SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                    FORM 10-K

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

For the fiscal year ended December 31, 1998          Commission File No. 0-21754

                               SODAK GAMING, INC.
             (Exact name of registrant as specified in its charter)


                 SOUTH DAKOTA                                    46-0407053
(State or other jurisdiction of Incorporation or             (I.R.S. Employer
                organization)                               Identification No.)

              5301 S. HIGHWAY 16
           RAPID CITY, SOUTH DAKOTA                                 57701
   (Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code: (605) 341-5400

Securities registered pursuant to Section 12(b) of the Act: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                          Common Stock $0.001 par value
                                (Title of class)

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 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 the registrant's definitive proxy statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 19, 1999 was approximately $93,391,401 (based on the last
sale price of such stock as reported on the Nasdaq National Market).

The number of shares outstanding of the registrant's common stock, as of March
19, 1999, was: Common Stock, $0.001 par value: 22,789,908 shares.

DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information from the Registrant's definitive Proxy
Statements to be filed with the Commission within 120 days after the close of
the Registrant's fiscal year.

<PAGE>


                                TABLE OF CONTENTS


                                     PART I

Item 1.    Business                                                            3

Item 2.    Properties                                                         25

Item 3.    Legal Proceedings                                                  26

Item 4.    Submission of Matters to a Vote of Security Holders                26


                                   PART II

Item 5.    Market for Registrant's Common Stock and Related Stockholder       27
               Matters

Item 6.    Selected Financial Data                                            27

Item 7.    Management's Discussion and Analysis of Financial Condition        28
               and Results of Operations

Item 8.    Consolidated Financial Statements                                  41

Item 9.    Changes In and Disagreements With Accountants on Accounting        64
               and Financial Disclosures


                                    PART III

Item 10.   Directors and Executive Officers of the Registrant                 64

Item 11.   Executive Compensation                                             64

Item 12.   Security Ownership of Certain Beneficial Owners and                64
               Management

Item 13.   Certain Relationships and Related Transactions                     64


                                     PART IV

Item 14.   Exhibits, Consolidated Financial Statement Schedule                64
               and Reports on Form 8-K

           Signatures                                                         67

<PAGE>


                                     PART I

ITEM 1. BUSINESS

INTRODUCTION

     Sodak Gaming, Inc. (the Company or Sodak) is a leading distributor and
financier of gaming equipment and a broad range of gaming-related products and
services and a provider of wide area progressive systems, primarily to Native
American casinos. In addition, the Company operates the MISS MARQUETTE riverboat
casino entertainment facility (MISS MARQUETTE) in Marquette, Iowa.

     On March 11, 1999, the Company announced that a definitive agreement
(Merger Agreement) was signed whereby the Company would be acquired by a
wholly-owned subsidiary of International Game Technology (IGT) for $10 per share
in cash, totaling approximately $230 million (the Merger). The Company would
become a wholly-owned subsidiary under the terms of the Merger Agreement. The
transaction is subject to certain conditions, including regulatory approvals,
Sodak shareholder approval and IGT obtaining the financing required to fund the
transaction. In addition, as a further condition to closing, the Company is
expected to divest its wholly-owned riverboat casino entertainment complex, the
MISS MARQUETTE, and its 50% joint venture interest to develop a gaming riverboat
complex in Louisiana. The holders of a majority of the common stock of the
Company have agreed to vote in favor of the Merger. The transaction is expected
to close in the second half of 1999.

     In June 1998, the Company announced a corporate restructuring designed to
refocus the Company on its core businesses - product sales and wide area
progressive systems to Native American casinos - and the MISS MARQUETTE and to
limit future pursuit of gaming operations to North America. In connection with
the restructuring, the Company divested its Brazil operation in late July 1998.
The divestiture of its Peru and Ecuador operations in December 1998 concluded
the Company's exit from Latin America.

     Product sales are primarily derived from the sale and distribution of
gaming equipment manufactured by IGT under an exclusive distributorship
agreement which is in effect through May 2001, at which time it continues for
two-year renewal periods unless canceled by either party. The agreement grants
the Company the exclusive right to distribute IGT manufactured or assembled
gaming machines to casinos located on Native American lands in the United States
(except Nevada, New Jersey and Hawaii) and to non-Native American purchasers in
South Dakota, North Dakota and Wyoming. The agreement restricts the Company from
selling competing products and is subject to review and renewal upon significant
change in control of the Company (see "Relationship with IGT" on page 7). The
Company anticipates that its product sales activities and markets would be
unaffected by the pending acquisition by IGT (as described above).


                                      -3-
<PAGE>


     The Company also has an exclusive agreement with IGT to provide and market
wide area progressive systems to Native American casinos. Wide area progressive
systems link gaming machines in various casinos to a central computer which
builds a "progressive" jackpot which increases with every wager made throughout
the system. The systems are designed to increase gaming machine play for
participating casinos by giving players the opportunity to win jackpots
substantially larger or more frequent than those available from gaming machines
which are not linked to a progressive system. This agreement continues as long
as a progressive system is operating. The Company also has an exclusive
agreement with IGT to provide and market wide area progressive systems to
casinos in Deadwood, South Dakota. The Company anticipates that its wide area
progressive systems activities and markets would be unaffected by the pending
acquisition by IGT (see page 3).

     The Company has distributorship arrangements with several other
manufacturers and suppliers of gaming-related equipment and products.

     The Company provides financing for its product sales and has participated
in the development, equipping and financing of gaming ventures, such as the
Harrah's Phoenix Ak-Chin casino in Arizona, from which the Company participates
in Harrah's management fee.

     In October 1997, the Company entered into an agreement with subsidiaries of
Hollywood Casino Corporation (Hollywood) and New Orleans Paddlewheels (NOP) to
develop a riverboat casino, hotel and retail complex in Shreveport, Louisiana.
The proposed project, to be managed by Hollywood, received regulatory approval
by the Louisiana Gaming Control Board in September 1998. The project was
anticipated to be financed by an equity investment from the Company and
Hollywood equal to approximately 25% of the total estimated $185 million project
cost; the remaining 75% was anticipated to be financed through a debt offering
or other credit facility. During 1998, the Company invested $2.4 million in the
joint venture, but has no commitment to invest additional funds until financing
for the project is arranged. The debt financing for the project was anticipated
to occur in mid-1999, at which time it was anticipated that the Company and
Hollywood each would have invested approximately $21 million additional equity
in the joint venture.

     As a condition of the Merger Agreement with IGT (see page 3), the Company
is expected to divest its interest in the proposed Shreveport project. The
Company and Hollywood each effectively own 50% of the joint venture (subject to
a 10% residual interest by NOP in the event the operation is sold to a third
party). The Company accounts for the project on the equity method of accounting.
Through March 19, 1999, the joint venture has not incurred any significant
operating expenses.


                                      -4-
<PAGE>


BUSINESS STRATEGY

     The Company's business strategy is to maintain its dominant share of gaming
equipment sales in the Native American market and to expand its wide area
progressive systems. Prior to the Merger Agreement with IGT, the Company also
pursued strategies to maintain and increase its gaming operations in expanding
domestic gaming jurisdictions and to increase and strengthen its strategic
alliances with other companies in the gaming industry. If the pending Merger is
consummated (see page 3), the Company would no longer pursue gaming operations.

     The Company's business lines are: (i) product sales; (ii) wide area
progressive systems; (iii) gaming operations, which include a riverboat casino;
and (iv) financing. Management believes future growth may come from maintaining
its dominant market share in gaming machine sales and placing additional wide
area progressive systems and additional machines on the systems in Native
American casinos. However, there can be no assurance that such growth may occur
in the future, due primarily to gaming's dependence on its regulatory status and
public acceptance. Under the terms of the Merger Agreement with IGT (see page
3), the Company's prior strategy to pursue gaming operations is expected to
cease.


PRODUCT SALES STRATEGY

     The Company believes it will continue to maintain its dominant market share
in the distribution of gaming machines to the Native American gaming market. The
Company intends to continue assisting new customers by providing gaming machines
and ancillary products while assisting existing customers with casino expansions
and replacement of older gaming machines. The Company has been selling machines
in Native American jurisdictions since 1990. In 1998, the Company maintained its
extensive product line of gaming-related and ancillary products and parts. The
Company believes that it is positioned to implement its product sales strategy
as a result of its excellent reputation in the Native American gaming market
coupled with its product lines, marketing expertise and customer assistance and
support after the sale. The Company believes these factors would be unaffected
by the pending IGT acquisition of the Company (see page 3).

     Sodak believes it holds a competitive advantage in the Native American
gaming market due to several reasons, including effective business relationships
with Native American tribes, strong business alliances in the gaming industry,
its comprehensive offering of products, customer technical support and service,
its knowledge and understanding of customer needs, and the offering of creative
customer financing. Sodak continues to comply with licensing requirements with
states and with resident Native American tribes that have licensing
requirements. This enables Sodak to be in a position to distribute gaming
machines and related products to Native American tribes as soon as possible
following approval of any new tribal-state compacts. At the end of 1998, the
Company was licensed in more than 100 jurisdictions.

     The Company has provided funds and legal support to assist Native American
tribes in negotiating tribal-state compacts and obtaining regulatory approvals
to commence casino operations. In order to develop and enhance its relationships
with Native American tribes, Sodak expects to continue to share with Native
American tribes its information and knowledge of the Native American gaming
industry. The Company continues to provide objective information and support to
regulatory entities and legislative bodies.


                                      -5-
<PAGE>


WIDE AREA PROGRESSIVE SYSTEMS STRATEGY

     The Company's wide area progressive system strategy is to place additional
wide area progressive systems and additional machines on such systems in
jurisdictions permitting the operation of wide area progressive systems. The
Company also seeks to maximize game revenue performance. The Company believes
its strategy would be unaffected by the pending IGT acquisition of the Company
(see page 3).

     In August 1994, the Company implemented the first federally approved
interstate wide area progressive systems for Native American casinos as the
exclusive licensing agent for IGT's proprietary systems. The Company believes
that as Native American gaming continues to expand and as the gaming public
desires higher jackpot payouts, the demand for wide area progressive systems
could increase. Consistent with this strategy, the Company introduced eight new
systems in 1998: PINBALLMANIA, SLOTOPOLY, SUPERNICKELMANIA, JEOPARDY! (one
interstate and one intrastate system for Arizona) and 25(cent) versionS OF WHEEL
OF FORTune (one interstate system and intrastate systems for Arizona and for
Deadwood, South Dakota). In February 1999, a 25(cENT) Elvis(R) system was added,
and in March 1999, an intrastate SLOTOPOLY system for Arizona was added.

     Wide area progressive machines are provided by IGT at no cost to customers.
The Company provides wide area progressive ancillary products, such as stands
and signage, at no cost to customers. The Company offers an extensive variety of
systems, ranging from 5(cent) to $5 in denomination, including eight systems for
the popular 25(cent) denomination. Additional systems are anticipated with a
continued emphasis on enhanced entertainment value and player appeal. Older
systems can experience declines in play level with the introduction of new
systems. Consistent with the Company's strategy to maximize game performance,
certain systems could be phased out as a result of changes in performance and
replaced with newer systems.


GAMING OPERATIONS STRATEGY

     Casino ownership and operations are inconsistent with IGT's business
philosophy and strategy. Under the terms of the Merger Agreement with IGT, the
Company expects to divest its MISS MARQUETTE gaming operation and will no longer
pursue other gaming operations. Prior to signing the Merger Agreement, the
Company's gaming operations strategy had been: (i) to continue to improve
operating performance and to increase revenue of the MISS MARQUETTE by
implementing new cost-saving policies, by enhancing the entertainment and
amenity offerings and by implementing new marketing strategies; and (ii) to seek
additional opportunities to operate and/or participate in casinos and other
gaming entertainment facilities.

     In October 1997 the Company announced it had entered into agreements with
subsidiaries of Hollywood and NOP to develop a riverboat casino and land-based
facilities in Shreveport, Louisiana. In September 1998, the Louisiana Gaming
Control Board (LGCB) granted approval of the transfer of ownership interest in
the partnership entity that holds the gaming license for the proposed project
from NOP and Hilton Hotels to the wholly owned subsidiaries of the Company,
Hollywood and NOP. Furthermore in September 1998, the LGCB granted approval to
the Company, Hollywood and NOP to build a $185 million riverboat casino
entertainment resort in Shreveport, Louisiana. The project plans approved by the
LGCB included land-based facilities encompassing a 65,000 square foot Hollywood
theme pavilion, three restaurants, a casino studio store, a 300 to 400 room
luxury hotel, a state of the art riverboat casino with 30,000 square feet of
gaming space accommodating approximately 1,800 gaming positions, and 2,050
parking spaces with 40,000 square feet of retail and entertainment space on the
ground level of the parking structures. As a condition of the Merger Agreement
with IGT (see page 3), the Company is expected to divest its interest in this
project.


                                      -6-
<PAGE>


FINANCING STRATEGY

     The Company provides equipment financing to serve customers and to
facilitate the sales process. The Company is creative with financing
arrangements, allowing customers' repayment schedules to coincide with cash
flows of their casino operations. On a case-by-case basis, the Company may
provide interim financing for the planning, development and construction phases
of casino projects, thereby expediting these projects. The Company expects to
continue with creative financing arrangements for equipment sales and on a
case-by-case basis may pursue participation arrangements or the financing of
gaming development.


ALLIANCES WITH INDUSTRY LEADERS

     The Company had established key alliances with several gaming industry
companies as part of its strategy to augment its recurring revenue sources.
Among these alliances were IGT, Harrah's, Hollywood and NOP. If the Merger with
IGT is consummated, the Company's joint venture interest with Hollywood and NOP
is expected to be divested.


RELATIONSHIP WITH IGT

     The Company announced on March 11, 1999, that it had entered into an
agreement to be acquired by IGT (see page 3). IGT is one of the largest
manufacturers of computerized casino gaming products and operators of
proprietary gaming systems in the world. The Company is IGT's largest customer
and enjoys a mutually beneficial contractual and business relationship with IGT.
Approximately 77% of the Company's product sales in 1998 were derived from the
sale of gaming machines manufactured by IGT under its exclusive distributorship
agreement with IGT. Pursuant to this distributorship agreement, the Company has
agreed not to directly or indirectly solicit orders for, sell, lease or promote
the sale of any products that compete with or are similar to products offered by
IGT in territories covered under the agreement.

     Sodak's original distributorship agreement with IGT, which was entered into
on August 10, 1989, provided the Company with the exclusive right to distribute
IGT gaming machines in Deadwood, South Dakota for a one-year period. The
distributorship agreement with IGT has been modified several times. The
following is a brief description of the current distributorship agreement with
IGT.

     Sodak holds the sole and exclusive right to distribute IGT manufactured or
assembled gaming devices, slot machines, and IGT-distributed gaming machines
designed or manufactured by others (collectively "products"), in North Dakota,
South Dakota and Wyoming and for Native American reservations in the United
States subject to the following exception: Sodak may not distribute new IGT
products to anyone in Nevada, New Jersey and Hawaii. The distributorship
agreement with IGT has a three-year term through May 31, 2001 and continues
thereafter for consecutive two-year renewals unless canceled by either party.

     Pursuant to its distributorship agreement with IGT, the Company purchases
products from IGT at fixed discounts from the then current retail list price as
established by IGT from time to time, plus freight and delivery charges. Payment
by Sodak for IGT machines must be made in full within 90 days for direct
shipments to Sodak customers and 135 days for Sodak stock inventories. Payments
made within 20 days of delivery qualify for an additional discount.


                                      -7-
<PAGE>


     IGT may terminate its distributorship agreement with the Company if any one
of the following events occurs: (i) if ownership in or control over the Company
is held by or passed to any single person or business entity, which ownership or
control in the reasonable belief of IGT materially jeopardizes any IGT license
or approval or creates a material conflict of interest in such person or
business entity with IGT and its products; (ii) the Company has failed to use
its best efforts to attain a reasonable level of sales performance or service of
IGT products; (iii) the Company has directly or indirectly offered any non-IGT
products which directly compete with IGT products to the extent such competitive
activity is prohibited by the distributorship agreement; or (iv) the Company has
failed to comply with IGT policies. IGT may only terminate the distributorship
agreement after giving the Company 90 days written notice of the event of
termination. The Company has 90 days from receipt of IGT's written notice to
correct the activity which IGT claims gives rise to termination of the
distribution agreement

     IGT may also terminate the distributorship agreement if: (i) the Company is
licensed in Nevada as a gaming machine manufacturer or distributor of gaming
equipment unless the Company and IGT otherwise agree; or (ii) the Company fails
to operate a majority of IGT products at its gaming operations, unless IGT will
not sell, lease or otherwise provide IGT products or linked progressive systems
to the Company for such operations, or the Company's operation is conducted
pursuant to paragraph 1.B. of the distributorship agreement.

     The Company or IGT may terminate if: (i) the other party has failed to
maintain its image, ethics, reputation or customer relations in accordance with
industry standards; and (ii) the Company has failed to observe all applicable
laws or obtain necessary licenses or approvals from each gaming regulatory
authority in each applicable jurisdiction in which it distributes. The
distributorship agreement may only be terminated if, within ninety days receipt
of written notice, the offending party fails to correct the activity which the
non-offending party claims gives rise to the right to terminate.

     The Company also has an IGT Software Distribution and License Agreement,
under which the Company is licensed to copy and sell software developed by IGT
for use in any IGT 80960 microprocessor platform machine, including "Vision
Series," "Game King" and "IGame." The software controls both the base game and
the game-within-a-game (also called bonus game) features of the gaming
equipment. It can be upgraded as enhancements and new games are introduced. The
software agreement presently is scheduled for renewal in May 1999 and is
expected to be revised to coincide with the May 2001 renewal date of the
exclusive distribution agreement.

     On September 30, 1993, the Company entered into an exclusive distributor
agreement with IGT to provide and market IGT's proprietary wide area progressive
systems to Native American casinos. This agreement continues as long as any of
the progressive systems are operating and obligations under the agreement are
being fulfilled. The Company also provides and markets IGT proprietary
progressive systems to casinos in Deadwood, South Dakota.


RELATIONSHIP WITH HARRAH'S

     Harrah's, one of the leading casino entertainment companies in the United
States, has a 14% equity interest in Sodak. Harrah's and the Company have an
Indian Gaming Development Agreement, pursuant to which Sodak has agreed to use
its best efforts to identify Native American gaming management contract
opportunities in the United States and Canada and inform Harrah's of such
opportunities. If Harrah's is selected by the Native American tribe to manage a
Native American


                                      -8-
<PAGE>


gaming project presented by the Company, the Company will be entitled to a fee
equal to a portion of any casino management fees earned by Harrah's under the
applicable management contract, regardless of whether or not the Company
participates in the financing of such project. The agreement specifies that
Harrah's will assist the Company with the sale and distribution of products in
Native American casinos as long as no conflicts of fiduciary obligations exist.
The agreement also validates the Company's continued participation in Harrah's
management fee in connection with the Harrah's Phoenix Ak-Chin casino
entertainment complex in Arizona. To date, the Harrah's Phoenix Ak-Chin is the
only casino managed by Harrah's in which the Company participates in Harrah's
managment fee.


RELATIONSHIP WITH HOLLYWOOD CASINO CORPORATION AND NEW ORLEANS
PADDLEWHEELS, INC.

     The Company had entered into agreements with Hollywood and NOP in
conjunction with the joint venture to develop a riverboat casino and
entertainment, lodging, dining and retail facilities in Shreveport, Louisiana.
Under terms of the Merger Agreement with IGT (see page 3), the Company is
expected to divest its interest in this joint venture.

     Hollywood, a publicly traded company based in Dallas, Texas, owns and
operates movie memorabilia-themed gaming entertainment properties and hotels in
Tunica, Mississippi, and Aurora, Illinois. NOP, a privately held company, is a
tour and excursion vessel operator in Louisiana.

     In October 1997 the Company announced it had entered into agreements with
subsidiaries of Hollywood and NOP to develop a riverboat casino and land-based
facilities in Shreveport, Louisiana. These agreements were amended in July 1998
to finalize the understanding among the participants in the project. In
September 1998, the LGCB granted approval of the transfer of ownership interest
in the partnership entity that holds the gaming license for the proposed project
from NOP and Hilton Hotels Corporation to the wholly owned subsidiaries of the
Company, Hollywood and NOP. Furthermore in September 1998, the LGCB granted
approval to the Company, Hollywood and NOP to build a $185 million riverboat
casino entertainment resort in Shreveport, Louisiana. The project plans approved
by the LGCB included land-based facilities encompassing a 65,000 square foot
Hollywood theme pavilion, three restaurants, a casino studio store, a 300 to 400
room luxury hotel, a state of the art riverboat casino with 30,000 square feet
of gaming space accommodating approximately 1,800 gaming positions, and 2,050
parking spaces with 40,000 square feet of retail and entertainment space on the
ground level of the parking structures.

      Under the agreements, the Company and Hollywood would have each
effectively owned 50% of the project, with the exception that NOP would have a
10% residual interest in the project. The Company and Hollywood would have each
been allocated 50% of the net earnings of the project. Hollywood would have
managed the project pursuant to a long-term management contract. The terms of
the management agreement would have called for Hollywood to receive an annual
basic management fee equal to 2% of the project's net revenues and a complex
annual incentive fee based upon a tiered percentage of operating earnings of the
project. NOP would have provided maritime services to the project, for which it
would have received a $30,000 monthly maritime services fee.

     Pursuant to the business agreement among the participants in the project,
Sodak would have received an annual fee equal to 1% of the net revenues of the
proposed project for the first five years of operations and NOP would have
received an annual fee equal to 1% of net revenues. Construction would have
commenced contingent upon obtaining financing for the proposed project.


                                      -9-
<PAGE>


GAMING MARKETS

GENERAL

     The U.S. gaming entertainment industry continued to grow in 1998 but at a
slower pace than recent years. Native American casinos are a major segment of
the industry. According to estimates in a study published by various gaming
commissions and trade publications, Native American Class III casinos accounted
for approximately $5.1 billion in casino revenue in 1997, an increase of
approximately 8% over 1996. Native American casinos accounted for approximately
21% of the $23.9 billion in total U.S. casino revenue. In 1998, 18 states
permitted Indian casinos with electronic gaming machines. The Company provides
gaming equipment in 16 of those 18 states. The total number of Class III
compacts increased to 196 as of February 1999 according to the National Indian
Gaming Association.

     The riverboat casino market in 1998 consisted of approximately 80
(including dockside operations) in six states. Other popular forms of wagering
include lotteries, bingo, parimutuels, sports bookmaking and card rooms.

     The Company has positioned itself as a major provider of products and
systems to the Native American gaming market in the United States. Under the
terms of the Merger Agreement whereby the Company would be acquired by IGT (see
page 3), the Company is expected to no longer seek opportunities to engage or
participate in gaming operations, and the Company is expected to divest its MISS
MARQUETTE gaming operation and its 50% joint venture interest to develop a
gaming riverboat complex in Louisiana.


NATIVE AMERICAN GAMING

     Prior to 1981, casino-style gaming in the United States, such as slot
machines, blackjack, poker, roulette and craps, was the realm of the traditional
gaming markets of Nevada and Atlantic City, New Jersey. In 1981, however, the
Seminole Tribe of Florida established its right to conduct high-stakes bingo
games on its reservation. Bingo is currently conducted by a significant number
of Native American tribes throughout the United States. As bingo games on tribal
property expanded, tribes also began offering other gaming activities, such as
draw poker and other card games. Such expanded activities led to litigation
regarding the permitted scope of Native American gaming. In 1987, the Supreme
Court ruled that if a state regulates rather than prohibits any form of gaming,
Native American tribes have the right to conduct gaming on Native American land,
free of state restrictions. In response to this Supreme Court decision, the
United States Congress enacted the Indian Gaming Regulatory Act of 1988 (IGRA),
which established basic regulations and oversight responsibilities for Native
American gaming.

     IGRA was adopted to promote tribal economic development and
self-sufficiency, while attempting to balance these goals against legitimate
state and federal regulatory concerns. Due to their generally remote locations,
Native American tribes have had few opportunities for economic development and
high unemployment has been a significant problem on Native American
reservations. Native American casinos have provided tribal members with jobs and
revenue for economic development and infrastructure, such as schools, health
care facilities and water treatment and sewage systems.


                                      -10-
<PAGE>


     Pursuant to IGRA, Class III gaming, which includes slot machines,
blackjack, roulette, craps and all other forms of gaming not defined as Class I
or Class II, may be conducted pursuant to agreements between Native American
tribes and states. These agreements, called tribal-state compacts, must be
approved by the Secretary of the Department of Interior (the Secretary). The
tribal-state compact for a Native American casino typically describes the types
of casino games to be offered by such casino and the terms and conditions under
which each casino game will be operated. Native American tribes must negotiate
compacts with their host states before Class III gaming is permitted to be
conducted.

     Prior to the enactment of IGRA in 1988, Native American casinos were not
required to operate under Secretary approved tribal-state compacts. At the end
of 1988, no tribal-state compacts had been published by the Secretary and no
Native American casinos were operating under approved tribal-state compacts. The
number of approved Class III compacts had risen to 196 as of February 1999. As
of the same date, there were a significant number of tribal-state compacts under
negotiation or renegotiation and in many cases subject to litigation. There are
currently approximately 331 federally recognized Native American tribes in 34 of
the contiguous United States. As of January 1999, approximately 200 Native
American groups were seeking federal recognition as Indian tribes.

     During the past several years, many significant cases involving Native
American gaming were decided by both federal and state courts. The courts
addressed issues of state and tribal sovereign immunity, the scope of Class III
gaming, the authority of governors to enter into binding gaming compacts, and
the authority of the Secretary of the Interior to take land into trust for
Native Americans. There have been a number of recent court decisions, many of
which are under appeal, regarding litigation between certain Native American
tribes and the States of Kansas, Maine, Mississippi, New Mexico, Oklahoma, Rhode
Island and Texas, which potentially could have an impact on the state's
willingness to negotiate compacts with tribes.

     On March 27, 1996, the U.S. Supreme Court held in SEMINOLE TRIBE OF FLORIDA
V. FLORIDA ET AL. that states and governors cannot be compelled to negotiate
with tribes. The Supreme Court determined that Congress did not have the power
to abrogate the state's sovereign immunity to suits by tribes, in essence
declaring unconstitutional IGRA's provision that states can be sued for failure
to negotiate in good faith. As a result, tribes currently have no legal right to
compel a state to negotiate a tribal-state compact. In the same case, however,
the Court referenced language in IGRA which provides that the Secretary of the
Interior can prescribe regulations governing tribal gaming on tribal lands in
the event tribes and states fail to negotiate a compact. The National Governors'
Association has asserted that the Secretary has no authority to do so.

     In January 1998, the Secretary published proposed regulations and requested
public comment. The proposed regulations provide a process by which the
Secretary may prescribe regulations under which a Tribe may operate Class III
gaming when an arbitrator or court has determined that a state has failed to
negotiate a compact in good faith. Several legislative measures have been
introduced in the Congress to temporarily block such regulations. In addition,
the Secretary was prohibited by law from taking any definitive action before
March 21, 1999. The Congress is currently considering amendments to special
appropriations legislation which would extend this prohibition for another eight
months.

     The authority of state governors to bind states to tribal gaming compacts
has been challenged in several state courts. Some courts have found that
governors have such authority while other courts


                                      -11-

<PAGE>


have found such authority lacking. In New Mexico, the State Supreme Court held
that the governor lacked the authority to enter into gaming compacts without the
authorization or approval of the state legislature. On March 21, 1997, the New
Mexico legislature passed legislation authorizing the governor to bind the state
to tribal gaming compacts under certain conditions. Similarly, the Rhode Island
Supreme Court held that the governor lacked authority to bind the state to the
1994 compact he had entered into with the Narragansett Tribe.

     In March 1998, the Pala Band of Mission Indians signed a compact with the
state of California. The compact provides for a total of 19,900 gaming devices
in the state, with no more than 975 machines per tribe, subject to renegotiation
in March 1999. These machines would have to meet technical specifications that
conform to California law, primarily (i) that the machines be linked to a
central processing and monitoring system; (ii) that payouts would be
"non-banked," that is, payouts are self-funded rather than casino-funded (as is
the case with stand-alone slot machines) because they are derived from the
amount of play on such systems; and (iii) that the terminals have video screens.

     A number of other matters continue to affect Native American gaming in
California, where several Native American casinos have been in operation outside
the regulatory structure of the Indian Gaming Regulatory Act. The four United
States Attorneys in California outlined their intended enforcement plans
regarding such operations following the completion of the compact. Spokespersons
for several Native American tribes had indicated in public statements that legal
action could be taken to challenge the terms of the compact signed with the Pala
Band.

     In addition, Initiated Proposition 5 passed with 63% of voters approving
the measure in the November 1998 election. This initiative was essentially a
mandatory compact between the State of California and Indian tribes permitting
gaming devices of unspecified numbers. Proposition 5 has been challenged on
constitutional grounds and the California Supreme Court is expected to hear the
case soon with an anticipated decision by the third quarter of 1999.

     The Governor of California recently appointed a former federal judge for
the 9th Circuit Court of Appeals to negotiate new compacts with the tribes. A
group was selected by the California Nations Indian Gaming Association to
represent the tribes in the negotiations. These negotiations are proceeding
coterminously with the legal challenge to Proposition 5 and the referral of the
approval language of the Pala compacts. It is anticipated that these new
compacts would be in place and ready for approval should Proposition 5 be ruled
invalid.

     The authority of the Secretary of the Department of Interior to take land
into trust for reservation and gaming purposes was challenged in 1995. On
November 7, 1995, the Court of Appeals for the Eighth Circuit (South Dakota)
ruled that the section of the Indian Reorganization Act which grants the
Secretary of Interior authority to take land into trust for Indians is
unconstitutional. On October 15, 1996, the United States Supreme Court reversed
both Appeals Court and district court rulings, and directed the Secretary of the
Interior to reconsider the trust land acquisition under new rules promulgated by
the Secretary while the case was under appeal. Essentially the Supreme Court's
action constitutes an affirmation of the constitutionality of the Indian
Reorganization Act of 1934 when the Secretary promulgates and follows
appropriate rules.

     The 106th Congress may consider legislative action which could potentially
affect the manner in which tribal governments conduct business. The chairman of
the House Ways and Means Committee is


                                      -12-
<PAGE>


expected to propose a measure to apply the unrelated business income tax (UBIT)
principles to tribal operations or to enact an Indian gaming excise tax. The
chairman of the Senate Indian Affairs Committee may consider hearings on
comprehensive changes to the Indian Gaming Regulatory Act. Amendments to the
Indian Gaming Regulatory Act may be proposed by individual Senators, pertaining
to regulatory aspects of Indian gaming, but such amendments are not expected to
adversely affect the Company's ability to conduct business with tribal
governments.

     There can be no assurance that tribal-state compacts will be modified or
negotiated in a manner that allows the Company to continue conducting business
in any states in the future. In addition, due to many continuing disputes
involving the compacting process, legislation is being proposed and hearings are
being conducted at the federal level in an attempt to address these issues.

     The National Gambling Impact Study Commission, authorized and funded by the
U.S. government, began conducting meetings in June 1997. This nine member
commission is to conduct a comprehensive legal and factual study of the social
and economic impacts of gambling in the United States on federal, state, local
and native American tribal governments and communities and social institutions
generally. A report on its findings is expected in 1999. Any recommendation by
the commission would then require congressional action and approval to become
effective.


WIDE AREA PROGRESSIVE SYSTEMS

     Wide area progressive systems link gaming machines in various casinos to a
central computer. The systems build large "progressive" jackpots which increase
with every wager made throughout the systems. Eventually a jackpot is won, and a
new jackpot is created and grows in size as play on the system continues. The
systems are designed to increase gaming machine play for participating casinos
by giving the players the opportunity to win jackpots substantially larger than
those available from gaming machines which are not linked to a progressive
system. In 1986, IGT introduced the first electronically-linked, inter-casino
gaming machine systems offered to the gaming industry. In 1994, the Company
implemented the first federally approved interstate wide area progressive
systems as the exclusive licensing agent for IGT's proprietary wide area
progressive systems for Native American casinos nationwide. IGT periodically
introduces new proprietary systems, which the Company may offer to Native
American casinos. The Company expects that its provision of wide area
progressive systems would be unaffected by the pending acquisition of the
Company by IGT (see page 3).


CASINO GAMING

     Casino or "Las Vegas style" gaming generally involves the operation of slot
and video machines, blackjack, poker, craps, roulette, and other table games and
gaming devices, in a single facility. The exact types of games used will vary
from one market to the next, but casinos generally are distinguished from other
types of gaming operations by the fact that they offer both table games and
electronic gaming devices in one location. Casino gaming has been allowed in
Nevada since 1931 and in Atlantic City, New Jersey since 1978. Native American
casinos have been operating under the terms of the Indian Gaming and Regulatory
Act since 1989. Limited-stake gaming is permitted in Deadwood, South Dakota,
where slot machines, poker and black jack are offered.


                                      -13-
<PAGE>


RIVERBOAT GAMING

     Since 1991, several states have permitted the establishment of gaming
operations on riverboat facilities. Riverboat casinos currently are operating in
six states: Illinois, Indiana, Iowa, Louisiana, Mississippi and Missouri.
Approximately 80 riverboat casinos (including dockside facilities) were in
operation at the end of 1998 and additional major riverboat operations are
scheduled to open in 1999 and 2000.

     The Company owns and operates the MISS MARQUETTE riverboat casino on the
Mississippi River in Marquette, Iowa. The operation of the MISS MARQUETTE is
subject to a public referendum of Clayton County, Iowa voters in November 2002.
Clayton County originally approved such a referendum with an approval of 60.5%
of the voters in May 1994 to allow the operation of the MISS MARQUETTE. As a
condition of the Merger Agreement with IGT (see page 3), the Company is expected
to divest the MISS MARQUETTE.


BUSINESS LINES

     During 1998, the Company derived revenue from the following lines of
business: 1) product sales; 2) wide area progressive systems; 3) gaming
operations, which include domestic and Latin American operations; and 4)
financing income. For the year ended December 31, 1998, Sodak generated revenue
from the following sources:

     ------------------------------------------------------------------------
                                                                  PERCENT OF
                                                        REVENUE     OF TOTAL
     SODAK REVENUE BY SOURCE - 1998                 ($ MILLION)      REVENUE
     ---------------------------------------------- ------------  -----------

     Product sales
          Gaming machines                               $  43.4          33%
          Ancillary products and parts                     12.2           9%
                                                    ------------  -----------
              SUBTOTAL, PRODUCT SALES                      55.6          42%

     Wide area progressive systems                         15.2          12%

     Gaming operations
          Domestic gaming operations                       35.9          27%
          Latin American gaming operations (1)             17.5          13%
                                                    ------------  -----------
              SUBTOTAL, GAMING OPERATIONS                  53.4          40%

     Financing income                                       8.3           6%
                                                    ------------  -----------

     TOTAL REVENUE                                      $ 132.5         100%
                                                    ============  ===========
     ------------------------------------------------------------------------
     (1) Operations divested as of December 31, 1998


PRODUCT SALES

     The products presently distributed by the Company can be classified into
two categories: gaming machines and ancillary products and parts.


                                      -14-

<PAGE>


GAMING MACHINES

     The Company distributes IGT-manufactured electronic gaming machines and
video gaming machines, with variations of design, payment features and token,
coinage and currency acceptance. Under the Merger Agreement announced March 11,
1999, the Company is expected to be acquired by IGT (see page 3). The Company
believes that the pending Merger with IGT would not affect its ability to
provide quality products and customer service in its markets.

     New game "personalities" and themes are introduced periodically in order to
satisfy customer demand and to compete with product designs introduced by
competitors. The variety of gaming machines, styles and types allows a casino
manager to create the optimum mix of games to attract the gaming public.

     The gaming machines distributed by Sodak include a wide variety of game
types, innovative designs, self-diagnostic capabilities and various accounting
and data retention functions. Replacement occurs as a result of technological
advances, new designs, improvements and the development of new games. Both slot
machines and video gaming machines are manufactured in various sizes and colors
and are offered in several designs including upright, slant top and drop-in-bar.
IGT gaming machines may be special ordered, with design and configuration
customized to a customer's particular requirements. The variety of gaming
machine styles and types are designed to allow each subassembly to be
individually repaired or replaced. The Company believes the modular nature of
the machines minimizes down time in the event of a product failure and enables
the Company to replace the failed part without requiring the customer to remove
the machine from operation while the part is repaired.

     In 1998, IGT introduced additional gaming machines to its product line,
including an "S+Limited" series which includes many games offered as a result of
IGT's acquisition of Barcrest Limited. Additional games were added to the
"Vision" series, which features full-motion video screens and stereo sound
systems. The video technology allows for a "game within a game" (also called
"bonus game") features that add another dimension of gaming entertainment to the
machine play. The screen may also be used to provide information, promotional
messages and forms of visual entertainment. The "S+Limited" series combines
classic spinning reels with bonus games. IGT also added more features and game
choices to its "IGame" interactive multi-game video gaming platform.

     The Company believes its market share exceeds 70% in the Native American
gaming jurisdictions it serves. At the end of 1998, it is estimated that the
Company had installed approximately 58,600 machines of the total base of
approximately 83,100 gaming machines in Native American casinos in the 16 states
comprising the Company's distribution territory. Demand for the Company's gaming
machines is derived from 1) the establishment of new gaming jurisdictions; 2)
the establishment of new casinos in existing jurisdictions; 3) expansions at
existing casinos; and 4) the replacement of older machines. Machine replacement
is primarily due to economic performance factors as opposed to mechanical
performance. The combination of technical advance, new designs, improvement of
visual aesthetics, changing tastes and preferences of the gaming public and
competitive pressures among casinos contributes to a demand to replace older
machines with newer machines. The Company believes that Native American casinos
generally will adopt the practice of machine replacement as part of an overall
and ongoing practice to offer quality entertainment experiences to their
players. However, there is no assurance that the demand for new machines will be
stimulated by casinos' desire to aggressively replace older equipment.


                                      -15-
<PAGE>


GAMING-RELATED AND ANCILLARY PRODUCTS AND PARTS

     The Company provides a full range of gaming related products including
gaming machine stands, chairs and stools, custom-designed signs and other
products as a complement to its gaming machine sales. Other products include
lock assemblies, table games and supplies, coin handling equipment and supplies,
carts and banks, and other miscellaneous casino products. Such gaming related
products are purchased on a wholesale basis from various manufacturers and
distributors. The gaming related products are either shipped directly from such
suppliers to Sodak's customers or, particularly in the case of gaming machine
stands, are shipped from Sodak's inventory. The Company's customers have not
experienced any significant difficulty receiving timely delivery. Because of the
generic nature of these products, the Company does not have to rely on a single
supplier for any of these goods. In addition, the Company stocks an extensive
inventory of replacement parts and supplies for its gaming machines.


PRODUCT SALES, DISTRIBUTION, MARKETING AND SUPPORT

     The Company's sales force consists of six salespersons, each with
responsibility for a separate geographic region, and a vice president of sales
to oversee its salespersons. The salespersons and vice president of sales are
primarily compensated on a commission basis. Salespersons are based in South
Dakota, Arizona, Minnesota and Wisconsin. The warehouse facility for gaming
machines and main parts inventories is located in Rapid City, South Dakota. A
satellite parts warehouse, which opened in February 1999, is located near
Wausau, Wisconsin.

     The Company's distribution system responds to customer orders for gaming
machines either out of existing inventory or through purchase orders placed with
IGT. Although the gaming machines may be shipped directly to the customer from
IGT's manufacturing facilities in Reno, Nevada, the Company maintains an
inventory of gaming machines generally ranging from 1,500 to 3,000 machines to
facilitate its customers' short-term demands. Customer demand can be
accommodated in as little as two weeks due to the Company's inventory and
responsive custom assembly capability, compared to a typical delivery time of 12
to 14 weeks from a manufacturer. By maintaining a comprehensive inventory, the
Company has not experienced significant backlogs nor does it currently have any
backlog. The Company believes that its inventory management strategy and ability
to forecast customer demand will enable it to minimize backlogs. The Company
believes that its ability to provide prompt delivery of gaming machines is an
important part of the Company's business strategy.

     Sodak also assists its customers with marketing and casino support
services. The Company utilizes a variety of methods to market gaming products,
including the publication of a guide to the Native American gaming business,
advertisements in industry trade publications and participation in select trade
shows. The marketing and casino support services departments have responsibility
for generating and tracking demographic data, assisting customers in the design
and casino floor layout of their casinos based on the proposed slot mix, and
providing general support services to the sales force. Marketing personnel
assist customers with the coordination of casino design and themes. In summary,
the Company assists customers with market research, custom designs, casino floor
layouts, product recommendations and strategies that are geared toward
optimizing earnings at their casinos. The Company also offers its customers
creative financing arrangements to facilitate the product sales function (see
"Financing Income," page 21).


                                      -16-
<PAGE>


     The Company considers customer service an important aspect of the overall
sales and marketing strategy. Company representatives are present at the
customer's location at the time of delivery of the gaming machines to install
the machines, to perform quality assurance testing, and to provide training
relating to the machines. The Company provides a 90 day parts and service
warranty for all gaming machines. The Company offers, for a fee, to service the
gaming machines it distributes. In addition, the Company provides a toll-free
24-hour service and support "hot line" to assist casino technicians with
troubleshooting and identification of problems with equipment and systems. The
Company conducts semi-annual site visits to assure a high quality level of
service and support to casinos.

     The Company employs a staff of approximately 12 regional technical
representatives located in nine states to assure a rapid response to customer
requests for assistance and service. In February 1999, the Company opened a
regional customer service center near Wausau, Wisconsin, to serve casinos in
Minnesota, Wisconsin and Michigan. Another regional customer service center is
anticipated to open in the second quarter of 1999, serving casino customers in
Arizona and New Mexico.

     The Company also provides customers extensive technical training.
Educational programs are offered to keep casino technicians up to date on
machine technology and procedures to maintain and repair them. In addition,
extensive training materials are provided in the form of bulletins, technical
newsletters, customer notifications and other documents. The Company launched a
World Wide Web Internet site -- www.sodak-gaming.com -- in the summer of 1998 to
facilitate the transfer of both marketing and technical information to
customers. This web site incorporates a link to IGT's web site, www.igtgame.com,
which also is a resource for extensive technical information and assistance to
the Company's customers.

     The Company believes it enjoys a competitive advantage in the Native
American gaming market due in large part to the Company's marketing strategy.
The Company's marketing and sales efforts begin long before the advent of any
contractual relationship. Sodak's sales and marketing strategy includes placing
its salespeople in their designated regions before tribal-state compact
negotiations begin and providing assistance to the Native American tribes on an
as needed basis. The Company believes that it is one of the best sources for
current information and statistics on the Native American gaming industry. It
shares this knowledge without charge with the Native American tribes who
participate, or are considering participating, in the gaming industry.

     The Company has sold gaming machines and related products to compacted
Native American casinos in the following 16 states: Arizona, Colorado,
Connecticut, Iowa, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Montana,
New Mexico, North Carolina, North Dakota, Oregon, South Dakota and Wisconsin.
The Company also has sold gaming machines and related products to First Nations
casinos in Ontario and Saskatchewan, Canada. In 1998, the Company was also
active in states where compacts were under negotiation, pending approval or
undergoing legal action, including Arizona, California, Indiana, Massachusetts,
Michigan, New Mexico, New York, South Dakota, Washington and Wisconsin. In
addition, the Company intends to continue to engage outside legal counsel and
consultants for monitoring of regulatory issues in an attempt to facilitate the
tribal-state compacting process in several states. The Company believes that its
sales and marketing strategy fosters an early and trustful relationship with the
Native American tribes and that this relationship gives Sodak an advantage over
its competitors. The Company intends to continue its regulatory and legal
support efforts to facilitate future tribal-state compacting processes.


                                      -17-
<PAGE>


     The Company has distributed gaming equipment to 90 Native American gaming
customers. In 1998, approximately $53.9 million or 97% of the Company's product
sales were derived from Native American gaming and approximately 88% of machine
shipments were to Native American casinos in Arizona, Iowa, Kansas, Louisiana,
Michigan, Minnesota, New Mexico, North Carolina and Wisconsin. The Company
expects its future sales may be concentrated in other states as compacts become
effective and new casinos become operative in those states.


WIDE AREA PROGRESSIVE SYSTEMS

     The Company offers wide area progressive systems as the exclusive licensing
agent for IGT's proprietary wide area progressive systems for Native American
casinos in jurisdictions which allow such systems and to casinos in Deadwood,
South Dakota. Pursuant to the Merger Agreement announced March 11, 1999, the
Company is expected to be acquired by IGT in the last half of 1999 (see page 3).
The Company believes that pending Merger with IGT would not affect its ability
to provide systems and customer service in its markets.

     The number of machines on Native American wide area progressive systems was
approximately 2,000 at December 31, 1998 compared to approximately 1,700 at
December 31, 1997. In 1998, the Company offered wide area progressive systems in
12 states: Arizona (which permits the operation of intrastate systems in lieu of
interstate systems), Connecticut, Iowa, Kansas, Louisiana, Michigan, Minnesota,
New Mexico, North Dakota, Oregon, South Dakota and Wisconsin. At December 31,
1998, 21 systems were in operation: MEGABUCKS (one interstate and one
intrastate), DOLLARS DELUXE, FABULOUS 50'S, QUARTERMANIA (one interstate and two
intrastate), NICKELMANIA, dollar-denominated WHEEL OF FORTUNE (one interstate
and one intrastate), 25(cent)-denominaTED WHEEL OF FOrtune (one interstate and
two intrastate), HIGH ROLLERS, WHEEL OF GOLD, JEOPARDY!(one interstate and one
intrastate), TOTEM POLE, PINBALLMANIA, SLOTOPOLY and SUPERNICKELMANIA. In
February 1999, an interstate 25(cENT) Elvis(R) system became operational and in
March 1999, an intrastate SLOTOPOLY system for Arizona was added.

     Wide area progressive machines are provided by IGT at no cost to customers
and the Company provides wide area progressive ancillary products, such as
stands and signage at no cost to customers. The Company offers an extensive
variety of systems, ranging from 5(cent) to $5 in denomination, including eight
systems for the popular 25(cent) denomination. Additional systems are
anticipated with a continued emphasis on enhanced entertainment value and player
appeal. Older systems can experience declines in play level with the
introduction of new systems, and certain systems could be phased out as a result
of changes in performance.

     To support its wide area progressive systems, the Company has a vice
president overseeing a staff of two salespersons, a marketing specialist, a
systems supervisor with a 24-hour monitoring staff of approximately 18
employees, a financial analyst, and an administrative assistant. In addition,
approximately 12 regional technical representatives are available to provide
field service and assistance to keep machine performance at an optimum level.
The Company is responsible for obtaining contracts to place systems at new
casinos, introducing new systems to casinos offering wide area progressives, and
providing marketing information and support to all wide area progressive systems
customers. The Company also provides for the verification of primary jackpots.
The Company's financial analyst provides customers with studies to optimize the
earning power of such systems relative to their entire casino floor. The Company
also utilizes resources of other corporate departments to provide technical and
promotional assistance of systems.


                                      -18-
<PAGE>


     Primary jackpot awards vary among the systems. Several are annuities and
paid over a 20- to 25-year period, depending on the system. Beginning in 1998,
primary jackpot winners are given the option to select between a discounted
single lump-sum payment or the annuity offered by the system. Two systems
introduced in 1998 feature progressive jackpots that are single payments and not
multi-year annuities. Primary jackpots have minimum, or reset, amounts that
range from $100,000 to $1.5 million. Through March 19, 1999, these systems had
awarded more the $153 million in primary jackpot amounts to more than 300
players.

     Based on current market trends, the Company anticipates increased revenue
from its wide area progressive systems in 1999 as it proceeds with its strategy
to place additional systems and additional gaming machines on the systems in
jurisdictions currently permitting the operation of wide area progressive
systems. The Company believes additional jurisdictions may authorize the
operation of such systems, thereby enabling additional growth. However, there
can be no assurance that necessary regulatory approvals will be obtained in
those prospective jurisdictions. Furthermore, public acceptance of these systems
and the entry of competing systems of other gaming companies could affect the
Company's future revenue. The Company expects that its provision of wide area
progressive systems would be unaffected by the pending acquisition of the
Company by IGT (see page 3).

GAMING OPERATIONS

     Under terms of the Merger Agreement whereby the Company is expected to be
acquired by IGT in the last half of 1999 (see page 3), the Company is expected
to divest its MISS MARQUETTE gaming operation and its interest in a joint
venture to develop a riverboat casino entertainment, lodging, dining and retail
complex in Shreveport, Louisiana. If the pending Merger is consummated, the
Company does not expect to pursue other gaming operations.


MISS MARQUETTE

     In 1994, the Company acquired and refurbished the MISS MARQUETTE riverboat
and leased it to Gamblers Supply Management Company (GSMC), an unrelated third
party, who operated the MISS MARQUETTE riverboat casino entertainment facility.
On July 1, 1996, the Company acquired all of the outstanding shares of common
stock of GSMC and assumed operational responsibilities of the MISS MARQUETTE
riverboat casino entertainment facility. The acquisition was accounted for using
the purchase method of accounting, and accordingly the consolidated statements
of operations include the results of operations of GSMC beginning on July 1,
1996.

     In December 1997, as a result of changing economic conditions and
competitive environments, the Company re-evaluated the recoverability of its
investment in the MISS MARQUETTE. The carrying value of MISS MARQUETTE goodwill,
property and equipment was reduced to reflect a remaining carrying value equal
to the estimated future discounted cash flows of such assets. This resulted in a
non-cash pre-tax charge to operations of the MISS MARQUETTE of $8.6 million.
Factors leading to the impairment charge were that earnings and earnings before
interest, taxes, depreciation and amortization (EBITDA) were less than expected
as well as the effects of increased competition.

     The MISS MARQUETTE has 698 gaming machines and 36 table games and is
located on a picturesque stretch of the Mississippi River in Marquette, Iowa.
The 228-foot riverboat, with 18,747 square feet on three levels, has a capacity
of 1,125 passengers and cruises the Mississippi, weather permitting.


                                      -19-
<PAGE>


     Since assuming full responsibility for the MISS MARQUETTE'S operation, a
number of steps have been implemented to improve the financial performance,
including the replacement of top management in the first quarter of 1998 and
implementation of cost-saving policies and new marketing strategies.

     A license to conduct a gaming operation on an excursion vessel in any
county in Iowa is issued only if the county electorate approves the gaming
operation. Clayton County, where the MISS MARQUETTE is docked, held and approved
a referendum in 1994. The proposition is required by law to be resubmitted to
the Clayton County electorate at the general election in 2002 and at each
subsequent eight-year interval. There can be no assurance that the operation of
the MISS MARQUETTE will be re-approved by the voters in 2002.


LATIN AMERICAN GAMING OPERATIONS

     In June 1998, the Company announced a corporate restructuring designed to
refocus the Company on its core businesses - product sales and wide area
progressive systems to Native American casinos - and the MISS MARQUETTE and to
limit future pursuit of gaming operations to North America. In connection with
the restructuring, the Company divested its Brazil operation in late July 1998
and its Peru and Ecuador operations in December 1998, concluding the Company's
exit from Latin America.

     PERU. The Company divested its Peru operation, which consisted of gaming
halls and route operations, in December 1998. The divestiture resulted in fourth
quarter 1998 pre-tax charges of approximately $8.8 million.

     ECUADOR. The Company divested its Ecuador operation, which consisted of a
casino with 150 machines and 12 table games in Quito at the Crowne Plaza Hotel
in an agreement effective December 31, 1998. The divestiture resulted in fourth
quarter 1998 pre-tax charges of approximately $1.7 million.

     BRAZIL. The Company in July 1998 divested its Brazil operation, which
consisted of a route operation providing approximately 170 machines to a gaming
hall in the Arpoador district of Rio de Janeiro. The divestiture resulted in
third quarter 1998 pre-tax charges of approximately $1.7 million.


OTHER

     PROPOSED SHREVEPORT RIVERBOAT CASINO, LODGING, DINING AND RETAIL COMPLEX.
In September, 1998, the LGCB granted approval to the Company, Hollywood and NOP
to build a riverboat casino entertainment resort complex in Shreveport,
Louisiana. The proposed project, to be managed by Hollywood, entails land-based
facilities encompassing a 65,000 square foot Hollywood theme pavilion, three
restaurants, a casino studio store and 300 to 400 room hotel with suites. The
proposed riverboat casino is to be a state of the art vessel with 30,000 square
feet of gaming space accommodating approximately 1,800 gaming positions.
Finally, the proposed project includes 2,050 parking spaces with 40,000 square
feet of retail and entertainment space on the ground level of the parking
structures. As a condition of the agreement to be acquired by IGT (see page 3),
the Company is expected to divest its interest in this project.

     The facility would be constructed on a city-owned site located in downtown
Shreveport on the waterfront, adjacent to the existing Harrah's casino complex.
The project would be managed by an affiliate of Hollywood under a long-term
management agreement and would be themed similar to the


                                      -20-
<PAGE>


Hollywood properties in Tunica, Mississippi and Aurora, Illinois. The project
was anticipated to be capitalized with equity equal to 25% of the project costs,
with the remainder of the project being funded from debt financing. The Company
and Hollywood each would have provided approximately one-half of the equity
capital for the project.

     The Company's participation in the project was contingent upon 1) the joint
venture's obtaining the necessary non-recourse high-yield debt financing on
terms and conditions acceptable to the Company; 2) receiving all necessary
permits and approvals from all regulatory/governing authorities for the
construction of the complex; and 3) obtaining a guaranteed maximum price
contract for the construction of the complex. There was no assurance that these
contingencies would occur. Furthermore, the high-yield markets have been
volatile and unpredictable over the past twelve months and are expected to
remain so for the foreseeable future, which may effect the ability of the joint
venture to obtain the necessary non-recourse high-yield debt financing for the
project. Construction of the project would not begin until these contingencies
had been satisfied.

     CZECH REPUBLIC TV BINGO LOTTERY. In 1994, Sodak entered into an agreement
with T.V. Bingo, s.r.o. and its management company, Double Eagle Entertainment
Corporation, to become the exclusive supplier of all gaming-related supplies,
including lottery tickets and equipment, for a television bingo lottery system
in the Czech Republic. In connection with the supply and services agreement,
Sodak was to receive a percentage of TV Bingo's revenue from lottery ticket
sales beginning in May 1995. The Company had advanced development funding and
had provided lottery tickets as part of its supply and service obligations under
the agreement. The television bingo lottery project was canceled and ceased
production in 1996. The Company in the third quarter of 1996 wrote off $2.7
million of receivables relating to its development.


FINANCING INCOME

     As part of its product sales strategy, the Company provides financing,
primarily equipment financing, to Native American casinos. The Company has taken
a creative financing approach which structures the terms of loans to the cash
flow performance of casino operations. The Company has also been willing to
provide 100% equipment financing to make casino projects feasible when no
start-up capital or alternative financing arrangements were available. In
addition to equipment financing, the Company, on a case-by-case basis, has
provided financing guaranties and interim financing for the planning,
development and construction phases of casino projects, thereby expediting these
projects. These arrangements are sometimes linked to participations which
provide recurring revenue to the Company. If the pending Merger with IGT is
consummated (see page 3), the Company expects to continue with creative
financing arrangements for equipment sales and on a case-by-case basis may
consider participation arrangements or the financing of gaming development.

     In spite of the uncertainties of financing arrangements with Native
American tribes, the Company believes that providing financing to Native
American tribes has been an important part of its marketing strategy. Because
the revenue generated from Native American casinos has been large in relation to
the cost of the gaming equipment, Sodak believes that the risks associated with
100% financing arrangements that allow Native American tribes to pay for gaming
equipment from future cash flow have been acceptable and manageable. Where
repayment has been over a period of more than 90 days following the sale of
equipment, the Company has taken steps it believes were reasonably available to
preserve its right to repossess the equipment in the event of a default in


                                      -21-
<PAGE>


payment by the tribe. Nevertheless, the Company has confronted all the usual
risks associated with financing activities. As of December 31, 1998, the Company
had not experienced any significant losses associated with these risks.

     The Company offers various deferred payment arrangements to its gaming
equipment customers, including installment sales contracts. Cash contracts
generally require payment within 90 days of delivery of the equipment. Certain
cash contracts require a down payment prior to delivery. Installment contracts
require payments on the gaming machines over a period generally ranging from one
to three years, which payments include a principal component and interest
component. The Company generally charges an interest rate on its customer
financing of one to four percentage points over the prime lending rate. In each
of the years ended December 31, 1998, 1997, and 1996, the Company financed
approximately 11%, 34% and 22%, respectively, of its product sales.

     In the near term, management believes that repayment terms on its sales
contracts will continue to be approximately one to three years and that interest
charges on its sales contracts will continue to be approximately one to four
percent above the prime lending rate.


PARTICIPATIONS INVOLVING NATIVE AMERICAN CASINOS

     The Company has participated in ventures to finance the development,
interim construction and equipping of Native American casinos. Financing
arrangements were in conjunction with management contracts entered into between
the casino manager and the tribes owning such casinos or with the tribes or
their management companies directly. The Company has loaned money or guaranteed
third party loans. For its involvement, the Company has received inducement
payments, financing and guaranty fees or participations in the payments made by
a tribe under its management agreement. The Company may on a case-by-case basis
consider participation arrangements or the financing of gaming development.

     The development and construction of Native American casinos involves risks
similar to those associated with other real estate development projects,
including site selection considerations, requirements of governmental agencies
such as the Environmental Protection Agency, receipt of construction permits,
weather-related delays, labor difficulties and materials shortages. In addition,
the Company cannot obtain a mortgage on tribal land or buildings to secure its
loans or guaranties. Therefore, if a gaming activity fails to develop or ceases
to operate for any reason, the Company's prospects for recovery are minimal.

     The Company is from time to time presented with opportunities to
participate in the planning, development and financial arrangements of Native
American casinos. In recent years, the Company entered into the following Native
American casino projects:

     HARRAH'S PHOENIX AK-CHIN. Harrah's manages and operates the casino and
entertainment complex owned by the Ak-Chin Community near Phoenix, Arizona.
Sodak assisted Harrah's with financial arrangements for the project, serving as
a guarantor for one-half of a third party loan of $26.2 million to finance the
costs to develop, construct and equip the casino. The loan has been fully
repaid. As consideration for the loan guaranty and other assistance the Company
provided Harrah's in obtaining the management agreement, the Company receives 4%
of the distributable net income of the gaming operation over the term of the
management contract. The current management agreement expires December 1999. The
Company will participate in any extensions to the management agreement between
the shareholder and the Native American tribe.


                                      -22-
<PAGE>


     CYPRESS BAYOU CASINO. In September 1994, Sodak assisted a casino management
company, Royal Associates Management, Inc. (Royal), in acquiring $8 million in
financing from a financial institution. The Company also guaranteed the debt.
The loan was used to construct Phase II of the Cypress Bayou Casino owned by the
Chitimacha Tribe of Louisiana. The loan guaranty agreement was revised in
December 1998, allowing management to borrow back prepaid amounts with a maximum
allowable loan balance of $3 million. In return for the guaranty, the Company
receives a loan guaranty fee based on a percentage of the outstanding loan
balance, and additionally, a lesser percentage of the unused maximum allowable
loan balance. As of December 31, 1998, the outstanding loan balance was $0.9
million.

     CLIFF CASTLE CASINO. During 1995, the Company advanced funds totaling
approximately $1.6 million to the Yavapai Apache tribe for construction of the
Cliff Castle Casino located near Camp Verde, Arizona. The loan, which carried an
interest rate of 12%, was payable in 24 equal consecutive monthly installments
beginning July 1995 and was repaid in full in 1997.

     QUECHAN INDIAN TRIBE. In April 1996, the Company entered into a $6.9
million Loan Agreement with Pacific Coast Gaming Corporation (PCG) to fund
gaming equipment and casino development for the Quechan Indian Tribe's casino
project at the Fort Yuma Indian Reservation in Arizona. The note carried an
interest rate of 13.5% and was payable in 48 equal monthly installments
beginning October 1996. In March 1997, the Company sold the note to PDS
Financial Corporation at a premium of $0.4 million.

     SAC & FOX NATION OF MISSOURI. In February 1997, the Company entered into a
$5 million Loan Agreement with Michels Development Company (MDC) to fund gaming
equipment and casino development for the Sac & Fox Nation's casino project in
Brown County Kansas. The $5 million is comprised of $2.5 million product sales
financing, $2 million loan for development of the casino project and a $0.5
million fee payable to the Company as an inducement for entering into the loan
agreement. The $5 million note carried an interest rate of 11.5% and was payable
in 60 equal monthly installments beginning June 1997. In March 1997, the Company
sold the note to PDS Financial Corporation at a premium of $0.2 million.

     SAC & FOX NATION OF MISSOURI. In November 1997, the Company entered into a
$15.1 million Construction Loan and Refinancing Agreement with MDC to fund
gaming equipment and casino development for Phase II of the Sac & Fox Nation's
casino project in Brown County Kansas. The $15.1 million is comprised of $8.6
million bank debt refinancing, $1 million product sales financing, $4 million
loan for development of Phase II of the casino project and $1.5 million
transaction and financial services fees payable to the Company for entering into
the Agreement. The $15.1 million note carries an interest rate of 11.5% interest
and is payable in 60 equal monthly installments beginning February 1998. The
$1.5 million transaction and financial service fees is being recognized as
financing income over the 60 month term of the note.


                                      -23-
<PAGE>


COMPETITION

PRODUCT SALES

     The gaming machine industry is highly competitive. The Company's gaming
machine distribution business faces direct competition from distributors and
manufacturers that make direct sales of gaming machines and related products
including competitors with significant financial and other resources. The
Company believes that competition is based primarily on the ability to provide
gaming machines with high player appeal, and to a lesser extent on price. Player
appeal is a key element because it combines the machine design, hardware,
software and play features that ultimately improve the earning power of gaming
machines and the customers' satisfaction level.

     The Company believes it distinguishes itself from its competition on the
basis of its effective business relationships with customers, its gaming
equipment offerings, the quality and extensiveness of its product lines,
delivery time, the level of technical support and service provided, and the
legal, regulatory and government relations assistance provided. The Company also
believes that its good working relationships with tribes and its ability to
provide financing for the equipment it distributes distinguishes the Company
from its competitors. The Company's competitors in gaming machine sales are
Anchor Gaming (Anchor), Aristocrat Leisure Limited (Aristocrat), Bally Gaming,
Inc. (Bally), a subsidiary of Alliance Gaming Corporation, Casino Data Systems
(CDS), Mikohn Gaming (Mikohn), Sigma, Video Lottery Consultants (a subsidiary of
Powerhouse Technologies, Inc.), Universal, and WMS Industries.


WIDE AREA PROGRESSIVE SYSTEMS

     The primary factor influencing the play on progressive systems is enhanced
player appeal resulting from the large jackpot payouts. The systems also appeal
to the casino operator due to the games' earning premiums and because they
emphasize strong security and control features. The Company believes its market
share exceeds 90% for wide area progressive systems in Native American
jurisdictions.

     The Company's current competition in wide area progressive systems is CDS.
CDS offers the "Xtreme" game in 25(cent) and 5(cent) denominations, which
compete with some of the Company's 10 systems in those denominations.

     Several companies are potential competitors, including Bally, WMS and
Anchor. Bally could become a competitor in the progressive systems business due
to the expiration of an agreement between IGT and Bally in December 1997. In
1992, IGT and Bally settled a lawsuit relating to a United States patent owned
by IGT. Under the terms of the expired settlement agreement, Bally had been
precluded from producing and marketing wide area progressive system machines.
WMS Industries could become a competitor with its "Monopoly" game, which was
introduced in other jurisdictions in 1998. Anchor's stand-alone version of
games, such as "Totem Pole" and "Wheel of Gold," also compete in this market.
Depending on regulatory approval and on public acceptance, these systems or
others could become available at Native American casinos where such systems are
approved by regulators.

     The Company provides marketing and advertising support for its wide area
progressive systems and competes on the basis of the progressive systems' brand
names, product quality and reliability, large jackpot awards, the frequency of
jackpot "hits," and player appeal.


                                      -24-
<PAGE>


RIVERBOATS

     The riverboat and dockside casino market is highly competitive. As of
December 31, 1998, approximately 80 such casinos were in operation in the United
States. They were located in Illinois, Indiana, Iowa, Louisiana, Mississippi and
Missouri. Approximately six riverboats are located on the Mississippi River
along the Illinois-Iowa and Iowa-Wisconsin borders. The MISS MARQUETTE is
located the farthest north of the Mississippi River-based riverboats. One
riverboat, the DIAMOND JO, is docked in Dubuque, Iowa, approximately 50 miles
south of the MISS MARQUETTE. In addition, the Dubuque vicinity has a greyhound
dog racing track which now has gaming machines competing with area casinos.
Under terms of the Merger Agreement with IGT (see page 3), the Company is
expected to divest its MISS MARQUETTE gaming operation and would no longer
pursue other gaming operations.

     The Shreveport/Bossier City riverboat casino market is located in northwest
Louisiana and serves the northwestern Louisiana and Dallas metro area markets.
Gaming began in this market in April of 1994, with the opening of the Harrah's
property. At the end of 1998, there were four riverboat casinos in operation,
with a total of approximately 5,200 gaming positions. In late 1997, the Binion's
Horseshoe in Bossier City opened a luxury 606-room hotel and expanded pavilion.
In January 1998, Binion's put into service a new gaming vessel with
approximately 1,750 gaming positions, increasing the market supply by more than
500 gaming positions. The Shreveport/Bossier City market has been the highest
performing gaming market in the state of Louisiana, currently supplying 35% of
the state's total gaming positions and generating nearly 50% of the state's
total annual gaming revenues. Under terms of the Merger Agreement with IGT (see
page 3), the Company is expected to divest its interest in this joint venture
project and would no longer pursue other gaming operations.


OTHER

     The Native American gaming industry competes with other forms of gaming
including: bingo and pulltab games; riverboat gaming; parimutuel betting on
horse racing, dog racing and jai-alai; and state-sponsored lotteries. A
consequence of the growth in Native American gaming has been the increased
pressure on state legislatures to allow competitive gaming activity by
non-Native Americans. Several states, including Colorado, Iowa, Illinois,
Indiana, Louisiana, Mississippi, Missouri, Nevada, New Jersey and South Dakota,
have approved and many other states are considering approval of non-Native
American land-based casinos, riverboat gaming or dockside casinos. Increased
pressure is also present for approval of gaming machines for bars, restaurants,
racetracks and resorts in a number of states. In addition, non-gaming
entertainment competes with the gaming industry for the public's disposable
income. To the extent these other forms of entertainment and non-Native American
gaming affect the demand for Native American gaming, the opportunities the
Company has to sell gaming equipment and participate in Native American casino
development projects, may be affected.


ITEM 2. PROPERTIES

     The company owns a 95,000 square-foot corporate headquarters, systems
operations, and warehouse facility in Rapid City, South Dakota. The Company also
owns properties in Marquette, Iowa, consisting of the MISS MARQUETTE riverboat
casino, which has 698 machines and 36 table games on an 18,747 square foot
vessel, a 24-room hotel, parking lots, marina, restaurant, lounge and other
support facilities.


                                      -25-
<PAGE>


ITEM 3. LEGAL PROCEEDINGS

     On April 26, 1994, William Poulos filed a class action lawsuit in the
United States District Court for the Middle District of Florida, Case No.
94-478-CIV-ORL-22 (the Poulos case). The Complaint in the Poulos case alleges
violations of 18 U.S.C. ss. 1962(a), (c), and (d), the Racketeering Influenced
and Corrupt Organizations Act, and pendent state law claims. The approximately
41 named defendants in the Poulos case consist of the manufacturers and
distributors of electronic gaming devices, and companies who are parents and/or
affiliates of the entities which operate and/or provide the electronic gaming
devices for play by the public.

     On May 10, 1994, William Ahearn filed a class action lawsuit in the United
States District Court for the Middle District of Florida, Case No.
94-532-CIV-ORL-22 (the Ahearn case). The named defendants and claims made in the
Poulos and Ahearn cases are virtually identical.

     On September 30, 1994, the Poulus and Ahearn cases were consolidated. On
December 9, 1994, the Poulos and Ahearn cases were transferred to the United
States District Court for the District of Nevada pursuant to 28 U.S.C. ss.
1404(a). On November 29, 1994, William Poulos filed a second class action
lawsuit in the United States District Court for the Middle District of Florida,
Case No. 94-1259-CIV-ORL-22 (the Cruise Ship case). The allegations made in the
Cruise Ship case are virtually identical to the allegations in the Poulos and
Ahearn cases. The defendants in the Cruise Ship case consist of manufacturers
and distributors of electronic gaming devices, and the operators of cruise ships
and cruise ship casinos where the devices are exposed for play by passengers. On
September 14, 1995, the Cruise Ship case was transferred to the United States
District Court for the District of Nevada pursuant to 28 U.S.C. ss. 1404(a). On
September 26, 1995, Larry Schreier filed a class action lawsuit in the United
States District Court for the District of Nevada. Except for alleging a smaller
and more precisely defined class of plaintiffs, the Schreier case is virtually
identical to the Poulos and Ahearn cases. The Poulos, Ahearn, Schreier, and
Cruise Ship cases have been consolidated and assigned to visiting United States
District Court Judge David A. Ezra. Sodak is a named defendant in the Poulos,
Ahearn, and Schreier cases. The plaintiffs allege that the defendants actions
constitute violations of the Racketeer Influenced and Corrupt Organizations Act
( RICO ) and give rise to claims of common law fraud and unjust enrichment. The
plaintiffs are seeking monetary damages in excess of $1 billion and are asking
that any damage awards be trebled under applicable federal law.

     The Defendants argued a variety of motions to dismiss and also procedural
motions before the Court on November 3, 1997. The Court ruled on the same
issuing various Orders which were entered and served on December 19, 1997. The
most significant rulings were that the Court ordered Plaintiffs to file an
Amended Complaint by January 9, 1998, and the Plaintiffs wire fraud count
against Defendants was dismissed with prejudice (cannot be relitigated). On
March 19, 1998 the Court granted Defendant's Motion to Bifurcate Discovery and
to Stay Merits Discovery until the Court decides the Plaintiff's Motion for
Class Certification.

     Procedural and discovery issues are ongoing. The Company believes the
Consolidated action is without merit. The Company is vigorously pursuing all
legal defenses available to it and is participating in the defense through
counsel and the defendants steering committee created pursuant Court Order.


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

     None.


                                      -26-

<PAGE>


                                     PART II

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

     The Company's common stock trades on the Nasdaq National Market under the
symbol SODK. A two-for-one stock split of the Company's common stock was
effected September 27, 1996. The following table sets forth the high and low
sales price of the common stock (adjusted to reflect the aforementioned stock
split) on the Nasdaq composite tape:

           --------------------------------------------------------------------
                                           1998                   1997
                                    ------------------    ---------------------
                                    High      Low         High       Low
                                    --------  --------    ---------  ----------

           First Quarter           $7 13/16    6 1/4       18 3/8     10 1/2
           Second Quarter           7 1/8      5 7/8       16 5/8      9 7/8
           Third Quarter            7 5/8      5 5/8       15 3/8      9 15/16
           Fourth Quarter           8 15/16    5 1/4       14 3/8      5 3/8
           --------------------------------------------------------------------

     As of March 19, 1999 there were approximately 4,200 beneficial owners of
Sodak Gaming, Inc.'s common stock. The closing price of the Company's common
stock on March 19, 1999 was $8 3/4 .

     The Company did not pay cash dividends in 1998 or 1997 and does not
anticipate paying cash dividends in the near future.

     The Company's registrar of stock and transfer agent is Norwest Bank
Minnesota, N.A., Stock Transfer Department, P.O. Box 64854, South St. Paul, MN
55164-0854; telephone (651) 450-4064.


ITEM 6. SELECTED FINANCIAL DATA
     The following table summarizes selected items from the Company's
Consolidated Financial Statements as of and for the years ended December 31:

<TABLE>
<CAPTION>
          In thousands, except per share amounts         1998       1997         1996        1995         1994
          ------------------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>          <C>          <C>          <C>   
          Revenue                                   $  132,554    137,578      154,587      93,172       84,469
          Income (loss) from operations                 17,219       (223)      20,901      20,059       14,754
          Earnings (loss) before cumulative
             effect of accounting change                 2,686       (576)      13,233      12,893        9,897
          Net earnings (loss)                            2,686     (3,707)      13,233      12,893        9,897
          Earnings (loss) per share before
             cumulative effect of accounting change       0.12      (0.02)        0.58        0.57         0.44
          Earnings (loss) per share, basic and
             diluted                                      0.12      (0.16)        0.58        0.57         0.44
          Working capital                               34,812     21,571       37,728      37,501       29,703
          Total assets                                 140,508    165,156      169,475     138,055      118,083
          Long-term debt                                 4,366     19,818       27,189      18,044          600
          Shareholders' equity                         106,996    101,798      106,431      94,261       81,357

          ------------------------------------------------------------------------------------------------------
</TABLE>


                                      -27-

<PAGE>


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

INTRODUCTION

     The Company's core business is distributing gaming equipment and ancillary
products and providing wide area progressive systems primarily to Native
American casinos. The Company also operates the MISS MARQUETTE riverboat casino
and entertainment facility located on the Mississippi River at Marquette, Iowa.
Other business activities include a participation in Harrah's Entertainment,
Inc.'s (Harrah's) management fee from Harrah's Phoenix Ak-Chin casino in Arizona
and income from financing product sales and casino ventures. Further, the
Company has entered a joint venture with subsidiaries of Hollywood Casino
Corporation (Hollywood) and New Orleans Paddlewheels (NOP) to develop a hotel,
dining, retail and riverboat casino entertainment complex on the Red River in
downtown Shreveport, Louisiana.

     On March 11, 1999, the Company announced that a definitive agreement was
signed whereby the Company would be acquired by a wholly-owned subsidiary of IGT
for $10 per share in cash, totaling approximately $230 million. The Company
would become a wholly-owned subsidiary under the terms of the agreement. The
transaction is subject to certain conditions, including regulatory approvals,
Sodak shareholder approval and IGT obtaining the financing required to fund the
transaction. In addition, as a further condition to closing, the Company is
expected to divest its wholly-owned riverboat casino entertainment complex, the
MISS MARQUETTE, and its 50% joint venture interest to develop a gaming riverboat
complex in Louisiana. The holders of a majority of the common stock of the
Company have agreed to vote in favor of the Merger. The transaction is expected
to close in the second half of 1999.

     The Company also operated a casino and various gaming hall and route
operations in certain Latin American countries from May 1995 through December
1998. In June 1998, the Company announced a corporate restructuring designed to
refocus the Company on its North American businesses described in the preceding
paragraph. As part of the restructuring, the Company divested its Latin American
gaming operations in Peru, Ecuador and Brazil. As of December 31, 1998, the
restructuring was complete, and all Latin American operations were divested (see
Note 2, page 50). In 1998, the Company recorded restructuring charges of
approximately $2.1 million, net of income tax benefits of approximately $1.2
million, as well as a loss on divestiture of the Latin American operations of
approximately $8.5, net of income tax benefits of approximately $3.7 million.


RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1998
COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

     The year 1998 reflected net earnings of $2.7 million, or $0.12 per share,
basic and diluted, compared to a ($3.7) million loss, or ($0.16) per share,
basic and diluted, in 1997. During 1998, the Company recorded restructuring
charges related to a Company-wide restructuring and incurred a loss on
divestiture of its Latin American operations as described in the introduction
above. The combination of these charges reduced 1998 earnings by ($0.46) per
share. In 1997, the Company recognized charges for the following: 1) an
accounting change related to pre-opening and start-up costs; 2) impairment of
certain long-lived assets; and 3) inventory reserves and charges related to
Latin American operations. The combination of these charges reduced 1997
earnings by ($0.55) per share.


                                      -28-
<PAGE>


     Excluding these charges in 1998 and 1997, the Company improved operating
income significantly in 1998. The improvement in operational results was due
primarily to improved operating performance from the Company's North American
business segments; product sales, wide area progressive systems and the MISS
MARQUETTE. Also contributing to the improved operating income were decreased
selling, general and administrative expenses, decreased depreciation and
amortization, and decreased interest and financing costs. Finally,
pre-divestiture 1998 Latin American operational results, while still producing
an operating loss, were better than those experienced in 1997.

     Total revenue decreased 4% to $132.6 million in 1998, compared to $137.6
million in 1997. The decrease is primarily attributed to decreased revenue from
sales of used machines, and decreased revenue from Latin American gaming
operations as a result of the divestitures, partially offset by increased
revenue from wide area progressive systems, the MISS MARQUETTE and financing
income. Total costs and expenses, which includes the restructuring charges in
1998 and the impairment and other charges in 1997, decreased 16% to $115.3
million in 1998 compared to $137.8 million in 1997.


PRODUCT SALES

     Despite a 10% decrease in new machine shipments, revenue from new machine
sales increased 4% to $43.0 million in 1998 compared to $41.6 million in 1997.
Higher per unit prices in 1998 are a reflection of the introduction of new and
innovative machines designed to generate greater player appeal. Revenue from
ancillary gaming and non-gaming product sales decreased 18% to $12.2 million in
1998 compared to $14.9 million in 1997, primarily due to the decreased number of
machine placements. In 1998, the Company continued its strategy of being a
full-service provider to its customers by offering an extensive product line
that included gaming related and non-gaming related products and supplies.

     Total revenue from product sales decreased 10% to $55.6 million in 1998
compared to $61.7 million in 1997, primarily due to a decrease in used machine
sales to $0.4 million in 1998 compared to $5.3 million in 1997. In 1998, the
Company sold approximately 200 used machines, compared to approximately 1,800
used machines in 1997. Due to low margins associated with used machine sales,
the Company generally no longer accepts used machines on trade when selling new
machines to its customers. However, in association with the sale of new machines
to its customers, the Company does facilitate the sale of its customers' used
machines. In such situations, the Company recognizes no revenue or cost in
association with the facilitation of the used machine transactions.

     New gaming machine shipments decreased 10% to approximately 5,600 machines
in 1998 compared to 6,200 machines in 1997. In 1998, 35% of new machine
shipments were to casinos in Arizona and Michigan and another 53% of new machine
shipments were to casinos in Iowa, Kansas, Louisiana, Minnesota, New Mexico,
North Carolina and Wisconsin. In 1997, 33% of new machine shipments were to
casinos in Arizona and New Mexico and another 49% of new machine shipments were
to casinos in Kansas, Louisiana, Michigan, Minnesota and North Carolina. The
Company believes that new unit shipments in 1999 could exceed 1998 new unit
shipments based on expected new casino developments and planned expansions.
Furthermore, the Company believes that machine replacements could accelerate
based on the age of the installed Native American machine base. However, growth
in gaming and the machine replacement market in Native American jurisdictions is
outside the control of the Company and is influenced by the legal, electoral and
regulatory processes of those jurisdictions.


                                      -29-
<PAGE>


     The cost of product sales decreased 11% to $43.0 million in 1998, from
$48.3 million in 1997. The decrease is primarily attributable to the decreased
volume of used machine and ancillary product sales. The gross margin on product
sales increased to 22.7% in 1998 compared to 21.7% in 1997. The increased gross
margin was primarily due to increased margins realized on ancillary product
sales.

     The Company believes that its ability to provide products would be
unaffected by the pending acquisition of the Company by IGT (see page 3).


GAMING OPERATIONS

     Gaming operations revenue decreased 3% to $53.4 million in 1998 compared to
$54.8 million in 1997. This decrease is due to the divestiture of Latin American
gaming operations in 1998, partially offset by increased revenue at the MISS
MARQUETTE. Direct costs of gaming operations decreased 13% to $43.1 million in
1998 compared to $49.4 million in 1997. The decrease in costs is attributable to
the Latin American divestitures, as well as lower operating costs at the MISS
MARQUETTE.


DOMESTIC GAMING OPERATIONS

     MISS MARQUETTE. The Company owns and operates the MISS MARQUETTE riverboat
casino and entertainment facility located on the Mississippi River at Marquette,
Iowa. This operation has 698 gaming machines, 36 table games, a 24 room motel
and dining and entertainment facilities. Revenue from the MISS MARQUETTE
increased 11% to $35.9 million in 1998 compared to $32.3 million in 1997. Direct
operating costs decreased 2% to $27.2 million in 1998 compared to $27.9 million
in 1997. The Company replaced top management at the MISS MARQUETTE in the first
quarter of 1998 and weather conditions in the region around the MISS MARQUETTE
were much improved during the first and fourth quarters in 1998 as compared to
1997. The combination of more effective marketing strategies, cost controls and
improved weather were the primary factors in the operational performance
improvement. As a condition of the pending acquisition of the Company by IGT
(see page 3), the Company is expected to divest this operation.


LATIN AMERICAN GAMING OPERATIONS

     As discussed in the introduction to this section, the Company divested of
its Latin American gaming operations during 1998.

     PERU. The Company operated gaming halls and route operations in Peru from
May 1995 through November 1998. A pre-tax loss on divestiture amounting to $8.8
million was recorded in association with the divestiture in 1998. Prior to
divestiture, revenue decreased 18% to $12.1 million in 1998 compared to $14.8
million in 1997. This decrease resulted not only from one month less of
operations in 1998, but also from increased competitive factors and severe
weather conditions related to "El Nino" during 1998. Direct operating costs
decreased 19% to $11.3 million in 1998 compared to $13.9 million in 1997. The
decrease in direct operating costs was primarily attributed to one less month of
operations in 1998, and reduced gaming taxes incurred by the Company during
1998. In the fall of 1996, the Peruvian government announced that it would
implement regulatory changes in conjunction with the transfer of gaming
regulatory authority to the federal government and imposed a 200% increase in
the per-machine tax which became effective in October 1996. While the Company
paid this tax in 1996 and 1997, the Company did not pay any per-machine Federal
gaming tax in 1998 due to lower court decisions in Peru holding such a tax to be
unconstitutional. However, the Company had accrued for this tax until the fourth
quarter of 1998 at which time the Company received a favorable decision from the
Peruvian Supreme Court affirming the


                                      -30-
<PAGE>


unconstitutionality of the Federal per-machine tax. Upon receipt of the ruling,
the Company reversed the amounts accrued in 1998 for this tax, which amounted to
approximately $1.3 million.

     BRAZIL. The Company established a gaming hall in the Arpoador district of
Rio de Janeiro in June 1996. In July 1998, the Company divested of its Brazilian
operations, resulting in a pre-tax loss on divestiture of $1.7 million. As a
result of the divestiture, revenue from the Arpoador operation decreased 44% to
$3.2 million in 1998 compared to $5.7 million in 1997, and direct costs of the
Arpoador operation decreased 51% to $2.9 million in 1998 compared to $5.8
million in 1997.

     ECUADOR. The Company operated a casino in Quito, Ecuador from March 1996
through December 1998. The Company divested this operation in December 1998,
resulting in a pre-tax loss on divestiture of $1.7 million. Revenue increased 7%
to $2.1 million in 1998 as compared to $2.0 million in 1997. Direct costs
decreased 3% to $1.7 million in 1998 as compared to $1.8 million in 1997.

WIDE AREA PROGRESSIVE SYSTEMS

     Wide area progressive systems revenue increased 14% to $15.2 million in
1998 compared to $13.3 million in 1997. The increase is a result of an increase
in both the number of systems offered and the number of machines on the systems.
During 1998, eight new systems became operational: 25(cent)-denominaTED WHEEL OF
FOrtune (one interstate and two intrastate), JEOPARDY! (one interstate and one
intrastate), PINBALLMANIA, SLOTOPOLY and SUPERNICKELMANIA; and the number of
machines on the systems increased to approximately 2,000 at the end of 1998
compared to approximately 1,700 at the end of 1997. During 1998, the Company
offered wide area progressive systems in 12 states: Arizona (which permits the
operation of intrastate systems in lieu of interstate systems), Connecticut,
Iowa, Kansas, Louisiana, Michigan, Minnesota, New Mexico, North Dakota, Oregon,
South Dakota and Wisconsin. At December 31, 1998, 21 systems were in operation:
MEGABUCKS (one interstate and one intrastate), DOLLARS DELUXE, FABULOUS 50'S,
QUARTERMANIA (one interstate and two intrastate), NICKELMANIA,
dollar-denominated WHEEL OF FORTUNE (one interstate and one intrastate), HIGH
ROLLERS, WHEEL OF GOLD, TOTEM POLE, 25(cent)-denominaTED WHEEL OF FOrtune (which
began interstate operation in June 1998, with two separate intrastate systems
beginning operation in May and July 1998), JEOPARDY! (which began interstate
operation in January 1998 and intrastate operation in October 1998),
PINBALLMANIA (which began operating in October 1998), SLOTOPOLY (which began
operating in November 1998), and SUPERNICKELMANIA (which began operating in
December 1998).

     During 1998, the Company continued to replace machines on older systems
which provide higher margins to the Company with machines on newer systems which
provide lower margins to the Company. These newer systems have greater player
appeal and acceptance, as well as greater casino acceptance. Machine additions
to existing systems along with the introduction of new, innovative systems and
the placement of machines and systems in new jurisdictions is anticipated to
provide increased future revenue growth. Based on current market trends, the
Company anticipates increased revenue from its wide area progressive systems in
1999 as it proceeds with its strategy to place additional systems and machines
in jurisdictions permitting the operation of wide area progressive systems.
However, there can be no assurance that necessary regulatory approvals will be
obtained in those prospective jurisdictions. Furthermore, public acceptance of
these systems and the entry of competing systems of other gaming companies could
affect the Company's future revenue. The Company believes that its ability to
provide systems and service would be unaffected by the pending acquisition of
the Company by IGT (see page 3).


                                      -31-
<PAGE>


FINANCING INCOME

     Financing income increased 7% to $8.3 million in 1998 compared to $7.8
million in 1997. Financing income results from interest income on notes
receivable and the net investment in sales-type leases, fees charged in
association with financing arrangements and the Company's portion of the
management fee from Harrah's Phoenix Ak-Chin casino. Interest income on notes
receivable and the net investment in sales-type leases and fees charged in
association with financing arrangements increased 14% to $6.7 million in 1998,
compared to $5.9 million in 1997. This increase was primarily due to $0.6
million of deferred financing fee revenue recognized in 1998 compared to less
than $0.1 million in 1997.

     The Company recognized revenue of $1.6 million in 1998 compared to $1.9
million in 1997 as its share of Harrah's management fee from the Harrah's
Phoenix Ak-Chin casino located near Phoenix, Arizona (Harrah's is a 14%
shareholder of the Company). This fee is earned in conjunction with financing
guaranties provided to Harrah's by the Company during the initial development
and early operations phases of the facility. The guaranty expired in 1996 when
the loan was paid in full. As consideration for the guaranty, the Company
receives, from Harrah's, 4% of the distributable net income of the gaming
operation over the term of the management contract, which expires December 1999.
The Company will participate in any extensions to the management agreement
between Harrah's and the Native American tribe associated with the Harrah's
Phoenix Ak-Chin. There can be no assurance that Harrah's management contract
will be extended or that the terms of any extension will not change materially
from the current management contract.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative expenses decreased 16% to $17.4 million
in 1998 compared to $20.6 million in 1997. This decrease is attributable to the
restructuring during 1998, whereby the Company downsized its ongoing overhead in
light of the Latin American divestitures. As a percentage of total revenue,
selling, general and administrative expenses decreased to 13% in 1998 compared
to 15% in 1997.


DEPRECIATION AND AMORTIZATION

     Depreciation and amortization decreased 9% to $5.9 million in 1998,
compared to $6.5 million in 1997. This decrease was primarily attributable to
decreased depreciation resulting from the Latin American divestitures in 1998
and the impairment of certain long-lived assets on December 31, 1997 (assets on
which depreciation and amortization were recognized in 1997).


INTEREST AND FINANCING COSTS

     Interest and financing costs decreased 27% to $2.7 million in 1998 compared
to $3.7 million in 1997. The decrease in interest and financing costs was
primarily attributable to increased cash flows from operations in 1998, which in
turn decreased average borrowings for working capital needs as compared to 1997.


RESTRUCTURING CHARGES AND IMPAIRMENT OF LONG-LIVED ASSETS

     As discussed in the introduction to this section, the Company completed a
corporate restructuring during 1998. In association with this restructuring, the
Company recorded restructuring charges, primarily relating to the severance of
24 employees, amounting to $3.3 million on a pre-tax basis during 1998 (see Note
2, page 50). In 1997, the Company recorded a pre-tax $9.2 million charge
relating to impairment of long-lived assets (see Note 4, page 51).


                                      -32-
<PAGE>


INCOME (LOSS) FROM OPERATIONS

     The combined effect of the above described changes resulted in income from
operations of $17.2 million in 1998 compared to an operating loss of ($0.2)
million in 1997. The increase in operating results is due to a variety of
reasons as described in the preceding sections. As a percentage of revenue,
income from operations before restructuring charges in 1998 and asset impairment
charges in 1997 was 15.4% in 1998 compared to 6.6% in 1997.


OTHER

     Other income (expense) in 1998 is composed primarily of the ($12.2) million
loss on divestiture of Latin American operations (see Note 2, page 50). Other
income in 1997 includes $0.5 million of income recognized as a result of the
sale of receivables at a premium. Earnings before income taxes and the
cumulative effect of an accounting change in 1997 (see Note 17, page 60)
increased to $5.1 million in 1998, compared to $0.4 million in 1997. Provision
for income taxes was $2.4 million in 1998, compared to $1.0 million in 1997,
representing 47% and 251% of earnings before income taxes in 1998 and 1997,
respectively. The high effective income tax rate in 1998 and 1997 is due
primarily to the establishment of valuation allowances for certain deferred tax
benefits that were generated related to the Latin American operations and
divestiture.


RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1997
COMPARED TO THE YEAR ENDED DECEMBER 31, 1996

     The year 1997 reflected a ($3.7) million loss, or ($0.16) per share, basic
and diluted, compared to earnings of $13.2 million, or $0.58 per share, basic
and diluted, in 1996. The decrease in operational results was due primarily to a
decrease in 1997 product sales revenue, a decrease in gaming operations margins
and the charges taken in 1997 for: 1) an accounting change related to
pre-opening and start-up costs (see Note 17, page 60); 2) impairment of certain
long-lived assets (see Note 4, page 51); and 3) inventory reserves and charges
related to Latin American operations.

     Total revenue decreased 11% to $137.6 million in 1997, compared to $154.6
million in 1996. The decrease is primarily attributable to a substantial
decrease in product sales revenue. The Company continued its strategy of
augmenting product sales revenue with recurring revenue streams generated by
gaming operations and wide area progressive systems. Total costs and expenses,
including all the charges described in the above paragraph other than the
cumulative effect of the accounting change for pre-opening and start-up costs,
increased 3% in 1997 to $137.8 million compared to $133.7 million in 1996.


PRODUCT SALES

     Revenue from product sales decreased 41% to $61.7 million in 1997, from
$104.5 million in 1996, which was a record year for product sales. The decrease
was due to a 38% decrease in machine sales revenue (including used machine
sales) to $46.8 million in 1997 compared to $75.5 million in 1996 and a 49%
decrease in ancillary gaming and non-gaming product sales revenue to $14.9
million in 1997 compared to $29.0 million in 1996. In 1997, the Company
continued its strategy of being a full-service provider to its customers by
offering an extensive product line that included gaming related and non-gaming
related products and supplies.


                                      -33-
<PAGE>


     New gaming machine shipments decreased 50% to approximately 6,200 machines
in 1997 compared to 12,400 machines in 1996. In 1997, 33% of new machine
shipments were to casinos in Arizona and New Mexico and another 49% of the new
machine shipments were to Kansas, Louisiana, Michigan, Minnesota and North
Carolina. In 1996, 59% of the new machine shipments were to casinos in
Connecticut, Michigan and Ontario; another 31% of the shipments were to Arizona,
Kansas, Mississippi, North Dakota and Wisconsin. In 1997, the Company also sold
approximately 1,800 used machines, compared to approximately 200 used machines
in 1996.

     The cost of product sales decreased 41% to $48.3 million in 1997, from
$81.2 million in 1996. This decrease was attributable to the decreased sales
volume of machines and other products. The gross margin on product sales
decreased to 21.7% in 1997, compared to 22.3% in 1996. The decrease in the gross
margin was primarily due to a $1.0 million inventory reserve charge taken in
1997.


GAMING OPERATIONS

     Gaming operations revenue increased 59% to $54.8 million in 1997, compared
to $34.4 million in 1996. This increase was primarily attributable to the July
1, 1996 acquisition of Gamblers Supply Management Company (GSMC) (twelve months'
revenue from the MISS MARQUETTE riverboat casino operation were recognized in
1997 compared to six months in 1996) and the increase in gaming operations
revenue in Latin America in 1997 compared to 1996. Direct costs of gaming
operations increased 84% to $49.4 million in 1997, compared to $26.8 million in
1996.


DOMESTIC GAMING OPERATIONS

     MISS MARQUETTE. GSMC, the management company of the MISS MARQUETTE, was
acquired by the Company on July 1, 1996. The acquisition was accounted for using
the purchase method of accounting (see Note 3, page 50). Accordingly, the
operations of the MISS MARQUETTE since July 1, 1996, are included in the
consolidated statements of operations. Revenue from the MISS MARQUETTE amounted
to $32.3 million in 1997 compared to $15.3 million for the period July 1, 1996,
through December 31, 1996. Direct operating costs were $27.9 million in 1997
compared to $13.3 million for the period July 1, 1996, through December 31,
1996. Prior to its acquisition, the Company leased the riverboat vessel to GSMC.
Therefore, 1996 gaming operations revenue included lease revenue relating to the
MISS MARQUETTE of $3.3 million for the period January 1, 1996, through June 30,
1996.

     In 1997, the carrying value of the goodwill and property and equipment of
the MISS MARQUETTE was adjusted to the present value of the estimated future
cash flows of the MISS MARQUETTE. The total effect of the asset impairment,
primarily related to the MISS MARQUETTE, was a consolidated pre-tax charge to
1997 earnings of $9.2 million (see Note 4, page 51).


LATIN AMERICAN GAMING OPERATIONS

     As discussed in the introduction to the Management's Discussion and
Analysis (see page 28), the Company divested of its Latin American gaming
operations during 1998.

     PERU. The Company operated gaming halls and route operations in Peru
beginning in May 1995. Revenue increased 19% to $14.8 million in 1997 compared
to $12.4 million in 1996. This increase resulted primarily from an increase in
the average number of machines in operation throughout 1997 compared to 1996.
Direct operating costs increased 35% to $13.9 million in 1997 compared to $10.3


                                      -34-
<PAGE>


million in 1996 as a result of the increase in the average number of machines in
operation, an increase in gaming taxes, increased advertising and promotion, the
expensing of leasehold improvements and pre-opening costs at locations where
leases were terminated in order to comply with new regulations, increased
administrative and reorganization costs relating to regulatory changes and
carrying costs associated with locations whose openings were affected by
regulatory and licensing delays. The number of machines in operation at December
31, 1997 was approximately 1,150 at 15 locations. Approximately 1,300 machines
at 21 locations were in operation at December 31, 1996.

     The Company incurred $0.2 million in pre-opening and start-up costs related
to Peru in 1997, which were expensed in 1997 in conjunction with the Company's
accounting change related to pre-opening and start-up costs. Such costs incurred
in Peru prior to January 1, 1997, amounting to $0.8 million, net of $0.1 million
income tax benefit, were also charged to 1997 operating results through a
cumulative effect of an accounting change (see Note 17, page 60).

     BRAZIL. The Company established a gaming hall in the Arpoador district of
Rio de Janeiro in June 1996. Revenue increased 129% to $5.7 million in 1997
compared to $2.5 million in 1996. Direct costs of the Arpoador operation
increased 158% to $5.8 million in 1997 compared to $2.3 million in 1996. The
increases in revenue and direct costs were attributable to a full year of
operations in 1997 compared to a half year in 1996. Direct costs in 1997 also
increased due to accruals relating primarily to ambiguous regulations pertaining
to gaming taxes.

     The Company incurred $3.0 million in pre-opening and start-up costs related
to Brazil in 1997, which were expensed in 1997 as selling, general and
administrative expenses in conjunction with the Company's accounting change
related to pre-opening and start-up costs. Such costs incurred in Brazil prior
to January 1, 1997, amounting to $2.3 million, net of $1.2 million income tax
benefit, were also charged to 1997 operating results through a cumulative effect
of an accounting change (see Note 17, page 60).

     ECUADOR. The Company established a casino operation in Quito, Ecuador, in
March 1996. Revenue increased 117% to $2.0 million in 1997 as compared to $0.9
million in 1996. Direct costs increased 74% to $1.8 million in 1997 as compared
to $1.0 million in 1996.


WIDE AREA PROGRESSIVE SYSTEMS

     Wide area progressive systems revenue increased 64% to $13.3 million in
1997 compared to $8.1 million in 1996. This increase was a result of the
increase in both the number of systems offered and the number of machines on the
systems. The number of machines on the systems increased to approximately 1,700
at December 31, 1997 compared to approximately 1,200 at December 31, 1996. In
1997, the Company offered wide area progressive systems in Arizona (which
permits the operation of intrastate systems in lieu of interstate systems),
Connecticut, Iowa, Kansas, Louisiana, Michigan, Minnesota, New Mexico, North
Dakota, Oregon, South Dakota and Wisconsin. At December 31, 1997, 13 systems
were in operation: MEGABUCKS (one interstate and one intrastate), DOLLARS
DELUXE, FABULOUS 50'S, QUARTERMANIA (one interstate and two intrastate),
NICKELMANIA, WHEEL OF FORTUNE (which began interstate operations in March 1997
and intrastate operations in September 1997), WHEEL OF GOLD (which began
operating in July 1997), HIGH ROLLERS (which began operating in August 1997) and
TOTEM POLE (which began operating in December 1997).


                                      -35-
<PAGE>


FINANCING INCOME

     Financing income increased 4% to $7.8 million in 1997 from $7.5 million in
1996. Interest income on notes receivable and fees charged in association with
financing arrangements remained stable, amounting to $5.9 million in both 1997
and 1996. The Company recognized revenue of $1.9 million in 1997 compared to
$1.6 million in 1996 as its share of Harrah's management fee from the Harrah's
Phoenix Ak-Chin casino located near Phoenix, Arizona.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative expenses increased 5% to $20.6 million
in 1997, from $19.6 million in 1996. As a percentage of total revenue, selling,
general and administrative expenses increased to 15% in 1997 compared to 13% in
1996. The increase was primarily attributable to the accounting change whereby
pre-opening and start-up costs were expensed in 1997, while 1996 selling,
general and administrative expenses do not reflect 1996 pre-opening and start-up
costs (such amounts were reflected as a charge to 1997 earnings via cumulative
effect of an accounting change - see Note 17, page 60). The 1997 pre-opening and
start-up costs reflected in selling, general and administrative expenses
amounted to $3.0 million.


DEPRECIATION AND AMORTIZATION

     Depreciation and amortization increased 73% to $6.5 million in 1997,
compared to $3.8 million in 1996. This increase was attributable to a full year
of depreciation and amortization in 1997 related to gaming operations at the
MISS MARQUETTE, and in Brazil and Ecuador, compared to a partial year related to
those operations in 1996. Depreciation and amortization in Peru also increased
in 1997 compared to 1996 due to the growth of the Company's gaming operations in
that country in 1996 and 1997.


INTEREST AND FINANCING COSTS

     Interest and financing costs increased 62% to $3.7 million in 1997 compared
to $2.3 million in 1996. The increase in interest and financing costs was
primarily attributable to increased borrowings for working capital needs and the
assumption of debt in connection with the acquisition of GSMC (see Note 3, page
50).


INCOME (LOSS) FROM OPERATIONS

     The combined effect of the above described changes resulted in a loss from
operations of ($0.2) million in 1997, compared to income from operations of
$20.9 million in 1996. The decrease is due to a variety of reasons as described
in the preceding sections. As a percentage of revenue, income from operations
(before asset impairment charges in 1997) was 6.6% in 1997 compared to 13.5% in
1996.


OTHER

     Other income in 1997 includes $0.5 million of income recognized as a result
of the sale of receivables at a premium. Earnings before income taxes and the
cumulative effect of an accounting change decreased to $0.4 million in 1997,
compared to $20.9 million in 1996. Provision for income taxes was $1.0 million
in 1997, compared to $7.7 million in 1996, representing 251% and 37% of earnings
before income taxes in 1997 and 1996, respectively. The high effective income
tax rate in 1997 is due primarily to the establishment of a valuation allowance
for certain deferred tax benefits that were generated in 1997 related to Latin
American operations.


                                      -36-
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

WORKING CAPITAL

     Working capital increased to $34.8 million at December 31, 1998, compared
to $21.6 million at December 31, 1997. The increase is attributable to a
decrease in current liabilities of $14.4 million, partially offset by a decrease
in current assets of $1.2 million.


CASH FLOWS

     During 1998, the Company's cash and cash equivalents increased $2.2 million
to $6.1 million at December 31, 1998 from $3.9 million at December 31, 1997.
Cash provided by operating activities was $26.7 million in 1998 compared to
$14.2 million in 1997. Significant items affecting 1998 operating cash flows
were net income, the loss on the divestiture of Latin American operations,
depreciation and amortization, provision for doubtful accounts and changes in
operating assets and liabilities.

     Cash used in investing activities amounted to $9.7 million in 1998 and $9.0
million in 1997. Cash used in investing activities consisted primarily of $10.4
million and $14.5 million advanced on notes receivable for casino development
financing in 1998 and 1997, respectively, $6.3 million and $10.0 million used to
purchase property and equipment in 1998 and 1997, respectively, and $2.4 million
invested in a joint venture in 1998 (see Note 12, page 54). The property and
equipment purchases in both 1998 and 1997 were primarily the result of 1)
expenditures for gaming operations equipment at the MISS MARQUETTE and in Peru
(regulations in Peru required certain machine refurbishments) and 2) the
development of a Company-wide information system. In 1997, the Company also
expanded its office space at its corporate headquarters. These uses were
partially offset by payments received on notes receivable from casino
development financing amounting to $4.6 million and $16.3 million in 1998 and
1997, respectively, and the 1998 receipt of $3.9 million in association with the
divestiture of Latin American operations.

     Financing activities used $14.8 million and $5.5 million of cash in 1998
and 1997, respectively. These uses resulted primarily from net repayments on the
Company's credit facility and repayments of other long-term debt. Also in 1997,
the Company completed a sale-leaseback transaction that provided $7.5 million
(see Note 13, page 54).


LATIN AMERICAN OPERATIONS

     Approximately 13% of total revenue in 1998 was derived outside of the
United States, compared to 16% in 1997. As described in the preceding sections
and in Note 2 on page 50, the Company divested its Latin American operations
during 1998.


IMPACT OF INFLATION

     Inflation has not had a significant effect on the Company's operations
during the three years ended December 31, 1998.


                                      -37-
<PAGE>


YEAR 2000 COMPLIANCE

     The Company has undertaken various initiatives to ensure that its computer
equipment and software will function properly with respect to dates prior to,
during, and after the Year 2000. Information technology (IT) systems impacted by
the Year 2000 issue include systems commonly thought of as IT systems, such as
accounting, data processing and telephone systems, as well as systems that are
not commonly thought of as IT systems, such as alarm systems, security systems,
fax machines, and other miscellaneous systems. Both IT and non-IT systems may
contain imbedded technology which compounds the inventory, risk assessment,
remediation, and testing efforts.


STATE OF READINESS

     The Year 2000 readiness issue, which is common to most businesses, arises
from the inability of computer information systems with date sensitive processes
to properly recognize and accurately process date-sensitive information. If the
Company or its customers, suppliers, or other third parties fail to make
corrections for programs that have defined dates using a two-digit year, this
could result in system failure or malfunction of certain computer equipment,
software, and other devices dependent upon computerized mechanisms that are date
sensitive. This problem may cause disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Assessments of the potential cost
and effects of Year 2000 issues vary significantly among businesses, and it is
difficult to predict the actual impact. Recognizing this uncertainty, management
has commenced the following steps: a) established a Year 2000 project team; b)
implemented a plan that includes awareness, inventory, risk assessment,
remediation, contingency planning, and compliance maintenance phases; and c)
communicating with customers, vendors, and third party providers to ensure they
are addressing the Year 2000 issue.

     The inventory, risk assessment, and remediation phases are currently
underway.

     The Company is utilizing both internal and external resources to accomplish
its Year 2000 Compliance plan, which began in November 1998 and is expected to
be substantially complete by July 1999. Risk management consultants have been
engaged to review and assist Sodak in our Year 2000 Compliance plans and
efforts. The Company is also actively pursuing efforts to ensure the readiness
of our products and services.


COSTS

     The Company estimates that its direct costs for Year 2000 compliance will
consist primarily of costs related to the staff time devoted to Year 2000
compliance. The Company expects expenditures related to Year 2000 compliance to
approximate $200,000.


RISKS

     The Year 2000 issue presents a number of other risks and uncertainties that
could impact Sodak operations. These include but are not limited to third
parties whose services the Company relies upon in order to produce and sell our
products, such as key suppliers, public utilities, telecommunication providers,
financial institutions, or certain regulators of the various jurisdictions where
Sodak does business, which could result in lost production, sales, or
administrative difficulties on the part of Sodak. The Company is corresponding
with these parties to determine their Year 2000 compliant


                                      -38-
<PAGE>


status. Based on these communications, contingency plans will be developed to
allow Sodak to continue business as normal.

     The Company has identified the integrated Oracle Applications system and
the Native American Progressive Systems (NAPS) as critical business pieces that
would be substantially impacted by an inability to handle Year 2000 issues. The
Company believes that Year 2000 deficiencies will be remedied through computer
equipment and software replacement or modification in a timely fashion. Oracle
Applications was implemented on the Digital Alphaserver platform with Compaq
Tru64 (formerly known as Digital UNIX) in fiscal 1998 to replace core-business
information systems with an Enterprise Resource Planning (ERP) software package.
Oracle Applications is stated to be Year 2000 compliant after application of
known patches and the Company has developed a testing platform to ensure the ERP
is and will remain Year 2000 compliant.

     The Company's NAPS are the proprietary systems of IGT. IGT is in the
process of upgrading all wide area progressive system software. The software
upgrade obtained regulatory approval in Native American jurisdictions in March
1999. Implementation of the upgrade is expected to occur in the second quarter
of 1999.

     The Company is also surveying its key vendors and service providers to
determine the extent to which interfaces with such entities are vulnerable to
Year 2000 issues. Although the Company has developed a system of communicating
with vendors to understand their ability to continue providing services and
products through the Year 2000 without interruption, there can be no assurance
that the systems of other companies on which the Company may rely will be timely
converted or that such failure to convert by another company would not have an
adverse effect on the Company's systems.

     The Company believes the implementation of the integrated Oracle
Applications system and completion of the Year 2000 project as scheduled will
significantly reduce the risk of significant operating problems. Based on our
Year 2000 project timeline, the majority of our application systems should be
tested by mid-1999. The Company believes this timetable should allow enough time
to fix or replace any business critical problems discovered during the testing
phase.


CONTINGENCY PLANS

     In those instances where completion by the end of 1999 is not assured,
appropriate contingency plans will be developed. The Year 2000 issue presents a
number of other risks and uncertainties that could impact the Company, including
but not limited to third parties whose services relied upon in order to produce
and sell our products, such as key suppliers and customers, public utilities,
telecommunication providers, financial institutions, or certain regulators of
the various jurisdictions where the Company does business, which could result in
lost production, sales, or administrative difficulties on the part of the
Company. While the Company continues to believe the Year 2000 issues will not
materially affect its consolidated financial position or results of operations,
it remains uncertain as to what extent, if any, the Company may be impacted.


                                      -39-
<PAGE>


MARKET RISK

     The Company has market risk relating to long-term debt and notes payable to
third parties and banks which bear interest at fixed and variable rates. The
following is a summary of the debt instruments:

                                             Maturing in one    Maturing in four
                                             to three years     to six years
--------------------------------------------------------------------------------
Fixed rate debt (21%)                           $  5,552                  0
Fixed rate debt (8% to 9%)                         1,242                408
-------------------------------------------------------------------------------

     The Company has market risk relating to short term and long term notes
receivable with customers which bear interest at fixed and variable rates. The
following is a summary of the notes receivable:

                                             Maturing in one    Maturing in four
                                             to three years     to six years
--------------------------------------------------------------------------------
Fixed rate notes (8% to 14%)                    $ 26,376              4,482
Variable rate notes (prime+1% to prime +4%)       10,795                  0
--------------------------------------------------------------------------------


NEW ACCOUNTING PRONOUNCEMENTS

     During 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, and the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE.

     SFAS No. 133 establishes new standards for recognizing all derivatives as
either assets or liabilities, and measuring those instruments at fair value. The
Company plans to adopt the new standard during the first quarter of the year
2000, as required. The Company is in the process of evaluating SFAS 133 and the
impact on the Company, but does not believe the impact will be material. SOP
98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use. The Company adopted the provisions of
this SOP in 1998, which did not have a material impact on results of operations
of the Company.

CAUTIONARY NOTICE

     This report contains forward-looking statements reflecting the Company's
expectations or beliefs concerning future events which could materially affect
Company performance in the future. Terms indicating future expectation, optimism
about future potential, anticipated growth in revenue, earnings of the Company's
business lines and like expressions typically identify such statements. Actual
results and events may differ significantly from those discussed in
forward-looking statements.

     All forward-looking statements are subject to the risks and uncertainties
inherent with predictions and forecasts. They are necessarily speculative
statements, and unforeseen factors, such as competitive pressures, changes in
regulatory structure, failure to gain the approval of regulatory authorities,
and changes in customer acceptance of gaming could cause results to differ
materially from any that may be expected.

     Forward-looking statements are made in the context of information available
as of the date stated. The Company undertakes no obligation to update or revise
such statements to reflect new circumstances or unanticipated events as they
occur.


                                      -40-
<PAGE>


ITEM 8.  INANCIAL STATEMENTS


8 (a)    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                         Page
                                                                            ----
         Consolidated Statements of Operations for the years ended
           December 31, 1998, 1997 and 1996                                   42

         Consolidated Balance Sheets at December 31, 1998 and 1997            43

         Consolidated Statements of Shareholders' Equity and Comprehensive
           Income for the years ended December 31, 1998, 1997 and 1996        44

         Consolidated Statements of Cash Flows for the years ended
           December 31, 1998, 1997 and 1996                                   45

         Notes to Consolidated Financial Statements for the years ended
           December 31, 1998, 1997 and 1996                                   46

         Independent Auditors' Report                                         63


                                      -41-
<PAGE>


                               SODAK GAMING, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

In thousands, except per share amounts                                    1998           1997           1996
------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>           <C>    
REVENUE:
   Product sales                                                     $  55,621         61,683        104,512
   Gaming operations                                                    53,377         54,756         34,377
   Wide area progressive systems                                        15,213         13,329          8,149
   Financing income                                                      8,343          7,810          7,549
------------------------------------------------------------------------------------------------------------
             Total revenue                                             132,554        137,578        154,587
------------------------------------------------------------------------------------------------------------

COSTS AND EXPENSES:
   Cost of product sales                                                43,015         48,302         81,171
   Gaming operations                                                    43,110         49,394         26,822
   Selling, general and administrative                                  17,357         20,639         19,630
   Depreciation and amortization                                         5,908          6,524          3,779
   Interest and financing costs                                          2,689          3,704          2,284
   Restructuring charges (note 2)                                        3,256              0              0
   Impairment of long-lived assets (note 4)                                  0          9,238              0
------------------------------------------------------------------------------------------------------------
             Total costs and expenses                                  115,335        137,801        133,686
------------------------------------------------------------------------------------------------------------

INCOME (LOSS) FROM OPERATIONS                                           17,219           (223)        20,901
------------------------------------------------------------------------------------------------------------

Other income (expense):
   Loss on divestiture of Latin American operations (note 2)           (12,248)             0              0
   Gain on sale of receivables                                               0            537              0
   Other, net                                                               99             68             26
------------------------------------------------------------------------------------------------------------
             Total other income (expense)                              (12,149)           605             26
------------------------------------------------------------------------------------------------------------

EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING         5,070            382         20,927
CHANGE

Provision for income taxes (note 14)                                     2,384            958          7,694
------------------------------------------------------------------------------------------------------------

EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE            2,686           (576)        13,233

Cumulative effect of accounting change related to pre-opening
    and start-up costs, net of income tax effect (note 17)                   0         (3,131)             0
------------------------------------------------------------------------------------------------------------

NET EARNINGS (LOSS)                                                  $   2,686         (3,707)        13,233
============================================================================================================

EARNINGS (LOSS) PER COMMON SHARE - BASIC AND DILUTED:
   EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF
       ACCOUNTING CHANGE                                             $    0.12          (0.02)          0.58
   CUMULATIVE EFFECT OF ACCOUNTING CHANGE
                                                                          0.00          (0.14)          0.00
------------------------------------------------------------------------------------------------------------
   NET EARNINGS (LOSS) PER COMMON SHARE                              $    0.12          (0.16)          0.58
============================================================================================================

WEIGHTED AVERAGE NUMBER OF COMMON AND ASSUMED CONVERSION
   SHARES OUTSTANDING (NOTE 20)                                         22,802         22,896         22,966
</TABLE>

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


                                      -42-
<PAGE>


                               SODAK GAMING, INC.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1998 and 1997

<TABLE>
<CAPTION>

In thousands, except share and per share amounts                                 1998          1997
---------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>  
ASSETS
Current assets:
   Cash and cash equivalents                                                $   6,100         3,942
   Current trade, notes and interest receivables (notes 5 and 8)               38,210        36,137
   Net investment in sales-type leases, current maturities (note 7)             1,640             0
   Inventories (note 10)                                                       14,565        22,294
   Prepaid expenses                                                               408           756
   Refundable income taxes                                                      1,165           663
   Deferred income taxes (note 14)                                              1,870         1,319
---------------------------------------------------------------------------------------------------
             Total current assets                                              63,958        65,111
Property and equipment, net (note 11)                                          47,117        59,739
Notes receivable, net of current maturities (notes 6 and 8)                    24,708        38,723
Net investment in sales-type leases, net of current maturities (note 7)         1,917             0
Investment in joint venture (note 12)                                           2,400             0
Deferred income taxes (note 14)                                                   202           789
Other assets                                                                      206           794
---------------------------------------------------------------------------------------------------
                                                                            $ 140,508       165,156
===================================================================================================


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                         $  16,313        32,379
   Note payable (note 13)                                                       1,500             0
   Current maturities of long-term debt (note 13)                               2,836         3,634
   Income taxes payable                                                             0            75
   Deferred financing fee revenue                                               1,278         1,846
   Accrued payroll and payroll related costs (note 2)                           3,891         1,986
   Other accrued liabilities (note 2)                                           3,328         3,620
---------------------------------------------------------------------------------------------------
             Total current liabilities                                         29,146        43,540

Long-term debt, net of current maturities (note 13)                             4,366        19,818
---------------------------------------------------------------------------------------------------
             Total liabilities                                                 33,512        63,358
---------------------------------------------------------------------------------------------------

Shareholders' equity:
   Preferred stock, $0.001 par value, 25,000,000 shares authorized,
       none issued and outstanding                                                  0             0
   Common stock, $0.001 par value; 75,000,000 shares authorized,
       22,789,908 and 22,758,408 shares issued and outstanding at
       December 31, 1998 and 1997, respectively                                    23            23
   Additional paid-in capital                                                  64,226        64,088
   Retained earnings                                                           42,747        40,061
   Accumulated other comprehensive income                                           0        (2,374)
---------------------------------------------------------------------------------------------------
             Total shareholders' equity                                       106,996       101,798
---------------------------------------------------------------------------------------------------

Commitments and contingencies (notes 12, 13, 16, 18 and 21)

                                                                            $ 140,508       165,156
===================================================================================================
</TABLE>

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


                                      -43-
<PAGE>


                               SODAK GAMING, INC.

    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                       ---------------------------------------------------------------------------------------
                                             Common stock
                                       -------------------------                                   Accumulated
                                                                     Additional                          other           Total
                                                             Par        paid-in       Retained   comprehensive   shareholders'
In thousands, except shares                  Shares        value        capital       earnings          income          equity
------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>              <C>            <C>             <C>             <C>   
Balance, December 31, 1995               22,722,276     $     23         63,703         30,535               0          94,261
    Restricted stock awards, net               (216)           0             10              0               0              10
    Stock options exercised                  35,628            0            250              0               0             250
    Tax benefits of stock
        options exercised (note 16)               0            0            109              0               0             109
    Comprehensive income:
        Net earnings                              0            0              0         13,233               0          13,233
        Foreign currency
          adjustments                             0            0              0              0          (1,432)         (1,432)
                                                                                                                --------------
        Total comprehensive income                                                                                      11,801
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996               22,757,688           23         64,072         43,768          (1,432)        106,431
    Restricted stock awards                     250            0             12              0               0              12
    Stock options exercised                     470            0              4              0               0               4
    Comprehensive income (loss):
        Net loss                                  0            0              0         (3,707)              0          (3,707)
        Foreign currency translation
            adjustments                           0            0              0              0            (942)           (942)
                                                                                                                --------------
        Total comprehensive loss                                                                                        (4,649)
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997               22,758,408           23         64,088         40,061          (2,374)        101,798
    Restricted stock awards                  31,500            0            138              0               0             138
    Comprehensive income:
        Net earnings                              0            0              0          2,686               0           2,686
        Foreign currency translation
          adjustments                             0            0              0              0           2,374           2,374
                                                                                                                --------------
        Total comprehensive income                                                                                       5,060
==============================================================================================================================
BALANCE, DECEMBER 31, 1998               22,789,908     $     23         64,226         42,747               0         106,996
==============================================================================================================================
</TABLE>

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


                                      -44-
<PAGE>


                               SODAK GAMING, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

In thousands                                                                    1998          1997          1996
----------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>              <C>           <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net earnings (loss)                                                     $   2,686        (3,707)       13,233
   Adjustments to reconcile net earnings (loss) to net
     cash provided by operating activities:
      Loss on divestiture of Latin American operations (note 2)               12,248             0             0
      Impairment of long-lived assets                                              0         9,238             0
      Pre-tax cumulative effect of accounting change                               0         4,409             0
      Depreciation and amortization                                            5,908         6,524         3,779
      Provision for doubtful accounts                                            501           882         2,788
      Deferred income taxes                                                       36        (2,905)          362
      Restricted stock awards                                                    138            12            10
      Gain on sale of receivables                                                  0          (537)            0
      Loss on sale of property and equipment                                      26             0            51
      Changes in operating assets and liabilities:
        Trade and accrued interest receivables                                (5,781)        2,625        (6,811)
        Receivables relating to financed sales                                22,684        (2,323)        3,737
        Net investment in sales-type leases                                   (3,557)            0             0
        Inventories                                                            7,729        (6,659)       (7,925)
        Prepaid expenses                                                        (256)          918          (311)
        Refundable income taxes, net of income taxes payable                    (905)          125        (1,598)
        Accounts payable                                                     (15,586)        4,026         5,725
        Accrued liabilities                                                      832         1,618           944
----------------------------------------------------------------------------------------------------------------
             Net cash provided by operating activities                        26,703        14,246        13,984
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Cash advanced on notes receivable                                         (10,402)      (14,469)       (5,515)
   Payments received on notes receivable                                       4,606        16,293         4,924
   Proceeds from divestiture of Latin American operations                      3,925             0             0
   Principal payments received on direct-financing type leases                     0             0           338
   Purchases of property and equipment                                        (6,273)       (9,959)       (9,748)
   Proceeds from sale of property and equipment                                  632             0           502
   Increase in amounts due from riverboat lessee, prior to                         0             0        (2,631)
   acquisition (note 3)
   Purchase of subsidiary, net of cash acquired (note 3)                           0             0           238
   Investment in joint venture (note 12)                                      (2,400)            0             0
   (Increase) decrease in other assets                                           164          (840)       (3,486)
----------------------------------------------------------------------------------------------------------------
             Net cash used in investing activities                            (9,748)       (8,975)      (15,378)
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Borrowings on note payable                                                  1,500             0             0
   Proceeds from long-term borrowings                                         30,000        41,300        52,750
   Principal repayments of long-term debt                                    (46,250)      (54,328)      (47,800)
   Proceeds from sale-leaseback transaction (note 13)                              0         7,540             0
   Net proceeds from exercise of stock options                                     0             4           250
----------------------------------------------------------------------------------------------------------------
             Net cash provided by (used in) financing activities             (14,750)       (5,484)        5,200
----------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                     (47)           78          (703)
----------------------------------------------------------------------------------------------------------------
             Net increase (decrease) in cash and cash equivalents              2,158          (135)        3,103
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                   3,942         4,077           974
----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                     $   6,100         3,942         4,077
================================================================================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid during the year for interest (net of amount capitalized)      $   2,729         3,162         1,719
   Cash paid during the year for income taxes                                  3,253         2,460         9,039
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY:
   Gaming machine inventory transferred to gaming operations equipment     $       0             0         2,948
</TABLE>

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


                                      -45-
<PAGE>


                               SODAK GAMING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 1998, 1997 and 1996


(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Sodak Gaming, Inc. (the Company) is a leading distributor and financier of
gaming equipment and a broad range of gaming-related products and services and a
provider of wide area progressive systems, primarily to Native American casinos.
In addition, the Company operates a riverboat casino entertainment facility in
Marquette, Iowa. The Company also operated a casino and various gaming hall and
route operations in certain Latin American countries from May 1995 through
December 1998. These Latin American operations were disposed of as part of a
Company-wide restructuring during 1998; see Note 2 for further discussion.

A significant amount of product sales is derived from the sale and distribution
of gaming equipment manufactured by International Game Technology (IGT) under an
exclusive distributorship agreement. The term of the most recent distributorship
agreement is for three years ending May 2001, at which time it continues for
two-year renewal periods unless canceled by either party. The agreement allows
the Company the exclusive right to distribute IGT manufactured or assembled
gaming machines to casinos located on Native American lands in the United States
(except Nevada, New Jersey and Hawaii) and to non-Native American purchasers in
South Dakota, North Dakota and Wyoming. The agreement restricts the Company from
selling competing products and is subject to review and renewal upon significant
change in control of the Company.

The Company has an exclusive agreement with IGT to provide and market wide area
progressive systems to Native American casinos. This agreement continues as long
as a progressive system is operating. The Company also has an exclusive
agreement with IGT to provide and market wide area progressive systems to
casinos in Deadwood, South Dakota.

The Company has distributorship arrangements with several other manufacturers
and suppliers of gaming related equipment and products.


PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.


REVENUE RECOGNITION

Revenue from product sales is recognized upon delivery to customers.

Gaming operations revenue consists primarily of gaming revenue from casinos,
gaming halls and route operations. In accordance with industry practice, the
Company recognizes as gaming revenue the net wins from gaming activities, which
is the difference between gaming wins and losses. The Company recognized as
revenue total net win from gaming devices from Latin American route operations
(see Note 2) which operated under revenue-sharing arrangements (revenue-sharing
expenses related to route operations were accounted for as an expense of gaming
operations).

Revenue from wide area progressive systems consists of the Company's portion of
fees for providing and marketing wide area progressive systems and is recognized
when earned.


                                      -46-
<PAGE>


Financing income results from interest income on notes receivable and the net
investment in sales-type leases, fees charged in association with financing
arrangements and the Company's portion of the management fee from a Native
American casino that results from the Company having guaranteed a portion of the
initial debt related to that casino. Financing income is recognized when earned
on an accrual basis and, when applicable, in accordance with Statement of
Financial Accounting Standards (SFAS) No. 91, ACCOUNTING FOR NONREFUNDABLE FEES
AND COSTS ASSOCIATED WITH ORIGINATING OR ACQUIRING LOANS AND INITIAL DIRECT
COSTS OF LEASES. Deferred financing fee revenue, which is included in current
liabilities on the balance sheets, represents financing fees that will be
recognized as revenue over the life of the associated loans in accordance with
SFAS No. 91.


CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash on hand, demand deposits, and short-term
investments with original maturities of three months or less. Such investments
are stated at cost, which approximates market value.


NOTES RECEIVABLE

Notes receivable are recorded at cost, less the related allowance for doubtful
accounts. The Company measures its estimates of impaired loans in accordance
with SFAS No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, as amended
by SFAS No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN--INCOME
RECOGNITION AND DISCLOSUREs. Management, considering current information and
events regarding the borrowers ability to repay their obligations, considers a
note impaired when it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the note agreement. When a
loan is considered to be impaired, the amount of impairment is measured based on
the present value of expected future cash flows discounted at the note's
effective interest rate. Impairment losses, if any, are included in the
allowance for doubtful accounts through a charge to bad debt expense. Cash
receipts on impaired notes receivable are applied to reduce the principal amount
of such notes until the principal has been recovered, and are recognized as
interest income thereafter. All notes receivable have been evaluated for
collectibility under SFAS No.'s 114 and 118.


INVENTORIES

Inventories are stated at the lower of cost or market. Inventory costs are
determined using standard costs, principally based on average costs. Provision
for potentially obsolete or slow-moving inventory is made based on management's
analysis of inventory levels and future sales forecasts.


PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is provided principally
on a straight-line basis in amounts sufficient to relate the cost of depreciable
assets to operations over the following estimated useful lives:

                                                                         Years
------------------------------------------------------------------------------
Land improvements                                                           15
Buildings and improvements                                               15-39
Riverboat                                                                   25
Gaming operations equipment                                               5-10
Office furniture and equipment                                            5-10
Transportation equipment                                                  5-20
Shop equipment                                                             5-7
Integrated information system                                                5
==============================================================================


                                      -47-
<PAGE>


PRE-OPENING AND START-UP COSTS

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, which requires pre-opening and start-up costs to be
expensed as incurred. The Company adopted the requirements of this Statement of
Position in the first quarter of 1998, which did not have an impact on the
Company's statement of operations in 1998.


ADVERTISING EXPENSE

The Company expenses advertising costs as incurred. Advertising costs, related
primarily to the Company's riverboat casino entertainment facility and divested
Latin American gaming operations (see Note 2), amounted to approximately $3.8
million, $4.9 million and $3.2 million in 1998, 1997 and 1996, respectively.


INCOME TAXES

The Company provides for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. Deferred tax assets and liabilities are recognized
for the expected future tax consequences arising from temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.


STOCK-BASED COMPENSATION

The Company has adopted the disclosure requirements under SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. As permitted under SFAS No. 123, the
Company applies Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, and related interpretations in accounting for its
plans. Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
the grant over the amount an employee must pay to acquire the stock.


EARNINGS (LOSS) PER SHARE

In accordance with the provisions of SFAS No. 128, EARNINGS PER SHARE, basic
earnings per share is computed by dividing net earnings (loss) for the period by
the number of weighted average common shares outstanding during the year.
Diluted earnings (loss) per share is computed in the same fashion, except that
dilutive shares are added to the denominator of that calculation. During the
years ended December 31, 1998, 1997 and 1996, the only dilutive items present in
the Company's capital structure are stock options and restricted shares
outstanding.


STOCK DISTRIBUTION

On August 30, 1996, the Company's board of directors approved a two-for-one
stock split in the form of a stock dividend, effected by a distribution on
September 27, 1996 of one additional share for each share owned by shareholders
of record on September 13, 1996. All share, per share, common stock and stock
option amounts in the consolidated financial statements and notes have been
restated to reflect the effect of this split.


USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.


                                      -48-
<PAGE>


FOREIGN CURRENCY TRANSLATION

As of December 31, 1998, all Latin American operations were divested (see Note
2). The financial statements of foreign subsidiaries prior to divestiture were
translated into U.S. dollars for consolidated reporting purposes in accordance
with SFAS No. 52, FOREIGN CURRENCY TRANSLATION. All asset and liability accounts
were translated using the then current exchange rate at the balance sheet dates.
Income statement amounts were translated using the average monthly exchange
rates. The gains and losses from foreign currency transactions are included in
net earnings (loss) and are insignificant for all years presented. The gains and
losses resulting from translation adjustments were reflected as a component of
shareholders' equity at December 31, 1997. The loss resulting from the
divestiture of the Latin American operations as reflected in the 1998 statement
of operations includes the equity component of the foreign currency translation
adjustments through the dates of the disposals.


LONG-LIVED ASSETS

The Company follows the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
which requires that long-lived assets and certain identifiable intangibles to be
held and used or disposed of by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable based on future undiscounted cash flows.


COMPREHENSIVE INCOME

The Company adopted the provisions of SFAS No. 130, REPORTING COMPREHENSIVE
INCOME in 1998. This statement requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The reporting methodology required by SFAS No. 130 has been applied to
all years presented.


NEW ACCOUNTING PRONOUNCEMENTS

During 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, and the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use.

SFAS No. 133 establishes new standards for recognizing all derivatives as either
assets or liabilities, and measuring those instruments at fair value. The
Company plans to adopt the new standard during the first quarter of the year
2000, as required. The Company is in the process of evaluating SFAS 133 and the
impact on the Company, but does not believe the impact will be material. SOP
98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use. The Company adopted the provisions of
this SOP in 1998, which did not have a material impact on results of operations
of the Company.


RECLASSIFICATIONS

Certain 1997 and 1996 amounts have been reclassified to conform to the current
year presentation.


                                      -49-
<PAGE>


(2) CORPORATE RESTRUCTURING AND LATIN AMERICAN DIVESTITURES

In June 1998, the Company announced a corporate restructuring designed to
refocus the Company on its core businesses - product sales and wide area
progressive systems to Native American casinos - and the MISS MARQUETTE
riverboat casino. The Company indicated its plan is to continue pursuing gaming
operations in North America. As part of the restructuring, the Company also
indicated it would divest its Latin American gaming operations in Peru, Ecuador
and Brazil. As of December 31, 1998, the restructuring was complete, and all
Latin American operations were divested.

In 1998, the Company recorded restructuring charges of approximately $3.3
million, relating primarily to the severance of 24 employees. At December 31,
1998, approximately $0.3 million of these restructuring charges remained unpaid
and are included on the balance sheet in accrued payroll and payroll related
costs and other accrued liabilities.

Also in 1998, the Company received net consideration of approximately $3.9
million for the divestiture of the Latin American operations, resulting in the
recognition of loss on divestiture of approximately $12.2 million. Results of
the divested operations are included in the Company's consolidated statements of
operations and through the effective date of the divestitures.

The following unaudited pro forma information represents the results of
operations assuming that divestiture of Latin American operations occurred as of
the beginning of the respective periods. The cumulative effect of accounting
change in 1997, as described in Note 17, is eliminated in the pro forma
disclosure as the pre-opening and start-up costs discussed therein related
primarily to the Company's Latin American operations. The disclosure is for
informational purposes only and may not be indicative of the results of
operations that would have occurred had these divestitures taken place at the
beginning of the periods presented or of future results of operations.

                                                     Years ended December 31,
                                                  ------------------------------
       In thousands, except per share amounts         1998       1997      1996
       -------------------------------------------------------------------------
       Revenue                                    $ 115,118    115,134   138,794
       Net earnings                                  13,803      2,514    12,835
       Basic and diluted earnings per share            0.61       0.11      0.56
       =========================================================================


(3) ACQUISITION

In 1994, the Company acquired and refurbished the MISS MARQUETTE riverboat and
leased it to Gamblers Supply Management Company (GSMC), an unrelated third
party, who operated the MISS MARQUETTE riverboat casino entertainment facility.
On July 1, 1996, the Company acquired all of the outstanding shares of common
stock of GSMC and assumed operational responsibilities of the MISS MARQUETTE
riverboat casino entertainment facility. The acquisition was accounted for using
the purchase method of accounting, and accordingly the consolidated statements
of operations include the results of operations of GSMC beginning on July 1,
1996.

The following unaudited pro forma information has been prepared as if the
acquisition of GSMC had occurred at the beginning of 1996. The pro forma
information is presented for informational purposes only and is not necessarily
indicative of the results of operations had the acquisition been made as of that
date.

       In thousands, except per share amounts                      1996
       ----------------------------------------------------------------
       Revenue                                                $ 166,262
       Net earnings                                              12,006
       Basic and diluted earnings per share                        0.52
       ================================================================


                                      -50-
<PAGE>


(4) IMPAIRMENT OF LONG-LIVED ASSETS

In the fourth quarter of 1997, in recognition of changing economic conditions
and competitive environments, the Company re-evaluated the recoverability of
certain of its long-lived assets and recorded a non-cash pre-tax charge to
operations resulting from impairment of certain long-lived assets of
approximately $9.2 million. In accordance with SFAS No. 121, the carrying values
of the impaired assets were reduced to reflect a remaining carrying value equal
to the estimated future discounted cash flows related to the impaired assets.
This impairment charge was primarily related to MISS MARQUETTE goodwill and
property and equipment. Factors leading to the impairment charge in 1997 were
that earnings and earnings before interest, taxes, depreciation and amortization
(EBITDA) at the MISS MARQUETTE were less than those experienced prior to the
Company's acquisition, as well as the effects of increased competition.


(5) CURRENT TRADE, NOTES AND INTEREST RECEIVABLES

Current trade, notes and interest receivables with original maturities, or
anticipated maturities, of less than one year, and the current portion of
long-term notes receivable are summarized as follows at December 31:

       In thousands                                            1998        1997
       -------------------------------------------------------------------------

       Trade accounts receivable                          $  22,718      17,384
       Various short-term notes receivable                    1,877       1,490
       Current maturities of long-term notes receivable      15,068      17,785
       Accrued interest receivable                              498       1,038
       -------------------------------------------------------------------------
                                                             40,161      37,697
       Less allowance for doubtful accounts                  (1,951)     (1,560)
       -------------------------------------------------------------------------
                                                          $  38,210      36,137
       =========================================================================

Included in short-term notes receivable at December 31, 1998 is $1.5 million due
from certain employees relating to an incentive loan program (see Note 13). The
interest rate on these loans is 7 3/4%, and the notes are due on demand.


(6) NOTES RECEIVABLE

Notes receivable with original maturities greater than one year result primarily
from the financing of sales of gaming equipment to customers on an installment
basis and from loans to casino management companies and operators. These notes
earn interest at fixed rates ranging from 8% to 14%, or variable rates,
generally adjusted monthly, ranging from prime plus 1% to prime plus 4%.
Maturities of notes receivable from financed sales generally are 24 to 36
months, while maturities of loans to casino management companies and operators
are up to 60 months. The following is a summary of notes receivable at December
31:

       In thousands                                            1998        1997
       -------------------------------------------------------------------------

       Financed sales                                     $  19,177      41,634
       Loans--gaming-related                                 19,988      14,225
       Other                                                    611         649
       -------------------------------------------------------------------------
                                                             39,776      56,508
       Less current maturities                              (15,068)    (17,785)
       -------------------------------------------------------------------------
                                                          $  24,708      38,723
       =========================================================================


                                      -51-
<PAGE>


(7) SALES-TYPE LEASES

During 1998, the Company entered into capital lease contracts involving the sale
of gaming equipment to customers. These leases earn interest at effective rates
ranging from 9% to 10%, have maturities ranging from 18 to 36 months and give
the customers the option to buy the equipment at the end of the lease periods
for the then fair market value or return the equipment to the Company. These
leases are accounted for as sales-type leases, and the net investment is as
follows as of December 31, 1998:

       In thousands                                                   Amount
       ----------------------------------------------------------------------
       Total remaining minimum lease payments                      $   3,727
       Estimated unguaranteed residual value of equipment                240
       Less amounts representing interest                               (410)
       ----------------------------------------------------------------------
       Net investment in sales-type leases                             3,557
       Less current maturities                                        (1,640)
       ----------------------------------------------------------------------
       Net investment in sales-type leases, net of current         $   1,917
       maturities
       ======================================================================


Minimum lease payments to be received in future years are as follows:

       In thousands
       ----------------------------------------------------------------------
       Year                                                           Amount
       ----------------------------------------------------------------------
       1999                                                        $   1,919
       2000                                                            1,259
       2001                                                              549
       ======================================================================

(8) CONCENTRATIONS OF CREDIT RISK

A significant portion of the Company's trade accounts and notes receivable and
sales-type leases disclosed in Notes 5, 6 and 7 are due from customers located
on Native American lands. The receivables and leases are generally secured by
the gaming equipment sold and, in certain instances, revenues derived from
casino operations. Concentrations of credit risk as a percentage of total
receivables, are as follows at December 31:


                                                           1998            1997
       -------------------------------------------------------------------------

       Native American gaming-related                       72%             80%
       Other gaming-related                                 28%             20%
       -------------------------------------------------------------------------
                                                           100%            100%
       =========================================================================

Because of the uncertain application of federal and state laws to Native
American tribes in the case of amounts advanced to Native American communities,
the Company's ability to collect these amounts receivable is dependent upon the
future cash flows from the Native American communities' casino operations,
rather than the general credit of the tribes.


                                      -52-
<PAGE>


(9) DISCLOSURES ABOUT FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate that
value:


CASH EQUIVALENTS; CURRENT TRADE, NOTES AND INTEREST RECEIVABLES; NOTES
RECEIVABLE; NET INVESTMENT IN SALES-TYPE LEASES; ACCOUNTS PAYABLE; ACCRUED
LIABILITIES; LONG-TERM DEBT AND NOTE PAYABLE

The carrying amounts of cash equivalents, current trade, notes and interest
receivables, current maturities of net investment in sales-type leases, accounts
payable, note payable, and accrued liabilities approximate fair value because of
the short maturity of those instruments.

Management estimates that notes receivable and long-term debt approximate fair
value as they generally include variable interest rates.


(10) INVENTORIES

Inventories consist of the following at December 31:

       In thousands                                            1998        1997
       -------------------------------------------------------------------------
       Gaming machines                                    $  12,207      19,682
       Parts and other gaming accessories                     2,358       2,612
       -------------------------------------------------------------------------
                                                          $  14,565      22,294
       =========================================================================

(11) PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:

       In thousands                                            1998        1997
       -------------------------------------------------------------------------
       Land and improvements                              $   1,591       1,551
       Buildings and improvements                            19,091      18,932
       Leasehold improvements                                     0       1,761
       Riverboat                                             13,687      13,687
       Gaming operations equipment                            9,569      23,252
       Office furniture and equipment                         2,856       2,982
       Transportation equipment                               2,036       2,305
       Shop equipment                                           546         522
       Integrated information system                          5,782       3,018
       -------------------------------------------------------------------------
                                                             55,158      68,010
       Less accumulated depreciation and amortization        (8,041)     (8,271)
       -------------------------------------------------------------------------
                                                          $  47,117      59,739
       =========================================================================

Included in property and equipment is $7.5 million of equipment and furniture
relating to a capital lease obligation (see Note 13), with accumulated
amortization of approximately $2.0 million and $0.7 million at December 31, 1998
and 1997, respectively.


                                      -53-
<PAGE>


(12) INVESTMENT IN JOINT VENTURE

The Company entered into an agreement with a subsidiaries of Hollywood Casino
Corporation (Hollywood) and New Orleans Paddlewheels (NOP) to develop a
riverboat casino, hotel and retail complex in Shreveport, Louisiana. The
proposed project, to be managed by Hollywood, received regulatory approval by
the Louisiana Gaming Control Board in September 1998. The project was
anticipated to be financed by an equity investment from the Company and
Hollywood equal to approximately 25% of the total estimated $185 million project
cost; the remaining 75% was anticipated to be financed through a debt offering
or other credit facility. During 1998, the Company invested $2.4 million in the
joint venture, but has no commitment to invest additional funds until financing
for the project is arranged. The debt financing for the project was anticipated
to occur in mid-1999, at which time it was anticipated that the Company and
Hollywood each would have invested approximately $21 million additional equity
in the joint venture.

As a condition of the agreement to be acquired by IGT (see Note 21), the Company
is expected to divest its interest in this project. The Company and Hollywood
each effectively own 50% of the joint venture (subject to a 10% residual
interest by NOP in the event the operation is sold to a third party). The
Company accounts for the project on the equity method of accounting. Through
December 31, 1998, the joint venture has not incurred any significant operating
expenses.


(13) LONG-TERM DEBT AND NOTE PAYABLE

Long-term debt consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                        In thousands
                                                                  ------------------------
                                                                       1998          1997
     -------------------------------------------------------------------------------------
<S>                                                               <C>              <C>   
     Note payable to bank under a long-term revolving credit
         facility with terms as explained below                   $       0        12,500
     Capital lease obligation as explained below                      5,552         7,018
     Notes payable to the former shareholders of GSMC due in
         monthly installments of $137,880 including interest
         at 8% through July 1999; unsecured                             940         2,453
     Contract payable in monthly installments of $12,668
         including interest at 9% through January 2005; secured
         by real estate                                                 710           794
     Various other secured notes payable                                  0           687
     -------------------------------------------------------------------------------------
                                                                      7,202        23,452
     Less current maturities                                         (2,836)       (3,634)
     -------------------------------------------------------------------------------------
                                                                  $   4,366        19,818
     =====================================================================================
</TABLE>

REVOLVING CREDIT FACILITY

The Company holds a $50 million long-term revolving credit facility from a
syndicate of banks. The revolving line has two components: a $20 million tranche
(Tranche A) to be used for general corporate purposes and letters of credit; and
a $30 million tranche (Tranche B) for acquisitions and major capital equipment
expenditures. Tranche A will expire on March 31, 1999, and Tranche B matures in
February 2001. The amount available under Tranche B is reduced by $1.875 million
quarterly beginning in June 1997. As a result, the maximum credit amount under
the revolving credit facility was $36.9 million at December 31, 1998. The unused
portion of the revolving credit facility is subject to a commitment fee, based
on a calculation as defined in the agreement. At December 31, 1998, the Company
had a $1.0 million letter of credit outstanding which expired on January 31,
1999.


                                      -54-
<PAGE>


Interest is payable based on variable rates which, at the Company's option, are
based on prime rate (which was 7 3/4% at December 31, 1998) or a Eurodollar rate
plus an applicable margin (which was 6 1/2% at December 31, 1998). The credit
facility is secured by substantially all Company assets, excluding real estate,
but including a first preferred ship mortgage on the MISS MARQUETTE riverboat.

Among other restrictions, the revolving credit facility calls for maintenance of
certain financial ratios and covenants, which include a tangible net worth
floor, a liquidity ratio, a cash flow coverage ratio, a leverage ratio, a funded
debt ratio and foreign subsidiary investment ratios. As of December 31, 1998,
the Company was not in compliance with one of these covenants but has received a
waiver for such non-compliance as of that date.

CAPITAL LEASE OBLIGATION

During 1997, the Company entered into a sale-leaseback arrangement involving the
sale of certain GSMC furniture and equipment for $7.5 million, which
approximated book value at the time of the sale. The transaction was accounted
for as a financing, whereby the property remains on the books and continues to
be depreciated. A financing obligation representing the proceeds was recorded
and is reduced based on payments under the arrangement. The financing
arrangement requires 48 monthly payments of $233,452, including interest at 21%
per annum, through July 2001. Upon expiration of the arrangement, the Company
will own the furniture and equipment. Future minimum lease payments related to
this arrangement are as follows for the years ended December 31:

       In thousands
       -------------------------------------------------------------------------
       Year                                                              Amount
       -------------------------------------------------------------------------
       1999                                                           $   2,802
       2000                                                               2,802
       2001                                                               1,634
       -------------------------------------------------------------------------
       Total minimum lease payments                                       7,238
       Less amounts representing interest                                (1,686)
       -------------------------------------------------------------------------
       Present value of minimum lease payments                            5,552
       Less current maturities                                           (1,805)
       -------------------------------------------------------------------------
       Long-term capital lease obligation                             $   3,747
       =========================================================================

Principal maturities of long-term debt, including the capital lease obligation,
are as follows for the years ended December 31:

       In thousands
       -------------------------------------------------------------------------
       Year                                                              Amount
       -------------------------------------------------------------------------
       1999                                                           $   2,836
       2000                                                               2,322
       2001                                                               1,636
       2002                                                                 120
       2003                                                                 131
       Thereafter                                                           157
       =========================================================================

NOTE PAYABLE

During 1998, the Company borrowed $1.5 million on a short-term note related to
an employee incentive loan program (see Note 6). Interest on this note is
payable at 7 3/4% per annum, and the note is due in June 1999.


                                      -55-
<PAGE>


(14) INCOME TAXES

A reconciliation of income taxes based on the statutory rate of 35% to the
Company's actual income taxes based on earnings before income taxes and
cumulative effect of accounting change for the years ended December 31, 1998,
1997 and 1996 is summarized as follows:

<TABLE>
<CAPTION>
       In thousands                                               1998        1997        1996
       ----------------------------------------------------------------------------------------
<S>                                                          <C>               <C>       <C>  
       Federal income taxes at statutory federal rate        $   1,775         134       7,324
       State income taxes, net of federal income tax benefit       114          65         277
       Valuation allowance for deferred tax assets                 449         811           0
       Foreign                                                       0         122         314
       Other                                                        46        (174)       (221)
       ----------------------------------------------------------------------------------------
       Provision for income taxes                            $   2,384         958       7,694
       ========================================================================================
</TABLE>

The provision for income taxes for the years ended December 31, 1998, 1997 and
1996 is summarized as follows:

<TABLE>
<CAPTION>
       In thousands                                               1998        1997        1996
       ---------------------------------------------------------------------------------------
<S>                                                          <C>             <C>         <C>  
       CURRENT:
          Federal                                            $   2,173       2,333       6,617
          State                                                    175         130         401
          Foreign                                                    0         122         314
       ---------------------------------------------------------------------------------------
                   Total current                                 2,348       2,585       7,332
       ---------------------------------------------------------------------------------------
       DEFERRED:
          Federal                                                   39      (2,875)        337
          State                                                     (3)        (30)         25
       ---------------------------------------------------------------------------------------
                   Total deferred                                   36      (2,905)        362
       ---------------------------------------------------------------------------------------
       Total tax expense (benefit)                               2,384        (320)      7,694
       Less tax benefit related to cumulative effect of
           accounting change (note 17)                               0       1,278           0
       ---------------------------------------------------------------------------------------
                   Provision for income taxes                $   2,384         958       7,694
       ========================================================================================
</TABLE>

Deferred tax assets and liabilities consist of the following at December 31:

<TABLE>
<CAPTION>
       In thousands                                                           1998        1997
       ----------------------------------------------------------------------------------------
<S>                                                                          <C>         <C>  
       DEFERRED TAX ASSETS:
            Allowance for impairment                                         2,940       3,242
            Allowance for inventory                                            928         539
            Allowance for doubtful accounts                                    851         530
            Capital loss carry forward                                         449           0
            Foreign property and equipment                                       0         372
            Pre-opening and start-up cost write-offs                             0         480
            Other                                                              240         262
       ----------------------------------------------------------------------------------------
                   Total deferred tax assets                                 5,408       5,425
                   Less valuation allowance                                   (449)       (811)
       ----------------------------------------------------------------------------------------
                   Deferred tax assets, net of valuation allowance           4,959       4,614
                   Less current deferred tax assets                         (1,870)     (1,319)
       ----------------------------------------------------------------------------------------
                   Long-term deferred tax assets                             3,089       3,295
       DEFERRED TAX LIABILITIES, PRIMARILY PROPERTY AND EQUIPMENT           (2,887)     (2,506)
       ----------------------------------------------------------------------------------------
                   Net long-term deferred tax assets                           202         789
       ========================================================================================
</TABLE>


                                      -56-
<PAGE>


The valuation allowance that was present at December 31, 1997 was related to
deferred tax implications of the Company's Latin American operations. The
valuation allowance that remains at December 31, 1998 relates to capital loss
carry forwards resulting from the Latin American divestitures. This valuation
allowance is recorded due to the Company's uncertainty as to its ability to
generate capital gains within the carry forward period to realize the tax
benefit of the capital loss carry forwards. The Company believes it is more
likely than not to realize the remaining net deferred tax assets based on: 1)
the future reversing effects of deductible temporary differences being offset by
reversing taxable temporary differences; 2) the extended period that is
available to realize the reversing effects of the deductible temporary
differences; and 3) the Company's expected future generation of taxable income
adequate to realize the deferred tax benefits.


(15) LINES OF BUSINESS AND GEOGRAPHICAL DATA

The Company operates predominantly in the lines of business of product sales,
wide area progressive systems, financing and gaming operations. All lines of
business segments are described in the "organization" section of Note 1.
Summarized financial information by line of business for 1998, 1997 and 1996 is
as follows:

<TABLE>
<CAPTION>
                                                                                 Gaming Operations
                                                                          -----------------------------
                                                                                         Latin American
                                                 Wide area                    GSMC --        gaming
                                   Product      progressive    Financing  MISS MARQUETTE    operations
In thousands                        sales         systems       income       (Note 21)       (Note 2)      Corporate   Consolidated
-----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                <C>           <C>           <C>            <C>                 <C>      <C>    
1998:
Revenue                          $   55,621        15,213         8,343         35,941         17,436              0        132,554
Direct costs                        (43,015)            0             0        (27,227)       (15,883)             0        (86,125)
Selling, general and
  administrative                     (4,812)       (2,119)            0           (248)        (1,853)        (8,325)       (17,357)
Depreciation and amortization          (240)         (230)            0         (2,420)        (1,976)        (1,042)        (5,908)
Interest and financing costs              0             0        (1,175)        (1,514)             0              0         (2,689)
Restructuring charges                     0             0             0              0         (1,809)        (1,447)        (3,256)
-----------------------------------------------------------------------------------------------------------------------------------

Income (loss) from operations    $    7,554        12,864         7,168          4,532         (4,085)       (10,814)        17,219
===================================================================================================================================

Identifiable assets              $   31,576         9,550        43,287         34,544              0         21,551        140,508
===================================================================================================================================

Capital expenditures             $      116           671             0            722          1,809          2,955          6,273
===================================================================================================================================


1997:
Revenue                          $   61,683        13,329         7,810         32,312         22,444              0        137,578
Direct costs                        (48,302)            0             0        (27,896)       (21,498)             0        (97,696)
Selling, general and
  administrative                     (6,544)       (1,475)            0            (40)        (3,189)        (9,391)       (20,639)
Depreciation and amortization          (240)          (67)            0         (2,936)        (2,511)          (770)        (6,524)
Interest and financing costs              0             0        (2,595)        (1,109)             0              0         (3,704)
Impairment of long-lived assets           0             0             0         (8,751)             0           (487)        (9,238)
-----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations    $    6,597        11,787         5,215         (8,420)        (4,754)       (10,648)          (223)
===================================================================================================================================
Cumulative effect of
accounting change (note 17)      $        0             0             0              0         (3,131)             0         (3,131)
===================================================================================================================================

Identifiable assets              $   32,765         9,485        57,285         35,772         15,369         14,480        165,156
===================================================================================================================================

Capital expenditures             $      198           843             0            575          2,748          5,595          9,959
===================================================================================================================================


1996:
Revenue                          $  104,512         8,149         7,549         18,584         15,793              0        154,587
Direct costs                        (81,171)            0             0        (13,260)       (13,562)             0       (107,993)
Selling, general and
  administrative                     (6,879)         (983)            0            (48)           (75)       (11,645)       (19,630)
Depreciation and amortization          (240)            0             0         (1,421)        (1,543)          (575)        (3,779)
Interest and financing costs              0             0        (2,052)          (232)             0              0         (2,284)
-----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations    $   16,222         7,166         5,497          3,623            613        (12,220)        20,901
===================================================================================================================================

Identifiable assets              $   35,971         7,645        49,646         43,918         20,282         12,013        169,475
===================================================================================================================================

Capital expenditures(1)          $      253             0             0            378         10,752          1,313         12,696
===================================================================================================================================
</TABLE>

(1) Includes non-cash transfers of gaming machine inventory to gaming operations
    equipment.


                                      -57-
<PAGE>


Summarized financial information by geographic area for 1998, 1997 and 1996
follows:

<TABLE>
<CAPTION>
       In thousands                       North America   Latin America     Consolidated
       ---------------------------------------------------------------------------------
<S>                                       <C>                 <C>              <C>    
       1998:
       Revenue                            $    115,118        17,436           132,554
       Income (loss) from operations            21,304        (4,085)           17,219
       Identifiable assets                     140,508             0           140,508
       1997:
       Revenue                                 115,134        22,444           137,578
       Income (loss) from operations             4,531        (4,754)             (223)
       Identifiable assets                     149,787        15,369           165,156
       1996:
       Revenue                                 138,794        15,793           154,587
       Income from operations                   20,288           613            20,901
       Identifiable assets                     149,193        20,282           169,475

       =================================================================================
</TABLE>

The Company had no customers who exceeded 10% of revenue in 1998 or 1997. The
Company had one customer who accounted for 15.5% of total revenue in 1996.


(16) EMPLOYEE BENEFIT PLANS

LONG-TERM INCENTIVE AND STOCK OPTION PLANS

In 1993, the Company adopted a Long-Term Incentive and Stock Option Plan under
which the Company may grant up to 1,200,000 shares for incentive stock options
to employees and nonqualified stock options and performance awards to employees
and non-employees. Options have been granted at fair market value on the date of
grant, become exercisable in four annual installments and expire five to ten
years from date of grant. Also in 1993, the Company adopted a Directors' Stock
Option Plan, which was amended in 1995, under which options to purchase up to
300,000 shares may be granted to non-employee directors. The Directors' Stock
Option Plan provides for an annual grant of 10,000 options to each non-employee
director. The options granted under the Directors' Stock Option Plan are
exercisable after six months and expire five years from date of grant.

On June 17, 1998, the Company offered to reprice certain outstanding options.
Pursuant to such agreements, options totaling 381,000 were canceled and 195,750
new options were granted with an excercise price of $6.00 per share, the fair
value of the shares on the grant date. The newly granted options vested fifty
percent on date of grant and the remaining fifty percent vest in two annual
equal installments commencing June 17, 1999.


                                      -58-
<PAGE>


Information with respect to shares under the plans is as follows:

<TABLE>
<CAPTION>
                                                    Shares of common stock
                                             ---------------------------------
                                                  Available                         Weighted average
                                                        for       Outstanding      exercise price of
                                               option/award        Under Plan      shares under Plan
      -----------------------------------------------------------------------------------------------
<S>                                               <C>                 <C>                  <C>      
      Outstanding at December 31, 1995            1,177,104           322,896              $    7.06
           Granted                                 (358,000)          358,000                  13.20
           Canceled                                   8,440            (8,440)                 11.45
           Exercised                                      0           (35,628)                  7.00
      -----------------------------------------------------------------------------------------------
      Outstanding at December 31, 1996              827,544           636,828                  10.46
           Granted                                 (381,270)          381,270                  16.24
           Canceled                                   6,000            (6,000)                 16.08
           Exercised                                      0              (470)                  9.44
      -----------------------------------------------------------------------------------------------
      Outstanding at December 31, 1997              452,274         1,011,628                  12.60
           Granted                                 (446,500)          446,500                   6.07
           Canceled                                 563,750          (563,750)                 14.76
      -----------------------------------------------------------------------------------------------
      Outstanding at December 31, 1998              569,524           894,378              $    7.98
      ===============================================================================================
</TABLE>

The following table summarizes information concerning currently outstanding and
exercisable options:

<TABLE>
<CAPTION>
                                        Options outstanding                         Options exercisable
                           -----------------------------------------------   -------------------------------
                                                 Weighted
                                                  average         Weighted                          Weighted
      Range of Exercise         Number          remaining          average        Number    average exercise
      Prices               outstanding   contractual life   exercise price   exercisable               price
      ------------------------------------------------------------------------------------------------------
<S>                           <C>                <C>           <C>               <C>               <C>     
         $  5 to 10           708,378            6.6           $   6.43          391,002           $   6.75
           10 to 15           141,000            3.3              12.89          140,250              12.90
           15 to 20            45,000            5.9              17.10           41,250              17.17
      ------------------------------------------------------------------------------------------------------
                              894,378                                            572,502
      ======================================================================================================
</TABLE>

The company applies APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations in accounting for its plans. Accordingly,
no compensation expense has been recognized for its stock based compensation
plans other than for restricted stock. Had compensation cost for the Company's
other stock option plans been determined based upon the fair value at the grant
date for awards under those plans consistent with the methodology prescribed
under SFAS No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, the Company's net
earnings and earnings per share would have been reduced by approximately $0.6
million, or $0.03 per share in 1998 and $0.7 million, or $0.03 per share in 1996
and net loss and loss per share would have been increased by approximately $1.2
million, or $0.05 per share in 1997. The weighted average fair value of the
options granted during 1998, 1997 and 1996 is estimated as $2.34, $8.40 and
$7.09, respectively. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions:

                                                   1998        1997        1996
      --------------------------------------------------------------------------
      Expected dividend yield                       0.0%        0.0%        0.0%
      Expected stock price volatility              57.3%       62.6%       54.1%
      Risk-free interest rate                       5.5%        5.6%        5.6%
      Expected life of options (years)              4           4           6
      --------------------------------------------------------------------------


                                      -59-
<PAGE>


The exercise of stock options which have been granted under the Company's stock
option plans may result in compensation which is included in the taxable income
of the applicable employees and deductible by the Company for income tax
purposes. Income tax benefits realized for the year ended December 31, 1996 of
approximately $109,000 have been reflected as an increase in additional paid-in
capital in accordance with APB Opinion No. 25.


RETIREMENT PLAN

The Company has a 401(k) defined contribution benefit plan for its employees. In
accordance with plan provisions, the Company provides a discretionary matching
contribution of up to 6% of employee compensation. In July 1997, the employees
of the MISS MARQUETTE riverboat casino operation became eligible to participate
in the plan. The amount of expense recognized as a result of matching
contributions was approximately $714,000, $511,000 and $268,000 in 1998, 1997
and 1996, respectively. Employees vest in Company contributions over a seven
year period of employment.


(17) CHANGE IN ACCOUNTING METHOD

During the fourth quarter of 1997, the Company changed its accounting method for
costs of pre-opening and start-up activities to capitalizing such costs
subsequent to obtaining all regulatory approvals and authorizations for the
underlying project and expensing such costs immediately upon opening the new
operation. The Company's previous accounting method had been to capitalize such
costs from inception until the project became operational, at which time the
capitalized costs were amortized over a period not to exceed five years. The
Company adopted this new accounting method because it conforms to the industry
practice of major gaming companies, and retroactively applied the change to
previously reported quarterly data, effective January 1, 1997. As a result of
this accounting change, there are no such capitalized costs on the accompanying
balance sheets.

The effect of adopting this new accounting method reduced 1997 earnings (loss)
before cumulative effect of the accounting change by approximately $2.2 million,
comprised of an increase in gaming operations and selling, general and
administrative expenses of approximately $3.2 million, net of tax benefits of
approximately $1.0 million.

The cumulative effect of this accounting change, reflected as a charge to 1997
earnings (loss) in the amount of approximately $3.1 million, is comprised of
approximately $4.4 million of such costs capitalized at January 1, 1997, net of
tax benefits of approximately $1.3 million. If the new method of accounting for
pre-opening and start-up costs had been in effect in years prior to 1997, such
costs comprising the cumulative effect of the accounting change would have been
reflected primarily as 1996 expenses.


(18) COMMITMENTS AND CONTINGENCIES

During 1994, the Company assisted a casino management company in acquiring $8
million in financing from a financial institution. The Company also guaranteed
the debt. The loan guaranty agreement, as subsequently revised, allows the
casino management company to borrow back prepaid amounts, and at December 31,
1998 the maximum allowable loan balance was $3.0 million. In return for the
guaranty, the Company receives a loan guaranty fee based on a percentage of the
outstanding loan balance, and additionally, a lesser percentage of the unused
maximum allowable loan balance. As of December 31, 1998, the outstanding loan
balance was approximately $0.9 million, and during the years ended December 31,
1998, 1997 and 1996, the Company recognized income of approximately $90,000,
$64,000 and $185,000, respectively, related to this agreement.


                                      -60-
<PAGE>


(19) RELATED PARTY TRANSACTION

As part of an agreement with a corporate shareholder (14% ownership), the
Company guaranteed financing relating to a portion of the construction cost of a
Native American casino facility, managed by the shareholder, that opened in
December 1994. Financing under this guaranty has been paid in full. As
consideration for the loan guaranty, the Company receives, from the shareholder,
4% of the distributable net income of the gaming operation over the term of the
management contract, which expires December 1999. The Company will participate
in any extensions to the management agreement between the shareholder and the
Native American tribe. The Company's share of distributable net income related
to this agreement during the years ended December 31, 1998, 1997 and 1996 of
approximately $1.6 million, $1.9 million and $1.6 million, respectively, is
included in financing income on the statements of operations.


(20) COMMON SHARES OUTSTANDING

The following is a reconciliation of basic weighted average shares outstanding
to diluted weighted average shares outstanding for the years ended December 31:

<TABLE>
<CAPTION>
                                                             1998           1997           1996
       ----------------------------------------------------------------------------------------
<S>                                                    <C>            <C>            <C>       
       Weighted average common shares
          outstanding for basic EPS calculation        22,761,223     22,758,186     22,737,580
       Adjustments for assumed conversion shares
          (stock options)                                  40,404        137,890        228,360
       ----------------------------------------------------------------------------------------
       Weighted average common shares outstanding
          for diluted EPS calculation                  22,801,627     22,896,076     22,965,940
       ========================================================================================
</TABLE>


(21) SUBSEQUENT EVENT

On March 11, 1999, the Company announced that a definitive agreement was signed
whereby the Company would be acquired by a wholly-owned subsidiary of
International Game Technology (IGT) for $10 per share in cash, totaling
approximately $230 million. The Company would become a wholly-owned subsidiary
of IGT under the terms of the agreement. The transaction is subject to certain
conditions, including regulatory approvals, Sodak shareholder approval and IGT
obtaining the financing required to fund the transaction. In addition, the
Company is expected to divest the MISS MARQUETTE riverboat casino entertainment
complex, and its 50% joint venture interest to develop a gaming riverboat
complex in Louisiana (see Note 12). The holders of a majority of the common
stock of the Company have agreed to vote in favor of the Merger. The transaction
is expected to close in the second half of 1999.


                                      -61-
<PAGE>


(22) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The Company operates on a calendar year basis. The following table sets forth
selected historical operating results for each quarter of 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                                                       First         Second        Third         Fourth
In thousands, except per share amounts                 Quarter       Quarter       Quarter       Quarter
---------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>           <C>           <C>   
1998(1):
     Total revenue                                  $   29,886        36,012        32,870        33,786
     Income from operations                              3,180         4,492         4,568         4,979
     Net earnings (loss)                                 1,953         2,863         1,604        (3,733)
     Basic and diluted earnings (loss) per share          0.09          0.13          0.07         (0.16)
1997(2):
     Total revenue                                  $   29,100        33,338        35,636        39,504
     Income (loss) from operations                         492         2,840         5,082        (8,637)
     Earnings (loss) before cumulative effect of
           accounting change                               585         1,670         3,216        (6,047)
     Cumulative effect of accounting change             (3,131)            0             0             0
     Net earnings (loss)                                (2,546)        1,670         3,216        (6,047)
     Basic and diluted earnings (loss) per share         (0.11)         0.07          0.14         (0.26)
1996:
     Total revenue                                  $   21,542        34,791        63,102        35,152
     Income from operations                              4,267         6,393         8,253         1,988
     Net earnings                                        2,698         4,081         5,220         1,234
     Basic and diluted earnings per share                 0.12          0.18          0.23          0.05

=========================================================================================================
</TABLE>

(1)  The Company operated gaming halls and route operations in Peru from May
     1995 through November 1998. In the fall of 1996, the Peruvian government
     announced that it would implement regulatory changes in conjunction with
     the transfer of gaming regulatory authority to the federal government and
     imposed a 200% increase in the per-machine tax which became effective in
     October 1996. While the Company paid this tax in 1996 and 1997, the Company
     did not pay any per-machine Federal gaming tax in 1998 due to lower court
     decisions in Peru holding such a tax to be unconstitutional. The Company
     had accrued for this tax until the fourth quarter of 1998 at which time the
     Company received a favorable decision from the Peruvian Supreme Court
     affirming the unconstitutionality of the Federal per-machine tax. Upon
     receipt of the ruling in the fourth quarter of 1998, the Company reversed
     the amounts accrued for this tax, amounting to approximately $1.3 million.
(2)  As restated for the accounting change described in Note 17.


                                      -62-
<PAGE>


                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Shareholders
Sodak Gaming, Inc.:


     We have audited the accompanying consolidated balance sheets of Sodak
Gaming, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and comprehensive
income and cash flows for each of the years in the three-year period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Sodak Gaming Peru S.A., a wholly-owned
subsidiary, which statements reflect 7.0% of total consolidated assets as of
December 31, 1997 and 10.7% of total consolidated revenues for the year then
ended. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Sodak Gaming Peru S.A., is based solely on the report of the other auditors.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 and the report of the other auditors provide a
reasonable basis for our opinion.

     In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Sodak Gaming, Inc. and subsidiaries
as of December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.

     As discussed in Note 17 to the consolidated financial statements, the
Company changed its method of accounting for pre-opening and start-up costs in
1997.



                                             \s\ KPMG Peat Marwick LLP

Minneapolis, Minnesota
February 10, 1999, except as to Note 21, which is as of March 11, 1999


                                      -63-
<PAGE>


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

         None.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Items 10, 11, 12 and 13 is incorporated by
reference from the 1999 Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days of the end of the fiscal year covered by
this report.

                                     PART IV

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

(a) 1.   CONSOLIDATED FINANCIAL STATEMENTS                                  PAGE

         The following financial statements are set forth under Item 8(a):

         Consolidated Statements of Operations for the years ended
            December 31, 1998, 1997 and 1996                                  42

         Consolidated Balance Sheets at December 31, 1998 and 1997            43

         Consolidated Statements of Shareholders' Equity and Comprehensive
            Income for the years ended December 31, 1998, 1997 and 1996       44

         Consolidated Statements of Cash Flows for the years ended
            December 31, 1998, 1997 and 1996                                  45

         Notes to Consolidated Financial Statements for the years ended
            December 31, 1998, 1997 and 1996                                  46

         Independent Auditors' Report                                         63

(a) 2.   CONSOLIDATED FINANCIAL STATEMENT SCHEDULE

         Independent Auditors' Report on Consolidated Financial Statement
            Schedule                                                          68

         Schedule II - Valuation and Qualifying Accounts                      69

All other supplemental financial schedules are omitted as the required
information is not applicable, i.e. amounts are insufficient to require
submission or the information is included in the consolidated financial
statements or notes thereto.


                                      -64-

<PAGE>


(a) 3.   EXHIBITS

     Exhibit
      Number

         2.1      Stock Purchase Agreement, dated as of July 1, 1996, by and
                  among John Parker, John Nix and Gamblers Supply Management
                  Company (Incorporated by reference to Exhibit 2 to the
                  Company's Form 8-K/A dated July 1, 1996, File No. 0-21754).

         3.1      Amended and Restated Articles of Incorporation (Incorporated
                  by reference to Exhibit 3.1 to the Company's Registration
                  Statement on Form S-1, File No. 33-62188).

         3.2      Restated Bylaws of the company, as amended to date
                  (Incorporated by reference to Exhibit 3.2 to the Company's
                  Form 10-K for the year ended December 31, 1994, File No.
                  0-21754).

         4.1      Articles IV, V and IX of the Amended and Restated Articles of
                  Incorporation (see Exhibit 3.1).

         4.2      Specimen certificate for shares of Common Stock of the company
                  (Incorporated by reference to Exhibit 4.2 to the Company's
                  Registration Statement on Form S-1, File No. 33-62188).

        10.1      Exclusive Distributor Agreement between the Company and
                  International Game Technology (Incorporated by reference to
                  Exhibit 10.1 to the Company's Registration Statement on Form
                  S-1, File No. 33-62188) (Portions of this exhibit are subject
                  to a confidential treatment request pursuant to Rule 24b-2 of
                  the Securities Exchange Act of 1934, as amended).

        10.2      Stockholders Agreement between Harrah's Club, the Company,
                  Michael G. Wordeman, Roland W. Gentner, David B. Harcourt and
                  Thomas Celani (Incorporated by reference to Exhibit 10.2 to
                  the Company's Registration Statement on Form S-1, File No.
                  33-62188).

       *10.3      1993 Long-Term Incentive and Stock Option Plan (Incorporated
                  by reference to Exhibit 10.3 to the Company's Registration
                  Statement on Form S-1, File No. 33-62188).

       *10.4      1993 Directors' Stock Option Plan, as amended (Incorporated by
                  reference to the Company's Registration Statement on Form S-8,
                  File No. 33-92524).

       *10.5      Employment Agreement for Michael G. Wordeman (Incorporated by
                  reference to Exhibit 10.6 to the Company's Registration
                  Statement on Form S-1, File No. 33-62188).

       *10.6      Employment Agreement for Roland W. Gentner (Incorporated by
                  reference to Exhibit 10.7 to the Company's Registration
                  Statement on Form S-1, File No. 33-62188).

        10.7      Purchase Agreement dated February 25, 1994, as amended on
                  March 8, 1994, by and between the Company and Grand Romance,
                  Inc. for the purchase of the vessel GRAND ROMANCE
                  (Incorporated by reference to Exhibit 10.7 to the Company's
                  Annual Report on Form 10-K for the year ended December 31,
                  1993, File No. 0-21754)

        10.8      Exclusive Distributorship Agreement between the Company and
                  International Game Technology dated September 26, 1994
                  (Incorporated by reference to Exhibit 10.1 to the Company's
                  Form 10-Q for the quarter ended September 30, 1994, File No.
                  0-21754) (Portions of this exhibit are subject to a
                  confidential treatment request pursuant to Rule 24b-2 of the
                  Securities Exchange Act of 1934, as amended)

        10.9      Contribution and Indemnity Agreement among the Company, The
                  Promus Companies Incorporated, Embassy Suites, Inc., Harrah's
                  Arizona Corporation, and Harrah's Club dated August 19, 1993
                  (Incorporated by reference to Exhibit 10.9 to the Company's
                  Form 10-K for the year ended December 31, 1994, File No.
                  0-21754).

       10.10      Riverboat Bareboat Charter between the Company and Gamblers
                  Supply Management Company dated June 28, 1994 (Incorporated by
                  reference to Exhibit 10.10 to the Company's Form 10-K for the
                  year ended December 31, 1994, File No. 0-21754).

       10.11      Loan Agreement between the Company and Gamblers Supply
                  Management Company dated March 23, 1994 (Incorporated by
                  reference to Exhibit 10.11 to the Company's Form 10-K for the
                  year ended December 31, 1994, File No. 0-21754).


                                      -65-
<PAGE>


     Exhibit
      Number
    (cont'd)

       10.12      Loan Modification Agreement between the Company and Gamblers
                  Supply Management Company dated December 16, 1994
                  (Incorporated by reference to Exhibit 10.12 to the Company's
                  Form 10-K for the year ended December 31, 1994, File No.
                  0-21754).

       10.13      Exclusive Distributorship Agreement Among the Company and
                  International Game Technology, dated March 12, 1998
                  (Incorporated by reference to Exhibit 10.13 to the Company's
                  Form 10-K for the year ended December 31, 1997, File No.
                  0-21754) (portions of this exhibit are subject to confidential
                  request pursuant to Rule 24b-2 of the Securities Act of 1934,
                  as amended).

       10.14      Agreement between Sodak Gaming, Inc. and Michael G. Wordeman
                  dated June 17, 1998 (Incorporated by reference to Exhibit
                  10.14 to the Company's Form 10-Q for the quarter ended June
                  30, 1998, File No. 0-21754).

       10.15      Purchase and Sale Agreement between the Company et al. and
                  Pro-Gaming Consultants Ltd et al. (Incorporated by reference
                  to Exhibit 10.15 to the Company's Form 10-Q for the quarter
                  ended September 30, 1998, File No. 0-21754)

       10.16      Private Document between the Company and Fincorp Limited

       10.17      Contract of Sale/Purchase of Stock between the Company and
                  Fincorp Limited

       10.18      Agreement for the Termination of the Contract of Operation of
                  the Casino Between the Company and Admihotel Company, Ltda.

        11.1      Calculation of Earnings (Loss) Per Share of Common Stock.

        21.1      Subsidiaries of the Registrant.

        23.1      Consent of KPMG Peat Marwick LLP.

        23.2      Consent of Arthur Andersen.

        24.1      Powers of Attorney.

        27.1      Financial Data Schedule (EDGAR Filing only).

        99.1      Management Agreement, dated as of June 10, 1994, by and
                  between Gamblers Supply Management Company and Marquette
                  Gaming Corporation (Incorporated by reference to Exhibit 99(a)
                  to the Company's Form 8-K/A dated July 1, 1996, File No.
                  0-21754).

        99.2      Dock Site Agreement, dated as of June 10, 1994, by and between
                  the City of Marquette, Iowa and Gamblers Supply Management
                  Company (Incorporated by reference to Exhibit 99(b) to the
                  Company's Form 8-K/A dated July 1, 1996, File No. 0-21754).

        99.3      Non-Negotiable Promissory Note dated July 1, 1996, between
                  Gamblers Supply Management Company and John E. Nix guaranteed
                  by Sodak, Gaming, Inc. (Incorporated by reference to Exhibit
                  99(c) to the Company's Form 8-K/A dated July 1, 1996, File No.
                  0-21754).

        99.4      Non-Negotiable Promissory Noted dated July 1, 1996 between
                  Gamblers Supply Management f Company and John T. Parker
                  guaranteed by Sodak Gaming, Inc. (Incorporated by reference to
                  Exhibit 99(d) to the Company's Form 8-K/A dated July 1, 1996,
                  File No. 0-21754).

        99.5      Audited Financial Statements of Gamblers Supply Management
                  Company for the years ended December 31, 1995 and January 1,
                  1995 (Incorporated by reference to Exhibit 99(e) to the
                  Company's Form 8-K/A dated July 1, 1996, File No. 0-21754).

       *          Items that are management contracts or compensatory plans or
                  arrangements required to be filed as an exhibit to this form
                  pursuant to Item 14(c) of the Form 10-K.


(b)  REPORTS ON FORM 8-K 
     No report on Form 8-K was filed during the three month period ended
     December 31, 1998.


                                      -66-
<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.



Dated:   March 30, 1999.         SODAK GAMING, INC.



                             By  \s\ Roland W. Gentner
                                 -----------------------------------------------
                                 Roland W. Gentner,
                                 Chief Executive Officer, President and Director


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 date indicated.

<TABLE>
<CAPTION>
         Signature                      Title
------------------------ ------------------------------------
<S>                      <C>                                    <C> 
Michael G. Wordeman*     Chairman of the Board               )
                                                             )
                                                             )
                                                             )
                                                             )
Roland W. Gentner*       Chief Executive Officer (principal
                         executive officer), President and
                         Director

Clayton R. Trulson*      Vice President, Finance             )
                         (principal financial officer)       )  By  \s\ Roland W. Gentner
                                                             )
                                                             )      ---------------------------
Thomas Celani*           Director                            )      Roland W. Gentner
                                                             )      Pro se and Attorney-in-Fact
Colin V. Reed*           Director                            )      March 30, 1999
                                                             )
Manuel Lujan, Jr.*       Director                            )
                                                             )
Ronnie Lopez*            Director                            )
                                                             )
                                                             )
</TABLE>

*By Power of Attorney filed with this report as Exhibit 24.1 hereto.


                                      -67-
<PAGE>


    INDEPENDENT AUDITORS' REPORT ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE



The Board of Directors and Shareholders
Sodak Gaming, Inc.:

Under the date of February 10, 1999, except as to Note 21, which is as of March
11, 1999, we reported on the consolidated balance sheets of Sodak Gaming, Inc.
and subsidiaries (the Company) as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1998, which are included in the annual report on Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial statement
schedule as listed in the index at Item 14 (a)(2). This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.

In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.



                                         \s\  KPMG Peat Marwick LLP


Minneapolis, Minnesota
February 10, 1999, except as to Note 21, which is as of March 11, 1999


                                      -68-
<PAGE>


                                   Schedule II

                               SODAK GAMING, INC.

                        VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                      Column A                   Column B               Column C       Column D          Column E
-----------------------------------------------------------------------------------------------------------------

In thousands
                                               BALANCE AT            ADDITIONS--
                                                BEGINNING             CHARGED TO                       BALANCE AT
                  DESCRIPTION                   OF PERIOD     COSTS AND EXPENSES     DEDUCTIONS     END OF PERIOD
                  -----------                   ---------     ------------------     ----------     -------------
<S>                                                 <C>                    <C>          <C>                 <C>  
YEAR ENDED DECEMBER 31, 1996:
  Allowances deducted from asset accounts:
    Allowance for doubtful accounts                   820                  2,788        2,698(1)              910

YEAR ENDED DECEMBER 31, 1997:
  Allowances deducted from asset accounts:
    Allowance for doubtful accounts                   910                    882          232(1)            1,560

YEAR ENDED DECEMBER 31, 1998:
  Allowances deducted from asset accounts:
    Allowance for doubtful accounts                 1,560                    501          110(1)            1,951



(1) Accounts deemed uncollectible

-----------------------------------------------------------------------------------------------------------------
</TABLE>


                                      -69-
<PAGE>


                                  EXHIBIT INDEX
                               SODAK GAMING, INC.

                           Annual Report on Form 10-K
                                       for
                          Year Ended December 31, 1997


                                                                    Sequentially
Exhibit                                                               Numbered
 Number                                                                 Page
--------                                                            ------------

  10.16  Private Document between the Company and Fincorp Limited       71

  10.17  Contract of  Sale/Purchase of Stock between the Company
         and Fincorp Limited                                            72

  10.18  Agreement for the Termination of the Contract of Operation
         of the Casino Between the Company and Admihotel Company,
         Ltda.                                                          76

   11.1  Calculation of Earnings (Loss) Per Share of Common Stock       81

   21.1  Subsidiaries of the Registrant                                 82

   23.1  Consent of KPMG Peat Marwick LLP                               83

   23.2  Consent of Arthur Andersen                                     84

   24.1  Powers of Attorney                                             85

   27.1  Financial Data Schedule (EDGAR Filing only)


                                      -70-