<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-K/A

 X   Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
---
     Act of 1934 for the fiscal year ended December 31, 2001 or

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

                       Commission File Number:  0-22752

                                 MIKOHN GAMING CORPORATION
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

             Nevada                                      88-0218876
--------------------------------------------------------------------------------
 (State or other jurisdiction of               (IRS Employer Identification No.)
 incorporation or organization)

   920 Pilot Road, P. O. Box 98686, Las Vegas,            NV  89119
--------------------------------------------------------------------------------
     (Address of principal executive office)              (Zip code)

Registrant's telephone number, including area code:     (702) 896-3890
                                                   -----------------------------

          Securities registered pursuant to Section 12(b) of the Act:
                                                  Name of each Exchange
  Title of each class:                             on which registered:
  --------------------                             --------------------
         None                                              None

          Securities registered pursuant to Section 12(g) of the Act

                    Common Stock, par value $.10 per share
                    --------------------------------------
                               (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 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
filing requirement for the past 90 days.  Yes  X    No____
                                             -----

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

     The number of shares of common stock outstanding as of March 20, 2002, was
12,798,558. The market value of the common stock held by nonaffiliates of the
Registrant as of March 20, 2002, was approximately $55,905,755. The market value
was computed by reference to the closing sales price of $5.990 per share of
common stock on the NASDAQ National Market System as of March 20, 2002.
<PAGE>

                     DOCUMENTS INCORPORATED BY REFERENCE:

     Part III hereof incorporates by reference portions of the Proxy Statement
for the Annual Meeting of Stockholders to be held on May 14, 2002 (to be filed
with the Securities and Exchange Commission within 120 days after December 31,
2001).

                                EXPLANATORY NOTE

       This Form 10-K/A has been prepared and filed by the Company to enhance
the prior disclosures set forth in the Company's Form 10-K previously filed for
the fiscal year ended December 31, 2001. Specifically, this Form 10-K/A provides
for (i) additional disclosures describing the Company's write-offs and
repositioning costs at December 31, 2000 and (ii) additional disclosures
describing the Company's write-offs, impairment costs and repositioning costs at
December 31, 2001 (see Management's Discussion and Analysis of Financial
Condition and Results of Operations for the enhancements).

                                      ii
<PAGE>

                               CAUTIONARY NOTICE

     This Annual Report of Mikohn Gaming Corporation on Form 10-K contains
forward-looking statements subject to the "safe harbor" legislation appearing at
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Statements expressing expectations
regarding our future (including pending gaming and patent approvals) and
projections relating to products, sales, revenues and earnings are typical of
such statements.

     All forward-looking statements, although made in good faith, are subject to
the uncertainties inherent in predicting the future. Factors such as
competition, customer dissatisfaction, failure to gain new product acceptance,
software problems, internet gaming legalization, our maintaining licenses for
branded games, our relationship with TAB, Ltd., our dependence on Sigma Game
Inc., our operating history, our high leverage and accompanying debt service
obligations, onerous taxation and other adverse government action (including,
without limitation, with respect to gaming regulations and our gaming licenses
and product approvals), unusual risks attending foreign transactions, general
deterioration in economic conditions, effects of the September 11 terrorist
acts, terrorism in general and governmental response thereto, and regulatory
actions relating to our use of Arthur Andersen LLP as our auditors may cause
results to differ materially from any that are projected.

     Forward-looking statements speak only as of the date they are made. Readers
are warned that we undertake no obligation to update or revise such statements
to reflect new circumstances or unanticipated events as they occur, and are
urged to review and consider disclosures we make in this and other reports that
discuss factors germane to our business. See particularly our reports on Forms
10-K, 10-K/A, 10-Q, 10-Q/A and 8-K filed from time to time with the Securities
and Exchange Commission
<PAGE>

                           MIKOHN GAMING CORPORATION
                       ANNUAL REPORT ON FORM 10-K FOR THE
                          YEAR ENDED DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                        TABLE OF CONTENTS
<S>             <C>                                                                          <C>
                                             PART I
Item 1.         Business                                                                        2
Item 2.         Properties                                                                     19
Item 3.         Legal Proceedings.                                                             20
Item 4.         Submission of Matters to a Vote of Security Holders                            20

                                             PART II
Item 5.         Market for Registrant's Common Stock and Related Security Holder Matters       21
Item 6.         Selected Financial Data                                                        22
Item 7.         Management's Discussion and Analysis of Financial Condition and Results
                    of Operations                                                              23
Item 7A.        Quantitative and Qualitative Disclosures About Market Risk                     35
Item 8.         Consolidated Financial Statements and Supplementary Data                       36
Item 9.         Changes in and Disagreements with Accountants on Accounting and Financial      82
                    Disclosure

                                            PART III
Item 10.        Directors and Executive Officers of the Registrant                             82
Item 11.        Executive Compensation                                                         82
Item 12.        Security Ownership of Certain Beneficial Owners and Management                 82
Item 13.        Certain Relationships and Related Transactions                                 82

                                             PART IV
Item 14.        Exhibits, Financial Statement Schedules and Reports on Form 8-K                82
</TABLE>

                                       1
<PAGE>

                                    PART I


Item 1.    Business

Operations

     Our worldwide operations are concentrated in two principal business
segments: gaming operations and product sales. Our gaming operations segment
includes proprietary branded and unbranded slot machines and table games,
including our Yahtzee(R), Battleship(R) and Ripley's Believe It or Not!(R)
series of slot machines and our Caribbean Stud(R) table game. Our product sales
segment includes signage, progressive jackpot systems, and player tracking and
accounting systems for slot machines and table games. Set forth below is a
description of each of our two principal business segments.

     Gaming Operations Segment

     We established our gaming operations business unit to develop, acquire,
manufacture and distribute proprietary games, and these have become increasingly
important to our business. We have given increased attention to gaming
operations because of the high recurring revenues and profit margin potential
for this business line. We own or license from third parties the rights to
several categories of proprietary games, which we place in casinos under lease
arrangements. These leases provide for either fixed rental payments or
participation in the game's operating results. Sales of proprietary games are
reflected in the reported results of our product sales business segment while
revenues derived from leases are included in the results of our gaming
operations business segment. Reported revenues relating to our branded games are
net of royalties. Set forth below are descriptions of some of our significant
proprietary slot machines and table games that are placed under lease
arrangements.

     Slot Operations. Our slot operations include such products as our
Yahtzee(R), Battleship(R), Ripley's Believe It or Not!(R) and MoneyTime(TM) slot
machines.

     Branded Slot Games.  Under an exclusive license from Hasbro, Inc., we
developed a series of casino slot games based on Yahtzee(R), a well-known dice
game.  In 2000, we introduced a slot game based on Battleship(R), another well-
known game that we also license from Hasbro, Inc.  Our Yahtzee(R) and
Battleship(R) games were each named among the top 20 most innovative products in
2000 and 2001 by the Casino Journal Publishing Group.

     Introduced to Nevada casinos in the late summer of 1999, the first two
versions of our Yahtzee(R) slot game were spinning reel slots topped with
oversized mechanical dice, to be rolled by a player to provide a bonus
opportunity. In December 1999, we introduced our Yahtzee(R) video game, a five-
reel, 45-coin, nine-line video game. Special features include an interactive,
animated second screen and a random scatter-pay bonus, both presenting three-
dimensional dice characters. We selected the Dallas series video platform from
Sigma Game, featuring technology providing superior graphic and audio
capabilities.

     In the fourth quarter of 2000, we introduced our Battleship(R) All
Aboard(TM) video game. The Battleship(R) slot game is interactive containing
both strategy and skill elements. The game was developed in the nine-line five-
reel video slot format with a maximum play of up to 90 coins. In addition to the
base game, players have the opportunity to test their skill, as well as win more
money, with three special bonus games. One object of the bonus games is to
destroy an enemy fleet of four ships of various sizes concealed within an ocean
grid in eight shots or less, similar to that of the traditional board game.

     In the second quarter of 2001, we released the Yahtzee(R) Mystery
Winner(TM) game, another version of video Yahtzee(R), which couples the familiar
name of Yahtzee(R) with a mystery theme and three bonus features. Yahtzee(R)
Mystery Winner(TM) video slot is a five-reel, nine-line, 90-coin maximum-bet
game. Like the original Yahtzee(R) slot game, it has the bonus play of allowing
players to play a Yahtzee(R) hand versus a general paytable.

                                       2
<PAGE>

     In the second quarter of 2001 we launched our Ripley's Believe It or
Not!(R) Adventures in Trivia(TM) video slot game as the first trivia-based slot
game. This five-reel, nine-line, 90-coin maximum-bet game, the first within our
Think Big(TM) series, incorporates scores of human-interest questions. Players
win based on the accuracy of their responses. Players win more if they are
right, but win something even if they are wrong.

     In June 2000, we entered into an exclusive, worldwide licensing agreement
with Hasbro, Inc. to develop a slot version of Hasbro's Clue(R) board game. The
Clue(R) Winning Solution(TM) video slot game, the second release within our
Think Big(TM) series, is scheduled for release in the second quarter of 2002.
The Clue(R) slot game is based on the classic "whodunit" as players compete to
find out who contributed to the demise of the unfortunate Mr. Boddy. With six
characters, six weapons and nine rooms, there are a potential 324 different
combinations. Three main bonuses exist. The primary "Winning Solution" bonus
utilizes the home-game theme of identifying Who, What and Where for the untimely
demise of Mr. Boddy. Additionally, when the player successfully completes the
"Winning Solution" bonus, he or she advances to the "Inheritance" bonus in which
Mr. Boddy's inheritance is collected for solving the crime. A secondary "Card
Caper" bonus utilizes the selection of cards in a multi-stage game with secret
passages. A third Mystery Trivia bonus adapts mystery/detective questions to the
knowledge-based casino format.

     In September 2000, we entered into a licensing agreement with Hasbro, Inc.
to develop a slot version of the best selling trivia game, Trivial Pursuit(R).
The Trivial Pursuit(R) slot will utilize a multi-coin, multi-line video platform
featuring bonus rounds that features the famous Trivial Pursuit(R) question
database. Similar to the home board game version of Trivial Pursuit(R) a player
will have the ability to select his or her favorite question category on some
bonus rounds. We plan to introduce the Trivial Pursuit(R) slot in the second
half of 2002.

     Since our founding, we have been a market leader in progressive slot
machine technology as an equipment supplier to casinos and other slot game
manufacturers. We currently are developing a wide area progressive system which
we will operate, linking slots with a progressive jackpot feature between
casinos. We are developing a wide area progressive game named Wink's Survey of
America with television game show host Wink Martindale, as emcee. This game
offering will be on a video multi-game, multi-line platform. We intend to
introduce this wide area progressive system game during the first quarter of
2003.

     Mikohn Branded Slot Games. To date, our primary Mikohn branded slot game
has been MoneyTime(TM). We also have a pachinko-style slot game under
development through a joint product development and profit-sharing agreement
with Anchor Gaming, a subsidiary of International Game Technology, Inc.

     MoneyTime(TM), developed in 1997, is a slot game. It uses bonusing to
initiate, extend and increase play. Typically, 40 slot machines are configured
in a carousel with extensive overhead thematic signage manufactured by us
promoting the MoneyTime(TM) game. Each slot machine is linked into a progressive
jackpot system. When the progressive pool generated reaches a randomly
determined level within a specified range, the system triggers a bonus mode in
which multiple players are awarded portions of the jackpot in rapid succession.
On March 27, 2001, we received an adverse decision in the patent infringement
action brought against us by Acres Gaming alleging that our MoneyTime(TM) game
infringed four patents issued to Acres Gaming. The jury returned a verdict
against the Company on two of the four patents and awarded damages of $1.5
million to Acres Gaming. After initially appealing the verdict, we settled the
case in December 2001. The damage award was paid and we received a license to
use the Acres patents. The $1.5 million damage award was expensed in the fourth
quarter of 2000. See "Business--Legal Proceedings."

     On December 31, 2001, we had 2,679 third-party branded slot games on lease
and 415 Mikohn- branded games compared to 2,009 and 477, respectively for the
year ended December 31, 2000. Total slot lease revenues were approximately $27.5
million for 2001.

                                       3
<PAGE>

  Table Games.  We embarked on a strategy of creating a variety of specialty
table games for casinos.  We were the first company in the industry to introduce
table games featuring licensed board game brands through our exclusive license
agreements with Hasbro, Inc.  We licensed the Monopoly(R) brand name for table
games from Hasbro, Inc. and we introduced poker and blackjack table games
featuring elements from the popular Monopoly(R) board game.  We also licensed
the Clue(R) and Yahtzee(R) brands from Hasbro, Inc for use on table games.

  It is our experience that new table game concepts take considerably longer to
be accepted in the market than new slot game concepts.  This is due in part to
the high training costs experienced by casino operators which makes them more
reluctant to try new table games.  In addition, we find that table game players
tend to have one or two favorite games and are slow to try new concepts.  It
therefore takes longer to develop a base of players that favor any new table
game product.  However, once a loyal player base is established, we believe that
table games enjoy a longevity significantly greater than that of new slot games.

  We place table games directly with casino operators for a monthly fee at a
fixed rate per table.  Most of the agreements with the casinos are for three-
year terms with a 30-day early cancellation clause.  As of December 31, 2001, we
had 1,134 revenue-producing table games installed that produced more than $16.5
million in lease revenues for the year 2001. Set forth below are descriptions of
some of our proprietary table games that are placed under lease arrangements.

  Caribbean Stud(R) is the most popular proprietary table game in the world.  As
of December 31, 2001, approximately 900 of our Caribbean Stud(R) tables were in
service worldwide, in more than 370 casinos in 38 jurisdictions. Caribbean
Stud(R) table games have been available in casinos since 1988.

  Caribbean Draw Poker(TM) is a variation of Caribbean Stud(R) in which players
are allowed to turn in and draw up to two cards on their original five-card stud
hand.

  Tre' Card Stud(TM) is a three-card variation of Caribbean Stud(R). The game is
approved in California, Indiana, Michigan, Mississippi, Missouri and Nevada.

  Wild Aruba Stud(TM) is a variation of five-card stud poker. The game is
approved in California, Connecticut, Iowa, Michigan, Mississippi and Nevada.

  Progressive Blackjack(TM) is played as a standard blackjack game with an
optional progressive side-bet feature. Players receive jackpot payments
determined by a payout formula based on certain card combinations. Casinos
typically benefit from the game because of the additional volume and win
generated by increased play.

  Progressive Jackpot Pai Gow(TM) Poker is played as a standard pai gow poker
game with an optional progressive side-bet feature. Players receive progressive
jackpot payments determined by a payout schedule based on certain winning card
combinations. The game is approved in Indiana, Mississippi and Nevada and is
pending approval in New Jersey and other major jurisdictions.

  Progressive Bad Beat Stud Poker(TM) is approved in Mississippi and is pending
approvals from other major jurisdictions.

  Monopoly(R) Blackjack(TM) is a standard blackjack game with an optional side-
bet wager and payouts that are based on certain card combinations. When players
win, they can take a fixed payout or go to the Monopoly(R) board to try to
improve their winnings. The game is currently in play in Nevada, California and
Russia and has been submitted to several other major jurisdictions.

  Monopoly(R) Poker Edition(TM) (Basic) is currently in play in Mississippi and
has been submitted to several other major jurisdictions.


                                       4
<PAGE>

  Product Sales Segment

  We have been marketing gaming products around the world since 1987.  Our
gaming products are found in almost every major gaming jurisdiction and include:

  . interior casino signage;
  . exterior signage;
  . electronic components used in progressive jackpot systems;
  . player tracking and information gathering and control systems and
  . special order, oversized and other slot machines for sale.

  Interior Casino Signage.  We are known throughout the industry as an innovator
of high-impact signage particularly designed for the gaming industry. Our
product design capabilities, manufacturing capacity and worldwide distribution
network make us the industry leader in interior casino signage. We design and
manufacture interior signage and displays that are marketed and sold either as
stand-alone signs or in combination with progressive jackpot systems.

  Interior casino signage differs in many respects from other forms of signage.
Casino signage typically features intricately detailed artwork, is constructed
in a wide variety of unusual shapes, is finished and detailed with more
expensive and delicate materials than other types of signage and often is
covered by an artistic finish such as polished aluminum or acrylic laminate.
Digital laser printers are used to produce sign faces which are then laminated,
mounted on plexiglass and assembled onto the finished sign. The electrical
components of the signs include fluorescent or incandescent backlighting and a
wide-range of artistic lighting, including neon tubes, star-tubes, flashing
incandescent lighting and fiber-optics.

  Interior signage is used extensively in connection with the "theming" of
interiors and the differentiation and identification of facilities. Custom
processes enable us to conform signs to a casino's existing theme or to create
distinctive themes for particular areas in a casino. Sales and design personnel
work closely with the customer in the development of the design plans.
Installations by Mikohn may be seen in mega-casinos such as the Bellagio,
Mandalay Bay Resort, Aladdin, Paris and Venetian in Las Vegas, NV, and are also
found in numerous other casinos in both domestic and foreign gaming
jurisdictions.

  The average construction period for an interior signage project is
approximately three to eight weeks. The costs of interior signage projects vary
widely, but most fall within a range of $50,000 to $2.0 million. We typically
require a 50% down payment before commencing manufacturing, with an additional
25% due at shipping and the balance due upon 30 days after installation.  While
our interior signage is commonly incorporated into large projects, remodeling
and small projects continue to stimulate demand.

  Demand for interior signage has also been stimulated by the popularity and
growth of progressive jackpots throughout the gaming industry. These often
incorporate our interior signage into sophisticated merchandising programs.  We
believe we sell more casino interior signage worldwide than any other
manufacturer.

  Exterior Signage.  We also design, manufacture, install and maintain exterior
signage. These projects can vary from themed directional signage to multi-story,
double-faced pylon signage such as the two exterior signs at the Bellagio in Las
Vegas, NV.  We have targeted the gaming industry for our exterior lighting and
signage products and have supplied signs or lighting systems to major casinos in
the U.S. and to a number of international customers.

  We have successfully developed MikohnVision(R), using light emitting diodes,
or LED systems, that enable us to produce spectacular displays on huge outdoor
screens in up to 16.7 million colors.  We have patents to protect various
features unique to the MikohnVision(R) system.  MikohnVision(R) makes it
possible to offer real-time graphics, animation, text and video clips; to
display photos, logos, video and real-time images; and to create instant,
spectacular animations and messages at adjustable speeds.

                                       5
<PAGE>

  The exterior signage business is much more competitive and therefore has a
lower margin than interior signage. The sales price of exterior signage varies
widely, although most contracts fall within a range of $200,000 to $2.0 million.
Typically, we receive payments during the course of design, manufacture and
installation.  During the fourth quarter of 2001, we decided to discontinue our
older non-LED version of MikohnVision(R) and recorded inventory reserve charges
of $800,000.

  Progressive Jackpot Systems.  A progressive jackpot system monitors play on
one or more slot machines or table games and accumulates, in real-time, a
predetermined percentage of each coin bet to create a jackpot. This jackpot
increases continuously until won by a player. The system then can be reset
automatically to accumulate and present subsequent jackpots. Progressive jackpot
systems can serve a single machine or can be electronically linked with a number
of slot machines to generate a collective jackpot. Progressive jackpot systems
create larger jackpots to contribute added excitement to the game and to provide
an incentive for players to play the maximum number of coins.  Our table game
progressive system is not offered for sale to casinos but is available only
under lease or licensing arrangements .

  Our progressive jackpot and bonusing systems typically are comprised of three
components: controllers, a color display of LEDs and software. The controllers
draw data from the linked slot machines and continuously update the amount of
the progressive jackpot from a number of games. This information is transmitted
in real-time to the electronic displays in and around carousels of participating
machines, accompanied by graphics, animation and sound effects. The software
enables the casino operator to program the controllers and displays and to set
various game options. The electronic displays capture and maintain a player's
interest by continuously showing, on a real-time basis, the current amount of
the progressive jackpot and by going into a "celebration" mode when a jackpot is
hit.

  Although controllers, displays and software are all included in every Mikohn
progressive jackpot system, controllers and displays also are sold separately to
slot machine manufacturers and casino operators. The software used to program
the displays and controllers and monitor the systems and machine usage is
proprietary, thereby inhibiting the operator from substituting components made
by other manufacturers. Our progressive jackpot systems can be connected into
multi-site progressive links among a number of casinos. The operator of the
gaming machine is responsible for payouts of all jackpots.

  Controllers.  Our proprietary controllers are designed to be compatible with
the gaming equipment made by the major slot machine manufacturers, including
Aristocrat, Atronic, Alliance Gaming, Novomatic Industries, Sigma Game,
Universal de Desarrollos Electroonicos, S.A. (known as UNIDESA), WMS Industries
and the industry giant, International Game Technology. Our controllers are
licensed in almost every major gaming jurisdiction. We have the largest
installed base of controllers in the industry. The sale of our controllers for a
progressive jackpot system is frequently accompanied by the sale of our
electronic displays promoting the system.

  Electronic Displays.  We manufacture displays in a wide variety of sizes and
designs to accommodate the technical, aesthetic and price requirements of our
casino customers. Our electronic displays are installed with slot machines
manufactured by Alliance Gaming, Aristocrat, International Game Technology,
Novomatic Industries, Sigma Game, UNIDESA and WMS Industries. Our displays are
found in casinos throughout the world. We produce alphanumeric and graphic
electronic displays for use in real-time applications with all major brands and
models of slot machines. Our displays primarily use LEDs which can be turned on
and off approximately 100 times per second and can be programmed to display
information in a wide variety of formats, including flashing, panning from side-
to-side, odometer, pulsating, scrolling up or down, painting (each character is
formed from the top down), morphing and dancing colors (each character
alternates color). LEDs also can utilize foreground or background color, user-
selectable and downloadable font and text justification. Cells of LEDs may be
combined to display characters and graphics in a variety of sizes ranging from
small to very large. We supply displays to casinos and gaming equipment
manufacturers including International Game Technology for their wide-area
progressive systems.

                                       6
<PAGE>

  In addition to our proprietary line of LED displays, we offer casinos the
ability to attract players using the latest in high-resolution plasma displays.
Utilizing our PC-based PlasmaPack(TM) controller, casinos can run real-time
applications such as bonusing and progressives on large, high-resolution plasma
displays. The latest addition to our electronic display line is the Rainbow
Display(TM). The addition of blue LED technology to the display opens up vast
opportunities for merchandising applications. The advanced LED technology
provides a much brighter look than a plasma screen and assists in generating a
very colorful presentation that helps sell games. These displays are available
in a variety of sizes and are proving to be a great addition to the casino floor
with their unparalleled color and brilliance.

  Software.  We design application software for use in connection with our
progressive jackpot systems. The software permits the casino operator to set
jackpot frequencies and levels in response to competitive factors and variations
in customer demand and to set a maximum amount to be displayed as a jackpot
(which effectively limits the casino's liability in the event of a programming
or technical error). The software is programmable to accommodate a variety of
international currencies, and is supplied either on a diskette for installation
on the casino's stand-alone personal computer or on a memory card we sell for
installation in a palmtop computer.

  Our SuperLink(R) software package supplies a comprehensive, multi-faceted
system for managing a progressive jackpot network from a central location. The
SuperLink(R) system consists of Mikohn bonus and/or standard progressive
controllers, a Mikohn smart interface board for each machine and a PC-hosted
monitoring system. The system PC provides reports and statistics for bonus game
play and features screens for configuration and set-up. It also links the
interface packages of electronic displays, controllers and software into one
total integrated package, permitting centralized control and facilitating the
operation, programming and monitoring of progressive jackpots and bonuses.  As a
result, we believe that the SuperLink(R) system enables casino operators to
manage their slot machines with greater efficiency, which can increase
productivity, enhance security and reduce costs. Moreover, the SuperLink(R)
system, with its built-in flexibility, is a system that will enhance both
existing and new slot machines with new progressive, bonusing and merchandising
features, including our MoneyTime(TM), Mystery Jackpot(TM) and Bonus Jackpot(TM)
systems.

  Bonusing Systems.  A bonusing system provides a cash bonus which can be random
or preset separate from the normal payout for a winning combination. While bonus
amounts are typically lower than the top pay of the game, the frequency is high,
providing a valuable merchandising tool for stimulating, extending and
increasing the rate of play.

  Bonus Jackpot(TM) provides a random cash bonus along with the normal payout
for a winning combination. Any or all of eight progressive pay levels may be
selected as the bonus level, and up to eight random bonuses can be set for each
selected level.

  Mystery Jackpot(TM) is a progressive system that randomly rewards patrons
according to a fixed pay schedule. The bonus is triggered when the mystery
(hidden) jackpot reaches a random level within a specified range. Once a winner
is identified, a payout is randomly selected from one of eight awards. Mystery
Jackpot(TM) awards a player a progressive jackpot just for playing; no winning
reel combination or minimum coin-in is required. The range for the jackpot can
be configured by the operator, and the system randomly selects a jackpot amount
within that range and awards the jackpot via the credit meter to the player.

  Accessories.  We also supply a number of accessory products that allow the
casino customer to operate a wider variety of progressive games, provide
promotional messages, animated and graphic displays, and generate additional
statistical and operating information from the slot machines linked to
progressive jackpot systems. Available accessories also include devices to boost
electrical outputs to a large number of displays, cable and fiber-optic
connectors, devices to trigger visual or aural signals when a progressive
jackpot is hit, and circuitry for the display of progressive jackpot amounts on
the screens of video slot machines.

                                       7
<PAGE>

  Keno. Under a licensing agreement with XpertX, Inc., we hold the exclusive
worldwide distribution rights (outside Nevada) to the XpertX(TM) keno system.
Key features of this keno system include: player tracking (player account
information, player trip history, play and win amounts and buy-in limits);
reporting (customized audit/management reports and inter-property progressive
capabilities); display functions (in-room television keno display and
advertising options); and built-in diagnostic software and disc mirroring
features.

  CasinoLink(R).  Our CasinoLink(R) system is an integrated management system
for the gaming enterprise. Operating on a Microsoft Windows NT(R) /2000 / SQL
Server(R) platform, CasinoLink(R) provides its users with robust, highly
scalable applications for accounting and auditing, administration and security,
jackpot management and player marketing. CasinoLink(R) is exceptionally well
suited to fulfill the requirements of large, geographically dispersed casino
operators who require multi-site capability.

  The CasinoLink(R) system is installed throughout the gaming operations of more
than 20 casino operators worldwide. CasinoLink(R) is utilized domestically by
single-site operators in California and Oregon and a multi-site operator in
Nevada. We hold the dominant share of the gaming system market in Canada, with
installations in the multi-site, provincial lottery corporations of Alberta,
British Columbia, Ontario and Saskatchewan. The European market is home to
single-site installations in Finland, Greece and Italy as well as to multi-site
installations in the Netherlands, Estonia, Lithuania, Russia, the Slovak
Republic, Slovenia and Sweden.

  In November of 1999, we entered into an agreement with TAB, Ltd. of Sydney,
Australia to serve as its exclusive provider of progressive jackpot management
software. See Note 1--Description of Business and Summary of Significant
Accounting Policies in the Notes to Consolidated Financial Statements. This
system is currently being installed in the private club market in New South
Wales, Australia by TAB, Ltd.

  TableLink(R).  We also develop and market automated data collection systems
for player tracking and accounting for table games. These products include our
patented TableLink(R) technology.

  In 1995, we acquired the worldwide rights to develop, manufacture, market and
distribute the technology incorporated in our TableLink(R) system, a player
tracking and data collection system for table games. This system enables the
casino to recognize and reward players, and enhances game security. Our
TableLink(R) system employs:

  .  special casino chips that are embedded with computer microchips which
     transmit encrypted radio frequency signals;
  .  sensors at each player position at the table;
  .  player identification card readers;
  .  optical readers that read playing cards as they are dealt for card game
     applications and
  .  touch-screen computer displays at the gaming table or pit stand.

  Information is compiled by patented instruments and computer and sensor
technology, which electronically track all bets in real-time as the chips are
placed, producing a record of each game. In addition to providing player
tracking, chip tracking and game tracking, the technology can be used to
integrate a progressive jackpot system with other table games to stimulate
player excitement and improve revenue production. The TableLink(R) system
provides casino operators with real-time accounting of the play of each table
game player. Improved accuracy and player-initiated ratings not only are very
useful to the casino in identifying and directing complimentary benefits to the
customer, but improve customer loyalty. It also redirects supervisor time from
administrative to customer-relationship tasks.

  The TableLink(R) system brings to table games the benefits of accurate and
automated data collection and player tracking, previously seen only in the slot
machine sector. Players initiate their ratings using their player cards when
they begin play. The TableLink(R) system tracks the time played, wagers made and
game results. The information can be interfaced with the casino's main database
and used for rewarding patrons as well as building marketing information.
TableLink(R) is available in three tiers: PT

                                       8
<PAGE>

(Player Tracking), CT (Chip Tracking) and GT (Game Tracking). TableLink(R) PT is
the base product upon which the CT and GT product offerings are built.

  We believe TableLink(R) has the potential to become one of the most important
technological advances in casino gaming since the introduction of
microprocessors in slot machines.

  In April 1998, we signed a master development and purchase agreement with
Harrah's Operating Company, Inc. to complete the development of the TableLink(R)
system and install the product in Harrah's casinos.  Harrah's conducted a
limited test of TableLink(R) PT at its Tunica Mississippi casino but has not yet
ordered the TableLink(R) system for any additional properties.

  In June 1999, we licensed TableLink(R) to the Mandalay Resort Group for use in
their MotorCity Casino in Detroit, MI, on all of its tables. TableLink(R) has
been in continuous operation since December 1999, where it is used to provide
accurate marketing information about table game players.  TableLink(R) also
serves to differentiate MotorCity from its nearby competitors by allowing
customers to initiate their own rating sessions directly at the table by
inserting their patron cards into the card readers in the rail.

  We are currently focused on establishing additional customers for TableLink(R)
PT and CT. If we are successful in adding more casinos to our TableLink(R)
customer base, we believe we will be able to demonstrate the competitive
advantage the system provides in the casino pit, and that broad market
acceptance will follow.

  Oversized Slot Machines. We hold an exclusive license from International Game
Technology to manufacture and distribute oversized and giant slot machines known
as Mini-Bertha(TM) and Colossus(TM), respectively. These oversized and giant
slot machines come in electronic video and slot-reel formats, feature many of
International Game Technology's popular games and can be linked within a casino
on a progressive network. Because of their size they provide greater visual
appeal and variety, and management believes that they generate greater win per
machine for the casino than conventional slot machines. The machines are
available for sale, lease or license; International Game Technology receives a
license fee based upon the income derived from the machines that are placed.
Lease income from these machines is reported in our gaming operations segment,
while income from sales is reported in our product sales segment. The revenues
relating to these machines as reported in our financial statements are net of
license fees paid to International Game Technology.


Competition

  The markets for our products are highly competitive. We compete with a number
of developers, manufacturers and distributors of products similar to those that
we produce and distribute. Some of these competitors are larger and have greater
access to capital resources than we do. Our future performance may be affected
by numerous factors, including:

  .  the continued popularity of our existing products and our ability to
     develop and introduce new products that gain market acceptance and satisfy
     consumer preferences;
  .  our ability to maintain existing regulatory approvals and obtain future
     approvals in order to conduct our business and
  .  our ability to enforce our existing intellectual property rights and to
     adequately secure and enforce such rights for new products.

  Many of our products require regulatory approval. We believe that the amount
of time and money consumed in the course of obtaining licenses in new
jurisdictions and new product approvals in multiple jurisdictions constitute
significant obstacles to entry or expansion by new competitors. In addition to
regulatory constraints, our intellectual property rights to patents and
trademarks help protect our products. We actively seek patent and trademark
protection and vigorously enforce our intellectual property rights.

                                       9
<PAGE>

  Gaming Operations Competition

  Slot Operations.  The success of many of the recent video-based games and the
popularity of many of the themed game introductions are dictating the types of
games being developed. The current competitive environment is placing increasing
demands on equipment makers, requiring a strong pipeline of new games and the
ability to secure rights to popular brand names and other entertainment-oriented
content suitable for adaptation for casino games. Future growth opportunities in
the gaming equipment industry will result not only from a strong pipeline of
well-defined branded games, but also from new product developments and
technological advancements.

  Our proprietary slot games business segment faces two types of competition,
direct and indirect. Manufacturers that sell standard slot machines to casino
operators indirectly compete with us for casino floor space and market share.
Our major indirect competitors are Alliance Gaming, Aristocrat, Atronic,
International Game Technology, Sigma Game, Konami Gaming Corp. and WMS
Industries.

  Manufacturers that offer proprietary games to casino operators on a lease or
participation basis compete directly with us.  Direct competitors typically
offer specialty, niche or novelty games.  In some cases they offer casino
customers the right to purchase specialty games at premium prices or at a lower
price with ongoing license fees.  Our direct competitors in this proprietary
lease or participation market are AC Coin & Slot Company, Alliance Gaming,
Aristocrat, International Game Technology, Shuffle Master and WMS Industries.

  Table Games.  In the proprietary table game market, we are a leading
designer, manufacturer and distributor of progressive jackpot table games, and
we believe our patents significantly limit the ability of competitors to offer
table games with progressive or electronically enhanced side-bet features. The
only significant competitors in proprietary table games are Shuffle Master,
which markets the Let It Ride(TM) and Three Card Poker(TM) games and BET
Technology, Inc., which markets Fortune Pai Gow Poker and Royal Match Blackjack.
Our patented side-bet progressive jackpot feature, which was developed for
Caribbean Stud(R), has been successfully adapted for Progressive Jackpot Pai Gow
Poker, Caribbean Draw Poker(R) and Progressive Blackjack(TM), and is adaptable
for other games. Through its deployment, we can convert industry-standard table
games which are in the public domain to proprietary games capable of producing
for us a recurring revenue stream. We believe that this proprietary feature
provides us with a competitive advantage by facilitating our ability to
introduce new table games.

  Product Sales Competition

  Signs.  We believe that we are the leading worldwide manufacturer of interior
casino signs and the dominant competitor in this specialized market.  We are
recognized as the industry leader in technology integration, artistic concepts,
library of designs, design staff, distribution network and structural design,
all of which are essential to the production of the complex thematic signage
found in new mega-casinos. These factors, in the aggregate, create significant
obstacles to entry by new competitors. Competitors in the interior sign business
include AC Coin & Slot Company, Aristocrat, B&D Signs, DID Signs, Egads and
Young Electric Sign Company.

  Other Gaming Products.  In the electronics, bonusing and control systems
market, we believe that our components for progressive jackpot systems have the
highest market share and name recognition in the industry. The primary
competitors for our progressive jackpot system components are Aristocrat,
Paltronics and Acres Gaming. On March 27, 2001, we received an adverse decision
in the patent infringement action brought against us by Acres Gaming alleging
that our MoneyTime(TM) game infringed four patents issued to Acres Gaming. The
jury returned a verdict against the Company finding two of the four patents
infringed and awarded damages of $1.5 million to Acres Gaming.  In the fourth
quarter of 2001 we settled this case by agreeing to pay the $1.5 million damage
award and receiving a license to use the Acres patents in return for payment of
an ongoing royalty.  See "Business--Legal Proceedings."

  We may in the future face additional competition from other component
manufacturers.  For example, International Game Technology currently uses the
controllers and software it manufactures solely in

                                       10
<PAGE>

connection with its own proprietary slot machines. However, International Game
Technology may in the future commence sales of these components to other slot
machine manufacturers and casino operators. In the placement of progressive
jackpot bonusing systems, we compete with Acres Gaming and the major slot
machine manufacturers who have developed their own proprietary gaming products
that incorporate progressive jackpot bonusing systems into their games.

  Our CasinoLink(R) system competes against systems from Acres Gaming, Alliance
Gaming, Monaco Information Systems Group, Aristocrat, and International Game
Technology.  This market is highly competitive.  Pricing, product features and
functions, accuracy and reliability are key factors in determining a provider's
success in selling its system.  Because of the high initial costs of installing
a computerized monitoring system, customers for such systems generally do not
change suppliers once they have installed such a system.  Mikohn has been
successful primarily in foreign jurisdictions and has been the dominant supplier
to customers who desire to monitor geographically dispersed casinos from a
centralized control facility.

  TableLink(R) systems automatically capture and record exact wagering
information in real-time.  This information includes the exact amount wagered, a
critical element that gaming operators traditionally have had great difficulty
in ascertaining and confirming.  Prior to the introduction of the TableLink(R)
technology, casinos could only estimate amounts wagered.  We hold worldwide
rights to this system.  Patents protecting the system and several of its unique
features have been issued to us in the United States, as well as in several
foreign jurisdictions.  We believe that such patents serve as a significant
barrier to entry for potential competitors.  Our entry level TableLink(R) PT
version competes with products marketed by International Game Technology, Inc,
Endx Limited and Table Trac, Inc.


Manufacturing

  Our several production facilities are primarily manufacturing, assembly and
subassembly operations. Most manufacturing relates to the interior sign
business, but we also assemble exterior signs, electronic displays and
controllers and proprietary games.  We routinely contract with outside vendors
for assembly services to keep idle production capacity to a minimum and maintain
a constant level of employment.  A computerized material requirements planning
system is used to schedule production and to ensure that inventory levels are
adequate to meet customer demand.

                                      11
<PAGE>

  The table below lists our manufacturing, administrative, engineering, sales
and service facilities as of December 31, 2001.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
                                                                  Area            Owned/
                           Location/Activity                   (Sq. Ft.)          Leased
                           -----------------                   ---------          ------
<S>                                                            <C>                <C>
   Las Vegas, NV - Corporate Administration                         86,515        Leased
   Las Vegas, NV - Interior Visual Displays--Manufacturing          47,350         Owned
   Las Vegas, NV - Exterior Signs--Manufacturing                    45,976        Leased
   Las Vegas, NV - Games and Electronics--Manufacturing             85,638        Leased
   Las Vegas, NV - Slot Glass                                       17,225        Leased
   Reno, NV - Administration, Service and Sales                      8,575        Leased
   Mokena, IL- Service                                               4,200        Leased
   Gulfport, MS - Manufacturing, Service and Sales                  28,000        Leased
   Robinsonville, MS - Service                                       1,800        Leased
   Kansas City, MO - Service                                         3,600        Leased
   Hurricane, UT - Manufacturing                                    79,230        Leased
   Lake Charles, LA - Service and Sales                              5,100        Leased
   Ft. Lauderdale, FL - Service and Sales                            6,000        Leased
   Golden, CO - Service                                              1,500        Leased
   Egg Harbor, NJ - Service and Sales                                2,800        Leased
   Pleasantville, NJ - Manufacturing and Service                     7,000        Leased
   Alexandria, Australia - Manufacturing, Sales and Service         25,349        Leased
   Utrecht, The Netherlands - Manufacturing, Service and Sales      21,422        Leased
                                                                   -------

                                                                   477,280
                                                                   =======
--------------------------------------------------------------------------------------------
</TABLE>

  Nearly all of the components and raw materials we use in our products are
available from many sources. Many suppliers can assemble our progressive jackpot
products. Accordingly, we are not dependent in any significant way upon any
single supplier or vendor for components, raw materials or assembly.  However,
we are dependent on Sigma Game for the manufacture of the game platform we use
to build our Yahtzee(R), Battleship(R), Ripley's Believe It or Not!(R), Clue(R)
and Trivial Pursuit(R) slot machines.  To reduce our dependence on Sigma Game,
we are working with Sierra Design Group, which has a license to develop software
used in International Game Technology's slot machines, to obtain the necessary
regulatory approvals so that Sierra Design Group can become an alternative
supplier of our slot machine platform.  We also have entered into a license
agreement with Shuffle Master that will enable us to develop games on its
platform.  Additionally, in late March 2002, we signed an agreement with Sigma
Game which will allow the Company to develop games on the Sigma platform.


Marketing and Distribution

  We maintain facilities to sell and service our products to markets throughout
the world.  In addition to our headquarters and other facilities in Las Vegas,
NV, we have regional sales offices in Reno, NV; Ft. Lauderdale, FL; Egg Harbor,
NJ; Golden, CO; Gulfport, MS and Utrecht, The Netherlands.  In Australia, we
sell our products and services through Mikohn Australasia Pty. Ltd., which is
92.6% owned by us.  In September 2001, we sold 50% of our interest in Mikohn
Latin America S.A. to RLP Holdings, reducing our stake in the company to
49.985%.  Mikohn Latin America S.A. sells and services our products throughout
Latin America and the Caribbean and has manufacturing facilities in Lima, Peru.
In the first quarter of 2002 we closed our Argentina facility due to severe
economic conditions in Argentina and in the fourth quarter of 2001 we recorded a
$287,000 reserve for our share of assets located in Argentina.

  Historically, our marketing efforts have been domestically focused, as
measured by the percentage of sales to customers in the United States. However,
since 1994 we have broadened our distribution capabilities to better serve
international markets, take advantage of growth opportunities and reduce our

                                       12
<PAGE>

dependence on domestic casino operators and slot machine manufacturers. We
expect to continue this strategy as more international jurisdictions legalize
gaming.

  We and our distributors service our progressive jackpot products.  We, a
subcontractor or the customer typically services our interior visual displays.
We perform maintenance on exterior lighting and signs, typically under multi-
year contracts, and provide limited warranties on most of our products.


Research and Development

  During the years ended December 31, 2001, 2000, and 1999, we expended
approximately $4.2 million, $5.2 million, and $6.0 million respectively, on
research and development activities.

  As previously noted, the casino gaming industry is intensely competitive,
causing casinos to constantly seek out, evaluate and introduce new and upgraded
gaming products in an effort to attract and retain gaming customers. An
important part of our strategy is to provide our casino customers with new and
upgraded products, games and services that enhance their revenue stream and
facilitate operating efficiencies. Our current emphasis in research and
development is on the development of new slot games and table games (including
refresher versions of our existing slot games).


Employees

  As of March 8, 2002, we had 655 employees worldwide, excluding the South
American operation, of whom approximately 257 were in manufacturing, 67 in sales
and distribution, 37 in art/CAD design, 141 in installation and service, 38 in
research and development and 115 in administration.  Of that total, 81 were in
management.  A total of 65 of our employees, all of whom are employed in our
exterior signs operations in Las Vegas, NV and Atlantic City, NJ, are
represented by unions.  We believe that we enjoy good relations with our
employees.


Backlog

  As of December 31, 2001,  2000,  and 1999, we had backlogs of orders, believed
to be firm, of $21.6 million, $21.5 million, and $16.8 million, respectively.
Orders in the backlog at December 31st typically are filled within 120 days.


Government Regulation

  Overview

  We are subject to regulation by governmental authorities in most jurisdictions
in which our products are sold or used by persons or entities licensed to
conduct gaming activities. Gaming regulatory requirements vary from jurisdiction
to jurisdiction, and obtaining licenses, findings of suitability, registrations
and/or other required approvals with respect to us, our personnel and our
products is time-consuming and expensive. References in this "Government
Regulation" section to "Mikohn," "we," "us" and "our" are to Mikohn Gaming
Corporation only, and not to its subsidiaries.

  Generally, gaming regulatory authorities have broad discretionary powers and
may deny applications for or revoke approvals on any basis they deem reasonable.
Although our experience is excellent, we may be unable to obtain or maintain
necessary gaming regulatory approvals for us, our products or our personnel.

  We, either directly or through our subsidiaries, have approvals that enable us
to conduct our business in numerous jurisdictions, subject in each case to the
conditions of the particular approvals. These

                                       13
<PAGE>

conditions may include limitations as to the type of game or product we may sell
or lease, as well as limitations on the type of facility (such as riverboats)
and the territory within which we may operate (such as tribal nations).
Jurisdictions in which we (together with our subsidiaries, and specific
personnel where required) have authorizations with respect to some or all of our
products and activities include Nevada, South Dakota, Mississippi, Iowa,
Missouri, Oregon, Louisiana, Colorado, Illinois, Washington, Arizona,
Connecticut, Montana, New Jersey, North Carolina, North Dakota, New Mexico,
Kansas, Minnesota, Indiana, Michigan, New York, Wisconsin, California; the
Canadian provinces of Alberta, Manitoba, Nova Scotia, Quebec, Saskatchewan,
British Columbia and Ontario; the Australian provinces of New South Wales,
Victoria, Queensland, Northern Territory, Western Australia, Australia Capital
Territories and Tasmania; New Zealand; Mpumalanga and Gauteng in South Africa;
and Greece.

  We have a provisional license in Puerto Rico, which permits us to transact our
business pending completion of the license application process.

  Certain Indian tribes throughout the United States that have compacts with the
states in which their tribal dominions are located, operate or propose to
operate casinos, and these tribes may require suppliers of gaming and gaming-
related equipment to obtain authorizations. We have worked and will continue to
work with these tribes to obtain the necessary authorizations.

  Gaming Devices and Equipment

  We sell or lease products which are considered to be "gaming devices" and/or
"gaming equipment" in jurisdictions in which gaming has been legalized. Although
regulations vary among jurisdictions, each jurisdiction requires various
licenses, findings of suitability, registrations, approvals or permits to be
held by companies and their key personnel in connection with the manufacture and
distribution of gaming devices and equipment.

  Associated Equipment

  Some of our products fall within the general classification of "associated
equipment." "Associated equipment" is equipment that is not classified as a
"gaming device," but which has an integral relationship to the conduct of
licensed gaming. Regulatory authorities in some jurisdictions have discretion to
require manufacturers and distributors to meet licensing or suitability
requirements prior to or concurrently with the use of associated equipment. In
other jurisdictions, associated equipment must be approved by the regulatory
authorities in advance of its use at licensed locations. We have obtained
approval of our associated equipment in each jurisdiction that requires such
approval and in which our products that are classified as associated equipment
are sold or used.

  Regulation of Stockholders

  In most jurisdictions, any beneficial owner of our voting securities or other
securities may, at the discretion of the gaming regulatory authorities, be
required to file an application for a license, finding of suitability or other
approval, and in the process subject himself or herself to an investigation by
those authorities. The gaming laws and regulations of substantially all
jurisdictions require beneficial owners of more than 5% of our outstanding
voting securities to file certain reports, and may require our directors and
executive officers to undergo investigation for licensing and/or findings of
suitability.

  Regulation and Licensing--Nevada

     Gaming

  The manufacture, sale and distribution of gaming devices for use or play in
Nevada or for distribution outside of Nevada, the manufacturing and distribution
of associated equipment for use in Nevada, and the operation of slot machine
routes and inter-casino linked systems in Nevada are subject to (i) the Nevada
Gaming Control Act and the regulations promulgated thereunder (collectively,
"Nevada Act") and (ii) various local ordinances and regulations. These
activities are subject to the licensing and regulatory

                                       14
<PAGE>

control of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State
Gaming Control Board ("Nevada Board"), and various local, city and county
regulatory agencies (collectively referred to as the "Nevada Gaming
Authorities").

  The laws, regulations and supervisory practices of the Nevada Gaming
Authorities are based upon declarations of public policy with the following
objectives:

  .  preventing any involvement, direct or indirect, of any unsavory or
     unsuitable persons in gaming or the manufacture or distribution of gaming
     devices at any time or in any capacity;
  .  strictly regulating all persons, locations, practices and activities
     related to the operation of licensed gaming establishments and the
     manufacturing or distribution of gaming devices and equipment;
  .  establishing and maintaining responsible accounting practices and
     procedures;
  .  maintaining effective controls over the financial practices of licensees
     (including requirements covering minimum procedures for internal fiscal
     controls and safeguarding assets and revenues, reliable recordkeeping and
     periodic reports to be filed with the Nevada Gaming Authorities);
  .  preventing cheating and fraudulent practices and
  .  providing and monitoring sources of state and local revenue based on
     taxation and licensing fees.

  Changes in such laws, regulations and procedures, depending upon their nature,
could have an adverse effect on our operations.

  We are registered by the Nevada Commission as a publicly traded corporation (a
"Registered Corporation") and have been found to be suitable to own the stock of
Mikohn Nevada which is licensed as a manufacturer and distributor of gaming
devices, and as an operator of a slot machine route. The Company and Mikohn
Nevada have obtained from the Nevada Gaming Authorities the various
authorizations they require to engage in Nevada in manufacturing, distribution,
slot route operations and inter-casino linked system activities consisting of
slot machines. The regulatory requirements set forth below apply to us as a
Registered Corporation and to Mikohn Nevada as a manufacturer, distributor and
operator of a slot machine route.

  All gaming devices that are manufactured, sold or distributed for use or play
in Nevada, or for distribution outside of Nevada, must be manufactured by
licensed manufacturers and distributed and sold by licensed distributors. All
gaming devices manufactured for use or play in Nevada must be approved by the
Nevada Commission before distribution or exposure for play. The approval process
for gaming devices includes rigorous testing by the Nevada Board, a field trial
and a determination that the gaming device meets strict technical standards set
forth in the regulations of the Nevada Commission. Associated equipment must be
administratively approved by the Chairman of the Nevada Board before it is
distributed for use in Nevada.

  As a Registered Corporation, we are periodically required to submit detailed
financial and operating reports to the Nevada Commission and furnish any other
information the Nevada Commission may require. No person may become a
stockholder of or receive any percentage of profits from Mikohn Nevada without
first obtaining authorizations from the Nevada Gaming Authorities.

  The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, us or Mikohn Nevada in
order to determine whether such individual is suitable or should be licensed as
a business associate of a gaming licensee. Officers, directors and certain key
employees of Mikohn Nevada are required to file applications with the Nevada
Gaming Authorities and may be required to be licensed or found suitable by the
Nevada Gaming Authorities. Our officers, directors and key employees who are
actively and directly involved in gaming activities of Mikohn Nevada may be
required to be licensed or found suitable by the Nevada Gaming Authorities. The
Nevada Gaming Authorities may deny an application for licensing for any cause
that they deem reasonable. A finding of suitability is comparable to licensing.
Both require submission of detailed personal and financial information, which is
followed by a thorough investigation. The applicant for licensing or a finding
of suitability must pay all the costs of the investigation. Changes in licensed
positions must be reported to

                                       15
<PAGE>

the Nevada Gaming Authorities. In addition to their authority to deny an
application for a finding of suitability or licensure, the Nevada Gaming
Authorities have the power to disapprove a change in corporate position.

  If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with us or Mikohn Nevada, we would have to sever all relationships
with that person. In addition, the Nevada Commission may require us or Mikohn
Nevada to terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.

  Mikohn and Mikohn Nevada are required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all material loans,
leases, sales of securities and similar financing transactions by Mikohn Nevada
also are required to be reported to or approved by the Nevada Commission.

  Should Mikohn Nevada be found to have violated the Nevada Act, the licenses it
holds could be limited, conditioned, suspended or revoked. In addition, Mikohn
Nevada, Mikohn and the persons involved could be required to pay substantial
fines, at the discretion of the Nevada Commission, for each separate violation
of the Nevada Act. Limitation, conditioning or suspension of any license held by
Mikohn Nevada could (and revocation of any license would) materially adversely
affect our manufacturing, distribution and slot operations.

  Regulation of Security Holders

  Any beneficial holder of our voting securities, regardless of the number of
shares owned, may be required to file an application, be investigated, and have
his or her suitability as a beneficial holder of our voting securities
determined if the Nevada Commission finds reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. The applicant must pay all costs of investigation incurred by the Nevada
Gaming Authorities in conducting any such investigation.

  The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. It also requires beneficial owners of more
than 10% of a Registered Corporation's voting securities to apply to the Nevada
Commission for a finding of suitability within thirty days after the Chairman of
the Nevada Board mails a written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of the Registered Corporation's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only.

  An institutional investor is deemed to hold voting securities for investment
purposes if the voting securities were acquired and are held in the ordinary
course of its business as an institutional investor and were not acquired and
are not held for the purpose of causing, directly or indirectly: (i) the
election of a majority of the members of the board of directors of the
Registered Corporation; (ii) any change in the Registered Corporation's
corporate charter, bylaws, management, policies or operations or those of any of
its gaming affiliates or (iii) any other action that the Nevada Commission finds
to be inconsistent with holding the Registered Corporation's voting securities
for investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in management, policies or
operations and (iii) other activities the Nevada Commission may determine to be
consistent with investment intent. If the beneficial holder of voting securities
who must be found suitable is a corporation, partnership or trust, it must
submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.


                                       16
<PAGE>

  Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board, may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identify
the beneficial owner. Any stockholder of a Registered Corporation found
unsuitable and who holds, directly or indirectly, any beneficial ownership in
the voting securities beyond such period of time as the Nevada Commission may
specify for filing any required application may be guilty of a criminal offense.
Moreover, the Registered Corporation will be subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a stockholder or to
have any other relationship with the Registered Corporation, it: (i) pays that
person any dividend on its voting securities; (ii) allows that person to
exercise, directly or indirectly, any voting right conferred through securities
ownership; (iii) pays remuneration in any form to that person for services
rendered or otherwise or (iv) fails to pursue all lawful efforts (including, if
necessary, the immediate purchase of said voting securities for cash at fair
market value) to require such unsuitable person to completely divest all voting
securities held.

  The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation if the
Nevada Commission finds reason to believe that such ownership would otherwise be
inconsistent with the declared policies of the State of Nevada. If the Nevada
Commission determines that a person is unsuitable to own such security, it may
sanction the Registered Corporation, which sanctions may include the loss of its
approvals if, without the prior approval of the Nevada Commission: it (i) pays
to the unsuitable person any dividend, interest, or other distribution; (ii)
recognizes any voting right of such unsuitable person in connection with such
securities; (iii) pays the unsuitable person remuneration in any form or (iv)
makes any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation or similar transaction.

  The pledge of the stock of Mikohn Nevada (the "Stock Pledge") and of the stock
of any future subsidiary that obtains a gaming license (a "Future Subsidiary"),
and the restriction on the transfer of and agreement not to encumber the equity
securities of Mikohn Nevada or any Future Subsidiary (collectively, the "Stock
Restrictions") in respect of the notes was approved by the Nevada Commission on
March 21, 2002.  No assurances can be given that such approvals in the future
will be granted or granted on a timely basis. An approval of the Stock Pledge by
the Nevada Commission does not constitute approval to foreclose on the Stock
Pledge. Separate approval would be required to foreclose on the Stock Pledge and
transfer ownership of the stock and such approval would require the licensing of
the indenture trustee or other secured party (the "Secured Party"), unless such
licensing is waived upon application of the Secured Party. No assurances can be
given that approval to foreclose on the Stock Pledge would be granted, or that
the Secured Party would be licensed or would receive a waiver of licensing
requirements. Foreclosure of the lien on collateral consisting of gaming devices
in respect of the notes and the taking possession of such gaming devices may
require the prior licensing of the Secured Party as a distributor by the Nevada
Commission. However, the Nevada Act provides that in the case of foreclosure of
a lien by a person holding any security interest for which gaming devices are
security in whole or part, the Nevada Board may authorize the disposition of
such gaming devices without requiring a distributor's license. No assurances can
be given that the Nevada Board would grant such approval or that if such
approval were not granted, that the Secured Party would be granted a license as
a distributor.

  The Company and Mikohn Nevada are required to maintain in Nevada, a current
stock ledger that may be examined by the Nevada Gaming Authorities at any time.
If any securities are held in trust by an agent or by a nominee, the record
owner may be required to disclose the identity of the beneficial owner to the
Nevada Gaming Authorities. A failure to make such disclosure may be grounds for
finding the record owner unsuitable.

  We also are required to render maximum assistance in determining the identity
of the beneficial owners of our securities. The Nevada Commission has the power
to require us to imprint our stock certificates with a legend stating that the
securities are subject to the Nevada Act. To date, the Nevada Commission has not
imposed such requirement on us.

                                       17
<PAGE>

  We may not make a public offering of our securities without the prior approval
of the Nevada Commission if the securities or proceeds therefrom are to be used
to construct, acquire or finance gaming facilities in Nevada, or to retire or
extend obligations incurred for such purposes. On March 23, 2000, the Nevada
Commission granted us prior approval to make public offerings for a period of
two years, subject to certain conditions (the "Shelf Approval"). However the
Shelf Approval may be rescinded for good cause without prior notice upon the
issuance of an interlocutory stop order by the Chairman of the Nevada Board and
must be renewed at the end of the one-year period. The Shelf Approval also
applies to any affiliated company wholly owned by us (an "Affiliate") which is,
or would thereby become, a publicly traded corporation pursuant to a public
offering. The Shelf Approval also includes approval for Mikohn Nevada to
guarantee any security issued by, or to hypothecate their assets to secure the
payment or performance of any obligations evidenced by a security issued by, us
or an Affiliate in a public offering under the Shelf Approval. The Shelf
Approval also includes approval for Stock Restrictions in respect of Mikohn
Nevada in relation to public offerings of securities. The Shelf Approval does
not constitute a finding, recommendation or approval by the Nevada Commission or
the Nevada Board as to the accuracy or adequacy of the prospectus or the
investment merit of the offered securities, and any representation to the
contrary is unlawful. The issuance of the exchange notes and the Stock
Restrictions in respect thereof, and the registration and issuance of common
stock in respect of the warrants will be covered by the Shelf Approval. The
Stock Restrictions in respect of the notes, and the Stock Pledge in respect of
the notes and the exchange notes will not be covered by the Shelf Approval and
separate approval of the Nevada Commission will be required for such Stock
Restrictions and Stock Pledge. No assurances can be given that such approvals
will be granted or granted on a timely basis.

  Changes in control of a Registered Corporation through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct, by which anyone obtains control, may not lawfully occur without the
prior approval of the Nevada Commission. Entities seeking to acquire control of
a Registered Corporation must meet the strict standards established by the
Nevada Board and the Nevada Commission prior to assuming control of a Registered
Corporation. The Nevada Commission also may require persons who intend to become
controlling stockholders, officers or directors, and other persons who expect to
have a material relationship or involvement with the acquired company, to be
investigated and licensed as part of the approval process.

  The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada corporate gaming licensees, and Registered Corporations that
are affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
minimize the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form and
(iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above market price and before a corporate acquisition opposed
by management can be consummated. The Nevada Act also requires prior approval of
a plan of recapitalization proposed by the Registered Corporation's board of
directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purpose of acquiring control of the
Registered Corporation.

  License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, must be paid to the State of Nevada and to the
counties and cities in which gaming operations are conducted. These fees and
taxes, depending upon their nature, are payable monthly, quarterly or annually
and are based upon either a percentage of the gross revenues received or the
number of gaming devices operated. Annual fees are also payable to the State of
Nevada for renewal of licenses as an operator of a slot machine route,
manufacturer and/or distributor.

  Any person who is licensed, required to be licensed, registered, required to
be registered, or who is under common control with any such persons
(collectively, "Licensees") and who proposes to become involved in a gaming
venture outside of Nevada, is required to deposit with the Nevada Board, and

                                       18
<PAGE>

thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of his or her participation
outside of Nevada. The revolving fund is subject to increase or decrease at the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
also are subject to disciplinary action by the Nevada Commission if they
knowingly violate any laws of the foreign jurisdiction pertaining to the non-
Nevada gaming operations, fail to conduct the foreign gaming operations in
accordance with the standards of honesty and integrity required of Nevada gaming
operations, engage in activities or enter into associations that are harmful to
the State of Nevada or its ability to collect gaming taxes and fees, or employ,
contract with or associate with a person in the non-Nevada operations who has
been denied a license or finding of suitability in Nevada on the ground of
unsuitability.

  Other Jurisdictions

  All other jurisdictions that have legalized gaming require various licenses,
registrations, findings of suitability, permits and approvals for manufacturers
and distributors of gaming devices and equipment. In general, such requirements
involve restrictions similar to those of Nevada.

  Federal Regulation

  The Federal Gambling Devices Act of 1962 (the "Federal Act") makes it
unlawful, in general, for a person to manufacture, deliver, or receive gaming
machines, gaming machine type devices, and components across state lines or to
operate gaming machines unless that person has first registered with the
Attorney General of the United States. We have registered and must renew our
registration annually. In addition, various recordkeeping and equipment
identification requirements are imposed by the Federal Act. Violation of the
Federal Act may result in seizure and forfeiture of the equipment, as well as
other penalties.

  Application of Future or Additional Regulatory Requirements

  In the future, we intend to seek the necessary registrations, licenses,
approvals and findings of suitability for us, our products and our personnel in
other jurisdictions throughout the world where significant sales of our products
are expected to be made. However, we may be unable to obtain these
registrations, licenses, approvals or findings of suitability, which if obtained
may be revoked, suspended or unsuitably conditioned. In addition, we may be
unable to timely obtain, or to obtain at all, the necessary approvals for our
future products as they are developed, even in those jurisdictions in which we
or certain of our existing products have been licensed or approved. If a
registration, license, approval or finding of suitability is required by a
regulatory authority and we fail to seek or do not receive the necessary
registration, license, approval or finding of suitability, we may be prohibited
from selling our products for use in that jurisdiction or may be required to
sell our products through other licensed entities at a reduced profit.


Item 2.    Properties

  The properties we own and lease as of December 31, 2001 are listed in detail
in the table under "Business--Manufacturing" above.  In Nevada, we lease six.
These leases expire over various periods through the end of 2017.  We own the
Las Vegas, NV interior sign manufacturing facility and lease all other
facilities.

  We lease sales, service and/or support offices and other facilities in
Colorado, Mississippi, Missouri, New Jersey and Utah.  These leases expire on
various dates through 2015.

                                       19
<PAGE>

Item 3.    Legal Proceedings

  We are involved in routine litigation, including bankruptcies of debtors,
collection efforts, disputes with former employees and other matters in the
ordinary course of our business operations. We know of no matter, pending or
threatened, including the matters discussed below, that will or might have a
material adverse impact on our business or operations.

  We were a plaintiff in a suit entitled Mikohn Gaming Corporation v. Acres
Gaming, Inc., Case No. CV-S-97-1383-EJW, brought in the United States District
Court for the District of Nevada. This action was filed October 2, 1997 seeking,
among other things, a declaratory judgment that our MoneyTime(TM) game did not
infringe a patent issued to Acres Gaming in August 1997. Subsequent to the
filing of this action, three additional patents were issued to Acres Gaming. As
each patent was issued, Acres Gaming brought a separate suit against Mikohn for
patent infringement. All three suits were ultimately consolidated with the first
action. The consolidated action went to trial before a jury on March 14, 2001.
On March 27, 2001, the jury returned a verdict finding that we infringed two of
the four patents and awarded Acres Gaming damages of $1.5 million. We initially
appealed the verdict to the Federal Circuit Court of Appeals but in December
2001 reached a settlement resulting in a dismissal of that appeal, the payment
of $1.5 million to Acres and the execution of a license agreement allowing our
use of the Acres' patents going forward.


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

  None.

                                       20
<PAGE>

                                    PART II


Item 5.   Market for Registrant's Common Stock and Related Security Holder
Matters

     Our common stock trades on the NASDAQ National Market System under the
symbol "MIKN". The following table sets forth the range of high and low sales
prices per share by quarter for our common stock.

                                                High         Low
                                                ----         ---

2001
----
  First Quarter                                 $4.938       $2.750
  Second Quarter                                 8.250        3.500
  Third Quarter                                  8.500        3.145
  Fourth Quarter                                 8.850        3.901


2000
----
  First Quarter                                 $8.500       $4.750
  Second Quarter                                 7.938        5.375
  Third Quarter                                  9.125        6.125
  Fourth Quarter                                 6.938        2.688

  We believe there were approximately 2,500 beneficial owners of our common
stock as of March 20, 2002.  The approximate number of beneficial owners as of
that date was reached by estimating the number of holders whose stock is held
for them in street name by brokerage houses, by trusts and other nominees and by
participants in a clearing agency.  On March 20, 2002, we had 271 holders of
record of our common stock.

  We have never paid dividends nor do we have any plans to pay dividends in the
future. At present we intend to retain all future earnings for use in the
development of our business. The $105.0 million Senior Secured Notes dated
August 22, 2001 due 2008, expressly prohibits the payment of cash dividends
except under certain circumstances.

                                       21
<PAGE>

Item 6.    Selected Financial Data

  The table below sets forth a summary of selected financial data for Mikohn for
the five years ended December 31/st/ (in thousands except for per share
amounts):

<TABLE>
<CAPTION>
                                                 2001          2000          1999          1998         1997
                                               --------      --------      --------      --------      -------
<S>                                            <C>           <C>           <C>           <C>           <C>
Statement of Operations Data:
     Net sales                                 $111,057      $100,766      $106,884      $ 99,032      $98,548
     Cost of sales                               52,427        54,664        54,846        60,163       61,200
                                               --------      --------      --------      --------      -------
     Gross profit                                58,630        46,102        52,038        38,869       37,348

     Selling, general and
          administrative expenses                52,191        47,781        41,966        38,982       31,073
     Impairment loss                              1,702
     Write-off of assets and other                1,201         9,852         1,352         4,493
                                               --------      --------      --------      --------      -------
     Operating income (loss)                      3,536       (11,531)        8,720        (4,606)       6,275

     Interest expense                           (11,729)      (10,516)       (8,850)       (5,115)      (2,555)
     Other income and (expense)                   1,628           (58)          720           112           11
                                               --------      --------      --------      --------      -------
     Income (loss) before income
          taxes                                  (6,565)      (22,105)          590        (9,609)       3,731
     Income tax (provision) benefit                                             342         3,335       (1,357)
                                               --------      --------      --------      --------      -------
     Income (loss) before
          extraordinary item                     (6,565)      (22,105)          932        (6,274)       2,374

     Extraordinary loss (net of taxes)           (3,135)                                   (1,752)
                                               --------      --------      --------      --------      -------
          Net income (loss)                    $ (9,700)     $(22,105)     $    932      $ (8,026)     $ 2,374
                                               ========      ========      ========      ========      =======
Weighted average common shares
     outstanding:
     Basic                                       11,750        10,968        10,720        10,527        9,952
                                               ========      ========      ========      ========      =======
     Diluted                                     11,750        10,968        10,784        10,527       10,057
                                               ========      ========      ========      ========      =======
Basic and diluted income (loss) per
     share:
     Income (loss) before extraordinary
          item                                 $  (0.56)     $  (2.02)     $   0.09      $  (0.60)     $  0.24
     Extraordinary item                           (0.27)                                    (0.16)
                                               --------      --------      --------      --------      -------
          Net income (loss)                    $  (0.83)     $  (2.02)     $   0.09      $  (0.76)     $  0.24
                                               ========      ========      ========      ========      =======
Balance Sheet Data:
     Total assets                              $175,587      $166,746      $178,295      $167,841      $97,588
                                               ========      ========      ========      ========      =======
     Total debt / obligations                  $124,982      $113,488      $108,221      $101,612      $30,226
                                               ========      ========      ========      ========      =======
     Stockholders' equity                      $ 28,654      $ 29,205      $ 48,116      $ 46,727      $52,570
                                               ========      ========      ========      ========      =======
</TABLE>

                                       22
<PAGE>

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


GENERAL

  All amounts (including dollar amounts and number of shares) reported in this
section (from this point forward) are expressed in thousands and are rounded to
the nearest thousand unless otherwise stated. However, numbers of units are
expressed in whole amounts.  All percentages reported are based on those rounded
numbers.  See Note 19 - Segment Reporting in the Notes to Consolidated Financial
Statements.


YEAR-END ASSET VALUATION AND CHARGES - 2001

  Subsequent to the events of September 11, 2001, the impact of which was felt
throughout the worldwide economy, and based on the current economic and business
environment relative to financial reporting practices, the Company performed a
detailed, comprehensive review of its balance sheet relative to the changed
economic and business environment conditions.  Specifically identified during
this review, management analyzed goodwill assets for impairment, slow moving,
excess or obsolete inventories, customer debts in light of changing economic
conditions and other miscellaneous assets.

  This review and analysis resulted in the Company taking various charges in its
fourth quarter for (i) impaired assets (principally goodwill and nonoperating
fixed assets of approximately $2,900 included in the "Write off of Assets and
Other" and "Impairment Loss" captions), (ii) receivables, including significant
amounts owed from debtors who purchased certain patent and internet rights, for
which collectibility is now considered doubtful (approximately $2,800 which is
included in the operating income segments below), (iii) inventory reserves,
including those related to the energy crisis and the economic decline
(approximately $2,200 included in the operating income segments below), (iv)
losses incurred in foreign operations due to the collapse of the Argentina
economy and softness in the Australasian market (approximately $600 included in
revenues below) and (v) miscellaneous charges related to medical insurance
claims and certain international slot leasing revenues of $1,000 (included in
operating income segments below).

  Three of the Company's operating units (Mikohn Australasia, Mikohn Latin
America's Argentine branch and the exterior sign unit) operated at losses during
2001. Although the Company initially believed future business plans during 2001
did not necessitate impairment losses relating to these operating units, the
downturn in the economy in the latter part of 2001 and an assessment of the
backlog of these operating units in the fourth quarter of 2001 and the first
quarter of 2002 caused the Company to record an impairment loss of $1,702,
principally for goodwill of two of these operating units. These charges relate
to our corporate and product sales operations.

  Additionally, the Company decided in the fourth quarter that it would no
longer use certain long-lived operating assets. Since these assets, principally
related to trade shows, non-compete agreements and slot route revenue
production, were deemed to no longer benefit the Company, the Company recorded
write-offs of $1,201. These charges relate to our corporate operations and our
gaming operations business segment.

  In the latter part of 2001, a debtor of the Company, whose obligation is
secured by certain Internet and patent rights, defaulted. The Company amended
the debtor's payment terms but concluded after assessing the economic
environment in late 2001 that it would be prudent to reserve the net receivable
of $1,512. These charges relate to our gaming operations business segment.

  Additional events in late 2001, including certain bankruptcy filings, customer
disputes and slower paying debtors caused the Company to record an additional
$1,311 reserve in the fourth quarter. These charges relate to our gaming
operations and product sales business segments.

  The Company's exterior sign unit has been developing an energy efficient LED
display product for several years. While this product reached the market in
2001, the Company believed there was still a market for its existing, lower
priced, incandescent bulb displays. However, the incandescent bulb displays
require much more energy than the LED displays. As a result of the energy crisis
that occurred during the summer of 2001, customers began looking for different
technological alternatives to reduce energy costs and, by late 2001, demand for
the Company's older incandescent bulb technology had virtually disappeared.
Accordingly, the Company recorded additional inventory reserves of approximately
$800 in the fourth quarter. Additionally, reductions in the Company's backlog
for certain interior sign and systems products in the fourth quarter, both
domestically and internationally, indicated substantially slower inventory
turnover and caused the Company to record additional inventory reserves of
$1,400. These charges, totaling $2,200 relate to our product sales business
segment.

  During the fourth quarter of 2001 and into the first quarter of 2002, the
Company determined that the effect from the collapse of the Argentine economy
was likely to have a material impact on the future operations of Mikohn Latin
America. Specifically, certain assets were deemed to be uncollectible or
significantly impaired. As a result, the Company recorded a charge of
approximately $287 for impairment of the Argentine assets in the fourth quarter
of 2001. Additionally, the Company deemed certain assets from its Australian
subsidiary to be impaired based on the business unit's inability to generate
expected positive cash flow in 2001 and for the foreseeable future. An
additional $316 charge was recorded for those assets in the fourth quarter of
2001. These charges, totaling $603, relate to our product sales business
segment.

  During the latter part of 2001, the Company incurred significant medical
claims and related costs under its employee medical benefits plan. These costs
were approximately $305 higher than in previous quarters and were caused
principally by a few abnormally large claims. In addition, charges of
approximately $264 and $64 were recorded in the fourth quarter of 2001 due to a
dispute with a previous medical claims administrator now in litigation and for
other miscellaneous charges, respectively. These charges, totaling $633, relate
to our corporate operations.

  The Company incurred approximately $301 in costs to convert a number of slot
machines to comply with Canadian technical requirements in the latter part of
2001. Based on a determination that these expenditures did not increase the
value of the machines, the Company recorded a charge for these expenses. These
charges relate to our gaming operations business segment.

REPOSITIONING AND OTHER CHARGES  - 2000

  As a result of the significant improvement in our gaming operations, we
undertook a major strategic repositioning initiative at the end of 2000. The
growing demand for our proprietary slot machines placed significant capital
demands on our limited capital resources. In order to maximize the capital and
marketing resources allocated to our higher return gaming operations, we had to
redirect resources from our lower return gaming products and some older products
in the gaming operations segment. The financial impact from this strategic
repositioning initiative includes $6,600 of asset write-offs related to product
lines to be phased-out (or the further development of which has been deferred).
Also included in the write-off of assets and other are $3,200 in costs of a
patent infringement suit initiated in 1997. During 2000 we made provisions for
uncollectible receivables and slow-moving and obsolete inventories of $9,400,
which is substantially higher than the normal historical provisions for these
items. This $9,400 is significantly higher than the average of our provisions
for bad debts and slow-moving and obsolete inventories in 1999 and 1998 of
$2,600. The increases in these provisions relate to the strategic repositioning
initiative, changing economic conditions and changing customer credit
circumstances. See Note 3 - Accounts Receivable and Note 5 - Inventories in the
Notes to Consolidated Financial Statements.

  During the fourth quarter of 2000, an analysis of present and future cash
flows from certain assets related to older slot machine product lines revealed
that these assets had been impaired, resulting in asset write-offs totaling
$6,507. Specifically, cash flows from the Company's Flip-It(TM) and P&M Coin
products could no longer support the carrying value of these assets. The Company
also decided to focus resources on its newly introduced slot products. Based on
the future cash flow and earnings projections from the older assets, the Company
decided in the fourth quarter of 2000 to write-off the net book value of these
assets of approximately $2,431. These charges relate to our product sales
business segment.

  Based on the Company's year-end repositioning analysis, the Company wrote off
assets from its surveillance and security systems business unit of approximately
$720 due to similar impairment issues reflecting the projected cash flow and
earnings projections from such assets. These charges relate to our product sales
business segment.

  Also in the fourth quarter of 2000, based on an analysis of projected revenues
and cash flows related to a certain licensing agreement, the Company wrote off
$3,356 of prepaid royalties previously deemed to be realizable. This write-off
was based on the repositioning analysis performed at the end of 2000 when it
appeared that sales opportunities became less likely. A description of this
write-off is included under the caption "Write off of assets and other" in the
Operating Income section below. These charges relate to our product sales
business segment.

  In early 2001, the Company received an adverse verdict in a patent lawsuit.
Accordingly, a $1,500 jury award plus related legal costs of $1,700 were
expensed in the fourth quarter of 2000. A description of this charge is included
under the caption "Write off of assets and other" in the Operating Income
section below. These charges relate to our corporate operations.

  As noted above, the Company recorded significant charges to operations in 2000
for inventory and receivable valuation allowances. The Company's strategic
repositioning of its business units in late 2000 caused certain of its
inventories to be classified as slow moving and obsolete. Also, certain
technological changes in electronic and exterior sign products sold to customers
in late 2000 resulted in certain parts becoming obsolete. As part of our
periodic review of customer accounts, the Company reassessed the ability of
certain customers to pay debts timely, necessitating significantly higher bad
debt reserves. These charges are included in the Operating Income section below.

  Included in the Operating Income section below are fourth quarter charges of
$1,553 in inventory write-downs related to the Flip-It(TM) product line and
$1,645 of inventory write-downs related to our P&M Coin and surveillance and
security systems product lines, all of which are described above in "Asset
Write-Offs". These charges relate to our product sales business segment.

  Certain disputes with customers, which ultimately resulted in nonpayment,
impairments to debtors' abilities to pay amounts owed due to a worsening economy
and bankruptcy filings necessitated a material increase in bad debt expense
during 2000.

ACQUISITION / DIVESTITURE OF SUBSIDIARIES

  In October 2001, the Company completed the sale of 50% of its interest in
Mikohn Latin America S.A. Certain officers and management of Mikohn Latin
America, through RLP Holdings, purchased a 50% interest for approximately $400
in cash and a $100 note.  The Company accounts for the financial results of this
entity using the equity method since October 2001.  Equity in earnings and
losses of the unconsolidated subsidiary is now charged to revenues on a monthly
basis with a corresponding charge to the Company's investment in subsidiary
account.  Prior to the 50% divestiture, the financial results of Mikohn Latin
America were included in the consolidated results of operations.  Through
September 30, 2001, Mikohn Latin America accounted for approximately $2,200 in
revenues, $900 in gross profit, and net income of approximately $100 and these
amounts are included in the financial analysis below.  From October to December
2001, approximately $297 of equity in losses of affiliates is included in
product sales revenues below.

  On November 15, 2001, the Company converted $518 of debt owing from Mikohn
Gaming Australasia Pty., Ltd ("MGA") into 20,000 shares of MGA, thereby
increasing our ownership from 50% to approximately 93%.  Previous to this
transaction, the Company had accounted for this unconsolidated subsidiary using
the equity method whereby the Company would record a 50% share of earnings or
losses of this subsidiary.  Subsequent to this transaction, the Company now
consolidates all accounts of this subsidiary into its consolidated financial
statements.  From January 1, 2001 to November 15, 2001, approximately $700 was
charged to product sales revenues below for the equity in losses of this
unconsolidated subsidiary.   For the period November 15, 2001 to December 31,
2001, MGA accounted

                                       23
<PAGE>

for approximately $1,000 in revenues, $250 in gross profit and $400 in net loss.
These amounts are included in the financial analysis below.


RELATED PARTY TRANSACTIONS

  During 2001, the Company entered into various material transactions with
related parties. Specifically, the Company sold approximately $280 of products
to its 50% owned affiliate in Latin America subsequent to the Company's
divestiture of 50% of this subsidiary on October 1, 2001. Additionally, the
Company charged its Latin American affiliate approximately $36 in interest
expense. The Company also had significant transactions with its Australian
affiliate from prior to the Australian affiliate being consolidated with the
Company on November 15, 2001. Specifically, the Company charged its Australian
affiliate $172 in interest charges, $213 in royalty fees relating to electronic
sales, charges for table games of $465, and $194 in net sales of various
products. Approximately $600 of net costs were charged from the Australian
affiliate to the Company for various costs from January 1, 2001 to November 15,
2001. All sales and expense charges to or from affiliates were deemed be arms-
length transactions.


                                       24
<PAGE>

RESULTS OF OPERATIONS

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

REVENUES

                                                        Change
                                                        ------
Business segment:           2001         2000      Amount     %      Comment
-----------------           ----         ----      ------     --     -------

Gaming operations         $ 44,074     $ 34,796    $ 9,278   26.7%      1
Product sales               66,983       65,970      1,013    1.5%      2
                          --------     --------    -------

          Total revenues  $111,057     $100,766    $10,291   10.2%
                          ========     ========    =======

Percentage of total
     revenues:
     Gaming operations        39.7%        34.5%
     Product sales            60.3%        65.5%
                          --------     --------
          Total              100.0%       100.0%
                          ========     ========

1.  Gaming operations revenues in 2001 were $44,074, a $9,278 increase from
    $34,796 in 2000. This 26.7% increase resulted from (i) an increase in
    recurring revenues from leased slot machines of approximately $12,700 in the
    2001 period attributable to the addition of approximately 1,200 average
    branded units in operation (at December 31, 2001, the Company had
    approximately 2,700 branded slot machines on lease as compared to
    approximately 2,000 at December 31, 2000) and (ii) a decrease of
    approximately $3,400 in table games revenues reflecting the absence of a
    nonrecurring sale of certain video and internet license rights of $2,587
    which occurred in 2000 and a slight decrease in the average monthly lease
    payment on leased table games during 2001.

2.  Product sales revenues in 2001 were $66,983 as compared to $65,970 in 2000,
    an increase of $1,013, or 1.5%. This marginal increase during 2001 was due
    principally to (i) an increase of approximately $5,000 in electronic display
    products and (ii) an increase in international revenues of approximately
    $1,500 offset, in part, by declines in interior and exterior visual display
    products of approximately $5,000 and in systems revenues of approximately
    $600.

                                       25
<PAGE>

OPERATING INCOME

<TABLE>
<CAPTION>
                                                                 Change
                                                                 ------
Business segment:                       2001         2000     Amount      %      Comment
-----------------                       ----         ----     ------      --     -------
<S>                                  <C>          <C>         <C>       <C>      <C>
Gaming operations                    $ 15,738     $ 14,651    $ 1,087      7.4%      1
Product sales                           3,561       (2,404)     5,965   -248.1%      2
                                     --------     --------    -------
     Total segment
     operating income                  19,299       12,247      7,052     57.6%

Corporate expenses                    (12,860)     (13,926)     1,066      7.7%      3
Impairment losses                      (1,702)                 (1,702)  -100.0%      4
Write-off of assets and other          (1,201)      (9,852)     8,651     87.8%      5
                                     --------     --------    -------
    Total operating income (loss)    $  3,536     $(11,531)   $15,067    130.7%
                                     ========     ========    =======
    Depreciation and amortization
    -----------------------------
    (included above):
    -----------------
         Gaming operations           $  7,730     $  6,346    $ 1,384     21.8%      6
         Product sales                  1,419        1,592       (173)   -10.9%      6
         Corporate                      3,257        3,179         78      2.5%      6
                                     --------     --------    -------
              Total depreciation
              and amortization       $ 12,406     $ 11,117    $ 1,289     11.6%      6
                                     ========     ========    =======
</TABLE>

1. Gaming operations operating income in 2001 increased to $15,738 from $14,651
   in 2000. This increase of $1,087, or 7.4%, was primarily due to the
   aforementioned increase of $9,278 in gaming operations revenues offset, in
   part, by an increase in bad debt provisions of approximately $1,400, an
   increase in depreciation and rent expense of approximately $4,400 in the 2001
   period and the absence of a nonrecurring sale and gross profit of certain
   video and internet rights, which occurred in 2000, of $2,587. The increase in
   bad debt provisions during the 2001 period occurred as a result of a
   reevaluation of certain significant obligations of customers whose ability to
   pay has been effected by the slowness in developing internet gaming in
   various legalized jurisdictions. The increase in rent and depreciation
   expense during the 2001 period was the result of the significant growth in
   placements of branded slot machines in the Company's route operation, from an
   average of approximately 1,300 machines in 2000 to approximately 2,300 in
   2001 and, beginning in the latter part of 2000, the use of operating leases
   to finance the purchase and placement of the machines.

2. Product sales operating income in 2001 increased by $5,965, from $(2,404) in
   2000 to $3,561 in 2001. This improvement in operating income resulted from
   the aforementioned increase in revenues of $1,013 and an improvement in the
   gross profit percentage from 27% in 2000 to 33% in 2001. This gross margin
   improvement of approximately $4,000 was primarily the result of (i) an
   approximate $1,200 margin reduction in 2000 caused by start up costs related
   to a new LED product, (ii) reduced provisions for inventory obsolescence of
   approximately $1,000 in 2001 and (iii) a shift in the product sales mix. In
   2001, the Company had a greater percentage of higher margin electronic
   displays sold versus 2000 and a lower percentage of lower margin interior and
   exterior sign displays sold. Additionally, product sales operating income in
   2000 was adversely affected by the recording of approximately $3,700 of bad
   debt provisions as compared to approximately $1,500 in 2001.

3. Corporate expenses in 2001 decreased by $1,066 or 7.7% from $13,926 in 2000
   to $12,860 in 2001. This decrease was due to a decline in marketing expenses
   due to reduced trade show expenses and promotional costs as well as a decline
   in administrative incentive compensation.

4. During 2001, the Company recorded an impairment loss of $1,702 after an
   analysis of the Company's business operations relating primarily to its
   domestic exterior sign business and two of its foreign

                                       26
<PAGE>

   business operations revealed that the carrying values were in excess of the
   present net realizable values.

5. During 2001, the Company wrote-off certain non-producing fixed assets of
   approximately $759, other assets related to its domestic exterior sign
   business of approximately $142 and certain rights associated with the
   Company's TableLink(TM) products of $300. This charge to write-off of assets
   and other of $1,201 represents a decrease of $8,651 compared to the write-off
   of assets and other in 2000 of $9,852, which related primarily to the write-
   off of two older slot product lines of $2,430, surveillance assets of $720,
   prepaid royalties of $3,356 and a charge to operations of $3,200 from the
   effects of an adverse decision in a patent lawsuit.

6. Depreciation and amortization in 2001 increased by $1,289, or 11.6%, from
   $11,117 in 2000 to $12,406 in 2001. This increase was primarily due to a
   significant increase in the average number of leased slot machines in service
   from 2000 to 2001 of approximately 1,200 machines.


INTEREST EXPENSE

  Interest expense in 2001 was $11,729 compared to $10,516 in 2000.  This
increase of $1,213, or 11.5%, was due to higher average outstanding borrowings
in 2001 of approximately $7,000, due principally to the Company's refinancing in
August, 2001, as well as a slightly higher average effective interest rate in
2001.

OTHER INCOME AND (EXPENSE)

  Other income and expense, excluding interest income, in 2001 was net income of
$1,023, an increase of $1,669 over the $646 of net expense incurred in 2000.
This increase was principally due to the recognition of a net gain of $1,334 on
the sale of a 50% interest in the Company's Australian subsidiary and systems
sale.

  Interest income in 2001 was $605 compared to $588 in 2000.  This increase of
$17 was due principally to a significant increase in average cash and cash
equivalent balances during the latter part of 2001 resulting from the net cash
proceeds of the Company's refinancing in August 2001 offset, in part, by lower
interest rates earned on cash deposits in 2001 and a decrease in interest income
recorded from interest-bearing notes as certain charges have been deferred in
2001 pending cash receipt.

INCOME TAXES

  During 2001 and 2000, the Company did not recognize an income tax benefit on
the net loss of $9,700 and $22,105, respectively.  The Company has net operating
loss carryforwards and believes it will recognize the benefits from the loss
carryforwards as it earns income on a going-forward basis.

EXTRAORDINARY ITEM

  In connection with the Company's August 2001 refinancing and early
extinguishment of certain of its outstanding debt obligations (see Liquidity and
Capital Resources, below), the Company incurred extraordinary charges for the
early extinguishment of debt, totaling $3,135, during the year ended December
31, 2001.

LOSS PER SHARE

  Both basic and diluted loss per share before extraordinary item for 2001 were
$0.56 on basic and diluted weighted average common shares outstanding of 11,750.
Both basic and diluted loss per share for 2001 were $0.83 on basic and diluted
weighted average common shares outstanding of 11,750. Both basic and diluted
loss per share for 2000 were $2.02 on basic and diluted weighted average common
shares outstanding of 10,968.

                                       27
<PAGE>

RESULTS OF OPERATIONS

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

REVENUES

<TABLE>
<CAPTION>
                                                              Change
                                                              ------
Business segment:                 2000        1999      Amount       %         Comment
-----------------                 ----        ----      ------       --        -------
<S>                             <C>         <C>         <C>          <C>       <C>
Gaming operations               $ 34,796    $ 25,256    $  9,540    37.8%     1
Product sales                     65,970      81,628     (15,658)  -19.2%     2
                               ---------    --------    --------

     Total                      $100,766    $106,884    $ (6,118)   -5.7%
                               =========    ========    ========
Percentage of total revenues:
     Gaming operations              34.5%       23.6%
     Product sales                  65.5%       76.4%
                               ---------    --------
          Total                    100.0%      100.0%
                               =========    ========
</TABLE>

1. Gaming operations revenues in 2000 increased by $9,540 or 37.8% from $25,256
   in 1999 to $34,796 in 2000, which was due to:  (i) an increase in recurring
   revenues from leased slot machines of $8,764 attributable to the addition
   during the year of 1,800 branded units placed in operation and (ii) an
   increase of $776 reflecting a 2.8% increase in the number of table games on
   lease and slightly higher revenues per game.  Sales of license rights related
   to our table game products of $2,587 in 2000 and $2,750 in 1999 are included
   in gaming operations revenues.

2. Product sales revenues in 2000 decreased by $15,658 or 19.2% from $81,628 in
   1999 to $65,970 in 2000, which was primarily due to:  (i) a decrease of
   $7,650 representing the 1999 revenues of our former Australian subsidiary
   which could not be consolidated in 2000 due to the divestiture of a 50%
   interest at the end of 1999 and our share of the loss experienced by the
   Australian affiliate in 2000, which amounted to $215, (ii) a decrease of
   $5,183 in systems revenues due to a large system sale in Canada during 1999
   that was not matched in 2000 by a comparable sale and (iii) a decrease of
   $2,949 in revenues from European operations.

                                       28
<PAGE>

OPERATING INCOME


<TABLE>
<CAPTION>
                                                                                           Change
                                                                                           ------
Business segment:                               2000                1999             Amount                 %             Comment
-----------------                               ----                ----             -------                -             -------
<S>                                           <C>                 <C>               <C>                  <C>              <C>
Gaming operations                             $ 14,651            $ 11,660           $  2,991               25.7%            1
Product sales                                   (2,404)             10,678            (13,082)            -122.5%            2
                                              --------            --------           --------
     Total segment
      operating income                          12,247              22,338            (10,091)             -45.2%

Write-off of assets and other                   (9,852)             (1,352)            (8,500)             628.7%            3
Corporate expenses                             (13,926)            (12,266)            (1,660)              13.5%            4
                                              --------            --------           --------
      Total operating income
      (loss)                                  $(11,531)           $  8,720           $(20,251)            -232.2%
                                              ========            ========           ========

     Depreciation and Amortization
     -----------------------------
     (included above):
     -----------------
          Gaming operations                   $  6,346            $  4,832           $  1,514               31.3%            5
          Product sales                          1,592               2,030               (438)             -21.6%            5
          Corporate                              3,179               2,487                692               27.8%            5
                                              --------            --------           --------
               Total depreciation and
               Amortization                   $ 11,117            $  9,349           $  1,768               18.9%            5
                                              ========            ========           ========
</TABLE>

1.   Gaming operations operating income in 2000 increased by $2,991, or 25.7%,
     from $11,660 in 1999 to $14,651 in 2000, which was primarily due to an
     111.6% increase in gross profits from leased slot machines attributable to
     the substantial increase in the installed base, as 1,800 new branded slot
     machines were placed in service in 2000. Equipment rental expense of $547
     in 2000, related to slot machine operating leases, was included in gaming
     operations operating expenses. Gaming operations expense for 2000 included
     $347 in bad debt expense. Included in gaming operations costs of sales was
     $1,553 of inventory writedowns related to an older slot machine product
     line.


2.   Product sales operating income in 2000 decreased by $13,082, or 122.5%,
     from $10,678 in 1999 to $(2,404) in 2000, which was primarily due to the
     $15,658 decrease in gaming product revenues, thus the primary reason for a
     decrease in gaming product gross profit margin of $11,248. Gross profit
     margins decreased to 27.0% from 35.6% in 1999. The margin reduction
     reflects lower margins for the exterior sign business, resulting from a
     $1,231 reduction in gross profit due primarily to startup costs related to
     a new LED product. The Gulfport, Mississippi, interior sign factory also
     had lower margins prior to the phase-out of that manufacturing facility,
     which reduced gross profit by $756. Included in the lower operating profits
     are the effects of $3,752 in inventory charges and $3,687 in reserves for
     bad debts which we believe are higher than the historical amounts of
     inventory and bad debt reserves and charges. This increase relates to the
     strategic repositioning initiative, changing economic conditions and
     changing customer credit circumstances. A summary of the major cost impacts
     described above for the product sales segment for 2000 is as follows:

                                       29
<PAGE>

<TABLE>
<CAPTION>
                            Description                                           Amount
                            -----------                                           ------
     <S>                                                                       <C>
     Lower exterior sign gross margins due primarily to the LED
          startup costs                                                            $1,231
     Lower margins in the Gulfport, Mississippi  interior sign
          facility prior to phasing out production                                    756
     Inventory reserves                                                             3,752
     Bad debt expenses                                                              3,687
                                                                                ---------
                                                                                   $9,426
                                                                                =========
</TABLE>

3.  As a result of our increased focus on our gaming operations and branded slot
    machines following the review conducted as part of our strategic
    repositioning initiative, we determined that certain of our older non-
    branded slot machine games, surveillance assets and prepaid royalties
    related to a licensing agreement had balance sheet values in excess of their
    present realizable value. This resulted in charges to revalue assets related
    to two older slot product lines of $2,430, surveillance assets of $720 and
    prepaid royalties of $3,356. Prepaid royalties of $3,356 were written off
    based on an impairment evaluation performed by the Company at the end of
    2000. The prepaid royalties were specifically related to and identifiable
    with one component of the Company's TableLink(R) system, which is designed
    to enhance profitability, security and player tracking for casino table
    games. Although components of the Company's TableLink(R) system are expected
    to generate future sales and cash flow, the specific component of the
    TableLink(R) system associated with the prepaid royalties is no longer
    expected to generate cash flow or earnings. Consequently, the Company
    recorded a write-off of the prepaid royalties due to the impairment of this
    asset. In addition, we accounted for the effects of an adverse decision in a
    patent suit on March 27, 2001 resulting in a charge to operations of $3,200.
    See Note 9 - Impairment, Write-Off of Assets, and Other and Extraordinary
    Item in the Notes to Consolidated Financial Statements.

4.  Corporate expenses in 2000 increased by $1,660 or 13.5% from $12,266 in 1999
    to $13,926 in 2000, which was primarily due to including the costs related
    to two major trade shows in the current year resulting in an increase of
    $546. We also had non-cash charges related to stock options of $210 and
    professional services related to the restated financial statements of $397.
    Corporate depreciation and amortization also increased $692. See Note 5
    below.

5.  Depreciation and amortization in 2000 increased by $1,768 or 18.9% from
    $9,349 in 1999 to $11,117 in 2000. Gaming operations depreciation and
    amortization increased by $1,514 or 31.3% to $6,346 due to additional slot
    games that were placed in service. Product sales depreciation and
    amortization decreased $438 or 21.6% due to the removal of a leased exterior
    sign that was being depreciated. Corporate depreciation and amortization
    increased due to new investments for patents, licenses, software development
    and related warrants.

INTEREST EXPENSE

    Interest expense in 2000 increased by $1,666 or 18.8% from $8,850 in 1999 to
$10,516 in 2000. The increase was due to increases in the interest rate on our
variable rate loans reflecting changes in the market interest rate as well as an
amendment to the Amended and Restated Credit Agreement that resulted in a 0.5%
interest rate increase.  The average interest rate, which includes amortization
of loan costs, on the average amount of all outstanding debt for 2000 was 11.9%,
as compared to 9.2% for 1999.  See Note 10 - Long-Term Debt in the Notes to
Consolidated Financial Statements.

OTHER INCOME AND (EXPENSE)

    Other income and expense excluding interest income in 2000 was a net expense
increase of $1,001, from a net other income of $355 in 1999 to a net other
expense of $646 in 2000.  The difference was due primarily to a gain on the sale
of real estate in 1999 as well as to various tax and miscellaneous expenses in
2000.

    Interest income in 2000 increased by $223 or 61.1% from $365 in 1999, to
$588 in 2000. The increase was primarily due to interest received related to a
license agreement as well as interest from our non-consolidated Australian
affiliate.

                                       30
<PAGE>

INCOME TAXES

     In 2000, we did not recognize an income tax benefit on the net loss of
$22,105, as compared to 1999 when we recognized a tax benefit of $342.  We
believe we will recognize the tax benefit on this loss as we earn income on a
going-forward basis.

EARNINGS (LOSS) PER SHARE

     Both basic and diluted loss per share for 2000 were $2.02 on basic and
diluted weighted average common shares outstanding of 10,968. Both basic and
diluted earnings per share for 1999 were $0.09 on basic and diluted weighted
average common shares outstanding of 10,720 and 10,784, respectively.

LIQUIDITY AND CAPITAL RESOURCES

     For the year ended December 31, 2001, the Company incurred a net loss of
$9,700.  Net cash and cash equivalents at December 31, 2001 were $15,124, an
increase of $14,662 from $462 at December 31, 2000. This increase was
principally due to the receipt of approximate net cash proceeds of $17,900 from
the refinancing of certain notes and the issuance of additional common stock in
August 2001 offset by the payment of outstanding notes and obligations to First
Source Financial and the payment of debt issue costs. Working capital increased
to $38,462 at December 31, 2001 from $36,977 at December 31, 2000, an increase
of $1,485.  This working capital increase was principally the result of an
increase in cash of approximately $14,700 offset by decreases in receivables and
inventories of approximately $11,300 and an increase to accrued liabilities of
approximately $1,600.

     Cash provided by operating activities was $9,774 in 2001.  The significant
items affecting this amount were a net loss of $9,700 offset by non-cash charges
for depreciation, amortization, impairment and extraordinary losses, other non-
cash gains, valuation provisions and other asset write-offs of approximately
$27,300.  Significant changes in operating assets and liabilities also affecting
cash provided by operating activities were primarily net increases of
receivables of approximately $2,100, other assets of approximately $1,400 and
inventories of approximately $2,600 and net decreases of current liabilities,
deferred revenue and other liabilities of approximately $1,700.

     Cash used in investing activities was $12,631 in 2001. The significant
items affecting this amount were the purchases of inventory leased to others of
approximately $13,000, purchases of property and equipment of approximately
$2,300 and an increase to intangible assets of approximately $1,400 offset, in
part, by proceeds from sale-leaseback transactions of $3,500.

     Cash provided by financing activities was $17,462 in 2001. The significant
items affecting this amount were proceeds from the issuance of notes payable of
approximately $99,700, proceeds from the issuance of common stock and warrants
of approximately $9,400 and proceeds from capital lease transactions of $2,000
offset, in part, by principal payments on notes, capital leases and payments for
debt issuance costs of approximately $93,100.

     On August 22, 2001, the Company completed the private placement of $105,000
of its 11.875% Senior Secured Notes ("Indenture") due 2008 and warrants to
purchase an aggregate of 420,000 shares of its common stock at a price of $7.70
per share. Interest payments of $6,234 are due on May 1, and November 1, until
2008. The Senior Secured Notes due 2008 are secured by a security interest in
certain of the Company's assets and certain assets of the Guarantor
subsidiaries. The Indenture includes a covenant whereby the Company is to
maintain $5,000 of available liquidity as defined in the Indenture. On or after
August 15, 2005, the Company will have the right to redeem all or some of the
notes at a price that will decrease over time from 105.938% of the principal
amount in 2005 to 100% of the principal amount in 2007, plus accrued and unpaid
interest. Following each fiscal year, if the Company has excess cash flow for
such fiscal year, the Company will offer to purchase up to an aggregate
principal amount of notes equal to 50% of such excess cash flow at a price equal
to 100% of the principal amount plus accrued and unpaid interest. The Company
also completed, on August 10, 2001, the sale of 1,500,000

                                       31
<PAGE>

shares of its common stock to institutional investors in a private placement for
$8,250. The total proceeds were used to retire certain term loans and other
credit facilities, to fund related fees and expenses and for working capital
purposes.

     In February 2002, the Company completed the acquisition of a $17,500
working capital revolving line of credit facility (the "Facility") with Foothill
Capital Corporation. Borrowings under the Facility are based on (i) eligible
accounts receivable, as defined in the Facility, up to $7,500 with interest at
LIBOR plus 2.75% or prime plus 0.75% and (ii) Table Game EBITDA, as defined in
the Facility, up to $10,000 with interest at prime plus a range of 2.0% to 3.5%
depending on debt coverage ratios. Any borrowings under the Facility will be
secured by a first secured interest in substantially all of the Company's
assets. We are subject to a 0.5% per annum unused line fee. The Facility has
early payoff penalties during the term of the line at 3.0% during the first
year, 2.0% during the second year and 1.0% during the third year. The Facility
includes certain restrictive financial covenants, including maintenance of
$20,000 of annual EBITDA, minimum table games revenue of $750 monthly and a
table game installed base of no less than 600 games. The Facility has an initial
term of three years.

     Based on the amount of cash in banks of approximately $15,100, cash
generated from operations and based on the availability of funds from the
Company's recently acquired line of credit facility, management believes the
Company has sufficient working capital on both a short and long-term basis.

<TABLE>
<CAPTION>
                                                      Less than             1-3             4-5          After 5
 Contractual Obligations               Total            1 year             years           years          years
 -----------------------               -----            ------             -----           -----          -----
 <S>                                  <C>             <C>                 <C>             <C>            <C>
 Long-term debt                       $105,195          $    53           $   142          $    -        $105,000
 Capital lease obligations               4,618            2,369             2,193              56               -
 Operating leases                       37,446            9,026            12,755           4,317          11,348
                                      --------          -------           -------          ------        --------
      Total                           $147,259          $11,448           $15,090          $4,373        $116,348
                                      ========          =======           =======          ======        ========
</TABLE>

     Above table includes accretion of debt discount of $5,567.

     During 2000 and 2001, the Company entered into a series of sale-leaseback
transactions with various third party finance companies.  The transactions
involve gaming equipment, have a term of 40 months, a fair value purchase option
at the end of the term, and are being accounted for as operating leases.
Proceeds from these sale-leaseback transactions totaled $15,000.

     Also during 2000, the Company entered into a sale-leaseback transaction
with respect to one of its buildings in Las Vegas, Nevada, with a term of 17
years and a fair value purchase option at the end of the term. The leaseback is
being accounted for as an operating lease. Proceeds from the sale-leaseback
transaction were $2,668. The Company recorded a deferred gain from this
transaction of $269 which is being amortized, straight-line over the term of the
lease as a reduction in rental expense. The lease contains a minimum net worth
requirement with which the Company was in violation at December 31, 2001.
Because of the violation, the Company paid $800 in 2001 for a letter of credit
to secure future rent payments to the landlord and potentially could be
obligated to purchase an additional $2,200 letter of credit.

     During 2001, the Company entered into two sale-leaseback transactions with
various third party finance companies. The transactions involve gaming
equipment, have terms of 40 months and 44 months and are being treated as
capital leases. Proceeds from these sale-leaseback transactions totaled $2,000.

     During 2000, the Company entered into a series of sale-leaseback
transactions with various third party finance companies. The transactions
involve gaming equipment, have a term of 40 months and are being treated as
capital leases. Proceeds from these sale-leaseback transactions totaled $3,000.

                                       32
<PAGE>

<TABLE>
<CAPTION>
                                             Total
Other Commercial                            Amount              Less than              1-3                 4-5              After 5
Commitments                                Committed             1 year               years               years              years
-----------                                ---------             ------               -----               -----              -----
<S>                                        <C>                  <C>                  <C>                  <C>                <C>
 Standby letters of credit                  $2,300               $1,500                $  -                $  -              $800
                                            ------               ------                ----                ----              ----
      Total commercial commitments          $2,300               $1,500                $  -                $  -              $800
                                            ======               ======                ====                ====              ====
</TABLE>

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

     Our consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States.  Certain of our
accounting policies, including the estimated lives assigned to our assets, the
determination of bad debts, inventory valuation reserves, asset impairment and
self insurance reserves require that we apply significant judgment in defining
the appropriate assumptions for calculating financial estimates. By their
nature, these judgments are subject to an inherent degree of uncertainty. Our
judgments are based on our historical experience, terms of existing contracts,
our observance of industry trends, information provided by or gathered from our
customers and information available from other outside sources, as appropriate.
There can be no assurance that actual results will not differ from our
estimates. To provide an understanding of the methodology we apply, our
significant accounting policies are discussed where appropriate in this
discussion and analysis and in the notes to our consolidated financial
statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2001, the FASB issued two new standards, SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. Together
these statements will change the accounting for business combinations and
goodwill. SFAS 141 requires the purchase method of accounting for all business
combinations initiated after June 30, 2001 and eliminates the pooling-of-
interests method. SFAS 142 changes the accounting for goodwill and indefinite
lived intangible assets from an amortization method to an impairment only
approach. Thus, amortization of goodwill, including goodwill recorded in past
business combinations, will cease upon adoption of SFAS 142. Amortization will
still be required for identifiable intangible assets with finite lives. The
provisions of SFAS 142 are required to be applied starting with fiscal years
beginning after December 15, 2001. Early application is permitted for entities
with fiscal years beginning after March 15, 2001, provided that the first
interim financial statements have not previously been issued. The Company is
required to adopt SFAS 142 at the beginning of 2002. The impact that SFAS 141
and SFAS 142 will have on our financial condition or results of operations will
be to reduce amortization expense of certain assets previously amortized by
approximately $1,700 annually beginning in 2002.  The Company will also be
required to make an initial impairment assessment and review goodwill for
impairment on an ongoing basis, at least annually.

     In July 2001, the SEC issued SAB No. 102, Selected Loan Loss Allowance
Methodology and Documentation Issues. SAB 102 gives guidance on the
documentation and methodologies used in the determination of loan loss
allowances. We believe the adoption of this bulletin will not have a material
impact on our consolidated financial condition or results of operations.

     In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
and Disposal of Long-Lived Assets. This statement is effective for financial
statements issued for fiscal years beginning after December 15, 2001, which will
begin January 1, 2002.  Based on a recent analysis, we believe the adoption of
this bulletin will not have a material impact on our consolidated financial
condition or results of operations.

                                       33
<PAGE>

CAPITAL EXPENDITURES AND OTHER

     During 2001, the Company spent approximately $2,300 for purchases of
property and equipment and approximately $13,000 for purchases of inventory
leased to others. Purchases of property and equipment are limited to $6,000 per
year under the terms of the Company's recently acquired revolving Facility. The
Company presently does not plan any significant purchases of property and
equipment for the year ending December 31, 2002. The Company plans to purchase
inventory for lease to others only to the extent that specific machines not
currently on lease or participation at casinos are used or based on contractual
commitments with the supplier of its gaming machines. The Company, in March
2002, entered into a contractual commitment to purchase a minimum of 125 slot
machines each calendar quarter beginning July 1, 2002 through June 30, 2003 for
a new slot machine introduction. These purchases will total approximately
$4,000. Presently, the Company owns or leases approximately 500 machines which
are not currently in use at casinos. Planned purchases for slot machines
(inventory leased to others), therefore, for 2002 should be significantly less
than in 2001. The Company acquired certain rights to develop software from its
supplier of slot machines in exchange for an advance payment on royalties. The
advance royalty payment made by the Company in April 2002 was approximately
$1,600.

     In March 2002, the Company closed a transaction with an owner of patents
and intellectual property relating to two unique poker games. As part of this
transaction, the Company loaned $1,500 to the owner, to be paid back to the
Company within three years at a 10.0% rate of interest.

                                       34
<PAGE>

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

MARKET RISK

     All dollar amounts reported in this section are expressed in thousands and
rounded to the nearest thousand while units are expressed in whole amounts
unless otherwise stated.

Foreign Currency Risk

     There are two types of foreign currency exchange risks that a company may
be subject to: transaction and translation gains or losses. Foreign currency
transaction gains or losses are distinguished from translation gains or losses
as follows: (i) translation adjustments do not involve the movement of cash,
they are accounting conversion calculations of an existing functional currency
to a reporting currency and (ii) transaction gain or losses, however, are based
on an actual transaction that requires formal payment at a future point in time.

     We are subject to foreign currency exchange risk relating to the
translation of the our foreign subsidiaries' asset, liability, income and
expense accounts. Our foreign subsidiaries use the local currency as their
functional currency. The assets and liabilities of these subsidiaries are
translated into U.S. dollars at the rate of exchange at the end of the period.
The income and expense accounts are translated using the average rate of
exchange during the period. Due to the long-term nature of our investment in our
foreign operations, 75% of our intercompany translation adjustments are
reflected as a separate component in stockholders' equity, and the remaining
amount is recognized in the our consolidated statement of operations. Although
we do not regularly incur gains or losses of specific foreign currency
transactions and do not believe that these amounts would be material, these
gains and losses would be reflected in our consolidated statement of operations.
For the year ended 2001, we did not have any forwards, options or other
derivative contracts in force. We do not consider our existing foreign currency
translation exposure to be material.

Interest Rate Risk

     We have total interest bearing debt of approximately $110,000 before
discounts. The components of this amount have fixed rates of interest and we
therefore, do not have exposure to the fluctuation of market interest rates.
However, we recently acquired a $17,500 revolving line of credit which bears
floating rate interest on outstanding borrowings. At December 31, 2001, we had
not yet obtained this line of credit. Any future borrowings will be exposed to
market rate risk. We periodically review our interest rate exposure, if any, on
our long-term debt and, as market conditions warrant, we may enter into an
interest rate cap or swap agreements in order to manage this exposure. For the
year ended December 31, 2001, we did not have any agreements in force. See Note
10 - Long-Term Debt in the Notes to Consolidated Financial Statements.

                                       35
<PAGE>

Item 8.     Consolidated Financial Statements and Supplementary Data

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
             For the Years Ended December 31, 2001, 2000 and 1999

Report of Independent Public Accountants (Arthur Andersen LLP)          37
Independent Auditors' Report (Deloitte & Touche LLP)                    38
Consolidated Balance Sheets as of December 31, 2001 and 2000            39
Consolidated Statements of Operations for the Years Ended
    December 31, 2001, 2000 and 1999                                    41
Consolidated Statements of Comprehensive Income (Loss) for the
    Years Ended December 31, 2001, 2000 and 1999                        42
Consolidated Statements of Changes in Stockholders' Equity for
    the Years Ended December 31, 2001, 2000 and 1999                    43
Consolidated Statements of Cash Flows for the Years Ended December
    31, 2001, 2000 and 1999                                             44
Notes to Consolidated Financial Statements                              47
Quarterly Results of Operations (Unaudited)                             80

    All other schedules are omitted because of the absence of conditions under
which they are required or because the information is included in the financial
statements or the notes thereto.

                                       36
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Mikohn Gaming Corporation:

We have audited the accompanying consolidated balance sheets of Mikohn Gaming
Corporation and subsidiaries (the "Company") as of December 31, 2001 and 2000,
and the related consolidated statements of operations, comprehensive income
(loss), changes in stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States.  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 provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2001 and 2000, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States.

ARTHUR ANDERSEN LLP

Las Vegas, Nevada
April 1, 2002

                                       37
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Mikohn Gaming Corporation:

  We have audited the accompanying consolidated statements of operations,
comprehensive income (loss), changes in stockholders' equity and cash flows of
Mikohn Gaming Corporation (the "Company") for the year ended December 31, 1999.
These financial statements and Subsidiaries are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

  We conducted our audit in accordance with auditing standards generally
accepted in the United States of America.  Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the 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 audit provides a
reasonable basis for our opinion.

  In our opinion, the consolidated financial statements referred to above of
Mikohn Gaming Corporation present fairly, in all material respects, the results
of operations and cash flows for the year ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States of America.


DELOITTE & TOUCHE LLP


Las Vegas, Nevada
February 26, 2000

                                       38
<PAGE>

                           MIKOHN GAMING CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                       as of December 31, 2001 and 2000

<TABLE>
<CAPTION>
(Amounts in thousands)                                               2001            2000
                                                                   --------        --------
                               ASSETS
                               ------
<S>                                                              <C>             <C>
Current assets:
      Cash and cash equivalents                                   $ 15,124        $    462
      Accounts receivable, net                                      20,320          21,195
      Notes receivable - related parties - current                                   2,528
      Installment sales receivable - current                           981           2,724
      Inventories, net                                              17,693          23,882
      Prepaid expenses                                               3,889           3,964
      Deferred tax asset  - current                                  5,275           5,478
                                                                  --------        --------
           Total current assets                                     63,282          60,233

Notes receivable - related parties - noncurrent                      2,401             158
Installment sales receivable - noncurrent                               92           2,906
Property and equipment, net                                         32,510          25,815
Intangible assets, net                                              62,827          65,681
Goodwill, net                                                        3,006           4,145
Other assets                                                        11,469           7,250
Net assets of business transferred under
      contractual agreement                                                            558
                                                                  --------        --------
          Total assets                                            $175,587        $166,746
                                                                  ========        ========
</TABLE>

 See notes to consolidated financial statements

                                       39
<PAGE>

                           MIKOHN GAMING CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                       as of December 31, 2001 and 2000

<TABLE>
<CAPTION>
(Amounts in thousands                                                       2001            2000
 except per share amounts)                                                --------        --------

        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------
 <S>                                                                     <C>             <C>
 Current liabilities:
      Long-term debt and notes payable - current                          $  2,422        $  2,149
      Trade accounts payable                                                 8,210           8,894
      Customer deposits                                                      2,618           2,635
      Accrued taxes                                                          2,318           2,562
      Accrued royalties                                                      2,024           1,126
      Accrued interest                                                       2,213             675
      Accrued and other current liabilities                                  3,060           3,689
      Deferred revenues - current                                            1,508           1,075
      Deferred license fees - current                                          447             451
                                                                          --------        --------
           Total current liabilities                                        24,820          23,256

 Long-term debt and notes payable - noncurrent                             101,823          84,949
 Deferred revenues - noncurrent                                              1,194           3,397
 Deferred tax liability - noncurrent                                        18,076          18,279
 Deferred license fees - noncurrent                                          1,020           1,411
 Deposit on net assets transferred under contractual
      agreement                                                                              4,749
 Other liabilities                                                                           1,500
                                                                          --------        --------
           Total liabilities                                               146,933         137,541
                                                                          --------        --------
 Commitments and contingencies (see Note 12)

 Stockholders' equity:
      Preferred stock, $0.10 par value, 5,000 shares authorized,
           none issued and outstanding
      Common stock, $0.10 par value, 100,000 shares,
           authorized 12,745 and 11,087 shares issued and
           outstanding                                                       1,276           1,109
      Additional paid-in capital                                            65,751          56,677
      Stockholders' notes receivable                                        (1,023)         (1,023)
      Foreign currency translation                                          (1,079)           (987)
      Accumulated deficit                                                  (36,043)        (26,343)
                                                                          --------        --------
           Subtotal                                                         28,882          29,433
      Less treasury stock, 19 shares, at cost                                 (228)           (228)
                                                                          --------        --------
           Total stockholders' equity                                       28,654          29,205
                                                                          --------        --------
           Total liabilities and stockholders' equity                     $175,587        $166,746
                                                                          ========        ========
</TABLE>
 See notes to consolidated financial statements

                                       40
<PAGE>

                           MIKOHN GAMING CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
             For the Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
(Amounts in thousands
except per share amounts)                                2001           2000           1999
                                                       --------       --------       --------
<S>                                                   <C>            <C>            <C>
Revenues:
      Gaming operations                                $ 44,074       $ 34,796       $ 25,256
      Product sales                                      66,983         65,970         81,628
                                                       --------       --------       --------
           Total revenues                               111,057        100,766        106,884
                                                       --------       --------       --------
Operating costs:
      Gaming operations                                  28,336         20,145         13,596
      Product sales                                      63,422         68,374         70,950
      Corporate expense                                  12,860         13,926         12,266
      Impairment losses                                   1,702              -              -
      Write-off of assets and other                       1,201          9,852          1,352
                                                       --------       --------       --------
           Total operating costs                        107,521        112,297         98,164
                                                       --------       --------       --------
Operating income (loss):
      Gaming operations                                  15,738         14,651         11,660
      Product sales                                       3,561         (2,404)        10,678
      Corporate expense                                 (12,860)       (13,926)       (12,266)
      Impairment losses                                  (1,702)             -              -
      Write-off of assets and other                      (1,201)        (9,852)        (1,352)
                                                       --------       --------       --------
           Total operating income (loss)                  3,536        (11,531)         8,720

Interest expense                                        (11,729)       (10,516)        (8,850)
Other income and (expense)                                1,628            (58)           720
                                                       --------       --------       --------
      Income (loss) before income tax benefit            (6,565)       (22,105)           590

Income tax benefit                                            -              -            342
                                                       --------       --------       --------
      Income (loss) before extraordinary item            (6,565)       (22,105)           932

Extraordinary item-loss on early retirement of
      debt, net of income tax benefit of zero            (3,135)             -              -
                                                       --------       --------       --------
      Net income (loss)                                $ (9,700)      $(22,105)      $    932
                                                       ========       ========       ========

Weighted average common shares:
      Basic                                              11,750         10,968         10,720
                                                       ========       ========       ========
      Diluted                                            11,750         10,968         10,784
                                                       ========       ========       ========
Basic and diluted income (loss) per share:
      Income (loss) before extraordinary item          $  (0.56)      $  (2.02)      $   0.09
      Extraordinary item-loss on early
          retirement of debt, net of income
          tax benefit of zero                             (0.27)             -              -
                                                       --------       --------       --------
          Net income (loss)                            $  (0.83)      $  (2.02)      $   0.09
                                                       ========       ========       ========
</TABLE>

See notes to consolidated financial statements

                                       41
<PAGE>

                           MIKOHN GAMING CORPORATION
            CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
             For the Years Ended December 31, 2001, 2000 and 1999


(Amounts in thousands)                         2001           2000       1999
                                              -------       --------     -----

Net income (loss)                             $(9,700)      $(22,105)    $ 932

Comprehensive loss:
   Foreign currency translation losses            (92)          (390)      (36)
                                              -------       --------     -----
                                              $(9,792)      $(22,495)    $ 896
                                              =======       ========     =====

See notes to consolidated financial statements

                                       42
<PAGE>

                           MIKOHN GAMING CORPORATION
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
             For the Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
(Amounts in thousands)
                                                                                                      Accumulated
                                           Common Stock       Additional   Stockholders'   Foreign     Retained
                                    -------------------------   Paid-In       Notes       Currency     Earnings /  Treasury
                                       Shares         Amount    Capital     Receivable   Translation   Deficit      Stock    Total
                                    -------------    -------- ----------- -------------- ------------ ----------   ------- ---------
<S>                                 <C>              <C>      <C>         <C>            <C>          <C>          <C>     <C>
Balance, January 1, 1999                10,662       $ 1,068  $  52,983   $   (1,365)    $  (1,018)   $  (4,713)   $ (228) $ 46,727
   Stock options exercised                  27             3        103                                                         106
   Employee stock purchase plan            111            11        376                                                         387
   Cancellation of common stock            (20)           (2)      (112)         114                                              -
   Translation adjustments                                                                     (36)                             (36)
   Net income                                                                                               932                 932
   Disposition of cost basis
      subsidiary to 50% equity                                                                                                    -
      basis owned affiliate                                                                    457         (457)                  -
                                    ----------       -------  ---------   ----------     ---------    ---------    ------  --------
Balance, December 31, 1999              10,780         1,080     53,350       (1,251)         (597)      (4,238)     (228)   48,116
   Stock options exercised                 194            20        815                                                         835
   Employee stock purchase plan             94             9        523                                                         532
   Stock options and warrants
      granted to consultants and
      vendors                                                     1,989                                                       1,989
   Payments on stockholders'
      notes                                                                      228                                            228
   Translation adjustments                                                                    (390)                            (390)
   Net loss                                                                                             (22,105)            (22,105)
                                    ----------       -------  ---------   ----------     ---------    ---------    ------  --------

Balance, December 31, 2000              11,068         1,109     56,677       (1,023)         (987)     (26,343)     (228)   29,205
   Stock options exercised                  66             6        261                                                         267
   Employee stock purchase plan            111            11        420                                                         431
   Stock options and warrants
      granted to consultants and
      vendors                                                       232                                                         232
   Private placement                     1,500           150      6,766                                                       6,916
   Stock warrants issued with bonds                               1,739                                                       1,739
   Other                                                           (344)                                                       (344)
   Translation adjustments                                                                     (92)                             (92)
   Net loss                                                                                              (9,700)             (9,700)
                                    ----------       -------  ---------   ----------     ---------    ---------    ------  --------
Balance, December 31, 2001              12,745       $ 1,276  $  65,751   $   (1,023)    $  (1,079)   $ (36,043)   $ (228) $ 28,654
                                    ==========       =======  =========   ==========     =========    =========    ======  ========
</TABLE>

See notes to consolidated financial statements

                                      43
<PAGE>

                           MIKOHN GAMING CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
(Amounts in thousands)

                                                                        2001            2000           1999
                                                                      --------        --------       --------
<S>                                                                   <C>             <C>            <C>
Cash flows from operating activities:
      Net income (loss)                                               $ (9,700)       $(22,105)      $    932
      Adjustments to reconcile net income (loss) to net cash
           provided by operating activities:
           Depreciation                                                  7,627           6,244          5,228
           Amortization                                                  4,779           4,873          4,121
           Write-off of assets and other                                 1,201           9,852          1,352
           Provision for bad debts                                       4,167           4,034            522
           Provision for obsolete inventory                              3,069           5,061            836
           Amortization of debt discount and debt issue costs            1,787
           Loss on early extinguishment of debt                          3,135
           Gain on disposition of assets                                   (22)           (346)
           Gain on MGA stock sale and system agreement                  (1,334)
           Losses from affiliates                                        1,083             215
           Impairment loss                                               1,702
           Stock options issued to consultants                              79             233
      Changes in assets and liabilities:
           Accounts receivable                                          (2,608)            421          1,402
           Notes receivable - related parties                             (569)           (533)
           Installment sales receivable                                  1,107          (1,752)           352
           Inventories                                                  (2,552)            905         (4,524)
           Prepaid expenses                                                  4             554         (1,887)
           Other assets                                                 (1,403)         (1,200)           (13)
           Trade accounts payable                                         (762)         (2,735)         3,606
           Accrued and other current liabilities                         1,182             914         (1,490)
           Other liabilities                                            (1,500)
           Customer deposits                                              (348)           (797)          (934)
           Deferred revenue                                               (350)            (63)            (7)
           Deferred taxes                                                                              (2,348)
                                                                      --------        --------       --------
Net cash provided by operating activities                                9,774           3,775          7,148
                                                                      --------        --------       --------
Cash flows from investing activities:
      Proceeds from note receivable, divestiture of subsidiary             100           4,418            471
      Cash retained by former subsidiary                                                                 (485)
      Purchase of inventory leased to others                           (12,955)        (20,329)        (5,804)
      Proceeds from sale leaseback transactions                          3,500          11,500
      Proceeds from sale of assets held for sale                                           714
      Purchase of property and equipment                                (2,334)         (1,524)        (3,170)
      Proceeds from sales of property and equipment                        504           2,875            897
      Increase in intangible assets                                     (1,446)         (1,362)        (2,119)
                                                                      --------        --------       --------
Net cash used in investing activities                                  (12,631)         (3,708)       (10,210)
                                                                      --------        --------       --------
Cash flows from financing activities:
      Proceeds from long-term debt and notes payable                    99,670           4,823          6,072
      Principal payments on notes payable and long-term debt           (83,085)         (7,405)        (7,187)
      Debt issuance costs                                               (7,975)
      Proceeds from capital lease transactions                           2,019           3,000
      Principal payments on capital leases                              (2,067)         (1,271)
</TABLE>

                                       44
<PAGE>

                           MIKOHN GAMING CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the Years Ended December 31, 2001, 2000 and 1999



<TABLE>
<CAPTION>
                                                                        2001            2000           1999
                                                                      --------        --------       --------
<S>                                                                   <C>             <C>            <C>
      Principal payments of deferred license fees                         (395)           (395)
      Proceeds from issuance of common stock and warrants                9,352           1,367            493
      Notes receivable - stockholders                                                      228
                                                                      --------        --------       --------
Net cash provided by financing activities                               17,519             347           (622)
                                                                      --------        --------       --------
Increase in cash and cash equivalents                                   14,662             414         (3,684)

Cash and cash equivalents, beginning of period                             462              48          3,732
                                                                      --------        --------       --------
Cash and cash equivalents, end of period                              $ 15,124        $    462       $     48
                                                                      ========        ========       ========
</TABLE>

 See notes to consolidated financial statements

                                       45
<PAGE>

                           MIKOHN GAMING CORPORATION
               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
             For the Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
(Amounts in thousands)                                              2001           2000          1999
                                                                 -------         ------        ------
 <S>                                                            <C>            <C>           <C>
Supplemental disclosure of cash flows information:
     Cash paid during the year for:
          Interest                                               $ 8,444         $9,610        $8,832
                                                                 =======         ======        ======
          State and federal taxes                                $   148         $  235        $  161
                                                                 =======         ======        ======
Supplemental schedule of non-cash investing
     and financing activities:
     Issuance of warrants                                                        $1,420
                                                                                 ======
     Perpetual license accrual for PGI and P&S Leasing                                         $2,627
                                                                                               ======
     Deferred taxes on acquisition of perpetual license                                        $1,424
                                                                                               ======
     Reclassify property held for sale                                                         $  781
                                                                                               ======
     Australian foreign currency translation                                                   $  457
                                                                                               ======
     Deposit on assets transferred under contract                                $  141
                                                                                 ======
     Gaming equipment leased to others acquired
          through capital lease                                  $ 2,000         $3,000
                                                                 =======         ======
     Property and equipment acquired through capital
          lease                                                  $    46         $1,125        $1,060
                                                                 =======         ======        ======
     Reclassify inventory to gaming equipment leased to
          others                                                 $12,678         $6,788        $5,804
                                                                 =======         ======        ======
     Deferred license fees                                                                     $2,257
                                                                                               ======
     Write off of installment note and deferred revenue          $ 1,938
                                                                 =======
     Reclassify notes payable from paid in capital               $   341
                                                                 =======
     Reclassify accrued liability to goodwill                    $   269
                                                                 =======
     Cancellation of note receivable from stockholder                                          $  114
                                                                                               ======
     Net investment in subsidiary converted to note
          receivable upon divestiture                                                          $  557
                                                                                               ======
     Credit on State of Utah note payable                        $    44         $   27
                                                                 =======         ======
     Acquisition of Mikohn's Australia subsidiary
         through forgiveness of intercompany obligation          $   518
                                                                 =======
     Divestiture of Mikohn's South America subsidiary,
          net of cash received                                   $   400
                                                                 =======
     Deferred revenue on sale of intellectual property
          rights                                                                 $1,938
                                                                                 ======
</TABLE>

See notes to consolidated financial statements

                                       46
<PAGE>

                           MIKOHN GAMING CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note: All amounts (dollars and numbers) reported in the Notes to Consolidated
Financial Statements are expressed in thousands and are rounded to the nearest
thousand (except per share amounts) unless otherwise specified (such as basis
points).  Additionally, certain amounts reported in prior years have been
reclassified to be consistent with the current year's reporting.

1.  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Description of Business:

    Mikohn Gaming Corporation (referred throughout these notes, together with
its subsidiaries as "Mikohn", "the Company", "we" or "our") was incorporated in
May 1986 in Nevada. Mikohn is a leading developer, manufacturer, and marketer of
(i) proprietary branded slot machine and table games, including our Yahtzee(R)
and Battleship(R) series of gaming machines and Caribbean Stud(R) table game,
and (ii) gaming products, including signage and progressive jackpot systems. The
Company's current facilities are in the U.S., the Netherlands, Peru and
Australia.

    Our worldwide operations are concentrated in two principal business
segments: gaming operations and gaming products.

     Gaming Operations.  We established our gaming operations business unit in
1993 to develop, acquire, manufacture and distribute proprietary games, and
these have become increasingly important to our business.  Increased attention
has been given to gaming operations because of the high recurring revenues and
profit margin potential for this business line.  We own or license the rights to
several categories of proprietary games, which we place in casinos under lease
arrangements. These leases provide for fixed rental payments or a participation
in the game's operating results.  Sales of proprietary games are reflected in
the reported results of our gaming products business segment while revenues
derived from leases are included in the results of our gaming operations
business segment.

     Product Sales.   We have been providing gaming products and equipment
around the world since 1987.  First selling progressive jackpot systems, we
expanded to sign manufacturing and other related products.  Our gaming products
are found in almost every major gaming jurisdiction and include:

     .  interior casino signage;
     .  exterior signage;
     .  electronic components used in progressive jackpot systems;
     .  player tracking and information gathering and control systems; and
     .  gaming machines for sale.

     Customers for our gaming products include casinos, slot machine
manufacturers, operators of wide-area gaming networks and lottery authorities.
We have achieved leading market positions with a number of our products because
they are recognized as being creative, innovative and technologically-advanced.

     Business Activity.  In 1998, the Company acquired all of the outstanding
stock of Progressive Games, Inc. ("PGI"), the developer of Caribbean Stud(R),
for an aggregate cash consideration of $35,847.  Also acquired were the two
exclusive distributors of Caribbean Stud(R) in the major markets of Mississippi
and Louisiana, P&S Leasing Corporation, Inc. and P&S Leasing LLC (collectively
referred to as "P&S Leasing"), for an aggregate cash consideration of $3,300.
In addition to these proprietary games, the assets of PGI included equipment and
other physical property used in the manufacture and distribution of these games
and a perpetual license.  The perpetual license amounted to $50,952.  In 1999,
additional perpetual licenses were recorded in the amounts of $3,774 and $293
attributable to the acquisitions of PGI and P&S Leasing, respectively.  These
amounts were for the Year 2000 costs and international tax withholding issues.
See Note 12 - Commitments and Contingencies.

                                       47
<PAGE>

  On November 4, 1999, the Company entered into four agreements with TAB
Limited, a publicly traded Australian corporation ("TAB").

  Under a Share Sale Agreement, the Company sold 50% of the issued shares in the
capital of its Australian subsidiary, Mikohn Gaming Australasia Pty., Limited
("MGA"), for cash in the amount of $4,889.

  Under the terms of the Share Sale Agreement, the Company was entitled to and
did report 100% of the income of MGA for 1999.  Therefore, MGA's income
statement was included in the Company's consolidated statements of operations
and cash flows for 1999.  Additionally, due to circumstances surrounding certain
put and call options included in the arrangement whereby TAB could put such
stock to the Company under certain circumstances, a determination was made that,
although a legal transfer of business ownership to TAB occurred, the transaction
was not recognized as a sale for accounting purposes.  As such, the net assets
of MGA were segregated in the balance sheets of the Company in order to properly
convey the distinction between the legal effect of the transaction and its
accounting treatment.

  A Shareholders Agreement between TAB, MGA and the Company provides for the
appointment and removal of directors, voting procedures, restrictions on share
transfers, activities requiring super majority approval and other matters
commonly found in agreements of this nature.

  A Management Services Agreement between the Company and MGA provides that the
Company will make management personnel available to MGA.  MGA is responsible for
compensating such personnel.  The agreement terminates if the Company's
ownership of the issued share capital in MGA falls below 35% or if the audited
consolidated financial statements of MGA in a fiscal year show a net loss on an
after-tax basis.  Other than reimbursement for expenses, the Company receives no
compensation under this agreement.

  A System Acquisition and Services Agreement between TAB and the Company
required the Company to provide hardware and software to operate a wide area
progressive jackpot system in New South Wales, Australia.  In the third quarter,
the Company completed the project and the provisions relating to the put option
held by TAB for its stock in MGA were cancelled.  As result, the Company
included in other income a net gain of $1,334 relating to the sale of the stock
and system project.  The Company is to provide certain services to TAB to
further enhance the system, for which it will be paid and will provide the
hardware component of the system at cost.  The Company will receive a software
license fee of $(AUD)50.00 per month per device connected to a linked
progressive system.  The Company expects to commence receiving these revenues in
the second quarter of 2002.

  Acquisitions / Divestitures of Subsidiaries.  On November 15, 2001, the
Company converted $518 of debt owing from MGA into 20,000 shares of MGA,
thereby increasing our ownership from 50% to approximately 93%. Prior to this
transaction, the Company had accounted for this unconsolidated subsidiary using
the equity method whereby the Company would record a 50% share of earnings or
losses of this subsidiary. Subsequent to this transaction, the Company now
consolidates all accounts of this subsidiary into its consolidated financial
statements. From January 1, 2001 to November 15, 2001, approximately $700 was
charged to product sales revenues for the equity in losses of this affiliate.
For the period November 15, 2001 to December 31, 2001, MGA accounted for
approximately $1,000 in revenues, $250 in gross profit and $400 in net loss.
The Company acquired current assets of approximately $2,500 (principally
inventory) and non-current assets of approximately $1,000 (principally
intangible assets). Liabilities, principally accounts payable and accrued
liabilities, of approximately $1,000 were assumed. Additionally, the related
party receivable from MGA to the Company of approximately $2,800, subsequent to
the reduction of $518 of the amount owed from MGA to the Company for the 20,000
shares of MGA, was eliminated from the assets of the Company.

  In October 2001, the Company completed the sale of 50% of its interest in
Mikohn Latin America S.A. Certain officers and management of Mikohn Latin
America, through RLP Holdings, purchased a 50% interest for approximately $500
in cash and a note.  The Company accounts for the financial results

                                       48
<PAGE>

of this entity using the equity method since October 2001. Equity in earnings
and losses of the affiliate is now charged to revenues on a monthly basis with a
corresponding charge to the Company's investment in subsidiary account. Prior to
the 50% divestiture, the financial results of Mikohn Latin America were included
in the consolidated results of operations. Through September 30, 2001, Mikohn
Latin America accounted for approximately $2,200 in revenues, $900 in gross
profit, and net income of approximately $100. From October to December 2001,
approximately $297 of equity in losses of affiliates is included in product
sales revenues. From this divestiture, the Company divested itself, for
consolidation accounting purposes, of approximately $2,100 of current assets
(principally accounts receivable and inventory), approximately $1,000 of non-
current assets (principally property and equipment) and approximately $700 of
liabilities (principally accounts payable and accrued liabilities).
Additionally, an intercompany payable of approximately $1,300, owed from Mikohn
Latin America to the Company at the time of the divestiture, was converted into
a note receivable from related party.

   Summary Of Significant Accounting Policies:

     Principles of Consolidation.  The consolidated financial statements include
the accounts for the Company and all of its majority-owned subsidiaries and are
maintained in accordance with accounting principles generally accepted in the
United States of America.  All material intercompany balances and transactions
have been eliminated. The Company divested a 50% interest in the issued shares
in the capital of Mikohn Latin America S.A. at the end of September 2001.
Beginning in October 2001, the Company reports this entity's operations under
the equity method of accounting.  The Company's investment in Mikohn Latin
America at December 31, 2001 is approximately $265 and is included in other
assets.  Additionally, in November 2001, the Company acquired an additional
42.6% interest in the capital of MGA.  This subsidiary had previously been
accounted for using the equity method.  However, because the Company, beginning
in November 2001, owns approximately 93% of this subsidiary, the accounts of MGA
are consolidated with the accounts of Mikohn Gaming Corporation and other
majority-owned subsidiaries.

     Cash and Cash Equivalents.  Investments which mature within 90 days from
the date of purchase are treated as cash equivalents and are included in cash
and cash equivalents.

     Fair Values of Financial Instruments.  In accordance with reporting and
disclosure requirements of the Statement of Financial Accounting Standards
("SFAS") No. 107 - Disclosures about Fair Values of Financial Instruments, the
Company calculates the fair value of financial instruments and includes this
information in the Company's Notes to Consolidated Financial Statements when the
fair value is different than the book value of those financial instruments.
When fair value is equal to book value, no disclosure is made.  Fair value is
determined using quoted market prices whenever available.  When quoted market
prices are not available, the Company uses alternative valuation techniques such
as calculating the present value of estimated future cash flows utilizing
discount rates commensurate with the risks involved.

     Concentration of Credit Risk.  The Company sells its products and services
to distributors and gaming properties primarily in the United States, Canada,
Europe, Australia and South America. The Company established a financing program
under which interest bearing installment sales contracts collateralized by the
equipment sold were entered into with credit worthy customers, with payment
terms typically ranging over periods of 12 to 24 months. The Company performs
credit evaluations of its customers, and typically requires advance deposits of
approximately 50%. The Company maintains reserves for potential credit losses.

     Notes Receivable - Related Parties.  The Company classifies certain
receivables from officers and Mikohn Latin America as "notes receivable -
related parties".  In October 1997, the Board of Directors of the Company (the
"Board") authorized a loan in the amount of $122.5 to the chairman of the
Company's board of directors at an interest rate of 6.37% secured by 20
shares of the Company's common stock which is due to mature on October 20, 2002.
At December 31, 2001 and 2000, the outstanding balance on this loan was $166 and
$158, respectively, including accrued interest.

                                       49
<PAGE>

  On December  31, 1999 due to the divestiture of 50% of the issued shares of
the capital of MGA, the Company's intercompany balance with MGA was converted to
a note receivable with interest at 9.5%; amounts outstanding at December 31,
2000 were $2,669. In November 2001, the Company purchased an additional 42.6% in
MGA. Thus at December 31, 2001, the balance of the note receivable is eliminated
in consolidation.

  In addition, on October 1, 2001, the Company divested itself of 50% of the
issued shares in the capital of Mikohn Latin America S.A. through a sale to RLP
Holdings, a company owned by officers and management of Mikohn Latin America.
The sale price was $500 and RLP paid $100 with the remaining amount being
financed plus interest.  Additionally, the Company's intercompany balance with
Mikohn Latin America was converted to a note receivable with an interest rate of
12.5%.  At December 31, 2001, both the amounts owed from RLP Holdings and the
amounts owed from Mikohn Latin America to the Company of $2,234 are included in
"notes receivable - related parties" as a long-term note receivable.

     Notes Receivable from Stockholders.  In October 1997, the Board adopted
resolutions (i) allowing each director and senior officer to purchase up to 20
shares of authorized but unissued restricted Common Stock from the Company at
the closing price of $5.687 per share on October 30, 1997 and (ii) authorizing
each such person to borrow the price of the shares purchased from the Company.
Each purchaser gave the Company a promissory note for a principal amount equal
to the purchase price, maturing October 20, 2002 (or at termination of
employment by the Company, whichever first occurs), bearing interest at the rate
of 6.37% per annum payable annually in arrears on each anniversary date, and
secured by a pledge of the shares so purchased. All of the Company's directors
except Mr. Campbell and all of its senior officers except Mr. Thompson are
participating in the program.  Each participating director and officer has
borrowed $113.7, representing the aggregate purchase price of 20 shares of
Common Stock at $5.687 per share.  The balance of the notes receivable from
stockholders is classified as a component of stockholders' equity.

     Inventories.  Inventories are stated at the lower of cost (determined using
the first-in, first-out method) or market.

     Long-Lived Assets.  Property and equipment are stated at cost and are
depreciated by the straight-line method over the useful lives of the assets,
which range from 5 to 39 years.  Proprietary slot machines leased to others are
generally depreciated over 5 years using the straight-line method.  Costs of
major improvements are capitalized; costs of normal repairs and maintenance are
charged to expense as incurred.  Management requires long-lived assets that are
held and used by the Company to be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.

     Patents and Trademarks.  The Company capitalizes the cost of developing and
defending patents and trademarks.  These costs are amortized over the useful
life of the patent or trademark.

     Intangible Assets.  Intangible assets consist of patent and trademark
rights, goodwill, intellectual property rights, covenants not to compete,
software costs, license fees and perpetual license.  They are recorded at cost
and are amortized on a straight-line basis over periods of 5 to 40 years.
Management regularly performs reviews to determine if the carrying value of
intangible assets is impaired.  The purpose of the review is to identify any
facts or circumstances, either internal or external, which may indicate that the
carrying value of the asset cannot be recovered.  To date, no such impairment
has been indicated except amounts included in the write-off of assets and other.
See Note 9 - Impairment Loss, Write-off of Assets and Other, and Extraordinary
Item.

     Deposits and Product Sales Recognition.  Deposit liabilities represent
amounts collected in advance from customers pursuant to agreements under which
the related sale of inventory has not been completed.

     Commitments and Contingencies.  The Company is involved in various legal
proceedings. It is the Company's policy to accrue for amounts related to these
legal matters if it is probable that a liability has been incurred and the
amount is reasonably estimable.

                                       50
<PAGE>

     Foreign Currency Translation.  The Company classifies foreign currency
gains/(losses) on its long-term investments in its foreign subsidiaries as
adjustments to the equity section of the balance sheet.

     Foreign subsidiaries report their financial results into U. S. dollars by
using translation rates at the end of the period for balance sheet accounts,
except for those accounts which are required to be reported at historical
amounts, and by using an average translation rate for the period for income
statement accounts.

     Revenue Recognition.  The Company recognizes revenue as follows:

  Product sales are executed by a signed contract or customer purchase order.
Revenue for product sales is recognized upon shipment of the product unless
installation is a requirement for contract completion and customer acceptance,
in which case revenue is recognized when installation has been completed and
accepted by the customer.  In certain instances, where the Company installs a
product as an accommodation to the customer, the customer will take title to a
product at the time of delivery and revenue is recognized for the product at
that time.

  System sales consist of a suite of products (some of which are sold
separately) that enable gaming entities to track customer gaming activity,
account for slot machine activity, and operate progressive jackpot systems.
There are proprietary hardware and software components to the systems. The
Company accounts for systems sales in accordance with Statement of Position 97-2
- Software Revenue Recognition ("SOP 97-2").  System sales are considered
multiple element arrangements because they include hardware, software,
installation, training and post customer support.  System sales are evidenced by
a signed contract .  Follow-up spare parts and hardware only sales are evidenced
with a purchase order.  Revenue for systems sales are recognized when:

  . There are signed contracts with a fixed determinable price;
  . Collectibility of the sale is probable and
  . The hardware and software has been delivered, installed, training has been
    completed and acceptance has occurred.

  Not all systems contracts require installation. Examples include sales of
hardware only to (i) previous customers that are expanding their systems, (ii)
customers that have multiple locations and do installation themselves and
require an additional software license and hardware and (iii) customers
purchasing spare parts.

  Maintenance and support is sold under agreements with established vendor
specific objective evidence of price.  Maintenance contracts are generally for a
period of twelve months, with revenue recognized ratably over the contract
service period.

  Further training is also sold under agreements with established vendor
specific objective evidence of price, which is based on daily rates and is
recognized upon delivery.

  The leasing of proprietary table games to casino customers occur under signed
lease agreements. Table game lease contracts are typically for a 36-month period
with a 30-day cancellation clause.  The lease revenue is recognized on a monthly
basis.

  The leasing of proprietary slot machines occurs under signed lease agreements.
These contracts will either be on a participation or a lease basis.  Slot
machine lease contracts are typically for a 12-month period with a 60-day
cancellation clause. On a participation basis, the Company earns a share of the
revenue that the casino earns from these slot machines.  On a lease basis, the
Company charges a fixed amount per slot machine per day.  Both types of revenue
are recognized on a monthly basis.

     Equity Instruments Issued to Consultants and Vendors.  The Company's
accounting policy for equity instruments issued to consultants and vendors in
exchange for goods and services follows the provisions of Emerging Issues Task
Force ("EITF") 96-18 - Accounting for Equity Instruments That are

                                       51
<PAGE>

Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services and EITF 00-18 - Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than Employees. The
measurement date for the fair value of the equity instruments issued is
determined at the earlier of (i) the date at which a commitment for performance
by the consultant or vendor is reached or (ii) the date at which the consultant
or vendor's performance is complete. In the case of equity instruments issued to
consultants, the fair value of the equity instrument is recognized as a charge
to the statement of operations over the term of the consulting agreement. The
number of uncancelled options issued to consultants at December 31, 2001 was
104.

  In addition, the Company has received from Hasbro and Ripley licensing rights
to intellectual property, including rights to develop and market gaming devices
and associated equipment under the trademarks Yahtzee(R), Monopoly(R),
Battleship(R), Trivial Pursuit(R) and Ripley's-Believe It or Not!(R).  In
exchange for these license agreements, the Company granted Hasbro and Ripley
warrants to purchase shares of the Company's common stock for each license.  See
Note 15 - Stock Based Compensation Plans.

     Related Party Transactions. During 2001, the Company entered into various
material transactions with related parties. Specifically, the Company sold
approximately $280 of products to its 50% owned affiliate in Latin America
subsequent to the Company's divestiture of 50% of this subsidiary on October 1,
2001. Additionally, the Company charged its Latin American affiliate
approximately $36 in interest expense. The Company also had significant
transactions with its Australian affiliate from prior to the Australian
affiliate being consolidated with the Company on November 15, 2001.
Specifically, the Company charged its Australian affiliate $172 in interest
charges, $213 in royalty fees relating to electronic sales, charges for table
games of $465, and $194 in net sales of various products. Approximately $600 of
net costs were charged from the Australian affiliate to the Company for various
costs from January 1, 2001 to November 15, 2001. During 2000, the Company
charged its Australian affiliate $201 in interest charges, $170 in royalty fees
relating to electronic sales, charges for table games of $587 and charges for
various sales of $218. Approximately $600 of net costs were charged from the
Australian affiliate to the Company for various costs during 2000. All sales and
expense charges to or from affiliates were deemed be arms-length transactions.

     Research and Development.  Costs associated with the development of
products are expensed when incurred.  Such expenses totaled approximately
$4,226, $5,159 and $6,013 for the years ended December 31, 2001, 2000 and 1999,
respectively.

     Software Development Capitalization.  The Company capitalizes costs related
to the development of certain software products that meet the criteria under
SFAS No. 86 - Accounting for the Costs of Computer Software to Be Sold, Leased,
or Otherwise Marketed.   Costs capitalized for the years ended December 31, 2001
and  2000 were $667 and $690, respectively.

     Income Taxes.  The Company accounts for income taxes under SFAS No. 109,
Accounting for Income Taxes, pursuant to which the Company records deferred
income taxes for temporary differences that are reported in different years for
financial reporting and for income tax purposes. Such deferred tax liabilities
and assets are classified into current and non-current amounts based on the
classification of the related assets and liabilities.

     Use of Estimates and Assumptions.  The preparation of 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 at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.  Actual results could differ
from those estimates.

     Reclassifications.  Certain amounts in the prior years' consolidated
financial statements have been reclassified to make them consistent with the
presentation used in 2001.

                                       52
<PAGE>

2.  FAIR VALUES OF FINANCIAL INSTRUMENTS

    The following table presents the carrying amount and estimated fair value of
our financial instruments at December 31, 2001:

                                                     Carrying        Estimated
                                                      Amount            FMV
                                                      ------            ---

Assets:
     Notes and installment sales receivable           $  3,474        $  3,297
                                                      ========        ========
Liabilities:
     Long-term debt                                   $104,245        $104,896
                                                      ========        ========

    The estimated fair value of notes and installment sales receivables was
calculated by discounting the stream of receipts using discount rates determined
by management to reflect the risk, remaining maturities and current comparable
market rates of similar notes receivable and contract receivables. The estimated
fair value of long-term debt was determined by using quoted market prices and
where quoted market prices are not available calculated primarily utilizing the
present value of estimated future cash flows utilizing discount rates
commensurate with the risks involved.

3.  ACCOUNTS RECEIVABLE

    Accounts receivable at December 31, 2001 and 2000 consist of the following:

                                                   2001           2000
                                                   ----           ----

Trade accounts                                    $20,912        $23,714
Employee                                              318            736
Other                                               2,081            736
                                                  -------        -------
     Subtotal                                      23,311         25,186
Less:  allowance for doubtful accounts             (2,991)        (3,991)
                                                  -------        -------
     Net                                          $20,320        $21,195
                                                  =======        =======

     Included in employee receivables are advances to the chairman of $166 and
$279 as of December 31, 2001 and 2000, respectively.


                                       53
<PAGE>

  Changes in the allowance for doubtful accounts for the years ended December
31, 2001 and 2000 are summarized as follows:

                                             2001         2000
                                            -------      -------

Allowance for doubtful accounts -
     beginning                              $(3,991)     $(1,439)
Net consolidated / affiliates                  (162)
Provision for bad debts                      (4,167)      (4,333)
Write-offs                                    5,421        1,797
Recoveries                                      (92)         (16)
                                            -------      -------
Allowance for doubtful accounts -
     ending                                 $(2,991)     $(3,991)
                                            =======      =======

   See Note 10 - Long-Term Debt

4.  INSTALLMENT SALES RECEIVABLE

    The Company finances certain sales.  See Note 17 - Concentrations of Credit
Risk.  The amounts financed during 2001 and 2000 totaled approximately $425 and
$4,051, respectively.  At December 31, 2001 and 2000, the balance of installment
sales receivable was $1,073 and $5,630, of which $981 and $2,724, respectively,
were due within 12 months.  At December 31, 2001 and 2000, the Company had $638
and $1,064, respectively, in allowance for doubtful accounts for installment
sales receivables which are included in the allowance for doubtful accounts
reported above.  The Company has deferred revenues related to these receivables
of $0 and $1,938, as of December 31, 2001 and 2000, respectively.

    See Note 10 - Long-Term Debt

5.  INVENTORIES

    Inventories at December 31, 2001 and 2000 consist of the following:

                                                  2001         2000
                                                -------      -------

Raw materials                                   $13,876      $13,308
Finished goods                                    7,187        9,580
Work-in-progress                                  3,058        6,296
                                                -------      -------
     Subtotal                                    24,121       29,184
Less:  reserve for obsolete inventory            (6,428)      (5,302)
                                                -------      -------
     Total                                      $17,693      $23,882
                                                =======      =======

                                       54
<PAGE>

    Changes in the reserve for obsolete inventory for the years ended December
31, 2001 and 2000 are summarized as follows:

                                          2001        2000
                                        -------      -------

Reserve for obsolete inventory -
     beginning                          $(5,302)     $(1,763)
Provision for obsolete inventory         (3,069)      (5,061)
Write-offs                                1,943        1,522
                                        -------      -------
Reserve for obsolete inventory -
     ending                             $(6,428)     $(5,302)
                                        =======      =======

    See Note 10 - Long-Term Debt

6.  PROPERTY AND EQUIPMENT

    Property and equipment at December 31, 2001 and 2000 consist of the
 following:

                                                2001          2000
                                              --------      --------

Land                                          $  1,018      $  1,018
Buildings and leasehold improvements             3,942         3,380
Machinery and equipment                          7,521         8,863
Equipment leased to others                      31,976        20,994
Furniture and fixtures                           8,696         8,918
Transportation equipment                         1,945         2,179
                                              --------      --------
     Subtotal                                   55,098        45,352
Less:  accumulated depreciation                (22,588)      (19,537)
                                              --------      --------
     Total                                    $ 32,510      $ 25,815
                                              ========      ========

     See Note 10 - Long-Term Debt

                                       55
<PAGE>

7.  INTANGIBLE ASSETS

    Intangible assets at December 31, 2001 and 2000 consist of the following:

                                               2001           2000
                                             --------       --------

Perpetual license                            $ 55,019       $ 55,019
Patent and trademark rights                    10,891         10,566
Covenants not to compete                        9,918         10,418
Proprietary property rights                     1,253          1,229
Software costs                                  2,977          2,310
Customer list                                     321
License fees                                    2,357          2,257
                                             --------       --------
     Subtotal                                  82,736         81,799
Less:  accumulated amortization               (19,909)       (16,118)
                                             --------       --------
     Total                                   $ 62,827       $ 65,681
                                             ========       ========

    In 2001 and 2000, $317 and $599 respectively, was spent on patent and
trademark rights development and protection.

8.  GOODWILL

    Goodwill at December 31, 2001 and 2000 consists of the following:

                                               2001          2000
                                              -------       -------

Goodwill                                      $ 5,240       $ 6,083
Less:  accumulated amortization                (2,234)       (1,938)
                                              -------       -------
     Total                                    $ 3,006       $ 4,145
                                              =======       =======

    During 2001, goodwill related to the acquisition of Casino Excitement Inc.,
the Company's exterior sign business, was written-off in the amount of $1,247.
Additionally, goodwill related to foreign subsidiaries in the amount of $455 was
also written-off.  These write-offs were recorded based on a  decline in the
operations of these businesses and an assessment of impaired values in light of
current economic conditions.  See Note 9 - Impairment Loss, Write-Off of Assets
and Other, and Extraordinary Item.

    During 2000, goodwill related to the acquisitions of Games of Nevada and
Trans Sierra Communications, Inc. ("TSC") in the amounts of $545 and $384, net
of amortization, respectively, was written off. The write-offs were due to the
decline in the Flip-It(R) slot operation and write-down of related inventory,
and the decision to discontinue the TSC line of business.

                                       56
<PAGE>

9.  IMPAIRMENT LOSS, WRITE-OFF OF ASSETS AND OTHER, AND EXTRAORDINARY ITEM

    Subsequent to the events of September 11, 2001, the impact of which was felt
throughout the worldwide economy, and based on the current economic and business
environment relative to financial reporting practices, the Company performed a
detailed, comprehensive review of its balance sheet relative to the changed
economic and business environment conditions.  Specifically identified during
this review, management analyzed goodwill assets for impairment, slow moving,
excess or obsolete inventories, customer debts in light of changing economic
conditions and other miscellaneous assets.

    This review and analysis resulted in the Company taking various charges in
its fourth quarter of 2001 for (i) impaired assets (principally goodwill and
nonoperating fixed assets of approximately $2,900 included in the "Write-off of
Assets and Other" and "Impairment Loss" captions), (ii) receivables, including
significant amounts owed from debtors who purchased certain patent and internet
rights, for which collectibility is now considered doubtful (approximately
$2,800 which is included in the operating income segments), (iii) inventory
reserves including those related to the energy crisis and the economic decline
(approximately $2,200 included in the operating income segments), (iv) losses
incurred in foreign operations due to the collapse of the Argentina economy and
softness in the Australasian market (approximately $600 included in revenues)
and (v) miscellaneous charges related to medical insurance claims and certain
international slot leasing revenues of $1,000 (included in operating income
segments).

    In connection with the Company's August, 2001 refinancing and early
extinguishment of certain of its outstanding debt obligations, the Company
incurred extraordinary charges for the early extinguishment of debt, totaling
$3,135, during the year ended December 31, 2001.

    During 2000, as a result of the Company's increased focus on its gaming
operations and branded slot machines following the review conducted as part of
its strategic repositioning initiative, Mikohn determined that certain of its
older non-branded slot machines games, surveillance assets and prepaid royalties
related to a licensing agreement had balance sheet costs (primarily long-term
assets) in excess of their present realizable value, resulting in a write-off in
2000 of $6,651.  Provisions for inventory writedowns of $1,553 and $1,644
relating to the older non-branded Flip-It(TM) product line as well as the Mikohn
Classic(TM) slot machines and certain surveillance assets, respectively, have
been included in cost of sales in the accompanying consolidated financial
statements.

   On March 27, 2001, a jury returned a verdict in favor of Acres Gaming, Inc.
("Acres") against the Company. See Note 12 - Commitments and Contingencies.  The
jury's award of $1,500 has been included in the accompanying consolidated
statement of operations for the year ended December 31, 2000.  In addition, the
Company has recorded an impairment to the value of capitalized patent costs
related to this judgment amounting to $1,700, which has also been included
within this balance in the consolidated statement of operations for the year
ended December 31, 2000.

    During the year ended December 31, 1999, we incurred a non-recurring asset
write-off of $1,352 related to our P&M Coin product line, which includes our
Mikohn Classic(TM) slot machine games. During 1999, pursuant to SFAS No. 121 -
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, to more accurately reflect the value of the P&M Coin slot
machine product line, we recorded a write-off of assets of $1,352. These charges
included write-offs of both the investment in the product line as well as
prepaid royalties associated with the product line.

                                       57
<PAGE>

10. LONG-TERM DEBT

    Long-term debt at December 31, 2001 and 2000 consists of the following:

<TABLE>
<CAPTION>
                                                                            2001          2000
                                                                          --------       -------
<S>                                                                      <C>            <C>
    Capital leases collateralized by transportation, gaming and          $  4,288       $ 4,290
manufacturing equipment. This total consists of 18 capital
leases that bear individual interest rates between 4.1% and
13.19% and whose terms are scheduled to mature at various dates
through 2006.  The related capitalized cost for these leases
was $7,005 at December 31, 2001.

    11.875% Senior Secured Notes due August 15, 2008, each unit            99,433
consisting of $1,000.00 principal amount and one warrant to
purchase four shares of the Company common stock at $7.70 per
share.  The notes were issued at $944.33 per unit, plus accrued
interest.  Semi-annual interest payments are required to be
made commencing November 1, 2001.

    Term Loans payable to First Source Financial LLP, repaid during                      77,599
2001.

    Revolving loan payable to First Source Financial LLP,                                 4,571
repaid during 2001.

    Unsecured notes payable to individuals.  Interest rate is 10%             185
with maturity dates through 2003.

    Notes payable collateralized by transportation and office                 145
equipment.  Interest rates range from 0% to 12% with maturity
dates through 2004.

    Other                                                                     194           638
                                                                         --------       -------
    Total                                                                 104,245        87,098
    Less:  current portion                                                 (2,422)       (2,149)
                                                                         --------       -------
     Long-term portion                                                   $101,823       $84,949
                                                                         ========       =======
</TABLE>

    During 2001 the Company issued $105,000 11.875% Senior Secured Notes
("Indenture") due August 15, 2008.  Each unit consists of $1,000.00 principal
amount of the Indenture and one warrant to purchase four shares of the Company's
common stock.  The Company pays interest on the notes at an annual rate of
11.875%.  Interest payments are due semi-annually, on each May 1, and November
1, beginning November 1, 2001.  On or after August 15, 2005, the Company will
have the right to redeem all or some of the notes at a price that will decrease
over time from 105.938% of the principal amount in 2005 to 100% of the principal
amount in 2007, plus accrued and unpaid interest.  The Indenture includes a
covenant whereby the Company is to maintain $5,000 of available liquidity as
defined in the Indenture.  The Company is in compliance with this covenant as of
December 31, 2001.  The notes are secured by a security interest in certain of
the Company's assets and certain assets of the Guarantor Subsidiaries.
Following each fiscal year if the Company has excess cash flow for such fiscal
year, we will offer to purchase up to an aggregate principal amount of notes
equal to 50% of such excess cash flow at a price equal to 100% of the principal
amount, plus accrued and unpaid interest.

    Each warrant issued entitles the holder to purchase four shares of our
common stock at a price of $7.70. The warrants will expire on August 15, 2008.
The fair market value of the warrants at date of issue was recorded as
additional paid in capital.

                                       58
<PAGE>

    During 2001, the Company entered into two sale-leaseback transactions with
various third party finance companies.  The transactions involve gaming
equipment, have terms of 40 months and 44 months and are being treated as
capital leases.  Proceeds from these sale-leaseback transactions totaled $2,000.

    During 2000, the Company entered into two sale-leaseback transactions with
various third party finance companies. The transactions involve gaming
equipment, have a term of 40 months and are being treated as capital leases.
Proceeds from these sale-leaseback transactions totaled $3,000.

    Following is the long-term debt maturity schedule:

    2002                        $  2,422
    2003                           1,653
    2004                             681
    2005                              53
    2006                               3
    Thereafter                    99,433
                                --------
     Total                      $104,245
                                ========

11. DEFERRED LICENSE FEES

    Deferred license fees at December 31, 2001 and 2000 consist of the
following:

                                     2001          2000
                                    ------        ------

Total                               $1,467        $1,862
Less current portion                  (447)         (451)
                                    ------        ------
     Long-term portion              $1,020        $1,411
                                    ======        ======

    On December 29, 1999, the Company and Shuffle Master entered into an
agreement settling a complex and long-standing series of lawsuits between
Progressive Games Inc. ("PGI") and Shuffle Master and dozens of casinos arising
out of claims by PGI that several table games offered by Shuffle Master
infringed numerous patents held by PGI (now held by the Company). Under the
terms of the settlement, Shuffle Master acknowledged the validity and
enforceability of the Company's patents and agreed to pay Mikohn $2,750 to
settle all outstanding patent issues with respect to Shuffle Master's Let It
Ride Bonus(R), Let It Ride The Tournament(R), Bahama Bonus(TM) and Three Card
Poker(TM) games. The agreement provides that all future revenue of Let It Ride
Bonus(R), Let It Ride The Tournament(R), and Three Card Poker(TM) will be
royalty free to Shuffle Master. The settlement also (i) granted Mikohn the
exclusive rights to Bahama Bonus(TM) worldwide, except for Nevada where Shuffle
Master retains exclusive rights subject to Mikohn's rights to receive certain
royalties and (ii) requires Shuffle Master to pay royalties to Mikohn based on
future revenues from certain new games that may be developed by Shuffle Master.

    Under separate license agreements executed in conjunction with the
settlement agreement, Shuffle Master licensed certain of its intellectual
property to Mikohn including rights under its coin sensing patents and multi-
tiered game wagering patents. For these rights, Mikohn agreed to pay Shuffle
Master future noncancellable royalties of approximately $580 per year over the
next three years including interest.

                                       59
<PAGE>

    Following is the schedule of license payments:

    2002                             $   451
    2003                                 451
    2004                                 451
                                     -------
     Total                           $ 1,353
                                     =======

    In addition, Mikohn and Shuffle Master entered into a cross-supplier
agreement covering a broad range of product lines including Mikohn's progressive
table game and slot signage, controllers, electronic displays and slot glass, as
well as Shuffle Master's card shuffling systems, coin sensors and other
associated table game electronics. Under this agreement, Mikohn was appointed
Shuffle Master's exclusive source in North America for progressive controllers
and displays for table games. Shuffle Master was appointed Mikohn's exclusive
source for automatic card shuffling machines.

12. COMMITMENTS AND CONTINGENCIES

    We lease certain of our facilities and equipment under various agreements
for periods through the year 2017. The following schedule shows the future
minimum rental payments required under these operating leases, which have
initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 2001:

    2002                              $ 9,026
    2003                                8,772
    2004                                3,983
    2005                                2,191
    2006                                2,126
    Thereafter                         11,348
                                      -------
     Total                            $37,446
                                      =======

    Rent expense was $7,663, $3,984 and $3,195 for the years ended December 31,
2001, 2000 and 1999, respectively.

    During 2001, the Company entered into a series of sale-leaseback
transactions with various third party finance companies.  The transactions
involve gaming equipment, have a term of 40 months, a fair value purchase option
at the end of the term, and are being accounted for as operating leases.
Proceeds from these sale-leaseback transactions totaled $3,500.  The Company has
recorded deferred gains from these transactions totaling $651 which are being
amortized, straight line, over the term of the respective leases as a reduction
in rental expense.

    During 2000, the Company entered into a series of sale-leaseback
transactions with various third party finance companies.  The transactions
involve gaming equipment, have a term of 40 months, a fair value purchase option
at the end of the term, and are being treated as operating leases.  Proceeds
from these sale-leaseback transactions totaled $11,500.  The Company has
recorded deferred gains from these transactions totaling $1,902 which are being
amortized, straight line, over the term of the respective leases as a reduction
in rental expense.

    Also during 2000, the Company entered into a sale-leaseback transaction
with respect to one of its buildings in Las Vegas, Nevada, with a term of 17
years and a fair value purchase option at the end of the term.  The leaseback is
being accounted for as an operating lease.  Proceeds from the sale-leaseback
transaction were $2,668.  The Company has recorded a deferred gain from this
transaction of $269 which is being amortized, straight line over the term of the
lease as a reduction in rental expense.  The lease agreement contains a minimum
net worth requirement; if net worth falls below a certain threshold, the Company
must provide to the landlord a letter of credit.   During the year ended
December 31, 2001, the

                                       60
<PAGE>

Company's minimum net worth did not meet the requirements under the rental
agreement. Because of the violation, the Company paid $800 for a letter of
credit to secure future rent payments to the landlord and potentially could be
obligated to purchase an additional $2,200 letter of credit.

    The Company plans to purchase inventory for lease to others only to the
extent that specific machines not currently on lease or participation at casinos
are used or based on contractual commitments with the supplier of its gaming
machines. The Company, in March 2002, entered into a contractual commitment to
purchase a minimum of 125 slot machines each calendar quarter beginning July 1,
2002 through June 30, 2003 for a new slot machine introduction. These purchases
will total approximately $4,000. Presently, the Company owns or leases
approximately 500 machines which are not currently in use at casinos. Planned
purchases for slot machines (inventory leased to others), therefore, for 2002
should be significantly less than in 2001.

    The Company is involved in routine litigation, including bankruptcies,
collection efforts, disputes with former employees and other matters in the
ordinary course of its business operations. Management knows of no matter,
pending or threatened, that in its judgment will or might have a material
adverse effect on the Company or its operations including those noted below.

    We were a plaintiff in a suit entitled Mikohn Gaming Corporation v. Acres
Gaming, Inc., Case No. CV-S-97-1383-EJW, brought in the United States District
Court for the District of Nevada This action was filed October 2, 1997 seeking,
among other things, a declaratory judgment that our MoneyTime(TM) game did not
infringe a patent issued to Acres Gaming in August 1997.  Subsequent to the
filing of this action, three additional patents were issued to Acres Gaming.  As
each patent was issued, Acres Gaming brought a separate suit against Mikohn for
patent infringement.  All three suits were ultimately consolidated with the
first action.  The consolidated action went to trial before a jury on March 14,
2001.  On March 27, 2001, the jury returned a verdict finding that we infringed
two of the four patents and awarded Acres Gaming damages of $1,500. We initially
appealed the verdict to the Federal Circuit Court of Appeals but in December
2001 reached a settlement resulting in a dismissal of that appeal, the payment
of $1,500 to Acres and the execution of a license agreement allowing our use of
the Acres' patents going forward.

    The Company is addressing tax issues relating to its table games operations.
They are summarized below:

    International Withholding Tax Issues.  The Company has exposure to potential
additional withholding taxes on payments repatriated by the previous owner of
PGI, estimated at $1,379. The Company has provided to the former owner a Power
of Attorney with which to handle the withholding tax issues. To the extent that
the Company does not prevail, any payments made may be charged back to the
previous owner under the terms of the Stock Purchase Agreement for the
acquisition of PGI.  The Company had one year from the date of acquisition in
which to effect a change in the amount of goodwill. Based on the potential
withholding tax exposure, the Company adjusted goodwill in the amount of the
$1,379 during August 1999.

13. INCOME TAXES

    The provision (benefit) for income taxes for the years ended December 31,
2001, 2000 and 1999 consist of:

                                     2001       2000      1999
                                     ----       ----      ----

Current                              $   -      $   -    $ 2,006
Deferred                                                  (2,348)
                                     -----      -----    -------
     Total provision (benefit)       $   -      $   -    $  (342)
                                     =====      =====    =======

                                       61
<PAGE>

    The provision (benefit) for income taxes for the years ended December 31,
2001, 2000 and 1999 differs from the amount computed at the federal income tax
statutory rate as a result of the following:

<TABLE>
<CAPTION>
                                                2001       %         2000       %          1999       %
                                                ----       -         ----       -          ----       -
<S>                                          <C>         <C>      <C>         <C>        <C>         <C>
Amount at statutory rate                     $(3,395)     35.0%   $(7,737)     35.0%      $ 206       35.0%
Adjustments:
     State income tax and other                 (142)      1.5%      (150)      0.7%         19        3.2%
     Non-deductible expenses                      47      -0.5%        98      -0.4%         61       10.3%
     Prior year adjustment of deferred
          tax                                  3,719     -38.4%      (682)      3.1%
     Tax credits                                (200)      2.1%        16      -0.1%       (628)    -106.4%
     Valuation allowance                         (29)      0.3%     8,455     38.30%
                                             -------              -------                 -----
          Total provision (benefit)          $     -      -0.0%   $     -       0.0%      $(342)     -57.9%
                                             =======              =======                 =====
</TABLE>

    The components of the net deferred tax liability at December 31, 2001 and
2000 consist of the following:

                                                           2001         2000
                                                           ----         ----
Deferred tax assets:
     Current:
          Inventory book / tax differences                $ 3,961      $ 2,832
          Prepaid expenses and other                        1,221        1,540
          Patent litigation                                    93        1,120
                                                          -------      -------
               Subtotal                                     5,275        5,492
                                                          -------      -------
     Noncurrent:
          Deferred revenue                                    382        1,538
          Tax credits                                       1,354          798
          Intangible assets                                   294        2,033
          Net operating loss carryforward                   9,946        5,866
          Valuation allowance                              (8,426)      (8,455)
                                                          -------      -------
               Subtotal                                     3,550        1,780
                                                          -------      -------
                    Total deferred tax assets               8,825        7,272
                                                          -------      -------
Deferred tax liabilities:
     Current:
          Prepaid assets and other                                          14
                                                          -------      -------
               Subtotal                                                     14
                                                          -------      -------
     Noncurrent:
          Perpetual license                                17,939       18,168
          Sale leaseback                                    1,245
          Property and equipment and other                  2,442        1,891
                                                          -------      -------
              Subtotal                                     21,626       20,059
                                                          -------      -------
                   Total deferred tax liabilities          21,626       20,073
                                                          -------      -------
                        Net deferred tax liability        $12,801      $12,801
                                                          =======      =======

                                       62
<PAGE>

    At December 31, 2001, the Company had federal and alternative minimum tax
("AMT") net operating loss carryforwards of $26,524 and $15,521, which will
begin to expire after the year ended December 31, 2018. The Company also had
General Business and AMT tax credit carryforwards of $1,073 and $281,
respectively.  At December 31, 2001, a valuation allowance was recorded to
reduce the deferred tax asset because recognition of the tax benefit could not
be assured.

14. EARNINGS PER SHARE

    The following table reflects the Company's basic and diluted earnings per
share for the years ended December 31, 2001, 2000 and 1999:

                                              2001          2000       1999
                                              ----          ----       ----

  Net income (loss)                          $(9,700)     $(22,105)   $   932
                                             =======      ========    =======
  Weighted average number of shares
     outstanding:
     Basic                                    11,750        10,968     10,720
     Assumed conversion of stock options                                   64
                                             -------      --------    -------
     Diluted                                  11,750        10,968     10,784
                                             =======      ========    =======
   Earnings per share:
      Basic                                  $ (0.83)     $  (2.02)   $  0.09
                                             =======      ========    =======
      Diluted                                $ (0.83)     $  (2.02)   $  0.09
                                             =======      ========    =======

    For the years ended December 31, 2001 and 2000, the Company had both stock
options and warrants issued to directors, employees, consultants, licensors and
a supplier which were not included in the above-assumed conversion to stock
options.  To have included such stock options and warrants in the computation of
earnings per share would have been anti-dilutive to the Company's loss per
share.

15. STOCK BASED COMPENSATION PLANS

    In 1993, the Company adopted, and in 1996, 1997 and 1999 amended, (i) a
Stock Option Plan under which non-qualified and incentive stock options (as
defined by the Internal Revenue Code) to purchase up to 2,900 shares of the
Company's Common Stock which may be issued to officers, directors (other than
non-employee directors), employees, consultants, advisers, independent
contractors and agents and (ii) a Director Plan under which stock options to
purchase up to 300 shares of the Company's Common Stock which may be issued only
to non-employee directors. Generally, options have been granted at the fair
market value on the date of grant and typically become exercisable at the rate
of 20% of the options granted on each of the first through the fifth
anniversaries of the date of the grant. Furthermore, options are normally
granted for a period of ten years. The Company accounts for these plans under
Accounting Principles Board Opinion No. 25 - Accounting for Stock Issued to
Employees, under which no compensation cost has been recognized.


                                       63
<PAGE>

  Had compensation cost for these plans been determined in accordance with SFAS
No. 123 -Accounting for Stock - Based Compensation ("Statement 123"), the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:

<TABLE>
<CAPTION>
                                   2001           2000            1999
                                -----------    -----------     ----------
   <S>                          <C>            <C>             <C>
   Net income (loss):
      As reported               $   (9,700)    $  (22,105)     $     932
                                ==========     ==========      =========
      Proforma                  $  (10,625)    $  (23,089)     $     126
                                ==========     ==========      =========

   Earnings (loss) per share:
      As reported -
        Basic                   $    (0.83)    $    (2.02)     $    0.09
                                ==========     ==========      =========
        Diluted                 $    (0.83)    $    (2.02)     $    0.09
                                ==========     ==========      =========

      Proforma -
        Basic                   $    (0.90)    $    (2.11)     $    0.01
                                ==========     ==========      =========
        Diluted                 $    (0.90)    $    (2.11)     $    0.01
                                ==========     ==========      =========
</TABLE>

  The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
the 1999 through 2001 grants: risk-free interest at the date of grant which
ranged from 3.5% to 7.78%; expected dividend yield of 0.0%; expected lives from
1 to 6 years; and expected volatility between 50 and 60 percent.


                                       64
<PAGE>

  A summary of the status of the Company's stock option plans at December 31,
2001, 2000 and 1999 and changes during the years then ended is presented in the
table below:

<TABLE>
<CAPTION>
(Amounts in thousands                            2001                    2000                   1999
                                                 ----                    ----                   -----
except per option amounts)                           Wtd. Avg.                Wtd. Avg.                Wtd. Avg.
                                                     Exercise                 Exercise                 Exercise
                                         Options       Price      Options       Price      Options       Price
                                         -------     ---------    -------     ---------    -------     ---------
<S>                                      <C>         <C>          <C>         <C>          <C>         <C>
Director Plan:
--------------
Options, beginning of year                   215       $5.9707        160       $5.6384        110       $6.8796
Granted                                       60        5.1000         55        6.9375         50        2.9076
Exercised
Cancelled
                                          ------                   ------                   ------
Options, end of year                         275        5.7807        215        5.9707        160        5.6384
                                          ======                   ======                   ======

Exercisable at end of year                   162        6.0656        113        6.2496         67        7.3242
                                          ======                   ======                   ======

Weighted average ("Wtd. Avg.")
fair value of options granted
during the year                                        $3.7415                  $4.8879                  $2.1266


Employee Plan:
--------------
Options, beginning of year                 1,763       $5.7142      1,954       $5.7493      1,950       $5.9662
Granted                                      534        4.3442        394        5.5053        250        3.9950
Exercised                                    (67)       4.0714       (194)       4.2982        (28)       3.8418
Cancelled                                   (340)       4.6726       (391)       6.3822       (218)       5.9193
                                          ------                   ------                   ------
Options, end of year                       1,890        5.5726      1,763        5.7142      1,954        5.7493
                                          ======                   ======                   ======

Exercisable at end of year                   978        4.5772        827        4.4496        930        5.1594
                                          ======                   ======                   ======

Weighted average fair value of
options granted during the year                        $3.2064                  $4.1568                  $2.9355
</TABLE>

                                       65
<PAGE>

  The following table summarizes information concerning options outstanding and
options exercisable as of December 31, 2001:

<TABLE>
<CAPTION>
(Amounts in thousands                     Options Outstanding                         Options Exercisable
                                          -------------------                         -------------------
except per option amounts)                     Weighted
                                                Average        Weighted                     Weighted
                                  Number       Remaining       Average        Number         Average
                                    of        Contractual      Exercise         of          Exercise
Range of Exercise Prices          Options        Life           Price         Options         Price
------------------------          -------        ----           -----         -------         -----
<S>                            <C>            <C>             <C>            <C>           <C>
Director Plan:
-------------
$2.7500 - $4.0630                       52            7.2       $ 2.9496            36        $ 2.9694
$4.3750 - $5.5000                      116            7.3         4.9440            56          4.7768
$7.2500 - $9.2500                       97            7.5         7.1141            60          7.2213
$17.2500                                10            1.9        17.2500            10         17.2500
                                  --------                                     -------
                                       275                                         162
                                  ========                                     =======

Employee Plan:
-------------
$3.0000 - $4.5000                    1,269            6.3       $ 4.0759           731        $ 4.0994
$4.5625 - $6.7500                      514            9.5         4.2201           186          5.2755
$6.8750 - $10.0000                     107            6.6         7.9451            61          8.1976
                                  --------                                     -------
                                     1,890                                         978
                                  ========                                     =======
</TABLE>

  Along with the above-discussed stock option plans, the Company may from time
to time grant stock warrants to various licensors and as well as other
individuals with whom the Company does business.  In 1998, the Company entered
into various licensing agreements with Hasbro, Inc. and Hasbro, International,
Inc. (together, "Hasbro") which granted the Company rights to intellectual
property, including rights to develop and market gaming devices and associated
equipment under the trademarks Yahtzee(R), Monopoly(R) and Battleship(R).  In
exchange for these license agreements, the Company granted Hasbro warrants to
purchase up to 125 shares of Company common stock for each license.  At December
31, 2001, warrants to purchase 375 shares of the Company's common stock were
vested with a fair market value of $1,420.  In connection with licenses to other
properties, the Company has issued an additional 875 warrants not vested at
December 31, 2001.   In addition, the Company entered into an licensing
agreement with Ripley Entertainment which granted the Company rights to
intellectual property, including rights to develop and market gaming devices and
associated equipment under the trademark for Ripley's Believe It or Not!(R).
At December 31, 2001, warrants to purchase 35 shares of the Company's common
stock were vested with a fair market value of $153.


16. BENEFIT PLANS

  Certain employees of Casino Excitement, Inc., a wholly-owned subsidiary of the
Company, are covered by union-sponsored, collectively bargained, multi-employer,
defined benefit plans. The Company's contributions to these plans, as determined
in accordance with the provisions of the negotiated labor contracts based on the
hours worked, for 2001, 2000 and 1999 were $348, $347 and $401, respectively.

  The Company adopted a savings plan (the "401(k) Plan") qualified under Section
401(k) of the Internal Revenue Code of 1986, as amended.  The 401(k) Plan covers
substantially all employees who are not  covered by a collective bargaining
unit.  The Company's matching contributions for 2001, 2000 and 1999 were $163,
$167 and  $162, respectively.


                                       66
<PAGE>

17. CONCENTRATIONS OF CREDIT RISK

  The financial instruments that potentially subject the Company to
concentrations of credit risk are primarily accounts and installment sales
receivable.  Product sales are primarily to casinos and gaming equipment
manufacturers.

  At December 31, 2001, accounts and installment sales receivable on a
operations basis are as follows:

<TABLE>
<CAPTION>
                                                  Installment
                                     Accounts        Sales
                                    Receivable    Receivable       Total
                                    ----------    ----------       -----
<S>                                 <C>           <C>             <C>
Trade receivables:
     Gaming Operations              $   6,514     $      -       $  6,514
     Product Sales                     14,398        1,073         15,471
                                    ---------     --------       --------
          Trade receivables            20,912        1,073         21,985
                                    ---------     --------       --------

Other receivables:
     Other                              2,399                       2,399
                                    ---------     --------       --------
          Subtotal                      2,399                       2,399
                                    ---------     --------       --------

                                    $  23,311     $  1,073       $ 24,384
                                    =========     ========       ========
</TABLE>


18. GUARANTOR FINANCIAL STATEMENTS

  On August 22, 2001, the Company completed the private placement of $105,000 of
its 11.875% Senior Secured Notes due 2008 and warrants to purchase an aggregate
of 420 shares of its common stock at a price of $7.70 per share. In addition, on
August 10, 2001, the Company completed the sale of 1,500 shares of its common
stock to institutional investors in a private placement for $8,250.

  A significant portion of the proceeds from the above transactions were used to
retire certain term loans and other credit facili ties approximating $83,000.

  The Company's domestic subsidiaries are 100% owned and have provided full and
unconditional guarantees on a joint and several basis on the payment of the
Senior Secured Notes. The financial statements for the guarantor subsidiaries
follows:

                                       67
<PAGE>

                           MIKOHN GAMING CORPORATION
                     CONSOLIDATING CONDENSED BALANCE SHEET


<TABLE>
<CAPTION>
(Amounts in thousands)                                                  December 31, 2001
                                             -----------------------------------------------------------------------------
                                                            Guarantor      Non-Guarantor
                                              Parent      Subsidiaries      Subsidiaries     Eliminations     Consolidated
                                             ---------    -------------    --------------    -------------    ------------
<S>                                          <C>          <C>              <C>               <C>              <C>
                 ASSETS
Current Assets:
      Cash                                  $  14,354         $   (267)          $ 1,037        $       -        $  15,124
      Accounts receivable, net                 11,769            6,724             1,827                            20,320
      Inventories, net                          7,729            7,298             2,666                            17,693
      Other current assets                      3,180            6,747               218                            10,145
                                            ---------         --------           -------        ---------        ---------
            Total current assets               37,032           20,502             5,748                            63,282
                                            ---------         --------           -------        ---------        ---------

Property and equipment, net                    10,824           21,276               410                            32,510
Intangible assets                              60,048            5,389               396                            65,833
Investments in subsidiaries                    14,017                                             (13,754)             263
Other assets                                   11,864            1,835                                              13,699
                                            ---------         --------           -------        ---------        ---------

          Total assets                      $ 133,785         $ 49,002           $ 6,554        $ (13,754)       $ 175,587
                                            =========         ========           =======        =========        =========

          LIABILITIES AND
           STOCKHOLDERS'
             EQUITY
Current liabilities                         $  15,446         $  6,677           $ 2,697        $       -        $  24,820
Intercompany transactions                     (26,845)          22,458             4,387                                 -
                                            ---------         --------           -------        ---------        ---------
     Total current liabilities                (11,399)          29,135             7,084                            24,820

Long-term debt, net of original
     issue discount of $5,567                  99,847            1,905                71                           101,823
Other liabilities, long term                    1,035            1,179                                               2,214
Deferred tax liability - noncurrent            15,648            2,428                                              18,076

     Stockholders' equity                      28,654           14,355              (601)         (13,754)          28,654
                                            ---------         --------           -------        ---------        ---------
          Total liabilities and
               stockholders' equity         $ 133,785         $ 49,002           $ 6,554        $ (13,754)       $ 175,587
                                            =========         ========           =======        =========        =========
</TABLE>

                                       68
<PAGE>

<TABLE>
<CAPTION>
                                                                        December 31, 2000
                                             -----------------------------------------------------------------------------
                                                            Guarantor      Non-Guarantor
                                              Parent      Subsidiaries      Subsidiaries     Eliminations     Consolidated
                                             ---------    -------------    --------------    -------------    ------------
<S>                                          <C>          <C>              <C>               <C>              <C>
                 ASSETS
Current Assets:
      Cash                                  $     540         $   (375)          $   297         $      -        $     462
      Accounts receivable, net                 11,601            7,332             2,262                            21,195
      Inventories, net                          9,641           12,515             1,726                            23,882
      Other current assets                      7,375            7,124               195                            14,694
                                            ---------         --------           -------        ---------        ---------
          Total current assets                 29,157           26,596             4,480                            60,233

Property and equipment, net                    11,156           14,112               547                            25,815
Intangible assets                              62,817            7,009                                              69,826
Investments in subsidiaries                     8,984                                              (8,584)             400
Other assets                                    8,921            1,551                                              10,472
                                            ---------         --------           -------        ---------        ---------
          Total assets                      $ 121,035         $ 49,268           $ 5,027         $ (8,584)       $ 166,746
                                            =========         ========           =======         ========        =========

       LIABILITIES AND
        STOCKHOLDERS'
          EQUITY
Current liabilities                         $  16,702         $  4,659           $ 1,895         $      -        $  23,256
Intercompany transactions                     (33,915)          30,086             3,829                                 -
                                            ---------         --------           -------        ---------        ---------
     Total current liabilities                (17,213)          34,745             5,724                            23,256

Long-term debt                                 83,127            1,807                15                            84,949
Other liabilities, long term                    8,082            2,975                                              11,057
Deferred tax liability -- noncurrent           17,833              446                                              18,279

     Stockholders' equity                      29,206            9,295              (712)          (8,584)          29,205
                                            ---------         --------           -------        ---------        ---------
          Total liabilities and
               stockholders' equity         $ 121,035         $ 49,268           $ 5,027         $ (8,584)       $ 166,746
                                            =========         ========           =======         ========        =========
</TABLE>

                                       69
<PAGE>

                           MIKOHN GAMING CORPORATION
               CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
(Amounts in thousands)                                                                December 31, 2001
                                                       -----------------------------------------------------------------------------
                                                                      Guarantor      Non-Guarantor
                                                         Parent     Subsidiaries      Subsidiaries     Eliminations     Consolidated
                                                         ------     ------------      ------------    -------------     ------------
<S>                                                    <C>          <C>              <C>               <C>              <C>
Revenues                                               $  63,430      $  49,990        $   9,947        $ (12,310)       $ 111,057
Cost of sales                                             30,058         23,681            6,603           (7,915)          52,427
Selling, general and administrative Expenses              29,102         19,713            3,376                            52,191
Impairment loss                                              146          1,247              309                             1,702
Write-off of assets and other                                895            306                                              1,201
                                                       ---------      ---------        ---------        ---------        ---------
    Operating income                                       3,229          5,043             (341)          (4,395)           3,536

Equity in earnings of subsidiaries                        (2,359)                                           2,359                -
Interest expense                                         (11,181)          (316)            (232)                          (11,729)
Other income and (expense)                                 1,566            112              (50)                            1,628
                                                       ---------      ---------        ---------        ---------        ---------
    Income before income taxes and extraordinary item     (8,745)         4,839             (623)          (2,036)          (6,565)

Income tax (provision) benefit                             2,180         (2,180)                                                 -
                                                       ---------      ---------        ---------        ---------        ---------

Income before extraordinary item                          (6,565)         2,659             (623)          (2,036)          (6,565)
Extraordinary item, net of taxes                          (3,135)                                                           (3,135)
                                                       ---------      ---------        ---------        ---------        ---------
    Net income                                         $  (9,700)     $   2,659        $    (623)       $  (2,036)       $  (9,700)
                                                       =========      =========        =========        =========        =========
</TABLE>

<TABLE>
<CAPTION>
                                                                           Twelve Months Ended December 31, 2000
                                                       -----------------------------------------------------------------------------
                                                                      Guarantor      Non-Guarantor
                                                         Parent     Subsidiaries      Subsidiaries     Eliminations     Consolidated
                                                         ------     ------------      ------------    -------------     ------------
<S>                                                    <C>          <C>              <C>              <C>               <C>
Revenues                                               $  64,353      $  41,878        $   8,702        $ (14,167)       $ 100,766
Cost of sales                                             27,580         29,800            7,394          (10,110)          54,664
Selling, general and administrative Expenses              31,382         13,596            2,803                            47,781
Write-off of assets and other                              5,921          3,931                                              9,852
                                                       ---------      ---------        ---------        ---------        ---------
          Operating income (loss)                           (530)        (5,449)          (1,495)          (4,057)         (11,531)

Equity in earnings of subsidiaries                       (10,611)                                          10,611                -
Interest expense                                         (10,105)          (326)             (85)                          (10,516)
Other income and (expense)                                    71            (70)             (59)                              (58)
                                                       ---------      ---------        ---------        ---------        ---------
    Income before income taxes and extraordinary item    (21,175)        (5,845)          (1,639)           6,554          (22,105)

Income tax provision                                        (930)           930                                                  -
                                                       ---------      ---------        ---------        ---------        ---------
Income before extraordinary item                         (22,105)        (4,915)          (1,639)           6,554          (22,105)

Extraordinary item, net of taxes                                                                                                 -
                                                       ---------      ---------        ---------        ---------        ---------

     Net income (loss)                                 $ (22,105)     $  (4,915)       $  (1,639)       $   6,554        $ (22,105)
                                                       =========      =========        =========        =========        =========
</TABLE>

                                       70
<PAGE>

<TABLE>
<CAPTION>
                                                                           Twelve Months Ended December 31, 1999
                                                       -----------------------------------------------------------------------------
                                                                      Guarantor      Non-Guarantor
                                                         Parent     Subsidiaries      Subsidiaries     Eliminations     Consolidated
                                                         ------     ------------      ------------    -------------     ------------
<S>                                                    <C>          <C>              <C>              <C>               <C>
Revenues                                               $  62,986      $  37,513        $  19,447        $ (13,062)       $ 106,884
Cost of sales                                             28,718         22,368           13,862          (10,102)          54,846
Selling, general and administrative Expenses              26,963          9,484            5,217              302           41,966
Write-off of assets and other                                             1,352                                              1,352
                                                       ---------      ---------        ---------        ---------        ---------
          Operating income (loss)                          7,305          4,309              368           (3,262)           8,720
Equity in earnings of subsidiaries                          (255)                                             255                -
Interest expense                                          (8,659)          (110)             (81)                           (8,850)
Other income and (expense)                                    93            473              154                               720
                                                       ---------      ---------        ---------        ---------        ---------
    Income before income taxes and extraordinary item     (1,516)         4,672              441           (3,007)             590

Income tax provision                                       2,448         (2,106)                                               342
                                                       ---------      ---------        ---------        ---------        ---------
Income before extraordinary item                             932          2,566              441           (3,007)             932

Extraordinary item, net of taxes                                                                                                 -
                                                       ---------      ---------        ---------        ---------        ---------

     Net income (loss)                                 $     932      $   2,566        $     441        $  (3,007)       $     932
                                                       =========      =========        =========        =========        =========
</TABLE>

                                       71
<PAGE>

                           MIKOHN GAMING CORPORATION
                 CONSOLIDATING CONDENSED CASH FLOW STATEMENTS

<TABLE>
<CAPTION>
(Amounts in thousands)                                                   For the Twelve Months Ended December 31, 2001
                                                           -------------------------------------------------------------------------
                                                                         Guarantor    Non-Guarantor
                                                             Parent    Subsidiaries    Subsidiaries     Eliminations    Consolidated
                                                             ------    ------------    ------------    -------------    ------------
<S>                                                        <C>         <C>            <C>               <C>             <C>
Net cash provided by (used in) operating activities        $    (959)    $   9,519      $   1,214        $       -       $   9,774
                                                           ---------     ---------      ---------        ---------       ---------

Cash flows from investing activities:
  Purchase of inventory for lease to others                                (12,955)                                        (12,955)
  Proceeds from sale-leaseback transactions                                  3,500                                           3,500
  Purchase of property and equipment                          (1,458)         (770)          (106)                          (2,334)
  Proceeds from note receivable, sale of subsidiary              100                                                           100
  Other investing activities                                  (1,065)          123                                            (942)
                                                           ---------     ---------      ---------        ---------       ---------
    Net cash (used in) provided by investing activities       (2,423)      (10,102)          (106)                         (12,631)
                                                           ---------     ---------      ---------        ---------       ---------

Cash flows from financing activities:
  Proceeds from long-term debt                                99,410                          260                           99,670
  Debt issuance costs                                         (7,975)                                                       (7,975)
  Principal payments on long-term debt                       (82,450)                        (635)                         (83,085)
  Proceeds from issuance of common stock and warrants          9,352                                                         9,352
  Other financing activities                                  (1,141)          691              7                             (443)
                                                           ---------     ---------      ---------        ---------       ---------
    Net cash provided by (used in) financing activities       17,196           691           (368)                          17,519
                                                           ---------     ---------      ---------        ---------       ---------
    Increase in cash and cash equivalents                     13,814           108            740                           14,662
Cash and cash equivalents, beginning of period                   540          (375)           297                              462
                                                           ---------     ---------      ---------        ---------       ---------
Cash and cash equivalents, end of period                   $  14,354     $    (267)     $   1,037        $       -       $  15,124
                                                           =========     =========      =========        =========       =========
</TABLE>

                                       72
<PAGE>

<TABLE>
<CAPTION>
                                                                         For the Twelve Months Ended December 31, 2000
                                                           -------------------------------------------------------------------------
                                                                         Guarantor    Non-Guarantor
                                                             Parent    Subsidiaries    Subsidiaries     Eliminations    Consolidated
                                                             ------    ------------    ------------    -------------    ------------
<S>                                                        <C>         <C>            <C>               <C>             <C>

Net cash provided by (used in) operating activities        $  (3,534)    $   6,942      $     367        $       -       $   3,775
                                                           ---------     ---------      ---------        ---------       ---------

Cash flows from investing activities:
  Purchase of inventory for lease to others                                (20,329)                                        (20,329)
  Proceeds from sale-leaseback transactions                                 11,500                                          11,500
  Purchase of property and equipment                          (1,304)          (69)          (151)                          (1,524)
  Proceeds from note receivable, sale of subsidiary            4,418                                                         4,418
  Other investing activities                                     648         1,579                                           2,227
                                                           ---------     ---------      ---------        ---------       ---------
    Net cash (used in) provided by investing activities        3,762        (7,319)          (151)               -          (3,708)
                                                           ---------     ---------      ---------        ---------       ---------

Cash flows from financing activities:
  Proceeds from long-term debt                                 4,823                                                         4,823
  Debt issuance costs                                                                                                            -
  Principal payments on long-term debt                        (5,172)       (1,781)          (452)                          (7,405)
  Proceeds from issuance of common stock and warrants          1,367                                                         1,367
  Other financing activities                                    (751)        2,328            (15)                           1,562
                                                           ---------     ---------      ---------        ---------       ---------
    Net cash provided by (used in) financing activities          267           547           (467)               -             347
                                                           ---------     ---------      ---------        ---------       ---------
    Increase in cash and cash equivalents                        495           170           (251)                             414
Cash and cash equivalents, beginning of period                    45          (545)           548                               48
                                                           ---------     ---------      ---------        ---------       ---------
Cash and cash equivalents, end of period                   $     540     $    (375)     $     297        $       -       $     462
                                                           =========     =========      =========        =========       =========
</TABLE>

                                       73
<PAGE>

<TABLE>
<CAPTION>
                                                                           For the Twelve Months Ended December 31, 1999
                                                             -----------------------------------------------------------------------
                                                                                             Non-
                                                                          Guarantor       Guarantor
                                                              Parent    Subsidiaries    Subsidiaries    Eliminations   Consolidated
                                                             --------   -------------   -------------   ------------   -------------
<S>                                                          <C>        <C>             <C>             <C>            <C>
Net cash provided by operating activities                    $  2,055      $  5,073        $     20       $      -       $   7,148
                                                             --------      --------        --------       --------       ---------
Cash flows from investing activities:
     Purchase of inventory for lease to others                   (360)       (5,444)                                        (5,804)
     Proceeds from sale-leaseback transactions                                                                                   -
     Purchase of property and equipment                        (2,808)                         (362)                        (3,170)
     Proceeds from note receivable, sale of subsidiary            471                                                          471
     Other investing activities                                (1,819)          597            (485)                        (1,707)
                                                             --------      --------        --------       --------       ---------
          Net cash used in investing activities                (4,516)       (4,847)           (847)             -         (10,210)
                                                             --------      --------        --------       --------       ---------

Cash flows from financing activities:
     Proceeds from long-term debt                               4,280         1,792                                          6,072
     Debt issuance costs                                                                                                         -
     Principal payments on long-term debt                      (4,838)       (2,007)           (342)                        (7,187)
     Proceeds from issuance of common stock and warrants          493                                                          493
     Other financing activities                                                                                                  -
                                                             --------      --------        --------       --------       ---------
          Net cash used in financing activities                   (65)         (215)           (342)             -            (622)
                                                             --------      --------        --------       --------       ---------

          Increase in cash and cash equivalents                (2,526)           11          (1,169)                        (3,684)
Cash and cash equivalents, beginning of period                  2,571          (556)          1,717                          3,732
                                                             --------      --------        --------       --------       ---------
Cash and cash equivalents, end of period                     $     45      $   (545)       $    548       $      -       $      48
                                                             ========      ========        ========       ========       =========
</TABLE>

                                       74
<PAGE>

SEGMENT REPORTING

     The Company's worldwide operations are concentrated in two principal
business segments: Gaming Operations and Product Sales. The Gaming Operations
business segment was established in 1993 to develop, acquire, manufacture and
distribute proprietary games, and these games have become increasingly important
to its business. Increased attention has been given to Gaming Operations because
of the high recurring revenues and profit margin potential for this business
line. Mikohn owns or licenses the rights to several categories of proprietary
games, which it places in casinos under lease arrangements. These leases either
provide for a fixed rental payment or a participation in the game's operating
results. Sales of proprietary games are reflected in the reported results of the
Company's Product Sales business segment, while revenues derived from leases are
included in the results of its Gaming Operations business segment. The Company's
Product Sales business segment has been providing gaming products and equipment
around the world since 1987. First it sold progressive jackpot systems and then
it expanded to sign manufacturing as well as other related products. Its gaming
products are found in almost every major gaming jurisdiction and include: (i)
interior casino signage, exterior signage and electronic components used in
progressive jackpot systems, (ii) player tracking and information gathering and
control systems and (iii) gaming machines for sale. A 50% interest in the stock
of the Company's Australian operation was divested late in 1999 and, therefore,
only 50% of MGA's net loss after taxes is included in revenues effective in
2000. Effective November 2001, the Company owns approximately 93% of MGA and the
entity is consolidated at that point. The accounting policies of the segments
are the same as those described in Note 1 -Description of Business and Summary
of Significant Accounting Policies. All inter-segment transactions have been
eliminated.

     Business segment information for the years ended December 31, 2001, 2000
and 1999 consists of:


<TABLE>
<CAPTION>
                 Business Segments:                                 2001                   2000                    1999
                 ------------------                                 ----                   ----                    ----
<S>                                                              <C>                    <C>                     <C>
Revenue:
     Gaming operations                                           $   44,074             $   34,796              $   25,256
     Product sales:
          Signage and electronic components                          58,037                 56,898                  61,367
          Player tracking and information gathering                   5,705                  4,747                  12,756
          Gaming machines                                             3,241                  4,325                   7,505
                                                                 ----------             ----------              ----------
                                                                     66,983                 65,970                  81,628
                                                                 ----------             ----------              ----------

                 Total                                           $  111,057             $  100,766              $  106,884
                                                                 ==========             ==========              ==========

Gross profit:
     Gaming operations                                           $   36,416             $   28,291              $   22,979
     Product sales                                                   22,214                 17,811                  29,059
                                                                 ----------             ----------              ----------

          Total                                                  $   58,630             $   46,102              $   52,038
                                                                 ==========             ==========              ==========

Operating income (loss):
     Gaming operations                                           $   15,738             $   14,651              $   11,660
     Product sales                                                    3,561                 (2,404)                 10,678
                                                                 ----------             ----------              ----------
          Subtotal                                                   19,299                 12,247                  22,338
     Impairment losses                                               (1,702)
     Write-off of assets and other                                   (1,201)                (9,852)                 (1,352)
     Corporate                                                      (12,860)               (13,926)                (12,266)
                                                                 ----------             ----------              ----------

          Total                                                  $    3,536             $  (11,531)             $    8,720
                                                                 ==========             ==========              ==========
</TABLE>

                                       75
<PAGE>

<TABLE>
<CAPTION>
                 Business Segments:                                 2001                   2000                    1999
                 ------------------                                 ----                   ----                    ----
<S>                                                              <C>                    <C>                     <C>
Depreciation and amortization:
     Gaming operations                                           $    7,730             $    6,346              $    4,832
     Product sales                                                    1,419                  1,592                   2,030
                                                                 ----------             ----------              ----------
          Subtotal                                                    9,149                  7,938                   6,862
     Corporate                                                        3,257                  3,179                   2,487
                                                                 ----------             ----------              ----------

          Total                                                  $   12,406             $   11,117              $    9,349
                                                                 ==========             ==========              ==========

Assets:
     Gaming operations                                           $   95,572             $  100,112              $   91,103
     Product sales                                                   41,264                 44,748                  50,947
                                                                 ----------             ----------              ----------
          Subtotal                                                  136,836                144,860                 142,050
     Corporate                                                       38,751                 21,886                  36,245
                                                                 ----------             ----------              ----------

          Total                                                  $  175,587             $  166,746              $  178,295
                                                                 ==========             ==========              ==========

Capital expenditures:
     Gaming operations                                           $   13,926             $    9,788              $    6,002
     Product sales                                                    1,922                  1,315                   2,698
                                                                 ----------             ----------              ----------
          Subtotal                                                   15,848                 11,103                   8,700
     Corporate                                                        1,064                  1,334                   1,334
                                                                 ----------             ----------              ----------

          Total                                                  $   16,912             $   12,437              $   10,034
                                                                 ==========             ==========              ==========
</TABLE>

     The following is a description of the costs associated with each of the
above departments:

<TABLE>
<S>                                                              <C>                    <C>                     <C>
Corporate expenses:
     Human resources                                             $      472             $      452              $      604
     Executive and administration                                     1,875                  2,232                   2,897
     Finance and MIS                                                  3,548                  2,984                   2,381
     Legal and compliance                                               982                  1,617                   1,062
     Corporate facilities management                                    391                    384                     360
     Research and development                                           436                    365                     617
     Marketing                                                        1,342                  2,713                   1,858
     Depreciation and amortization                                    3,257                  3,179                   2,487
     Bad debts                                                          557
                                                                 ----------             ----------              ----------

                                                                 $   12,860             $   13,926              $   12,266
                                                                 ==========             ==========              ==========
</TABLE>

     Human Resources.  The Human Resources department is responsible for the
following corporate functions: employee relations, labor relations, employment
organizational development, records management and administration of the
Company's benefit plans. Although most of the Human Resource functions are
handled at corporate, each of the manufacturing facilities has its own human
resource staff member who not only is responsible for the human resource
function for that business segment but whose salary and benefits are also
charged to that business segment.

     Executive and Administration.  The Executive and Administration department
expenses consist of the salary and fringe benefits associated with the office of
Chief Executive Officer, Executive Vice President of Operations, and their
support staffs. It also includes the cost of the corporate headquarters,
including rent and maintenance costs, office equipment, maintenance supplies,
and office supplies.

     Finance and MIS.  The Finance department expenses consist of the salary and
fringe benefits

                                       76
<PAGE>

associated with the office of the Chief Financial Officer, Director of Finance,
Corporate Controller, Tax and SEC Reporting Manager and their staffs. These
individuals are responsible for handling most of the accounting functions for
all domestic operations including all financial statement preparation for
internal and external reporting for both governmental and non-governmental
entities. Although most of the Finance department functions are handled at
corporate, each of the manufacturing facilities has its own Finance department
staff member who not only is responsible for the accounting functions for that
business segment but whose salary and benefits are also charged to that business
segment.

     The MIS department is responsible for the following: the determination of,
acquisition of, and set-up of computer hardware and software for all domestic
operations of the Company. The MIS department expenses include the salary and
fringe benefits of the Manager of Information Systems and his staff as well as
the cost of computer equipment maintenance, data lines and related costs.

     Legal and Compliance.  The Legal and Compliance department expense consists
of the salary and fringe benefits associated with the office of General Counsel,
Executive Director of Compliance and Patent Counsel as well as their support
staffs. The Legal and Compliance department is responsible for the
administration of all gaming licensing in more than 160 jurisdictions in which
the Company is licensed. In addition, this department is responsible for the
coordination of the shipping of all Company products to jurisdictions that
require regulatory approval prior to placing products in a casino.

     Corporate Facilities Management.  The Corporate Facilities Management
department is responsible for the maintenance of the corporate headquarters
building in Las Vegas as well as five other facilities of the Company in the Las
Vegas area. Transportation of inter-company mail to those same five facilities
in Las Vegas as well as distribution of mail to individual offices at the
corporate headquarters and outgoing mail are handled by this department as well.

     Research and Development.  The Research and Development department is
responsible for the development of all the Company's products including ongoing
upgrades of the Company's technology based products such as systems, slot
machines and table games. All of the costs of developing a product from
inception until the product is released to the Product Development / Production
departments are included in this department. In addition, all of the costs of
testing these products at the various gaming jurisdictions and approved
laboratories are included as well.

     Marketing.  In conjunction with the Company's executive management, the
Marketing department is responsible for establishing corporate policies,
statements and operational procedures to create and continuously seek to present
a positive image of the Company to key stakeholders including investors,
customers and employees. In addition, it is also responsible for formulating,
recommending and implementing marketing policies and programs in the areas of
customer and sales support, advertising, promotions, public relations, investor
relations and related activities.

     Depreciation and Amortization.  Depreciation and amortization for all
corporate functions are reported together grouped into one caption.

                                       77
<PAGE>

     The Company attributes revenue and expenses to a geographic area based on
the location from which the product was shipped or the service was performed.
Geographic segment information for the years ended December 31, 2001, 2000 and
1999 consists of:

<TABLE>
<CAPTION>
     Geographic Operations:                                         2001                   2000                    1999
     ----------------------                                         ----                   ----                    ----
<S>                                                              <C>                    <C>                     <C>
Revenue:
     North America                                               $  101,110             $   92,278              $   86,876
     Australia / Asia                                                   237                   (215)                  7,773
     Europe / Africa                                                  7,756                  7,055                  10,117
     South America                                                    1,954                  1,648                   2,118
                                                                 ----------             ----------              ----------
                                                                 $  111,057             $  100,766              $  106,884
                                                                 ==========             ==========              ==========

Gross profit:
     North America                                               $   55,286             $   45,009              $   46,246
     Australia / Asia                                                  (486)                  (215)                  2,249
     Europe / Africa                                                  3,161                    657                   2,490
     South America                                                      669                    651                   1,053
                                                                 ----------             ----------              ----------
                                                                 $   58,630             $   46,102              $   52,038
                                                                 ==========             ==========              ==========

Operating income:
     North America                                               $    3,862             $   (9,821)             $    8,327
     Australia / Asia                                                  (733)                  (215)                   (291)
     Europe / Africa                                                    631                 (1,088)                    780
     South America                                                     (224)                  (407)                    (96)
                                                                 ----------             ----------              ----------
                                                                 $    3,536             $  (11,531)             $    8,720
                                                                 ==========             ==========              ==========

Depreciation and amortization:
     North America                                               $   12,245             $   10,890              $    8,904
     Australia / Asia                                                    15                                            149
     Europe / Africa                                                     97                    161                     230
     South America                                                       49                     66                      66
                                                                 ----------             ----------              ----------
                                                                 $   12,406             $   11,117              $    9,349
                                                                 ==========             ==========              ==========

Assets:
     North America                                               $  169,034             $  162,725              $  171,624
     Australia / Asia                                                 3,627                                            558
     Europe / Africa                                                  2,926                  2,164                   4,318
     South America                                                                           1,857                   1,795
                                                                 ----------             ----------              ----------
                                                                 $  175,587             $  166,746              $  178,295
                                                                 ==========             ==========              ==========

Capital expenditures:
     North America                                                   16,192             $   12,286              $    9,689
     Australia / Asia                                                    46                                            127
     Europe / Africa                                                     60                     68                     113
     South America                                                      614                     83                     105
                                                                 ----------             ----------              ----------
                                                                 $   16,912             $   12,437              $   10,034
                                                                 ==========             ==========              ==========
</TABLE>

                                       78
<PAGE>

20.  RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2001, the FASB issued two new standards, SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. Together
these statements will change the accounting for business combinations and
goodwill. SFAS 141 requires the purchase method of accounting for all business
combinations initiated after June 30, 2001 and eliminates the pooling-of-
interests method. SFAS 142 changes the accounting for goodwill and indefinite
lived intangible assets from an amortization method to an impairment only
approach. Thus, amortization of goodwill, including goodwill recorded in past
business combinations, will cease upon adoption of SFAS 142. Amortization will
still be required for identifiable intangible assets with finite lives. The
provisions of SFAS 142 are required to be applied starting with fiscal years
beginning after December 15, 2001. Early application is permitted for entities
with fiscal years beginning after March 15, 2001, provided that the first
interim financial statements have not previously been issued. The Company is
required to adopt SFAS 142 at the beginning of 2002. The impact that SFAS 141
and SFAS 142 will have on our financial condition or results of operations will
be to reduce amortization expense of certain assets previously amortized by
approximately $1.7 million annually beginning in 2002. The Company will also be
required to make an initial impairment assessment and review goodwill for
impairment on an ongoing basis, at least annually.

     In July 2001, the SEC issued SAB No. 102, Selected Loan Loss Allowance
Methodology and Documentation Issues. SAB 102 gives guidance on the
documentation and methodologies used in the determination of loan loss
allowances. We believe the adoption of this bulletin will not have a material
impact on our consolidated financial condition or results of operations.

     In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
and Disposal of Long-Lived Assets. This statement is effective for financial
statements issued for fiscal years beginning after December 15, 2001, which will
begin January 1, 2002. Based on a recent analysis, we believe the adoption of
this bulletin will not have a material impact on our consolidated financial
condition or results of operations.


21.  SUBSEQUENT EVENTS

     Foothill Capital Corporation - In February 2002, the Company completed the
acquisition of a $17,500 working capital revolving line of credit facility (the
"Facility") with Foothill Capital Corporation. Borrowings under the Facility are
based on (i) eligible accounts receivable, as defined in the Facility, up to
$7,500 with interest at LIBOR plus 2.75% or prime plus 0.75% and (ii) eligible
EBITDA, as defined in the Facility, up to $10,000 with interest at prime plus a
range of 2.0% to 3.5% depending on debt coverage ratios. We are subject to a
0.5% per annum unused line fee. The Facility has early payoff penalties during
the term of the line at 3.0% during the first year, 2.0% during the second year,
and 1.0% during the third year. The Facility includes certain restrictive
financial covenants, including maintenance of $20,000 of annual EBITDA, minimum
table games revenue of $750 monthly and a table game installed base of no less
than 600 games. The Facility has an initial term of three years.

     GameCraft, Inc. - On March 11, 2002, we closed a transaction with
GameCraft, Inc., the owner of patents and other intellectual property relating
to two unique and innovative video poker games. We agreed to loan GameCraft,
Inc. $1,500 for up to three years at 10.0% rate of interest. At our option, the
loan principal and interest is convertible, in whole or in part, into common
stock of Gamecraft at any time prior to repayment of the loan by GameCraft, Inc.
As additional consideration for the loan, GameCraft, Inc. granted us an
exclusive license to manufacture and distribute its video poker games throughout
most legal gaming jurisdictions in North America.

                                       79
<PAGE>

MIKOHN GAMING CORPORATION
QUARTERLY RESULTS OF OPERATIONS (unaudited)

<TABLE>
<CAPTION>
                                        1/ST/               2/ND/              3/RD/               4/TH/              ANNUAL
                                        -----               -----              -----               -----              ------
<S>                              <C>                   <C>                <C>                  <C>                 <C>
Revenues:
     2001                                $25,268            $27,220            $27,287             $ 31,282            $111,057
                                    ==============     ==============     ==============       ==============      ==============
     2000                                $22,323            $25,951            $28,248             $ 24,244            $100,766
                                    ==============     ==============     ==============       ==============      ==============

Gross profit:
     2001                                $13,077            $16,140            $15,666             $ 13,747            $ 58,630
                                    ==============     ==============     ==============       ==============      ==============
     2000                                $12,414            $14,789            $14,413             $  4,486            $ 46,102
                                    ==============     ==============     ==============       ==============      ==============

Net income (loss)
     before
     extraordinary item:
     2001                                $    92            $ 1,788            $ 1,717             $(10,162)           $ (6,565)
     2000                                $   202            $ 1,634            $   780             $(24,721)           $(22,105)

Net income (loss):
     2001                                $    92            $ 1,788            $(1,418)            $(10,162)           $ (9,700)
                                    ==============     ==============     ==============       ==============      ==============
     2000                                $   202            $ 1,634            $   780             $(24,721)           $(22,105)
                                    ==============     ==============     ==============       ==============      ==============

Weighted average shares outstanding:
     Basic -
          2001                            11,068             11,117             12,072               12,721              11,750
                                    ==============     ==============     ==============       ==============      ==============
          2000                            10,837             10,958             11,021               11,055              10,968
                                    ==============     ==============     ==============       ==============      ==============

     Diluted -
          2001                            11,072             11,429             12,072               12,721              11,750
                                    ==============     ==============     ==============       ==============      ==============
          2000                            10,964             11,088             11,178               11,055              10,968
                                    ==============     ==============     ==============       ==============      ==============

Net income (loss) per share:
     Basic -
          2001                           $  0.01            $  0.16            $ (0.12)            $  (0.80)           $  (0.83)
                                    ==============     ==============     ==============       ==============      ==============
          2000                           $  0.02            $  0.15            $  0.07             $  (2.24)           $  (2.02)
                                    ==============     ==============     ==============       ==============      ==============

     Diluted -
          2001                           $  0.01            $  0.16            $ (0.12)            $  (0.80)           $  (0.83)
                                    ==============     ==============     ==============       ==============      ==============
          2000                           $  0.02            $  0.15            $  0.07             $  (2.24)           $  (2.02)
                                    ==============     ==============     ==============       ==============      ==============
</TABLE>

                                       80
<PAGE>

     1.   The company's interim financial information for the quarterly periods
          ended March 31, June 30 and September 30, 2001 have been corrected to
          reflect adjusted revenues, gross profit and net income (loss) as
          follows, due to the interpretation of revenue recognition with certain
          sales transactions:

<TABLE>
<CAPTION>
                                          1st                2nd                3rd
                                          ---                ---                ---
<S>                                      <C>                <C>                <C>
Revenues:
     As reported                         $ 26,071           $ 27,026           $ 26,678
     As corrected                          25,268             27,220             27,287

Gross Profit:
     As reported                           13,431             16,025             15,427
     As corrected                          13,077             16,140             15,666

Net income (loss):
     As reported                              446              1,673             (1,657)
     As corrected                              92              1,788             (1,418)

Net income (loss) per share:
     Basic-
          As reported                    $   0.04           $   0.15           $  (0.14)
          As corrected                   $   0.01           $   0.16           $  (0.12)

     Diluted-
          As reported                    $   0.04           $   0.15           $  (0.14)
          As corrected                   $   0.01           $   0.16           $  (0.12)
</TABLE>


     2.   During the fourth quarter of 2001, the Company incurred unusual
          charges for: (i) impaired assets, principally goodwill and
          nonoperating fixed assets, of approximately $2,900, (ii) receivables,
          including significant amounts owed from debtors who purchased certain
          patent and internet rights, for which collectibility is now considered
          doubtful of approximately $2,800, (iii) inventory reserves related to
          the energy crisis and the economic decline of approximately $2,200,
          (iv) losses incurred in foreign operations due to the collapse of the
          Argentina economy and softness in the Australasian market of $600 and
          (v) miscellaneous charges related to medical insurance claims and
          certain international slot leasing revenues of $1,000.

     3.   During the fourth quarter of 2000, the Company determined that certain
          of its older non-branded slot machines games, surveillance assets and
          prepaid royalties related to a licensing agreement had balance sheet
          values in excess of their present realizable value, resulting in
          charges to revalue fixed assets, accounts receivable, prepaid
          royalties, proprietary rights and goodwill to realizable value for
          older slot products of $2,430, surveillance assets of $720, prepaid
          royalties of $3,356 and other of $143. See Note 9 Impairment Loss,
          Write-off Of Assets and Other and Extraordinary Item. In addition, the
          Company charged to cost of sales $3,197 for the writedown of certain
          inventories related to its older, non-branded slot machines. On March
          27, 2001, a jury returned a verdict in favor of Acres Gaming, Inc.
          against the Company. See Note 13 - Commitments and Contingencies. The
          jury's award of $1.5 million has been included in the accompanying
          statement of operations. In addition, the Company has recorded an
          impairment to the value of capitalized patent costs related to this
          judgment amounting to $1.7 million which has also been included within
          this balance in the statement of operations.

     4.   See Note 9 - Impairment Loss, Write-off of Assets and Other and
          Extraordinary Item and Note 11 - Deferred License Fees.

     5.   The sum of the quarterly earnings per common share does not equal the
          amount reported for the year in total as the quarterly calculations
          are made independently during the year.

                                       81
<PAGE>

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

     None


                                   PART III


     Item 10.  Directors and Executive Officers of the Registrant

     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 through 13 is set forth under the
captions "Election of Directors," "Management," "Executive Compensation,"
"Principal Stockholders" and "Certain Transactions" in Mikohn Gaming
Corporation's definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A of the Securities Exchange Act of 1934, as amended, and is
incorporated herein by reference as if set forth in full.


                                    PART IV

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


     (a) 1. and 2. Financial Statements and Schedules

     The financial statements and schedules filed as part of this report are
listed in the Index to Consolidated Financial Statements under Item 8.

          (3)  Exhibits required by Securities and Exchange Commission
               Regulation S-K:

<TABLE>
<S>           <C>
        3.1   Amended and Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1 to
              Amendment No. 1 to the Company's Registration Statement on Form S-1 (No. 33-69076).

        3.2   Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the
              Company's Registration Statement on Form S-1 (No. 33-69076).

        4.6   Agreement between the Company, The Young Group, Inc. and John R. Young, dated November 7, 1994
              (the "Young Agreement"), including certain exhibits thereto and a supplemental list identifying
              all exhibits and schedules thereto, incorporated by reference to Exhibit 2.1 to the Company's
              Form 10-Q for the quarter ended September 30, 1994.

      *10.9   Stock Option Plan, as amended, incorporated by reference to Exhibit 4.3 to the Company's
              Registration Statement on Form S-8 (No. 33-73506).

     *10.10   Director Stock Option Plan, as amended, incorporated by reference to Exhibit 10.18 to the
              Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.

      10.12   Form of Indemnification Agreement between the Company and its directors and executive officers,
              incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Company's Registration
              Statement on Form S-1 (No. 33-69076).

     *10.13   Employment Agreement dated October 17, 1988, as amended, between the Company and David J.
              Thompson, incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the
</TABLE>

                                       82
<PAGE>

<TABLE>
<S>           <C>
              Company's Registration Statement on Form S-1 (No. 33-69076).

     *10.14   Second Amendment to Employment Agreement, dated as of July 1, 1993, between the Company and David
              J. Thompson, incorporated by reference to Exhibit 10.10 to the Company's Quarterly Report on Form
              10-Q for the quarter ended March 31, 1994.

     *10.20   Employment Agreement, dated as of May 1, 1994, between the Company and Charles H. McCrea, Jr.,
              incorporated by reference to Exhibit 10.1 to the Company's Report on Form 8-K/A dated September
              1, 1994.

      10.25   Sales Agreement dated January 6, 1995, between Michael Wichinsky dba Games of Nevada and the
              Company incorporated by reference to Exhibit 10.25 to the Company's Report on Form 10-K for the
              year ended December 31, 1994.

     *10.35   Employment Agreement dated June 2, 1996, between the Company and Don Stevens incorporated by
              reference to Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended
              June 30, 1996.

     *10.36   Employment Agreement dated January 27, 1997, between the Company and Louie Peyton incorporated by
              reference to Exhibit 10.26 of the Company's Form 10-Q dated March 31, 1997.

      10.38   Credit Agreement dated October 24, 1997, between the Company and First Source Financial LLP
              ("Credit Agreement") documenting the Company's new $40.0 million secured credit facility
              including exhibits incorporated by reference to Exhibit 10.35 of the Company's Form 10-Q dated
              September 30, 1997.

      10.39   Assignment from First Source Financial LLP to Eaton Vance under the Credit Agreement incorporated
              by reference to Exhibit 10.36 of the Company's Form 10-Q dated September 30, 1997.

      10.40   $10.0 million Revolving Note under the Credit Agreement incorporated by reference to Exhibit
              10.37 of the Company's Form 10-Q dated September 30, 1997.

      10.41   Term Loan Note A under the Credit Agreement incorporated by reference to Exhibit 10.38 of the
              Company's Form 10-Q dated September 30, 1997.

      10.42   Term Loan Note B under the Credit Agreement incorporated by reference to Exhibit 10.39 of the
              Company's Form 10-Q dated September 30, 1997.

      10.43   Guaranty Executed by Borrower and Each Guarantor under the Credit Agreement incorporated by
              reference to Exhibit 10.40 of the Company's Form 10-Q dated September 30, 1997.

      10.44   Security Agreement Executed by Borrower and Each Guarantor under the Credit Agreement
              incorporated by reference to Exhibit 10.41 of the Company's Form 10-Q dated September 30, 1997.

      10.45   Trademark Security Agreement under the Credit Agreement incorporated by reference to Exhibit
              10.42 of the Company's Form 10-Q dated September 30, 1997.

      10.46   Patent Security Agreement under the Credit Agreement incorporated by reference to Exhibit 10.43
              of the Company's Form 10-Q dated September 30, 1997.

      10.47   Stock Pledge Agreement Executed by Mikohn under the Credit Agreement incorporated by reference to
              Exhibit 10.44 of the Company's Form 10-Q dated September 30, 1997.

      10.48   Bank Agency Agreements under the Credit Agreement incorporated by reference to Exhibit 10.45 of
              the Company's Form 10-Q dated September 30, 1997.

      10.49   Post Closing Agreement under the Credit Agreement incorporated by reference to Exhibit 10.46 of
              the Company's Form 10-Q dated September 30, 1997.

      10.50   Deed of Trust under the Credit Agreement incorporated by reference to Exhibit 10.47 of the
              Company's Form 10-Q dated September 30, 1997.
</TABLE>

                                       83
<PAGE>

<TABLE>
<S>           <C>
      10.51   Deed of Trust under the Credit Agreement incorporated by reference to Exhibit 10.48 of the
              Company's Form 10-Q dated September 30, 1997.

      10.52   Composition Mortgage under the Credit Agreement incorporated by reference to Exhibit 10.49 of the
              Company's Form 10-Q dated September 30, 1997.

      10.53   Agreement dated April 9, 1998, between the Company and Progressive Games, Inc. for the Company to
              acquire the stock of Progressive Games, Inc. incorporated by reference to Exhibit 10.53 of the
              Company's Form 10-Q dated March 31, 1998.

      10.54   $86.0 million Amended and Restated Credit Agreement among Mikohn Gaming Corporation, as Borrower,
              Each of the Financial Institutions together with their Lenders, and First Source Financial LLP,
              as Agent dated as of August 28, 1998 incorporated by reference to Exhibit 10.53 of the Company's
              Form 10-Q dated September 30, 1998.

      10.55   Annex and Schedules to Amended and Restated Credit Agreement Dated as of August 28, 1998
              incorporated by reference to Exhibit 10.54 of the Company's Form 10-Q dated September 30, 1998.

     *10.56   Third Amendment to Employment Agreement between the Company and Dennis A. Garcia dated November
              16, 2001.

     *10.57   Sixth Amendment to Employment Agreement between the Company and Charles H McCrea, Jr. dated
              November 19, 2001.

     *10.58   Fifth Amendment to Employment Agreement between the Company and Donald W. Stevens dated November
              19, 2001.

     *10.59   Eighth Amendment to Employment Agreement between the Company and David J Thompson dated November
              19, 2001.

     *10.60   Employment Agreement between the Company and Olaf Vancura dated August 31, 1998.

     *10.61   First Amendment to Employment Agreement between the Company and Olaf Vancura dated November 15, 2001.

      10.62   Secured Convertible Debenture dated March 11, 2002 between the GameCraft, Inc. and the Company.

       21.1   Subsidiaries

       23.1   Consent of Arthur Andersen LLP

       23.2   Consent of Deloitte & Touche LLP

         99   Representation from Arthur Andersen LLP to the Company dated April 15, 2002 sent to the
              Securities Exchange Commission.

       99.1   Audited Financial Statements for Mikohn Nevada
</TABLE>


     * Management contracts and compensation plans

     (b) Reports on Form 8-K filed during the last quarter of 2000.

     None

                                       84
<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.



     MIKOHN GAMING CORPORATION


April 15, 2002                             By:        /s/ Don W. Stevens
                                               --------------------------------
                                               Don W. Stevens, Executive Vice
                                                 President, Treasurer, Principal
                                                          Financial Officer

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

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


/s/ David J. Thompson              Chairman of the           April 15, 2002
---------------------------
David J. Thompson                Board, President and
                                Chief Executive Officer


/s/ Dennis A. Garcia            Executive Vice President     April 15, 2002
---------------------------
Dennis A. Garcia                        Director


/s/ Bruce E. Peterson                   Director             April 15, 2002
---------------------------
Bruce E. Peterson


/s/ Terrance W. Oliver                  Director             April 15, 2002
---------------------------
Terrance W. Oliver


/s/ John K. Campbell                    Director             April 15, 2002
---------------------------
John K. Campbell


/s/ James E. Meyer                      Director             April 15, 2002
---------------------------
James E. Meyer


/s/ Douglas M. Todoroff                 Director             April 15, 2002
---------------------------
Douglas M. Todoroff

                                       85