SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)

[X]     QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
        ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002.

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

For the transition period from _____________________ to________________________


                         Commission File Number: 0-24919

                             MDI ENTERTAINMENT, INC.
                             -----------------------
             (Exact name of Registrant as specified in its Charter)

            Delaware 73-1515699                        73-1515699
            -------------------                        ----------
      (State or other jurisdiction of        (I.R.S Employer Identification No.)
      incorporation or organization)

                                 201 Ann Street
                           Hartford, Connecticut 06103
                           ---------------------------
                    (Address of principal executive offices)

                                 (860) 527-5359
                                 --------------
                         (Registrant's telephone number)

              (Former Name, Former Address and Former Fiscal Year,
                          if changed since last Report)

Check whether the registrant  (1) has 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 __

As of August 14,  2002,  11,763,829  shares of the  issuer's  common  stock were
outstanding.

Transitional Small Business Disclosure Format (check one): Yes __  No  X




                                       1
<PAGE>

<TABLE>
<CAPTION>




                              MDI ENTERTAINMENT, INC. AND SUBSIDIARY
                                            FORM 10-QSB

                           FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

                                               INDEX
                                               -----


                                                                                              PAGE
<S>                                                                                            <C>
PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements....................................................................3

     Condensed  Consolidated  Balance Sheets as of June 30, 2002 (unaudited) and
     December 31, 2001..........................................................................3

     Condensed  Consolidated  Statements of Operations  for the six months ended
     June 30, 2002 and 2001 (unaudited).........................................................5

     Condensed Consolidated Statements of Operations for the three months
     ended June 30, 2002 and 2001 (unaudited)...................................................6

     Condensed Consolidated Statement of Shareholders' Equity for the six months
     ended June 30, 2002 (unaudited)............................................................7

     Condensed Consolidated Statements of Cash Flows for the six months
     ended June 30, 2002 and 2001 (unaudited)...................................................8

     Notes to Unaudited Condensed Consolidated Financial Statements............................10

Item 2. Management's Discussion and Analysis...................................................14

PART II. OTHER INFORMATION

Item 1. Legal Proceedings......................................................................27

Item 6. Exhibits and Reports on Form 8-K.......................................................28

Signatures.....................................................................................29

Exhibit 99.1...........................................................................Attachment

</TABLE>


                                       2
<PAGE>





                                                         PART I
                                                  FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

MDI ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                              June 30,                  December 31,
                                                                                2002                        2001
                                                                         --------------------    -----------------------
                          ASSETS                                             (unaudited)


<S>                                                                               <C>                         <C>
CURRENT ASSETS:
   Cash                                                                            $ 854,921                  $ 251,578
   Accounts receivable                                                             2,608,133                  2,709,543
   Inventory                                                                         757,414                    690,429
   Deferred income taxes (Note 3)                                                  1,343,000                  1,343,000
   Other current assets                                                              459,032                    338,049
                                                                         --------------------    -----------------------

        Total current assets
                                                                                   6,022,500                  5,332,599
                                                                                  ----------                 ----------

PROPERTY AND EQUIPMENT, AT COST:
   Equipment                                                                         289,484                    305,312
   Furniture and fixtures                                                            169,967                    120,361
   Leasehold improvements                                                                  -                      8,751
                                                                         --------------------    -----------------------

                                                                                     459,451                    434,424
   Less:  Accumulated depreciation                                                  (256,738)                  (271,408)
                                                                         --------------------    -----------------------

   Property and equipment, net                                                       202,713                    163,016
                                                                         --------------------    -----------------------

OTHER ASSETS:
   Licensing costs, net                                                            1,313,066                  1,485,827
   Deferred income taxes-long term (Note 3)                                          732,108                          -
   Other                                                                              40,967                     23,467
                                                                         --------------------    -----------------------

        Total other assets                                                         2,086,141                  1,509,294
                                                                         --------------------    -----------------------

        Total assets                                                             $ 8,311,354                $ 7,004,909
                                                                         ====================    =======================

The  accompanying  notes are an integral  part of these  condensed  consolidated financial statements.

</TABLE>





                                       3
<PAGE>







MDI ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>

                                                                              June 30,                December 31,
                                                                                2002                      2001
                                                                         --------------------    -----------------------
              LIABILITIES AND SHAREHOLDERS' EQUITY                           (unaudited)


<S>                                                                               <C>                       <C>
CURRENT LIABILITIES:
   Billings in excess of costs and estimated earnings
      on uncompleted contracts (Note 2)                                           $3,111,483                 $2,497,088
   Note payable to officer                                                           110,000                    274,199
   Accounts payable                                                                1,432,229                  1,112,880
   Accrued expenses                                                                  514,740                    734,302
                                                                         --------------------    -----------------------

        Total current liabilities                                                  5,168,452                  4,618,469
                                                                         --------------------    -----------------------




COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 6)

SHAREHOLDERS' EQUITY:
   Common stock                                                                       11,764                     11,639
   Additional paid-in capital                                                      5,650,441                  5,609,657
   Accumulated deficit                                                            (2,519,303)                (3,234,856)
                                                                         --------------------    -----------------------

       Total shareholders' equity                                                  3,142,902                  2,386,440
                                                                         --------------------    -----------------------

       Total liabilities and
          shareholders' equity                                                    $8,311,354                 $7,004,909
                                                                         ====================    =======================

The  accompanying  notes are an integral  part of these  condensed  consolidated financial statements.

</TABLE>



                                       4
<PAGE>






MDI ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                                              Six months ended
                                                                                                  June 30,
                                                                                       2002                      2001
                                                                                -------------------       -------------------
                                                                                   (unaudited)               (unaudited)

<S>                                                                                    <C>                        <C>
REVENUE                                                                                $ 8,162,272                $6,685,465

COST OF REVENUES                                                                         5,196,825                 3,724,105
                                                                                -------------------       -------------------

    Gross profit                                                                         2,965,447                 2,961,360

SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES                                                                               2,432,864                 1,785,101
TERMINATED MERGER COSTS (Note 8)                                                           391,083                         -
TERMINATED TRANSACTION COSTS (Note 8)                                                       46,249                         -
COST OF UNSUCCESSFUL FUNDING (Note 7)                                                            -                    89,633
                                                                                -------------------       -------------------

     Operating profit                                                                       95,251                 1,086,626

INTEREST EXPENSE, net                                                                       11,951                   119,972
OTHER EXPENSE (INCOME)                                                                      99,855                  (110,166)
GAIN ON SALE OF INVESTMENTS, NET                                                                 -                   (12,669)
                                                                                -------------------       -------------------

     (Loss) income before (benefit) provision for income taxes                             (16,555)                1,089,489

(BENEFIT) PROVISION FOR INCOME TAXES (Note 3)                                             (732,108)                   12,035
                                                                                -------------------       -------------------

     Net income                                                                        $   715,553               $ 1,077,454
                                                                                ===================       ===================


Basic Earnings Per Common Share (Note 4)                                                     $0.06                     $0.10
                                                                                ===================       ===================

Diluted Earnings Per Common Share (Note 4)                                                   $0.05                     $0.09
                                                                                ===================       ===================


The  accompanying  notes are an integral  part of these  condensed  consolidated financial statements.

</TABLE>



                                       5
<PAGE>






MDI ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                                             Three months ended
                                                                                                  June 30,
                                                                                      2002                       2001
                                                                                ------------------        -------------------
                                                                                   (unaudited)               (unaudited)

<S>                                                                                   <C>                         <C>
REVENUE                                                                               $ 4,642,916                 $3,563,467

COST OF REVENUES                                                                        2,927,210                  2,004,222
                                                                                ------------------        -------------------

    Gross profit                                                                        1,715,706                  1,559,245

SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES                                                                              1,222,663                    911,557
TERMINATED MERGER COSTS (Note 8)                                                           84,628                          -
TERMINATED TRANSACTION COSTS (Note 8)                                                      46,249                          -
COST OF UNSUCCESSFUL FUNDING (Note 7)                                                           -                     89,633
                                                                                ------------------        -------------------

     Operating profit                                                                     362,166                    558,055

INTEREST EXPENSE, net                                                                       5,170                     42,212
OTHER EXPENSE (INCOME)                                                                          -                          -
LOSS ON SALE OF INVESTMENTS, NET                                                                -                     11,637
                                                                                ------------------        ------------------

     Income before provision for income taxes                                             356,996                    504,206

PROVISION FOR INCOME TAXES (Note 3)                                                             -                      4,035
                                                                                ------------------        -------------------

     Net income                                                                       $   356,996                  $ 500,171
                                                                                ==================        ===================


Basic Earnings Per Common Share (Note 4)                                                    $0.03                      $0.04
                                                                                ==================        ===================

Diluted Earnings Per Common Share (Note 4)                                                  $0.03                      $0.04
                                                                               ===================        ===================


The  accompanying  notes are an integral  part of these  condensed  consolidated financial statements.


</TABLE>




                                       6
<PAGE>





MDI ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                                                  For the six months ended June 30, 2002
                                                                                                (Unaudited)
                                                                           -------------------------------------------------

                                                                                   SHARES                             AMOUNT


<S>                                                                           <C>                                 <C>
Common Stock, par value $.001 per share,
   authorized 25,000,000 shares
        Balance, December 31, 2001                                             11,638,925                          $  11,639
        Stock options exercised                                                   124,904                                125
                                                                              -----------                          ---------

        Balance, June 30, 2002                                                 11,763,829                             11,764
                                                                               ----------                          ---------

Additional Paid-in capital:
        Balance, December 31, 2001                                                                                 5,609,657
        Stock options exercised                                                                                       22,974
        Compensation attributable to employee stock options                                                           17,810
                                                                                                                   ---------

        Balance, June 30, 2002                                                                                     5,650,441
                                                                                                                  ----------

Accumulated Deficit:

        Balance, December 31, 2001                                                                                (3,234,856)
        Net income                                                                                                   715,553
                                                                                                                  ----------

        Balance, June 30, 2002                                                                                    (2,519,303)
                                                                                                                  ----------


Total Shareholders' Equity                                                                                        $3,142,902
                                                                                                                  ==========



The  accompanying  notes are an integral  part of these  condensed  consolidated financial statements.

</TABLE>




                                       7
<PAGE>




MDI ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


                                                                                                Six months ended
                                                                                                    June 30,
                                                                                           2002                  2001
                                                                                     ------------------   -------------------
                                                                                        (unaudited)          (unaudited)
<S>                                                                                        <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                                             $  715,553          $  1,077,454
     Adjustments to reconcile net income to net
         cash provided by operating activities:
              Depreciation and amortization                                                    926,302               416,368
              Compensation expense                                                              17,810                     -
              Gain on sale of investments, net                                                       -               (12,669)
              Deferred income tax benefit                                                     (732,108)                    -
              Change in assets and liabilities:
                     Decrease (increase) in accounts receivable                                101,410            (1,620,162)
                     Increase in inventory                                                     (66,985)             (424,667)
                     Increase in licensing costs                                              (733,147)             (563,484)
                     Increase in other assets                                                 (138,483)              (13,916)
                     Increase (decrease) in accounts payable                                   319,346               (21,286)
                     (Decrease) increase in accrued expenses                                  (219,782)              693,329
                     Increase in income taxes payable                                              232                11,236
                     Increase in billings in excess of costs
                         and estimated earnings on uncompleted contracts                       614,395               576,903
                                                                                     ------------------   -------------------

              Net cash provided by operating activities                                        804,543               119,106
                                                                                     ------------------   -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment, net                                                   (60,092)               (10,654)
    Proceeds of sale of investments                                                                 -                192,669
                                                                                     ------------------   -------------------


              Net cash (used for) provided by investing activities                            (60,092)               182,015
                                                                                     ------------------   -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Repayment of debt                                                                        (164,199)              (477,266)
    Proceeds from exercise of common stock options                                              23,099                 6,600
                                                                                     ------------------   -------------------

              Net cash (used for) financing activities                                        (141,100)             (470,666)
                                                                                     ------------------   -------------------

NET INCREASE (DECREASE) IN CASH                                                                603,343              (169,545)

CASH, beginning of the period                                                                  251,578               528,151

                                                                                     ------------------   -------------------
CASH, end of the period                                                                      $ 854,921           $   358,606
                                                                                     ==================   ===================

</TABLE>


                                       8
<PAGE>




MDI ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>


                                                                                                Six months ended
                                                                                                    June 30,
                                                                                           2002                  2001
                                                                                     ------------------   -------------------
                                                                                        (unaudited)          (unaudited)

<S>                                                                                 <C>                      <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid for:
         Interest                                                                    $16,986                  $  56,213
         Income taxes                                                                $     -                  $     799
    Non-cash investing and financing activities:
         Stock compensation                                                          $17,810                  $       -
         Imputed interest on subordinated convertible debenture                      $     -                  $   5,625
         Conversion of subordinated debenture into common stock                      $     -                  $ 418,410
         Common stock issued for services                                            $     -                  $ 269,025
         Expenses related to warrants                                                $     -                  $       1



The  accompanying  notes are an integral  part of these  condensed  consolidated financial statements.


</TABLE>



                                       9
<PAGE>





MDI ENTERTAINMENT, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2002 AND 2001

1.       PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED
         FINANCIAL STATEMENTS

         Information  in  the  accompanying   interim   condensed   consolidated
financial  statements  and  notes  to  the  condensed   consolidated   financial
statements for the six-month periods ended June 30, 2002 and 2001 are unaudited.
The accompanying interim unaudited condensed  consolidated  financial statements
have been  prepared by us in accordance  with  accounting  principles  generally
accepted  in the United  States and  Regulation  S-B.  Accordingly,  they do not
include all the  information  and footnotes  required by  accounting  principles
generally  accepted in the United States for complete financial  statements.  In
the opinion of  management,  all  adjustments  (consisting  of normal  recurring
accruals)  considered  necessary  for a fair  presentation  have been  included.
Operating  results  for the  six-month  periods  ended  June  30,  2002  are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 2002. The condensed  consolidated  financial  statements  should be
read in conjunction with the financial  statements and notes thereto included in
our audited financial statements for the year ended December 31, 2001.

2.       REVENUE AND COST RECOGNITION

         Revenue is derived from various  lottery  game  contracts  (mainly with
states) between MDI and the lotteries. MDI provides second chance prize packages
consisting  of grand prizes and various  merchandise  prizes.  MDI also provides
marketing  support  related  to each of the games and  obtains  the  appropriate
licenses for the right to use these  properties.  Many of the lottery  contracts
require the  lotteries to pay MDI upon signing of the contract;  therefore,  MDI
defers  this  revenue and  recognizes  the revenue  based on the  percentage  of
completion method.

         Revenues  from the lottery games are  recognized  on the  percentage of
completion  method,  determined  by the  percentage  of cost incurred to date to
estimated total costs on a specific  contract basis. This method is utilized for
approximately 91% of MDI's revenue, as management  considers cost incurred to be
the best  available  measure of  progress  on these  contracts.  Contract  costs
include all direct costs.  Merchandise prize costs are considered  incurred when
the prizes are either  shipped to the lottery game winner or, if a second chance
lottery  drawing  is  committed  to,  when  the  merchandise  prizes  are in our
fulfillment facility.  Should an event occur before these merchandise prizes are
shipped to the lottery  winner that would  damage or destroy  these  merchandise
prizes, the Company has both adequate  insurance and the procurement  sources to
replace any damaged or destroyed merchandise prizes.  General and administrative
costs are charged to expense as incurred.  Provisions  for  estimated  losses on
uncompleted  contracts  are  made  in  the  period  in  which  such  losses  are
determined.  As of  June  30,  2002,  no  losses  were  expected  from  existing
contracts.

         An additional approximate 7% of our revenue is recognized from charging
a license  or royalty  fee to the  lottery  for the use of one of the  Company's
licensed  properties  (i.e.,  Harley-Davidson(R))  in connection  with a lottery
scratch off ticket  game,  or for the  services  of a celebrity  involved in the
occurrence  of a lottery  event or in the  making of a lottery  commercial.  The
revenue is recognized on the completed contract method once contract obligations
are complete. In this respect, the results of revenue recognition are similar to
those under the percentage of completion method. Such obligations are usually of
very short duration (e.g., within a month).

         The liability  "billings in excess of costs and  estimated  earnings on
uncompleted contracts" represents billings in excess of revenues recognized.

                                       10
<PAGE>

3.       INCOME TAXES

         Under accounting  principles generally accepted in the United States, a
deferred tax asset is recognized  when it is more likely than not that a portion
or all of a deferred  tax asset will be  realized.  The Company has deferred tax
assets  related to net operating  losses that can be utilized to offset  taxable
income in future years. In 2001, the Company  determined that it was more likely
than not that a  portion  of its  deferred  tax  assets  would be  utilized  and
accordingly,  a $1.3  million  deferred  tax asset was  recognized.  During  the
quarter ended March 31, 2002, the Company determined that it is more likely than
not  that an  additional  $732,100  will  be  utilized  in  future  years,  and,
therefore,  the  remaining  deferred tax asset was  recognized.

4.       EARNINGS PER SHARE

         Basic  earnings  per common  share are based on the  average  number of
common shares  outstanding  during the fiscal year.  Diluted earnings per common
share  include,  in addition to the above,  the dilutive  effect of common share
equivalents  during the year.  For the three and six months  ended June 30, 2002
and 2001,  common  share  equivalents  represented  dilutive  stock  options and
warrants using the treasury method. The income available to common  shareholders
and the number of shares used in the  earnings per common share and earnings per
dilutive share computation for 2002 and 2001 was as follows:
<TABLE>
<CAPTION>

                                                                                      SIX MONTHS ENDED
                                                                                           JUNE 30,
                                                                                          ----------
                                                                                    2002               2001
                                                                                    ----               ----

        <S>                                                                     <C>                <C>
         Net income applicable to common shareholders                           $   715,553        $1,077,454
                                                                                ===========        ==========

         Basic:
         Average number of common shares outstanding                             11,739,175        11,018,145

         Dilutive:
         Dilutive effect of options, warrants and convertible securities          1,309,747         1,610,131
                                                                                -----------       -----------

         Average dilutive common shares outstanding                              13,048,922        12,628,276
                                                                                 ==========        ==========


                                                                                     THREE MONTHS ENDED
                                                                                           JUNE 30,
                                                                                         ----------
                                                                                     2002              2001
                                                                                     ----              ----

         Net income applicable to common shareholders                           $   356,996        $  500,171
                                                                                ============       ==========

         Basic:
         Average number of common shares outstanding                             11,763,829        11,172,306

         Dilutive:
         Dilutive effect of options, warrants and convertible securities          1,309,747         1,610,131
                                                                                 -----------      -----------

         Average dilutive common shares outstanding                              13,073,576        12,782,437
                                                                                 ==========        ==========

</TABLE>


                                       11
<PAGE>

5.       COMMITMENTS

         The  Company  obtains  licenses  for both  cultural  and  entertainment
properties,  some of which have obligations  continuing  through the term of the
license.  It also leases  office  equipment,  office  space and  vehicles  under
long-term leases,  which expire during the next one to five years. The following
is a schedule of both continuing non-cancelable  obligations associated with our
licensing agreements and future minimum rental payments required under operating
leases that have  initial or remaining  non-cancelable  lease terms in excess of
one year as of June 30, 2002:

                     2002 ....................... $   629,000
                     2003 .......................   1,255,600
                     2004 .......................     782,700
                     2005 .......................     402,700
                                                  -----------
                     Total......................   $3,070,000
                                                  ===========


6.       LITIGATION

         On February 28,  2002,  a class action suit on behalf of the  Company's
public  stockholders (the "Plaintiff") was filed in the Court of Chancery of the
State of Delaware against the Company, all of the members of the Company's Board
of Directors and Scientific Games Corporation  ("Scientific  Games"),  to enjoin
the proposed business combination transaction pursuant to which Scientific Games
would acquire the outstanding shares of the Company's common stock which it does
not already own. In its complaint,  the Plaintiff alleged that the consideration
offered to the Company's stockholders in the proposed acquisition was unfair and
inadequate  because  the  Plaintiff  believed  that the  intrinsic  value of the
Company's  common stock was  materially in excess of the amount  offered  giving
consideration to the Company's  growth and anticipated  operating  results,  net
asset value,  and future  profitability.  The  Plaintiff  requested the court to
preliminarily   and  permanently   enjoin  the  Company  from  proceeding  with,
consummating  or closing the proposed  transaction and in the event the proposed
transaction  is  consummated,  to rescind it and award  rescissory  damages.  In
addition,  the  Plaintiff  has  requested  that the court award to the Plaintiff
compensatory damages.

         On  May 6,  2002 a  second  complaint  was  filed  in  the  same  Court
containing  nearly  identical  allegations.  On May 6,  2002,  lawyers  for  the
plaintiffs requested an order consolidating the two cases. On June 19, 2002, all
of these  stockholder  class action suits  relating to the proposed  transaction
with Scientific Games were dismissed without prejudice.  (See Note 8 for further
discussion.)


7.       COST OF UNSUCCESSFUL FUNDING

         The Company  recorded  an expense of $89,633 for costs  relating to the
placement and issuance of its Series C Preferred Stock to Oxford  International,
Inc. These costs include legal,  accounting and investment  banking fees paid or
accrued during the six-month period ended June 30, 2001.



                                       12
<PAGE>




8.       SUBSEQUENT EVENTS

         TERMINATED MERGER WITH SCIENTIFIC GAMES CORPORATION

         On February 22, 2002, MDI  Entertainment,  Inc.  ("MDI") and Scientific
Games  Corporation   ("Scientific  Games")  entered  into  a  Letter  of  Intent
contemplating  the acquisition of MDI at $2.10 per share,  payable in Scientific
Games common stock. On May 8, 2002 MDI announced that  Scientific  Games and the
Company had mutually and amicably agreed to terminate their merger  negotiations
in the wake of the  competing  offer the Company had received  (see ICP Proposal
below).  The  announcement  also indicated that Scientific Games and the Company
would continue their strategic alliance.

         The Company had  incurred  certain  legal,  accounting  and  investment
banking fees relating to this terminated merger. These costs totaled $391,100 as
of June 30, 2002.


         ICP PROPOSAL

         By  letters  dated  April 17,  2002 and April 30,  2002,  International
Capital Partners,  LLC ("ICP")  expressed an intention to acquire  approximately
50% of the  outstanding  shares of the Company  which it did not already own for
$3.30 per share in cash. ICP owned 1,022,019 shares of the Company at such time.

         On May 7,  2002,  ICP  filed  an  amendment  to  Schedule  13D with the
Securities  and Exchange  Commission  expressing  its  intention to increase its
holdings  in the  Company  by  acquiring  50% of the  outstanding  shares of the
Company it did not currently own for $3.30 per share.  According to the Schedule
13D filing,  as  amended,  the source of funds for such  transaction  were to be
investment  funds under the direction and control of ICP. ICP indicated  that it
would  consider  extending the Company a line of credit for working  capital and
add-on acquisition purposes.

         On June  27,  2002,  ICP and  MDI  announced  that  they  had  mutually
terminated  their  discussions,  in part because of the advice of the  Company's
Chief Executive Officer and principal  stockholder,  Steven M. Saferin,  that he
would not tender in the ICP proposal.  The costs associated with this terminated
transaction amounted to $46,200 at June 30, 2002.



                                       13
<PAGE>




THIS QUARTERLY  REPORT ON FORM 10-QSB CONTAINS  FORWARD LOOKING  STATEMENTS THAT
INVOLVE  CERTAIN  RISKS AND  UNCERTAINTIES.  OUR  ACTUAL  RESULTS  COULD  DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD LOOKING STATEMENTS.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS

         DESCRIPTION OF BUSINESS

         The following  discussion  and analysis  should be read in  conjunction
with our  Condensed  Consolidated  Financial  Statements  and the notes  thereto
appearing  elsewhere in this Form 10-QSB.  All statements  contained herein that
are not historical facts, including but not limited to, statements regarding our
current business  strategy and our plans for future  development and operations,
are based upon current  expectations.  These statements are  forward-looking  in
nature and  involve a number of risks and  uncertainties.  Generally,  the words
"anticipates,"  "believes,"  "estimates,"  "expects" and similar  expressions as
they relate to us and our  management are intended to identify  forward  looking
statements.  Actual results may differ materially.  Among the factors that could
cause  actual  results  to differ  materially  are those set forth in our Annual
Report on Form 10-KSB under the caption "Description of Business-Risk  Factors."
We  wish  to  caution   readers  not  to  place  undue   reliance  on  any  such
forward-looking statements, which statements speak only as of the date made.

         Our  principal  business  has been the  scratch  ticket  segment of the
government lottery industry.  We are a leader in designing and marketing instant
scratch ticket games based on licensed brand names and entertainment  properties
and our lottery  promotions  feature  such  properties  licensed  by us.  Prizes
awarded in such promotions  typically include a number of "second chance" prizes
related to the licensed property, including collectible logo bearing merchandise
such as T-shirts and caps, and other related merchandise such as posters,  money
clips, telephones,  playing cards, film cells, stadium blankets,  carryall bags,
jackets, electronic games, video and music collections,  watches, clocks, credit
cards  with  prepaid  credit,  trips  and,  in the  case of  Harley-Davidson(R),
Harley-Davidson 1200 Sportster motorcycles.

         We developed our strategy of identifying such properties in early 1996.
Prior to that  time,  we had  developed  a series of  promotions  that  utilized
popular  videotapes,  compact discs and  audiocassettes as second chance lottery
prizes.  Those  promotions  enabled us to develop an  expertise  in sourcing and
distributing  products  as  second  chance  lottery  prizes  and  to  develop  a
reputation  with  lottery  personnel as a reliable  organization  attuned to the
special needs of lotteries and their players.

         We derive approximately ninety-eight percent (98%) of our revenues from
lotteries  in two  distinct  ways.  First,  we may charge a lottery a license or
royalty  fee to  utilize a  particular  licensed  property  for a lottery  game.
License fees may be fixed  assessments  while  royalties are a percentage of the
printing cost of the tickets or a percentage  of sales of the ticket.  Contracts
for licensed  properties  typically include an up-front license fee or a royalty
based on the price point and  quantity  of tickets  printed.  Ticket  quantities
range from about one million to as many as 60 million  with an average  quantity
of about five  million.  Price points range from $1.00 to $20.00 per ticket with
most  games  sold  at  $2.00.  Revenue  from  these  fee  only  games  represent
approximately 7% of our revenues.



                                       14
<PAGE>




         Our  second  source  of  lottery  revenue  is the sale of logo  bearing
merchandise to the lottery as second-chance prizes. In merchandise-based lottery
games,  between 5% to 10% of a lottery's  prize fund is  typically  used for the
purchase  of  merchandise  related to the  property  the  lottery is  utilizing.
Typically,  we purchase  merchandise  from other  licensees  of the property and
resell the  merchandise  to the  lottery at a price that is  designed to include
overhead  costs,  profit,  shipping and handling  and any  marketing  support we
provide the lottery such as brochures,  posters or other advertising  assistance
for which there are no separate  charges.  Revenue from these  merchandise based
lottery games represents approximately 91% of our revenues.

         Our success is dependent on our ability to maintain and secure licensed
properties,  market these  properties  to lotteries and the  performance  of the
properties once they are introduced as lottery games to players. We believe that
revenues will fluctuate as individual  license-based promotions commence or wind
down and terminate.  In addition, our licenses (which are generally for 1.5 to 3
years)  terminate at various times over the next several  years.  Moreover,  the
useful  life of a license is  generally  relatively  short as the novelty of the
game or the  popularity of the licensed  material wanes over time. The timing of
agreements with the lotteries to run promotions, the acquisition of new licenses
and the commencement of new promotions is unpredictable.  Accordingly, period to
period comparisons may not be indicative of future results.

         We  are  in  continuous  negotiations  to  obtain  additional  licensed
properties  and  extend  some  existing  licenses.  We expect  to reach  several
agreements  over the next six to 12 months;  however  we cannot  assure you that
such agreements will actually be reached.  Some of these  agreements may require
the expenditures of significant up-front advances.

         RECENT DEVELOPMENTS

         PROPOSED MERGER WITH SCIENTIFIC GAMES CORPORATION

         On February  26, 2002,  we  announced  that we had executed a Letter of
Intent with Scientific Games Corporation  ("Scientific Games") pursuant to which
Scientific  Games would  acquire all of our  outstanding  shares of common stock
(except  for the  708,333  shares  which  were  owned by  Scientific  Games)  by
exchanging its shares for our shares at $2.10 per share.  Pursuant to the Letter
of Intent,  Steven M. Saferin,  our CEO,  President  and principal  stockholder,
would escrow  approximately  $1.8 million worth of Scientific Games common stock
subject to release  upon the  achievement  of certain  financial  targets by the
acquired business over four years.

         On May 8, 2002, we announced that the Company had mutually and amicably
agreed with Scientific Games to terminate our merger negotiations in the wake of
the  competing  offer the Company had  received  (see ICP proposal  below).  The
announcement also indicated that Scientific Games and the Company would continue
their strategic alliance.

         CLASS ACTION LAWSUIT BY SHAREHOLDERS

         On  February  28,  2002,  a class  action  suit on behalf of our public
stockholders was filed in the Court of Chancery of the State of Delaware against
us, all of the members of our Board of Directors and Scientific Games, to enjoin
the proposed business combination transaction pursuant to which Scientific Games
would  acquire  the  outstanding  shares of our  common  stock  which it did not
already own. In its  complaint,  the  plaintiff  alleged that the  consideration
offered  to  our  stockholders  in  the  proposed  acquisition  was  unfair  and
inadequate because the plaintiff believed that the intrinsic value of our common
stock was materially in excess of the amount offered giving consideration to our
growth  and  anticipated   operating  results,   net  asset  value,  and  future
profitability.  The plaintiff further alleged that the defendants had approved a
proposal that favors their own interests over those of our public  stockholders.
The plaintiff  requested the Court to  preliminarily  and permanently  enjoin us
from proceeding  with,  consummating or closing the proposed  transaction and in
the event the  proposed  transaction  was  consummated,  to rescind it and award
rescissory damages. In addition, the plaintiff requested that the court award to
the plaintiff compensatory damages.

                                       15
<PAGE>

         On May 6,  2002,  a  second  complaint  was  filed  in the  same  Court
containing  nearly  identical  allegations.  On  May 6,  2002  lawyers  for  the
plaintiffs  requested an order consolidating the two cases. We believed that the
lawsuits  lacked  merit and intended to contest them  vigorously,  however,  the
termination of our merger agreement with Scientific Games mooted the complaints.

         On June 19, 2002, all of these  stockholder class action suits relating
to the  proposed  transaction  with  Scientific  Games  were  dismissed  without
prejudice in light of the termination of the negotiations with Scientific Games.

         ICP PROPOSAL

         By  letters  dated  April 17,  2002 and April 30,  2002,  International
Capital Partners,  LLC ("ICP")  expressed an intention to acquire  approximately
50% of our outstanding common stock,  exclusive of the shares which it currently
did not own, for $3.30 per share in cash.  ICP owned  1,022,019 of our shares at
such time.

         On May 7,  2002,  ICP  filed  an  amendment  to  Schedule  13D with the
Securities  and Exchange  Commission  expressing  its  intention to increase its
holdings in the Company by acquiring 50% of our outstanding shares, exclusive of
the shares it already owned.  According to the Schedule 13D filing,  as amended,
the source of funds for such  transaction  were to be investment funds under the
direction and control of ICP.

         ICP indicated that it would consider  extending us a line of credit for
working capital and add-on acquisition purposes.

         On June  27,  2002,  ICP and  MDI  announced  that  they  had  mutually
terminated  their  discussions,  in part because of the advice of the  Company's
Chief Executive Officer and principal  stockholder,  Steven M. Saferin,  that he
would not tender his shares to ICP.

         GAME INTRODUCTIONS

         During the  quarter  ended June 30,  2002,  a total of 19 new MDI games
were  introduced  by lottery  jurisdictions,  bringing the total number of games
that are currently  being offered in North  America,  Europe and Asia to 39. The
launches included eight Harley-Davidson(R)  games, three Elvis Presley(R) games,
three  games  featuring  NASCAR(R)  Winston  Cup  drivers,  and five other games
representing four other MDI licensed lottery brands.

         Milestones during the quarter included the following:

         1.   FIRST MDI LICENSED  GAME  BUSINESS IN EUROPE AND ASIA. We achieved
              our goal of expanding our market internationally using its lottery
              license  for the  2002 FIFA  World Cup  Korea/Japan(TM).  Both the
              China Sports Lottery and the French National  Lottery licensed the
              2002 FIFA  World Cup  Korea/Japan(TM) for  lottery  games in their
              countries.
         2.   FIRST  MDI  LICENSED  LOTTERY  GAME IN TEXAS.  The  Texas  Lottery
              launched its  Harley-Davidson(R)  instant  scratch game,  breaking
              existing sales records for the popular licensed brand.


                                       16
<PAGE>

         3.   FIRST PINK  PANTHER(TM)  LICENSED  LOTTERY GAME. The  Pennsylvania
              Lottery  became the first to introduce a lottery  instant  scratch
              game featuring the name and images of the classic Pink Panther(TM)
              animated character.
         4.   FIRST HEROES OF SPACE(TM)  LICENSED  LOTTERY GAME.  The New Jersey
              Lottery provided  players with second chance  opportunities to win
              official NASA  merchandise  and grand prizes related to astronauts
              and space travel in the first instant  scratch game that serves as
              a tribute to the astronauts involved in the U.S. space program.
         5.   FIRST  MDI  LICENSED  LOTTERY  GAME IN  IDAHO.  The  power  of the
              Harley-Davidson(R)  brand  also went to work in  Idaho,  where the
              Idaho Lottery offered its players the opportunity to win Harley(R)
              motorcycles  and  merchandise  in  addition  to cash in an instant
              scratch game.

         MDI's  most  popular   property  in  terms  of  number  of  games,  not
necessarily recognized revenue,  during the quarter was Elvis Presley(R) with 11
lotteries  offering Elvis(R) scratch games featuring vacation trips to Graceland
and licensed Elvis merchandise  prizes.  Nine  Harley-Davidson(R)  games were on
sale during the quarter.  Eleven other MDI properties  represented  the other 19
games currently on sale.

         The appeal of Harley-Davidson(R) games continues to surpass that of any
of our  other  licensed  properties,  with five of the nine  games  representing
lotteries'  second  edition of Harley games.  At least 11 more lotteries plan to
introduce new Harley games during the  manufacturer's  100th  anniversary  year,
which began in July 2002.

         LICENSED PROPERTIES

         Our most  significant  milestone during the quarter ended June 30, 2002
was the successful  completion of negotiations  with Sony Consumer  Products for
the renewal of MDI's lottery  license for the popular  Wheel of  Fortune(R)  and
Jeopardy!(R)  television  shows. The shows continue their phenomenal  success as
the #1 and #2 syndicated  programs,  with special 20th anniversary seasons ahead
for both Wheel of  Fortune(R)  (2002/03)  and  Jeopardy!(R)  (2003/04).  Renewed
through December 31, 2005, the new contracts represent the longest term in MDI's
licensing experience,  maximizing the opportunity for customers to include Wheel
and Jeopardy! games in their planning.

         We also  successfully  negotiated  renewal  of our  contract  with  MGM
Consumer Products for the classic Pink Panther(TM) animated character, extending
territorial rights for the brand to the worldwide lottery market.

         MDI continually  evaluates new licensing  opportunities in an effort to
offer lotteries  worldwide with a broad selection of brands.  During the quarter
ended June 30,  2002,  we  finalized  and  executed  contracts  for new licensed
properties,  including I Love Lucy(R), the National Basketball  Association/NBA,
Popeye(TM) and The Hulk(TM).

         I Love Lucy(R) endures as a powerful  consumer icon, more than 50 years
after the TV show made its debut.  In its May 3, 2002 issue,  TV Guide  ranked I
Love  Lucy(R) as the second  most  popular  TV series of all time.  The  license
includes the use of the widely recognizable show logo, as well as various images
of Lucy, Ricky,  Ethel and Fred in many of their most entertaining  moments from
the show.  Additionally,  the license  provides  us access to a wide  variety of
officially licensed I Love Lucy(R) merchandise.

         The NBA(R)  license  represents  a  significant  milestone  in domestic
lottery marketing.  The NBA is the first professional sports league to authorize
its imagery to be associated  with  government  lottery  tickets.  MDI's license
provides  lotteries  with  opportunities  to use a variety  of  league  and team
imagery and official NBA(R) merchandise.


                                       17
<PAGE>

         Introduced   in  the   1920s,   Popeye   the   Sailor   Man(TM)  is  an
internationally known cartoon character.  Licensed from King Features Syndicate,
Popeye's  consumer  awareness  and  appeal  are  higher  than any other  similar
character  being  marketed  to  lotteries,  according  to Q Score  data from the
research firm Marketing Evaluations, Inc.

         MDI acquired lottery rights for The Hulk(TM) from Universal  Studios at
a time when classic  comic book  superhero  characters  are making a significant
contribution  to consumer  entertainment  value in major  motion  pictures  like
Spider-Man(TM)  and Men In  Black(TM).  Our  license  will enable  lotteries  to
introduce  games and promotions  featuring  exclusive logo and character  images
tied to Universal's major motion picture, The Hulk(TM), in the summer of 2003.

         INTERNET PLATFORMS

         MDI continues to develop Internet applications for its licensed lottery
promotions,  providing lottery customers with custom-designed Internet web sites
that enable  consumers to enter second  chance  drawings over the Internet as an
alternative  to sending  entries  through the mail.  The web sites are  marketed
under the trade names Lottery Bonus Zone(TM) and Second Chance Bonus Zone(TM).

         During the quarter  ended June 30,  2002,  Lottery  Bonus  Zone(TM) web
sites were  provided  for  second  chance  promotions  related to the New Jersey
Lottery's  Heroes Of Space(TM)  and  TABASCO(R)  Hot Cash(TM)  games.  The first
Second  Chance Bonus  Zone(TM) web site was  introduced  during the quarter,  in
support of the Virginia Lottery's Fast Cash (NASCAR(R) drivers) game.

         Web sites are currently being developed for upcoming lottery promotions
related to Harley-Davidson(R), Lionel(R), Universal Studios Monsters(TM) and the
NBA.

         NEW TECHNOLOGIES

         MDI  has  reached  an  agreement  in  principle   with   Ingenio,   the
Montreal-based  subsidiary of the provincial lottery organization,  Loto-Quebec,
to develop CD-Rom  playable  versions of instant  lottery scratch games based on
MDI's licensed properties.

         Targeted to the  ever-expanding  market of consumers with personal home
computers,  Ingenio  games  integrate  traditional  instant  scratch  games with
personal computer game technology,  adding drama, rich  illustrations,  detailed
animation,  music and  sound  effects  to the  experience  of  playing a lottery
scratch ticket.

         MDI believes that applying Ingenio's technology to MDI licensed lottery
games can expand the appeal of instant win lotteries to attractive  new consumer
demographic segments.

         EXPANSION INTO INTERNATIONAL MARKETS

         Late last year we hired Ms. Evelyn Yenson as our Senior Vice President,
International Sales and Marketing,  to focus on international  development.  Ms.
Yenson  brings  outstanding  credentials  to the  position,  having  established
herself in the  international  lottery  arena as the director of the  Washington
State Lottery and as the first U.S.  delegate to the World  Lottery  Association
Executive Committee.  She later served as the corporate  communications  officer
for the instant ticket printing industry leader,  Scientific Games.  Through Ms.
Yenson's efforts and relationships, our products are now being actively marketed
on every continent where there are lottery jurisdictions. These efforts resulted
in our first time  contracts in France and China,  which are both doing our 2002
FIFA World Cup  Korea/Japan(TM)  license  game,  discussed  below.  We have also
retained several  consultants with off-shore lottery experience to assist in our
marketing efforts.

         In  late  2001,  we  established  a  valuable  "calling  card"  in  the
International  lottery  arena  by  acquiring  the  exclusive  worldwide  lottery
licensing rights to the 2002 FIFA World Cup  Korea/Japan(TM)  soccer finals.  We
are  finding  that,  as  expected,  owning  rights  to the 2002  FIFA  World Cup
Korea/Japan(TM) has given us substantial access into some of the world's largest
lottery  organizations,  and has created  prospects  for  business  that go well
beyond the World Cup(R) event.

         Reacting  to the  expressed  interest  of  lotteries  outside  of North
America,  we have also recently  negotiated  an expansion of our North  American
lottery  rights from  domestic to worldwide for MGM's Pink  Panther(TM).  To the
extent  practicable,  we are  seeking  international  rights for other  existing
properties,  as we also seek to identify  viable consumer icons that have strong
regional appeal in foreign lottery markets.



                                       18
<PAGE>


<TABLE>
<CAPTION>


                            SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001


                                                                       Six months ended June 30, 2002 and June 30, 2001
                                                                ----------------------------------------------------------------

                                                                          2002             %               2001           %
                                                                          ----             -               ----           -


<S>                                                                    <C>                <C>           <C>              <C>
Total revenue                                                          $ 8,162,272        100.0%        $6,685,465       100.0%

Cost of revenues                                                         5,196,825         63.7%         3,724,105        55.7%
                                                                ----------------------------------------------------------------

   Gross profit                                                          2,965,447         36.3%         2,961,360        44.3%

Selling, general and administrative expenses                             2,432,864         29.8%         1,785,101        26.7%
Terminated merger costs                                                    391,083          4.7%                 -           -%
Terminated transaction costs                                                46,249          0.6%                 -           -%
Cost of unsuccessful funding                                                     -            -%            89,633         1.3%
                                                                ----------------------------------------------------------------

   Operating profit                                                         95,251          1.2%          1,086,626       16.3%

Interest expense                                                            16,983          0.2%            128,745        1.9%
Interest income                                                             (5,032)        -0.1%             (8,773)      -0.1%
Other expense (income)                                                      99,855          1.3%           (110,166)      -1.6%
Gain on sale of investments, net                                                 -            -%            (12,669)      -0.2%
                                                                ----------------------------------------------------------------

   (Loss) income before (benefit) provision for income taxes               (16,555)        -0.2%          1,089,489       16.3%

(Benefit) provision for income taxes                                      (732,108)        -9.0%             12,035        0.2%
                                                                ----------------------------------------------------------------

   Net income                                                            $ 715,553          8.8%         $1,077,454       16.1%
                                                                ================================================================
</TABLE>


         REVENUE

         Revenue sources are from both merchandise based lottery  promotions and
promotions  that generate  license or royalty fees only.  License or royalty fee
revenue represents 9% of our total revenue. Approximately 91% of our revenue for
the six months ended June 30, 2002 was derived  primarily from merchandise based
promotions.  Prizes  awarded in such  promotions  typically  include a number of
"second  chance"  prizes related to the licensed  property,  such as collectible
logo bearing merchandise associated with the licensed property. These prizes are
usually awarded on predetermined dates, which allow us to purchase and inventory
these items in our outsourced  fulfillment facility prior to these award-drawing
dates. However,  procurement opportunities or contract terms may require all the
merchandise  for a particular  promotion to be procured  prior to even the first
drawing.



                                       19
<PAGE>

         Results  for the six  months  ended  June  30,  2002,  reflect  a 22.1%
increase  in  revenue.  Revenue  for the six  months  ended  June  30,  2002 was
$8,162,300  compared  to  $6,685,500  for the six months  ended  June 30,  2001.
Overall revenue increased as a result of the increased game launches for the six
months  ended June 30,  2002,  compared to the six months  ended June 30,  2001.
Harley-Davidson(R)  took the lead away from Elvis with 32.1% of our  revenue for
the six months ended June 30, 2002. Elvis Presley(R), however, is not far behind
with revenue representing 31.4% of our revenue for the six months ended June 30,
2002.  NASCAR(R)  continued  strong in third  place,  representing  11.1% of our
revenue.  The  remaining  25.4% of our revenue for the six months ended June 30,
2002 was derived from 14 other  licensed  properties.  During the quarter  ended
June 30, 2002,  we executed  contracts for new licensed  properties  including I
Love  Lucy(R),  the  National  Basketball  Association/NBA,  Popeye(TM)  and The
Hulk(TM).  The appeal of  Harley-Davidson(R)  games continues to surpass that of
any other licensed property, with five of the nine games representing lotteries'
second edition of Harley games. At least 11 more lotteries plan to introduce new
Harley games during the  manufacturer's  100th anniversary year, which begins in
July 2002.

         COST OF REVENUE

         Cost of revenue,  as a percentage  of revenue,  increased to 63.7% from
55.7% for the six months ended June 30,  2002,  compared to the six months ended
June 30, 2001.  This increase in the cost ratio  reflects much higher  licensing
and merchandising  costs associated with the Elvis Presley(R) games launched and
running during the six-months  ended June 30, 2002, which  represented  31.4% of
our revenue.  Elvis Presley(R) games, during the six months ended June 30, 2001,
represented  only  15.3%  of our  total  revenue.  Our  cost of  sales  includes
merchandise from other licensees of the property,  shipping and handling and any
marketing  support we provide the lottery  such as  brochures,  posters or other
advertising  assistance.  Costs also include trips  associated with our licensed
properties.  Additionally,  another  major  cost  is  the  amortization  of  our
licensing costs over the term of the various licenses.

         GROSS PROFIT

         The gross profit  increased  in the six months ended June 30, 2002,  to
$2,965,400  (36.3% of revenue) compared to $2,961,400 (44.3% of revenue) for the
six months ended June 30, 2001. As mentioned above,  this  significant  ratio of
Elvis Presley(R) games during this six-month period made it difficult to achieve
our target gross profit of 40%.  Without the Elvis  Presley(R)  games, our gross
profit would have been approximately 40%.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

         Selling, general, and administrative expenses were $2,432,900 (29.8% of
revenue),  for the six months ended June 30, 2002, compared to $1,785,100 (26.7%
of  revenue)  for the six months  ended June 30,  2001.  Salaries  and  employee
benefits  increased  approximately  $254,200 during the six-month  period ending
June  30,  2002,  due  to  increased  sales  and  marketing  personnel  for  our
international sales effort and a new Vice President of Creative Development, who
was  hired to  support  our  lottery  customers  in  innovative  game  promotion
concepts.

         Marketing,   promotional  and  related  travel  expenses  increased  by
$143,900,  for a total of $571,600 for the  six-months  ended June 30, 2002.  Of
this total increase,  approximately $100,000 represents  international marketing
and  promotional  costs which resulted in contracts in both France and China for
our 2002  FIFA  World  Cup  Korea/Japan(TM)  licensed  game.  This  license  has
generated  license or royalty fee revenue of approximately  $138,000 for the six
months ended June 30, 2002.



                                       20
<PAGE>

         Costs related to both public reporting and investor relations increased
significantly  to $422,300 for the six months ended June 30, 2002 from  $249,200
for the six  months  ended June 30,  2001.  This  increase  is due to a $115,000
change in financial  consulting expenses between the comparable six month period
ended June 30,  2001.  Part of this  increase  is a result of a credit  recorded
during the  six-month  period  ended  June 30,  2002,  of  $50,000  related to a
settlement of previously  recorded consulting fees.  Additionally,  beginning in
2002, we have resolved to compensate outside directors for their work as members
of our Board.  For the six months ended June 30, 2002,  this total  compensation
was  $32,000.  Operational  expenses for our Fort Worth,  Texas  office  totaled
approximately $34,700 in the six-months ended June 30, 2002, which did not exist
in the same quarter in 2001.

         We have incurred certain legal,  accounting and investment banking fees
related to the  terminated  merger with  Scientific  Games.  These costs totaled
$391,100  for the six months  ended June 30,  2002.  Additionally,  we  incurred
$46,200 in the  unsuccessful  completion  of a  transaction  with  International
Capital  Partners,  LLC  ("ICP") in its  proposal  to purchase a majority of the
outstanding common stock of our Company.

         OPERATING PROFIT

         The  operating  profit was $95,300 (1.2% of revenue) for the six months
ended June 30, 2002,  compared to an operating  profit of  $1,086,600  (16.3% of
revenue)  for the six months  ended June 30,  2001.  This  decrease in operating
profitability is due to the factors  described above, but particularly the costs
related to the  terminated  merger with  Scientific  Games and the  unsuccessful
transaction with ICP. Without these two unsuccessful  transactions,  there would
have been  operating  profit for the six months ended June 30, 2002, of $495,200
(6.1% of revenue).

         INTEREST EXPENSE

         Interest  expense was $17,000 for the six months  ended June 30,  2002,
compared to $128,700 for the six months ended June 30, 2001.  This  reduction in
interest  expense  is  related  to the  reduction  of our  short-term  debt from
$477,700 at June 30,  2001,  to  $110,000 at June 30,  2002.  In  addition,  the
results  for the six months  ended June 30,  2001,  reflected  interest  expense
related to a Subordinated  Convertible  Debenture  which was converted to equity
prior to 2002.

         OTHER EXPENSE

         Other  expense  was  $99,800  for the six months  ended June 30,  2002,
compared to other  income of $110,200  for the six months  ended June 30,  2001.
This net expense of $99,800 is primarily  the  write-off  of the total  $100,000
promissory   note  we  received  as  settlement  for  the  lawsuit  with  Oxford
International, Inc., settled on December 31, 2001. We were to receive $10,000 on
February 15, 2002. As of the date of this filing,  we have not received  payment
and the ultimate collection of this note is in doubt. We will evaluate the merit
of pursuing this matter further. The $110,200 in the comparble period ended June
30, 2001, was attributable to the favorable exchange of stock for legal services
that was negotiated in the first quarter of 2001.

         GAIN ON SALES OF SECURITIES

         The $12,700 gain on securities  for the six months ended June 30, 2001,
was attributable to the sale of shares of eLot stock held for investment.

         NET INCOME

         For the reasons set forth  above,  we have a loss before tax benefit of
$16,600 for the six months ended June 30, 2002,  compared to income before taxes
of  $1,089,500  for the six months  ended  June 30,  2001.  Had we not  incurred
expenses for the equity  transactions  that did not close with Scientific  Games
Corp.  and ICP, our net income before taxes for the six months ending 2002 would
have been $420,800 (6.4% of revenue).

                                       21
<PAGE>

         Net income  decreased  to  $715,600  for the six months  ended June 30,
2002,   compared  to  $1,077,500  for  the  six  months  ended  June  30,  2001.
Contributing  to the net income of  $715,600  for the six months  ended June 30,
2002 was the increase in the income tax benefit in the six months ended June 30,
2002 which is  attributable  to the  reversal  of  approximately  $732,100  of a
deferred tax asset  valuation  allowance  that was recognized at March 31, 2002.
Under accounting principles generally accepted in the United States, a valuation
allowance is  established  when it is more likely than not that a portion or all
of a deferred  tax asset will not be  realized.  Prior to December  31,  2001, a
valuation  allowance  was recorded for these  deferred tax assets.  In 2001,  we
determined  that,  more likely than not, a portion of these  deferred tax assets
would be utilized and, accordingly,  $1.3 million of the valuation allowance was
reversed.  This  determination  was based on our  profitability  in 2001 and our
expectation of continued  profitability.  We have determined that  profitability
will  continue  well into 2002 after  reporting  $3.5  million of revenue in the
first quarter  followed by $4.6 million of revenue in the quarter ended June 30,
2002, and without the costs related to the terminated  Scientific  Games and ICP
transactions.

         Basic earnings per share was $.06 and fully diluted  earnings per share
was $.05 for the six months ended June 30, 2002,  compared to basic earnings per
share of $.10 and fully  diluted  earnings  per share of $.09 for the six months
ended June 30, 2001.



                                       22
<PAGE>

<TABLE>
<CAPTION>


                          THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001


                                                                      Three months ended June 30, 2002 and June 30, 2001
                                                                ----------------------------------------------------------------

                                                                          2002             %               2001           %
                                                                          ----             -               ----           -
                                                                       (Unaudited)                      (Unaudited)

<S>                                                                    <C>                <C>           <C>              <C>
Total revenue                                                          $ 4,642,916        100.0%        $3,563,467       100.0%

Cost of revenues                                                        2,,927,210         63.0%         2,004,222        56.2%
                                                                ----------------------------------------------------------------

   Gross profit                                                          1,715,706         37.0%         1,559,245        43.8%

Selling, general and administrative expenses                             1,222,663         26.3%           911,557        25.6%
Terminated merger costs                                                     84,628          1.9%                 -           -%
Terminated transaction costs                                                46,249          1.0%                 -           -%
Cost of unsuccessful funding                                                     -            -%            89,633         2.5%
                                                                ----------------------------------------------------------------

   Operating profit                                                        362,166          7.8%           558,055        15.7%

Interest expense                                                             7,842          0.2%            48,531         1.5%
Interest income                                                             (2,672)        -0.1%            (6,319)       -0.2%
Loss on sale of investment securities, net                                       -            -%            11,637         0.3%
                                                                ----------------------------------------------------------------

   Income before provision for income taxes                                356,996          7.7%           504,206        14.1%

Provision for income taxes                                                       -            -%             4,035         0.1%
                                                                ----------------------------------------------------------------

   Net income                                                            $ 356,996          7.7%         $ 500,171        14.0%
                                                                ================================================================
</TABLE>


         REVENUE

         Revenue sources are from both merchandise based lottery  promotions and
promotions  that generate  license or royalty fees only.  License or royalty fee
revenue represents 7% of our total revenue. Approximately 93% of our revenue for
the three  months  ended June 30, 2002 was derived  primarily  from  merchandise
based promotions.  Prizes awarded in such promotions  typically include a number
of "second chance" prizes related to the licensed property,  such as collectible
logo bearing merchandise associated with the licensed property. These prizes are
usually awarded on predetermined dates, which allow us to purchase and inventory
these items in our outsourced  fulfillment facility prior to these award-drawing
dates. However,  procurement opportunities or contract terms may require all the
merchandise  for a particular  promotion to be procured  prior to even the first
drawing.

                                       23
<PAGE>

         Results for the quarter ended June 30, 2002 reflect a 30.3% increase in
revenue.  Revenue  for the  three  months  ended  June 30,  2002 was  $4,642,900
compared to $3,563,500 for the three months ended June 30, 2001. Overall revenue
increased as a result of the increased  game launches for the three months ended
June 30, 2002 compared to the three months ended June 30, 2001.  Harley-Davidson
took  the lead  away  from  Elvis  Presley(R),  which  it held the two  previous
quarters by  representing  45.7% of the revenue for the three  months ended June
30, 2002,  Elvis Presley(R)  dropped to second with revenue of 22%,  followed by
NASCAR with 13.1% of our revenue for the three months  ended June 30, 2002.  The
remaining  19.2% of the  revenue  for the three  months  ended June 30, 2002 was
derived  from 11 other  licenses.  During the quarter  ended June 30,  2002,  we
finalized and executed  contracts for new licensed  properties  including I Love
Lucy(R), the National Basketball  Association/NBA,  Popeye(TM) and The Hulk(TM).
The appeal of  Harley-Davidson(R)  games  continues to surpass that of any other
licensed property,  with five of the nine games  representing  lotteries' second
edition of Harley games.  At least 11 more  lotteries  plan to introduce  Harley
games during the  manufacturer's  100th  anniversary  year,  which began in July
2002.

         COST OF REVENUE

         Cost of revenues as a  percentage  of revenue  increased  to 63.0% from
56.2% for the three  months  ended June 30, 2002  compared  to the three  months
ended June 30,  2001.  This  increase  in the cost ratio  reflects  much  higher
licensing and  merchandising  costs  associated with the Elvis  Presley(R) games
launched and running this quarter which represented 22% of our revenue, compared
to 14.3% of our revenue  for the  comparable  period in 2001.  Our cost of sales
includes merchandise from other licensees of the property, shipping and handling
and any marketing  support we provide the lottery such as brochures,  posters or
other  advertising  assistance.  Costs also include  trips  associated  with our
licenses properties. Additionally, another major cost is the amortization of our
licensing costs over the term of the various licenses.

         GROSS PROFIT

         The gross  profit  increased in the three months ended June 30, 2002 to
$1,715,700  (37.0% of revenue) compared to $1,559,200 (43.8% of revenue) for the
three months ended June 30, 2001. As mentioned above,  this significant ratio of
Elvis  Presley(R)  games in the quarter  made it difficult to achieve our target
gross profit of 40%.  Without the Elvis  Presley(R) games our gross profit would
have been approximately 40.2%.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling,  general and administrative expenses were $1,222,700 (26.3% of
revenue) for the three months ended June 30, 2002 compared to $911,600 (25.6% of
revenue)  for the three  months  ended  June 30,  2001.  Salaries  and  employee
benefits increased approximately $87,600 this quarter due to increased sales and
marketing personnel for our international sales efforts and a new Vice President
of  Creative  Development  who was hired to support  our  lottery  customers  in
innovative game promotion  concepts.  Marketing,  promotional and related travel
expenses increased by $86,300 for a total of $333,000 for the three months ended
June 30, 2002.  Nearly all of this increase was due to  international  marketing
and  promotions,   which  resulted  in  contracts  in  both  France  and  China,
international lotteries that we have never penetrated before. They both launched
our 2002 FIFA World Cup  Korea/Japan(TM)  licensed game. The 2002 FIFA World Cup
Korea/Japan(TM) license or royalty fee revenue was approximately $50,000 for the
three months ended June 30, 2002.

         Costs related to both public reporting and investor relations increased
to $155,300 for the three months ended June 30, 2002 from $114,500 for the three
months  ended  June 30,  2001.  Most of this  increase  is related to paying our
outside  directors  compensation  for  sitting on the board.  This  compensation
totals $16,000 per quarter.

                                       24
<PAGE>

         We incurred  certain  legal,  accounting  and  investment  banking fees
relating to the terminated merger with Scientific  Games.  Terminated merger and
transaction  expenses  incurred  in the three  months  ended  June 30,  2002 are
$131,000.  Additionally, we incurred $46,200 in the unsuccessful completion of a
transaction with International Capital Partners,  LLC ("ICP") in its proposal to
purchase a majority of the outstandig common stock of our Company.

         OPERATING PROFIT

         The  operating  profit was  $362,200  (7.7% of  revenue)  for the three
months ended June 30, 2002 compared to an operating profit of $558,100 (15.7% of
revenue) for the three months ended June 30, 2001.

         INTEREST EXPENSE

         Interest  expense was $7,800 for the three  months  ended June 30, 2002
compared to $48,500 for the three months ended June 30, 2001.  This reduction in
interest  expense  is  related  to the  reduction  of our  short  term debt from
$477,700 at June 30, 2001 to $110,000 at June 30, 2002. In addition, the results
for the three months ended June 30, 2001 reflect  interest  expense related to a
Subordinated Convertible Debenture which was converted to equity prior to 2002.

         LOSS ON SALES OF SECURITIES

         The $11,600 loss on securities for the three months ended June 30, 2001
was attributable to the sale of eLot stock held for investment.

         NET INCOME

         For the  reasons  set  forth  above,  we had a income  before  taxes of
$357,000  for the three  months  ended June 30, 2002  compared to income  before
taxes of $504,200 for the three months  ended June 30,  2001.  This  decrease in
income before taxes is due to the factors  described above, but particularly the
costs  related to the two  terminated  transactions.  Without  these costs there
would have been an income  before taxes for the three months ended June 30, 2002
of $487,900 (10.5% of revenue). For the six months ended June 30, 2002, we had a
loss before taxes of $16,600,  therefore, no taxes are required to be calculated
for the three months ended June 30, 2002.

         Earnings per share was $.03 per share on both a basic and fully diluted
basis for the quarter ended June 30, 2002,  compared to an earnings per share of
$.04 on both a basic and fully  diluted  basis for the  quarter  ended  June 30,
2001.


         LIQUIDITY AND CAPITAL RESERVES

         As of June 30,  2002,  we had cash and  cash  equivalents  of  $854,900
compared to $251,600 as of December 31, 2001. This significantly  increased cash
position was in part due to the  collection of  receivables  for games  launched
this quarter Accounts receivable decreased slightly to $2,608,100 as of June 30,
2002 compared to $2,709,500 as of December 31, 2001  reflecting  the  additional
collections  in the  current  quarter  ended June 30, 2002  contributing  to our
improved cash position.

         As of June 30,  2002,  we had  positive  working  capital of  $854,000.
Included in current  assets is  $1,343,000  in deferred  tax assets,  a non-cash
asset.  Also within current  liabilities is $3,111,500 of "Billings in excess of
cost and estimated earnings on uncompleted contracts" representing  unrecognized
revenue (i.e.,  amounts  invoiced to, or received from our customers,  but which
may not be  recognized  as revenue  until we  purchase  the  related  contracted
merchandise).  Accordingly,  such liability will not adversely impact cash flow,
except to the extent that we need to purchase  merchandise and incur  subsequent
fulfillment costs relating to this revenue,  which typically approximates 50% of
the related  revenue.  Without these two items,  working capital would have been
$1,066,800.

                                       25
<PAGE>

         Our indebtedness as of June 30, 2002 was $110,000, consisting of a note
payable to our President and Chief Executive Officer.

         Our  obligations  and commitments to make future payments under license
contracts consulting agreements,  debt and lease agreements is summarized in the
following table:

                                    PAYMENTS DUE BY PERIOD
                                    ----------------------
<TABLE>
<CAPTION>
                                                                                        After 5
CONTRACTUAL OBLIGATIONS             TOTAL            1-3 YEARS         4-5 YEARS        YEARS
-----------------------            ----------       ----------         ---------      ---------
<S>                                <C>              <C>                <C>            <C>
License obligations                $2,722,500       $2,372,500         $350,000       $      -

Note payable to officer               110,000          110,000                -              -
Operating leases &
   consulting agreements              635,400          582,700           52,700              -
                                   ----------       ----------        ----------      ---------
Total contractual
   obligations                     $3,467,900       $3,065,200         $402,700       $      -
                                   ==========       ==========        ==========      =========
</TABLE>

         Notwithstanding  those amounts  presented in the above table, we do not
have any material capital commitments and do not currently anticipate making any
substantial  expenditures  other than in the normal course of business.  We have
undertaken  an aggressive  program of acquiring new licenses,  some of which may
require  substantial  up-front  payments.  Increasing  competition  of licenses,
including  the  relatively  recent  entrance  to the  field as a  competitor  by
Scientific Games and other lottery ticket printers, may adversely impact license
fees, which, in addition to the impact on liquidity,  will also adversely impact
operations.

         As a  result  of  our  relatively  low  working  capital  position  and
inconsistent cash flow, our President and Chief Executive Officer has, from time
to time, loaned money to us and personally  guaranteed bonds to lotteries on our
behalf.  Mr.  Saferin  is not  obligated  to  extend  such  loans  or make  such
guarantees and if he does not do so in the future it could adversely  affect us.
Also, we currently have a $750,000 line of credit with a bank, of which $250,000
of this line is  specifically  for Letters of Credit to be utilized in the place
of performance  bonds for lotteries that  occasionally  require them. We had not
drawn on the line as of June 30, 2002 or as of August 15, 2002.  The disaster of
September 11, 2001 and the Enron collapse have contributed to an extremely tight
(if existent) performance bond market.

         In light of the fact that our games  represent a substantial  amount of
the themed or branded type of lottery  games offered in the United  States,  our
ability to expand revenue above that achieved in 2001 will depend on our ability
to expand internationally or develop new products. We cannot assure you that our
strategies to so expand or develop new products will be successful.

         SEASONALITY AND REVENUE FLUCTUATIONS

         Our  business is not  seasonal.  However,  our revenues are expected to
fluctuate  as  individual  license-based  promotions  commence  or wind down and
terminate.  The useful life of a promotion is generally  relatively short as the
novelty of the game or the popularity of the licensed material wanes over time.
In addition,  our licenses (which are generally for 1.5 to 3 years) terminate at
various  times over the next several  years.  The life span of a promotion,  the
timing of agreements  with the lotteries to run  promotions,  the acquisition of
new licenses and the  commencement  of new promotions are  unpredictable.  Also,
since most lotteries are government  agencies with lottery executives  appointed
by the  state's  governor  or other  high  ranking  official,  opportunities  or
projects in progress can be slowed after an election if the  incumbent  governor
is  not  re-elected.  Accordingly,   period-to-period  comparisons  may  not  be
indicative of future results.



                                       26
<PAGE>



                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.



         CLASS ACTION LAWSUIT BY SHAREHOLDERS

         On  February  28,  2002,  a class  action  suit on behalf of our public
stockholders was filed in the Court of Chancery of the State of Delaware against
us,  all of the  members of our Board of  Directors  and  Scientific  Games , to
enjoin  the  proposed  business   combination   transaction  pursuant  to  which
Scientific Games would acquire the outstanding  shares of our common stock which
it did not  already  own.  In its  complaint,  the  plaintiff  alleged  that the
consideration offered to our stockholders in the proposed acquisition was unfair
and inadequate  because the plaintiff  believed that the intrinsic  value of our
common stock was materially in excess of the amount offered giving consideration
to our growth and anticipated  operating  results,  net asset value,  and future
profitability.  The plaintiff further alleged that the defendants had approved a
proposal that favors their own interests over those of our public  stockholders.
The plaintiff  requested the Court to  preliminarily  and permanently  enjoin us
from proceeding  with,  consummating or closing the proposed  transaction and in
the event the  proposed  transaction  is  consummated,  to  rescind it and award
rescissory damages. In addition, the plaintiff requested that the Court award to
the plaintiff compensatory damages.

         On May 6,  2002,  a  second  complaint  was  filed  in the  same  Court
containing  nearly  identical  allegations.  On May 6,  2002,  lawyers  for  the
plaintiffs requested an order consolidating the two cases. On June 19, 2002, all
of these  stockholder  class action suits  relating to the proposed  transaction
with  Scientific  Games  were  dismissed  without  prejudice  in  light  of  the
termination of the negotiations with Scientific Games.




                                       27
<PAGE>





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

(a) Exhibits


    Exhibit 99.1                    Certification pursuant to section 906 of the
                                    Sarbanes-Oxley Act of 2002 (subsections (a)
                                    and (b) of section 1350, chapter 63 of title
                                    18, United States Code).

(b) Reports on Form 8-K             Filed on May 9, 2002 (Item 5: Other Events -
                                    Mutually  and  amicably   terminated  merger
                                    negotiations  between MDI  Entertainment and
                                    Scientific Games Corporation - Press release
                                    dated May 8, 2002).

                                    Filed on June 5,  2002,  as  amended on June
                                    24,  2002 (Item 4:  Changes to  Registrant's
                                    Certifying  Accountants -  Determination  to
                                    dismiss   Arthur   Andersen   LLP  as  MDI's
                                    independent auditors).

                                    Filed on June 28, 2002 (Item 5: Other Events
                                    - Announcement that MDI and ICP had mutually
                                    agreed to terminate  discussions relating to
                                    ICP's   proposal   to   acquire  a  majority
                                    interest in MDI - Press  Release  dated June
                                    27, 2002).




                                       28
<PAGE>


                                 SIGNATURE PAGE


In accordance with the requirements of the Securities  Exchange Act of 1934, the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

Dated August 19, 2002

                                          MDI ENTERTAINMENT, INC.
                                              (Registrant)

                                          By: /S/STEVEN M. SAFERIN
                                          Steven M. Saferin
                                          President and Chief Executive Officer
                                          and Director
                                          (Principal Executive Officer)

                                          By: /S/KENNETH M. PRZYSIECKI
                                          Kenneth M. Przysiecki
                                          Senior Vice President Accounting and
                                          Administration, Secretary and Director
                                          (Principal Financial and Accounting
                                          Officer)



                                       29