase is due to increased expenditures for the refinement of the
SecureDrop(TM) Soft Count Cart and development of the Company's specialty
shuffler.

         INTEREST EXPENSE, NET. For the three months ended June 30, 2002, the
Company incurred interest expenses, net of interest income, of $423,927 compared
to $446,379 for the three months ended June 30, 2001, a decrease of $22,452, or
5%. This decrease was attributable to the conversion of interest bearing debt
into equity in connection with the Company's stockholder rights offering in the
third quarter of 2001.

         NET INCOME (LOSS). For the three months ended June 30, 2002, the
Company had a net loss of $1,342,241 compared to a net loss of $2,156,696 for
the three months ended June 30, 2002, a decrease of $814,455. The decrease in
net loss was primarily due to the increases in SecureDrop(TM) sales and rental
income and the decreases in cost of sales, selling, general, and administrative
expenses and interest expenses, offset, in part, by an increase in research and
development expenses. Basic loss per share was $0.04, based on 38,129,072
weighted average shares outstanding, for the three months ended June 30, 2002,
compared to $0.19, based on 11,100,654 weighted shares outstanding, for the
three months ended June 30, 2001.

     SIX MONTHS ENDED JUNE 30, 2002 AND 2001

         REVENUES. For the six months ended June 30, 2002, the Company generated
total revenues of $2,254,942 compared to $1,432,917 for the six months ended
June 30, 2001. The revenues for the six months ended June 30, 2002, consisted of
Shuffler rentals of $715,434, Shuffler sales of $7,450, and SecureDrop(TM) sales
of $1,520,421 and other income of $11,637. The increase of $822,025, or 57%, in
revenues from the six months ended June 30, 2001, to the six months ended June
30, 2002, resulted from an increase of $754,300 in SecureDrop(TM) sales, an
increase of $11,637 in other sales, and an increase of $100,888 in Shuffler
rentals, offset by a decrease in Shuffler sales of $44,800. SecureDrop(TM) sales
increased due to the large installation completed during the first half of 2002.
The increase in Shuffler rentals is a direct result of increased placements
through our own sales efforts and distributorship agreements. The Company

                                       9
<PAGE>

believes revenue will continue to increase through additional SecureDrop(TM)
sales, as the SecureDrop(TM) Soft Count Module gains additional regulatory
approvals, through sales of Shufflers through international distributors and
through continued Shuffler rentals.

          COST OF SALES. For the six months ended June 30, 2002, the cost of
sales was $1,764,473 compared to $2,150,404 for the six months ended June 30,
2001. The cost of sales for the six months ended June 30, 2002, consisted of
approximately $877,638 for the Company's SecureDrop(TM) products, $244,568 for
depreciation expense associated with the Shufflers held for rental, $441,276 for
costs related to servicing the Shufflers held for rental, $3,200 for costs
related to sales of the Shuffler, and $197,791 for labor and other manufacturing
costs. The decrease of $385,931, or 18% in cost of sales from the six months
ended June 30, 2001 to the six months ended June 30, 2002, resulted from an
increase of $227,678 in cost of goods sold for the Company's SecureDrop(TM)
products and an increase of $32,268 related to Shuffler depreciation, offset by
a decrease of $24,400 in costs associated with Shuffler sales, a decrease of
$62,567 for costs related to servicing the Shufflers held for rental, and a
decrease of $558,910 in other manufacturing costs. The decrease in other
manufacturing costs resulted from reductions in personnel coupled with more
efficient use of the manufacturing processes.

         GROSS MARGIN. For the six months ended June 30, 2002, the gross margin
was $490,470 compared to a gross margin deficit of $(717,487) for the six months
ended June 30, 2001, an increase of $1,207,957. As a result, the gross margin
percentage on revenues for the six months ended June 30, 2002 was 22% compared
to (50)% for the six months ended June 30, 2001. The increase in gross margin
and gross margin percentage resulted primarily from the increase in revenues and
the decrease in costs associated with those sales.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the six months ended
June 30, 2002, selling, general and administrative expenses decreased
approximately $188,847, or approximately 12%, to $1,451,036, compared to
$1,639,883 for the six months ended June 30, 2001. For the six months ended June
30, 2002, selling, general and administrative expenses included: salaries and
related costs of $567,388; advertising and marketing services of $91,193; travel
and entertainment costs of $188,997; printing and office expenses of $34,707;
depreciation and amortization of $112,335; office rent and utilities of
$192,121; professional fees of $135,092; bad debt accrual of $14,366; regulatory
expense of $40,004 and $74,833 in other miscellaneous expenses. The decrease of
$188,847 resulted from a decrease in salaries of $121,181, a decrease in
advertising and marketing costs of $56,235, a decrease in printing and office
expense of $8,822, a decrease in professional fees of $6,743, a decrease in bad
debt accrual of $75,634, and a decrease in regulatory costs of $22,708, offset
by an increase in office rent and utilities of $24,971, an increase in travel
and entertainment expense of $67,025, an increase of $7,170 in depreciation
expense, and an increase of $3,310 in miscellaneous expenses.

         RESEARCH AND DEVELOPMENT. For the six months ended June 30, 2002,
research and development expenses increased $167,711, or approximately 30%, to
$720,924, compared to $553,213, for the six months ended June 30, 2001. The
increase is due to the redesign of the soft count canister vault and the
continued development of the specialty Shuffler.

         INTEREST EXPENSE, NET. For the six months ended June 30, 2002, the
Company incurred interest expenses, net of interest income, of $800,734 compared
to $880,159 for the six months ended June 30, 2001, a decrease of $79,425, or
9%. This decrease was attributable to the expiration of the terms of several
leases and the conversion of debt into in connection with the Company's
stockholder rights offering in 2001.

                                       10
<PAGE>

         NET INCOME (LOSS). For the six months ended June 30, 2002, the Company
had a net loss of $2,483,568 compared to a net loss of $3,791,183 for the six
months ended June 30, 2001, a decrease of $1,307,615. The smaller net loss was
primarily due to an increase in SecureDrop(TM) sales and Shuffler rentals, an
increase in gross margin and decreases in service, manufacturing and total
interest expenses, offset by increased research and development expenses. Basic
loss per share was $0.07, based on 38,129,072 weighted average shares
outstanding, compared to $0.35, based on 10,982,136 weighted average shares
outstanding, for the six months ended June 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

         OVERVIEW. The Company has generated cash flow deficits from operations,
including cash used in operating activities of $1,894,452 and $3,247,769 in the
six months ended June 30, 2002 and 2001, respectively. Consequently, the Company
has been substantially dependent on cash from financing activities to fund
development and operating activities, including cash from financing activities
of $1,971,694 and $3,419,844 in the six months ended June 30, 2002 and 2001,
respectively. The primary source of cash remains loans from a
director-controlling stockholder, which totaled $1,990,000 in the six months
ended June 30, 2002. These loans, the placement of convertible debt in the
amount of $349,999 and the proceeds from leases of $1,022,846 were offset by
repayments of stockholder loans in the amount of $210,799 and payments on leases
of $1,180,352 in the six months ended June 30, 2002. Unless alternative sources
of cash are located, the Company is substantially dependent upon loans from its
director-controlling stockholder, who is under no obligation to make such loans,
and will continue to be so dependent until its operations begin to generate
sufficient cash flow to support such cash requirements.

         CASH AND WORKING CAPITAL DEFICIT. At June 30, 2002, the Company had
cash, cash equivalents and investments of $478,659 compared to $866,998 at
December 31, 2001. At June 30, 2002, the Company's working capital deficit was
$5,834,668, compared to $2,940,604 at December 31, 2001, an increased deficit of
$2,894,064. The increase in working capital deficit resulted primarily from
increases in the current portion of shareholder loans, accounts payable and
accrued expenses. At June 30, 2002, the Company's current ratio, I.E. the ratio
of current assets to current liabilities, was 0.27 compared to 0.49 at December
31, 2001. Until normalized cash flows from the Company's operations are
achieved, the Company will be relying primarily upon loans from its
director-controlling stockholder and, to a lesser extent, upon existing cash
balances, accounts receivable collections, other placements of debt or equity
and institutional sources of debt and equity capital for working capital
purposes.

         CASH FLOW. For the six months ended June 30, 2002, net cash used in
operating activities was $1,894,452, compared to $3,247,769 for the six months
ended June 30, 2001. Cash used in operating activities during the six months
ended June 30, 2002 is net of depreciation and amortization of $431,793,
compared to $387,577 for the six months ended June 30, 2001 and amortization of
deferred interest of $198,726 for the six months ended June 30, 2002, compared
to $160,645 for the six months ended June 30, 2001, and reflects a decrease in
accounts receivable of $9,677, compared to a decrease of $214,054 for the six
months ended June 30, 2001; a decrease in inventory of $64,372, compared to an
increase of $444,922 for the six months ended June 30, 2001; an increase in
other assets of $495,000, compared to $0 for the six months ended June 30, 2001;
a decrease in prepaid expenses of $199,322, compared to a decrease of $40,900
for the six months ended June 30, 2001; a decrease in other receivables of $400,
compared to an increase of $140,983 for the six months ended June 30, 2001;
increases in accounts payable of $323,144, compared to an increase of $126,726
for the six months ended June 30, 2001; an increase in accrued expenses of
$3,904, compared to a decrease of $6,983 for the six months ended June 30, 2001;
a decrease in customer deposits of $639,378, compared to an increase of $242,383
for the six months ended June 30, 2001; and an increase in deferred charges of
$492,157, compared to a decrease of $35,983 for the six months ended June 30,
2001. The decrease in customer deposits results from the recognition of a 50%
contract deposit upon completion. With regard to the increase in other assets,
see Note 5 to the financial statements.

                                       11
<PAGE>

         For the six months ended June 30, 2002, investing activities used net
cash of $465,581, compared to $349,267 of net cash used in investing activities
for the six months ended June 30, 2001. Net cash used in investing activities
for the six months ended June 30, 2002 consisted of $123,089 for the acquisition
of plant equipment, the reduction of equipment for rental in the amount of
$297,202, and deposits of $58,640, offset by an increase in patents and
trademarks of $13,350.

         For the six months ended June 30, 2002, net cash provided by financing
activities was $1,971,694 compared to $3,419,844 for the six months ended June
30, 2001. The decrease is attributable to fewer placements of notes with a
private individual for working capital and higher repayments of leases. For the
six months ended June 30, 2002, cash from financing activities consisted of
$1,990,000 from shareholder loans and proceeds of $349,999 from the placement of
convertible debt, reduced by the repayment of leases payable of $1,180,352, and
the repayment of shareholder loans of $210,799. In addition, as part of the
Company's financing activities, during the six months ended June 30, 2002, the
Company received proceeds of $1,022,846 from a third-party leasing company
through which the Company has financed most of its furniture, equipment, and
tooling. The leases have a mandatory buyout and terms ranging from 24 to 39
months.

CONTRACTUAL CASH OBLIGATIONS AND COMMERCIAL COMMITMENTS

         The following table presents the Company's contractual cash obligations
and commercial commitments as of June 30, 2002. The Company has no other
significant contractual obligations or commercial commitments either on or off
its balance sheet as of June 30, 2002.

<TABLE>
<CAPTION>
CONTRACTUAL CASH                                                 PAYMENTS DUE BY PERIOD
OBLIGATIONS
--------------------------------
                                         TOTAL           < 1 YEAR        1-3 YEARS         4-5 YEARS       > 5 YEARS
--------------------------------    ---------------    ------------    -------------     ------------    -------------
<S>                                      <C>               <C>            <C>                <C>
Long-term Debt                           3,238,068         618,991        2,619,077                -                -
Capital Lease Obligations                5,184,028       2,658,434        2,525,594                -                -
Operating Leases                         2,924,740         588,082        1,563,234          773,424                -
Other Long-term Obligations                      -               -                -                -                -
--------------------------------    ---------------    ------------    -------------     ------------    -------------
TOTAL                                   11,346,836       3,865,507        6,707,905          773,424
</TABLE>

OUTLOOK

         Based on the assumption that the Company continues to receive
additional loans from its controlling stockholder and based on the assumption
that the Company will place additional units of convertible debt pursuant to the
plan approved by the Company's Board of Directors in February 2002, the Company
believes that it will be able to fund its operations and required expenditures
for the remainder of 2002 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, the Company will
need to seek cash from public or private placements of debt or equity,
institutional or other lending sources, sell certain assets or change operating
plans to accommodate such liquidity issues. No assurances can be given that the
Company will successfully obtain necessary liquidity sources necessary to fund
the Company's operations in the upcoming year. If we continue to generate
significant losses from our operations, and are not able to locate additional
sources of liquidity, we may be unable to continue as a going concern.

                                       12
<PAGE>

RISK FACTORS AND FORWARD-LOOKING INFORMATION

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

         DEPENDENCE ON CONTROLLING STOCKHOLDER. The Company has relied on loans
and equity investments from its controlling stockholder. The controlling
stockholder loaned the Company $1,990,000 during the six months ending June 30,
2002. If the controlling stockholder should cease such funding, there is no
assurance that other sources of cash will be available. The controlling
stockholder has no obligation to continue making such loans.

         ADDITIONAL FINANCING WILL BE REQUIRED. Since the Company's revenue is
not sufficient to support its operations, the Company currently anticipates the
need to raise funds through private or public offerings of our equity or
convertible debt securities. The issuance of additional equity or convertible
debt securities will have the effect of reducing the percentage ownership of the
Company's current stockholders. In addition, these equity or convertible debt
securities may have additional rights, preferences or privileges to those of the
Company's common stock, such as registration rights. No assurances can be given
that the Company will successfully obtain necessary liquidity sources necessary
to fund the Company's operations in the upcoming year. If adequate funds are not
available or are not available on acceptable terms, the Company may not be able
to fund operations or otherwise continue as a going-concern.

         HISTORY OF SIGNIFICANT OPERATING LOSSES. The Company has a history of
significant operating losses and anticipates continued operating losses for the
foreseeable future. For the six months ended June 30, 2002 and for the years
ended December 31, 2001 and 2000, the Company incurred operating losses
attributable to common stockholders of $1,342,241, $7,566,090 and $6,656,561,
respectively, and our operations have used $1,894,452, $5,598,153 and $5,099,492
of cash, respectively. As of June 30, 2002 and December 31, 2001 and 2000, the
Company had accumulated deficits of $33,061,040, $30,557,860 and $23,011,382,
respectively.

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

         LIMITED OPERATING RESULTS; NO INDEPENDENT MARKET RESEARCH OF POTENTIAL
DEMAND FOR CURRENT OPERATIONS. Until January 2000, the Company was in the
development stage and had limited sales of its products. The Company's
activities have been limited to analyzing the gaming industry, consulting with
persons in the gaming industry, negotiating interim financing arrangements,
developing products, establishing a distribution network for its products,
marketing its products to the gaming industry, manufacturing its products and
commencing product sales. Although the Company anticipates significant sales
development and revenue growth during 2002, there is no guarantee that the
Company will generate sufficient revenue to sustain its operations. No
independent organization has conducted market research providing management with
independent assurance from which to estimate potential demand for the Company's
business operations.

                                       13
<PAGE>

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

         RELIANCE ON THE GAMING INDUSTRY. Nearly all of our revenue is generated
by the sale or placement of our products to existing gaming properties. 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, levels of disposable income of gaming 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 gaming
properties and competitive conditions in the gaming industry. These factors may
impact the demand for the Company's products and could materially affect
revenues that the Company realizes on the sale or placement of our products.

         EFFECT OF EXTRAORDINARY EVENTS, SUCH AS TERRORIST ATTACKS, ON THE
COMPANY'S BUSINESS. Extraordinary events, such as terrorist attacks or acts of
war, may cause damage or disruption to the Company and its employees, facilities
and customers, which, in turn, could significantly impact the Company's
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 the
Company's business, results of operations, and financial condition and may do so
again in the future. In particular, the gaming industry has been affected by the
downturn in the tourist industry as a result of the September 11 attacks.
Because our business is closely tied to the gaming industry, the long-term
effects on the Company from the September 11, 2001 attacks are unknown. The
potential for future terrorist attacks, the national and international responses
to terrorist attacks, and other acts of war or hostility have created many
economic and political uncertainties, which could materially adversely affect
our business, results of operations, and financial condition in ways that we
currently cannot predict.

         The strength and profitability of our business depends on the overall
demand for our products and growth in the gaming industry. Further, gaming
industry revenues are sensitive to general economic conditions and generally
rise or fall more rapidly in relation to the condition of the overall economy.
Although the Company cannot accurately estimate the economic impact of the
recent terrorist attacks at this time, the gaming industry has been negatively
affected by the reduction in air travel and tourism, and the Company expects
that any significant decline in the economic health or growth of the lodging
industry will reduce demand for our products.

         REGULATION. The gaming industry is a highly regulated industry and is
subject to numerous statutes, rules and regulations administered by the gaming
commissions or similar regulatory authorities of each jurisdiction. Generally,
the Company and other entities which seek to introduce gaming products or
concepts into such jurisdictions may be required to submit applications relating
to their activities or products (including detailed background information
concerning controlling persons within their organization) which are then
reviewed for approval. The Company may incur significant expenses in seeking to
obtain licenses for its gaming products and concepts, and no assurance can be
given that its products will be approved in any particular jurisdiction. The
failure to obtain such approval in any jurisdiction in which the Company may
seek to introduce its products or concepts could have a material adverse effect
on the Company's business.

                                       14
<PAGE>

         INFLUENCE BY CONTROLLING STOCKHOLDERS. The executive officers and
members of the Board beneficially own 33,334,421 shares of common stock, or
approximately 85.12% of the outstanding shares of common stock, assuming
exercise of options, warrants and convertible debentures. These stockholders
have the power to influence all matters requiring approval by the Company's
stockholders, including the election of directors and approval of mergers and
other significant corporate transactions. This concentration of ownership also
has the effect to delay, prevent or expedite, as the case may be, a change in
control of the Company.

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

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

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

         BENEFIT TO MANAGEMENT. The Company may, in the future, compensate the
Company's management with substantial salaries and other benefits. The payment
of future larger salaries, commissions and the costs of these benefits may be a
burden on the Company and may be a factor in limiting or preventing the Company
from achieving profitable operations in the future. However, the Company would
not continue to compensate management with such substantial salaries and other
benefits under circumstances where to do so would have a material negative
effect on the Company's financial condition.

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

         ILLIQUID INVESTMENT; RISK OF LOSS. The capital stock of the Company is
at risk of complete loss if the Company's operations are unsuccessful. In
addition, there has been no trading market for the Company's common stock. There
can be no assurance that the Company's stock will ever be quoted, that an active
trading and/or a liquid market will ever develop or, if developed, that it will
be maintained. Persons should not invest unless they can afford to lose their
entire investment. There are material risks in connection with the Company's
common stock.

                                       15
<PAGE>

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

         RISKS OF PROPRIETARY PRODUCTS AND GAMES. The Company places its
proprietary products, except SecureDrop(TM), in casinos under short-term lease
arrangements, making these products susceptible to replacement due to pressure
from competitors, changes in economic conditions, obsolescence, and declining
popularity. The Company intends to maintain and expand the number of installed
proprietary products through enhancement of existing products, introduction of
new products, and customer service, but there can be no assurance that these
efforts will be successful. Introduction of new proprietary products involves
significant risks, including whether the Company will be able to place its
products with casinos and non-gaming industries, the economic terms on which
these industries will accept the products, and the popularity of the products.
The Company has filed trademark and patent applications to protect its
intellectual property rights in certain of its trademarks and innovations on
certain of its proprietary products, respectively. At this time, however, the
United States Patent and Trademark Office has not acted upon all of these
applications. There can be no assurance that the pending patent or trademark
applications will actually issue as patents or trademark registrations or that
any of these rights will not be infringed by others. Certain of the Company's
products and games do or may have independent protection of the game itself, and
it is possible that competitors could produce a similar product or game without
violating any legal rights of the Company. The Company intends to promote
aggressively its trademarks to build goodwill and customer loyalty. There can be
no assurance, however, that the Company will be successful in these efforts,
that innovations will be subject to legal protection, or that the innovations
will give a competitive advantage to the Company.

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

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

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

                                       16
<PAGE>

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

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         On March 27, 2002, Shuffle Master, Inc. ("Shuffler Master") filed a
complaint (Case No. CV-S-02-0438-JCM-PAL) against the Company in the United
States District Court, District of Nevada. The complaint alleges, among other
things, claims for patent infringement and requests treble damages, an
injunction enjoining the Company from infringing Shuffle Master's patent, an
accounting of the Company's gains and profits that resulted from its alleged
infringement, and for interest, costs and attorneys' fees. The Company has filed
its Answer, Counterclaims, and Amended Counterclaims against Shuffle Master. In
its Answer, the Company denies Shuffle Master's allegation of patent
infringement and requests that Shuffle Master's complaint be dismissed. The
Company also seeks, in its amended counterclaim, a declaration that the Company
does not infringe Shuffle Master's patent and that Shuffle Master's patent and
certain of its related patents are invalid. The Company further asserts
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 the Company. This litigation is now in the discovery phase.

                                       17
<PAGE>

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

         On July 29, 2002, Contract Manufacturing Service, Inc., filed a
complaint (Case No. A454098) in the District Court of Clark County, Nevada. The
complaint alleges non-payment of product allegedly delivered, and requests
compensatory damages in the amount of $29,896.14, interest, attorneys' fees and
costs. As the Company was only served with this litigation on August 13, 2002,
the Company is in the process of evaluating the complaint.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

     2002 CONVERTIBLE DEBT PROGRAM

         On February 21, 2002, the Company's Board of Directors authorized a
private placement of $4,999,995 of convertible notes. The convertible notes
accrue interest at 9.5% per annum, mature one year from the date of issuance
(where the holder has the discretion to extend maturity date for up to four
one-year periods) and are convertible into shares of the Company's common stock
one year after issuance at a rate of $0.35 per share. The $4,999,995 of
convertible notes are convertible into a maximum of 14,285,700 shares of the
Company's common stock. In addition, for each convertible note of $49,999.95,
the Company will issue a warrant to purchase 12,500 shares of the Company's
common stock with an exercise price of $0.35. The Company intends to rely upon
the exemption from registration provided by Section 4(2) of the Securities Act
and Rule 506 of Regulation D thereunder. Through June 30, 2002, the Company had
placed convertible notes totaling $349,999.65 and representing 999,999
convertible shares and 87,500 warrants pursuant to this private placement. The
Company has used and will use the proceeds from this private placement for
general corporate purposes and working capital. As of June 30, 2002,
$4,649,995.35 of convertible notes remained to be placed pursuant to the
program.

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.

         Not applicable.

                                       18
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

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

                  None.

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

                  During the three month period ending June 30, 2002, the
                  Company filed with the Securities and Exchange Commission
                  Current Reports on Forms 8-K dated as of: (i) April 16, 2002,
                  announcing the resignation of board member Eric S. Huson; and
                  (ii) May 7, 2002, announcing the filing of its Answer and
                  Counterclaims in the Shuffle Master, Inc. litigation, Case No.
                  VC-S-020438-JCM-PAL.

                                       19
<PAGE>

                                    SIGNATURE

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

<TABLE>
<CAPTION>
<S>                                       <C>
                                                              VendingData Corporation
                                                -----------------------------------------------------
                                                                   (Registrant)


Date:  August 14, 2002                    By:   /s/ Steven J. Blad
                                                -----------------------------------------------------
                                                Steven J. Blad
                                                Its: President, Chief Executive Officer and Treasurer
</TABLE>

                                       20