<PAGE>

                                  UNITED STATES
                       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: March 31, 2003

                                       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 of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                  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 CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,625,826 shares of common stock,
$.001 par value, as of March 31, 2003

Transitional Small Business Disclosure Format (check one): YES [_] NO [X]

<PAGE>

                             VENDINGDATA CORPORATION

                                   FORM 10-QSB

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                       PAGE
                                                                                                       ----
<S>                                                                                                     <C>
PART I - FINANCIAL INFORMATION...........................................................................1

      ITEM 1.  FINANCIAL STATEMENTS......................................................................1

         Balance Sheets..................................................................................1

         Statement of Operations.........................................................................2

         Statements of Cash Flows........................................................................3

      ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....7

      ITEM 3.  CONTROLS AND PROCEDURES..................................................................19

PART II - OTHER INFORMATION.............................................................................20

      ITEM 1.  LEGAL PROCEEDINGS........................................................................20

      ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS................................................20

      ITEM 3.  DEFAULTS UPON SENIOR SECURITIES..........................................................21

      ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................21

      ITEM 5.  OTHER INFORMATION........................................................................21

      ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.........................................................22
</TABLE>

                                                     - i -

<PAGE>

                                        PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                                            VENDINGDATA CORPORATION
                                                BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            MARCH 31, 2003   DECEMBER 31,
                                                                              (UNAUDITED)        2002
                                                                            --------------   ------------
<S>                                                                          <C>             <C>
                                                    ASSETS
Current assets:
   Cash                                                                      $  1,312,641    $  1,778,297
   Accounts receivable, trade                                                     939,749         106,791
   Accounts receivable - other                                                    171,591          39,305
   Due from affiliate                                                              30,593          30,593
   Inventories                                                                  2,421,259       1,850,051
   Prepaid expenses                                                                73,679         236,579
                                                                             ------------    ------------
                                                                                4,949,512       4,041,616

Property and equipment, net of accumulated depreciation of
   $3,013,520 and $2,828,887, respectively                                      1,660,791       1,947,178
Intangible assets, net of accumulated amortization of
   $204,964 and $191,520, respectively                                            339,160         352,603
Due from affiliate - non current                                                  118,800         118,800
Deferred financing costs                                                          188,333         100,000
Deposits                                                                          835,118         868,520
                                                                             ------------    ------------
                                                                             $  8,091,714    $  7,428,717
                                                                             ============    ============

                                LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY

Current liabilities:
   Current portion of leases payable                                         $  2,090,598    $  1,977,380
   Accounts payable                                                               865,826       1,073,134
   Accrued expenses                                                               372,926         385,570
   Accrued wages                                                                  166,024         249,147
   Accrued interest                                                               627,637         461,308
   Stockholder loans - due currently                                              686,743         904,743
   Customer deposits                                                              186,676         386,819
                                                                             ------------    ------------
                                                                                4,996,430       5,438,101

Convertible debt                                                               11,503,072       8,853,072
Leases payable - non-current                                                    3,081,082       3,180,196

Stockholders' equity deficiency:
   Preferred stock, $.001 par value, 10,000,000 shares authorized                      --              --
   Common stock, $.001 par value, 16,000,000 shares authorized,
      7,625,814 and 7,625,814 shares issued and outstanding, respectively           7,626           7,626
   Additional paid-in capital                                                  26,719,980      26,719,980
   Deficit                                                                    (38,216,476)    (36,770,258)
                                                                             ------------    ------------
      Total stockholders' equity deficiency                                   (11,488,870)    (10,042,652)
                                                                             ------------    ------------
      Total liabilities and stockholders' equity deficiency                  $  8,091,714    $  7,428,717
                                                                             ============    ============
</TABLE>

                                See accompanying notes to financial statements.

                                                      1

<PAGE>

                             VENDINGDATA CORPORATION
                             STATEMENT OF OPERATIONS

                                   (UNAUDITED)

                                        THREE MONTHS ENDED MARCH 31,
                                        ----------------------------
                                            2003           2002
                                         -----------   -----------

Sales                                    $ 1,575,086   $ 1,023,163
Rental income                                331,803       354,627
Other income                                  28,469         5,722
                                         -----------   -----------
                                           1,935,358     1,383,512

Cost of sales                                940,475       769,559
Cost of rentals                              405,154       333,437
Other                                         10,017         2,086
                                         -----------   -----------
                                           1,355,646     1,105,082
                                         -----------   -----------
Gross margin                                 579,712       278,430

Operating expenses:

   General and administrative              1,082,444       669,729
   Research and development                  285,989       373,221
                                         -----------   -----------
                                          (1,368,433)   (1,042,950)
                                         -----------   -----------

Loss from operations                        (788,721)     (764,520)

   Interest expense - related parties        159,821        85,557
   Interest expense - other                  497,676       291,250
                                         -----------   -----------
                                             657,497       376,807

Loss before income taxes                  (1,446,218)   (1,141,327)
Provision for income taxes                        --            --
                                         -----------   -----------

Net loss                                 $(1,446,218)  $(1,141,327)
                                         ===========   ===========

Basic and diluted loss per share         $     (0.19)  $     (0.15)
                                         ===========   ===========
Weighted average shares outstanding        7,625,814     7,625,814
                                         -----------   -----------

                 See accompanying notes to financial statements.


                                       2

<PAGE>

                             VENDINGDATA CORPORATION
                            STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)

                                                  THREE MONTHS ENDED MARCH 31,
                                                  ----------------------------
                                                      2003            2002
                                                   -----------   -----------

Net cash (used in) operating activities            $(3,062,106)  $(1,540,220)
                                                   -----------   -----------

Cash flows from investing activities:

   Acquisition of plant and equipment                  (23,147)           --
   Equipment produced and held for rental               (9,500)      118,802
   Disposition of equipment produced for rental        134,400            --
   Deposits                                             33,402       (22,662)
                                                   -----------   -----------
Net cash provided by investing activities              135,155        96,140
                                                   -----------   -----------

Cash flows from financing activities:
   Proceeds from stockholder loans                          --     1,000,000
   Repayment of stockholder loans                     (218,000)     (205,400)
   Proceeds from leases payable                        862,500       499,661
   Repayment of leases payable                        (833,205)     (633,993)
   Proceeds from convertible debentures              2,650,000            --
                                                   -----------   -----------
Net cash provided by financing activities            2,461,295       660,268
                                                   -----------   -----------

Decrease in cash                                      (465,656)     (783,812)
Cash and cash equivalents, beginning of period       1,778,297       866,998
                                                   -----------   -----------
Cash and cash equivalents, end of period           $ 1,312,641   $    83,186
                                                   ===========   ===========

                 See accompanying notes to financial statements.


                                       3

<PAGE>

                    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, 2002, 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 as
of that date was derived. Certain reclassifications have been made to amounts
presented in prior periods for comparability to the current period presentation.

NOTE 2 - LOSS PER SHARE (BASIC AND DILUTED)

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

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

NOTE 3 - DEBT

          In the current quarter, a total of $168,000 worth of stockholder notes
were paid, and $49,999 was exchanged for convertible debt. A total of $2,650,000
was raised as part of the private placement of 10% convertible notes during the
current period. The balance of convertible debt at March 31, 2003 is
$11,503,072.

NOTE 4 - LEASES PAYABLE

          During the current period, the Company entered into sales and
lease-back transactions involving $862,500 in total capital lease obligations,
without an implicit interest rate, payable over three years to finance rental
equipment (Deck-Checkers(R).)


                                       4

<PAGE>

                    VENDINGDATA CORPORATION AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

                                   (UNAUDITED)

NOTE 5 - OPTIONS

          The Company accounts for stock-based employee compensation as provided
in Opinion No. 25 of the Accounting Principles Board, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES. Accordingly, no compensation expense has been recognized
for the stock options granted in the three months ended March 31, 2003 or 2002.
Since the fair value is not determinable for the options granted during the
current period due to lack of trading, as provided in Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the
intrinsic value was used which is $0.00. Using the fair value method and the
Black-Scholes formula for the first quarter of 2002, the weighted average per
share value of options granted would have been $0.37. Had compensation cost for
such option grants been determined using this method, results for the first
quarter of 2003 and 2002 would have been as follows:

                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                        2003          2002
                                                     -----------   -----------
Net loss, as reported                                $(1,446,218)  $(1,141,327)
Deduct - Stock-based employee compensation
   expense determined under the fair value method             --        (1,330)
                                                     -----------   -----------
Net loss, pro forma                                  $(1,446,218)  $(1,139,997)
                                                     ===========   ===========
Basic and diluted net loss per share
   As reported                                       $     (0.19)  $     (0.15)
   Pro forma                                         $     (0.19)  $     (0.15)

NOTE 6 - GOING CONCERN

          The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company incurred a net loss of
$1,446,218 for the three months ended March 31, 2003. Additionally, the Company
had a working capital deficiency of approximately $46,918 at March 31, 2003.
Accordingly, the Company's ability to continue as a going concern may be
dependent upon the success of management's plans to address and overcome these
conditions. Management's plans with respect to these matters include reducing
operating costs through the manufacturing of component parts in China and
restructuring service functions to reduce labor and rental expense. Management
is evaluating sources of additional capital, including debt or equity
financings. Moreover, management believes that the increased sales in the first
quarter of 2003 indicates customer acceptance of our product line and will
result in improved revenue. There is no assurance that the Company will be
successful in raising additional capital or in achieving profitable operations.
The accompanying financial statements do not include any adjustments that might
be necessary should the Company be unable to continue as a going concern.


                                       5

<PAGE>

                    VENDINGDATA CORPORATION AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

                                   (UNAUDITED)

NOTE 7 - INCOME TAXES

          The deferred tax asset resulting from the net operating loss ("NOL")
has effectively been fully reserved resulting in an effective tax benefit rate
of zero for the periods presented.


                                       6

<PAGE>

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

          The following discussion should be read in conjunction with our
financial statements and notes to our financial statements, included elsewhere
in this report. This discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements relate to future events or our
future financial performance and include statements about our plans, objectives
and business as well as our expectations and intentions. In some cases, you can
identify these forward-looking statements by terminology such as "may," "will,"
"should," "could," "expects," "plans," "potential," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such terms
or other comparable terminology. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by any forward-looking statements. These risks
and uncertainties include, but are not limited to, the following:

     o    General economic and business conditions, both nationally and in those
          areas in which we operate;

     o    Competition in the gaming industry;

     o    Regulatory and judicial proceedings;

     o    Changes in gaming laws and regulations (including actions affecting
          licensing);

     o    Continued growth in the gaming industry;

     o    Changes in our business strategy or plans;

     o    Product development, product placement, and the acceptance of our
          products in the marketplace;

     o    Loss of any of our management or key personnel;

     o    Financing sources and availability of capital to fund and sustain our
          operations; and

     o    Leverage and debt service (including sensitivity to fluctuations in
          interest rates).

          Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We are under no duty to update
any of the forward-looking statements after the date of this report to conform
these statements to actual results.

OVERVIEW

          BUSINESS STRATEGY. While we transitioned from a development stage to
an operating company in 2000, we have continued to develop or acquire new
products. The focus on the development and acquisition of new products is
reflected in our operating results. Our strategy to increase revenue and margins
is based on four key areas of concentration:


                                       7

<PAGE>

     o    THE DEVELOPMENT OF THE SECUREDROP(TM)SYSTEM AND THE ACQUISITION OF THE
          DECK-CHECKER(R). Our ability to offer the SecureDrop(TM) System and
          the Deck-Checker(R)have given us two product lines that have virtually
          no competition. In contrast, our shuffler products face intense
          competition due primarily to the dominance of Shuffle Master, Inc. in
          the shuffler market. In this regard, in 2001 and 2000, where a
          substantial portion of our revenue was generated by our shuffler
          products, our margins have declined. By offering two products with
          virtually no competition, our management believes that we will have
          significant pricing power as our products are installed and become
          accepted by the gaming industry. As a means of protecting our
          competitive position in the marketplace, we will rely on existing and
          seek additional intellectual property rights. Through a
          multi-dimensional product line, our management believes that we will
          generate higher margins and become capable of generating sufficient
          revenue to sustain our operations.

     o    THE EXPANSION OF GAMING DOMESTICALLY AND INTERNATIONALLY. The global
          economic downturn has forced non-gaming jurisdictions to look at new
          ways to raise revenue. As a result, at least four states and
          additional countries in Europe, Asia and South America are considering
          the legalizing of various forms of casino gaming. These include slot
          machines at racetracks, Native American Class-III casinos and Las
          Vegas-style casinos. The worldwide expansion of gaming should provide
          new markets for our products.

     o    THE POTENTIAL MARKET FOR OUR PRODUCTS. Since we have only recently
          introduced our SecureDrop(TM)System and Deck-Checker(R), the market
          penetration of these products is low. For example, the market
          penetration of the SecureDrop(TM)Soft Count Module in the domestic
          market is less than 1% while the SecureDrop(TM)Hard Count Module is
          about 4% in the domestic market. As a result of the positive feedback
          on the installations of the SecureDrop(TM)Soft Count Module in the
          first quarter of 2003, our management believes that our products are
          gaining acceptance in the industry. With respect to the
          Deck-Checker(R), our management has received positive feedback and
          believes that the unique product will provide casino operators with a
          significant return on their investment.

     o    THE INCREASE OF GROSS MARGINS THROUGH COST REDUCTION INITIATIVES.
          Through the implementation of cost reduction initiatives, our
          management believes that the gross margins on our products will
          improve over the next six months. The cost reduction initiatives
          include the following:

          o    Reducing the cost of our component parts through the use of
               production facilities in China. By opening an office and
               warehouse facility in Xiaolan Town in Zhongshan City, China, we
               propose to shift our component sources to China and lower our
               costs. By the end of the second quarter of 2003, we will have
               shifted the production of over 80% of the components of the
               SecureDrop(TM)System and our shufflers to China. As a result, our
               management estimates that the cost of such components will
               decrease from approximately 40% of revenue to approximately 20%
               of revenue. Although we propose to outsource many components of
               the our products, we intend to maintain a five to six month
               inventory of components at our principal offices in Las Vegas,
               Nevada in the event there is interruption in the manufacture and
               receipt of components from China.

          o    Shifting the manufacturing of our sub-assemblies to our
               production facilities in China and using our facilities in Las
               Vegas, Nevada for final assembly. Our management believes that we
               will reduce our labor and overhead costs by approximately 20% by
               the fourth quarter of 2003.


                                       8

<PAGE>

          o    Closing our regional service centers and centralizing all service
               functions to our facilities in Las Vegas, Nevada. The use of four
               fully-staffed service centers with technicians and customer
               service representatives for the repair and service of our
               shufflers has not been cost effective. By closing these service
               centers and relying more on the use of spare machines, our
               management estimates that we will reduce the costs associated
               with servicing our shufflers and other products. We propose to
               centralize all service functions by the third quarter of 2003.

          o    Eliminating our Boise, Idaho research facility and outsourcing
               any remaining research and development related to our table game
               support products. By closing this facility in the third quarter
               of 2003, our management believes that we will reduce our overhead
               and labor costs for research and development by twenty percent on
               an annual basis. For example, with respect to the
               Deck-Checker(R), we have engaged Industrial Research Limited, or
               IRL, in New Zealand for any additional research or development.
               Currently, IRL, a government owned research and development
               facility, is producing components for the Deck-Checker(R).

          o    Implementing a new computer system designed to improve
               productivity through the use of eleven modules, including a
               financial and manufacturing application. This software will
               provide an integrated control process for purchasing, inventory
               control and manufacturing. Our management believes that the
               computer system's comprehensive set of applications and improved
               integration will result in lower costs and higher efficiency over
               our existing system.

FINANCIAL CONDITION

          To fund the execution of our business strategy described above, we
continued to seek sources of outside financing. From December 2002 to May 2003,
we conducted a private placement of 10% senior notes in the aggregate principal
amount of $7,500,000 and warrants to purchase 900,000 shares of common stock.
The warrants were issued at a rate of 6,000 shares per $50,000 of 10% senior
notes sold. The 10% senior notes require the payment of accrued interest
semi-annually in arrears with the principal due on December 15, 2005 and, at any
time after December 15, 2004 and until June 15, 2005, may have 15% of their then
outstanding principal converted into shares of our common stock at a rate of
$2.25 per share. The amounts outstanding at March 31, 2003 were $5,100,000.

          Our cash and working capital requirements remain significant. As a
result, our management is currently evaluating other sources of financing. We
are currently evaluating the need to seek public or private sources of debt or
equity financing, institutional or bank financing, lease financing, or other
sources of financing. Should such financing sources not be available, we would
be required to take other steps, including the sale of certain assets or the
deferral or change or operating plans.

ACCOUNTING POLICIES

          The following is a summary of what our management believes are the
critical accounting policies related to our operations. The application of these
policies, in some cases, requires our management to make subjective judgments
regarding the effect of matters that are inherently uncertain.

          REVENUE RECOGNITION. We recognize revenue from the sale of our
products upon installation and functional testing at customer locations since
that is when the customer's obligation becomes fixed and certain per the
Company's standard contract for the sale of SecureDrop(TM), Shufflers and
Deck-Checkers(R). Revenue from rentals of shufflers is recorded as revenue at
the first of each month in accordance with lease contract terms. Although sales
are not generally made with a right to return, upon occasion, sales returns and
allowances are recorded after returned goods are received and inspected.


                                       9

<PAGE>

BALANCE SHEET

          During the three months ended March 31, 2003, total assets increased
by $662,997 from $7,428,717, at December 31, 2002. Accounts receivable (trade)
increased from $106,791 to $939,749 between December 31, 2002 and March 31,
2003. This increase is attributed to installations of SecureDrop(TM) at three
casino properties in Nevada during the current period. Inventories have
increased during the current period by $571,208 from $1,850,051 at December 31,
2002. As the Company moves more manufacturing to China, the level of inventories
at our Las Vegas facility will increase in order to maintain a six-month
inventory on hand to guard against unexpected transport interruptions.

          Total liabilities have increased from $17,471,369 at December 31, 2002
to $19,580,584 at March 31, 2003. Convertible debt increased primarily due to
the private placement of an additional $2,650,000 during the current period.

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED MARCH 31, 2003 AND 2002

          REVENUE

          For the three months ended March 31, 2003, we generated total revenues
of $1,935,358, compared to $1,383,512 for the three months ended March 31, 2002,
an increase of $551,846 or 39.9%. Our revenues for the three months ended March
31, 2003 consisted of SecureDrop(TM) sales of $1,149,509, shuffler sales of
$413,014, shuffler rentals of $331,803, Deck-Checker(R) sales of $12,563 and
miscellaneous other income of $28,469. The increase in revenue was primarily due
to an increase in SecureDrop(TM) and shuffler sales.

          REVENUES - SECUREDROP(TM) SALES. For the three months ended March 31,
2003, we generated revenue related to the sale of our SecureDrop(TM) products of
$1,149,509, compared to $1,023,163 for the three months ended March 31, 2002, an
increase of $126,346, or 12.4%. The increase in revenue can be attributed to the
installation of SecureDrop(TM) at three of the Park Place Entertainment casino
properties in Nevada.

          REVENUES - SHUFFLER SALES. For the three months ended March 31, 2003,
we generated revenue related to the sale of our shufflers of $413,014, compared
to $0 for three months ended March 31, 2002, an increase of $413,014. The
increase in Shuffler sales was primarily due to casino operators purchasing
shufflers versus renting. Many gaming companies prefer the purchase of equipment
versus rental. The Company believes that the trend will be towards the purchase
of equipment in the future due to lower interest rates for installment sales.

          REVENUE - SHUFFLER RENTALS. For the three months ended March 31, 2003,
we generated revenue related to the rental of our shufflers of $331,803,
compared to $354,627 for the three months ended March 31, 2002, a decrease of
$22,824, or 6.4%. The decrease in Shuffler rentals was primarily due to the
increase in shuffler sales for that same period. Shuffler rentals will increase
when the next generation model is introduced early next year.

          REVENUE - OTHER INCOME. For the three months ended March 31, 2003, we
generated other income of $28,469, compared to $5,722 for the three months ended
March 31, 2002, an increase of $22,747, or 397.5%. The increase in other income
was primarily due to an unusual sale of a table game sign during the first
quarter of 2003.


                                       10

<PAGE>

          COST OF SALES

          For the three months ended March 31, 2003, our cost of sales was
$1,355,646, compared to $1,105,082 for the three months ended March 31, 2002, an
increase of $250,564, or 22.7%. Our cost of sales for the three months ended
March 31, 2003 included cost of SecureDrop(TM) sales of $468,558, cost of
shuffler sales of $105,222, cost of Deck-Checker(R) sales of $9,480, shuffler
rental depreciation of $155,788, shuffler service costs of $249,366,
manufacturing costs of $357,215, and other expenses of $10,017. As we transition
from a development stage company to an operating company, we are reducing our
cost of sales through more efficient purchasing and manufacturing. The
outsourcing of components from China will continue the trend of reducing cost of
sales through the second and third quarters of 2003. The gross margin on revenue
for the three months ended March 31, 2003 was $579,712, or 30%, compared to the
gross margin on revenue for the three months ended March 31, 2002 of $278,430,
or 20.1%. The increase in gross margin of $301,282 from the three months ended
March 31, 2003 to the three months ended March 31, 2002 reflects these
efficiencies.

          COST OF SALES - SECUREDROP(TM) SALES. Our cost of SecureDrop(TM) sales
revenue was $468,558 for the three months ended March 31, 2003 compared to
$599,027 for the three months ended March 31, 2002, representing a decrease of
$130,469, or 21.8%. The decrease in the cost of SecureDrop(TM) sales revenue was
due to increased efficiencies in purchasing and manufacturing. The gross margin
on revenue from SecureDrop(TM) sales revenue was $680,951, or 59.2%, in the
three months ended March 31, 2003 compared to $424,136, or 41.5%, for the three
months ended March 31, 2002. The increase in gross margin/gross margin
percentage on SecureDrop(TM) sales revenue resulted primarily from increased
experience and efficiency in the installation and service of the SecureDrop(TM)
products.

          COST OF SALES - SHUFFLER SALES. Our cost of shuffler sales revenue was
$105,222 for the three months ended March 31, 2003 compared to $0 for the three
months ended March 31, 2002. The increase was due to the fact that there were no
shuffler sales in the first quarter of 2002. The gross margin on revenue from
shuffler sales revenue was $307,792, or 74.5%, in the three months ended March
31, 2003.

          GENERAL AND ADMINISTRATIVE EXPENSES

          For the three months ended March 31, 2003, our general and
administrative expenses were $1,082,444, compared to $669,729 for the three
months ended March 31, 2002, an increase of $412,715, or 61.6%. The increase in
general and administrative expenses related primarily to travel and lodging to
set up the office, assembly area and warehouse facility in China, legal fees
associated with the Shuffle Master lawsuit and the hiring of a CFO.

          Our general and administrative expenses for the three months ended
March 31, 2003 consisted of the following: salaries and related costs of
$361,347; consulting services of $36,693; advertising and marketing costs of
$11,576; travel and entertainment costs of $128,976; gaming industry shows costs
of $33,869; rent of $145,482; repairs and maintenance expenses of $28,794; legal
and regulatory expenses of $252,768; supplies of $5,368; insurance expenses of
$6,823; depreciation and amortization of $62,209; and other expenses of $8,539.

          RESEARCH AND DEVELOPMENT EXPENSES

          For the three months ended March 31, 2003, research and development
expenses were $285,989, compared to $373,221 for the three months ended March
31, 2002, a decrease of $87,232, or 23.4%. The decrease in research and
development expenses was primarily due to our transition from research to
production on our product lines.


                                       11

<PAGE>

          INTEREST EXPENSE

          For the three months ended March 31, 2003, we incurred interest
expense of $657,497, compared to $376,807 for the three months ended March 31,
2002, an increase of $280,690, or 74.5%. The increase in interest expense was
primarily attributable to increased borrowing.

          NET LOSS

          For the three months ended March 31, 2003, we had a net loss of
$1,446,218, compared to a net loss of $1,141,327 for the three months ended
March 31, 2002, an increase of $304,891, or 26.7%. The increase in net loss was
primarily due to increased general and administrative costs together with
increased interest expense. Basic loss per share was $0.19 for the three months
ended March 31, 2003, compared $0.15 for the three months ended March 31, 2002.

LIQUIDITY AND CAPITAL RESOURCES

          OVERVIEW

          Because of our efforts to transition from a development stage company
to an operating company, we have generated substantial cash flow deficits from
operations, including cash used in operating activities of $5,206,489,
$5,712,867 and $3,062,106 in the years ended December 31, 2002 and 2001 and the
three months ended March 31, 2003, respectively. In addition, to fund our
development and operating activities, we have been provided cash by financing
activities of $6,683,001, $6,430,282 and $2,461,295 in the years ended December
31, 2002 and 2001 and the three months ended March 31, 2003, respectively.
Consequently, we have been substantially dependent on cash from financing
activities to fund our development and operating activities. We will continue to
require cash from financing activities for our current operating needs until our
operations begin to generate sufficient cash flow to provide for such cash
requirements.

          During the three months ended March 31, 2003 and the year ended
December 31, 2002, our sources of capital include equipment financing from a
third party, short-term notes from stockholders, convertible debentures and
other private sources of capital. With respect to our equipment financing where
we have sold and leased back most of our furniture, equipment, tooling and
shufflers, we have received proceeds of $2,988,385 and repaid $2,823,331 for the
year ended December 31, 2002 and have received proceeds of $862,500 and repaid
$833,205 for the three months ended March 31, 2003. As of March 31, 2003, there
was outstanding equipment financing of $5,813,397, which includes $641,718 of
deferred interest. These equipment leases have a term of 36 to 39 months and
were not recorded as sales because the leases included a mandatory buy back
provision. With respect to our stockholders loans, we have received proceeds of
$3,917,948 and repaid $650,000 for the year ended December 31, 2002 and have
received proceeds of $0 and repaid $218,000 for the three months ended March 31,
2003. As of March 31, 2003, there were outstanding stockholders loans in the
aggregate amount of $686,743. With respect to our convertible debentures, we
received proceeds of $3,249,999 and $2,650,000 during the year ended December
31, 2002 and the three months ended March 31, 2003, respectively, and have
outstanding convertible debentures in the aggregate amount of $11,503,072 as of
March 31, 2003.

          WORKING CAPITAL

          During the three months ended March 31, 2003 and the year ended
December 31, 2002, we relied substantially upon loans from certain stockholders
and directors, placements of senior notes and warrants and other private sources
of debt and equity capital to sustain our operations. Until normalized sales
levels are achieved such that our revenue is sufficient to sustain our
operations, we will be relying upon loans from our principal stockholder and
other directors, and other private and institutional sources of debt and equity
capital for working capital purposes. Despite such reliance, neither our
principal stockholder nor our directors are obligated to provide additional
financing to us and our principal stockholder and directors are free to decline
to make additional financings to us at any time. In such event, we may have
substantial difficulties in raising additional financings.

                                       12
<PAGE>

          There have been no material changes in contractual cash obligations or
commitments in the current period.

          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 2003 through the net proceeds from the 10% senior note offering, cash
flow from operations, and cash from debt or equity financings or from lease
financing sources. In the event that we need additional capital, 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 are not able to locate additional sources of liquidity, we may be unable to
continue as a going concern.

RISK FACTORS

                          RISKS RELATED TO VENDINGDATA

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

          We have a history of significant operating losses and anticipate
continued operating losses for the foreseeable future. For the years ended
December 31, 2002 and 2001 and the three months ended March 31, 2003, we have
incurred net losses of $6,192,786, $7,566,090 and $1,446,218, respectively, and
our operations have used $5,206,489, $5,712,867 and $3,062,106 of cash,
respectively. As of December 31, 2002 and 2001 and March 31, 2003, we had
accumulated deficits of $36,770,258, $30,557,860 and $38,216,476, respectively.

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

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

          Based on presently known commitments and plans, we believe that we
will be able to fund our operations and required expenditures through the second
quarter of 2003 from cash on hand, cash flow from operations, and cash from our
recent private placement of senior notes. In the event that such sources are
insufficient, we will need to seek cash from private or public placements of
debt or equity, institutional or other lending sources, sell certain assets or
change operating plans to accommodate such liquidity issues. No assurances can
be given that we will successfully obtain necessary liquidity sources


                                       13

<PAGE>

to fund our operations in the upcoming year. If adequate funds are not available
or are not available on acceptable terms, we may not be able to fund operations
or otherwise continue as a going-concern.

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

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

THE ACCEPTANCE AND EXPANSION OF COINLESS GAMING MAY ADVERSELY AFFECT THE DEMAND
FOR OUR PRODUCTS.

          Certain gaming operators have tested and employed as part of their
current operations certain gaming devices that have totally eliminated the use
of coin or tokens, or use a combination of coin and "cashless" vouchers. The
acceptance and expansion of totally coinless gaming devices may reduce the
demand for the SecureDrop(TM) System Hard Count Module, which is based on coin
usage, and may adversely affect our operations in the future. Coinless gaming
devices use bill/ticket acceptors and canisters, which would use our
SecureDrop(TM) Soft Count Module.

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

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

WE ARE UNABLE TO PREDICT THE FUTURE IMPACT THAT EXTRAORDINARY EVENTS, SUCH AS
TERRORISM, 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 attacks. Because our business is closely tied to the gaming
industry, the long-term effects from the September 11, 2001 attacks are unknown.
The potential for future terrorist attacks, the national and international
responses to terrorist attacks, 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.


                                       14

<PAGE>

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

DUE TO OUR MANAGEMENT'S CONTROLLING INTEREST IN OUR COMMON STOCK, OUR MANAGEMENT
HAS THE POWER TO INFLUENCE ALL MATTERS SUBMITTED TO OUR STOCKHOLDERS.

          Our executive officers and members of our board beneficially own
9,485,048 shares of common stock, or approximately 85.9% of the outstanding
shares of our common stock, assuming exercise of options, warrants and
convertible debentures. These stockholders have the power to influence all
matters requiring approval by our stockholders, including the election of
directors and approval of mergers and other significant corporate transactions.
This concentration of ownership also has the effect of delaying, preventing or
expediting, as the case may be, a change in control of our company.

DUE TO THE RECENT DEVELOPMENT OF OUR PRODUCTS, WE ARE NOT CERTAIN WHETHER A
MARKET EXISTS FOR OUR PRODUCTS OR WHETHER OUR PRODUCTS WILL RECEIVE CUSTOMER
ACCEPTANCE.

          We have only recently completed development and begun distribution of
our shufflers, the SecureDrop(TM) System and tHE Deck-Checker(R). Although the
market appears to be receptive to our products, there is no guarantee that the
market will remaiN receptive and that we will successfully compete in the target
market for our products. If we fail to generate sufficient demand for our
products, our business will be adversely affected.

          Because certain of our products have just begun distribution, customer
acceptance of those products is uncertain. Although to our knowledge our
shufflers have not proved vulnerable to card counters or expert players, there
is no guaranty that our shufflers will not become vulnerable to card counters or
expert players or that the use of our shufflers will not result in financial
losses for our customers. The occurrence of such events could have a material
adverse effect on our operations.

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

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

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

          Since our products are designed to increase security, productivity and
profitability for the gaming industry, our future success is dependent upon the
ability of our products to withstand attempts by third parties to undermine the
security of our products. In the event that our products become susceptible to
attacks by third parties, we will most likely be required to take back our
products from existing customers


                                       15

<PAGE>

and will lose sales from prospective customers. Although we have tested our
products for security and although our products have been tested by certain
gaming regulators as part of the approval process, there is no assurance that
our products will not be susceptible to a scheme by third parties to defraud the
relevant gaming property. Vulnerabilities in the security of our products could
reduce demand for these products.

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

          We place our proprietary products, other than our SecureDrop(TM)
System, in casinos under short-term lease arrangements, making these products
susceptible to replacement due to pressure from competitors, changes in economic
conditions, obsolescence and declining popularity. We intend to maintain and
expand the number of installed proprietary products through enhancement of
existing products, introduction of new products and customer service, but there
can be no assurance that these efforts will be successful. The introduction of
new proprietary products involves significant risks, including whether we will
be able to place our products in gaming properties, the economic terms on which
these gaming properties will accept the products, and the popularity of the
products. We have filed trademark and patent applications to protect our
products. At this time, however, the United States Patent and Trademark Office
has not acted upon all of these applications. There can be no assurance that the
pending patent or trademark applications will actually issue as patents or
trademark registrations or that any of these rights will not be infringed by
others. Certain of our products do or may have independent protection of the
game itself, and it is possible that competitors could produce a similar product
or game without violating any of our legal rights. We intend to promote
aggressively our trademarks to build goodwill and customer loyalty. There can be
no assurance, however, that we will be successful in these efforts, that
innovations will be subject to legal protection or that the innovations will
give us a competitive advantage sufficient to maintain our business and
operations.

OUR SHUFFLER IS THE SUBJECT OF PATENT LITIGATION.

          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. In addition to vigorously defending
this matter, we have asked the court to invalidate certain patents asserted by
Shuffle Master, Inc. Although we believe our position to be meritorious, and
hope that the court will invalidate the patents of Shuffle Master, Inc. or
certain claims set forth therein, litigation of this nature is a drain on our
cash resources and our management's time. We cannot give any assurance that the
costs of the litigation, our likely cash and time requirements or the outcome
will not have an adverse effect on us and our financial condition.

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

          We propose to expand our manufacturing presence in China by
outsourcing most phases of the manufacturing process to facilities in Xiaolan
Town in Zhongshan City, China. Although we intend to maintain a five to six
month inventory of parts at our principal offices in Las Vegas, Nevada, we will
be adversely impacted if there is an interruption in our ability to receive
components from 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. According to the Chinese Ministry of
Health, Guangdong, the province in which Xiaolan Town is located, has the second
largest number of confirmed and probable cases of SARS on the Chinese mainland
to date. In the event that our manufacturing operations in Xiaolan Town are
interrupted due to the SARS epidemic, our business could be materially adversely
affected.


                                       16

<PAGE>

                          RISKS RELATED TO OUR INDUSTRY

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

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

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 no assurance can be given that our products will be approved
in any particular jurisdiction. The failure to obtain such approval in any
jurisdiction in which we may seek to introduce our products or concepts could
have a material adverse effect on our business.

          The Nevada Gaming Control Board may investigate any beneficial holder
of our voting securities (regardless of the number of shares owned), and any
individual who has a material relationship to, or material involvement with, us
in order to determine whether such individual is suitable or should be licensed
as a business associate of ours. In addition, our officers, directors and
certain key employees may be required to be licensed or found suitable by the
Nevada gaming authorities, which would require them to submit detailed
background information. Any person who fails or refuses to apply for a finding
of suitability or a license within 30 days after being ordered to do so by the
Nevada Gaming Commission or the Chairman of the Nevada Gaming Control Board may
be found unsuitable. In the event that the Nevada 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.

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

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


                                       17

<PAGE>

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

          o    Recession;

          o    Levels of disposable income of the hotel patrons;

          o    Acts of terrorism and anti-terrorism efforts;

          o    Increased transportation costs resulting in decreased travel by
               patrons;

          o    Changes or proposed changes in tax laws;

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

          o    Competitive conditions in the gaming industry.

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

THE GAMING INDUSTRY HAS DEMONSTRATED A PREFERENCE FOR RELYING ON A SINGLE
PROVIDER OF SHUFFLERS.

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

                        RISKS RELATED TO OUR COMMON STOCK

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

          There has been no trading market for our common stock. There can be no
assurance that our common stock will ever be quoted, that an active trading
and/or a liquid market will ever develop or, if developed, that it will be
maintained. Accordingly, we cannot assure the liquidity of the market of our
common stock or the prices at which you may be able to sell our common stock, if
at all.

IN THE EVENT THAT WE ARE UNABLE TO CONTINUE AS A GOING CONCERN AND OUR COMPANY
IS DISSOLVED OR OTHERWISE TERMINATED, STOCKHOLDERS COULD LOSE THEIR INVESTMENT
IN OUR COMMON STOCK.

          Investment in our common stock is at risk of complete loss if our
operations are unsuccessful.

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

          There can be no assurance that our operations will become profitable.
At the present time, we intend to use earnings, if any, 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


                                       18

<PAGE>

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 your common stock in
order to generate cash flow from your investment. You may not receive a gain on
your investment when you sell your common stock, and you may lose the entire
amount of the investment.

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

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

ITEM 3. CONTROLS AND PROCEDURES

          EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our chief executive
officer and our chief financial officer, after evaluating the effectiveness of
our "disclosure controls and procedures" (as defined in the Securities Exchange
Act of 1934, Rules 13a-14(c) and 15-d-14(c)) as of a date (the "Evaluation
Date") within 90 days before the filing date of this quarterly report, have
concluded that, as of the Evaluation Date, our disclosure controls and
procedures were adequate and designed to ensure that material information
relating to us and our consolidated subsidiaries would be made known to them by
others within those entities.

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

          CHANGES IN INTERNAL CONTROLS. Although there have been no significant
changes in internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, we are currently
evaluating means of enhancing our internal controls. In this regard, we propose
to form a disclosure committee that will be designed to ensure the reliability
of our financial reporting, the effectiveness and efficiency of our operations
and our compliance with applicable laws and regulations. This committee will
also be responsible for providing our chief executive officer and our audit
committee with its assessments and recommendations with respect to our
disclosure controls and procedures. The disclosure committee will consist of our
chief financial officer, our corporate counsel, a representative from marketing
and a representative from operations. In addition, we will be implementing a
financial and manufacturing software application, which will provide an
integrated control process for purchasing, inventory control and manufacturing
and will improve our financial reporting.


                                       19

<PAGE>

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

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

          On May 18, 2000, Heath Electronics Manufacturing Corporation filed a
complaint (Case No. CV OC 00-02422D) against VendingData in the District Court
of the Fourth Judicial District of the State of Idaho, Ada County. The parties
have entered into a Settlement Agreement, the performance of which will lead to
the filing and recordation of a Satisfaction of Judgment.

          On March 27, 2002, Shuffle Master filed a complaint (Case No.
CV-S-02-0438-JCM-PAL) against VendingData in the United States District Court,
District of Nevada. The amended complaint alleges, among other things, claims
for patent infringement and requests treble damages, an injunction enjoining us
from infringing on two of Shuffle Master's patents, an accounting of our gains
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 the registering of use of a playing card shuffler apparatus
and the displaying of the use on a display. We have filed our Answer,
Counterclaims, and Amended Counterclaims against Shuffle Master. In our Answer,
we deny Shuffle Master's allegation of patent infringement and request that
Shuffle Master's complaint be dismissed. We also seek, in our amended
counterclaim, a declaration that we do not infringe Shuffle Master's patent and
that Shuffle Master's patent and certain of its related patents are invalid. We
further assert counterclaims against Shuffle Master for breach of contract and
violation of the Uniform Trade Secrets Act. On May 20, 2002, the United States
District Court, District of Nevada denied Shuffle Master's Motion for
Preliminary Injunction against us. Discovery in this litigation is now closed.

          On June 7, 2002, Beth Thacker filed a complaint (Case No.
02-2-13207-3KNT) against VendingData in the Superior Court of Washington in and
for King County. We removed this case (Case No. C02-1374P) to the United States
District Court for the Western District of Washington. The Court granted the
Company's Motion for Summary Judgment, and on May 13, 2003, entered an Order of
Dismissal, which dismissed all claims against the Company with prejudice.

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

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

         From December 2002 to May 2003, we conducted a private placement of 10%
senior notes in the aggregate principal amount of $7,500,000 and warrants to
purchase 900,000 shares of common stock. The warrants were issued at a rate of
6,000 shares per $50,000 of 10% senior notes sold. The 10% senior notes require
the payment of accrued interest semi-annually in arrears with the principal due
on December 15, 2005 and, at any time after December 15, 2004 and until June 15,
2005, may have 15% of its then outstanding principal converted into shares of
our common stock at a rate of $2.25 per share. All notes were placed with
accredited investors. We received net proceeds from the private placement of
approximately $7,200,000 after deducting the underwriting discounts and
commissions and the offering expenses. The proceeds from this placement are
being used for the acquisition of the Deck-Checker(R), inventory and working
capital. We relied upon the exemption from registration provided by Section 4(2)
of the Securities Act, Rule 506 of Regulation D thereunder and Regulation S.


                                       20
<PAGE>

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.


                                       21

<PAGE>

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

          (a)  Exhibits.

               99.1 Certifications 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, 2003 and from the end of such
period to the date of this report, we filed the following:

          o    Current Report on Form 8-K filed on January 8, 2003 reporting an
               amendment to our bylaws on November 13, 2002 and the 1-for-5
               reverse stock split effective on January 2, 2003;

          o    Current Report on Form 8-K filed on February 27, 2003 reporting
               the appointment of John R. Spina as our chief financial officer;

          o    Current Report on Form 8-K filed on April 22, 2003 (as amended by
               Form 8-K/A filed May 6, 2003) reporting the retention of the firm
               of Piercy, Bowler, Taylor & Kern as our independent accountants;
               and

          o    Current Report on Form 8-K filed on April 28, 2003 reporting the
               resignation of Steven J. Blad as treasurer and the election of
               John R. Spina as our treasurer.

                                    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: May 20, 2003           By:  /s/ Steven J. Blad
                                  ----------------------------------------------
                                  Steven J. Blad
                             Its: Chief Executive Officer and President


                                       22

<PAGE>

                                 CERTIFICATIONS

          I, Steven J. Blad, Chief Executive Officer and President of
VendingData Corporation, certify that:

          1.   I have reviewed this quarterly report on Form 10-QSB of
               VendingData Corporation;

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

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

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

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

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

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

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

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

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

          6.   The registrant's other certifying officer and I have indicated in
               this quarterly report whether or not there were significant
               changes in internal controls or in other factors that could
               significantly affect internal controls subsequent to the date of
               our most recent evaluation, including any corrective actions with
               regard to significant deficiencies and material weaknesses.


Date: May 20, 2003           By: /s/ Steven J. Blad
                                 -----------------------------------------------
                                 Steven J. Blad, Chief Executive Officer and
                                 President


                                       23

<PAGE>

          I, John R. Spina, Chief Financial Officer and Treasurer of VendingData
Corporation, certify that:

          1.   I have reviewed this quarterly report on Form 10-QSB of
               VendingData Corporation;

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

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

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

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

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

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

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

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

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

          6.   The registrant's other certifying officer and I have indicated in
               this quarterly report whether or not there were significant
               changes in internal controls or in other factors that could
               significantly affect internal controls subsequent to the date of
               our most recent evaluation, including any corrective actions with
               regard to significant deficiencies and material weaknesses.


Date: May 20, 2003           By: /s/ John R. Spina
                                 -----------------------------------------------
                                 John R. Spina, Chief Financial Officer and
                                 Treasurer


                                       24