<PAGE>

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

                                   FORM 10-QSB

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

         For the quarterly period ended:            September 30, 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 September 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

     Item 3.      Controls and Procedures                                   13

PART II. OTHER INFORMATION

     Item 1.      Legal Proceedings                                          18

     Item 2.      Changes in Securities and Use of Proceeds                  18

     Item 3.      Defaults Upon Senior Securities                            19

     Item 4.      Submission of Matters to a Vote of Security Holders        19

     Item 5.      Other Information                                          19

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

SIGNATURE                                                                    19

                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

<TABLE>
                                              VENDINGDATA CORPORATION
                                                   BALANCE SHEET
<CAPTION>

                                                                                   September 30,      December 31,
                                                                                        2002              2001
                                                                                   -------------     -------------
                                       ASSETS                                       (UNAUDITED)
<S>                                                                                <C>               <C>
Current assets:
   Cash and cash equivalents                                                       $    308,145      $    866,998
   Accounts receivable, trade                                                           337,404           159,065
   Other receivables                                                                     63,390            40,438
   Inventories                                                                        1,465,682         1,514,073
   Prepaid expenses                                                                      27,435           271,933
                                                                                   -------------     -------------
     Total current assets                                                             2,202,056         2,852,507

Property and equipment, including revenue producing equipment, at cost, net of
   accumulated depreciation of  $2,723,771 and $2,081,582, respectively               2,210,746         2,150,291

Intangible assets, at cost, net of
   accumulated amortization of $164,702 and $131,606, respectively                      364,625           403,078
Other Assets                                                                            538,362            34,862
Deferred interest                                                                       597,541           542,790
Deposits                                                                                840,243           705,980
                                                                                   -------------     -------------
                                                                                   $  6,753,573      $  6,689,508
                                                                                   =============     =============

                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of leases payable                                                  3,173,580         2,721,607
   Accounts payable                                                                     867,861           566,427
   Accrued expenses                                                                     293,297           441,538
   Accrued wages                                                                        145,965           221,718
   Accrued interest                                                                     652,421           338,457
   Stockholder loans - due currently                                                  3,317,842           620,791
   Customer deposits                                                                    470,229           882,573
                                                                                   -------------     -------------
     Total current liabilities                                                        8,921,195         5,793,111

Leases payable - non-current                                                          2,287,596         2,127,186
Convertible debt                                                                      3,103,076         2,603,077
Stockholder loans - non-current                                                           8,000            16,000
Deferred Charges                                                                        485,894                --
                                                                                   -------------     -------------
     Total liabilities                                                               14,805,761        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                                     (34,779,794)      (30,577,472)
                                                                                   -------------     -------------
     Total stockholders' equity (deficit)                                            (8,052,188)       (3,849,866)
                                                                                   -------------     -------------
                                                                                   $  6,753,573      $  6,689,508
                                                                                   =============     =============

                             See accompanying notes to unaudited financial statements.

                                                        3
</TABLE>
<PAGE>

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

                                                 Three Months Ended                      Nine Months Ended
                                          ---------------------------------       ---------------------------------
                                          September 30,       September 30,       September 30,       September 30,
                                              2002                2001                2002                2001
                                          -------------       -------------       -------------       -------------
<S>                                       <C>                 <C>                 <C>                 <C>
Sales                                     $    252,893        $    186,823        $  1,780,764        $  1,005,194
Rental income                                  358,044             337,946           1,073,478             952,492
Other income                                    14,431                  --              26,068                  --
                                          -------------       -------------       -------------       -------------
                                               625,368             524,769           2,880,310           1,957,686

Cost of sales                                  619,727             596,799           2,384,200           2,747,203
                                          -------------       -------------       -------------       -------------
Gross margin                                     5,641             (72,030)            496,110            (789,517)

Selling, general and administrative            862,240             635,897           2,313,276           2,275,780
Research and development                       356,914             534,717           1,077,838           1,087,930
                                          -------------       -------------       -------------       -------------
(Loss) from operations                      (1,213,513)         (1,242,644)         (2,895,004)         (4,153,227)

Interest expense, net                          389,749             346,981           1,006,314             938,276
Interest expense - related parties             115,439             112,507             299,608             401,371
                                          -------------       -------------       -------------       -------------
      Total interest expense net               505,188             459,488           1,305,922           1,339,647
                                          -------------       -------------       -------------       -------------
(Loss) before income taxes                  (1,718,701)         (1,702,132)         (4,200,926)         (5,492,874)
Provision for income taxes                       2,739                 391               1,396                 832
                                          -------------       -------------       -------------       -------------
Net income (loss)                         $ (1,721,440)       $ (1,702,523)       $ (4,202,322)       $ (5,493,706)
                                          =============       =============       =============       =============

Basic earnings (loss) per share           $      (0.05)       $      (0.07)       $      (0.11)       $      (0.36)
                                          =============       =============       =============       =============

Weighted average shares outstanding         38,129,072          23,953,335          38,129,072          15,349,720
                                          =============       =============       =============       =============

                             See accompanying notes to unaudited financial statements.

                                                         4
</TABLE>
<PAGE>

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

                                                                   Nine Months Ended
                                                            -------------------------------
                                                            September 30,      September 30,
                                                                2002               2001
                                                            ------------       ------------
<S>                                                         <C>                <C>
Net (loss)                                                  $(4,202,322)       $(5,493,706)
   Adjustments to reconcile net income (loss) to net
     cash used in operating activities:
     Depreciation and amortization                              675,891            600,264
     Amortization of deferred interest                          302,131            250,914
   Changes in assets and liabilities:
     (Increase) decrease in trade accounts receivable          (178,339)           533,974
     (Increase) decrease in other receivables                   (22,952)          (718,715)
     (Increase) decrease in inventory                            48,391           (510,625)
     (Increase) decrease in prepaid expenses                    244,498             (4,228)
     (Increase) decrease in other assets                       (503,500)                --
     Increase (decrease) in accounts payable                    301,433           (299,849)
     Increase (decrease) in accrued expenses                     89,968            (90,238)
     Increase (decrease) in customer deposits                  (412,344)           (56,698)
     Increase (decrease) in deferred charges                    485,893            (65,785)
                                                            ------------       ------------
       Total adjustments                                      1,031,070           (360,987)
                                                            ------------       ------------

Net cash (used in) operating activities                      (3,171,252)        (5,854,692)
                                                            ------------       ------------

Cash flows from investing activities:
   Acquisition of plant and equipment                          (213,694)          (361,155)
   Equipment produced and held for rental                      (509,301)          (107,600)
   Amortization of patents and trademarks                        25,102                 --
   Increase in patents and trademarks                                --           (173,842)
   Deposits                                                    (134,263)           (89,559)
                                                            ------------       ------------
Net cash (used in) investing activities                        (832,156)          (732,156)
                                                            ------------       ------------

Cash flows from financing activities:
   Common stock sold for cash                                        --          9,991,419
   Proceeds from stockholder loans                            3,285,000                 --
   Repayment of stockholder loans                              (595,950)          (151,836)
   Proceeds from leases payable                               2,241,926          1,154,171
   Repayment of leases payable                               (1,986,421)        (1,248,997)
   Proceeds from convertible debentures                         499,999           (696,923)
   Proceeds from notes payable                                       --                 --
   Repayment of notes payable                                        --         (1,549,167)
                                                            ------------       ------------

Net cash provided by financing activities                     3,444,554          7,498,667
                                                            ------------       ------------

Increase (decrease) in cash                                    (558,853)           911,819
Cash and cash equivalents, beginning of period                  866,998            432,070
                                                            ------------       ------------
   Cash and cash equivalents, end of period                 $   308,145        $ 1,343,889
                                                            ============       ============

                 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 September 30, 2002, the Company borrowed $1,225,000
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 September 30, 2002, the Company received proceeds of
$1,165,547.79 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 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 of 1933 and Section 21E of the Securities Exchange Act of 1934,
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 September 30, 2002, the Company had placed 367 of the Shufflers
and 74 of the Continuous Shufflers under rental contracts. In addition, the
Company has, to date, and from inception, sold 142 Shufflers and 6 Continuous
Shufflers. The Company maintains parts inventories required to build additional
shufflers. As for the SecureDrop(TM) System, the Company has 9,597 Hard Count
Module units installed and 3,169 units of the Soft Count Module installed and is
in the process of installing 2,070 additional units of the Soft Count Module and
210 additional units of the Hard Count Module.

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

                                       7
<PAGE>

Note 1, "Significant Accounting Policies," to the Company's Financial Statements
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 September 30, 2002 and 2001, the Company's results of
operations for the nine months ended September 30, 2002 and 2001, and the
Company's liquidity and capital resources.

     THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

         REVENUES. For the three months ended September 30, 2002, the Company
generated total revenues of $625,368 compared to $524,769 for the three months
ended September 30, 2001. The revenues for the three months ended September 30,
2002, consisted of Shuffler sales of $106,000, Shuffler rentals of $358,044,
SecureDrop(TM) sales of $146,893 and other income of $14,431. The increase of
$100,599 or 19%, in revenues from the three months ended September 30, 2001, to
the three months ended September 30, 2002, resulted primarily from the increase
of $72,370 in Shuffler 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 recently opened territories
for the Company, such as Louisiana and Indiana.

         COST OF SALES. For the three months ended September 30, 2002, the cost
of sales was $619,727 compared to $596,799 for the three months ended September
30, 2001, an increase of $22,928, or 4%. The cost of sales for the three months
ended September 30, 2002, consisted of approximately $165,792 for the Company's
SecureDrop(TM) products, $133,508 for depreciation expense associated with the
Shufflers held for rental, $217,407 for costs related to servicing the Shufflers
held for rental, and $103,020 for labor and other manufacturing costs. The 4%
increase in cost of sales is the result of a 19% increase in sales and a more
efficient operation of the manufacturing and service areas.

         GROSS MARGIN. For the three months ended September 30, 2002, the gross
margin was $5,640 compared to a gross margin deficit of $(72,030) for the three
months ended September 30, 2001, an increase of $77,670. As a result, the gross
margin percentage on revenues for the three months ended September 30, 2002 was
1% compared to (14)% for the three months ended September 30, 2001. The increase
in gross margin and in gross margin percentage resulted primarily from the
increase in revenues at a greater amount than the increase of costs of goods
sold.

                                       8
<PAGE>

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three months
ended September 30, 2002, selling, general and administrative expenses increased
approximately $226,343 or approximately 36%, to $862,240, compared to $635,897
for the three months ended September 30, 2001. For the three months ended
September 30, 2002, selling, general and administrative expenses included:
salaries and related costs of $314,363; advertising and marketing services of
$59,454; travel and entertainment costs of $73,244; printing and office expenses
of $24,242; depreciation and amortization of $66,354; office rent and utilities
of $96,416; professional fees of $154,933; bad debt accrual of $4,359;
regulatory expense of $39,064 and $29,811 in other miscellaneous expenses. The
increase of $226,343 resulted from a decrease in salaries of $47,454, a decrease
in advertising and marketing costs of $86,520, an increase in printing and
office expense of $9,997, an increase in professional fees of $132,226, an
increase in bad debt accrual of $154,359, and an increase in regulatory costs of
$18,829, as well as an increase in office rent and utilities of $6,018, an
increase in travel and entertainment expense of $11,413, an increase of $3,507
in depreciation expense, and an increase of $23,968 in miscellaneous expenses.

         RESEARCH AND DEVELOPMENT. For the three months ended September 30,
2002, research and development expenses decreased $177,803, or approximately
33%, to $356,914, compared to $534,717 for the three months ended September 30,
2001. This decrease is due to decreased expenditures for the SecureDrop(TM)
Systems due to the completion of the design changes for the Soft Count Vault.

         INTEREST EXPENSE, NET. For the three months ended September 30, 2002,
the Company incurred interest expense, net of interest income, of $505,188
compared to $459,488 for the three months ended September 30, 2001, an increase
of $45,700, or 10%. This increase was attributable to increased borrowings.

         NET INCOME (LOSS). For the three months ended September 30, 2002, the
Company had a net loss of $1,721,440 compared to a net loss of $1,702,523 for
the three months ended September 30, 2002, an increase of $18,917. The increase
in net loss was primarily due to the increases in selling, general and
administrative expenses and interest expense, offset, in part, by a decrease in
research and development expense. Basic loss per share was $.05, based on
38,129,072 weighted average shares outstanding, for the three months ended
September 30, 2002, compared to $0.07, based on 23,953,335 weighted shares
outstanding, for the three months ended September 30, 2001.

     NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

         REVENUES. For the nine months ended September 30, 2002, the Company
generated total revenues of $2,880,310 compared to $1,957,686 for the nine
months ended September 30, 2001. The revenues for the nine months ended
September 30, 2002, consisted of Shuffler rentals of $1,073,478, Shuffler sales
of $113,450, and SecureDrop(TM) sales of $1,667,314 and other income of $26,068.
The increase of $922,624, or 47%, in revenues from the nine months ended
September 30, 2001, to the nine months ended September 30, 2002, resulted from
an increase of $662,120 in SecureDrop(TM) sales, an increase of $26,068 in other
sales, an increase of $120,986 in Shuffler rentals, and an increase in Shuffler
sales of $113,450. 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 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 nine months ended September 30, 2002, the cost
of sales was $2,384,200 compared to $2,747,203 for the nine months ended
September 30, 2001. The cost of sales for the nine months ended September 30,
2002, consisted of approximately $1,043,430 for the Company's SecureDrop(TM)
products, $378,076 for depreciation expense associated with the Shufflers held

                                       9
<PAGE>

for rental, $658,683 for costs related to servicing the Shufflers held for
rental, $51,200 for costs related to sales of the Shuffler, and $252,811 for
labor and other manufacturing costs. The decrease of $363,003, or 13% in cost of
sales from the nine months ended September 30, 2001 to the nine months ended
September 30, 2002, resulted from an increase of $288,396 in cost of goods sold
for the Company's SecureDrop(TM) products, an increase of $57,833 related to
Shuffler depreciation, and an increase of $7,194 in costs associated with
Shuffler sales, offset by a decrease of $79,114 for costs related to servicing
the Shufflers held for rental, and a decrease of $637,312 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 nine months ended September 30, 2002, the gross
margin was $496,110 compared to a gross margin deficit of $(789,517) for the
nine months ended September 30, 2001, an increase of $1,285,627. As a result,
the gross margin percentage on revenues for the nine months ended September 30,
2002 was 17% compared to (40)% for the nine months ended September 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 nine months ended
September 30, 2002, selling, general and administrative expenses increased
approximately $37,496, or approximately 2%, to $2,313,276, compared to
$2,275,780 for the nine months ended September 30, 2001. For the nine months
ended September 30, 2002, selling, general and administrative expenses included:
salaries and related costs of $891,253; advertising and marketing services of
$149,645; travel and entertainment costs of $261,659; printing and office
expenses of $69,678; depreciation and amortization of $178,690; office rent and
utilities of $284,959; professional fees of $290,025; bad debt accrual of
$19,116; regulatory expense of $79,068 and $89,183 in other miscellaneous
expenses. The increase of $37,496 resulted from a decrease in salaries of
$159,133, a decrease in advertising and marketing costs of $143,757, and a
decrease in regulatory costs of $3,879, offset by an increase in office rent and
utilities of $27,411, an increase in travel and entertainment expense of
$77,856, an increase of $10,678 in depreciation expense, an increase in printing
and office expense of $11,904, an increase in professional fees of $125,483, an
increase in bad debt accrual of $79,116, and an increase of $11,817 in
miscellaneous expenses.

         RESEARCH AND DEVELOPMENT. For the nine months ended September 30, 2002,
research and development expenses decreased $10,091, or approximately 1%, to
$1,077,839 compared to $1,087,930, for the nine months ended September 30, 2001.
This decrease is due to decreased expenditures for the SecureDrop(TM) Systems
due to the completion of the design changes for the Soft Count Vault, offset, in
part, by expenses related to the Company's specialty shuffler.

         INTEREST EXPENSE, NET. For the nine months ended September 30, 2002,
the Company incurred interest expenses, net of interest income, of $1,305,922
compared to $1,339,647 for the nine months ended September 30, 2001, a decrease
of $33,725, or 3%. This decrease was attributable to the expiration of the terms
of several leases less the cost of increased borrowings.

         NET INCOME (LOSS). For the nine months ended September 30, 2002, the
Company had a net loss of $4,202,322 compared to a net loss of $5,493,706 for
the nine months ended September 30, 2001, a decrease of $1,291,384. 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,
total interest, and research and development expenses offset by an increase in
general and administrative expenses. Basic loss per share was $0.11, based on
38,129,072 weighted average shares outstanding, compared to $0.36, based on
15,349,720 weighted average shares outstanding, for the nine months ended
September 30, 2001.

                                       10
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         OVERVIEW. The Company has generated cash flow deficits from operations,
including cash used in operating activities of $3,171,252 and $5,854,693 in the
nine months ended September 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 $3,444,554 and $7,498,667 in the nine months ended September 30,
2002 and 2001, respectively. The principal source of cash remains proceeds from
stockholders, primarily a director-controlling stockholder, which totaled
$3,285,000 in the nine months ended September 30, 2002. These loans, the
placement of convertible debt in the amount of $499,999 and the proceeds from
leases of $2,241,926 were offset by repayments of stockholder loans in the
amount of $595,950 and payments on leases of $1,986,421 in the nine months ended
September 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 September 30, 2002, the Company
had cash, cash equivalents and investments of $308,145 compared to $866,998 at
December 31, 2001. At September 30, 2002, the Company's working capital deficit
was $6,719,134, compared to $2,940,604 at December 31, 2001, an increased
deficit of $3,778,530. The increase in working capital deficit resulted
primarily from increases in the current portion of stockholder loans, accounts
payable and accrued expenses. At September 30, 2002, the Company's current
ratio, I.E. the ratio of current assets to current liabilities, was 0.25
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 nine months ended September 30, 2002, net cash used
in operating activities was $3,171,252, compared to $5,854,693 for the nine
months ended September 30, 2001. The decrease in net cash used in operating
activities was due primarily to the decrease in net loss, decrease in other
receivables, decrease in inventory and increase in deferred changes, offset, in
part, by the increase in trade accounts receivable, increase in other assets and
decrease in customer deposits. Cash used in operating activities during the nine
months ended September 30, 2002 is net of depreciation and amortization of
$675,891, compared to $600,264 for the nine months ended September 30, 2001 and
amortization of deferred interest of $302,131 for the nine months ended
September 30, 2002, compared to $250,914 for the nine months ended September 30,
2001, and reflects an increase in accounts receivable of $178,339, compared to a
decrease of $533,974 for the nine months ended September 30, 2001; a decrease in
inventory of $48,391, compared to an increase of $510,625 for the nine months
ended September 30, 2001; an increase in other assets of $503,500, compared to
no change for the nine months ended September 30, 2001; a decrease in prepaid
expenses of $244,498, compared to an increase of $4,228 for the nine months
ended September 30, 2001; an increase in other receivables of $22,952, compared
to an increase of $718,715 for the nine months ended September 30, 2001; an
increase in accounts payable of $301,433, compared to a decrease of $299,849 for
the nine months ended September 30, 2001; an increase in accrued expenses of
$89,968, compared to a decrease of $90,238 for the nine months ended September
30, 2001; an increase in customer deposits of $412,344, compared to a decrease
of $56,698 for the nine months ended September 30, 2001; and an increase in
deferred charges of $485,893, compared to a decrease of $65,785 for the nine
months ended September 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.

         For the nine months ended September 30, 2002, investing activities used
net cash of $832,156, compared to $732,155 of net cash used in investing
activities for the nine months ended September 30, 2001. The increase in net

                                       11
<PAGE>

cash used in investing activities was due, in part, to additional equipment
purchased and held for rental. Net cash used in investing activities for the
nine months ended September 30, 2002 consisted of $213,694 for the acquisition
of plant equipment, $509,301 for equipment purchased and held for rental, and
$134,263 in deposits, offset by the amortization of patents and trademarks of
$25,102.

         For the nine months ended September 30, 2002, net cash provided by
financing activities was $3,444,554 compared to $7,498,667 for the nine months
ended September 30, 2001. The decrease is attributable to the absence of
proceeds from the sale of common stock and higher repayments of leases and
stockholders loans, offset by increased proceeds from stockholders loans and
leases. For the nine months ended September 30, 2002, cash from financing
activities consisted of $3,285,000 from stockholder loans and proceeds of
$499,999 from the placement of convertible debt, reduced by the repayment of
leases payable of $1,986,421, and the repayment of stockholder loans of
$595,950. In addition, as part of the Company's financing activities, during the
nine months ended September 30, 2002, the Company received proceeds of
$2,241,926 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 September 30, 2002. The Company has no other
significant contractual obligations or commercial commitments either on or off
its balance sheet as of September 30, 2002.

<TABLE>
<CAPTION>
                                                           PAYMENTS DUE BY PERIOD
CONTRACTUAL CASH
OBLIGATIONS                         TOTAL         < 1 YEAR        1-3 YEARS       4-5 YEARS       > 5 YEARS
----------------------------    ------------    ------------    ------------    ------------    ------------
<S>                             <C>             <C>             <C>             <C>             <C>
Long-term Debt                  $ 3,238,068     $   618,991     $ 2,619,077     $        --     $        --
Capital Lease Obligations         6,051,013       2,808,817       3,153,564          88,632              --
Operating Leases                  2,233,214         554,415         518,663         515,616         644,520
Other Long-term Obligations              --              --              --              --              --
----------------------------    ------------    ------------    ------------    ------------    ------------
TOTAL                           $11,522,295     $ 3,982,223     $ 6,291,304     $   604,248     $   644,520
</TABLE>

OUTLOOK

         Based on the assumption that the Company continues to receive
additional loans from its director-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>

ITEM 3.  CONTROLS AND PROCEDURES

         (a) Evaluation of Disclosure Controls and Procedures. The Company's
chief executive officer, treasurer and controller, after evaluating the
effectiveness of the Company's "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, the Company's
disclosure controls and procedures were adequate and designed to ensure that
material information relating to the Company would be made known to them by
others within the Company.

         (b) Changes in Internal Controls. There were no significant changes in
the Company's internal controls, or, to the Company's knowledge, in other
factors that could significantly affect these controls subsequent to the
Evaluation Date.

RISK FACTORS AND FORWARD-LOOKING INFORMATION

         THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. SUCH 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 DIRECTOR-CONTROLLING STOCKHOLDER. The Company has relied
on loans and equity investments from its director-controlling stockholder. The
director-controlling stockholder loaned the Company $2,625,000 during the nine
months ending September 30, 2002. If the director-controlling stockholder should
cease such funding, there is no assurance that other sources of cash will be
available. The director-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 nine months ended September 30, 2002 and for the
years ended December 31, 2001 and 2000, the Company incurred operating losses
attributable to common stockholders of $4,202,322, $7,566,090 and $6,656,561,
respectively, and our operations have used $3,171,252, $5,598,153 and $5,099,492
of cash, respectively. As of September 30, 2002 and December 31, 2001 and 2000,
the Company had accumulated deficits of $34,779,789, $30,557,472 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.

                                       13
<PAGE>

         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 the remainder of 2002 and 2003, there is
no guarantee that the Company will generate sufficient revenue to sustain its
operations. No independent organization has conducted market research providing
management with independent assurance from which to estimate potential demand
for the Company's business operations.

         COINLESS GAMING. Certain gaming operators have tested and employed as
part of their current operations certain gaming devices that have eliminated the
use of coin or tokens, or use a combination of coin and "cashless" vouchers. The
acceptance and expansion of coinless gaming devices may reduce the demand for
the SecureDrop(TM) System 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 the Company's products to existing gaming
properties. The economic health of the gaming industry, and, therefore, the
Company's revenues, are affected by a number of factors beyond its 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 its 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 the Company's 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 its products.

                                       14
<PAGE>

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

         INFLUENCE BY CONTROLLING STOCKHOLDERS. The executive officers and
members of the Board beneficially own 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.

                                       15
<PAGE>

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

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

         RISKS OF PROPRIETARY PRODUCTS AND GAMES. The Company places its
proprietary products, except SecureDrop(TM), in casinos under short-term lease
arrangements, making these products susceptible to replacement due to pressure
from competitors, changes in economic conditions, obsolescence, and declining
popularity. The Company intends to maintain and expand the number of installed
proprietary products through enhancement of existing products, introduction of
new products, and customer service, but there can be no assurance that these
efforts will be successful. Introduction of new proprietary products involves
significant risks, including whether the Company will be able to place its
products with casinos and non-gaming industries, the economic terms on which
these industries will accept the products, and the popularity of the products.
The Company has filed trademark and patent applications to protect its
intellectual property rights in certain of its trademarks and innovations on
certain of its proprietary products, respectively. At this time, however, the
United States Patent and Trademark Office has not acted upon all of these
applications. There can be no assurance that the pending patent or trademark
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

                                       16
<PAGE>

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.

         "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 Securities Exchange Act of 1934 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 Securities Exchange Act of 1934, 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.

                                       17
<PAGE>

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.

         On June 7, 2002, Beth Thacker filed a complaint (Case No.
02-2-13207-3KNT) 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 (Case No. C02-1374P) to the United States District
Court for the Western District of Washington and intends to vigorously defend
this litigation. This litigation is now in the discovery phase.

         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 Company has filed its answer, and this matter will proceed through
the court-mandated arbitration program.

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
of 1933 and Rule 506 of Regulation D thereunder. Through September 30, 2002, the
Company had placed convertible notes totaling $499,999.50 and representing
1,428,570 convertible shares and 125,000 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 September
30, 2002, $4,499,995.50 of convertible notes remained to be placed pursuant to
the program.

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<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.

         On October 24, 2002, the Company executed an agreement with Dolphin
Advanced Technologies Pty Ltd. and Dolphin Products Pty Ltd. for the Company's
purchase of certain tangible and intangible assets relating to an electronic
verification device under the registered name Deck-Checker(R). These assets
include equipment, supplies, and all intellectual property, including patent
rights, pending patent applications, registered trademarks, pending trademark
applications, and other assets related to an electronic verification device and
the technology for verifying the composition of a deck of playing cards based on
machine vision technology. As payment for these assets, the Company agreed to
pay One Million Nine Thousand Eight Hundred Dollars ($1,009,800), as follows:
(i) Five Hundred Four Thousand Nine Hundred Dollars ($504,900) upon the
Company's successful production of five (5) fully operational, universal units
of the Deck-Checker(R) (the "First Payment"); and (ii) Five Hundred Four
Thousand Nine Hundred Dollars ($504,900) within six (6) months of the First
Payment. This transaction will close on a date to be determined by the parties.

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

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

                  99.1     Certification 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 month period ending September 30, 2002, the
                  Company filed with the Securities and Exchange Commission a
                  Current Report on Form 8-K dated as of August 14, 2002
                  announcing its submission to the Securities and Exchange
                  Commission of the certification required by its chief
                  executive officer and chief financial officer pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002, with respect to the Company's
                  Quarterly Report on Form 10-QSB for the quarterly period ended
                  June 30, 2002.


                                    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:  November 14, 2002          By:   /s/ Steven J. Blad
                                        --------------------------------------
                                        Steven J. Blad
                                  Its:  President, Chief Executive Officer and
                                        Treasurer

                                       19
<PAGE>

                             VENDINGDATA CORPORATION
                            CERTIFICATION PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

         I, Steven J. Blad, President, Chief Executive 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.       I am 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 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 my conclusions
                           about the effectiveness of the disclosure controls
                           and procedures based on my evaluation as of the
                           Evaluation Date;

         5.       I have disclosed, based on my 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.       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 my most recent evaluation, including
                  any corrective actions with regard to significant deficiencies
                  and material weaknesses.

Date:  November 14, 2002          By:     /s/ Steven J. Blad
                                      ------------------------------------------
                                      Steven J. Blad, President, Chief Executive
                                         Officer and Treasurer

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