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 MARCH 31, 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
                 ----------                           ----------
     (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 May  15,  2001,  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 MARCH 31, 2002

                                                        INDEX
                                                        -----



                                                                                                                  Page
<S>                                                                                                                <C>
Item 1. Financial Statements....................................................................................... 3


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

     Condensed Consolidated Statements of Operations for the three months ended
       March 31, 2002 and 2001 (unaudited)..........................................................................5

     Condensed Consolidated  Statement of Shareholders' Equity for the three months ended
       March 31, 2002 (unaudited)...................................................................................6

     Condensed Consolidated Statements of Cash Flows for the three months ended
       March 31, 2002 and 2001 (unaudited)..........................................................................7

     Notes to Unaudited Condensed Consolidated Financial Statements.................................................9

     Item 2. Management's Discussion and Analysis..................................................................12

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings..........................................................................................20

Item 6. Exhibits and Reports on Form 8-K...........................................................................22

Signatures.........................................................................................................23

</TABLE>




                                                          2
<PAGE>





                                                         PART I
                                                  FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

MDI ENTERTAINMENT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                  March 31,                 December 31,
                                                                                    2002                        2001
                                                                         --------------------    -----------------------
                          ASSETS                                                 (unaudited)

<S>                                                                               <C>                        <C>
CURRENT ASSETS:
   Cash and cash equivalents                                                      $1,130,850                   $251,578
   Accounts receivable                                                             2,274,184                  2,709,543
   Inventory                                                                         635,057                    690,429
   Deferred income taxes (Note 3)                                                  1,343,000                  1,343,000
   Other current assets                                                              304,245                    338,049
                                                                         --------------------    -----------------------

        Total current assets                                                       5,687,336                  5,332,599

PROPERTY AND EQUIPMENT, AT COST:
   Equipment                                                                         271,889                    305,312
   Furniture and fixtures                                                            120,361                    120,361
   Leasehold improvements                                                                                         8,751
                                                                                           -
                                                                         --------------------    -----------------------

                                                                                     392,250                    434,424
   Less:  Accumulated depreciation                                                  (241,334)                  (271,408)
                                                                         --------------------    -----------------------

   Property and equipment, net                                                       150,916                    163,016
                                                                         --------------------    -----------------------

OTHER ASSETS:
   Licensing costs, net                                                            1,370,237                  1,485,827
   Deferred income taxes-long term (Note 3)                                          732,108                          -
   Other                                                                              22,566                     23,467
                                                                         --------------------    -----------------------

        Total other assets                                                         2,124,911                  1,509,294
                                                                         --------------------    -----------------------

        Total assets                                                              $7,963,163                 $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>

                                                                                  March 31,                 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)                                           $2,779,409                 $2,497,088
   Current portion of long term debt                                                 260,000                    274,199
   Accounts payable                                                                1,353,869                  1,112,880
   Accrued expenses                                                                  783,978                    734,302
                                                                         --------------------    -----------------------

        Total current liabilities                                                  5,177,256                  4,618,469
                                                                         --------------------    -----------------------

        Total liabilities                                                          5,177,256                  4,618,469
                                                                         --------------------    -----------------------


COMMITMENTS AND CONTINGENCIES (Notes 5,6 & 7)

SHAREHOLDERS' EQUITY
   Common stock                                                                       11,764                     11,639
   Additional paid-in capital                                                      5,650,441                  5,609,657
   Accumulated deficit                                                            (2,876,298)                (3,234,856)
                                                                         --------------------    -----------------------

       Total shareholders' equity                                                  2,785,907                  2,386,440
                                                                         --------------------    -----------------------

       Total liabilities and
          shareholders' equity                                                    $7,963,163                 $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>

                                                                                             Three months ended
                                                                                                 March 31,
                                                                                       2002                        2001
                                                                                -------------------       -------------------
                                                                                   (unaudited)                 (unaudited)

<S>                                                                                    <C>                        <C>
REVENUE                                                                                $ 3,519,356                $3,121,999

COST OF REVENUES                                                                         2,269,615                 1,719,883
                                                                                -------------------       -------------------

    Gross profit                                                                         1,249,741                 1,402,116

SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES                                                                               1,210,201                   873,544
TERMINATED MERGER COSTS (Note 7)                                                           306,455                         -
                                                                                -------------------       -------------------

     Operating (loss) profit                                                                                         528,572
                                                                                          (266,915)

INTEREST EXPENSE, net                                                                        6,780                    77,761
OTHER EXPENSE (INCOME)                                                                      99,855                  (110,166)
GAIN ON SALE OF INVESTMENTS, NET                                                                 -                   (24,307)
                                                                                -------------------       -------------------

     (Loss) Income before provision for income taxes                                                                 585,284
                                                                                          (373,550)

(BENEFIT) PROVISION FOR INCOME TAXES (Note 3)                                             (732,108)                    8,000
                                                                                -------------------       -------------------

     Net income                                                                       $    358,558                 $ 577,284
                                                                                ===================       ===================


Basic Earnings Per Common Share (Note 4)                                                     $0.03                     $0.05
                                                                                ===================       ===================

Diluted Earnings Per Common Share (Note 4)                                                   $0.03                     $0.05
                                                                                ===================       ===================



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

</TABLE>




                                                            5
<PAGE>





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

                                                                              For the three months ended March 31, 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, March 31, 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, March 31, 2002                                                                      5,650,441
                                                                                                  -------------

Accumulated Deficit:

        Balance, December 31, 2001                                                                  (3,234,856)
        Net income                                                                                     358,558
                                                                                                    -----------

        Balance, March 31, 2002                                                                     (2,876,298)
                                                                                                   ------------


Total Shareholders' Equity                                                                          $2,785,907
                                                                                                   ============


The  accompanying  notes are an integral  part of these  condensed  consolidated financial statements.
</TABLE>





                                                            6
<PAGE>




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


                                                                                                  Three months ended
                                                                                                      March 31,
                                                                                              2002                 2001
                                                                                     ------------------     -----------------
                                                                                          (unaudited)           (unaudited)
<S>                                                                                        <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                                             $  358,558            $  577,284
     Adjustments to reconcile net income to net
         cash provided by operating activities:
              Depreciation and amortization                                                    432,457               134,672
              Compensation expense                                                              17,810                     -
              Gain on sale of investments, net                                                       -               (24,307)
              Deferred income tax benefit                                                     (732,108)                    -
              Change in assets and liabilities:
                     Decrease (increase) in accounts receivable                                435,359            (1,174,491)
                     Decrease in inventory                                                      55,372                50,827
                     Increase in licensing costs                                              (301,757)             (138,900)
                     Decrease in other assets                                                   34,705                67,317
                     Increase (decrease) in accounts payable                                   240,989               (55,910)
                     Increase in accrued expenses                                               49,767               514,448
                     (Decrease) increase in income taxes payable                                   (91)                7,675
                     Increase in billings in excess of costs
                         and estimated earnings on uncompleted contracts                       282,321               213,428
                                                                                     ------------------   -------------------

              Net cash provided by operating activities                                        873,382               172,043
                                                                                     ------------------   -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment, net                                                     (3,010)               (1,033)
    Proceeds of sale of investments                                                                 -                 59,155
                                                                                     ------------------   -------------------


              Net cash (used for) provided by investing activities                              (3,010)               58,122
                                                                                     ------------------   -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Repayment of debt                                                                          (14,199)              (15,016)
    Proceeds from exercise of common stock options                                              23,099                 6,600
                                                                                     ------------------   -------------------

              Net cash provided by (used for) financing activities                               8,900                (8,416)
                                                                                     ------------------   -------------------

NET INCREASE IN CASH                                                                           879,272               221,749

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

                                                                                     ------------------   -------------------
CASH, end of the period                                                                    $ 1,130,850           $   749,900
                                                                                     ==================   ===================
</TABLE>



                                                            7
<PAGE>




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

<TABLE>
<CAPTION>

                                                                                               Three months ended
                                                                                                    March 31,
                                                                                           2002                  2001
                                                                                     ------------------   -------------------
                                                                                        (unaudited)          (unaudited)
<S>                                                                                   <C>                  <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid for:
         Interest                                                                      $     15,967         $     49,362
         Income taxes                                                                  $          -         $        325
    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                        $          -         $    558,750
         Common stock issued for services                                              $          -         $    269,288




The  accompanying  notes are an integral  part of these  condensed  consolidated financial statements.
</TABLE>





                                                            8
<PAGE>





MDI ENTERTAINMENT, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 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  three-month  periods  ended  March  31,  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  three-month  period  ended  March 31,  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  terms of the
applicable game.

         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,  as
management  considers cost incurred to be the best available measure of progress
on these  contracts.  Contract  costs  include  all direct  costs.  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 March 31,  2002,  no losses  were  expected  from
existing contracts.

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




                                       9
<PAGE>




3.       INCOME TAXES

         In the quarter ended March 31, 2002 the Company reversed  approximately
$732,100  of  a  deferred  tax  asset  valuation  allowance.   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.  The Company has deferred tax assets  related to
net  operating  losses that can be utilized to offset  taxable  income in future
years.  As of December 31, 2000,  a valuation  allowance  was recorded for these
deferred tax assets.  In 2001,  the Company  determined  that it was more likely
than not that a portion of these  deferred  tax  assets  would be  utilized  and
accordingly,  $1.3 million of the valuation  allowance was reversed.  During the
quarter ended March 31, 2002 the Company  determined that it is more likely than
not that the  remaining  $732,100  will be  utilized  in future  years,  and the
remaining valuation allowance was reversed.

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 months ended March 31, 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>

                                                                                        THREE MONTHS ENDED
                                                                                             MARCH 31,

                                                                                      2002              2001
                                                                                      ----              ----

        <S>                                                                      <C>               <C>
         Net income applicable to common shareholders                             $   358,558       $   577,284
                                                                                  ===========       ===========

         Basic:

         Average number of common shares outstanding                               11,713,968        10,797,539

         Dilutive:

         Dilutive effect of options, warrants and convertible securities            1,494,172         1,796,733
                                                                                  -----------       -----------

         Average dilutive common shares outstanding                                13,208,140        12,594,272
                                                                                  ===========       ===========
</TABLE>

                                       10
<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 March 31, 2002:

                  2002 ......................... $1,145,622
                  2003 .........................    860,794
                  2004 .........................    526,823
                  2005 .........................    396,827
                                                -----------
                  Total..........................$2,930,066
                                                ===========


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 alleges that the consideration
offered to the Company's  stockholders in the proposed acquisition is unfair and
inadequate  because  the  Plaintiff  believes  that the  intrinsic  value of the
Company's  common stock is  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 has 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
plantiffs  requested an order consolidating the two cases. While we believe that
the lawsuits lack merit and intend to contest them  vigorously,  we believe that
the termination of our merger  negotiatons  with Scientific Games has mooted the
complaints.

7.       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 $306,500 as
of March 31, 2002. Additional terminated merger expenses that have been incurred
after the three  months  ended  March  31,  2002 are approximately $100,000.

               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 does not already own for
$3.30 per share in cash. ICP currently owns 1,022,019 shares of the Company.

         On May 7, 2002,  ICP filed a Form 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 does not currently own
for $3.30 per share.  According to the Form 13D filing,  the source of funds for
such  transaction  would be investment  funds under the direction and control of
ICP. ICP has indicated  that it would  consider  extending the Company a line of
credit for working capital and add-on acquisition purposes.


                                       11
<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 logo bearing  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  percent  (90%) of our  revenues  from
lotteries in two  distinct  ways.  First,  we may charge a lottery a license and
royalty fee to utilize a particular licensed property as 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 and 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 with most games
sold at $2.00.


                                       12
<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.

         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


         MERGER WITH SCIENTIFIC GAMES CORPORATION

         On February  26, 2002,  we  announced  that we had executed a Letter of
Intent in which Scientific Games Corporation  ("Scientific Games") would acquire
all of our  outstanding  shares of common stock  (except for the 708,333  shares
which are currently owned by Scientific  Games) by exchanging its shares for our
shares at $2.10 per share.  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 Scientific  Games and 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.

         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 of the Company which it does not already own
for $3.30 per share in cash. ICP currently owns 1,022,019 of our shares..

         On May 7, 2002 ICP filed a Form 13D with the  Securities  and  Exchange
Commission  expressing  its intention to increase its holdings in the Company by
acquiring 50% of our outstanding  shares it does not currently own. According to
the Form 13D filing the source of funds for such transaction would be investment
funds under the direction and control of ICP.

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

                                       13
<PAGE>


CLASS ACTION LAWSUIT BY SHAREHOLDERS

         On  February  28,  2002,  a class  action  suit on behalf of our public
stockholders  (the  "Plaintiff") 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 does not already  own. In its  complaint,  the  Plaintiff
alleges  that the  consideration  offered to our  stockholders  in the  proposed
acquisition  is unfair and  inadequate  because the Plaintiff  believes that the
intrinsic  value of our  common  stock is  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 alleges that
the  defendants  have approved a proposal  that favors their own interests  over
those of our public  stockholders.  The  Plaintiff  has  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  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
plantiffs  requested an order consolidating the two cases. While we believe that
the lawsuits lack merit and intend to contest them  vigorously,  we believe that
the termination of our merger  negotiatons with Scientific Games (see above) has
mooted the complaints.

GAME INTRODUCTIONS:

         Our   licensed   properties   are  being   accepted  by   lotteries  at
unprecedented  levels.  As of the date of this  10-QSB,  83  lottery  promotions
involving  nineteen  different  properties  are either  currently on sale or are
planned for introduction in this fiscal year as follows:

                  Harley-Davidson(R): 26 lotteries
                  Elvis Presley(R): 16 lotteries
                  NASCAR(R) Drivers: 8 lotteries
                  Betty Boop(TM):  6 lotteries
                  OTHER BRANDS: 27 lotteries

         Limited  time  marketing  opportunities  have  driven  interest  in two
properties:  Harley-Davidson(R),  which  begins a year-long  celebration  of its
100th  corporate  anniversary  in Summer 2002,  and Elvis  Presley(R),  which is
observing the 25th anniversary of his death in 2002.

         In the U.S.,  contracts have been executed or are planned for execution
in 2002  for MDI  lottery  games  in six of the  seven  lotteries  that  had not
introduced our licensed games  previously:  D.C., Idaho,  Massachusetts,  Texas,
Vermont and Washington. We expect that by year's end, only one U.S. lottery, the
recently launched South Carolina  Lottery,  will not have been a customer of our
games.

         Our  acquisition of the FIFA/WORLD CUP 2002 lottery license has enabled
us to expand our  international  business into two  continents:  Europe (France,
Ireland) and Asia (China).


                                       14
<PAGE>


INTERNET PLATFORMS:

         In  late  2001  we  entered  into a  contract  with  Digiknow,  LLC,  a
Cleveland-based  web development company with offices in Dallas, for the purpose
of continuing our Internet-based  second chance promotion web sites,  offered to
lotteries  as a  value-added  service  tied  to our  licensed  game  promotions.
Digiknow's  services replace the services that were previously provided to us by
eLottery.

         Our Internet-based service is currently being provided to the lotteries
in New Jersey and  Virginia.  The Idaho  Lottery  is also  currently  offering a
similar service in association  with our licensed  games,  through the lottery's
pre-existing relationship with eLottery/IMARCS Group.

         During  the  current   quarter   ended  March  31,  2002,  we  received
notification  from the U.S. Patent Office that our applications for registration
of our Internet  service trade names,  Lottery Bonus  Zone(TM) and Second Chance
Bonus Zone(TM) have been accepted.

LICENSED PROPERTIES:

         During the quarter ended March 31, 2002 we have executed  contracts for
new licensed  properties,  including I Love Lucy(R) and the National  Basketball
Association/NBA(R).

         I Love  Lucy(R)  endures as one of the  entertainment  industry's  most
powerful consumer icons, more than 50 years after the TV show made its debut. In
its May 3, 2002 issue,  TV Guide ranks 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.  Our license
provides  lotteries  with  opportunities  to use a variety  of  league  and team
imagery and official NBA(R) merchandise.

         As of the date of this  10-QSB,  seven of our licensed  properties  are
expected to generate their first lottery  contracts in 2002: Heroes of Space(TM)
(currently  on sale in New Jersey),  I Love  Lucy(R),  Lionel(R),  NBA(R),  Pink
Panther(TM), Universal Studios Monsters(TM) and World Cup(R).

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 first time  contracts  in France  and  China,  which are both doing our World
Cup(R) 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  soccer finals.  We are
finding  that,  as  expected,  owning  rights to the World  Cup(R)  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.
Because  of a variety  of  factors,  the  World  Cup(R)  itself  has not been as
successful as had been expected.  These factors include the current shift to the
Euro by  many  European  countries,  lotteries'  ongoing  relations  with  their
respective  national  football  teams, a poor track record of previous  football
games and a reluctance to pay licensing and royalty fees.

         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  practical,  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.



                                       15
<PAGE>


<TABLE>
<CAPTION>


                                                                     Three months ended March 31, 2002 and March 31, 2001
                                                                ----------------------------------------------------------------

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

<S>                                                                    <C>                <C>            <C>              <C>
Total revenue                                                          $ 3,519,356        100.0%         $3,121,999       100.0%

Cost of revenues                                                         2,269,615         64.5%          1,719,883        55.1%
                                                                ----------------------------------------------------------------

   Gross profit                                                          1,249,741         35.5%          1,402,116        44.9%

Selling, general and administrative expenses                             1,210,201         34.4%            873,544        28.0%
Terminated merger costs                                                    306,455          8.7%                  -         0.0%
                                                                ----------------------------------------------------------------

   Operating (loss) profit                                                (266,915)        -7.6%            528,572        16.9%

Interest expense                                                             9,141          0.3%             80,215         2.6%
Interest income                                                             (2,361)        -0.1%             (2,454)       -0.1%
Other expense (income)                                                      99,855          2.8%           (110,166)       -3.5%
Gain on sale of investments, net                                                 -          0.0%            (24,307)       -0.8%
                                                                ----------------------------------------------------------------

   (Loss) Income before provision for income taxes                        (373,550)       -10.6%            585,284        18.7%

(Benefit) provision for income taxes                                      (732,108)       -20.8%              8,000         0.2%
                                                                ----------------------------------------------------------------

   Net income                                                            $ 358,558         10.2%          $ 577,284        18.5%
                                                                ================================================================
</TABLE>


THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001

         Results for the first  quarter  ended  March 31,  2002  reflect a 12.7%
increase  in  revenue.  Revenue  for the three  months  ended March 31, 2002 was
$3,519,400  compared to  $3,122,000  for the three  months ended March 31, 2001.
Overall  revenue  increased as a result of the  increased  game launches for the
three months  ended March 31, 2002  compared to the three months ended March 31,
2001. Elvis Presley(R), which is currently on sale with ten lotteries, accounted
for  43.7%  of our  revenue  for  the  quarter  ended  March  31,  2002.  Harley
Davidson(R)  and  CMT(R)  accounted  for 14% and  11.5% of our  revenue  for the
quarter  ended March 31, 2002.  The  remaining  30.8% of revenue for the quarter
ended March 31, 2002 was derived from 11 other licensed properties.

         Cost of revenue as a  percentage  of  revenue  increased  to 64.5% from
55.1% for the three  months  ended March 31, 2002  compared to the three  months
ended  March 31,  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 43.7% of our revenue.



                                       16
<PAGE>

         The gross profit  decreased in the three months ended March 31, 2002 to
1,249,700 (35.5% of revenue)  compared to $1,402,100  (44.9% of revenue) for the
three months ended March 31, 2001. As mentioned above, this significant ratio of
Elvis  Presley(R)  games all 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%. Based on the game mix we expect to exceed our
targeted 40% next quarter.

         Selling,  general and administrative expenses were $1,210,201 (34.4% of
revenue) for the three months ended March 31, 2002  compared to $873,500  (28.0%
of revenue) for the three  months  ended March 31,  2001.  Salaries and employee
benefits  increased  approximately  $109,000 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 $45,300 for a total of $174,300 for the three months ended
March  31,  2002.  Nearly  one half 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 are both
doing our World Cup(R) licensed game.

         Costs related to both public reporting and investor relations increased
significantly  to  $248,900  for the three  months  ended  March  31,  2002 from
$116,400 for the three months ended March 31, 2001.  This  increase is due to an
$86,000  change in  financial  consulting  expenses  between  quarters  due to a
$50,000  negotiated  settlement in reduced fees with our investment banking firm
that resulted in a credit balance for financial  consulting of ($48,000) for the
three  months  ended  March 31,  2001  compared to fees of $38,000 for the three
months ended March 31, 2002. This negotiated settlement in 2001 also included an
exchange  of stock for fees.  Operational  expenses  for our Fort  Worth,  Texas
office  totaled  approximately  $18,000 in the three months ended March 31, 2002
which did not exist in the same quarter in 2001.

         The Company also had certain legal,  accounting and investment  banking
fees  relating  to  the  terminated   merger  with   Scientific   Games.   These
non-recurring costs totaled $306,500 as of March 31, 2002. Additional terminated
merger  expenses that have been incurred  after the three months ended March 31,
2002 are approximately $100,000.

         The  operating  loss was  ($266,900)  (7.6% of  revenue)  for the three
months ended March 31, 2002 compared to an operating  profit of $528,600  (16.9%
of  revenue)  for the three  months  ended  March 31,  2001.  This  decrease  in
operating  profitability is due to the factors  described above but particularly
the costs  related to the  terminated  merger.  Without these merger costs there
would have been an  operation  profit for the  quarter  ended  March 31, 2002 of
$39,500 (1.1% of revenue).

         Interest  expense was $9,100 for the three  months ended March 31, 2002
compared to $80,200 for the three months ended March 31, 2001. This reduction in
interest expense is related to the reduction of short term debt from $940,000 at
March 31,  2001 to  $260,000 at March 31,  2002.  Interest  on our  Subordinated
Convertible Debenture also existed during the three months ended March 31, 2001.

         Other  expense was $99,800  for the three  months  ended March 31, 2002
compared to other  income of $110,200 for the three months ended March 31, 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 this  filing we have not  received  payment  and the
ultimate  collection  of this note is in doubt.  We will  evaluate the merits of
pursuing this matter further. The $110,200 in the comparative period ended March
31, 2001 was attributable to the favorable  exchange of stock for legal services
that was negotiated during the first quarter of 2001.

         The $24,300  gain on  securities  for the three  months ended March 31,
2001 was  attributable  to the sale of  193,000  shares of eLot  stock  held for
investment.

                                       17
<PAGE>

         For the reasons set forth above, we had a loss before taxes of $373,600
for the three  months  ended March 31, 2002  compared to income  before taxes of
$585,300 for the three months ended March 31, 2001.

         Net income  decreased to $358,600 for the quarter  ended March 31, 2002
compared to $577,300 for the quarter  ended March 31, 2001.  The increase in the
income tax benefit in the quarter  ended March 31, 2002 is  attributable  to the
reversal of approximately  $732,100 of a deferred tax asset valuation allowance.
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.  We have  deferred  tax assets
related to net operating losses that can be utilized to offset taxable income in
future  years.  As of December 31, 2000, a valuation  allowance was recorded for
these  deferred tax assets.  In 2001, we determined  that it is more likely than
not  that 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 and
by a backlog of $10.4 million that continues strong with additional  significant
interest  by  lotteries  in  our  licensed  properties.  For  these  reasons  we
determined that this remaining  $732,100 of deferred tax asset valuation  should
also be reversed as its utilization is more likely than not.

         Earnings per share was $.03 on both a basic and fully diluted basis for
the quarter  ended March 31, 2002,  compared to an earnings per share of $.05 on
both a basic and fully diluted basis for the quarter ended March 31, 2001.

         Our pro-forma  fully-taxed  (i.e.,  operating income less the statutory
tax rate)  basic and fully  diluted  loss per share was ($.03)  for the  quarter
ended  March 31,  2002,  compared  to a  pro-forma  fully-taxed  basic and fully
diluted  earnings  per share of $.04 and $.03 for the  quarter  ended  March 31,
2001.

LIQUIDITY AND CAPITAL RESERVES

         As of March 31, 2002,  we had cash and cash  equivalents  of $1,130,900
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 to $2,274,200 as of March 31, 2002
compared  to  $2,709,600  as  of  March  31,  2001   reflecting  the  additional
collections  in the current  quarter  ended March 31, 2002  contributing  to our
improved cash position.

         As of March 31,  2002,  we had  positive  working  capital of $510,100.
Included in current  assets is  $1,343,000  in deferred  tax assets,  a non-cash
asset.  Also within current  liabilities is $2,779,400 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 relative to this revenue,  which typically approximates 50% of
the related  revenue.  Without these two items,  working capital would have been
$556,800.

         Our  indebtedness  as of March 31, 2002 was $260,000,  consisting of an
installment note payable to our President and Chief Executive Officer.

                                       18
<PAGE>

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

                                                          Payments Due by Period
                                                          ----------------------
                                                                                            After 5
Contractual Obligations              Total              1-3 years         4-5 years          years
-----------------------             --------            ---------         ---------         ------
<S>                                <C>                 <C>                <C>               <C>
License Obligations                $2,543,581          $2,193,581         $350,000          $    -
Long-term debt                        260,000             260,000                -               -
Operating leases &
   consulting agreements              755,485             708,658           46,827               -
                                      -------             -------        ---------          -------
Total contractual cash             $3,559,066          $3,162,239         $396,827          $    -
                                   ==========          ==========         ========          =======
</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  expenditure other than in the normal course of business except that
there will be a number of expenses,  including legal fees and investment banking
fees  associated  with the  proposed  merger  and  related  litigation.  We have
undertaken  an aggressive  program of acquiring new licenses,  some of which may
require  substantial up front payments.  Increasing  competition of licenses may
adversely impact 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 bank  commitment  for a  $750,000  line of  credit,
$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. The
disaster of September  11, 2001 and the Enron  collapse have  contributed  to an
extremely tight (if existent)  performance bond market.  It is expected to close
by the end of May, 2002.  Further,  if this line does not close we cannot assure
you that we will be able to secure an alternative  financing on favorable  terms
if at all.

         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 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.



                                       19
<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         THE LOTTERY CHANNEL, INC.

         On November 7, 2000, we and our subsidiary, MDI Acquisition, Inc., were
notified  that we had  been  named as  defendants  in a  complaint  filed by The
Lottery Channel,  Inc. on November 2, 2000 in the Hamilton County,  Common Pleas
Civil  Division,  Cincinnati,  Ohio,  arising from our decision to terminate our
merger  agreement with Lottery  Channel.  Lottery  Channel is seeking to recover
$1,763,343.29  in costs and expenses,  damages in excess of $25,000,  attorney's
fees and costs in prosecuting the action,  punitive damages and any other relief
to which it is entitled.

         Steven M. Saferin, our President and Chief Executive Officer, had filed
a complaint, in his individual capacity, against Roger W. Ach, II, the President
and Chief Executive Officer of The Lottery Channel,  seeking $108,000 as payment
for a promissory note, due July 30, 2000. Also, on December 19, 2000, we filed a
complaint in the United States  District Court for the Southern  District of New
York against John Doe, seeking  compensatory and punitive damages for defamation
occurring on Internet message boards.

         On February  20,  2002,  we entered  into a  Settlement  Agreement  and
Release with The Lottery  Channel,  Inc., which provided for a mutual release of
all claims arising out of this litigation. In addition, Steven Saferin dismissed
his lawsuit against Roger W. Ach, II.

         OXFORD INTERNATIONAL, INC.

         We entered into a Stock Purchase  Agreement with Oxford  International,
Inc.  ("Oxford")  with an  effective  date of April 25,  2001.  Pursuant to that
Agreement,  we issued to Oxford  2,100  shares of Series C Preferred  Stock (the
"Series C Stock")  representing  approximately  15.8% of our outstanding  common
stock on an as converted  basis.  We  anticipated  receipt of $3,200,000 in cash
from this transaction.

         Oxford failed to pay the  consideration  of $3,200,000  required by the
April 25, 2001 Stock Purchase Agreement, and because of this failure, we did not
release our stock to Oxford and did not consider the transaction consummated.

         We entered into an Agreement with Oxford with an effective date of July
9,  2001  whereunder  we  agreed to accept  securities  of two  publicly  traded
companies,  DataMEG  and  McClendon  Transportation,  valued  in  excess of $3.2
million,  by reference to the closing prices of such securities,  as of the date
of its receipt of the securities in lieu of the cash investment Oxford agreed to
make under the April 25, 2001 Stock  Purchase  Agreement.  Among  other  things,
Oxford  agreed that it would not be entitled to nominate one member to our Board
of  Directors;  that it could not require  performance  of any matters under the
Stock Purchase  Agreement and  Certificate of Designations up to the date of the
July 9, 2001 Agreement,  including but not limited to payments of dividends; and
that the Certificate of Designations was null and void.

         Subsequent to the receipt of the securities of the two publicly  traded
companies from Oxford, the issuers of those securities and the Federal Bureau of
Investigation  made  assertions  about  Oxford.  The  FBI  notified  us  of  its
investigations of Oxford,  but did not make any assertions  concerning us or any
of our officers or  directors.  Neither MDI nor any of our officers or directors
are under  investigation by the FBI as part of their investigation of Oxford. We
were advised that, in the view of the issuers of the publicly traded  securities
and the FBI, the  securities  we received from Oxford are or may be subject to a
dispute  between the issuers and Oxford,  which could impair the  liquidity  and
value of the securities.  If the liquidity and value of the securities  were, in
fact, impaired, then we believe Oxford may have defrauded us.

                                       20
<PAGE>

         By letter dated July 27, 2001, we notified Oxford that, pursuant to the
July 9, 2001  Agreement,  we were  exercising our right to exchange the publicly
traded securities we received from Oxford for all of our stock issued to Oxford.

         Oxford did not honor our exchange  right. On August 6, 2001, we filed a
Motion for Temporary Restraining Order and Preliminary Injunction and a Verified
Complaint  in the United  States  District  Court of the  District  of  Maryland
against Oxford and Gregory C. Dutcher.

         On  December  31,  2001 we settled  the  lawsuit  brought by us against
Oxford and Gregory C. Dutcher concerning our financing  transaction with Oxford.
In the settlement,  we returned stock of DataMEG and McClendon Transportation to
Oxford.  Oxford returned our Series C Preferred Stock,  which had been issued to
them in exchange for the DataMEG and  McClendon  securities.  We also received a
non-interest  bearing  promissory  note in the  principal  amount  of  $100,000,
$10,000 of which was due on February 15, 2002 and the balance of which is due on
the earlier of December 31, 2003 or from the sales proceeds of 1,000,000  shares
of DataMEG stock placed in escrow.

         As of this  filing  we  have  not  received  payment  and the  ultimate
collection  of this note is in doubt.  We will  evaluate  the merits of pursuing
this matter further.


         CLASS ACTION LAWSUIT BY SHAREHOLDERS

         On  February  28,  2002,  a class  action  suit on behalf of our public
stockholders  (the  "Plaintiff") 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  Corporation,  to enjoin  the  previously  disclosed  proposed
business  combination  transaction  pursuant  to which  Scientific  Games  would
acquire  the  outstanding  shares of our common  stock which it does not already
own. In its complaint,  the Plaintiff alleges that the consideration  offered to
our  stockholders in the proposed  acquisition is unfair and inadequate  because
the  Plaintiff  believes  that  the  intrinsic  value  of the  common  stock  is
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  has  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 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
plantiffs  requested an order consolidating the two cases. While we believe that
the lawsuits lack merit and intend to contest them  vigorously,  we believe that
the termination of our merger  negotiatons  with Scientific Games has mooted the
complaints.




                                       21
<PAGE>





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

(a)      Exhibits


         Exhibit 10.1               Letter of Intent between  Scientific Games
                                    Corporation and MDI Entertainment, Inc.
                                    dated February 25, 2002 (Incorporated by
                                    reference to Form 8-K filed
                                    February 26, 2002).

(b)      Reports  on Form 8-K       Filed on February 26, 2002 (Item 5: Other
                                    Events -  Letter of Intent contemplating the
                                    acquisition of MDI Entertainment, Inc. by
                                    Scientific Games Corporation).

                                    Filed on March 4, 2002 (Item 5: Other Events
                                    - Class action lawsuit filed on behalf of
                                    MDI Entertainment, Inc.'s public
                                    shareholders).

                                    Filed on March 4, 2002 (Item 5: Other Events
                                    - Settlement of Oxford lawsuit).

                                    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).




                                       22
<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 May 20, 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)



                                       23