SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K


(Mark one)
_X_  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 X for the fiscal year ended October 31, 2000, or

___  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934


                          COMMISSION FILE NO. (0-20820)
                       ----------------------------------

                              SHUFFLE MASTER, INC.
             (Exact name of registrant as specified in its charter)


               MINNESOTA                                     41-1448495
     (State or other jurisdiction of                     (I.R.S. Employer
      incorporation or organization)                    Identification No.)

        10901 VALLEY VIEW ROAD
        EDEN PRAIRIE, MINNESOTA                                55344
(Address of principal executive offices)                     (Zip Code)
                                  952-943-1951
              (Registrant's telephone number, including area code)

                     --------------------------------------

               Securities registered pursuant to Section 12 (b) of
                 the Act: None Securities registered pursuant to
                           Section 12 (g) of the Act:
                     Common Stock, par value $.01 per share

                     --------------------------------------

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 ___

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_

      As of January 18, 2001, 10,913,662 shares of Common Stock of the
registrant were outstanding. The aggregate market value of Common Stock
beneficially owned by non-affiliates on that date was $189,625,000 based upon
the last reported sale price of the Common Stock at that date by The Nasdaq
Stock Market.

DOCUMENTS INCORPORATED BY REFERENCE

      Part III of this Annual Report on Form 10-K incorporates by reference
information from the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on March 23, 2001 (Fiscal 2000 Proxy Statement).


<PAGE>


                                TABLE OF CONTENTS

                                     PART I


                                                                            PAGE

Item   1.    Business                                                         1

Item   2.    Properties                                                      12

Item   3.    Legal Proceedings                                               12

Item   4.    Submission of Matters to a Vote of Security Holders             12


                          PART II


Item   5.    Market for Registrant's Common Equity and Related
                   Stockholder Matters                                       13

Item   6.    Selected Financial Data                                         14

Item   7.    Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                       15

Item   7A.   Quantitative and Qualitative Disclosures about
                   Market Risk                                               20

Item   8.    Financial Statements and Supplementary Data                     21

Item   9.    Changes in and Disagreements with Accountants on
                   Accounting and Financial Disclosure                       38


                         PART III


Item   10.   Directors and Executive Officers of the Registrant              38

Item   11.   Executive Compensation                                          38

Item   12.   Security Ownership of Certain Beneficial Owners and
                    Management                                               38

Item   13.   Certain Relationships and Related Transactions                  38


                          PART IV


Item  14.    Exhibits, Financial Statement Schedules and Reports
                    on Form 8-K                                              38


<PAGE>



                                     PART I

ITEM 1. BUSINESS

FORWARD LOOKING STATEMENTS

      This report contains forward-looking statements. Such statements reflect
and are subject to risks and uncertainties that could cause actual results to
differ materially from expectations. Factors that could cause actual results to
differ materially from expectations include, but are not limited to, the
following: changes in the level of consumer or commercial acceptance of Shuffle
Master Inc.'s (the "Company") existing products and new products as introduced;
competitive advances; acceleration and/or deceleration of various product
development and roll out schedules; delays in development, regulatory or
manufacturing schedules by third parties upon which the company depends for
supply of certain slot game products; higher than expected manufacturing,
service, selling, administrative, product development and/or roll out costs;
current and/or unanticipated future litigation; regulatory and jurisdictional
issues involving the Company or its products specifically, and for the gaming
industry in general; general and casino industry economic conditions; the
financial health of the Company's casino and distributor customers both
nationally and internationally; and the risks and factors described from time to
time in the Company's reports filed with the Securities and Exchange Commission.

GENERAL

      The Company was incorporated in Minnesota in 1983. The Company develops,
manufactures and markets automatic card shuffling equipment (shufflers), and
gaming products such as table games, slot machine game software and slot machine
operating system software for the gaming industry. The Company's growth strategy
is to develop or acquire innovative gaming products and systems, including
productivity enhancing equipment, new table and slot games, and slot game
technology, and market these products worldwide.

      Casino gaming is found in 32 states in the United States (including states
in which such gaming is found only on Indian lands, card rooms or off-shore
cruises) as well as in numerous countries worldwide. The Company estimates that
there are approximately 18,000 table games in North America, and over 10,000
additional tables worldwide. Casino gaming grew tremendously over the last
decade, and the Company believes both the North American and international
markets for gaming-related products will continue to expand. However, the mix of
table games and slot machines varies considerably by casino and jurisdiction.

      The Company develops and markets shuffler products suitable for use with
the vast majority of table games. The initial model in the Company's shuffler
product line was first placed in casinos in January 1992. As of October 31,
2000, the Company estimates that there are approximately 6,660 of the Company's
shufflers installed in casinos or other legal gaming establishments: 2,935 units
on lease and 3,725 units sold.

      The Company also develops and markets table games and licenses these
products to casinos. Current revenue generating table games include the Let It
Ride(R) basic game, Let It Ride Bonus(R) game and Three Card Poker(R) game. The
Let It Ride(R) basic game was introduced in October 1993. Let It Ride The
Tournament(TM) was launched in May 1995, and, in August 1997, the Company
introduced the Bonus version of the game. The Bonus version has since replaced
the Tournament version in all but one jurisdiction. In May 1999, the Company
acquired the Three Card Poker(R) table card game from its developer and
distributor. As of October 31, 2000, there were approximately 1,001 of the
Company's table games installed in casinos.

      In addition to table games in its line of gaming products, the Company
also develops and markets games for slot machines. As of October 31, 2000, the
Company actively marketed Press Your Luck(TM), The Three Stooges(R), Let's Make
A Deal(R), Five Deck Poker(R), and Let It Ride Bonus Video(R), with additional
games under development. As of October 31, 2000, the Company had 545 slot
machine games installed in casinos. During fiscal 2000, the Company made
progress in the development of its slot game business in a number of areas:

     * In April 2000, the Company granted a non-exclusive license to a slot game
manufacturer to use the Company's proprietary math algorithm for controlling win
odds in a slot gaming machine. The underlying technology was acquired in 1997
from Mark Yoseloff, now a Director and President of the Company. The license
included a non-refundable, $1,000,000 up-front activation fee, plus ongoing fees
related to placement of slot games using this technology. As of October 31,
2000, the manufacturer had placed 161 slot games that used the algorithm.


                                       1
<PAGE>


ITEM 1. BUSINESS (CONTINUED)

     * In July 2000, the Nevada Gaming Control Board approved a video slot game
version of Press Your Luck(TM) based on the popular television game show
appearing in the early 1980's. This was the first game to be developed and
commercially operated using the Company's internally developed a slot machine
operating system.

     * Also in July 2000, the Company entered into a licensing, development, and
marketing agreement with International Game Technology ("IGT") enabling IGT to
develop and manufacture slot games based on certain of the Company's licensed
intellectual properties: Let's Make A Deal(R), The Three Stooges(R), and The
Honeymooners(TM). The Company expects these games to be launched in fiscal 2001.
The Company had previously introduced versions of Let's Make A Deal(R)and The
Three Stooges(R)with Bally Gaming, Inc. and Acres Gaming, Inc., respectively.

THE COMPANY'S PRODUCTS

      GAME EQUIPMENT

      SHUFFLERS. The Company's card shuffler products, marketed under the
trademark Shuffle Master Gaming(R), ACE(R), and King(TM) are automatic card
shuffling machines designed to be used with table games in casinos and other
legal gaming establishments. The Company's shufflers offer several benefits to
the Company's casino customers, including enhanced security and increased
productivity. Opportunity for card manipulation by dealers is significantly
reduced, resulting in increased security. Because the shufflers shuffle or sort
one or more decks while a game is being played, down time related to dealer
shuffling is also significantly reduced, with the potential for a corresponding
increase in playing time and "win" for the casino. In fiscal 2000, the Company
introduced a revolutionary continuous multi-deck shuffler marketed to casino
customers under the King(TM) name. This product represents the state of the art
in continuous card shuffling, featuring a design that eliminates card counting
and tracking and also provides increased productivity over the Company's
multi-deck batch shuffler.

      Shuffler lease and sales revenue accounted for approximately 57% of the
Company's revenue in fiscal 2000. The Company markets three types of shufflers:

     * SINGLE DECK. The Company's single deck shufflers automatically shuffle a
deck of playing cards and deposit the deck into a holding tray that is
integrated into the shuffler unit. A second deck is shuffled while a game is
dealt from the first deck. When the game is completed and the first deck has
been used, the second deck is automatically moved into the holding tray for use
in the next hand.

     The initial model single deck shuffler and its variations are designated as
the BG series. While many BG units are still operating, a substantial portion of
those on lease have been replaced by the Company's newer ACE(R) single deck
model, introduced in fiscal 1999. Single deck shufflers are used with specialty
card games such as the Company's own Let It Ride(R) and Three Card Poker(R)
games and other non-Shuffle Master games such as Caribbean Stud Poker(R) and Pai
Gow Poker. Since the Company's single deck machines form hands of cards from a
"fresh" deck prior to each round of play, the security of these games is
enhanced by reducing the opportunity for dealer card manipulation. The Company's
single deck shufflers also minimize dealer errors in delivering the proper
number of cards and speed up game play.

     Since its introduction in 1999, sales and lease placements of the Company's
ACE(R), its newest single deck card delivery system, have grown significantly.
Unlike the BG models, the ACE(R) does not shuffle cards in a mainly mechanical
manner that mimics a hand shuffle. Instead, the ACE(R) sorts cards into shelves
on a vertically moving elevator in random order according to computer generated
instructions. Software instructs the ACE(R) to put the appropriate number of
randomly selected cards in each shelf as necessary to create the required hands
for the specific game being played. Shelves then dispense the hands in random
order. Hands are delivered more quickly than the Company's BG model single deck
shufflers. The ACE(R) is smaller, has fewer moving parts, requires less service,
has a universal power supply for international electrical current, is easily
programmable by casino pit personnel to be used with a variety of single deck
games, and tracks and displays usage and hands played data for the casino
operator.

     * MULTI-DECK BATCH. The Company's MD series multi-deck card shufflers
shuffle a batch of two to eight decks of cards at a time, primarily for
blackjack or mini-baccarat table games. When the shuffling of a batch is
complete, the dealer then manually unloads the shuffled decks and places them in
a standard card shoe. The multi-deck shuffler is then available to shuffle a
second batch of cards while the first batch is played. The majority of blackjack
games are played with multiple decks of cards. Certain jurisdictions require
that blackjack be played with four or more decks. The Company estimates that
blackjack tables represent approximately 70% of casino table games, excluding
poker rooms.


                                       2
<PAGE>


ITEM 1. BUSINESS (CONTINUED)

     * MULTI-DECK CONTINUOUS. During fiscal 2000, the Company introduced its
next generation multiple deck card delivery system, the King(TM), which
continuously "reshuffles" cards immediately after they are played using the same
sorting process as the ACE(R). Designed for use with multi-deck blackjack and
mini-baccarat table games, the King(TM) is based on the same basic design and
chassis as the ACE(R). The continuous model uses a larger elevator with more
shelves and an integrated mechanical shoe. Cards played in any given hand are
collected by the dealer at the completion of the hand, reloaded into the machine
and immediately sorted in random order. Cards are then mechanically delivered
into the shoe when sensors in the shoe call for additional cards. The speed of
the shuffling and delivery action allows the shoe to operate with only a small
buffer of cards. The machine can shuffle cards quickly enough to keep up with
the normal pace of dealing hands. It is possible for cards dealt in one hand to
be re-dealt in the next hand, which eliminates card counting and tracking. The
Company expects that casino demand for its continuous shufflers will be driven
by interest in improved game security and table productivity. The feed system
was redesigned in early fiscal 2000, increasing market acceptance.

      DISTRIBUTED EQUIPMENT. During fiscal 2000 the Company distributed,
serviced and shared in the profits from the lease and sale in the U.S. and the
Caribbean of TCS America, Inc.'s' Chipper Champ(TM) chip sorting product line
and certain other TCS products. Chipper Champ(TM) machines sort chips at
roulette tables and serve both to save labor and add security by detecting
counterfeit chips. Other TCS products distributed by the Company include
roulette winning number displays, roulette wheel analysis products and air rails
used to move smoke away from gaming tables. This business arrangement is being
phased out in early fiscal 2001.

      GAMING PRODUCTS

      TABLE GAMES. The Company first began offering table games to increase
demand for its shuffler line. Driven by the success of Let It Ride(R) and Three
Card Poker(R), table games accounted for approximately 31% of the Company's
revenue in fiscal 2000. The Company markets the following table games to
casinos:

     * LET IT RIDE(R). The basic Let It Ride(R) table game is a patented five
card stud poker game in which players are paid according to a fixed payout
schedule. Players place three separate, but equal bets and are dealt three cards
face down. Two community cards are also dealt face down in front of the dealer.
After looking at their cards, players then have the option to withdraw their
first bet. The dealer then turns over one of the community cards, which becomes
a common fourth card to all players at the table, and the players each have the
opportunity to withdraw their second bet (the third bet always remains on the
table, and cannot be withdrawn). The dealer then turns over the second community
card, which becomes a common fifth and final card to all players, and winning
hands are paid according to a predetermined payout schedule.

      The basic Let It Ride(R) game was approved by the Nevada Gaming Control
Board in August 1993 and the Company began licensing it to casinos in October
1993. As of October 31, 2000, the basic Let It Ride(R) table game was approved
for play in 36 United States gaming jurisdictions in 25 states, seven Canadian
provinces and 16 other foreign countries.

     * LET IT RIDE BONUS(R). The Let It Ride Bonus(R) game was introduced in
August 1997 and provides a format that adds a bonus paytable to the basic Let it
Ride(R) table game. It is played in the same manner as the basic game except
that the player has an option to make a $1 side wager, also known as the bonus
bet. The bonus bet qualifies the player to be eligible to receive large bonus
payouts from a separate payout schedule, in addition to the underlying payouts
of the basic game. Participation data gathered in 2000 shows that participation
in the bonus bet in major gaming venues was in excess of 85%. As of October 31,
2000, the Let It Ride Bonus(R) game was approved for use in 29 United States
gaming jurisdictions in 22 states, including all major gaming markets, four
Canadian provinces, and five other foreign jurisdictions.

     * LET IT RIDE THE TOURNAMENT(TM). This version of Let It Ride(R) was
launched in May 1995. In Let It Ride The Tournament(TM) players were eligible
for both bonus payouts and the opportunity to advance to a multi-round playoff.
Formerly offered on a company-sponsored jurisdiction-wide basis in Nevada and
Mississippi, the Tournament is now offered only as requested by casino customers
who wish to host a playoff event, and is currently operated on a continual basis
in only one tribal casino. The Company generates revenue from this tribal casino
on a monthly fixed-fee basis. The casino is solely responsible for payout of the
Tournament cash awards.

     * THREE CARD POKER(R). The Company acquired the rights to Three Card
Poker(R), a patented table game, in May 1999 from its developer and distributor,
Derek Webb and Prime Table Games. In this game, players place wagers on three
card stud hands, with options to bet against the dealer, bet on the value of
their own hand, or both. Winning hands are paid according to a pre-determined
payout schedule and bonus payouts may be earned on certain hands when wagering
against the dealer. When


                                       3
<PAGE>


ITEM 1. BUSINESS (CONTINUED)

acquired, Three Card Poker(R) was approved for play in eight United States
gaming jurisdictions. As of October 31, 2000, the Three Card Poker(R) game was
approved for use in 31 United States gaming jurisdictions in 21 states, two
Canadian provinces, and three other foreign jurisdictions.

      For fiscal 2000, all of the Company's table game products were licensed to
casinos for a fixed monthly license fee.

      SLOT GAME OPERATING SYSTEM. In fiscal 2000, the Company completed the
development of the first generation of its open-access slot machine operating
system and began licensing the system to third party game developers and
manufacturers. The Company has not yet received revenue from these licensees
and such revenue is dependent on licensees placing revenue-generating machines
using the system. The operating system software is used in conjunction with a
standard PC-based computer circuit board manufactured by an electronics industry
computer circuit board supplier driving an interface board customized to a
particular cabinet. The software is Linux-based and drives game and game machine
functions in a manner analogous to the functions of popular operating systems in
personal computers.

The Company believes that by providing a standard software environment, which
may be used either in new slot machines or, with a specific adaptor board, to
retrofit older slot machines, it will attract the commercial interest of both
game developers and casino customers. The standardized development environment
is expected to allow third party game developers to bring new slot games to the
market in a more cost effective manner. Casino operators expect that the system
will allow them to inexpensively update old machines with new games and
technology, and extend the useful life of machines by allowing for use of
multiple games on the same machine.

The Company plans to generate revenue with the operating system by charging a
low daily fee for a use license that will include maintenance and upgrades for
the system. Installations of the operating system are expected to be driven by
the Company's ability to market games to be used in retrofitting older slot
machines, by the Company marketing new proprietary or custom designed games
directly to casinos, and by third party licensees marketing their own games
using the operating system. The Company believes that the success of the its
operating system plans will depend primarily on its ability to attract game
developers, procure sources of games, and/or develop games for the operating
system internally. As an initial step in this direction, the Company began to
roll out its first operating system-based game, Press Your Luck(TM), in fiscal
2000. The cabinets and components for Press Your Luck(TM) are manufactured by
contract vendors, and final assembly work is completed in the Company's Las
Vegas, Nevada manufacturing facility. Additional games are in development.

      SLOT GAMES. The Company develops and markets game concepts and software
programs for use on slot machines, either on its own or through agreements with
third parties. Actively marketed products include Press Your Luck(TM), Let's
Make A Deal(R) and The Three Stooges(R). The Company is developing (either on
its own or in cooperation with IGT) or awaiting gaming approval on a number of
additional products for future commercialization, including new versions of
Let's Make A Deal(R) and The Three Stooges(R), and first roll-outs of The
Honeymooners(TM), Slot Market(TM), Big Dogs(R) and Bigfoot(R). Slot game revenue
accounted for approximately 4% of the Company's revenue in fiscal 2000.
Descriptions of revenue-generating slot products follow:

     * PRESS YOUR LUCK(TM). In fiscal 2000, the Company received approvals in
Nevada for its first video wagering game that runs on its own operating system
and platform. Additionally, Press Your Luck(TM) has received approval for
placement in California, New Mexico, Iowa, Connecticut, Kansas, Michigan
(tribal), and Mississippi (tribal), with additional approvals pending.

     * THE THREE STOOGES(R). A three-reel slot version of The Three Stooges(R)
slot game received gaming approval in Nevada in the first quarter of fiscal
2000. This version of the game was jointly developed with Acres Gaming, Inc. and
is approved and installed in Nevada, California, Iowa, and Michigan.

     * LET'S MAKE A DEAL(R). The Company and Bally Gaming, Inc. jointly
introduced this five-reel video slot game based on the popular television game
show after receiving approval from the Nevada Gaming Control Board in March
1999. The game is now approved and installed in Nevada, Connecticut and New
Jersey.

     * FIVE DECK POKER(R). Originally purchased in 1997 as part of the
acquisition of a slot games library from Dr. Mark Yoseloff (now a Director and
President of the Company), Five Deck Poker(R) is a variation of video draw poker
that deals cards in each of the five card positions on the screen from a
separate and independent deck. The possibility of suited hands that is not
available in single deck video poker, such as a suited three of a kind, allows a
greater variety of winning poker hands and greater frequency of middle pay
hands. Five Deck Poker(R) games are installed in New Jersey, Nevada, Connecticut
and Minnesota.


                                       4
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ITEM 1. BUSINESS (CONTINUED)

Games in development and expected to be introduced in fiscal 2001 include:

     * LET'S MAKE A DEAL(R), THE THREE STOOGES(R) AND THE HONEYMOONERS(TM). In
fiscal 2000, the Company entered into an agreement with IGT to redesign and
reintroduce Let's Make A Deal(R) and The Three Stooges(R) and to develop a game
based on The Honeymooners(TM) TV series, all to be offered on the IGT 80960
igame(TM) platform. Gaming approval of these games is expected in fiscal 2001.

     * SLOT MARKET(TM), BIG DOGS(R), AND BIGFOOT(R). In fiscal 2000, the Company
showcased three new video games at the World Gaming Congress and Expo that it
expects will become part of its library of games that run on its new operating
system. The Company expects to obtain gaming approval for all three games in
fiscal 2001.

SIGNIFICANT PRODUCT RELATED AGREEMENTS

     * LICENSING, DEVELOPMENT, MARKETING AGREEMENTS WITH IGT FOR LET'S MAKE A
DEAL(R), THE THREE STOOGES(R) AND THE HONEYMOONERS(TM). In July 2000, the
Company entered into agreements that licensed IGT to develop and manufacture
gaming machines based on these television game and comedy shows. Under these
agreements, IGT will develop the games for, and manufacture the games on, IGT's
80960 igame(TM) platform, and the Company will market the games throughout North
America (except for The Three Stooges in the state of Washington). After the
Company and IGT are each reimbursed for certain expenses, the revenues generated
from the placement of these games will be split equally between the Company and
IGT in consideration for resources and services provided by each.

     * SLOT GAME OPERATING SYSTEM AGREEMENTS. The Company has entered into
License Agreements for its operating system with Anchor Gaming, Mikohn Gaming
Corporation, Fleetwood Manufacturing, Inc, and Spintek Gaming Technologies.
These Agreements provide that the Licensees may use the Company's operating
system to program and operate gaming devices and, in return, will pay the
Company a fixed rate per day (depending on volume) for each revenue generating
gaming device in which the operating system is used. The Company is responsible
for the maintenance and upgrade of the operating system.

     * CROSS-LICENSING AND CROSS-SUPPLIER AGREEMENTS WITH MIKOHN GAMING. Under
these agreements the Company will receive approximately $580,000 per year over
five years from Mikohn for the license of certain intellectual property and had
entered into cross-supplier agreements covering the purchase of shufflers by
Mikohn and the purchase of signage, controllers, and table game displays by the
Company.

     * THE THREE STOOGES(R) LICENSE AGREEMENT WITH ACRES GAMING, INC. In March
1999, the Company entered into a game development and marketing agreement with
Acres Gaming, Inc. to jointly develop, market and distribute a casino slot game
using the sounds and images of The Three Stooges(R) enabled by Acres' Bonusing
Technology(TM) and plasma flat panel video screens. The Three Stooges(R) slot
game has received approval for casino installation in Nevada, Iowa, and
Michigan.

     * DISTRIBUTION AGREEMENT WITH TCS AMERICA, INC. In January 1999, the
Company entered into a profit sharing and distribution agreement with TCS
America, Inc. that provides the Company the exclusive right in the United States
and Caribbean to distribute, sell, lease and service certain gaming related
equipment manufactured by TCS. Equipment covered by this agreement includes TCS'
Chipper Champ(TM) and Chipper Champ Plus(TM) casino chip sorting machines as
well as TCS' roulette number display systems. In January 2001, the Company
amended this agreement to sell its interest in TCS equipment under this
agreement back to TCS at the Company's adjusted net book value, effectively
terminating its distribution arrangement with TCS America. This does not affect
the Company's agreement with TCS, Ltd. to sell and distribute Shuffle Master
products in the Eastern hemisphere.

     * LICENSING AGREEMENT WITH IGT. In October 1998, the Company entered into a
licensing agreement with IGT that allows the Company to develop and market its
games for use on IGT slot machine platforms. In exchange for the license the
Company pays IGT a royalty based on a percentage of revenue generated by the
Company's games, which are installed on IGT slot machine platforms. The Company
is currently marketing Five Deck Poker(R) under this agreement.

     * LET'S MAKE A DEAL(R) LICENSE AGREEMENT WITH BALLY GAMING, INC. In April
1998, the Company entered into a joint marketing agreement with Bally Gaming,
Inc. to market a video slot version of Let's Make A Deal(R), the popular and
long-running television game show hosted by Monty Hall. In August 2000, the
Company amended this agreement to make


                                       5
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ITEM 1. BUSINESS (CONTINUED)

the licensed intellectual property under this agreement non-exclusive. The
Company will receive a preferential share of game net operating profits and will
have a right to sell Let's Make A Deal(R) slot machines back to Bally at the
Company's adjusted net book value.

CUSTOMERS AND MARKETING

      The Company created the market for shufflers with the introduction of its
innovative product line in 1992, focusing its early marketing efforts on Las
Vegas and Reno, Nevada casinos. Today the Company's shuffler products are
broadly placed in casinos throughout North America, with increasing presence
internationally. As of October 31, 2000, the Company had placed its game
equipment and gaming products in over 530 casinos throughout the world.

      The Company leases and sells its shufflers to casinos and other lawful
gaming establishments. As part of its strategy to maintain and expand its market
position in the automatic shuffler business, the Company has made a commitment
to maintain a high level of service to its customers. For casinos within the
Company's service areas, the Company provides regular preventive maintenance
service and on-demand repair service on its leased equipment. The Company also
provides service training to its lease customers' personnel as well as a
reasonable number of back-up shuffler units to the lessee. To customers that
purchase shufflers, the Company offers a service contract that provides service
benefits similar to that on leased units, or a parts warranty contract.

      The Company's table game product line includes Let It Ride(R) and Three
Card Poker(R). The Let It Ride(R) table game was introduced to the gaming market
in Nevada in 1993, and has become an established specialty game due to its broad
appeal to players who enjoy a more casual, social card game, or who are new to
or intimidated by table games. In North America, the Company markets the
different versions of the game directly to casinos. In selected international
jurisdictions, the Company markets the basic version of the game through its
international distributor, Technical Casino Supplies, Ltd. ("TCS"). In May 1999,
the Company acquired Three Card Poker(R), which the Company believes to be the
fastest growing (in revenues) table game in the casino industry. The game is
marketed in the same manner as the Company's other table games. In fiscal 2000,
the Company began marketing Three Card Poker(R) outside U.S. markets.

      In North Central and South America, Shuffle Master sells and services its
shuffler, table game and slot products through its own direct sales force and
service department. As of October 31, 2000, the Company had 15 sales employees
and 74 service employees, with 49 service employees in 23 field locations and 25
service employees based in the Company's Las Vegas facility.

      Outside of North, Central and South America, the Company markets its
shuffler and selected other products primarily through its international
distributor TCS. This exclusive distribution relationship was established in
February 1998. TCS is a privately held international gaming products
manufacturing and marketing company with headquarters in London, England. TCS
has field sales offices located in Spain, Australia, South Africa and the United
States.

      The Company's detailed marketing and distribution plans for its slot game
operating system are in constant development in parallel with the evolution of
the technology and business opportunity. The Company's business strategy is
currently focused on establishing multiple points of market entry for its
operating system, including direct and OEM channels for placement and use of the
operating system in new slot machines and in older slot machines through
retrofit installations. As in all dynamic markets, the Company's plans are
subject to change.

      In order to market its products, the Company is subject to jurisdictional
licensing requirements, and must obtain approvals for all of its products. The
Company intends to apply for future approvals or clearances where it believes
sufficient demand for products exists. See additional discussion under
"Regulation."

EXPORT SALES

      In fiscal 2000, 1999, and 1998, the Company had export shuffler sales and
shuffler lease revenue, primarily to Canada and Australia, which totaled 22%,
17%, and 24% respectively, of total revenue.

PRODUCT SUPPLY OPERATIONS

      The Company's product supply operations consist primarily of the
procurement, assembly, warehousing and shipment of shufflers, Let It Ride
Bonus(R) tables, slot machines, slot machine operating system conversion kits,
and associated parts and


                                       6
<PAGE>


ITEM 1. BUSINESS (CONTINUED)

equipment. Parts include off-the-shelf items as well as components manufactured
to the Company's specifications. The Company also manufactures some parts at its
in-house machine shop. Parts are used for product assembly as well as service
needs. Slot product supply operations include procuring slot machines, slot
machine cabinets and associated equipment for lease or sale as required for the
business, and will also include procuring and stocking parts needed to retrofit
casino-owned machines for new games. The Company strives to ensure that multiple
suppliers exist for critical components, and periodically solicits bids from
various suppliers to ensure competitive pricing. Final assembly and quality
control checks are conducted by the Company's employees in Las Vegas, Nevada.

RESEARCH AND DEVELOPMENT

      The Company believes that one of its strengths involves identifying new
product opportunities and developing new products anywhere from the conceptual
stage through to commercialization. The Company believes it has achieved a
reputation for innovation and service, based on its development and the market
success of its shuffler and table game products, and most recently, its
development of a PC and Linux-based slot machine operating system. The Company
expects to continue to spend a significant portion of its annual revenues on
research and development, including the acquisition of intellectual property
from third parties.

      GAME EQUIPMENT. The Company employs a staff of electrical, mechanical and
software engineers to improve and upgrade its existing products and to develop
new products. The engineering staff has extensive experience in card shuffling
requirements and solutions and, excluding the conceptual beginning of the first
single deck shuffler, has been instrumental in the development of all of the
Company's shuffler products. During fiscal 2000, substantial progress was made
on the development of the Company's shuffler products, resulting in the market
launch and further enhancement of the King(TM) continuous shuffler, and making
substantial progress in the design of future shuffler products, such as the Deck
Mate(TM), a model adapted from the ACE(R) design for hand-pitched single deck
specialty and blackjack games. Resources WILl continue to be allocated to such
projects to support the Company's efforts to maintain and enhance its market
leader position.

      GAMING PRODUCTS. In fiscal 2000, the Company's gaming product development
group continued to improve and enhance its new slot game operating system,
worked on developing gaming related technology and slot game concepts
internally, and evaluated third party game products. The Company's game
development efforts include work in market research, creative game design, game
programming, prototype development, and statistical paytable evaluation and
design. Operating system work includes efforts in core software, protocol and
driver programming, development kit programming and documentation, and game
programming. With significant emphasis on new gaming products as a future
revenue source, the Company expects to increase the resources devoted to game
and gaming technology development.

      Overall, the Company is committed to developing innovative products for
the gaming market, as well as continuously testing and upgrading its existing
products. The Company anticipates that research and development will continue to
account for a significant portion of its total expenditures. Research and
development expenses were $4,958,000, $3,468,000 and $2,462,000 in fiscal 2000,
1999, and fiscal 1998 respectively.

COMPETITION

      GAME EQUIPMENT. Automatic card shufflers and chip sorting machines have
been developed by several other companies, and Shuffle Master believes that
those companies are continually working to obtain regulatory approval and
commercial placement of their equipment. In recent years, several competitive
shuffler products have been placed in casinos in modest quantities, including
those offered by Casinos Austria Research and Development (an Austrian company
marketing the Shuffle Star continuous shuffler), Gaming Products Pty. Ltd. (an
Australian company marketing the Quick Draw continuous shuffler and a single
deck shuffler design) and Casinovations (a U.S. company marketing a multi-deck
batch shuffler). While reliable information on all competitive placements is not
practically obtainable, the Company believes that no product has achieved
worldwide placements in excess of 600 units. The Shuffle Star has no substantive
presence in the U.S., while Casinovations has little presence outside the U.S.
The Quick Draw products can be found in a small number of casinos in the U.S.
and Australia. In general terms, competition has achieved placements by offering
products at prices that are often lower than the Company's prices. The Company
believes that it has the only complete line of shuffler products, including
single deck, multi-deck batch and multi-deck continuous shufflers, and that its
products provide higher levels of reliability and security. In addition, the
Company's shuffler products are supported by a national and international
service network that other companies cannot easily duplicate. These beliefs
notwithstanding, the Company cannot provide assurances that a competitive
product will not gain substantial placements in the future.


                                       7
<PAGE>


ITEM 1. BUSINESS (CONTINUED)

      GAMING PRODUCTS. The success of table games such as Let It Ride Bonus(R),
Let It Ride(R) basic and Three Card Poker(R) and slot games such as the
Company's Let's Make A Deal(R), Press Your Luck(TM), The Three Stooges(R), and
Five Deck Poker(R), depend not only on casinos deciding to use such products,
but also on acceptance by players. Player acceptance of a game often correlates
to the frequency and amount of money returned during play, as well as the
availability and appeal of the game compared to other games.

      In general, there are continual efforts by small companies and
entrepreneurs to develop and market table games, although few are successful and
many do not compete directly with the Company's products. The Company's major
competitor in specialty table games is Mikohn Gaming Corp., which markets the
Caribbean Stud Poker(R) game through its Progressive Games, Inc. subsidiary. The
Company believes that there are approximately 900 Caribbean Stud Poker tables
worldwide.

      The marketing of slot games to the casino industry is highly competitive.
A number of the Company's slot game competitors and potential competitors have
significantly greater research, development, manufacturing and marketing
capabilities and have greater financial and personnel resources than the
Company.

      The competitive environment in slot game operating system software is
constantly evolving and difficult to observe. The Company is aware that a number
of large, well established slot machine manufacturers are developing or have
developed PC-based hardware and software platforms that may directly or
indirectly compete with the Company's slot machine operating system. The Company
is unable to compare its technology to that of its potential competitors because
such competing technology is not yet in the marketplace and is generally kept
confidential. The Company believes, however, that no other competitor has plans
to offer, as a standalone product or otherwise, a standardized software and
hardware environment that is open to all potential users and that is applicable
to a variety of gaming machines, new or used. To use the Company's operating
system in a given slot machine it is necessary for the Company to create the
electronic interface boards and software interfaces to operate the components in
a particular machine design. The Company believes that slot machine
manufacturers that depend on new slot machine sales for revenue growth are
unlikely to pursue the Company's strategy of marketing an open access, industry
standard operating system because of the likelihood that such a strategy would
reduce new machine sales.

PATENTS AND TRADEMARKS

      PATENTS. Since 1989, the Company has been awarded or has purchased 25
United States utility patents, two United States design patents and 22
international patents related to its shuffler and game technologies. Products
protected in whole or in part by these patents include the BG single deck
shuffler series, the MD multi-deck shuffler series, the ACE(R) single deck
shuffler, Let It Ride(R) stud poker, Five Deck Poker(R), Three Card Poker(R),
the Yoseloff proprietary reel mapping algorithm, a variety of new games that
have not yet been introduced, and some additional bet detection and card
shuffler technology. Most of these patents have a life of 20 years from the date
the patent application was filed. No patent will expire before the year 2007.

      In fiscal 2000, the Company received a patent on a math algorithm for
controlling win odds in a game machine. A second patent describing a method of
controlling win odds in a slot machine will issue in the first half of 2001.
The Company licensed this technology to a slot machine manufacturer and will
continue to earn licensing revenue in fiscal year 2001.

      Six new U.S. utility patents, one U.S. design patent and four
international patents were issued to the Company in fiscal 2000 and it expects
to receive at least eight new patents in early calendar 2001. Patent
applications filed in 2000 seek protection for innovations in card handling
technology, slot and video game system architecture, live table game equipment
and game play methods. A patent application protecting the King(TM) shuffler has
been allowed and should issue in fiscal 2001. No assurance can be given that any
such patents will issue, or that the patents currently held or new patents that
may issue will be valid or will provide any competitive protection for the
Company's products.

      TRADEMARKS. The Company owns 29 federal trademark registrations in the
United States and 41 international trademark registrations for Let It Ride(R),
Let It Ride Bonus(R), Let It Ride The Tournament(TM), Three Card Poker(R),
Shuffle Master Gaming(R) and others. The Company currently has 36 pending U.S.
trademark applications, as well as numerous foreign trademark applications. The
Company has sought protection for a number of names it plans to use in the
future.

      INFRINGEMENT AND INTELLECTUAL PROPERTY PROTECTION. The Company is not
aware that any of its card handling products, game play methods or operating
system technology infringe the patents and other intellectual property rights of
others. In addition to patents, the Company protects much of its intellectual
property with copyrights, trademarks and non-disclosure


                                       8
<PAGE>


ITEM 1. BUSINESS (CONTINUED)

agreements. No assurance can be given that the Company will be successful in
maintaining the confidentiality of its proprietary information. In the absence
of a valid patent, copyright, trademark or trade secret protection, the Company
would be vulnerable to competitors who would lawfully attempt to copy the
Company's products.

EMPLOYEES

      As of December 31, 2000, the Company had 189 full-time and seven temporary
employees. The Company is not subject to any collective bargaining agreement and
believes that its employee relations are good.

REGULATION

      OVERVIEW. The manufacture, sale, lease, license and distribution of the
Company's products require various licenses, permits and approvals and the
Company is subject to laws and regulations by authorities in most jurisdictions
in which its products are used by persons or entities licensed to conduct gaming
activities. The gaming regulatory requirements vary from jurisdiction to
jurisdiction, and licensing, other approval or finding of suitability processes
with respect to the Company and its management, can be lengthy and expensive.
Generally, each product must also be reviewed and approved by each gaming
authority. The detail and extent of the review process depends upon the
classification of the product by the respective gaming authority as a new game,
game variation, associated equipment, gaming equipment or gaming device. In
general, gaming regulatory authorities may deny applications for licenses, other
approvals or findings of suitability for any cause they may deem reasonable.

      The Company is licensed as a manufacturer and distributor of gaming
devices and an operator of inter-casino linked systems in Nevada. The Company is
a gaming related casino service industry licensee in New Jersey and holds
supplier, manufacturer and/or distributor licenses in numerous other
jurisdictions throughout North America. Most Company licenses must be renewed
annually. The Company has never been denied a license, permit or approval
necessary to do business in any jurisdiction. Although approvals for the
Company's current products have been granted by gaming regulatory agencies,
there can be no assurance that the Company, its current or future products or
its management personnel will receive nor maintain any necessary gaming
licenses, other approvals or findings of suitability.

      SHUFFLERS. The Company has obtained approvals for its shuffler products in
48 jurisdictions in North America and has filed for approval of its shuffler
products and related software in certain other jurisdictions. The Company's card
shufflers and related software are classified and approved as associated
equipment in Mississippi, Louisiana, Illinois, and a number of other
jurisdictions and as gaming equipment in Nevada, New Jersey, Missouri and Iowa.
Associated equipment is equipment that is not classified as a gaming device or
gaming equipment, but, due to its integral relationship to the conduct of
licensed gaming, regulatory authorities have discretion to require manufacturers
and distributors to meet licensing or suitability requirements prior to or
concurrent with the use of such equipment in the respective jurisdiction. Gaming
equipment is defined in New Jersey as "any electronic, electrical, or mechanical
contrivance or machine used in connection with gaming or any game." Although the
classification of the shufflers vary among jurisdictions, most, if not all,
jurisdictions require specific hardware and software approvals and certain
licenses or permits to be held by companies, their key personnel, and service
technicians in connection with the manufacture, distribution, service, and
repair of such equipment.

      TABLE GAMES AND RELATED EQUIPMENT. The Company has developed the Let It
Ride(R) basic and the Let It Ride Bonus(R) games. The basic Let It Ride(R) game
is approved in all major gaming markets in North America and numerous other
gaming jurisdictions. The Let It Ride Bonus(R) table game, including the rules
of play and related equipment, is approved in 33 jurisdictions in North America
and the Company has filed for additional approvals in certain other
jurisdictions. Apparatus related to the Let It Ride Bonus(R) table game is
regulated in Nevada, Mississippi, New Jersey and most other jurisdictions as
associated equipment. Three Card Poker(R) is approved for use in 33
jurisdictions in North America and submitted for approval in certain others.
Similar approvals are required before the Company's table games and apparatus
related to such table games can be marketed in other jurisdictions. The Company
conducts business only in those jurisdictions where it has secured required
approvals for its products.

      SLOT GAMES. Most, if not all, gaming authorities classify the Company's
slot game machines and software as gaming devices. A gaming device is generally
defined as a video slot or video machine or mechanical, electrical device the
operation of which, upon payment of consideration, entitles a person to receive
something of value. Although the regulations may vary somewhat for each
jurisdiction in which the Company distributes its video slot products, there are
approval, reporting, and notice requirements common to all major gaming markets
in North America. Additionally, video slot game machines and software are


                                       9
<PAGE>


ITEM 1. BUSINESS (CONTINUED)

classified as gambling devices under federal law. The Company is registered
pursuant to the Federal Gambling Devices Act of 1962 (the "Federal Act"). The
Federal Act makes it unlawful for a person or business entity to manufacture,
deliver, receive, operate, lease or sell gambling devices in interstate or
foreign commerce unless that person or entity has first registered with the
Attorney General of the United States. A gambling device is generally defined
under the Federal Act as any "so-called video slot machine or mechanical device
or machine, including certain essential parts." In order to manufacture, sell,
deliver or operate certain of its current and proposed products, the Company
must renew its federal registration annually. In addition, various record
keeping and equipment identification requirements are imposed by the Federal
Act. Violation of the Federal Act may result in seizure and forfeiture of the
equipment, as well as other penalties.

      GENERAL REGULATION OF STOCKHOLDERS OF PUBLICLY TRADED CORPORATIONS. In
most jurisdictions, any beneficial owner of the Company's common stock is
subject, on a discretionary basis, to being required to file applications with
gaming regulatory authorities, and undergo investigation to be found suitable or
qualified as such. The gaming laws and regulations of most jurisdictions provide
that beneficial owners of 5% or more of the Company's common stock are subject
to certain reporting procedures and may be subject to background investigations,
including submission of personal and financial information required in order to
be licensed, qualified or found suitable as such.

      ADDITIONAL NEVADA REGULATORY MATTERS. The Company is subject to the Nevada
Gaming Control Act (the "Nevada Act"), and to the licensing and regulatory
control of the Nevada State Gaming Control Board (the "Nevada Board"), the
Nevada Gaming Commission (the "Nevada Commission"), and various local, city and
county regulatory agencies (collectively, the "Nevada Gaming Authorities").

      The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the character of persons having any direct or
indirect involvement with gaming to prevent unsavory or unsuitable persons from
having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) application of appropriate accounting practices and procedures;
(iii) maintenance of effective control over the financial practices and
financial stability of licensees, including procedures for internal controls and
the safeguarding of assets and revenues; (iv) record-keeping and reporting to
the Nevada Gaming Authorities; (v) fair operation of games; and (vi) the raising
of revenues through taxation and licensing fees.

      The Company has registered with the Nevada Commission as a publicly traded
corporation in addition to being licensed as a manufacturer and distributor of
gaming devices and an operator of inter-casino linked systems. Such licenses are
not transferable and require periodic payment of fees. The Nevada Gaming
Authorities may limit, condition, suspend or revoke a license, registration,
approval or finding of suitability for any cause deemed reasonable by such
licensing agency. If it were determined that gaming laws were violated by the
Company, the approvals and licenses it holds could be limited, conditioned,
suspended or revoked, and the Company and the persons involved could be subject
to substantial fines for each separate violation of the gaming laws at the
discretion of the Nevada Commission. Each type of gaming device, slot game,
table game or associated equipment manufactured, distributed, leased, licensed
or sold in Nevada must first be approved by the Nevada Board and the Nevada
Commission and the Company must regularly submit detailed financial and
operating reports to the Nevada Commission. Certain loans, leases, sales of
securities and similar financing transactions must also be reported to or
approved by the Nevada Commission. Changes in legislation or in judicial or
regulatory interpretations could occur which could adversely affect the Company.

      Officers, directors and certain key employees of the Company are required
to be found suitable by the Nevada Commission, and employees associated with
gaming must obtain work permits, which are subject to immediate suspension under
certain circumstances. An application for suitability may be denied for any
cause deemed reasonable by the issuing agency. Changes in certain key positions
must be reported to the issuing agency. In addition to its authority to deny an
application for a license, the Nevada Commission has jurisdiction to disapprove
a change in position by an officer, director or key employee. The Nevada
Commission has the power to require licensed gaming companies to suspend or
dismiss officers, directors or other key employees and to sever relationships
with other persons who refuse to file appropriate applications or who the
authorities find unsuitable to act in such capacities.

      The Nevada Commission may also require anyone having a material
relationship or involvement with the Company to be found suitable or licensed,
in which case those persons are required to pay the costs and fees of the Nevada
Board in connection with the investigation. Any person who acquires more than 5%
of the Company's voting securities must report the acquisition to the Nevada
Commission; any person who becomes a beneficial owner of 10% or more of the
Company's voting securities will be required to apply for a finding of
suitability. Under certain circumstances, an "Institutional Investor," as such
term is defined in


                                       10
<PAGE>


ITEM 1. BUSINESS (CONTINUED)

the regulations of the Nevada Commission, which acquires more than 10% but not
more than 15% of the Company's voting securities, may apply to the Nevada
Commission for a waiver of such finding of suitability requirements, provided
the Institutional Investor holds the voting securities for investment purposes
only. An Institutional Investor will not be deemed to hold voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an Institutional Investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
Board of Directors of the Company, any change in the Company's corporate
charter, bylaws, management, policies or operations of the Company, or any of
its gaming affiliates, or any other action which the Nevada Commission finds to
be inconsistent with holding the Company's voting securities for investment
purposes only.

      Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission may
be found unsuitable. The same restrictions apply to a record owner if the record
owner, after request, fails to identify the beneficial owner. Any security
holder found unsuitable and who holds, directly or indirectly, any beneficial
ownership of the common stock beyond such period of time as may be prescribed by
the Nevada Commission may be guilty of a gross misdemeanor. The Company is
subject to disciplinary action if, after it receives notice that a person is
unsuitable to be a security holder or to have any other relationship with the
Company, the Company: (i) pays that person any dividend or interest upon voting
securities of the Company; (ii) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by that person;
or (iii) gives remuneration in any form to that person. If a security holder is
found unsuitable, the Company may itself be found unsuitable if it fails to
pursue all lawful efforts to require such unsuitable person to relinquish his or
her voting securities for cash at fair market value. Additionally, the Clark
County (Nevada) authorities have taken the position that they have the authority
to approve all persons owning or controlling the stock of any corporation
controlling a gaming license.

      The Nevada Commission has also advised the Company that it may, in its
discretion, require holders of a debt or equity security of a corporation
registered under the Nevada Act to file applications, be investigated and be
found suitable to own the debt or equity security of a registered corporation.
The applicant security holder is required to pay all costs of such
investigation. If the Nevada Commission determines that a person is unsuitable
to own such security, then pursuant to the regulations of the Nevada Commission,
the registered corporation may be sanctioned, including the loss of its
approvals, if, without the prior approval of the Nevada Commission, it: (i) pays
to the unsuitable person any dividends, interest or any distribution whatsoever;
(ii) recognizes any voting right by such unsuitable person in connection with
such securities; (iii) pays the unsuitable person remuneration in any form; or
(iv) makes any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation or similar transaction.

      The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Commission at any time, and to file with the
Nevada Commission, at least annually, a list of its stockholders. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act and the
regulations of the Nevada Commission. However, to date, the Nevada Commission
has not imposed such a requirement on the Company.

      The Company may not make certain public offerings of its securities
without the prior approval of the Nevada Commission. Also, changes in control of
the Company through merger, consolidation, acquisition of assets, management or
consulting agreements or any form of takeover cannot occur without prior
investigation by the Nevada Board and approval of the Nevada Commission.

      Approvals are required from the Nevada Commission before the Company can
make exceptional repurchases of voting securities above the current market price
thereof and before a corporate acquisition opposed by management can be
consummated. Nevada's gaming regulations also require prior approval by the
Nevada Commission if the Company were to adopt a plan of recapitalization
proposed by the Company's Board of Directors in opposition to a tender offer
made directly to its shareholders for the purpose of acquiring control of the
Company.

      OTHER JURISDICTIONS. All jurisdictions that have legalized gaming require
various licenses, permits and/or approvals for and reporting of certain
transactions by manufacturers and distributors of gaming devices, table games
and associated equipment. In general, such requirements are similar to those of
Nevada.

      APPLICATION OF FUTURE OR ADDITIONAL REGULATORY REQUIREMENTS. In the
future, the Company intends to seek the necessary licenses, approvals and
findings of suitability for the Company, its products and its management
personnel in other jurisdictions where significant sales are anticipated to be
made. However, there can be no assurance that such licenses, approvals or
findings


                                       11
<PAGE>


ITEM 1. BUSINESS (CONTINUED)

of suitability will be obtained and will not be revoked, suspended or
conditioned or that the Company will be able to obtain the necessary approvals
for its future products as they are developed in a timely manner, or at all. If
a license, approval or finding of suitability is required by a regulatory
authority and the Company fails to seek or does not receive the necessary
license or finding of suitability, the Company may be prohibited from
distributing its products for use in the respective jurisdiction or may be
required to provide its products through other licensed entities at a reduced
profit to the Company.

ITEM 2.  PROPERTIES

      The Company leases an approximately 32,000 square foot facility in Nevada
for substantially all of its business activities, except shuffler machine and
table game apparatus research and development, which operates out of an
approximately 5,000 square foot facility in Minnesota and for slot operating
system and game software research and development, which operates out of an
approximately 3,350 square foot facility in northern Colorado. The Company
continues to maintain its corporate office in Minnesota, following completion of
the consolidation of its facilities in Nevada in 1998. The Company also leases
space for service centers in various locations in the United States and Canada.
The Company believes that its existing properties are suitable and adequate for
its current needs.

ITEM 3.  LEGAL PROCEEDINGS

      In the ordinary course of conducting its business, the Company becomes
involved in litigation, administrative proceedings and regulatory government
investigations. The Company believes that the final disposition of these matters
will not have a material adverse effect on its financial position, results of
operations or liquidity.

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

      No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended October 31, 2000.


                                       12
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      STOCK LISTING

      The Company's common stock is traded on The Nasdaq Stock Market under the
symbol SHFL. As of January 18, 2001, there were 327 shareholders of record.
There are a significantly greater number of shareholders whose shares are held
in street name. Based on information collected prior to its 1999 annual meeting
in March 2000, the Company estimates that it has 5,500 - 6,000 shareholders in
total. The following table sets forth quarterly high and low prices for trades
of the Company's common stock for the years ended October 31, 2000 and 1999 and
that are adjusted to reflect the three for two stock split that the Company
Board of Directors approved in October 2000:

                                 2000                   1999
                          -----------------      ------------------
                            HIGH      LOW          HIGH     LOW
                          -----------------      ------------------

First quarter             $  6.17  $  5.33       $  6.09  $  4.33
Second quarter               8.37     5.67          5.50     4.33
Third quarter               11.33     8.17          6.83     4.50
Fourth quarter              14.96     9.00          6.46     5.04

      DIVIDEND POLICY

      The Company has not paid dividends on its common stock but rather retained
earnings to provide for the Company's growth. No cash dividends are expected to
be paid on the common stock in the foreseeable future.

      TRANSFER AGENT

      The Company's transfer agent and registrar is Wells Fargo Bank Minnesota,
N.A., Shareowner Services, 161 North Concord Exchange, South St. Paul, Minnesota
55075, (800) 468-9716.


                                       13
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS                2000       1999       1998       1997       1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>        <C>        <C>        <C>        <C>
YEAR ENDED OCTOBER 31,

     INCOME STATEMENT
     Revenue                                                   $38,860    $28,926    $27,124    $28,736    $22,587
     Income from Operations                                     13,149      5,286      4,313      6,686      5,550
     Net Income from Continuing Operations                       8,537      3,598      3,343      5,122      2,768
     Net Income                                                  8,537      3,598      3,343      5,122      2,768
     Weighted Average Shares Outstanding, assuming dilution     11,405     11,942     14,630     16,275     16,940


AS OF OCTOBER 31,

     BALANCE SHEET
     Cash, Cash Equivalents and Investments                    $ 6,619    $ 5,641    $ 8,472    $16,306    $26,478
     Working Capital                                            12,068      7,427     11,352     20,736     27,845
     Total Assets                                               34,614     30,605     28,293     40,726     45,297
     Long-term Debt                                                 97        677      1,217      1,718         --
     Shareholders' Equity                                       28,010     21,402     21,895     34,111     39,139
     Common Shares Outstanding                                  10,876     11,212     12,022     14,952     16,765
     Current Ratio                                                2.85        1.9        3.2        5.4        5.7


PER COMMON SHARE

     Earnings from Continuing Operations                       $   .79    $   .30    $   .23    $   .31    $   .17
     Earnings from Discontinued Operations                          --         --         --         --         --
     Earnings per Common Share, basic                              .79        .30        .23        .31        .17
     Earnings per Common Share, assuming dilution                  .75        .30        .23        .31        .17
     Book Value                                                   2.58       1.91       1.82       2.28       2.33
     Dividends Declared                                             --         --         --         --         --
</TABLE>


                                       14
<PAGE>


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

BUSINESS OVERVIEW

      Shuffle Master, Inc. (the "Company") is a supplier of card shuffler
products, table and slot games, and gaming related software to the gaming
industry. The foundation of the Company's business has been the development,
manufacturing and marketing of automatic card shufflers and table games, with
slot games and operating system software having been added more recently. The
Company's current shuffler offering is available to casinos through either a
purchase or lease option, table game products are available on a monthly license
basis, and slot games and the Company's operating system are generally offered
on a daily fee basis. The Company markets its shuffler products in most domestic
gaming jurisdictions directly, and internationally through representatives and a
distributor. During fiscal 2000 the Company also distributed and serviced a line
of casino chip sorting machines and accessories.

      The Company's lease and licensing of its shuffler, table game and slot
products to casino customers involves purchasing inventory for "builds" of
products and subsequently transferring such inventory to systems and equipment
leased.

RESULTS OF OPERATIONS

FISCAL 2000 COMPARED TO FISCAL 1999

      REVENUE AND COST OF PRODUCTS

      Revenue for fiscal 2000 was $38,860,000, an increase of $9,934,000, or
34.3% from the prior year. Shuffler lease revenue was $13,118,000 in fiscal 2000
compared to $11,168,000 in the prior year, an increase of 17.5%. The installed
base of shufflers on lease increased to 2,935 at October 31, 2000, from 2,253
units at October 31, 1999, an increase of 682 units, or 30.3%. Lease revenue
increased at a lower rate than the unit increase due to both the first full year
of the Company's strategy of leasing shufflers to certain customers on a
part-time basis and the effect of competitive pricing in certain jurisdictions.
As of October 31, 2000 the installed lease base of single deck shufflers on
lease was 1,805 units, an increase of 401 units, or 28.6%, between the years.
This increase was attributable to the net placement of 882 ACE(R) shufflers on
lease in fiscal 2000, offset by a net reduction of 481 BG shufflers, the
majority of which were exchanged for ACE(R) shufflers. In addition, as of
October 31, 2000, the installed lease base of multi-deck shufflers was 1,130
units, an increase of 281 units, or 33.1%, between the years. This increase
relates to the introduction and installation of 374 units of the Company's new
continuous multi-deck shuffler, the King(TM), during fiscal 2000. Included in
the total installed lease base of multi-deck shufflers were 756 multi-deck batch
shufflers as of October 31, 2000, a decrease of 83 units, or 9.9%, from October
31, 1999. Shuffler sales in fiscal 2000 increased 62.6% to $7,709,000, compared
to $4,740,000 in fiscal 1999. Unit sales totaled 770 in fiscal 2000 compared to
541 last year, an increase attributable to the sales of 344 ACE(R) and 151
King(TM) shufflers, new products introduced in 1999 and 2000, respectively.
Current year unit sales included sales of 618 units and 152 units converted to a
sale from a lease, as compared to 430 new unit sales and 111 conversions in the
prior year. The average revenue per shuffler sold increased to $10,012 in fiscal
2000 from $8,761 in fiscal 1999 due to a change in the mix of shufflers sold
toward domestic sales of higher-priced ACE(R) and King(TM) shufflers.

      Revenue from table games increased by $2,572,000 or 26.7% to $12,198,000
in fiscal 2000. Included in this category for fiscal 2000 was revenue from Let
It Ride Bonus(R), Let It Ride(R) basic, sales of associated equipment for Let It
Ride Bonus(R) and Three Card Poker(R). Let It Ride Bonus(R) table revenue
increased by $1,651,000 to $8,477,000 as bonus table counts increased by 17.9%
to 500 at October 31, 2000 from 424 at October 31, 1999. However, Let It Ride(R)
basic table revenue decreased by $366,000 to $1,391,000 as the installed base of
basic tables in casinos decreased to 186 at October 31, 2000 from 233 tables as
of October 31, 1999. Substantially all of the net decrease in basic tables
resulted from casinos converting basic tables to Let It Ride Bonus(R) tables.
Three Card Poker(R) revenue increased by $809,000 to $1,242,000 in fiscal 2000
as table counts increased by 55.9% to 293 units at October 31, 2000 from 188
units at October 31, 1999. Finally, the Company received an incremental $577,000
in royalty income from Mikohn Gaming Corporation from cross-license agreements.

      Slot revenue increased by $1,039,000, or 94.7%, to $2,136,000 in fiscal
2000. This increase was primarily due to an increase of $837,000 to $1,170,000
in the Company's share of a full year's revenue from the Let's Make A Deal(R)
video slot games jointly owned with Bally Gaming, Inc. Additionally, slot
revenue included revenue from The Three Stooges(R), Press Your Luck(TM), and
Five Deck Poker(R), as well as revenue from the licensing of the Company's new
operating system. The installed base of slot games increased to 545 units at
October 31, 2000 from 526 units at October 31, 1999. This installed base


                                       15
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)


included 216 Let's Make A Deal(R) games, 146 Press Your Luck(TM) games, 139 Five
Deck Poker(R) games, and 40 The Three Stooges(R) games as of October 31, 2000.

      Other revenue increased to $2,508,000 from $1,189,000 due to the receipt
in fiscal 2000 of $1,000,000 in non-exclusive license fees related to the
Company's math algorithm technology used in slot game design and the receipt of
a $200,000 technology evaluation fee.

      Gross margin improved to 73.1% in fiscal 2000 from 68.4% in fiscal 1999.
Excluding the receipt of $1,200,000 in non-recurring license and evaluation fee
income, gross margin would have been 72.2% in fiscal 2000. Gross margin
increased due to a shift in product mix in 2000 toward higher margin ACE(R)
shuffler and table lease revenue. Additionally, gross margin as a percent of
slot revenue increased 39% from the prior fiscal year.

      OPERATING EXPENSES

      Selling, general and administrative expenses increased by $1,804,000 or
21.2% to 10,297,000 in fiscal 2000 compared to $8,493,000 in the prior year.
Sales staffing, commissions and travel increased by $869,000 to $2,331,000 in
fiscal 2000, resulting from new hires and increased commissions on increased
sales during the year. Performance based incentive compensation increased by
$978,000 from the prior fiscal year. Legal expenses decreased $462,000 to
$373,000 in fiscal 2000 due to the settlement with Progressive Games, Inc. in
December 1999. Also, advertising and promotion expenses increased by $203,000 in
fiscal 2000 because of additional expenses incurred for special events and trade
shows. Finally, information system staffing, consulting and hardware expenses
increased by $201,000 in fiscal 2000 as part of a year-long program to upgrade
the Company's information systems.

      Research and development expenses increased by $1,490,000, or 43%, to
$4,958,000 in fiscal 2000. Approximately $940,000 of the increase was due to
increased staffing, consulting and contract programming for new game and
operating system development. Amortization expense of intellectual property
increased $405,000 in fiscal 2000 to $1,170,000, due to the effects of having a
full year's amortization of intellectual property in the Three Card Poker(R)
game and Let's Make A Deal(R) in 2000, as well as introducing The Three
Stooges(R) and Press Your Luck(TM) video slot games. Legal expenses related to
securing and maintaining domestic and international patents and trademarks
increased by $110,000 to $390,000 during fiscal 2000.

      OTHER INCOME AND EXPENSE

      Other income, net, was interest income for both years. Interest income
decreased to $339,000 from $418,000 in fiscal 2000 due to the decrease in cash
and investment balances during fiscal 2000. Interest expense was $45,000 and
$81,000 in fiscal 2000 and 1999, respectively.

      INCOME TAXES

      The provision for income taxes was based on an effective tax rate of 36.5%
in fiscal 2000 compared to 36.0% in fiscal 1999. The current year provision
includes a 1.3% benefit from the foreign sales corporation compared to 2.7% in
fiscal 1999, due to a decrease in qualified export revenue as a percentage of
total revenue. The provision for state income taxes, net of federal tax
benefits, decreased to 2.3% from 3.6% in the prior year as the Company slightly
decreased its revenue and profits in states requiring filing and payment of
income-based taxes. Additionally, the tax benefit resulting from utilizing the
research and experimental tax credit decreased by 0.3% in fiscal 2000.

      NET INCOME AND EARNINGS PER COMMON SHARE

      Net income was $8,537,000, or $.75 per diluted share in fiscal 2000,
compared to $3,598,000, or $.30 per diluted share last year. Fiscal 1999 net
income included royalty settlement expenses of $2,750,000 ($1,760,000 after
taxes or $.15 per share). Weighted average common shares - assuming dilution,
decreased to 11,405,000 shares in the current year compared to 11,942,000 in the
prior year due to the repurchase of 589,000 shares in fiscal 2000. The dilutive
impact of common stock options outstanding increased by 473,000 shares to
533,000 shares as of October 31, 2000 because the market price of the Company's
common stock increased throughout the year and increased the number of options
that could be exercised and converted into common stock equivalent shares. The
effect of these dilutive options outstanding was to reduce earnings per share by
$.04 to $.75 per share for the fiscal year ended October 31, 2000.


                                       16
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)


FISCAL 1999 COMPARED TO FISCAL 1998

      REVENUE AND COST OF PRODUCTS

      Revenue for fiscal 1999 was $28,926,000, an increase of $1,802,000, or
6.6% from fiscal 1998. During fiscal 1999, the Company continued to emphasize
shuffler lease installations, which resulted in lower sales revenue. Shuffler
lease revenue was $11,168,000 in fiscal 1999 compared to $9,807,000 in fiscal
1998, an increase of 13.9%. The installed base of shufflers on lease increased
to 2,253 at October 31, 1999, from 1,880 units at October 31, 1998, an increase
of 373 units, or 19.8%. Lease revenue increased at a lower rate than the volume
increase due to both the Company's strategy of leasing shufflers to certain
customers on a part-time basis and the effect of competitive pricing in certain
jurisdictions. As of October 31, 1999, the installed lease base of single deck
shufflers on lease was 1,404 units, an increase of 290 units, or 26%, between
the years. This increase was attributable to the placement of 735 ACE(R)
shufflers on lease in fiscal 1999, offset by a net reduction of 445 BG
shufflers, the majority of which were exchanged for ACE(R) shufflers. In
addition, there were 839 multi-deck shufflers installed on lease as of October
31, 1999, an increase of 73 units, or 9.5%, from October 31, 1998. Shuffler
sales were $4,740,000, compared to $6,521,000 in fiscal 1998. Unit sales totaled
541 in fiscal 1999 compared to 903 in fiscal 1998. Fiscal 1999 unit sales
included sales of 430 new units and 111 units converted to a sale from a lease,
as compared to 743 new unit sales and 160 conversions in fiscal 1998. The
average revenue per shuffler sold increased to $8,761 from $7,246 in fiscal 1999
due to a change in the mix of shufflers sold toward domestic sales of
higher-priced multi-deck and ACE(R) shufflers.

      Revenue from the Let It Ride(R) table game increased by $1,762,000 to
$9,626,000 in fiscal 1999. Included in this category for fiscal 1999 was revenue
from Let It Ride Bonus(R), Let It Ride(R) basic, sales of associated equipment
for Let It Ride Bonus(R) and Three Card Poker(R), a table game that the Company
acquired in the third fiscal quarter. Total installed Bonus tables increased
from 375 at October 31, 1998, to 424 at October 31, 1999. Let It Ride(R) basic
tables in casinos decreased to 233 at October 31, 1999, from 250 tables as of
October 31, 1998. Substantially all of the net decrease in basic tables resulted
from casinos converting basic tables to Let It Ride Bonus(R) tables in New
Jersey after the motion to vacate the injunction prohibiting the use of the Let
It Ride Bonus(R) tables was granted in the fourth fiscal quarter. Three Card
Poker(R) contributed an incremental $433,000 in revenue in fiscal 1999 as table
counts increased from 153 units at acquisition in May 1999 to 188 units at
October 31, 1999.

      Slot revenue decreased by $610,000 to $1,097,000 in fiscal 1999. The
decrease was due to the inclusion in fiscal 1998 of revenue from a license fee
of $1,000,000 from Bally under an exclusive license arrangement for Let's Make A
Deal(R) intellectual property. In the second fiscal quarter of 1999, the Company
and Bally jointly introduced the Let's Make A Deal(R) video slot game and the
Company's share of the game's revenue for the year was $333,000. Slot revenue
also included revenue from Five Deck Poker(R), Five Deck Frenzy(R) and Let It
Ride Bonus Video(R).

      Other revenue increased to $1,189,000 from $192,000 due to revenue earned
from the lease of Chipper Champ(TM) chip sorting machines and the sale of
accessories under the Company's joint marketing agreement with TCS America,
Inc., which was entered into in the first fiscal quarter of 1999.

      Gross margin improved to 68.4% in fiscal 1999 from 64.7% in fiscal 1998.
Excluding the one-time inventory write-down charge of $940,000 and the
$1,000,000 of licensing income from Bally Gaming, Inc., gross margin would have
been 67.0% in fiscal 1998. Gross margin increased due to a shift in product mix
in 1999 toward higher margin shuffler and table lease revenue, which comprised
71.9% of revenue in fiscal 1999 and 65.2% of revenue in fiscal 1998.
Additionally, gross margin on shuffler sales in 1999 increased twelve percentage
points from 1998 and field service and installation costs decreased 1% to 10.2%
of revenue in fiscal 1999 due to the increase in total revenue for the year.
These margin increases were offset by lower margin revenue under the TCS
agreement and from video products. Gross margin in 1998 included the recording
of the $1,000,000 license fee under the Bally agreement.

      OPERATING EXPENSES

      Selling, general and administrative expenses decreased by $843,000 or 9.0%
to 8,493,000 in fiscal 1999 compared to $9,336,000 in fiscal 1998. Advertising
and promotion expenses decreased by $292,000 to $609,000 in fiscal 1999 due to
decreased promotional, event and trade show activity. Legal fees decreased by
$205,000 to $835,000 in fiscal 1999 as litigation activity diminished prior to
the settlement with PGI. Rent expense and salary expense decreased by a net of
$126,000 and $100,000, respectively, in 1999. Cost savings related to the
facilities relocation initiated in the third fiscal quarter of 1998 have been
partly offset by expansion of staff to meet the growth requirements of the
business since the time of relocation.


                                       17
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)


      Research and development expenses increased by $1,006,000, or 40.9%, to
$3,468,000 in fiscal 1999. Approximately $426,000 of the increase was due to
increased consulting and contract programming for new game and system
development. Legal expenses related to securing and maintaining domestic and
international patents and trademarks increased by $280,000. Development costs
related to the introduction of the Let's Make A Deal(R) and The Three Stooges(R)
slot games increased by approximately $112,000 in fiscal 1999. Finally,
amortization expense of intellectual property increased $183,000 in 1999 to
$765,000, due primarily to the introductions of the Let's Make A Deal(R) video
slot game and the Three Card Poker(R) table game during the second and third
fiscal quarters of 1999.

      OTHER INCOME AND EXPENSE

      Other income, net, was interest income for both years. Interest income
decreased to $418,000 from $971,000 in fiscal 1999 due to the decrease in cash
and investments of $2,831,000 from fiscal 1998. Interest expense was $81,000 and
$91,000 in fiscal 1999 and 1998, respectively.

      INCOME TAXES

      The provision for income taxes was based on an effective tax rate of 36.0%
in fiscal 1999 compared to 35.6% in fiscal 1998. The fiscal 1999 provision
includes a 2.7% benefit from the foreign sales corporation compared to 3.0% in
fiscal 1998, due to a decrease in qualified export revenue as a percentage of
total revenue. The provision for state income taxes, net of federal tax
benefits, decreased to 3.6% from 3.8% in fiscal 1998 as the Company slightly
decreased its revenue and profits in states requiring filing and payment of
income-based taxes.

      NET INCOME AND EARNINGS PER COMMON SHARE

      Net income was $3,598,000, or $.30 per diluted share, compared to
$3,343,000, or $.23 per diluted share in fiscal 1998. Fiscal 1999 net income
included royalty settlement expenses of $2,750,000 ($1,760,000 after taxes or
$.15 per share). Fiscal 1998 net income included expenses of $2,650,000
($1,680,000 after taxes, or $.11 per share) due to the consolidation of the
Company's facilities and write-downs and write-offs of certain assets. Weighted
average common shares - assuming dilution, decreased to 11,942,000 shares in
fiscal 1999 compared to 14,630,000 in the prior year due to the repurchase of
878,000 shares in fiscal 1999 and 3,000,000 shares in fiscal 1998.

RECENTLY ISSUED ACCOUNTING STANDARDS

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and is
effective for the Company's year ending October 31, 2001. The adoption of SFAS
No. 133 in fiscal year 2001 will not have an impact on the consolidated
financial statements.

      In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 clarifies existing accounting principles related to revenue
recognition in financial statements. The Company is required to comply with the
provisions of SAB 101 in its first quarter of the year ending October 31, 2001.
Based upon the current nature of the Company's continuing operations, management
does not believe that SAB 101 will have a significant impact on the Company's
results of operations.

      In March 2000, the Financial Accounting Standards Board of the AICPA
issued FASB Interpretation 44, "Accounting for Certain Transactions involving
Stock Compensation" ("FIN 44"), which provides clarification on the application
of Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and is effective for the Company's year ending October 31, 2000. The
adoption of FIN 44 in fiscal year 2000 did not have an impact on the Company's
results of operations.

LIQUIDITY & CAPITAL RESOURCES

FISCAL 2000 COMPARED TO FISCAL 1999

      WORKING CAPITAL


                                       18
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)


      At October 31, 2000, the Company had cash, cash equivalents and
investments of $6,619,000 compared to $5,641,000 at October 31, 1999. Working
capital increased to $12,068,000 at October 31, 2000, compared to $7,427,000 at
October 31, 1999, and the current ratio increased to 2.9 at October 31, 2000,
from 1.9 at the end of the prior year. The increase in cash, working capital,
and the current ratio at October 31, 2000 relates to the Company increasing its
operating profits while reducing its stock repurchases by $1,325,000 to
$3,267,000 in the current fiscal year and receiving increased proceeds from the
issuance of common stock through the exercise of employee stock options by
$962,000 to $1,118,000. Additionally, the Company increased the cash component
of its working capital by reducing its capital expenditures, including purchases
of equipment for lease, property and equipment, and intangible assets, by
$816,000 to $5,988,000 during fiscal 2000.

      CASH FLOWS

      Cash provided by operating activities was $9,498,000 in fiscal 2000. The
significant items comprising such cash provided in fiscal 2000 were net income
of $8,537,000 and non-cash charges for depreciation, amortization and valuation
provisions of $5,274,000. Deferred income taxes, net, decreased by $775,000,
principally due to the fiscal 2000 realization of the income tax deduction for
the royalty settlement with Progressive Games, Inc. ("PGI") and the excess of
book over tax depreciation and amortization. Changes in operating assets and
liabilities included an increase in inventories of $2,195,000 from October 31,
1999 to October 31, 2000. The Company purchased raw materials related to the
production of its new continuous multi-deck shuffler, the King(TM), and slot
machine finished goods in anticipation of placing Press Your Luck(TM) video slot
games. Accounts payable and accrued expenses decreased by $2,173,000 in fiscal
2000 due to the payment of the royalty settlement with PGI and amounts owed to
Bally Gaming, Inc. under the Company's amended joint marketing agreement with
Bally.

      Investing activities used $5,658,000 of cash during fiscal 2000.
Investments in leased and available for lease assets totaled $4,231,000 and
included the transfer from inventory of $3,338,000 in new shufflers and $762,000
in new slot games purchased. The Company also invested $1,255,000 in
intellectual property relating to licenses and patents for slot and shuffler
products.

      Financing activities used $2,506,000 of cash in fiscal 2000. The Company
repurchased 589,000 shares of its common stock at a total cost of $3,267,000
during fiscal 2000. Additionally, the Company issued 221,000 shares of stock
yielding proceeds of $1,118,000 upon the exercise of stock options by employees.
At October 31, 2000, there was an outstanding authorization for share
repurchases of up to $2,000,000 of common stock, at specific price limits set by
the Board of Directors.

      CAPITAL RESOURCES

      The Company does not have any long-term debt or capital leases, except for
the debt incurred by the Company to acquire intellectual property from a related
party. As of October 31, 2000, the long-term balance remaining under this
acquisition was $97,000, compared to $677,000 as of October 31, 1999, a
reduction of $580,000 due to payments made in cash and stock during fiscal 2000.

      The Company believes its existing cash, investments and cash provided by
operations will be sufficient to finance the Company's current operations and
new product development for the foreseeable future. Additionally, the Company
maintains a $10,000,000 revolving line of credit from U.S. Bank, N.A. that
matures in October 2002 to provide quick access to funds that might be required
for working capital needs related to product rollouts, product or intellectual
property acquisitions and share repurchases.

FISCAL 1999 COMPARED TO FISCAL 1998

      WORKING CAPITAL

      At October 31, 1999, the Company had cash, cash equivalents and
investments of $5,641,000 compared to $8,472,000 at October 31, 1998. Working
capital decreased to $7,427,000 at October 31, 1999, compared to $11,352,000 at
October 31, 1998, and the current ratio decreased to 1.9 at October 31, 1999,
from 3.2 at the end of fiscal 1998. The use of $4,592,000 for the repurchase of
common stock during fiscal 1999 contributed to the decrease in cash, working
capital and the current ratio at October 31, 1999. The inclusion in accrued
expenses as of October 31, 1999 of the $2,750,000 royalty settlement paid to PGI
in December 1999, and amounts owed to Bally under the Company's joint marketing
agreement with Bally also decreased working capital and the current ratio.


                                       19
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)


      CASH FLOWS

      Cash provided by operating activities was $8,617,000 in fiscal 1999. The
significant items comprising such cash provided in fiscal 1999 were net income
of $3,598,000 and non-cash charges for depreciation, amortization and valuation
provisions of $5,025,000. Deferred income taxes, net, increased by $1,250,000,
principally due to fiscal 1999 income tax deduction deferrals for the royalty
settlement with PGI and the excess of book over tax depreciation and
amortization. Changes in operating assets and liabilities included an increase
in inventories of $2,689,000 from October 31, 1998, to October 31, 1999. The
Company purchased raw materials related to the production of its new continuous
multi-deck shuffler, the King(TM), and slot machine finished goods in
anticipation of placing Let's Make A Deal(R) video slot games. Accounts payable
and accrued expenses increased by $3,495,000 due to the accrual of the royalty
settlement with PGI and amounts owed to Bally Gaming, Inc. under the Company's
joint marketing agreement with Bally.

      Investing activities used $4,935,000 of cash during fiscal 1999. The
investments balance decreased by $1,743,000 as the Company sold investments and
used the proceeds to fund share repurchases. Investments in leased and available
for lease assets totaled $3,042,000 and included the purchase of $1,106,000 in
slot games, $1,082,000 in Chipper Champ(TM) chip sorting machines under the
Company's joint marketing agreement with TCS America, Inc., and the transfer of
$854,000 in shufflers and table games from inventory. The Company also invested
$3,384,000 in intellectual property, including the Three Card Poker(R) table
game and other licenses and patents for slot and shuffler products.

      Cash flows from financing activities used $4,770,000 in fiscal 1999. The
Company repurchased 585,000 shares of its common stock at a total cost of
$4,592,000 during fiscal 1999. At October 31, 1999, there was an outstanding
authorization for share repurchases of up to 151,500 of common stock, at
specific price limits set by the Board of Directors.

      CAPITAL RESOURCES

      The Company did not have any long-term debt or capital leases in fiscal
1999, except for the debt incurred by the Company to acquire intellectual
property from a related party. As of October 31, 1999, the long-term balance
remaining under this acquisition was $677,000 compared to $1,217,000 as of
October 31, 1998, a reduction of $540,000 due to payments made in cash and stock
during fiscal 1999.

IMPACT OF INFLATION

      To date, inflation has not had a material effect on the Company's
operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Not applicable.








                                       20
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS                                          PAGE

Independent Auditors' Report                                            22

Consolidated Statements of Income for the
years ended October 31, 2000, 1999, and 1998                            23

Consolidated Balance Sheets as of October 31, 2000 and 1999             24

Consolidated Statements of Changes in Shareholders' Equity
for the years ended October 31, 2000, 1999, and 1998                    25

Consolidated Statements of Cash Flows for the years
ended October 31, 2000, 1999, and 1998                                  26

Notes to Consolidated Financial Statements                              27 - 36

Quarterly Financial Data                                                37










                                       21


<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Shuffle Master, Inc.:

      We have audited the accompanying consolidated balance sheets of Shuffle
Master, Inc. (the "Company") as of October 31, 2000 and 1999, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended October 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Shuffle Master, Inc. as of
October 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended October 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.



Minneapolis, Minnesota
December 15, 2000                                    DELOITTE & TOUCHE LLP


                                       22


<PAGE>


                        CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                                                 YEAR ENDED OCTOBER 31,
                                           ---------------------------------
                                             2000        1999         1998
                                           --------    --------     --------
REVENUE:
    Shuffler lease                         $ 13,118    $ 11,168     $  9,807
    Shuffler sales and service                8,900       5,846        7,554
    Table games                              12,198       9,626        7,864
    Slot games                                2,136       1,097        1,707
    Other                                     2,508       1,189          192
                                           --------    --------     --------
     TOTAL REVENUE                           38,860      28,926       27,124
                                           --------    --------     --------
COSTS AND EXPENSES:
    Cost of products                         10,456       9,142        9,578
    Selling, general and administrative      10,297       8,493        9,336
    Research and development                  4,958       3,468        2,462
    Royalty settlement                           --       2,750           --
    Office relocation expenses                   --        (213)       1,435
                                           --------    --------     --------
     TOTAL COSTS AND EXPENSES                25,711      23,640       22,811
                                           --------    --------     --------
Income from operations                       13,149       5,286        4,313

     Other income, net                          293         337          880
                                           --------    --------     --------
Income before income taxes                   13,442       5,623        5,193

     Provision for income taxes               4,905       2,025        1,850
                                           --------    --------     --------
NET INCOME                                 $  8,537    $  3,598     $  3,343
                                           ========    ========     ========

EARNINGS PER COMMON SHARE, BASIC           $    .79    $    .30     $    .23
                                           ========    ========     ========
EARNINGS PER COMMON SHARE,
   ASSUMING DILUTION                       $    .75    $    .30     $    .23
                                           ========    ========     ========
WEIGHTED AVERAGE COMMON SHARES, BASIC        10,872      11,882       14,537
                                           ========    ========     ========
WEIGHTED AVERAGE COMMON SHARES,
    ASSUMING DILUTION                        11,405      11,942       14,630
                                           ========    ========     ========


                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       23
<PAGE>


                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                     ASSETS
<TABLE>
<CAPTION>
                                                                            AS OF OCTOBER 31,
                                                                           ------------------
                                                                             2000       1999
                                                                           -------    -------
<S>                                                                        <C>        <C>
CURRENT ASSETS:
     Cash and cash equivalents                                             $ 2,810    $ 1,476
     Investments                                                             3,809      4,165
     Accounts receivable, net                                                4,571      3,482
     Current portion of note receivable from related party                      17         74
     Inventories                                                             6,194      4,524
     Deferred income taxes                                                     580      1,470
     Other current assets                                                      594        762
                                                                           -------    -------

        Total current assets                                                18,575     15,953

SYSTEMS AND EQUIPMENT LEASED AND HELD FOR LEASE, NET                         6,676      5,309

PROPERTY AND EQUIPMENT, NET                                                  2,441      2,628

INTANGIBLE ASSETS, NET                                                       5,802      5,717

NON-CURRENT DEFERRED INCOME TAXES                                              710        595

LONG-TERM NOTE RECEIVABLE FROM RELATED PARTY                                   300        300

OTHER ASSETS                                                                   110        103
                                                                           -------    -------

TOTAL ASSETS                                                               $34,614    $30,605
                                                                           =======    =======


                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                                      $ 1,489    $ 1,607
     Accrued liabilities                                                     2,576      4,632
     Current portion of obligation to related party                            580        546
     Customer deposits and unearned revenue                                  1,862      1,741
                                                                           -------    -------

        TOTAL CURRENT LIABILITIES                                            6,507      8,526


LONG-TERM OBLIGATION TO RELATED PARTY                                           97        677

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
     Common stock, $.01 par value; 45,000 shares authorized;
         10,876 and 11,212 shares issued and outstanding                       109        112
     Additional paid-in capital                                              5,317      7,243
     Retained earnings                                                      22,584     14,047
                                                                           -------    -------

        TOTAL SHAREHOLDERS' EQUITY                                          28,010     21,402
                                                                           -------    -------

        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                         $34,614    $30,605
                                                                           =======    =======
</TABLE>


                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       24
<PAGE>


                           CONSOLIDATED STATEMENTS OF
                         CHANGES IN SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                       COMMON STOCK        ADDITIONAL                  TOTAL
                                    ------------------      PAID-IN      RETAINED   SHAREHOLDERS'
                                    SHARES      AMOUNT      CAPITAL      EARNINGS     EQUITY
                                    ------     --------     --------     --------    --------
<S>                                 <C>        <C>          <C>          <C>         <C>
BALANCE, OCTOBER 31, 1997           14,952     $    150     $ 26,855     $  7,106    $ 34,111


Common stock repurchased            (3,000)         (30)     (15,912)          --     (15,942)
Common stock options exercised          38           --          194           --         194
Other common stock issued               32           --          189           --         189
Net income                              --           --           --        3,343       3,343
                                    ------     --------     --------     --------    --------

BALANCE, OCTOBER 31, 1998           12,022          120       11,326       10,449      21,895


Common stock repurchased              (878)          (8)      (4,584)          --      (4,592)
Common stock options exercised          35           --          156           --         156
Options issued for services             --           --          156           --         156
Other common stock issued               33           --          189           --         189
Net income                              --           --           --        3,598       3,598
                                    ------     --------     --------     --------    --------

BALANCE, OCTOBER 31, 1999           11,212          112        7,243       14,047      21,402

Common stock repurchased              (589)          (5)      (3,262)          --      (3,267)
Common stock options exercised         221            2        1,117           --       1,119
Options issued for services             --           --           30           --          30
Other common stock issued               32           --          189           --         189
Net income                              --           --           --        8,537       8,537
                                    ------     --------     --------     --------    --------

BALANCE, OCTOBER 31, 2000           10,876     $    109     $  5,317     $ 22,584    $ 28,010
                                    ======     ========     ========     ========    ========
</TABLE>


                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       25
<PAGE>


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                       YEAR ENDED OCTOBER 31,
                                                                 ----------------------------------
                                                                   2000         1999         1998
                                                                 --------     --------     --------
<S>                                                              <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                  $  8,537     $  3,598     $  3,343
     ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
     PROVIDED BY OPERATING ACTIVITIES:
          Depreciation and amortization                             4,742        4,416        3,739

          Office relocation and other charges                          --         (213)       2,650
          Provision for bad debts                                       7          139          171
          Provision for inventory obsolescence                        525          470          326

          Deferred income taxes                                       775       (1,250)        (737)

          Stock options issued for services                            30          156           --
     CHANGES IN OPERATING ASSETS AND LIABILITIES
          Accounts and notes receivable                            (1,096)          81        1,481
          Notes receivable from related party                          57          268          (23)
          Inventories                                              (2,195)      (2,689)        (314)
          Other current assets                                        168           65         (285)
          Accounts payable and accrued liabilities                 (2,173)       3,495         (296)
          Customer deposits and unearned revenue                      121           81         (286)

          Other                                                        --           --         (198)
                                                                 --------     --------     --------
          Net cash provided by operating activities                 9,498        8,617        9,571
                                                                 --------     --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of investments                                      (6,376)     (10,080)     (22,199)
     Proceeds from the sales and maturities of investments          6,732       11,823       31,544

     Proceeds received on note receivable                              --           --          378
     Investment in products leased and held for lease              (4,231)      (3,042)        (212)
     Purchases of property and equipment                             (502)        (378)        (668)

     Purchases of intangible assets                                (1,255)      (3,384)          --

     Other                                                            (26)         126         (843)
                                                                 --------     --------     --------
          Net cash provided (used) by investing activities         (5,658)      (4,935)       8,000
                                                                 --------     --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Repurchase of common stock                                    (3,267)      (4,592)     (15,942)
     Payments on long-term obligation to related party               (357)        (334)        (312)
     Proceeds from issuance of common stock                         1,118          156          194
                                                                 --------     --------     --------
          Net cash used by financing activities                    (2,506)      (4,770)     (16,060)
                                                                 --------     --------     --------

     NET DECREASE IN CASH AND CASH EQUIVALENTS                      1,334       (1,088)       1,511
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                        1,476        2,564        1,053
                                                                 --------     --------     --------
CASH AND CASH EQUIVALENTS, END OF YEAR                           $  2,810     $  1,476     $  2,564
                                                                 ========     ========     ========
NON-CASH TRANSACTION:
     Payment of obligation to related party with common stock    $    189     $    189     $    189
                                                                 ========     ========     ========
CASH PAID FOR:
     Income taxes                                                $  4,030     $  2,704     $  2,017
                                                                 ========     ========     ========
     Interest                                                    $     45     $     81     $     91
                                                                 ========     ========     ========
</TABLE>


                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       26
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      DESCRIPTION OF BUSINESS:

      Shuffle Master, Inc. (the "Company") is a supplier of card shuffler
products, table and slot games, and gaming related software to the gaming
industry. The foundation of the Company's business has been the development,
manufacturing and marketing of automatic card shufflers and table games, with
slot games and operating system software having been added more recently. The
Company's current shuffler offering is available to casinos through either a
purchase or lease option, table game products are available on a monthly license
basis, and slot games and the Company's operating system are generally offered
on a daily fee basis. The Company markets its shuffler products in most domestic
gaming jurisdictions directly, and internationally through representatives and a
distributor. During fiscal 2000 the Company also distributed and serviced a line
of casino chip sorting machines and accessories.

      PRINCIPLES OF CONSOLIDATION:

      The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated.

      INVENTORIES:

      Inventories are stated at the lower of cost (which approximates first-in,
first-out cost) or market.

      LEASING OPERATIONS:

      Shufflers leased to customers pursuant to operating leases and shufflers
held for lease are stated at cost. Depreciation on leased shufflers is
calculated using the straight-line method over three to four years. The Company
provides maintenance on its shufflers on lease as part of its normal lease
agreement. Leases generally require prepayment of two months lease payments
which are included on the consolidated balance sheets as customer deposits. The
Company licenses its proprietary gaming machine operating system and proprietary
games for a monthly license fee.

      REVENUE RECOGNITION:

      The Company recognizes sales revenue upon the shipment of shuffler units
for which it has signed orders. If a customer purchases an existing leased
shuffler system, revenue is recorded on the effective date of the purchase.
Shuffler lease revenue is generated on a monthly basis, generally through
indefinite term operating leases. Table and slot revenue is generated by monthly
or daily fixed license fees, revenue participation license and royalty fees, and
equipment sales and leases. The Company also recognizes revenue through the sale
of service and warranty contracts on its sold shufflers. Prepaid service and
warranty contracts are included in the consolidated balance sheets as unearned
revenue. Revenue on service and warranty contracts is recognized on a straight
line basis over the life of the contract.

      RESEARCH AND DEVELOPMENT:

      Research and development costs are expensed as incurred.

      CONCENTRATION OF CREDIT RISK:

      The Company has a concentration of credit risk in so far as all of its
receivables are with customers in the gaming industry. The Company has no
material concentration of accounts receivable among any of its casino customers.

      PROPERTY AND EQUIPMENT:

      Property and equipment is stated at cost. Depreciation and amortization is
recorded using the straight-line method over the estimated useful life of the
asset of three to five years, or lease terms for leasehold improvements.


                                       27
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


      INTANGIBLE ASSETS:

      Intangible assets include purchased intellectual property for games,
patents, trademarks, copyrights and licenses. Intangible assets are amortized
over a period of three to ten years, commencing with receipt of related revenue.

      INVESTMENT IN JOINT VENTURES:

      The Company uses the equity method for accounting for its investment in
its Five Deck Frenzy(R) joint venture with IGT.

      EARNINGS PER COMMON SHARE:

      Basic earnings per common share is calculated using income available to
common shareholders divided by the weighted average number of common shares
outstanding and to be issued during the year. Diluted earnings per common share
is similar to basic except that the weighted average number of common shares
outstanding is increased to give effect to all potential dilutive common shares
outstanding during the period.

      IMPAIRMENT OF LONG-LIVED ASSETS:

      Management periodically reviews the carrying value of long-lived assets
for potential impairment by comparing the carrying value of these assets to the
estimated undiscounted future cash flows expected to result from the use of
these assets. Should the sum of the related, expected future net cash flows be
less than the carrying value, an impairment loss would be recognized. An
impairment loss would be measured by the amount by which the carrying value of
the asset exceeds the fair value of the asset with fair value being determined
using discounted cash flows.

      USE OF ESTIMATES:

      Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenue
and expenses. Actual results could vary from the estimates that were used.

      RECENTLY ISSUED ACCOUNTING STANDARDS:

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and is
effective for the Company's year ending October 31, 2001. The adoption of SFAS
No. 133 in fiscal year 2001 will not have an impact on the consolidated
financial statements.

      In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 clarifies existing accounting principles related to revenue
recognition in financial statements. The Company is required to comply with the
provisions of SAB 101 in its first quarter of the year ending October 31, 2001.
Based upon the current nature of the Company's continuing operations, management
does not believe that SAB 101 will have a significant impact on the Company's
results of operations.

      In March 2000, the Financial Accounting Standards Board of the AICPA
issued FASB Interpretation 44, "Accounting for Certain Transactions involving
Stock Compensation" ("FIN 44"), which provides clarification on the application
of Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and is effective for the Company's year ending October 31, 2000. The
adoption of FIN 44 in fiscal year 2000 did not have an impact on the Company's
results of operations.

      RECLASSIFICATIONS:

      Certain reclassifications have been made to the October 31, 1999 and 1998
Consolidated Financial Statements to conform to the October 31, 2000 financial
statement presentation. These reclassifications had no effect on the operating
results for the years ended October 31, 1999 and 1998, as previously reported.


                                       28
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2.    FINANCIAL INSTRUMENTS:

      CASH AND CASH EQUIVALENTS:

      Cash and cash equivalents include short-term investments with original
maturities of three months or less.

      INVESTMENTS:

      The Company classifies all of its securities as available-for-sale. The
Company records investments at fair market value, which, as of October 31, 2000
and 1999, approximated amortized cost.

      Investments at fair value consisted of the following:

AS OF OCTOBER 31,                                          2000            1999
-----------------                                        -------         -------
(IN THOUSANDS)
United States Government and Agency Obligations          $ 3,809         $ 2,232
Corporate Bonds                                               --           1,933
                                                         -------         -------
                                                         $ 3,809         $ 4,165
                                                         =======         =======

      FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS:

      The estimated fair value of accounts receivable, notes receivable, and
accounts payable approximates the carrying value due to the relatively
short-term nature of the instruments.

3.  OTHER FINANCIAL STATEMENT DATA:

      The following provides additional disclosures for selected information
from the consolidated financial statements:

AS OF OCTOBER 31,                                          2000         1999
-----------------                                        --------     --------
(IN THOUSANDS)
ACCOUNTS RECEIVABLE, NET:

Trade receivables                                        $  4,781     $  3,617
Less: Allowance for doubtful accounts                        (210)        (135)
                                                         --------     --------
                                                         $  4,571     $  3,482
                                                         ========     ========
INVENTORIES:
Raw materials and component parts                        $  3,294     $  2,598
Work-in-process                                               823          564
Finished goods                                              2,077        1,362
                                                         --------     --------
                                                         $  6,194     $  4,524
                                                         ========     ========
SYSTEMS AND EQUIPMENT LEASED AND HELD FOR LEASE, NET:
Game equipment                                           $ 10,176     $  8,939
Gaming products                                             4,292        3,972
                                                         --------     --------
                                                           14,468       12,911
Less: Accumulated depreciation                             (7,792)      (7,602)
                                                         --------     --------
                                                         $  6,676     $  5,309
                                                         ========     ========
PROPERTY AND EQUIPMENT, NET:
Office furniture and computer equipment                  $  2,495     $  2,005
Leasehold improvements                                      2,072        2,045
Production equipment and other                                639          912
                                                         --------     --------
                                                                         5,206
                                                                         4,962
Less: Accumulated depreciation                             (2,765)      (2,334)
                                                         --------     --------
                                                         $  2,441     $  2,628
                                                         ========     ========


                                       29
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


INTANGIBLE ASSETS, NET:
Purchased table games                        $ 3,400     $ 3,000
Purchased slot games                           3,370       3,370
Patents and licenses                           1,540         685
                                             -------     -------
                                                           8,310
                                                           7,055
Less: Accumulated amortization                (2,508)     (1,338)
                                             -------     -------
                                             $ 5,802     $ 5,717
                                             =======     =======

ACCRUED LIABILITIES:
Compensation                                 $ 1,781     $   939
Income Taxes                                     352         542
Royalty Settlement                                --       2,750
Facilities relocation and related charges         --         154
Other                                            443         247
                                             -------     -------
                                             $ 2,576     $ 4,632
                                             =======     =======


YEAR ENDED OCTOBER 31,                        2000        1999        1998
----------------------                      --------    --------    --------
(IN THOUSANDS)
COST OF PRODUCTS:
Game equipment                              $  6,768    $  6,220    $  6,757
Gaming products                                3,688       2,922       2,821
                                            --------    --------    --------
                                            $ 10,456    $  9,142    $  9,578
                                            ========    ========    ========

OTHER INCOME, NET:
Interest income                             $    338    $    418    $    971
Interest expense                                 (45)        (81)        (91)
                                            --------    --------    --------
                                            $    293    $    337    $    880
                                            ========    ========    ========


4.    FACILITIES RELOCATION AND OTHER CHARGES:

      In the third quarter of fiscal 1998, the Company recorded a pre-tax charge
of $2,650,000 ($1,680,000 or $.11 per diluted share, after tax), due to the
relocation of the Company's administrative functions and manufacturing
operations from Minneapolis, Minnesota to Las Vegas, Nevada, and decreases in
the valuation of certain assets. Relocation related charges of $1,435,000 were
recorded for employee severance, facility related asset write-offs, and office
lease cancellation costs. The Company determined that it would terminate 47
employees in its production, administrative and research and development
departments, resulting in severance and termination benefit charges of
$1,050,000. The Company recorded a write-down of $940,000 against inventories of
certain single deck shufflers and component parts, in advance of the planned
introduction of the next generation of single deck shuffler model. This charge
was included in the cost of products. In addition, miscellaneous assets totaling
$275,000 were written off and recorded in selling, general and administrative
expenses. The cash and non-cash components of the charge approximated $1,170,000
and $1,480,000, respectively.

      As of October 31, 2000, the Company had paid all related severance
benefits.
<TABLE>
<CAPTION>
                                                                                  LIABILITY
                                                1998                            AS OF OCTOBER
                                               CHARGE     UTILIZED    NOT USED    31, 2000
(IN THOUSANDS)                                 ------      ------      ------      ------
<S>                                            <C>         <C>         <C>         <C>
Write-down of assets                           $1,423      $1,423      $   --      $   --
Employee severance and termination benefits     1,050         851         199          --
Other                                             177         163          14          --
                                               ------      ------      ------      ------
                                               $2,650      $2,437      $  213      $   --
                                               ======      ======      ======      ======
</TABLE>


                                       30
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


5.    INCOME TAXES:

      Deferred income taxes are recorded to reflect the income tax consequences
in future years between the financial reporting and income tax bases of assets
and liabilities using current tax laws and statutory rates. Income tax expense
is the sum of the tax currently payable and the change in deferred taxes during
the period.

      The components of the provision for income taxes are as follows for the
years ended October 31:

                           2000       1999        1998
(IN THOUSANDS)           -------    -------     -------
CURRENT:
   Federal               $ 3,640    $ 2,817     $ 2,185
   State                     400        388         307
   Foreign                    90         70          95
                         -------    -------     -------
                           4,130      3,275       2,587
DEFERRED                     775     (1,250)       (737)
                         -------    -------     -------
                         $ 4,905    $ 2,025     $ 1,850
                         =======    =======     =======


      Deferred tax assets and liabilities consisted of the following as of
October 31:

(IN THOUSANDS)                                               2000      1999
                                                           ------    ------
CURRENT DEFERRED TAX ASSETS:
    Joint venture                                          $  218    $  263
    Inventory write-down and asset valuation allowances       164        54
    Accrued vacation                                           60        45
    Royalty settlement                                         --       990
    Facilities relocation and related charges                  --        37
    Other                                                     138        81
                                                           ------    ------
                                                           $  580    $1,470
                                                           ======    ======

NON-CURRENT DEFERRED TAX ASSETS:
    Intangibles amortization                               $  493    $  238
    Depreciation                                              149       244
    Options issued for services                                68        55
    Research and experimental                                  --        58
                                                           ------    ------
                                                           $  710    $  595
                                                           ======    ======

      The Company recognized no valuation allowance as of October 31, 2000 and
1999 to offset its deferred tax assets. Management believes that it is more
likely than not that the Company will realize the full benefit of its deferred
tax assets on the basis of its evaluation of the Company's anticipated
profitability over the years when the underlying temporary differences are
expected to become tax deductions.

      The reconciliation of the federal statutory rate to the effective income
tax rate for the years ended October 31 are as follows:

                                                2000      1999      1998
                                                -----     -----     -----
Federal income tax at the statutory rate        34.0%     34.0%     34.0%
State income taxes, net of federal benefit       2.3       3.6       3.8
Benefit due to foreign sales corporation        (1.3)     (2.7)     (3.0)
Other                                            1.5       1.1        .8
                                                -----     -----     -----
Effective tax rate                              36.5%     36.0%     35.6%
                                                =====     =====     =====


                                       31
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


6.    CREDIT AGREEMENT:

      In September 1999, the Company entered into a $10,000,000 revolving credit
agreement with a bank for working capital needs, stock repurchases, new product
rollouts and the acquisition of new games. Borrowing under the credit agreement
must be repaid no later than October 6, 2002, though the Company may annually
request that the maturity of the credit agreement be extended by another year,
which it did and the bank accepted in October 2000.

      Additionally, current borrowings are limited in amount to the lesser of
$10,000,000 or twice the Company's earnings before interest, taxes,
depreciation, and amortization for the most recent cumulative four quarters. The
Company may borrow funds, provided, however, that it maintains certain current
debt service coverage and interest coverage ratios. The interest rate on
borrowings under the credit agreement will be, at the Company's option, either
the bank's prime rate or LIBOR, either adjusted for a premium determined by the
Company's leverage ratio as of the most recent quarter. Borrowings under the
credit agreement are secured by substantially all accounts receivable,
inventory, and products leased and held for lease. The Company had no
outstanding borrowings under the credit agreement during the year ended October
31, 2000.

7.    COMMITMENTS AND CONTINGENCIES:

      OPERATING LEASES:
      The Company leases office, production, warehouse and service facilities,
and service vans under operating leases. The facility leases are for a period of
four to ten years, have renewal options of three to fifteen years, and include
an allocation of real estate taxes and other operating expenses. Total rent
expense under operating leases was $688,000, $525,000 and $707,000 for the years
ended October 31, 2000, 1999, and 1998, respectively.

Estimated future minimum lease payments under operating leases as of October 31,
2000, are as follows:

YEAR ENDED OCTOBER 31,
(IN THOUSANDS)

2001                                  $   607
2002                                      465
2003                                      360
2004                                      250
2005                                      250
Thereafter                                459
                                      -------
                                      $ 2,391
                                      =======

      CONTINGENCIES:

      In the ordinary course of conducting its business, the Company becomes
involved in litigation, administrative proceedings and regulatory government
investigations. The Company believes that the final disposition of these matters
will not have a material adverse effect on its financial position, results of
operations or liquidity.

8.    STOCK OPTIONS:

      In November 1993, the Company's Board of Directors adopted the 1993 Stock
Option Plan. The plan permits the granting of incentive stock options meeting
the requirements of Section 422 of the Internal Revenue Code, and nonqualified
options which do not meet the requirements of Section 422. A total of 1,815,000
shares of the Company's common stock have been reserved for issuance under the
plan. In November 2000, an additional 450,000 shares were added to the reserved
shares under the plan by the Board of Directors. The addition of these shares to
the plan is subject to shareholder approval at the March 2001 shareholders'
meeting.

      In November 1993, the Company's Board of Directors adopted the Outside
Directors' Option Plan for the purpose of compensating outside directors with
grants of stock options upon their election and re-election to the Board. There
will be an annual option grant of 4,500 shares to each eligible director at a
price equal to the fair market value on the date of the grant. Each


                                       32
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


option is immediately exercisable and expires seven years from the grant date. A
total of 225,000 shares of the Company's stock have been reserved for issuance
under the plan.

      The Board of Directors granted to consultants options to purchase 60,000
shares at $4.67 per share in fiscal 1999 and options to purchase 15,000 shares
at prices ranging from $6.71 to $11.50 per share in fiscal 2000.

      A summary of stock option activity and weighted average exercise prices
follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,                 2000                1999               1998
-----------------------           ----------------    ---------------    ---------------
                                         EXERCISE            EXERCISE           EXERCISE
(SHARES IN THOUSANDS)             SHARES    PRICE     SHARES    PRICE    SHARES    PRICE
                                  ----------------    ---------------    ---------------
<S>                               <C>       <C>        <C>     <C>        <C>     <C>
Outstanding beginning of year     1,793     $ 5.87     1,685   $ 5.93     1,473   $ 6.09
Granted                             276       6.55       191     4.83       408     5.63
Exercised                          (221)      5.07       (34)    4.39       (38)    5.19
Forfeited                          (159)      5.86       (49)    5.79      (158)    6.59
                                  ----------------    ---------------    ---------------
Outstanding at end of year        1,689       6.07     1,793   $ 5.86     1,685   $ 5.95
                                  ================    ===============    ===============
Exercisable end of year           1,334     $ 6.03     1,328   $ 6.00       971   $ 6.00
                                  ================    ===============    ===============
</TABLE>

      The following table summarizes information concerning options outstanding
and options exercisable as of October 31, 2000:
<TABLE>
<CAPTION>
(SHARES IN THOUSANDS)             WEIGHTED
                                   AVERAGE     WEIGHTED                WEIGHTED
                                  REMAINING    AVERAGE                 AVERAGE
     RANGE OF        OPTIONS     CONTRACTUAL   EXERCISE    OPTIONS     EXERCISE
 EXERCISE PRICES   OUTSTANDING      LIFE         PRICE    EXERCISABLE    PRICE
 ---------------   -----------   -----------   --------   -----------  ---------
<S>   <C>  <C>          <C>           <C>        <C>           <C>        <C>
      $3 - $6           67            3.8        $3.97         67         $3.97
      $6 - $9        1,152            6.5         5.44        875          5.45
      $9 - $12         353            6.3         7.14        317          7.21
     $12 - $20         117            6.5        10.31         75          9.73
                   ------------------------------------   ----------------------
                     1,689            6.3         6.07      1,334          6.03
                   ====================================   ======================
</TABLE>

      The Company follows the guidance of APB No. 25 for measurement and
recognition of stock-based transactions with employees and directors. No
compensation cost has been recognized for stock options issued to employees and
directors since the exercise price for all options granted was at least equal to
the fair value of the common stock on the date of grant. If compensation cost
for the Company's stock option plans had been determined based on the fair value
at the grant dates for grants during fiscal 2000, 1999, and 1998, the Company's
net income and earnings per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,                                              2000      1999       1998
----------------------                                            -------    -------    -------
<S>                                                               <C>        <C>        <C>
Net income (IN THOUSANDS):
      As reported                                                 $ 8,537    $ 3,598    $ 3,343
      Pro forma                                                     7,826      3,181      2,987

Earnings per common share, basic:
      As reported                                                 $   .79    $   .30    $   .23
      Pro forma                                                       .72        .27        .21

Earnings per common share, assuming dilution:
      As reported                                                 $   .75    $   .30    $   .23
      Pro forma                                                       .69        .27        .21

Weighted average fair value of options granted during the year    $  6.43    $  5.13    $  5.69
</TABLE>


                                       33
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


      The fair value of options granted during fiscal 2000, 1999, and 1998 was
estimated on the date of grant using the Black-Sholes option-pricing model with
the following weighted average assumptions and results:

YEAR ENDED OCTOBER 31,               2000           1999           1998
----------------------            ----------     ----------     ----------
Dividend yield                          None           None           None
Expected volatility                    52.4%          60.9%          58.6%
Risk-free interest rate                 5.9%           6.2%           5.5%
Expected life of options          8.79 years     8.14 years     9.75 years

         The Black-Sholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock based compensation has
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can significantly affect the
fair value estimate, in management's opinion, use of the existing models for
valuation does not necessarily provide a reliable single measure of the fair
value of its employee stock based compensation.

9.    EARNINGS PER COMMON SHARE:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,                                                2000      1999       1998
----------------------                                              -------    -------    -------
 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
<S>                                                                 <C>        <C>        <C>
NET INCOME                                                          $ 8,537    $ 3,598    $ 3,343
                                                                    =======    =======    =======
BASIC:
    Weighted average shares outstanding                              10,832     11,810     14,432
    Shares to be issued under asset purchase                             40         72        105
                                                                    -------    -------    -------

    Weighted average common shares, basic                            10,872     11,882     14,537
                                                                    =======    =======    =======
    Earnings per common share, basic                                $   .79    $   .30    $   .23
                                                                    =======    =======    =======

ASSUMING DILUTION:
    Weighted average common shares, basic                            10,872     11,882     14,537
    Dilutive impact of options outstanding                              533         60         93
                                                                    -------    -------    -------
    Weighted average common shares and potential dilutive shares
         outstanding                                                 11,405     11,942     14,630
                                                                    =======    =======    =======
    Earnings per common share, assuming dilution                    $   .75    $   .30    $   .23
                                                                    =======    =======    =======
</TABLE>

10.    SHAREHOLDERS' EQUITY:

      COMMON STOCK:

      As of October 31, 2000, the Company was authorized to repurchase an
additional $2,000,000 of its shares within specified price limits as a result of
a January 2000 Board of Director resolution.

      PREFERRED STOCK:

      On June 26, 1998, the Board of Directors designated and established
100,031 shares of no par value Series A Junior Participating Preferred Stock
(Preferred Stock). Holders of Preferred Stock are entitled to one hundred votes
on any matters submitted to vote by the shareholders of the Company, an
aggregate dividend of one hundred times any dividend declared on common stock
and a liquidation preference of one hundred times any liquidation payment amount
to common shareholders. No shares of Preferred Stock have been issued.


                                       34
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


      SHAREHOLDER RIGHTS PLAN:

      On June 26, 1998, the Board of Directors of the Company adopted a
shareholder rights plan and declared a dividend distribution of one preferred
stock purchase right (a Right) for each outstanding common share to shareholders
of record on July 10, 1998. Additionally, the Board of Directors further
authorized and directed the issuance of one Right for each share of common stock
that shall become outstanding between July 10, 1998, and the earliest of the
Distribution Date, Redemption Date and the Final Expiration Date, all as defined
in the plan.

      Each Right will entitle the registered holder (unless the holder is an
Acquiring Person, as defined) to purchase from the Company one one-hundredth of
a share of Preferred Stock at $18 per one one-hundredth of a share of Preferred
Stock, subject to adjustments (the Purchase Price). The Rights generally become
exercisable if a person or group acquires, or tenders for, 20% or more of the
Company's common shares. In such event, upon exercise of the Right, the holder
of a Right may receive common shares having a value of two times the Purchase
Price.

      The Rights will expire on June 26, 2008, unless they become exercisable or
are amended before that date, but may be redeemed by the Company for $.01 per
Right. After a person or group becomes an Acquiring Person, the Rights may not
be redeemed and may only be amended in limited circumstances.

11.   RELATED PARTY TRANSACTIONS:

      In fiscal 1997, the Company advanced $300,000 to its Chief Executive
Officer and Chairman of the Board. This note receivable was amended in May 2000
to mature in January 2004, to bear interest at seven percent, and to be secured
by a right of offset against the Company's obligation to pay its Chief Executive
Officer under an employment agreement. As of October 31, 2000, the balance of
the note receivable was $310,500, including $10,500 in accrued interest due by
January 2001.

      The Company has a non-interest bearing obligation to its President related
to the purchase of certain intellectual property, payable in cash and common
stock. The cash portion of the obligation has been discounted at a rate of seven
percent. The obligation is payable as follows:

YEAR ENDING OCTOBER 31,
-----------------------
(IN THOUSANDS)
2001                                  $   580
2002                                       97
                                      -------
                                          677
Less:  current portion                   (580)
                                      -------
                                      $    97
                                      =======
12.   DEFINED CONTRIBUTION PLAN:

      The Company sponsors a defined contribution plan, which qualifies under
Section 401(k) of the Internal Revenue Code and covers employees who meet
certain age and service requirements. The Company may make matching
contributions to the plan based on a percentage of employee compensation and
actual contributions. In the fiscal years ended October 31, 2000 and 1999, the
Company elected to make matching contributions of 50% of employee contributions
up to 4% of compensation, totaling $94,000 and $71,000, respectively. However,
no matching contributions were made to the plan during the fiscal year ended
October 31, 1998.

13.   EXPORT SALES:

      In fiscal 2000, 1999, and 1998, the Company had export shuffler sales and
shuffler lease revenue, primarily to Canada and Australia, which totaled 22%,
17%, and 24%, respectively, of total revenue.

14.   OPERATING SEGMENTS:

         The Company operates in two business segments: game equipment and
gaming products. The game equipment segment includes the manufacturing,
marketing, installation and servicing of the Company's proprietary shuffler
product line as well as the distribution and servicing of casino chip sorting
machines and accessories all for sale or recurring lease revenue. The gaming


                                       35
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


products segment includes the design, marketing, installation and servicing of
proprietary table games and slot games and the Company's new slot operating
system. Gaming products generally produce recurring revenue through fixed or
participation leases and licenses. The Company does not allocate corporate
expenses to its business segments. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision maker is the Chief Executive Officer.

YEAR ENDED OCTOBER 31,               2000         1999         1998
----------------------             --------     --------     --------
(IN THOUSANDS)
REVENUE
     Game equipment                $ 23,826     $ 18,203     $ 17,361
     Gaming products                 15,034       10,723        9,763
                                   --------     --------     --------
                                     38,860       28,926       27,124
                                   ========     ========     ========

OPERATING INCOME
     Game equipment                  14,052        9,896        8,250
     Gaming products                  6,239        1,155        4,084

     Corporate                       (7,143)      (5,765)      (8,021)
                                   --------     --------     --------
                                     13,149        5,286        4,313
                                   ========     ========     ========

DEPRECIATION AND AMORTIZATION
     Game equipment                   1,836        1,948        1,536
     Gaming products                  2,270        1,609        1,154
     Corporate                          636          859        1,049
                                   --------     --------     --------
                                      4,742        4,416        3,739
                                   ========     ========     ========

ASSETS
     Game equipment                  12,637        8,644        6,472
     Gaming products                 11,200       10,388        7,736
     Corporate                       10,777       11,573       14,085
                                   --------     --------     --------
                                     34,614       30,605       28,293
                                   ========     ========     ========

CAPITAL EXPENDITURES

     Game equipment                   3,272        1,960           --
     Gaming products                  2,222        4,466          212
     Corporate                          494          378          668
                                   --------     --------     --------
                                    $ 5,988     $  6,804     $    880
                                   ========     ========     ========


15.   SUBSEQUENT EVENT

      On October 13, 2000, the Board of Directors approved an increase in the
Company's authorized common stock from 30,000,000 shares to 45,000,000 shares as
well as a three for two split of the common stock. The par value of the common
stock remained $.01 per share. The stock split was effective November 30, 2000.

      The effect of the stock split was recognized retroactively in the
shareholders' equity accounts on the balance sheets as of October 31, 2000 and
1999, and in all share and per share data in the consolidated financial
statements and notes to the consolidated financial statements. Shareholders'
equity accounts have been restated to reflect the reclassification of an amount
equal to the par value of the increase in issued common shares from the capital
in excess of par value accounts to the common stock account.


                                       36
<PAGE>


                            QUARTERLY FINANCIAL DATA
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                               Quarter Ended
                                                             -------------------------------------------------
IN THOUSANDS, EXCEPT PER COMMON SHARE                         January 31    April 30    July 31    October 31
--------------------------------------------------------------------------------------------------------------
<S>                                                            <C>         <C>         <C>         <C>
FISCAL 2000
Revenue                                                        $  8,500    $  9,635    $  9,188    $ 11,537
Gross Profit                                                      5,838       7,001       6,671       8,894
Operating Income                                                  2,725       3,367       3,139       3,918
Net Income                                                        1,767       2,186       2,039       2,545
Earnings per Common Share, basic (2) (3)                            .16         .20         .19         .24
Earnings per Common Share, assuming dilution (2) (3)                .16         .19         .18         .22

FISCAL 1999
Revenue                                                        $  5,978    $  6,958    $  7,951    $  8,039
Gross Profit                                                      4,240       4,755       5,291       5,497
Operating Income (Loss)                                           1,512       1,888       2,289        (403)(1)
Net Income (Loss)                                                 1,033       1,269       1,501        (205)
Earnings (Loss) per Common Share, basic (2) (3)                     .09         .11         .13        (.02)
Earnings (Loss) per Common Share, assuming dilution (2) (3)         .09         .11         .13        (.02)
</TABLE>

(1)  The fourth quarter of 1999 included $2,750,000 of charges related to the
     settlement of the Company's litigation with Progressive Games, Incorporated
     and the payment of past royalties.

(2)  The sum of the quarterly earnings per common share does not equal the
     amount reported for the fiscal year as quarterly calculations are made
     independently during the fiscal year.

(3)  Quarterly per share amounts have been restated to reflect the effect of a
     three for two split of the Company's common stock effective as of November
     30, 2000.











                                       37
<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

      None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      (a)     Directors of the Registrant.
              The information under the caption "Election of Directors" in the
              Company's Fiscal 2000 Proxy Statement is incorporated herein by
              reference.

      (b)     Executive Officers of the Registrant.
              The information under the caption "Executive Officers" in the
              Company's Fiscal 2000 Proxy Statement is incorporated herein by
              reference.

      (c)     Compliance With Section 16 (a) of the Exchange Act.
              The information under the caption "Section 16 (a) Beneficial
              Ownership Reporting Compliance" in the Company's Fiscal 2000 Proxy
              Statement is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

      The information under the captions "Executive Compensation," "Compensation
of Directors," "Report of Compensation Committee on Executive Compensation" and
"Stock Performance Graph" in the Company's Fiscal 2000 Proxy Statement is
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Fiscal 2000 Proxy Statement
is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information under the caption "Certain Relationships and Related
Transactions" in the Company's Fiscal 2000 Proxy Statement is incorporated
herein by reference.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

          (a)1. Financial Statements

                  The following consolidated financial statements and
                  independent auditors' report are filed as part of this
                  Report on Form 10-K.

                    Independent Auditors' Report
                    Consolidated Statements of Income for the years ended
                    October 31, 2000, 1999, and 1998
                    Consolidated Balance Sheets as of October 31, 2000 and 1999
                    Consolidated Statements of Shareholders' Equity for the
                    years ended October 31, 2000, 1999, and 1998
                    Consolidated Statements of Cash Flows for the years ended
                    October 31, 2000, 1999 and 1998
                    Notes to Consolidated Financial Statements Quarterly
                    Financial Data (unaudited)


                                       38
<PAGE>


             2. Financial Statement Schedules

                    All financial statement schedules are omitted as the
                    required information is inapplicable or the information is
                    presented in the consolidated financial statements or
                    related notes.

             3. Exhibits

                    3.1  Articles of Incorporation of Shuffle Master, Inc. as
                         amended July 15, 1992, and June 23, 1995 (Incorporated
                         by reference to the same exhibit number in the
                         Company's Report on Form 10-K for the year ended
                         October 31, 1995)
                    3.2  Bylaws of Shuffle Master, Inc. (Incorporated by
                         reference to the same exhibit number included in the
                         Company's Registration Statement on Form S-18,
                         Registration No. 33-53994C).
                    3.3  Articles of Amendment of Articles of Incorporation of
                         Shuffle Master, Inc. as amended October 26, 2000.
                    10.1 Shuffle Master, Inc. 1993 Stock Option Plan
                         (Incorporated by reference to exhibit 10.8 included in
                         the Company's Registration Statement on Form SB-2,
                         Registration No. 33-72224)
                    10.2 Shuffle Master, Inc. Outside Directors' Option Plan
                         (Incorporated by reference to exhibit 10.7 included in
                         the Company's Registration Statement on Form SB-2,
                         Registration No. 33-72224)
                    10.3 Office lease dated August 9, 1995, between Shuffle
                         Master, Inc. and Airport Center Associates, a joint
                         venture of Airport Partners, and Copley Investors
                         Limited Partnership (Incorporated by reference to
                         exhibit 10.6 in the Company's Report on Form 10-K for
                         the year ended October 31, 1995)
                    10.4 Employment Contract, by and between Shuffle Master,
                         Inc. and Mark Yoseloff, dated March 7, 1997
                         (Incorporated by reference to exhibit 10.1 in the
                         Company's Report on Form 10Q for the quarter ended July
                         31, 1997)
                    10.5 Purchase Agreement, by and between Shuffle Master,
                         Inc., and Well Suited L.L.C., and Mark Yoseloff, dated
                         March 7, 1997 (Incorporated by reference to exhibit
                         10.2 in the Company's Report on Form 10Q for the
                         quarter ended July 31, 1997)
                    10.6 Purchase/License Agreement, by and between Shuffle
                         Master, Inc., and Visual Communications Consultants,
                         Inc. dba Advanced Gaming Concepts, and Mark Yoseloff,
                         dated March 7, 1997 (Incorporated by reference to
                         exhibit 10.3 in the Company's Report on Form 10Q for
                         the quarter ended July 31, 1997)
                    10.7 Termination of Employment Arrangement for Joseph J.
                         Lahti, as excerpted from the October 27, 1997 minutes
                         of the Board of Directors meeting (Incorporated by
                         reference to exhibit 10.10 in the Company's Report on
                         Form 10K for the year ended October 31, 1997)
                    10.8 Shareholder Rights Plan, dated June 26, 1998
                         (Incorporated by reference to the Company's Report on
                         Form 8K dated June 26, 1998)
                    10.9 Revolving Credit Note, dated September 30, 1999, by and
                         between Shuffle Master, Inc. and affiliates and U.S.
                         Bank National Association (Incorporated by reference to
                         exhibit 10.9 in the Company's Report on Form 10K for
                         the year ended October 31, 1999).
                   10.10 Credit Agreement, dated September 30, 1999, by and
                         between Shuffle Master, Inc. and affiliates and U.S.
                         Bank National Association (Incorporated by reference to
                         exhibit 10.10 in the Company's Report on Form 10K for
                         the year ended October 31, 1999).
                   10.11 Security Agreement, dated September 30, 1999, by and
                         between Shuffle Master, Inc. and affiliates and U.S.
                         Bank National Association (Incorporated by reference to
                         exhibit 10.11 in the Company's Report on Form 10K for
                         the year ended October 31, 1999).
                   10.12 Settlement Agreement, dated December 28, 1999, by and
                         between Shuffle Master, Inc., Progressive Games, Inc.
                         and Mikohn Gaming Corporation (Incorporated by
                         reference to exhibit 10.12 in the Company's Report on
                         Form 10K for the year ended October 31, 1999).
                   10.13 Non-exclusive License Agreement (Exhibit 4), dated
                         December 28, 1999, by and between Shuffle Master, Inc.
                         and Progressive Games, Inc. (Incorporated by reference
                         to exhibit 10.13 in the Company's Report on Form 10K
                         for the year ended October 31, 1999).
                   10.14 Non-exclusive License Agreement (Exhibit 5), dated
                         December 28, 1999, by and between Shuffle Master, Inc.
                         and Progressive Games, Inc. (Incorporated by reference
                         to exhibit 10.14 in the Company's Report on Form 10K
                         for the year ended October 31, 1999).


                                       39
<PAGE>


                   10.15 Exclusive License Agreement (Exhibit 6), dated
                         December 28, 1999, by and between Shuffle Master, Inc.,
                         Progressive Games, Inc. and Mikohn Gaming Corporation
                         (Incorporated by reference to exhibit 10.15 in the
                         Company's Report on Form 10K for the year ended October
                         31, 1999).
                   10.16 Non-exclusive License Agreement (Exhibit 7), dated
                         December 28, 1999, by and between Shuffle Master, Inc.,
                         Progressive Games, Inc. and Mikohn Gaming Corporation
                         (Incorporated by reference to exhibit 10.16 in the
                         Company's Report on Form 10K for the year ended October
                         31, 1999).
                   10.17 Cross Supplier Agreement (Exhibit 8), dated December
                         28, 1999, by and between Shuffle Master, Inc. and
                         Mikohn Gaming Corporation (Incorporated by reference to
                         exhibit 10.17 in the Company's Report on Form 10K for
                         the year ended October 31, 1999).
                   10.18 Executive Employment Agreement, by and between Shuffle
                         Master, Inc. and Joseph J. Lahti, dated November 1,
                         1999 (confidential treatment requested as to portions)
                         (Incorporated by reference to exhibit 10.18 in the
                         Company's Report on Form 10Q for the quarter ended July
                         31, 2000).
                   10.19 Executive Employment Agreement, by and between Shuffle
                         Master, Inc. and Gary W. Griffin, dated December 1,
                         1999 (confidential treatment requested as to portions)
                         (Incorporated by reference to exhibit 10.19 in the
                         Company's Report on Form 10Q for the quarter ended July
                         31, 2000).
                   10.20 Amendment to the Shuffle Master, Inc. 1993 Stock
                         Option Plan, dated September 30, 1995 (Incorporated by
                         reference to the specified exhibit in the Registrant's
                         Registration Statement on Form S-8, Registration No.
                         333-39060).
                   10.21 Amendment to the Shuffle Master, Inc. 1993 Stock
                         Option Plan, dated December 9, 1995 (Incorporated by
                         reference to the specified exhibit in the Registrant's
                         Registration Statement on Form S-8, Registration No.
                         333-39060).
                   10.22 Amendment to the Shuffle Master, Inc. 1993 Stock
                         Option Plan, dated March 29, 1996 (Incorporated by
                         reference to the specified exhibit in the Registrant's
                         Registration Statement on Form S-8, Registration No.
                         333-39060).
                   10.23 Amendment to the Shuffle Master, Inc. 1993 Stock
                         Option Plan, dated March 19, 1998 (Incorporated by
                         reference to the specified exhibit in the Registrant's
                         Registration Statement on Form S-8, Registration No.
                         333-39060).
                   10.24 Amendment to the Shuffle Master, Inc. 1993 Stock
                         Option Plan, dated October 26, 1998 (Incorporated by
                         reference to the specified exhibit in the Registrant's
                         Registration Statement on Form S-8, Registration No.
                         333-39060).
                   10.25 Amendment to the Shuffle Master, Inc. 1993 Stock
                         Option Plan, dated March 17, 1999 (Incorporated by
                         reference to the specified exhibit in the Registrant's
                         Registration Statement on Form S-8, Registration No.
                         333-39060).

          (b)   Reports on Form 8-K

                No reports on Form 8-K were filed during the fourth quarter of
     the year ended October 31, 2000.


                                       40
<PAGE>


                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                     SHUFFLE MASTER, INC.


Dated: January 29, 2001
                                                     By: /s/ Joseph J. Lahti
                                                         -----------------------
                                                         Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:


            Signature                        Title                    Date
            ---------                        -----                    ----

/s/ Joseph J. Lahti           Chief Executive Officer           January 29, 2001
---------------------         and Chairman of the Board
Joseph J. Lahti

/s/ Mark L. Yoseloff          President and Director            January 29, 2001
---------------------
Mark L. Yoseloff

/s/ Gary W. Griffin           Chief Financial Officer           January 29, 2001
---------------------
Gary W. Griffin

/s/ Gerald W. Koslow          Corporate Controller              January 29, 2001
---------------------
Gerald W. Koslow

/s/ Patrick R. Cruzen         Director                          January 29, 2001
---------------------
Patrick R. Cruzen

/s/ Thomas A. Sutton          Director                          January 29, 2001
---------------------
Thomas A. Sutton







                                       41