<PAGE>
 
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-Q
 
(MARK ONE)
 
[XQuarterly]report pursuant to Section 13 or 15(d) of the Securities Exchange
  Act of 1934 for the quarterly period ended September 30, 1997
 
                                      OR
 
[_Transition]Report pursuant to Section 13 or 15(d) of the Securities Exchange
  Act of 1934 for the transition period from to
 
                        COMMISSION FILE NUMBER 0-28294
 
                               ----------------
 
                             SILICON GAMING, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                            <C>
                  CALIFORNIA                                     77-0357939
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NUMBER )
</TABLE>
 
                             2800 W. BAYSHORE ROAD
                              PALO ALTO, CA 94303
                   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
 
                           TELEPHONE: (415) 842-9000
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
                               ----------------
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  Yes  X   No
 
  Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
 
  12,121,533 shares of Common Stock, $.001 par value, were outstanding as of
                               October 31, 1997.
 
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<PAGE>
 
                              SILICON GAMING, INC.
 
                         QUARTERLY REPORT ON FORM 10-Q
                    FOR THE PERIOD ENDED SEPTEMBER 30, 1997
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
 <C>     <S>                                                                <C>
 PART I  FINANCIAL INFORMATION
 Item 1. Financial Statements:
         Consolidated Balance Sheets--September 30, 1997 and December 31,
         1996............................................................     3
         Consolidated Statements of Operations--Three Months and Nine
         Months Ended September 30, 1997 and 1996........................     4
         Consolidated Statements of Cash Flows--Nine Months Ended
         September 30, 1997 and 1996.....................................     5
         Notes to Consolidated Financial Statements......................     6
 Item 2. Management's Discussion and Analysis of Financial Condition and
         Results of Operations...........................................     8
 PART II OTHER INFORMATION
 Item 1. Legal Proceedings...............................................    17
 Item 2. Changes in Securities...........................................    17
 Item 3. Defaults Upon Senior Securities.................................    17
 Item 4. Submission of Matters to a Vote of Security Holders.............    17
 Item 5. Other Information...............................................    17
 Item 6. Exhibits and Reports on Form 8-K................................    17
         Signature.......................................................    18
</TABLE>
 
                                       2
<PAGE>
 
                         PART I--FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                              SILICON GAMING, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                     SEPTEMBER 30, DECEMBER 31,
                                                         1997          1996
                                                     ------------- ------------
                                                      (UNAUDITED)
<S>                                                  <C>           <C>
                       ASSETS
CURRENT ASSETS:
  Cash and equivalents..............................   $ 28,055      $ 25,583
  Short term investments............................      3,832         9,683
  Accounts receivable...............................      1,645           --
  Inventories.......................................      8,734           477
  Prepaids and other................................      2,008           812
                                                       --------      --------
    Total current assets............................     44,274        36,555
PROPERTY AND EQUIPMENT, NET.........................      7,747         3,046
OTHER ASSETS, NET...................................      1,788            45
                                                       --------      --------
                                                       $ 53,809      $ 39,646
                                                       ========      ========
        LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..................................   $  3,107      $  1,158
  Accrued liabilities...............................      3,385           987
  Deferred revenue..................................        915           --
  Current portion of capital lease obligations......        276           207
                                                       --------      --------
    Total current liabilities.......................      7,683         2,352
                                                       --------      --------
DEFERRED RENT.......................................        278           133
CAPITAL LEASE OBLIGATIONS...........................        434           645
SENIOR DISCOUNT NOTES...............................     21,918           --
REDEEMABLE CONVERTIBLE PREFERRED STOCK--6,884,473
 shares authorized at September 30, 1997; shares
 outstanding: September 30, 1997-- 4,312,924;
 December 31, 1996--6,384,473.......................      4,591         6,455
                                                       --------      --------
SHAREHOLDERS' EQUITY
  Common Stock, $.001 par value; 50,000,000 shares
   authorized; shares outstanding: September 30,
   1997--12,108,382; December 31, 1996--10,608,105..     52,509        49,848
  Warrants..........................................      3,107            25
  Notes receivable from shareholders................       (211)         (221)
  Unrealized gain on investments....................         57            23
  Accumulated deficit...............................    (36,557)      (19,614)
                                                       --------      --------
    Total shareholders' equity......................     18,905        30,061
                                                       --------      --------
                                                       $ 53,809      $ 39,646
                                                       ========      ========
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       3
<PAGE>
 
                              SILICON GAMING, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED    NINE MONTHS ENDED
                                         SEPTEMBER 30,        SEPTEMBER 30,
                                        1997       1996       1997      1996
                                      ---------  ---------  --------  --------
<S>                                   <C>        <C>        <C>       <C>
REVENUE.............................. $   2,847  $     --   $  4,512  $    --
OPERATING EXPENSES:
  Cost of sales and related
   manufacturing expenses............     3,151        967     6,414     1,673
  Research and development...........     2,388      1,906     6,824     5,445
  Selling, general and
   administrative....................     3,777      1,157     9,022     2,963
                                      ---------  ---------  --------  --------
  Total costs and expenses...........     9,316      4,030    22,260    10,081
                                      ---------  ---------  --------  --------
    Loss from operations.............    (6,469)    (4,030)  (17,748)  (10,081)
  Interest income, net...............       125        325       805       393
                                      ---------  ---------  --------  --------
NET LOSS............................. $  (6,344) $  (3,705) $(16,943) $ (9,688)
                                      =========  =========  ========  ========
NET LOSS PER SHARE................... $   (0.54) $   (0.35) $  (1.52) $  (0.99)
                                      =========  =========  ========  ========
SHARES USED IN COMPUTATION...........    11,649     10,510    11,133     9,821
                                      =========  =========  ========  ========
</TABLE>
 
 
                See notes to consolidated financial statements.
 
                                       4
<PAGE>
 
                              SILICON GAMING, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                           NINE MONTHS ENDED
                                                             SEPTEMBER 30,
                                                             1997       1996
                                                           ---------  --------
<S>                                                        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss................................................ $ (16,943) $ (9,688)
  Reconciliation to net cash used in operating activities:
    Depreciation and amortization.........................     1,307       400
    Deferred rent.........................................       145       100
    Stock issued for services.............................       --        261
  Changes in assets and liabilities:
    Accounts receivable...................................    (1,645)      --
    Inventories...........................................    (8,257)     (424)
    Prepaid and other.....................................    (1,196)     (254)
    Other assets, net.....................................    (1,743)        6
    Accounts payable......................................     1,949       325
    Accrued liabilities...................................     2,398       318
    Deferred revenue......................................       915       --
                                                           ---------  --------
      Net cash used in operating activities...............   (23,070)   (8,956)
                                                           ---------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property and equipment...................    (6,008)   (1,477)
  Purchase of short-term investments......................    (3,230)      --
  Sales and maturities of short-term investments..........     9,115       --
                                                           ---------  --------
    Net cash used in investing activities.................      (123)   (1,477)
                                                           ---------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Sale of common stock, net of notes receivable...........       797    32,891
  Sale of redeemable convertible preferred stock, net of
   issuance costs.........................................       --     14,457
  Collection of note receivable...........................        10       --
  Proceeds from issuance of Senior Discount Notes.........    25,000       --
  Proceeds from sale/leaseback of property and equipment..        --       667
  Repayment of capital lease obligations..................      (142)     (100)
                                                           ---------  --------
    Net cash provided by financing activities.............    25,665    47,915
                                                           ---------  --------
NET INCREASE IN CASH AND EQUIVALENTS......................     2,472    37,482
  Beginning of period.....................................    25,583     2,399
                                                           ---------  --------
  End of period........................................... $  28,055  $ 39,881
                                                           =========  ========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for interest................ $      80  $     50
                                                           =========  ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
  Issuance of common and preferred stock for notes
   receivable............................................. $     --   $    151
                                                           =========  ========
  Conversion of preferred stock to common stock........... $   1,864  $ 16,748
                                                           =========  ========
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       5
<PAGE>
 
                             SILICON GAMING, INC.
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. BASIS OF PRESENTATION
 
  The accompanying consolidated balance sheet as of September 30, 1997, the
consolidated statements of operations for the three and nine months ended
September 30, 1997 and 1996, and the consolidated statements of cash flows for
the nine months ended September 30, 1997 and 1996, are unaudited. In the
opinion of management, these financial statements have been prepared on the
same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments and accruals, necessary for
the fair presentation of the financial position and operating results as of
such dates and for such periods. The unaudited information should be read in
conjunction with the audited consolidated financial statements of Silicon
Gaming, Inc. ("Silicon Gaming" or the "Company") and the notes thereto for the
year ended December 31, 1996 included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
 
  Through March 31, 1997, the Company was in the development stage and its
financial statements were presented in accordance with Statement of Financial
Accounting Standards No. 7 "Accounting and Reporting by Development Stage
Enterprises." During the quarter ended June 30, 1997, the Company generated
revenue as it commenced commercial sale of its product, Odyssey(TM), and
emerged from the development stage.
 
  Revenues from hardware units and non-renewable software licenses are
recognized upon acceptance by the customer after completion of a trial period,
or upon shipment of the hardware. Renewable software licenses are recognized
ratably over the license period. Amounts due the Company under revenue
participation plans with its customers are recognized as revenue is earned.
Depreciation of units under such arrangements is the greater of the ratio that
current gross revenue bears to total anticipated revenue for such unit or
straight-line over three years.
 
  Certain prior year amounts have been reclassified to conform to the current
year presentation.
 
2. INVENTORIES
 
  Inventories are stated at lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                      SEPTEMBER 30, DECEMBER 31,
                                                          1997          1996
                                                      ------------- ------------
     <S>                                              <C>           <C>
     Raw materials...................................    $1,677         $307
     Work in process.................................       659          170
     Finished goods..................................     6,398           --
                                                         ------         ----
                                                         $8,734         $477
                                                         ======         ====
</TABLE>
 
  Finished goods includes completed finished goods, units on trial and
participation units.
 
3. SENIOR DISCOUNT NOTES
 
  On September 30, the Company completed the private placement of $30 million
principal obligation Senior Discount Notes ("Notes") due September 30, 2002.
Commencing January 1, 1999 the Notes bear interest at 12.5% per annum, payable
semi-annually. The Company is required to redeem $5 million in principal on
the fourth anniversary of the original issuance of the Notes. The Company is
permitted to raise additional proceeds from debt or equity securities of up to
$40 million before mandatory redemption of the Notes. The Notes are callable
at the option of the Company at any time, with an initial redemption price of
83.3% of the aggregate amount, increasing to 100% over 16 months. In
connection with the offering, purchasers of the Notes were also issued
warrants to purchase 375,000 shares of the Company's common stock at a per
share price of $15.4375.
 
                                       6
<PAGE>
 
                             SILICON GAMING, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
Such warrants, which expire five years from issuance, were ascribed a value of
$3,082,000. The Company is required, after approval is received by the
necessary gaming regulatory authorities, to register the common stock
underlying the warrants with the Securities and Exchange Commission, within
nine months of the issuance date of the Notes. Gross proceeds to the Company
before fees and other expenses were $25 million. Offering costs of $1,945,000
are included in other assets and are being amortized as an adjustment to
interest expense over the term of the Notes.
 
4. NET LOSS PER SHARE
 
  Net loss per share is based on the weighted average number of common shares
outstanding subsequent to the Company's initial public offering in 1996.
Common share equivalents including stock options, warrants and redeemable
convertible preferred stock have been excluded, as their effect would be
antidilutive. Pursuant to rules of the Securities and Exchange Commission, all
common and common equivalent shares issued by the Company at a price less than
the initial public offering price during the 12 months preceding the offering
date (using the treasury stock method until shares are issued) have been
included in the calculation of common and common equivalent shares outstanding
for all periods presented prior to the July 1996 initial public offering.
 
5. RECENTLY ISSUED ACCOUNTING STANDARDS
 
  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income",
which requires that an enterprise report, by major components and as a single
total, the change in its net assets during the period from nonowner sources;
and No. 131 "Disclosures about Segments of an Enterprise and Related
Information", which establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographic areas, and major customers. Adoption of these statements
will not impact the Company's consolidated financial position, results of
operations or cash flows. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
 
  In February 1997, the Financial Accounting Standards Board adopted Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
The Company is required to adopt SFAS 128 in the fourth quarter of 1997 and at
that time will restate earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted. SFAS 128 replaces
current EPS reporting requirements and requires a dual presentation of basic
and diluted EPS. Basic EPS excludes dilution and is computed by dividing net
income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities and other contracts to issue common
stock were exercised or converted into common stock. If SFAS 128 had been in
effect during the current and prior year periods, EPS for the three and six
months ended September 30, 1997 and 1996 would not have been significantly
different than currently reported.
 
6. SUBSEQUENT EVENTS
 
  Certain holders of the Company's Series A1 and Series B1 Nonvoting
Redeemable Convertible Preferred Stock ("Nonvoting Preferred") have notified
the Company of their election to convert shares of Nonvoting Preferred to
Common Stock. Each Share of Nonvoting Preferred is convertible into .6667
shares of Common Stock upon 75 days' prior written notice. Pursuant to these
conversion notices, 448,000 and 400,000 shares of Common Stock will be issued
upon Conversion of shares of Nonvoting Preferred in December 1997 and January
1998, respectively.
 
                                       7
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 
 Overview
 
  THIS DISCUSSION INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS WHICH
REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES, INCLUDING THOSE REFERRED TO IN THE RISK FACTORS
SECTION BELOW AND ELSEWHERE HEREIN AND CONTAINED IN THE COMPANY'S PREVIOUSLY
FILED ANNUAL REPORT ON FORM 10-K, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED. IN THIS DISCUSSION,
THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE" AND
SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK
ONLY AS OF THE DATE HEREOF.
 
  The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included in Part I--Item 1
of this Report and the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
 
  The Company was incorporated on July 27, 1993 to design, develop,
manufacture and distribute interactive gaming devices that implement advanced
multimedia technologies using state-of-the-art, off-the-shelf components.
Since its formation, the Company's principal activities have consisted of
assembling a technical, marketing and executive staff, developing its gaming
platform and related gaming and support software, raising capital, and
initiating applications for regulatory approvals in Nevada and other
jurisdictions to manufacture and distribute its gaming devices, and establish
manufacturing and sales operations. During the quarter ended June 30, 1997,
the Company commenced commercial sale of its product; however, the Company
continues to experience negative operating cash flows.
 
  The Company's first commercial product, Odyssey(TM), was approved for
product field testing in Nevada in December 1996. Following the completion of
field testing, the product was approved for sale to licensed casinos in Nevada
by the Nevada Gaming Commission on March 20, 1997, and was approved for
regulatory field trial in Mississippi on September 18, 1997 by the Mississippi
Gaming Commission. On October 17, 1997 the Company expanded its licensed
jurisdictions to include Missouri, when the product was approved for sale by
the Missouri Gaming Commission.
 
  The Company transitioned from the development stage and generated revenue
from the commercial distribution and sale of its product in the quarter ended
June 30, 1997. The Company's initial sales of Odyssey include the hardware
platform bundled with a suite of six games, play stoppage entertainment and
the Machine Management System(TM). The Company offers two alternative purchase
programs, consisting of the sale of hardware bundled with either (1) a single
game or a suite of games or (2) a renewable one-year software license,
including access to the entire game library for the term of the license. In
addition, the Company offers a revenue participation plan that allows the
Company to share with casino operators the aggregate win generated by the
machines, with 20% going to the Company. The casino accumulates credits which
may be applied to the purchase of the machines after a 90 day minimum
evaluation period. In addition to these arrangements, the Company continues to
install units on casino floors on a trial basis, consistent with industry
practice, before a sales decision is made by the customer.
 
  The Company plans to limit distribution of its product in 1997 in order to
carefully monitor reactions to its platform, game software and product support
features. In 1998, the Company expects to broaden the marketing and sales of
its product; thus, the Company believes that 1998 will be the first year in
which a reasonable
 
                                       8
<PAGE>
 
assessment can be made of its product's commercial potential. Future revenue,
profits, and cash flows will depend on market acceptance of the Company's
product, the ability of such product to generate higher revenue for casinos as
compared to competitive products, and the technical performance of the
Company's product. The Company's success will also depend on, among other
factors, the Company's ability to attract, retain and motivate qualified
personnel and meet all the initial and ongoing licensing requirements in key
jurisdictions.
 
RESULTS OF OPERATIONS
 
  The Company had net losses of $6,344,000 and $3,705,000 for the quarters
ended September 30, 1997 and 1996, respectively, and $16,943,000 and
$9,688,000 for the nine months ended September 30, 1997 and 1996,
respectively. For the nine months ended September 30, 1997, the Company
primarily focused its resources on product development, building a sales,
support and administrative infrastructure, and hiring additional marketing and
administrative staff. In addition to these expenses, the Company has also
incurred significant research and development expenses, including system
hardware and software, game concept development and software coding.
 
  During the nine months ended September 30, 1997, the company also incurred
manufacturing development expenses, including direct cost of sales expense and
other costs associated with manufacturing operations. The Company expanded its
manufacturing and commercial distribution operations to meet the anticipated
increase in sales and shipment volume associated with the full product roll-
out. During the quarter ended June 30, 1997, the Company opened a 28,000
square foot manufacturing facility in Mountain View, California. The Company's
plan for 1997 is to limit the number of units it sells so that it can collect
feedback from casino operators and gaming patrons before commencing a full
roll-out of its product. Accordingly, the Company expects only limited revenue
in 1997 and expects to incur substantial losses and negative operating cash
flows at least through the second quarter of 1998. The Company believes that
operating expenses will increase in the future as it continues to develop its
product and increases commercial operations, including manufacturing,
marketing and sales. Accordingly, the Company expects that future results will
differ materially from, and may not be comparable to, prior periods.
 
 Revenue
 
  Revenue includes machine sales direct to customers, participation revenue,
and software license fees. Revenue increased 71% to $2,847,000 in the quarter
ended September 30, 1997, as compared to $1,665,000 in the quarter ended June
30, 1997. The Company had not generated any revenue prior to the quarter ended
June 30, 1997. The increased revenue is primarily due to the successful
introduction of the product into the Nevada market. As of September 30, 1997,
the company had 955 units installed in 62 casinos. Of the 955 unit installed
base, revenue was recognized on 478 and 235 units in the quarters ended
September 30, 1997 and June 30, 1997, respectively, with the remaining units
subject to an initial evaluation period. Due to the early stage of the
Company's product cycle, the Company believes the revenue generated from
future sales will increase significantly after the full roll-out of the
Company's product planned for 1998.
 
 Cost of Sales and Related Manufacturing Expenses
 
  Cost of sales and related manufacturing expenses include direct costs of
product sales, payroll and related costs for manufacturing personnel, overhead
costs, reserves against inventory and depreciation. Cost of sales and related
manufacturing expenses were $3,151,000 and $967,000 for the quarters ended
September 30, 1997 and 1996, respectively, and $6,414,000 and $1,673,000 for
the nine months ended September 30, 1997 and 1996, respectively. In the three
and nine month periods ended September 30, 1996 the Company was in the
development stage, without revenue, and manufacturing expenses did not include
direct costs of product sales. With the Company's recent emergence from the
development stage, manufacturing costs, as well as direct costs of product
sales were matched to the corresponding revenue in the periods ended September
30, 1997. As a result, the prior periods may differ materially from, and may
not be comparable to, current or future periods. Cost of sales and
manufacturing expenses are expected to increase through 1997 as the Company
increases sales
 
                                       9
<PAGE>
 
of its product and expands its manufacturing capacity and infrastructure to
produce its product in greater commercial quantities. The Company expects to
obtain efficiencies with the installation of new tooling equipment in 1997 and
thus expects to achieve a reduction in manufacturing costs per unit in future
periods. However, aggregate fixed manufacturing costs are expected to increase
due to the early stage of the Company's manufacturing process.
 
 Research and Development
 
  Research and development ("R&D") expenses include payroll and related costs
of employees engaged in ongoing design and development activities, fees to
outside contractors, early prototype development expenses, overhead costs,
equipment depreciation and costs of supplies. To date, the Company has
expensed all costs associated with the research, design and development of its
product. R&D expenses were $2,388,000 and $1,906,000 for the quarters ended
September 30, 1997 and 1996, respectively, and $6,824,000 and $5,445,000 for
the nine months ended September 30, 1997 and 1996, respectively. Increases
over the periods have resulted from the incremental hiring of personnel,
increased use of engineering consultants and license fees and similar costs
associated with the acquisition of outside technologies. The Company believes
that a significant level of R&D expense is required due to the technical
nature of its product and the elaborate requirements of the game development
process. Accordingly, the Company anticipates devoting substantial resources,
including additional personnel, to R&D and that these costs are expected to
increase in absolute dollars in future periods.
 
 Selling, General and Administrative
 
  Selling, general and administrative ("SG&A") expenses include payroll and
related costs for administrative and executive personnel, sales and marketing
personnel, overhead costs, legal and associated costs, costs associated with
obtaining corporate and product licenses in various jurisdictions and fees for
professional services. SG&A expenses were $3,777,000 and $1,157,000 for the
quarters ended September 30, 1997 and 1996, respectively, and $9,022,000 and
$2,963,000 for the nine months ended September 30, 1997 and 1996,
respectively. Increases over the periods result from the incremental hiring of
personnel and expenses associated with applying for corporate and product
licensing in various jurisdictions and costs associated with the establishment
of sales and marketing organizations as the Company commenced commercial
distribution of its initial product. SG&A expenses are expected to increase
substantially in absolute dollars as the Company invests in sales and
marketing activities to launch its product and in administrative personnel to
support its growing infrastructure and comply with regulatory requirements.
 
 Interest Income and Expenses
 
  Net interest income and expenses were $125,000 and $325,000 for the quarters
ended September 30, 1997 and 1996, respectively, and $805,000 and $393,000 for
the nine months ended September 30, 1997 and 1996, respectively. The decrease
in the quarter ended September 30, 1997 is primarily due to a decrease in cash
and investments held during the quarter, as compared to the quarter ended
September 30, 1996. The increase for the nine months ended September 30, 1997
is due an increased average cash and investments balance for that period, as
compared to a lower average cash and investment balance in the nine months
ended September 30, 1996. Interest expense is expected to increase as the
Company incurs costs associated with the sale of Senior Discount Notes in the
quarter ended September 30, 1997.
 
 Income Taxes
 
  The Company has not been required to pay income taxes due to its net
operating losses in each period since inception. A valuation allowance has
been recorded for any deferred tax assets due to uncertainties regarding the
realization of these assets resulting from the lack of earnings history of the
Company. Due to changes in ownership, as defined by Section 382 of the
Internal Revenue Code, that may have resulted from the sale of Series B and
Series C Redeemable Convertible Preferred Stock in private placements and the
sale of common
 
                                      10
<PAGE>
 
stock in the Company's initial public offering, the annual deductibility of a
portion of the Company's federal and state net operating loss and tax credit
carryforwards may be limited.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  As of September 30, 1997, the Company had $31,887,000 of cash and
equivalents and short-term investments to fund operations. Net cash provided
by financing activities was $25,665,000 for the nine months ended September
30, 1997. To date, the Company has financed its operations primarily through
the issuance of Senior Discount Notes, Common Stock in its initial public
offering, private placements of Redeemable Convertible Preferred Stock, and
loans from shareholders which were subsequently converted to Redeemable
Convertible Preferred Stock.
 
  On September 30, the Company completed the private placement of $30 million
principal obligation Senior Discount Notes ("Notes") due September 30, 2002.
Commencing January 1, 1999 the Notes bear interest at 12.5% per annum, payable
semi-annually. The Company is required to redeem $5 million in principal on
the fourth anniversary of the original issuance of the Notes. The Company is
permitted to raise additional proceeds from debt or equity securities of up to
$40 million before mandatory redemption of the Notes. The Notes are callable
at the option of the Company at any time, with an initial redemption price of
83.3% of the aggregate amount, increasing to 100% over 16 months. In
connection with the offering, purchasers of the Notes were also issued
warrants to purchase 375,000 shares of the Company's common stock at a per
share price of $15.4375. Such warrants, which expire five years from issuance,
were ascribed a value of $3,082,000. The Company is required, after approval
is received by the necessary gaming regulatory authorities, to register the
common stock underlying the warrants with the Securities and Exchange
Commission, within nine months of the issuance date of the Notes. Gross
proceeds to the Company before fees and other expenses were $25 million.
Offering costs of $1,945,000 are included in other assets and are being
amortized as an adjustment to interest expense over the term of the Notes.
 
  In August 1996, the Company completed its initial public offering in which
the Company received proceeds, net of underwriting discounts and offering
expenses, of $32,855,000. Through September 30, 1997, the amounts raised in
the private placements of Redeemable Convertible Preferred Stock, net of
issuance costs, totaled $22,943,000.
 
  The Company's net cash used in operating activities was $23,070,000 for the
nine months ended September 30, 1997. Cash used in operating activities
reflects net losses, partially offset by depreciation and amortization, and
working capital. The change in working capital consists of increased inventory
on hand, accounts receivable, prepaid and other assets, accounts payable and
accrued liabilities. These increases are primarily due to increased sales and
inventory levels, particularly related to the Company's participation revenue
arrangements, as well as deferred financing fees related to the issuance of
the Notes. Net cash used in investing activities was $123,000 for the nine
months ended September 30, 1997. Cash used in investing activities primarily
reflects the acquisition of fixed assets, primarily computer equipment and
software, which is offset in the current period by proceeds from the sale and
maturity of short-term investments.
 
  The Company believes that its cash on hand will be sufficient to meet its
anticipated cash needs for working capital, capital expenditures and business
expansion until the Company is capable of generating positive cash flow from
operations. In the future, the Company expects to increase the cash used in
operating activities in order to increase commercial production and
distribution of its product, enhance manufacturing capabilities, expand sales
and support operations, increase research and development activities and add
administrative infrastructure.
 
  Cash flow from the Company's initial commercial sales has been negatively
affected by the revenue participation plan that the Company is offering to its
customers. This plan allows the Company to share with its customers the
aggregate win generated by the machines, with 20% going to the Company. The
customer accumulates credits which may be applied to the purchase of the
machines after a 90 day minimum evaluation period. Although the Company
expects that this plan will generate significantly higher revenue per unit
than
 
                                      11
<PAGE>
 
conventional sales, the cash flow generated by sales under the plan is
recognized over an extended period, as the aggregate win per day is earned.
Accordingly, the Company has recently obtained financing through the sale of
the Notes to support the roll-out of its product and the expansion of its
operations. However, the Company's capital requirements will depend on many
factors, including, but not limited to, the rate at which the Company can
introduce its product, the market acceptance and competitive position of such
product, the extent to which the customers choose the revenue participation
plan, the response of competitors to the Company's product, and the ability of
the Company to satisfy the licensing requirements in various jurisdictions
applicable to the Company, its product, and in some jurisdictions, its
officers, directors, employees or principal shareholders. In addition to the
financing recently obtained, the Company may be required to seek additional
financing before it achieves positive cash flow. In that event, no assurance
can be given that additional financing will be available or that, if
available, it will be available on terms acceptable to the Company or its
shareholders. If adequate funds are not available to satisfy either the short-
term or long-term capital requirements, the Company may be required to limit
its operations significantly.
 
RISK FACTORS
 
  UNCERTAIN MARKET ACCEPTANCE; RISK OF TECHNICAL ERRORS; SINGLE PRODUCT. To
achieve commercial success, the Company's product must be accepted both by
casino operators and gaming patrons. Because acceptance of the product by
casino operators will ultimately depend on win per machine, the Company
believes that its ultimate success will depend on player acceptance. The
Company's first gaming platform, Odyssey, has only been installed in casinos
for a limited period and the Company has only limited market studies and
player data to support its belief that Odyssey will be accepted by slot
players. There can be no assurance that Odyssey will be accepted by casino
patrons. Initial player interest in the product may be affected by its novel
design in addition to any inherent advantages it may have over competing
platforms and may therefore not be indicative of the long-term success of
Odyssey in the marketplace. Player preferences are highly subjective, vary
substantially among geographic and demographic markets and are subject to
unpredictable change. Because the Company's product offers features not found
on traditional slot machines, it may not appeal to players for whom
familiarity and predictability are important considerations.
 
  The Company sells its machines at prices that are substantially higher than
the prices of most competing products. In light of these higher sale prices,
coupled with the Company's status as a new and relatively small entrant in a
market dominated by larger companies, Odyssey's success will require that it
demonstrate superior, as opposed to merely comparable, win per machine when
compared to traditional slot machines and other gaming platforms offered by
more established competitors. Although several casinos have agreed to purchase
or to install and evaluate the Company's product, any additional purchases of
the product by these casinos, or others that may conduct similar evaluations
in the future, will be subject to the superior performance of the product on
the casino floor.
 
  Odyssey has been licensed for manufacture, distribution and sale in Nevada
and Missouri and the Company has only recently commenced installing its
machines on casino floors. Because of the limited opportunity for the Company
to test its gaming platform under long-term play conditions, there can be no
assurance that a substantial technical difficulty with, or an undetected error
in, the Company's software or hardware will not arise, possibly resulting in
unanticipated costs, production delays or delays in product licensing.
 
  The Company's success will depend on the success of a single product.
Because sales of its slot machine and related software will comprise the
Company's only source of revenue in the foreseeable future, any interruption
in these sales due to a technical problem will prevent the Company from
earning revenue unless and until the cause of such interruption can be
remedied. Moreover, should Odyssey fail to win broad acceptance in the market,
the Company's business, financial condition and results of operations would be
materially and adversely affected, and investors would be exposed to the loss
of all or a substantial portion of their investment.
 
  EXPECTATION OF LOSSES; NEGATIVE CASH FLOWS. As of September 30, 1997, the
Company had net losses since inception, and the Company expects to continue to
incur substantial losses and negative cash flows at least
 
                                      12
<PAGE>
 
through mid-1998. There can be no assurance that the Company will become
profitable or cash flow positive at any time in the future. The likelihood of
the success of the Company must be considered in light of the expenses,
difficulties, complications and the competitive and regulatory environment in
which the Company must operate. To date, the Company's operations have focused
primarily on product development, and the Company has had limited experience
in the areas of manufacturing, sales, product distribution or customer
support. Accordingly, it is not possible to estimate future operating expenses
and revenue based upon historical operating performance. Operating results
will depend, in part, on matters over which the Company has little or no
control, including, without limitation, the ability of the Company to obtain
the licenses necessary to conduct its business, competition, the actual number
of orders for its product, gaming regulations and taxes.
 
  CAPITAL REQUIREMENTS. The Company believes that its cash and equivalents and
short-term investments, will be sufficient to fund its capital and operating
requirements until the Company is capable of generating positive cash flow
from operations. The Company recently obtained financing to fund its product
roll-out, expand operations, and fund the adoption of its revenue sharing
plan. The cash flow generated by sales under this plan is recognized over an
extended period, as the aggregate win per day is earned, and therefore has an
adverse effect on the Company's working capital compared to other pricing
options. In addition to the financing recently obtained, the Company may be
required to seek additional financing before it achieves positive cash flow.
There can be no assurance that the Company will be able to obtain such
financing, or that, if it is able to obtain such financing, it will be able to
do so on satisfactory terms or on a timely basis. If additional funds are
raised through the issuance of equity, convertible debt or similar securities,
shareholders may experience substantial dilution, and such securities may have
rights or preferences senior to those of Common Stock. Moreover, if adequate
funds are not available to satisfy the Company's short-term or long-term
capital requirements, the Company may be required to limit or discontinue its
revenue sharing plan, scale back its product roll-out, or limit its operations
significantly. The Company's capital requirements will depend on many factors,
including, but not limited to, the rate at which the Company can introduce its
product, the market acceptance and competitive position of such product, the
extent to which the customers choose the revenue participation plan, the
response of competitors to the product and the ability of the Company's
management and its product to satisfy the corporate licensing and product
licensing requirements in various jurisdictions.
 
  COMPETITION. The gaming machine industry is characterized by intense
competition that is based on, among other things, a device's ability to
generate win per machine through product appeal to players, and knowledge of
customer requirements such as ease of use, quality of service, support and
training, distribution, name recognition and price. In recent years, the
gaming machine market has been dominated by International Game Technology
("IGT") which, according to industry sources, captured approximately 75% of
the market in 1996. Because of its extensive market presence, distribution
capacity, player acceptance and financial, technological and other resources,
IGT represents formidable competition. Several other companies, including
Bally Gaming International, Inc. ("Bally Gaming"), are established in, or are
seeking to enter, the gaming machine business. Companies in historically
unrelated industries, such as Sega Enterprises Ltd. ("Sega"), have
technological resources that could offer them a competitive advantage in
developing multimedia-based gaming machines. In general, the Company's
existing competitors, as well as many potential new competitors, have
significantly greater financial and technical resources than the Company, as
well as more established customer bases and distribution channels, any of
which could afford them a competitive advantage in developing multimedia-based
gaming machines. Any success the Company might have may benefit existing
competitors and induce new competitors to enter the market. If Odyssey
displays a potential to capture a significant share of the gaming machine
market, the Company's competitors can be expected to employ a variety of
tactics to limit erosion of their market share, including price reductions,
acceleration of new product development or acquisition of new, competitive
technologies. In the face of such tactics, there can be no assurance that the
Company will be a successful competitor in the gaming machine industry.
 
  MANAGEMENT OF GROWTH. Execution of the Company's plan of operation will
require significant growth. The Company's current plans for growth will place
a significant strain on the Company's financial, managerial and other
resources. The Company's ability to manage its growth effectively will require
it to continue to
 
                                      13
<PAGE>
 
improve its operational, financial and management information systems and to
attract, motivate and train key employees. If the Company's executives are
unable to manage growth effectively, the Company's business, operating results
and financial condition would be materially and adversely affected.
 
  DEPENDENCE ON KEY PERSONNEL. The operations of the Company depend to a great
extent on the management efforts of its officers and other key personnel and
on the ability to attract new key personnel and retain existing key personnel.
Competition is intense for highly skilled product development employees in
particular. There can be no assurance that the Company will be successful in
attracting and retaining such personnel or that it can avoid increased costs
in order to do so. In addition, the Company's officers and key employees are
not bound by noncompetition agreements that extend beyond their employment at
the Company, and there can be no assurance that employees will not leave the
Company or compete against the Company. The Company's failure to attract
additional qualified employees or to retain the services of key personnel
could have a material adverse effect on the Company's operating results and
financial condition. The Company currently maintains a "key-man" life
insurance policy in the amount of $3 million on the life of Andrew S. Pascal,
the Company's Executive Vice President--Marketing and Game Development.
 
  LIMITED PROTECTION OF INTELLECTUAL PROPERTY RIGHTS; RISK OF LITIGATION. The
Company regards its product as proprietary and relies primarily on a
combination of patent, trademark, copyright and trade secret laws and employee
and third-party nondisclosure agreements to protect its proprietary rights.
Defense of intellectual property rights can be difficult and costly, and there
can be no assurance that the Company will be able effectively to protect its
technology from misappropriation by competitors. In addition, the protections
offered by trademark, copyright and trade secret laws would not prevent a
competitor from designing games having appearance and functionality that
closely resemble the Company's games. At present, the Company's principal
proprietary technology consists of its game authentication algorithm, which is
designed to prevent tampering with the game software that is resident in its
product, and its random number generator algorithm, which determines the
outcome of each gaming proposition. While the Company believes that these
algorithms are unique at present, there can be no assurance that a competitor
of the Company will not succeed in developing an authentication algorithm or a
random number generator algorithm that performs as well as, or better than,
the Company's. Moreover, although the Company has applied for and received
certain patents and trademarks for its intellectual property, there can be no
assurance that such patents and trademarks will not be successfully challenged
in subsequent litigation.
 
  As the number of software products in the industry increases and the
functionality of these products further overlaps, software developers and
publishers may increasingly become subject to infringement claims. The Company
may also become subject to infringement claims, with or without merit, that
are brought by competitors who are motivated by a desire to disrupt the
Company's business. Although the Company is not currently aware of any claim
that it is infringing upon any intellectual property rights, there can be no
assurance that the Company will not face claims, with or without merit, in the
future. Any such claims or litigation could be costly and could result in a
diversion of management's attention, which could have a material adverse
effect on the Company's business and financial condition. Any settlement of
such claims or adverse determinations in such litigation could also have a
material adverse effect on the Company's business, operating results and
financial condition.
 
  RAPIDLY CHANGING TECHNOLOGY. The Company's product utilizes hardware
components that have been developed primarily for the personal computer and
multimedia industries. These industries are characterized by rapid
technological change and product enhancements. The Company's ability to remain
competitive and retain any technological lead may depend in part upon its
ability to continually develop new slot machine games that take full advantage
of the technological possibilities of state-of-the-art hardware. Should any
current or potential competitor of the Company succeed in developing a
competing software-based gaming platform, such competitor could be in a
position to outperform the Company in its ability to exploit developments in
microprocessor, video or other multimedia technology. The emergence of a suite
of slot machine games that is superior to the Company's in any respect could
substantially diminish the Company's product sales and thereby have a material
adverse effect on the Company's operating results.
 
                                      14
<PAGE>
 
  LIMITED MANUFACTURING EXPERIENCE. In order for the Company to be successful,
its product must be manufactured to meet high quality standards in commercial
quantities at competitive prices. The Company has only recently begun to
manufacture Odyssey for commercial distribution and has had no prior
experience in large-scale manufacturing of gaming machines. The transition to
large-scale manufacturing of Odyssey will involve various risks and
uncertainties including unforeseen costs or assembly difficulties and the
possibility that anticipated efficiencies or economies of scale will fail to
materialize as the Company begins manufacturing in greater volumes. A failure
by the Company to successfully manage this transition would have a material
adverse affect on the Company's business, operating results or financial
condition.
 
  DEPENDENCE ON SINGLE-SOURCE SUPPLIERS. The Company currently obtains a
number of its system's components from single-source suppliers. In particular,
the touchscreen and picture tube that comprise the video display are supplied
by MicroTouch Systems, Inc. and Philips Display Components Company,
respectively. The Company does not have long-term supply contracts with these
suppliers but rather obtains these components on a purchase order basis.
Although the design of these components is not unique or proprietary and the
Company believes that it could identify alternative sources of supply, if
necessary, there can be no assurance that the Company would be able to
procure, substitute or produce such components without a significant
interruption in its assembly process in the event that these single sources
were unable to supply these components. Even where the Company has multiple
sources of supply for a component, industry-wide component shortages, such as
those that have occurred with various computer components, could significantly
delay productivity, increase costs or both. The failure or delay by any
supplier to furnish the Company with required components would have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
  SLOWING IN TREND TO LEGALIZE GAMING. Growth in demand for slot machines
historically has been driven by the opening of new casinos, including casinos
in jurisdictions where gaming has recently been legalized. However, in recent
years, the legalization of gaming in new jurisdictions has been significantly
reduced; therefore, demand based on new openings will be largely limited to
new projects in existing markets. There can be no assurance that the slot
machine industry will sustain the rate of growth that was possible in the
first half of this decade.
 
  REGULATORY APPROVAL. The Company will be required to obtain and maintain the
necessary licenses, approvals, findings of suitability and product approvals
in all jurisdictions in which it intends to distribute its product. The
licensing and approval processes can involve extensive examination of the
Company and its officers, directors, employees, principal shareholders and
product, and can require significant expenditures of time and resources by the
Company. Distribution of gaming devices in U.S. gaming jurisdictions generally
requires both corporate approval and product approval. The Company and certain
of its subsidiaries have received the requisite corporate approvals in Nevada,
Mississippi, Missouri and Colorado. The Company has also applied for corporate
approval in New Jersey and Minnesota and intends to file for approval in other
jurisdictions where its product can be sold legally. Odyssey was approved for
sale in Nevada on March 20, 1997 and in Missouri on October 17, 1997 after
review by Gaming Laboratories International, Inc. (GLI), an independent
testing facility. On September 18, 1997, Odyssey was approved by the
Mississippi Gaming Commission to commence a mandatory 90 day field trial. The
Company has also submitted Odyssey for testing in New Jersey. There can be no
assurance that Odyssey will be approved in any additional jurisdiction. The
regulations relating to company and product licensing are subject to change,
and other jurisdictions, including the federal government, may elect to
regulate or tax gaming activities. The Company cannot predict the nature of
any such changes or their impact on the Company. In addition to the initial
product approval, the Company is required to submit all software and hardware
modifications to the various regulatory laboratories. These modifications
normally take between 30 and 45 days to process.
 
  Any beneficial holder of the Company's Common Stock may be subject to
investigation by any gaming authority in any jurisdiction in which the Company
does business if such authorities have reason to believe that such ownership
may be inconsistent with the gaming policies of that jurisdiction. Persons who
acquire beneficial ownership of more than certain designated percentages of
the Common Stock may be subject to certain reporting and qualification
procedures. In addition, changes in control of the Company and certain other
corporate
 
                                      15
<PAGE>
 
transactions may not be effected without the prior approval of gaming
authorities in other jurisdictions in which the Company plans to do business.
Such provisions could adversely affect the marketability of the Company's
Common Stock or prevent certain corporate transactions, including mergers or
other business combinations.
 
  In order to comply with the existing technical standards in certain gaming
jurisdictions including Nevada and Colorado, the Company currently stores its
game software and Machine Management System on an internal hard disk drive
which is not alterable through the circuitry or programming of the gaming
device itself. In the future, the Company intends to pursue the use of a
writeable internal disk drive in order to facilitate the electronic
distribution of software and to retain large quantities of game play history.
The interpretation of this feature in Odyssey will require a modification of a
technical standard by the Nevada gaming authorities to permit the use of
writeable game storage media in slot machines. Although the Company believes
that the Nevada gaming authorities may eventually modify this technical
standard in such manner, there can be no assurance that such modification will
occur in the near future or at all, or that a similar modification will be
made to the regulations of any other jurisdiction.
 
  NO DIVIDENDS. The Company has not paid any cash dividends in the past and
does not expect to do so in the foreseeable future.
 
                                      16
<PAGE>
 
                          PART II--OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
  Inapplicable.
 
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
 
  On September 30, the Company completed the private placement of $30 million
principal obligation Senior Discount Notes ("Notes") due September 30, 2002.
Commencing January 1, 1999 the Notes bear interest at 12.5% per annum, payable
semi-annually. The Company is required to redeem $5 million in principal on
the fourth anniversary of the original issuance of the Notes. The Notes are
callable at the option of the Company at any time, with an initial redemption
price of 83.3% of the aggregate amount, increasing to 100% over 16 months. In
connection with the offering, purchasers of the Notes were also issued
warrants to purchase 375,000 shares of the Company's common stock at a per
share price of $15.4375. Such warrants, which expire five years from issuance,
were ascribed a value of $3,082,000. Gross proceeds to the Company before fees
and other expenses were $25 million. The Notes and the Warrants were sold to
qualified institutional investors in reliance upon Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"). Aggregate offering
costs of $1,945,000 are included in other assets and are being amortized as an
adjustment to interest expense over the term of the Notes.
 
  Certain holders of the Company's Series A1 and Series B1 Nonvoting
Redeemable Convertible Preferred Stock ("Nonvoting Preferred") have converted
an aggregate of 1,397,369 shares of Nonvoting Preferred to an aggregate of
931,579 of Common Stock during the quarter ended September 30, 1997.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
  Inapplicable.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  Inapplicable.
 
ITEM 5. OTHER INFORMATION
 
  Certain holders of the Company's Series A1 and Series B1 Nonvoting
Redeemable Convertible Preferred Stock ("Nonvoting Preferred") have notified
the Company of their election to convert shares of Nonvoting Preferred to
Common Stock. Each Share of Nonvoting Preferred is convertible into .6667
shares of Common Stock upon 75 days' prior written notice. Pursuant to these
conversion notices, 448,000 and 400,000 shares of Common Stock will be issued
upon Conversion of shares of Nonvoting Preferred in December 1997 and January
1998, respectively.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
  (a) Exhibits.
 
<TABLE>
<CAPTION>
       NUMBER EXHIBIT DESCRIPTION
       ------ -------------------
       <C>    <S>
        11.1  Statement Regarding Computation of Loss Per Share
        27    Financial Data Schedule
</TABLE>
 
  (b) Reports on Form 8-K.
 
    None.
 
                                      17
<PAGE>
 
                                   SIGNATURE
 
  Pursuant to the requirements 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.
 
                                          Silicon Gaming, Inc.
 
                                                   /s/ Thomas E. Carlson
                                          By
                                            -----------------------------------
                                                     THOMAS E. CARLSON
                                              VICE PRESIDENT--CHIEF FINANCIAL
                                                          OFFICER
                                              (PRINCIPAL FINANCIAL AND CHIEF
                                                    ACCOUNTING OFFICER)
 
Date: November 14, 1997
 
                                       18