<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, 1998 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)
<TABLE> 

<S>                                                                     <C> 
                              Nevada                                              88-0218876
 -------------------------------------------------------------------------------------------------------
   (State or other jurisdiction of incorporation or organization)      (IRS Employer Identification No.)
 
    1045 Palms Airport Dr., 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
                                                    -----------------------
</TABLE>
          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 15, 1999, was
10,680,075. The market value of the common stock held by nonaffiliates of the
Registrant as of April 12, 1999, was approximately $15,857,885.  The market
value was computed by reference to the closing sales price of $3.0625 per share
of common stock on the NASDAQ National Market System as of March 15, 1999.
<PAGE>
 
                             EXPLANATORY STATEMENT

     This is an amendment to the Mikohn Gaming Corporation annual report on Form
10-K for the year ended December 31, 1998, originally filed on March 31, 1999. 
The original Form 10-K is being amended due to a transcription error on the 
Consolidated Statements of Cash Flows as reported on page 48 of the original 
Form 10-K.
<PAGE>
 
Item 8.  Consolidated Financial Statements and Supplementary Data


                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
             For the Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<S>                                                                                             <C>
Independent Auditors' Report.................................................................    2
Consolidated Balance Sheets as of December 31, 1998 and 1997.................................    3
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 
and 1996.....................................................................................    4
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended 
December 31, 1998, 1997 and 1996.............................................................    5
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended 
December 31, 1998, 1997 and 1996.............................................................    6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 
and 1996.....................................................................................    7
Notes to Consolidated Financial Statements...................................................    9
Quarterly Results of Operations (Unaudited)..................................................   29

</TABLE>

  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.

                                      -1-
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT



Mikohn Gaming Corporation:


  We have audited the accompanying consolidated balance sheets of Mikohn Gaming
Corporation (the "Company") as of December 31, 1998 and 1997, and the related
consolidated statements of operations,  comprehensive income (loss), changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998.  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 generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

  In our opinion such financial statements present fairly in all material
respects, the financial position of the Company as of December 31, 1998 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.



DELOITTE & TOUCHE LLP



Las Vegas, Nevada
February 23, 1999

                                      -2-
<PAGE>
 
                           MIKOHN GAMING CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                       As of December 31, 1998 and 1997
 
(Amounts in thousands except per share amounts)
<TABLE> 
<CAPTION> 
                                                                                                                                   
                                                                                                    1998                     1997
                                                                                                    ----                     ---- 
                                ASSETS 
                                ------ 
<S>                                                                                             <C>                       <C>
Current assets:                                                                                                                 
   Cash and cash equivalents                                                                   $   3,732                 $  4,896
   Accounts receivable, net                                                                       28,783                   22,584
   Installment sales receivable, current portion                                                   1,387                    1,936
   Inventories, net                                                                               25,251                   25,344
   Prepaid expenses                                                                                4,611                    3,320
   Deferred tax asset                                                                                884                      644
                                                                                               ---------                 --------
       Total current assets                                                                       64,648                   58,724
 
Installment sales receivable, net of current portion                                                 860                      124
Property and equipment, net                                                                       22,625                   15,957
Intangible assets                                                                                 53,567                   16,689
Other assets                                                                                       8,453                    6,094
Deferred tax asset - noncurrent                                                                    3,079
                                                                                               ---------                 --------
 
Total assets                                                                                   $ 153,232                 $ 97,588
                                                                                               =========                 ========
 
                LIABILITIES AND STOCKHOLDERS' EQUITY
                ------------------------------------
Current liabilities:
   Current portion of long-term debt and notes payable                                         $   2,122                 $    171
   Trade accounts payable                                                                          9,098                    6,873
   Customer deposits                                                                               4,675                    3,504
   Accrued and other current liabilities                                                           5,729                    4,083
                                                                                               ---------                 --------
      Total current liabilities                                                                   21,624                   14,631
                                                                                               ---------                 --------
 
Long-term debt, net of current portion                                                            84,881                   30,055
                                                                                               ---------                 --------
 
Deferred tax liability - noncurrent                                                                                           332
                                                                                               ---------                 --------
 
Commitments and contingencies (See Note 10)
 
Stockholders' equity:
  Preferred stock, $.10 par value, 5,000 shares
     Authorized, none issued and outstanding
   Common stock, $.10 par value, 20,000 shares authorized,
     10,681 and 10,284 shares issued and outstanding                                               1,068                    1,028
   Additional paid-in capital                                                                     51,618                   49,283
   Foreign currency translation                                                                   (1,018)                    (826)
   Retained earnings                                                                              (4,713)                   3,313
                                                                                               ---------                 --------
       Subtotal                                                                                   46,955                   52,798
   Less treasury stock, 19 shares, at cost                                                          (228)                    (228)
                                                                                               ---------                 --------
      Total stockholders' equity                                                                  46,727                   52,570
                                                                                               ---------                 --------
 
Total liabilities and stockholders' equity                                                     $ 153,232                 $ 97,588
                                                                                               =========                 ========

</TABLE> 
See notes to consolidated financial statements

                                      -3-
<PAGE>
 
                           MIKOHN GAMING CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
             For the Years Ended December 31, 1998, 1997 and 1996
 
(Amounts in thousands except per share Amounts)    
<TABLE> 
<CAPTION> 

                                                               1998                    1997                  1996
                                                               ----                    ----                  ---- 
<S>                                                           <C>                     <C>                   <C>
Sales                                                         $99,032                 $98,548               $91,402
Cost of sales                                                  60,163                  61,200                59,647
                                                              -------                 -------               ------- 
   Gross profit                                                38,869                  37,348                31,755
 
Selling, general and administrative expenses                   38,837                  31,073                29,190
Write-off of assets and other                                   4,493
                                                              -------                 -------               ------- 
   Operating income (loss)                                     (4,461)                  6,275                 2,565
 
Other income and (expense):
   Interest expense                                            (5,115)                 (2,555)               (1,934)
   Other income and (expense)                                     112                      11                   410
                                                              -------                 -------               ------- 
      Income (loss) before income tax (provision)
         benefit                                               (9,464)                  3,731                 1,041
 
Income tax (provision) benefit                                  3,190                  (1,357)                 (429)
                                                              -------                 -------               ------- 
  Income (loss) before extraordinary item                      (6,274)                  2,374                   612
                                                              -------                 -------               ------- 
Extraordinary item:
  Loss on early extinguishment of debt                         (2,662)
  Tax benefit                                                     910
                                                              -------                 -------               ------- 
    Extraordinary loss                                         (1,752)
                                                              -------                 -------               ------- 
 
Net income (loss)                                             $(8,026)                $ 2,374               $   612
                                                              =======                 =======               =======
 
 
Weighted average common shares -
  Basic                                                        10,527                   9,952                 9,847
                                                              =======                 =======               =======
  Diluted                                                      10,527                  10,057                10,070
                                                              =======                 =======               =======
 
Earnings per share information:
  Basic:
    Income (loss) before extraordinary item                   $ (0.60)                $  0.24               $  0.06
    Extraordinary loss                                          (0.16)
                                                              -------                 -------               ------- 
      Basic                                                   $ (0.76)                $  0.24               $  0.06
                                                              =======                 =======               =======
 
  Diluted:
    Income (loss) before extraordinary item                   $ (0.60)                $  0.24               $  0.06
    Extraordinary loss                                          (0.16)
                                                              -------                 -------               -------
      Diluted                                                 $ (0.76)                $  0.24               $  0.06
                                                              =======                 =======               =======
 
See notes to consolidated financial statements
</TABLE>

                                      -4-
<PAGE>
 
                           MIKOHN GAMING CORPORATION
             CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
             For the Years Ended December 31, 1998, 1997 and 1996
 
(Amounts in thousands except per share
amounts)      
<TABLE> 
<CAPTION> 

                                                               1998                    1997                  1996
                                                               ----                    ----                  ---- 
<S>                                                           <C>                     <C>                   <C>
Net income (loss)                                             $(8,026)                $ 2,374               $   612
 
Comprehensive loss:
   Foreign currency translation                                  (192)                   (656)                 (201)
                                                              -------                 -------               -------
 
   Total comprehensive income / (loss)                        $(8,218)                $ 1,718               $   411
                                                              =======                 =======               =======
</TABLE>
See notes to consolidated financial statements

                                      -5-
<PAGE>
 
                           MIKOHN GAMING CORPORATION
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
             For the Years Ended December 31, 1998, 1997 and 1996
 
<TABLE> 
<CAPTION> 
                                                                                                                                
(Amounts in thousands)                                                                                 Foreign           
                                       Common Stock        Additional                                  Currency  
                                       ------------         Paid-in       Retained      Treasury     Translation 
                                   Shares       Amount      Capital       Earnings        Stock       Adjustment        Total
                                   ------       ------      -------       --------        -----       ----------      --------
<S>                                <C>          <C>          <C>          <C>            <C>            <C>               <C>
Balance, January 1, 1996           9,803        $  983      $48,258       $   327        $(248)         $    31       $49,351
Purchase of treasury stock            (1)                                                   (4)                            (4)
Issuance of common stock              19             2          121                                                       123
Stock options exercised               73             7          256                                                       263
Treasury stock canceled                             (2)        (199)                       201
Net income                                                                    612                                         612
Translation adjustments                                                                                    (201)         (201)
                                  ------        ------      -------       -------        -----          -------       -------
Balance, December 31, 1996         9,894           990       48,436           939          (51)            (170)       50,144
Issuance of treasury stock             6                                                    26                             26
Issuance of common stock             344            34          474                                                       508
Stock options exercised               12             1           54                         (3)                            52
IRC Section 422 disqualifying
   disposition on stock options
   exercised                                                    133                                                       133
Employee stock purchase plan          29             3          186                                                       189
Treasury stock reacquired            (20)                                                 (200)                          (200)
Net income                                                                  2,374                                       2,374
Translation adjustments                                                                                    (656)         (656)
                                  ------        ------      -------       -------        -----          -------       -------
Balance, December 31, 1997        10,265         1,028       49,283         3,313         (228)            (826)       52,570
Issuance of common stock (net)       152            15        1,239                                                     1,254
Stock options exercised              176            18          734                                                       752
Employee stock purchase plan          69             7          362                                                       369
Net loss                                                                   (8,026)                                     (8,026)
Translation adjustments                                                                                    (192)         (192)
                                  ------        ------      -------       -------        -----          -------       -------
Balance, December 31, 1998        10,662        $1,068      $51,618       $(4,713)       $(228)         $(1,018)      $46,727
                                  ======        ======      =======       =======        =====          =======       =======
</TABLE> 

See notes to consolidated financial statements

                                      -6-
<PAGE>
 

                           MIKOHN GAMING CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the Years Ended December 31, 1998, 1997 and 1996
 

<TABLE> 
<CAPTION> 
(Amounts in thousands)
                                                                1998                 1997                   1996
                                                                ----                 ----                   ---- 
<S>                                                           <C>                    <C>                   <C>
Cash flows from operating activities:
   Net income (loss)                                         $ (8,026)             $  2,374               $   612
   Adjustments to reconcile net income (loss) to net cash
      used in operating activities:
      Depreciation                                              4,091                 2,784                 2,431
      Amortization                                              2,635                 1,530                 1,985
      Write-off of noncurrent assets                            3,022
      Provision for bad debts                                   1,623                   108                    41
      Change in exchange rate variance                           (192)                 (656)                 (201)
      Extraordinary loss net of tax benefit                     1,752
   Changes in assets and liabilities:
      Accounts receivable                                      (7,822)                3,001                (3,095)
      Installment sales receivable                               (186)                 (682)                  194
      Inventories                                                  93                (2,332)               (5,788)
      Prepaid expenses and other assets                        (5,538)               (3,032)                 (315)
      Intangible assets                                        (2,016)               (2,890)               (2,602)
      Trade accounts payable                                    2,226                  (482)                  373
      Accrued and other current liabilities                       410                   547                   471
      Customer deposits                                         1,171                (3,062)                3,690
      Deferred taxes                                           (3,651)                  700                 1,279
                                                             --------              --------               -------
 
Net cash used in operating activities                         (10,408)               (2,092)                 (925)
                                                             --------              --------               -------
Cash flows from investing activities:
   Purchase of business operations                            (39,147)
   Purchase of property and equipment                          (5,166)               (1,000)               (1,347)
   Gaming equipment leased to others                           (5,630)               (1,919)               (1,393)
   Proceeds from sales of property and equipment                   35                    27
                                                             --------              --------               -------
 
Net cash used in investing activities                         (49,908)               (2,892)               (2,740)
                                                             --------              --------               -------
 
Cash flows from financing activities:
   Proceeds from long-term debt and notes payable              57,050                31,100                   415
   Principal payments on notes payable and long-term debt        (273)              (23,593)                 (787)
   Proceeds from sale of common stock                           2,375                   778                   386
   Purchases of treasury stock                                                         (203)                   (4)
                                                             --------              --------               ------- 
Net cash provided by financing activities                      59,152                 8,082                    10
                                                             --------              --------               -------
Increase (decrease) in cash and cash equivalents               (1,164)                3,098                (3,655)
 
Cash and cash equivalents, beginning of year                    4,896                 1,798                 5,453
                                                             --------              --------               ------- 
Cash and cash equivalents, end of year                       $  3,732              $  4,896               $ 1,798
                                                             ========              ========               =======
</TABLE>
(Continued)
 

                                      -7-
<PAGE>
 
                           MIKOHN GAMING CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the Years Ended December 31, 1998, 1997 and 1996
 
<TABLE> 
<CAPTION> 
(Amounts in thousands)

                                                                1998                 1997                   1996
                                                                ----                 ----                   ---- 
<S>                                                           <C>                    <C>                   <C>
Supplemental disclosure of cash flows information:
   Cash paid (received) during the year for:
      Interest expense                                         $4,959                $2,452               $ 1,612
                                                               ======                ======               =======
      State and federal taxes                                  $  218                $  922               $(2,808)
                                                               ======                ======               =======
 
Supplemental schedule of non-cash investing
   and financing activities:
   Issuance of stock in exchange for assets                                          $  392
                                                               ======                ======               =======
   IRC Section 422 disqualifying disposition on
     stock options exercised                                                         $  133
                                                               ======                ======               =======
  Issuance of stock in exchange of intellectual
     technology                                                $1,000
                                                               ======                ======               =======
  Acquisition of Progressive Games, Inc.:                      $6,013
     Asset acquired                                            ======                ======               =======
     Liabilities assumed                                       $3,149
                                                               ======                ======               =======
  
  Acquisition of P&S Leasing:                                  $   28
     Asset acquired                                            ======                ======               =======
     Liabilities assumed                                           --
                                                               ======                ======               =======
 
Debt incurred in purchase of business assets                                                              $   140
                                                               ======                ======               =======
</TABLE> 
See notes to consolidated financial statements

                                      -8-
<PAGE>
 
                           MIKOHN GAMING CORPORATION
                  Notes to Consolidated Financial Statements


Note:  All amounts reported in the Notes to Consolidated Financial Statements
are rounded to the nearest thousand unless otherwise stated.


1.   ORGANIZATION

     Mikohn Gaming Corporation (the "Company" or "Mikohn"), a publicly traded
Nevada corporation, was formed in May 1986 to develop, manufacture and
distribute technologically advanced progressive jackpot systems for use with
gaming machines.  On September 17, 1993, the Company changed its name from
Mikohn, Inc. to Mikohn Gaming Corporation, and on November 25, 1993, the Company
consummated an initial public offering of 3,450 shares of its Common Stock at
$15.00 per share (the "Offering"), representing approximately 35.4% of the
Company's Common Stock after giving effect to the November 28, 1993,
acquisitions described below.  Net proceeds to the Company after underwriting
discounts and commissions and other offering costs were $46,666.   Stockholders
of Mikohn prior to the initial public offering owned a total of 3,125 shares of
the Company's Common Stock.

     At the close of business on November 28, 1993, the Company merged with
Casino Signs North, Inc. (and its affiliate A&D Sign Manufacturing, Inc.) and
Peterson Sign Art, Inc. (the "Merger"). The stockholders of Casino Signs North,
Inc. and Peterson Sign Art, Inc. each received 1,562.5 shares of the Company's
Common Stock, or a combined total of 3,125 shares. Such acquisitions through
merger were accounted for by the purchase method and valued at historical cost.
In connection with the Merger, the stockholders of Mikohn, Casino Signs North,
Inc. and Peterson Sign Art, Inc. received distributions equal to previously
taxed undistributed income through the date of the Merger in connection with the
termination of the Subchapter S corporation status of those companies. Such
distributions totaled approximately $4.9 million, $3.2 million of which was paid
in fiscal 1993 and the balance of approximately $1.7 million was paid in fiscal
1994.

     Concurrently with the closing of the Merger, the Company purchased the
principal operating assets of Casino Signs, Inc. and its affiliate, Casino
Products (collectively "Casino Signs") for approximately $13.4 million and
Current Technology Systems, Inc. for approximately $4.2 million. This
consideration paid in each case included ten-year worldwide covenants not to
compete from the companies and their principals.

     On April 8, 1994, the Company acquired Casino Signs Pty Limited and its
affiliate, Club Casino Products Pty Limited, companies based in Sydney,
Australia, through the issuance of 42 shares of the Company's Common Stock.  The
acquisition was accounted for by the purchase method.

     On September 1, 1994, the Company merged with Trans Sierra Communications,
Inc. ("Trans Sierra"), a producer of high performance surveillance, security and
communications systems, through the issuance of 251 shares of the Company's
treasury stock which had been purchased by the Company at a cost of
approximately $3,198.  The acquisition of Trans Sierra was  accounted for by the
purchase method.  On December 31, 1995, 20 shares of the Company's Common Stock
issued in connection with the merger with Trans Sierra were returned to the
Company as a result of Trans Sierra's operations not achieving certain sales
levels for the year then ended.  Such shares were recorded as treasury stock at
a cost of $201 and were canceled.

                                      -9-
<PAGE>
 
     On November 15, 1994, Casino Excitement, Inc. ("CEI"), a wholly owned
subsidiary of the Company, completed the first step of a plan to acquire the
business operations of a group of companies from John Renton Young (the "JRY
Companies") by acquiring the net assets of the JRY Companies in consideration
for the conditional obligation to issue up to 217 shares of the Company's Common
Stock (see below) and the assumption of certain liabilities, including a $500
loan made to the JRY Companies by the Company prior to November 15, 1994.  The
liabilities assumed by CEI in this transaction, net of a deposit in the amount
of approximately $781 towards the purchase of certain real property owned by an
affiliate of the JRY Companies, exceeded the book value of the assets acquired
by approximately $129.  In addition, the Company agreed to pay John Renton Young
$500 for his ten-year covenant not to compete.

     John Renton Young died in September 1997 and was succeeded by the John
Renton Young Trust (the "Trust"). In December 1998, the Company entered into a
settlement agreement with the Trust consummating the acquisition of the JRY
Companies. The settlement agreement, which is subject to the approval of the
Probate Court in Clark County, Nevada, provides that the Company will pay the
Trust the sum of $1,916 at a closing which is expected to occur prior to June
30, 1999. Upon the closing, the Company will acquire the JRY Companies and
certain real property in Clark County owned by an affiliate of the JRY Companies
valued at $2,450. Management believes that the court will approve this
negotiated settlement agreement.

     On January 3, 1995, the Company paid $2.0 million for the purchase of
certain inventory and intangible assets from Michael Wichinsky doing business as
Games of Nevada. With exceptions that are immaterial, the assets included all
rights to all games developed by Games of Nevada, including certain patent and
trademark rights to a number of coin operated specialty games.

     On February 1, 1995, the Company consummated the purchase of a slot machine
route, including specialty "Flip-It" games and other inventory from Mr.
Wichinsky.  In return for these assets, the Company paid Mr. Wichinsky $1.5
million in cash and a promissory note, secured by gaming equipment and slot
route rights, in the principal amount of $4.5 million.

     On July 1, 1997, the Company consummated the purchase of 49.7% of the stock
of Mikohn South America, SA with the issuance of 5.75 shares of the Company's
Common Stock held in its treasury and a participation in profits of Mikohn South
America, SA equal to 25% in 1997, 15% in 1998 and 10% in 1999. This
participation in profits commences after the prior years' losses have been
recovered. A future discount of 20% is allowed for purchases of the Company's
inventory. This purchase is in addition to the 50% of the stock previously owned
by the Company. With this acquisition the Company effectively owns 99.7% of
Mikohn South America, SA.

     On July 25, 1997, the Company entered into an exclusive licensing agreement
with P&M Coin in which it acquired the intellectual rights to P&M's multi-game
touch-screen machines.  Under the terms of this agreement, the Company has an
exclusive license to develop gaming devices including, without limitation, a
video slot machine known as "Player's Choice(TM)" which is among the games the
Company refers to as Mikohn Classics.

     In September 1998, the Company acquired all of the outstanding stock of
Progressive Games, Inc. ("PGI") the developer of Caribbean Stud, for an
aggregate cash consideration of $35,847 as well as the two exclusive
distributors of Caribbean Stud 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 $3,250.  All
of the outstanding stock of PGI was acquired from Donald W. Jones.  In addition
to these proprietary games, the assets of PGI include equipment and other
physical property used in the manufacture and distribution of these games. All

                                      -10-
<PAGE>
 
of the outstanding stock of P&S Leasing was owned by Bertrand F. Hull and
William S. Parrish.

     The purchase method of accounting for business combinations was applied to 
the PGI and P&S Leasing acquisitions.  Accordingly, the total purchase prices of
$35,847 and $3,300 for PGI and P&S Leasing respectively were allocated based on 
their fair values of all assets and liabilities at the date of acquisition.  The
Company, with the exceptions noted in Notes 7 and 10, does not anticipate any 
material adjustments in 1999.  The excess of the purchase price over the net 
assets acquired for these acquisitions totaled $33,674.  These acquisitions were
financed with funds from the private placement of long-term debt the Company 
consummated in September 1998.  Both the acquisitions and the private placement 
of long-term debt were simultaneously occurring transactions.  The results of 
both PGI and P&S Leasing since the acquisition are included in the Consolidated 
Statement of Operations for the year ended December 31, 1999.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     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 and the amounts of such losses have not exceeded management's
projections.

     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.

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

     Prepaid Expenses and Other Assets:  At the end of 1998, other assets 
     ----------------------------------     
included $2,135 of prepaid royalties related to the TableLink product line.
Recoverability of the asset is dependent upon successful completion of the
development of the TableLink product line and sufficient sales of the TableLink
product.

     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.  Costs of major improvements are capitalized;
costs of normal repairs and maintenance are charged to expense as incurred.
Management requires long-lived assets and certain identifiable intangibles 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.

     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. Sales are recorded when
the inventory has been delivered to or installed for the customer.

     Intangible Assets:  Intangible assets consist of patent and trademark 
     ------------------     
rights, goodwill, intellectual property rights and covenants not to compete.
They are recorded at cost and are amortized on a straight-line basis over
periods of 5 to 40 years. Management periodically reviews the recoverability of
its goodwill and other than the write-off of $1,500 for the surveillance and
security division in the third quarter, has determined that no provision for
impairment is necessary at December 31, 1998. (See Note 9).

     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 

                                      -11-
<PAGE>
 
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.  As of the date of this 
filing, the Company does not have any financial instruments that require the 
application of this calculation.

     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.

     Research and Development:  Costs associated with the development of 
     ------------------------      
products are expensed when incurred. Such expenses totaled approximately $5,538,
$3,856 and $3,093 for the years ended December 31, 1998, 1997 and 1996,
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.

     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.

     Software Development Capitalization:  The Company capitalizes those 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.

     Reclassifications:  Certain amounts in the prior years' consolidated 
     ------------------     
financial statements have been reclassified to make them consistent with the
presentation used in 1998.

3.   ACCOUNTS RECEIVABLE

     Accounts receivable at December 31, 1998 and 1997 consist of the following:

<TABLE>
<CAPTION>
                                               1998           1997
                                               ----           ----
<S>                                         <C>            <C>
Trade accounts                               $29,057        $21,694
Other                                            643          1,135
                                             -------        -------
   Subtotal                                   29,700         22,829
Less allowance for doubtful accounts            (917)          (245)
                                             -------        -------
   Net                                       $28,783        $22,584
                                             =======        =======
</TABLE>

     Changes in the allowance for doubtful accounts for the years ended December
31, 1998, 1997 and 1996 are summarized as follows:



                                      -12-
<PAGE>
 

<TABLE>
<CAPTION>
                                               1998           1997           1996
                                               ----           ----           ----
<S>                                         <C>            <C>            <C> 
Allowance for doubtful accounts --
  Beginning                                  $  (245)       $(853)         $(996)
Allowance -- acquired companies                 (280)
Provision for bad debts                       (1,623)        (108)           (41)
Write-offs                                     1,231          716            184
                                             -------        -----          -----
Allowance for doubtful accounts --           
  Ending                                     $  (917)       $(245)         $(853)
                                             =======        =====          =====
</TABLE>

4.   INSTALLMENT SALES RECEIVABLE

     The Company finances certain sales (see Note 2, Concentration of Credit
Risk). The amounts financed during 1998 and 1997 totaled approximately $2,086
and $2,152, respectively. At December 31, 1998 and 1997, the balance of
installment sales receivable was $2,247 and $2,060, of which $1,387 and $1,936,
respectively, were due within 12 months.

5.   INVENTORIES

     Inventories at December 31, 1998 and 1997 consist of the following:

<TABLE>
<CAPTION>
                                     1998           1997
                                     ----           ----
<S>                               <C>            <C>
Raw materials                      $13,776        $13,736
Finished goods                       5,304          6,462
Work-in-progress                     6,171          5,146
                                   -------        -------
   Total                           $25,251        $25,344
                                   =======        =======
</TABLE>

     Changes in the reserve for obsolete inventory for the years ended December
31, 1998, 1997 and 1996 are summarized as follows:

<TABLE> 
<CAPTION>
                                               1998           1997           1996
                                               ----           ----           ----
<S>                                         <C>            <C>            <C> 
Reserve for obsolete inventory --      
  Beginning                                  $  (623)       $(423)         $(423)
Provision for obsolete inventory              (1,465)        (238)
Write-offs                                     1,161           38
                                             -------        -----          -----
Reserve for obsolete inventory --
  Ending                                     $  (927)       $(623)         $(423)
                                             =======        =====          =====
</TABLE>

                                      -13-
<PAGE>
 
6.   PROPERTY AND EQUIPMENT

     Property and equipment at December 31, 1998 and 1997 consist of the
following:

<TABLE>
<CAPTION>
                                     1998           1997
                                     ----           ----
<S>                               <C>            <C>
Land                               $  1,781       $ 1,131
Buildings and improvements            6,472         4,461
Machinery and equipment               6,851         5,558
Equipment leased to others           12,104         6,475
Furniture and fixtures                6,331         5,242
Transportation equipment              1,941         1,513
                                   --------       -------
   Subtotal                          35,480        24,380
Less accumulated depreciation       (12,855)       (8,423)
                                   --------       -------
   Total                           $ 22,625       $15,957
                                   ========       =======
</TABLE>

7.   INTANGIBLE ASSETS

     Intangible assets at December 31, 1998 and 1997 consist of the following:

<TABLE>
<CAPTION>
                                     1998           1997
                                     ----           ----
<S>                               <C>            <C>
Patent and trademark rights        $  8,960       $ 1,329
Covenants not to compete             10,684        10,916
Proprietary property rights           1,229           229
Goodwill                             42,616        10,794
Software costs                        1,146           709
                                   --------       -------
   Subtotal                          64,635        23,977
Less accumulated amortization       (11,068)       (7,288)
                                   --------       -------
   Total                           $ 53,567       $16,689
                                   ========       =======
</TABLE>

     Trademark and patent rights in the amount of $617 were acquired from a
former stockholder in 1987 and 1988. In 1989, 1995 and 1996 additional trademark
and patent rights in the amount of $227, $50, and $192 respectively, were
acquired from employees. In 1997, $243 was spent on patent and trademark rights
development. In 1998, $1,531 was spent on patent and trademark rights
development while an additional $6,100 was acquired in the PGI acquisition.

     In April 1994, certain proprietary intellectual property rights were
acquired from employees in exchange for Common Stock valued at the fair market
value of the stock of $229. In 1998, $1,000 of intellectual property rights were
acquired with Harrah's Total Track system.

     The covenants not to compete include ten-year covenants acquired in
November 1993 from the former stockholders of Casino Signs, Inc. and Current
Technology Systems, Inc. at costs of $6,469 and $3,705, respectively. In 1994,
the cost of the covenants not to compete from the former stockholders of Casino
Signs, Inc. were increased by approximately $294 in settlement of a dispute
pertaining to the valuation of certain assets included in the November 1993
acquisition. In addition, the increase in covenants not to compete in 1994
includes those acquired from the former stockholders of Trans Sierra for $100,
the ten-year covenant not to compete from John Renton 

                                      -14-
<PAGE>
 
Young for $500 and those acquired from the stockholders of the pre-Merger
Subchapter S corporations pursuant to the agreements whereby they received
distributions of previously taxed income in the amount of $377. In 1995, because
of the planned discontinuance of a product line acquired from Current Technology
Systems, Inc., $1,236 in an unamortized covenant not to compete was included in
the write-off of assets. In 1997, covenants not to compete were acquired from
John Jones, Peter Mandas and Dale Frey in the amounts of $48, $143 and $95,
respectively. During 1998, as part of an agreement, $151 in an unamortized
covenant not to compete was written off for a former employee.

     During 1994 goodwill was recorded in connection with the acquisitions of
Casino Signs Pty Limited and Trans Sierra in the amounts of $766 and $3,104,
respectively, based on the market value of the Company's Common Stock issued in
each of the acquisitions and the valuation of the net assets acquired.  In 1995,
goodwill was recorded in the amount of $5,485 in the acquisition of the assets
of Games of Nevada.  On December 31, 1995, 20,000 shares of the Company's Common
Stock issued in the acquisition of Trans Sierra were returned to the Company as
a result of Trans Sierra's operations not achieving certain sales levels.
Goodwill and the related accumulated amortization were reduced by $232 and $31,
respectively.  In 1997, goodwill was recorded in connection with the second
closing in the acquisition of the JRY Companies and in the acquisition of Mikohn
South America, SA in the amounts of $1,392 and $376, respectively.  In 1998,
goodwill was recorded in the amounts of $30,451and $3,223, as part of the
acquisitions of PGI and P&S Leasing, respectively.  The amount recorded as
goodwill for the acquisition of PGI is subject to change as the Company
currently has open issues (such as the Year 2000 costs and international tax
withholding issues - See Management's Discussion and Analysis and Note 8 -
Commitments and Contingencies) with the former owner of PGI. The Company has one
year from date of acquisition in which to affect a change in the amount of
goodwill. Any changes made after the one year period must be expensed. It is
Management's intention to resolve this uncertainty to effect all required
adjustments prior to the end of the one year window. In addition, the Company
wrote-off $1,500 of surveillance and security operation's goodwill. This
reduction in goodwill was based on that operation's value to the Company on a
going-forward basis. The amount of the asset impairment was determined by taking
the net present value of the expected future cash flows over the next 10 years
and writing the asset down to that expected value. The surveillance and security
business has changed over the past two years from one of designing and
installing surveillance systems to one of supplying the box equipment without
design and installation. Since these box equipment sales were usually of lower
margin, the Company has since decided to concentrate on higher margin sales and
not compete in the lower margin business.

                                      -15-
<PAGE>
 
8.   LONG-TERM DEBT

     Long-term debt at December 31, 1998 and 1997 consist of the following:

<TABLE>
<CAPTION>
                                                                   1998           1997
                                                                   ----           ----
<S>                                                             <C>            <C>
Noninterest bearing note payable to the former owners of         $    -         $    30
Casino Signs due in monthly installments of $13, with the
balance repaid during 1998.
 
Notes payable, collateralized by transportation and                 909             105
manufacturing equipment.                                                          
 
Note payable for $1,916 for the purchase of an exterior           1,916
sign manufacturing facility and as part of the second                          
closing of acquisition of JRY Companies; this note is
due to mature on April 10, 1999.
 
Revolving loan payable to ABN-AMRO Bank N.V., equal to            1,178
the amount of 60% of eligible accounts receivable of                           
Mikohn's European subsidiary and guaranteed by all
accounts receivable of the subsidiary. This loan payable
is also partially secured by a corporate guarantee by
Mikohn Gaming Corporation in the amount of $500 NLG, and
by credit insurance which was required by ABN-AMRO as a
condition to making the loan. The interest rate of 6.5%
per annum is payable on a monthly basis.
 
Term Loans payable to First Source Financial LLP, acting                         30,000
as agent and participant in the Credit Facility dated                                                  
October 24, 1997; Term Loan A, a fixed rate loan of
$15,000 with an interest rate of 10% per annum; Term
Loan B, a variable rate loan of $15,000  with an
interest rate of either prime plus 2 percentage points
or LIBOR plus 3 percentage points per annum; secured by
all the Company's personal property assets including
furniture, equipment, fixtures, real estate, intangible
assets and contract rights; each term loan is payable in
semi-annual installments of $2,500 beginning in April
2002.  See Amended and Restated Credit Agreement below.
</TABLE>

                                      -16-
<PAGE>
 
<TABLE>
<S>                                                             <C>            <C> 
Term Loans payable to First Source Financial LLP, acting          81,000
as agent and participant in the Amended and Restated                          
Credit Agreement dated September 2, 1998; Term Loan A, a
variable rate loan of $67,500 with an interest rate of
either prime plus 225 basis points or LIBOR plus 325
basis points per annum; Term Loan B, a fixed rate loan
of $13,500  with an interest rate of 10.25% per annum;
secured by all the Company's personal property assets
including furniture, equipment, fixtures, real estate,
intangible assets and contract rights; each term loan is
payable in equal, semi-annual installments beginning in
April 2002.  As of December 31, 1998, the interest
rate in effect on the $67,500 of outstanding variable
rate term loan was 8.84%.
 
Revolving loan payable to First Source Financial LLP,              2,000
acting as agent and participant in the Amended and                             
Restated Credit Agreement dated September 2, 1998; The
revolving loan availability, in the amount of $5,000, is
a variable rate loan with an interest rate of either
prime plus 175 basis points or LIBOR plus 275 basis
points and is secured by the inventory and accounts
receivable of the Company. The revolving loan is payable
by the expiration date of October 15, 2002 and can be
extended by two years until October 15, 2004 if the
Company meets certain requirements.  As of December 31,
1998, the interest rate in effect on the $2,000 of 
outstanding variable rate revolving loan was 8.75%.
 
Non-interest bearing Note payable to Alan Azizollahoff                               91
dated May 30, 1997 in the original amount of $116,                                                         
repaid during 1998; secured by a pledge of 25% of the 
shares of Mikohn South America S.A.
                                                                 -------        ------- 
   Total                                                          87,003         30,226
Less current portion                                              (2,122)          (171)
                                                                 -------        ------- 
   Long-term portion                                             $84,881        $30,055
                                                                 =======        =======
</TABLE>

     On September 2, 1998 the Company completed the closing of an Amended &
Restated Credit Agreement in the amount of $86,000. This facility was funded by
First Source Financial LLP and a consortium of lenders and it consisted of a
$13,500, fixed rate, term loan; a $67,500, variable rate, term loan; and a
$5,000, variable rate, revolving line of credit. The fixed interest rate on the
fixed rate term loan is 10.25%, the interest rate on variable rate term loan is
either the prime rate plus 2.25 percentage points or LIBOR plus 3.25 percentage
points, and the interest rate applicable to revolver loans is either prime plus
1.75 percentage points or LIBOR plus 2.75 percentage points. Security for the
term loans include all of the Company's personal property assets including
contract rights, furniture, fixtures, equipment, real estate, and intangible
assets. In addition, the Company has pledged 60% of the stock in its foreign
subsidiaries as security for the term loans. Security for loans under the
revolving credit facility shall be secured by accounts receivable and
inventories. As part of this credit agreement the Company has agreed to maintain
certain financial ratios; to comply with certain financial covenants; not allow
the incurrence of additional debt or payment of cash dividends, unless expressly
allowed within the credit agreement; as well as adhere to a number of other
financial restrictions. The term loans are due to begin maturing in April 2002
with equal 16.7% principal repayments due every six months until complete
maturity on October 24, 2004. The revolving credit facility is due to expire on
October 31, 2002, with the availability to extend the term

                                      -17-
<PAGE>
 
by one year on two separate occasions. In effect, this allows the extension of
the revolving credit facility until October 31, 2004. In addition, the Amended
and Restated Credit Agreement allows the Company to add an additional $5,000 of
revolving credit. As of the date of this filing, the Company has borrowed $2,000
under the revolving line of credit and has $3,000 available under this line. The
Company has been in compliance with the covenants and terms of the Credit
Agreement and management believes the Company will remain in compliance.

     Following is the long-term debt maturity schedule:

<TABLE>
<S>                          <C>
1999                          $ 2,122
2000                              188
2001                            1,353
2002                           27,171
2003                           29,144
Thereafter                     27,025
                              -------
   Total                      $87,003
                              =======
</TABLE>

9.   WRITE-OFF OF ASSETS / EXTRAORDINARY LOSS

     For the year ended December 31, 1998, the Company incurred several 
non-recurring charges that amounted to $4,493.  These charges mainly consisted 
of (i) the write-off of expenses related to the Company's debt refinancing and 
acquisitions of September 2, 1998 in the amount of $711, (ii) the write-off of 
certain goodwill amounts associated with the Company's security and surveillance
division in the amount of $1,500, (iii) management reorganization expenses in 
the amount of $736, (iv) the write-off of certain non-compete agreements in the 
amount of $739, (v) reserves for the closure of the Company's manufacturing 
facility in Rapid City, South Dakota in the amount of $500 and (vi) other items 
in the amount of $307.

     During the third quarter of 1998 as a result part of the acquisition of PGI
and P&S Leasing, the Company recorded an extraordinary loss that was associated
with the early extinguishment of debt under its prior Credit Agreement (see Note
8, above). The extraordinary loss, net of tax benefits, was $1,752 and consisted
of a gross extraordinary loss of $2,662 and the related tax benefit of $910.

10.  COMMITMENTS AND CONTINGENCIES

     At December 31, 1998, the Company was leasing all of its facilities with
the exception of its Rapid City, South Dakota; Las Vegas, Nevada and Gulfport,
Mississippi interior sign assembly facilities. These leases expire on various
dates through 2004. Following is a schedule of future minimum rental payments
required under these operating leases:

<TABLE>
<S>                          <C>
1999                          $2,393
2000                           1,753
2001                             897
2002                             645
2003                             595
Thereafter                       347
                              ------
   Total                      $6,630
                              ======
</TABLE>

                                      -18-
<PAGE>
 
     Rent expense was $2,540, $2,218 and $2,174 for the years ended December 31,
1998, 1997 and 1996, respectively.

     In consideration for its assistance in the acquisition of Trans Sierra, the
Company has issued to a third party warrants exercisable through October 1,
1999, to purchase up to 50,000 shares of Common Stock at an exercise price
(subject to certain provisions protecting against dilution) of $15.00 per share.
The Company has reserved authorized but unissued shares for this purpose.

     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.

     On October 2, 1997, the Company filed suit against Acres Gaming, Inc.
("Acres") in the U. S. District Court, Las Vegas, Nevada seeking a declaratory
judgment that its MoneyTime system does not infringe a patent issued to Acres in
August 1997 (U.S. Patent No. 5,655,961) and that the Acres patent is invalid
(the "'961 Action").  In the '961 Action, the Company asserts claims for relief
against Acres for tortious interference with business relationships, tortious
interference with prospective business relationships, and trade libel; Acres
counterclaims for patent infringement.  Two subsequently filed actions in the
same court involving two subsequently issued patents (U.S. Patent Nos. 5,741,183
and 5,752,882), one filed by the Company against Acres and one filed by Acres
against the Company, Casino Data Systems ("CDS"), Sunset Station Hotel & Casino
and New York New York Hotel & Casino, involve claims for patent infringement,
non-infringement and invalidity similar to the claims asserted in the '961
Action (the "'183 Action" and the "'882 Action").  The '183 Action and the '882
Action have been consolidated with the '961 Action (the three actions hereafter
referred to as the "Consolidated Action").  Discovery in the Consolidated Action
closed on February 26, 1999 and the court has required that all dispositive
motions be filed by April 1, 1999.  No trial date has been set.  Management 
believes that the Company will prevail in the Consolidated Action.

     On October 13, 1998, Acres brought suit against the Company and CDS
alleging, as against the Company, that the MoneyTime system infringes a patent
(U.S. Patent No. 5,820,459) issued to Acres on October 13, 1998 (the "'459
Action"). The Company has responded denying infringement and asserting that the
Acres patent is invalid. The '459 Action is in an early stage of discovery. No
trial date has been set.  Management believes that the Company will prevail in 
the '459 Action.

     Upon the acquisition of PGI in September 1998, the Company also acquired a
number of pending lawsuits charging infringement of various patents owned by
PGI.  The largest of these lawsuits involves the "Let It Ride - Tournament" game
and the "Let It Ride - Bonus" game (collectively the "LIRB Game") marketed by
Shuffle Master Gaming (the "Shuffle Master Lawsuit").  The Shuffle Master
Lawsuit includes a number of separate lawsuits filed by PGI against Shuffle
Master and numerous casinos offering the LIRB Game in Connecticut, Indiana,
Illinois, Mississippi, Missouri, Nevada and New Jersey all of which have been
consolidated for pre-trial purposes by the Judicial Panel on Multi-District
Litigation before the United States District Court in Mississippi.  Prior to the
consolidation of one of the lawsuits brought in New Jersey, the United States
District Court in New Jersey entered a preliminary injunction enjoining the
operation of the LIRB Game.  That injunction is the subject of a motion to
vacate pending before the Mississippi District Court.  In the Shuffle Master
Lawsuit, PGI has claimed that the LIRB Game infringes seven separate patents
owned by PGI.  Shuffle Master has raised defenses of non-infringement, patent
invalidity and inequitable conduct and asserted counterclaims alleging antitrust
violations and unfair competition.  Discovery is currently stayed; no trial date
has been set.  Management believes that the Company will prevail in the Shuffle 
Master Lawsuit.

                                      -19-
<PAGE>
 
     The Company is addressing tax issues relating to its table games
operations. They are summarized below:

     New Jersey Sales Tax Audit Issue:  The state of New Jersey recently audited
     --------------------------------                                           
Mikohn's sales tax returns and issued a preliminary audit assessment in the
amount of $451 plus interest of $200.  At issue is how the Company accounts for
and remits sales tax on its table game leases.  Currently, the Company remits
sales tax on a monthly basis based on the amounts invoiced to its casino
customers.  It is the state's position that the Company, as the lessor of the
table game, is the end user and that the Company is ultimately responsible for
the sales tax on the entire sales tax obligation at the inception of the lease
rather than as the lease payments are invoiced.  The Company's Caribbean Stud
Lease Agreement provides, in part, that the "Lessee shall promptly reimburse to
Mikohn any personal property taxes, gaming device taxes, and any similar taxes
or levies that Mikohn is obligated to pay for tables".  The state has already
refunded to many of the casinos most of the sales tax that was remitted by the
Company.  The state has preliminarily assessed the Company for the entire amount
of the sales tax liability and interest from the original date of the leases. In
February 1999, the Company objected to the proposed assessment and is prepared
to litigate the issue if it cannot be favorably settled.  Although the casinos
are contractually obligated for the payment of sales tax, as it is a pass-
through tax, there is no guarantee that the casinos will reimburse the Company
for any assessment paid by it.

     International Withholding Tax Issues:  The Company has exposure to 
     ------------------------------------      
potential additional withholding taxes on payments remitted to the U.S. to the
previous owner estimated at $2.0 million. 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 would be charged
back to the previous owner under the terms of the Stock Purchase Agreement for
the acquisition of Progressive Games, Inc. To the extent that the Company is
ultimately responsible for the payment of tax, the amounts would be capitalized
as part of goodwill on the PGI acquisition. The Company has one year from date
of acquisition in which to affect a change in the amount of goodwill. Any
changes made after the one year period must be expensed. It is Management's
intention to resolve this uncertainty and to effect all required adjustments
prior to the end of the one year window.

11.  INCOME TAXES

     The provision (benefit) for income taxes for the years ended December 31,
1998, 1997 and 1996 consist of:

<TABLE>
<CAPTION>
                               1998           1997          1996
                               ----           ----          ----
<S>                          <C>            <C>            <C>
Current                       $  (449)       $  657         $132
Deferred                       (3,651)          700          297
                              -------        ------         ----
   Total provision (benefit)  $(4,100)       $1,357         $429
                              =======        ======         ====
</TABLE>

     The provision (benefit) for income taxes for the years ended December 31,
1998, 1997 and 1996 differs from the amount computed at the federal income tax
statutory rate as a result of the following:

<TABLE>
<CAPTION>
                                1998            %        1997            %      1996        %
                                ----           --        ----           --      ----        -- 
<S>                          <C>            <C>       <C>            <C>       <C>       <C>
Amount at statutory rate      $(4,244)       35.0%     $1,306         35.0%     $364      35.0%
Adjustments:
   Non-deductible expenses         52        -0.4%         44          1.2%       61       5.8%
   State income tax and other      (6)        0.0%          6          0.2%      (19)     -1.8%
   Other items                     98        -0.8%          1          0.0%       23       2.2%
</TABLE>

                                      -20-
<PAGE>
 
<TABLE>
<CAPTION>
                                1998            %        1997            %      1996        %
                                ----           --        ----           --      ----        -- 
<S>                          <C>            <C>       <C>            <C>       <C>       <C>
   Total provision (benefit)  $(4,100)       33.8%     $1,357         36.4%     $429      41.2%
                              =======        ====      ======         ====      ====      ====
</TABLE>

     The components of the net deferred tax asset at December 31, 1998 and 1997
consist of the following:

<TABLE>
<CAPTION>
                                               1998           1997
                                               ----           ----  
<S>                                         <C>            <C> 
Deferred tax assets:
--------------------
Current:
   Inventory book / tax differences          $  614         $  602
   Prepaid expenses and other                   298             55
                                             ------         ------
      Subtotal                                  912            657
                                             ------         ------
 
Non-current:
   Alternative minimum tax credit                63             23
   Intangible assets                          2,058          1,007
   Foreign losses                                               73
   Other                                      2,165             18
                                             ------         ------
      Subtotal                                4,286          1,121
                                             ------         ------
      Total deferred tax assets               5,198          1,778
                                             ------         ------
Deferred tax liabilities:
-------------------------
Current:
   Prepaid expenses and other                    28             13

Non-current:
   Fixed assets and other                     1,207          1,453
                                             ------         ------
      Total deferred tax liabilities          1,235          1,466
                                             ------         ------
         Net deferred tax assets             $3,963         $  312
                                             ======         ======
</TABLE>


  At December 31, 1998, the Company had federal and alternative minimum tax
("AMT") net operating loss carryforwards of $6,184 and $2,871, respectively, and
had AMT tax credit carryforwards of $63.

                                      -21-
<PAGE>
 
12. EARNINGS PER SHARE



  The Financial Accounting Standards Board recently issued SFAS No. 128 - 
Earning Per Share - which became effective for periods ending after December 15,
1997, and replaces historically reported earnings per share with "basic", or
undiluted, earnings per share and "diluted" earnings per share. Basic earnings
per share are computed by dividing net income by the weighted average number of
shares outstanding during the period, while diluted earnings per share reflect
the additional dilution for all potentially dilutive securities, such as stock
options. Additionally, diluted shares cannot be antidilutive (i.e., increase
earnings per share) such as, when a company incurs a net loss. The following
table reflects the Company's basic and diluted earnings per share for the years
ended December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                       

                                                1998                1997                  1996
                                               -----                ----                  ----
<S>                                            <C>                 <C>                   <C>
Net income (loss)                                $(8,026)            $ 2,374               $   612
                                       ===================    ================     =================


Weighted average number of shares
Outstanding:
 Basic                                            10,527               9,952                 9,847
 Assumed conversion of stock options                                     105                   223
                                       -------------------    ----------------     -----------------     

 Diluted                                                              10,057                10,070
                                       ===================    ================     =================
Earnings per share:
 Basic                                            $(0.76)              $0.24                 $0.06
                                       ===================    ================     =================

 Diluted                                          $(0.76)              $0.24                 $0.06
                                       ===================    ================     =================
</TABLE>



13. STOCK-BASED COMPENSATION PLANS

  In 1993, the Company adopted and in 1996 and 1997 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 2,400 shares of the Company's Common
Stock 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 150 shares of the
Company's Common Stock 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.  The
Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized.

  Had compensation cost for these plans been determined consistent 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>

                                           1998           1997             1996
                                           ----           ----             ----
<S>                                        <C>            <C>              <C> 
Net income:                                                              
 As reported                                $(8,026)       $ 2,374          $   612
                                       ==============    ===========     ============
</TABLE> 

                                      -22-
<PAGE>
 
<TABLE>
<S>                                    <C>               <C>             <C>
 Proforma                                                                
                                            $(8,977)       $1,328           $    40
                                       ==============    ===========     ============
                                                                         
Earnings Per Share:                                                      
 As reported -                                                           
      Basic                                  $(0.76)        $0.24             $0.06
                                       ==============    ===========     ============
                                                                         
      Diluted                                $(0.76)        $0.24             $0.06
                                       ==============    ===========     ============ 
                                                                         
Proforma -                                                               
  Basic                                      $(0.85)        $0.13             $0.00
                                       ==============    ===========     ============
  Diluted                                    $(0.85)        $0.13             $0.00
                                       ==============    ===========     ============ 
</TABLE>

  Because the Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that which may be expected in future years. 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 1995
through 1998 grants: risk-free interest at the date of grant which ranged from
3.5% to 7.78%; expected dividend yield of 0.0 percent; expected lives from 1 to
6 years; and expected volatility between 50 and 60 percent.

                                      -23-
<PAGE>
 
  A summary of the status of the Company's stock option plans at December 31,
1998, 1997 and 1996 and changes during the years then ended is presented in the
table and narrative below:

<TABLE>
<CAPTION>
(Amounts in thousands                          1998                    1997                        1996
Except per option                              ----                    ----                        ----
Amount)                                            Wtd. Avg.                 Wtd. Avg.                  Wtd. Avg.
                                                   Exercise                  Exercise                   Exercise
                                     Shares        Price         Shares      Price         Shares       Price
                                     ------        -----         ------      -----         ------       -----
<S>                                  <C>         <C>           <C>           <C>          <C>           <C> 
                                           
Director Plan:                             
--------------                             
Options, beginning of year              66         $7.8561           43      $9.7965            20      $14.7375
Granted                                 44          6.9886           26       4.3750            23        5.5000
Exercised                                                            (3)      5.5000
Cancelled                               (6)        15.9167       
                                     ------                      --------                   --------                     
                                                                                           
Options, end of year                   104          7.0241           66       7.8561            43        9.7965
                                     ======                      ========                    =======
                                            
Exercisable at end of year              39          8.3158           27      13.2364            18       15.8538
                                     ======                      =========                   ========


Weighted average (Wtd. Avg.) fair
value of options granted during the
year                                               $6.9886                   $4.3750                     $5.5000
                                              ============              ============                ============


Employee Option Plan:
---------------------
Options, beginning of year           2,172         $5.6150        1,141      $7.0061           700       $8.8738
Granted                                299          5.7024        1,211       4.3035           710        4.3600 
Exercised                             (176)         4.2677           (9)      4.0474           (73)       3.6058
Cancelled                             (339)         4.4183         (171)      5.6960          (196)       5.3544
                                   --------                    --------                 ----------
Options, end of year                 1,956          5.9574        2,172       5.6150         1,141        7.0061
                                   ========                    =========                ===========
                                               
Exercisable at end of year             614          5.5815          499       5.1140           358        5.3984
                                   ========                    =========                 ========== 
                                               
Weighted average (Wtd. Avg.) fair              
value of options granted during the           
year                                               $5.7024                   $4.3035                     $4.3438
                                              ============              ============                ============
</TABLE> 
  
                                      -24-
<PAGE>
 
14. BENEFIT PLANS

    Certain employees of CEI 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 1998, 1997 and 1996 was $401,
$316 and $278, 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 contribution for 1998, 1997 and 1996 was
$156, $141 and $129, respectively.

15. 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, 1998, 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:
   Signs                                          $  12,150                 $  1,237               $  13,387 
   Gaming products                                   12,072                    1,010                  13,082
   Gaming operations                                  3,918                                            3,918
                                          -------------------       -------------------   --------------------
    Subtotal                                         28,140                    2,247                  30,387
                                                            
Other receivables:
  Other                                                 643                                              643
                                          -------------------       -------------------   -------------------- 
      Subtotal                                          643                        -                     643 
                                          -------------------       -------------------   -------------------- 

      Total                                         $28,783                   $2,247                 $31,030
                                          ===================       ===================   ==================== 
</TABLE>

16. SEGMENT REPORTING

    In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 established standards
for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards for
related disclosures about products and services and geographic areas. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating decision
group is the Operations Committee, which is comprised of the Chairman and each
of the Executive Vice-Presidents of Finance, Operations and Sales / Product
Development.

                                      -25-
<PAGE>
 
    The Company operates in three business segments: Signs, Gaming Products and
Gaming Operations. The Signs segment designs, manufactures and installs interior
signage and displays. It also, designs, manufactures, installs and maintains
exterior signage. The Gaming Products segment includes manufacturing of
progressive jackpot systems; it develops, markets and installs automated data
collection systems for player tracking and accounting for gaming machines. It
also manufactures and sells oversized gaming machines and touch-screen multi-
game video machines. The Gaming Operations segment leases, licenses and places
proprietary games, machines and tables o lease, structured participation or
license agreement. It owns or licenses the rights to several categories of
proprietary games, including progressive jackpot table games, coin-push gaming
machines, oversized gaming machines and touch-screen multi-game video machines.
These table games and gaming machines produce recurring revenue on a lease,
participation or licensing agreement. The Company does not allocate corporate
expenses to the business segments.

  Business segment Information for the years ended December 31, 1998, 1997 and
1996 consist of:

<TABLE>
<CAPTION>
                                            1998                1997                1996
                                            ----                ----                ----
<S>                                  <C>                 <C>                 <C>  
      Business Segments:
      ------------------
Revenue:
 Signs                                     $50,840             $ 57,478           $56,169 
 Gaming products                            36,216               35,621            30,338
 Gaming operations                          11,976                5,449             4,895
                                     --------------      ---------------      ------------
                                           $99,032             $ 98,548           $91,402 
                                     ==============      ===============      ============
                                                                                          
Gross profit:                                                                             
 Signs                                     $14,723             $ 17,741           $17,168 
 Gaming products                            13,992               15,129            10,160 
 Gaming operations                          10,154                4,478             4,427 
                                     --------------      ---------------      ------------ 
                                           $38,869             $ 37,348           $31,755 
                                     ==============      ===============      ============
                                                                                          
Operating income:                                                                         
 Signs                                     $ 7,613             $ 11,829           $10,213 
 Gaming products                            12,494               13,433             6,564 
 Gaming operations                           6,237                2,380             2,986 
 Corporate                                 (30,805)             (21,367)        (  17,198)
                                     --------------      ---------------      ------------
                                           $(4,461)            $  6,275           $ 2,565 
                                     ==============      ===============      ============
                                                                                          
Depreciation and amortization:                                                            
 Signs                                     $ 1,103             $    862           $ 1,107
 Gaming products                               885                  362               580
 Gaming operations                           2,566                1,409               915
 Corporate                                   2,172                1,681             1,814
                                     ---------------      --------------      ------------ 
                                           $ 6,726             $  4,314           $ 4,416
                                     ===============      ==============      ============
Assets:                                                                             
 Signs                                     $40,002              $ 34,646          $44,069 
 Gaming products                            32,545                31,426           26,566
 Gaming operations                          60,898                15,967           13,185
 Corporate                                  19,787                15,549            6,633
</TABLE>

                                      -26-
<PAGE>
 
<TABLE>
<CAPTION> 
                                           1998                1997               1996
                                     ---------------     ---------------     ---------------
<S>                                   <C>                 <C>                 <C>    
                                     ---------------     ---------------     ---------------
                                         $153,232               $ 97,588         $   90,453
                                     ===============     ===============     ===============

Capital expenditures:
 Signs                                   $  5,485              $   1,127         $      980
 Gaming products                            2,226                    279                148
 Gaming operations                          2,718                  1,009              1,393
 Corporate                                    367                    504                219
                                     ---------------     ---------------     ---------------
                                         $ 10,796              $   2,919         $    2,740
                                     ===============     ===============     ===============
<CAPTION> 

                                            1998                1997                1996
                                        ------------        ------------        ------------
<S>                                   <C>                 <C>                 <C>    
     Geographic Operations
     ---------------------

Revenue:
 North America                           $ 82,489              $  83,068         $   80,226
 Australia                                  5,817                  8,924              4,681
 Europe                                     8,955                  5,818              6,495
 South America                              1,771                    738
                                     ---------------     ---------------     --------------- 
                                         $ 99,032              $  98,548         $   91,402
                                     ===============     ===============     ===============

Gross profit:
 North America                           $ 31,930              $  30,989         $   29,824
 Australia                                  2,372                  3,073                883
 Europe                                     3,886                  3,063              1,051
 South America                                681                    223                 (3)
                                     ---------------     ---------------     --------------- 
                                         $ 38,869              $  37,348         $   31,755
                                     ===============     ===============     ===============

Operating income:
 North America                           $(5,637)              $   4,959         $    3,133
 Australia                                   217                   1,146               (624)
 Europe                                      783                      64                172
 South America                               176                     106               (116)
                                     ---------------     ---------------     ---------------
                                         $(4,461)              $   6,275         $    2,565
                                     ===============      ===============     ===============

Depreciation and amortization:
 North America                           $ 6,596               $   4,108         $    4,254
 Australia                                    31                      72                 19
 Europe                                       90                     122                143 
 South America                                 9                      12 
                                     ---------------     ---------------     ---------------
                                         $ 6,726               $   4,314         $    4,416
                                     ===============     ===============     ===============

Assets:
 North America                           $142,467              $  87,892         $   83,108
 Australia                                  4,620                  5,112              4,265
 Europe                                     4,702                  3,523              3,080
 South America                              1,443                  1,061
                                     ---------------     ---------------     ---------------
                                         $153,232              $  97,588         $   90,453
                                     ===============     ===============     ===============
</TABLE>

                                      -27-
<PAGE>
 
<TABLE>
                                          1998                   1997                1996
                                          ----                   ----                ----
<S>                                  <C>                   <C>                   <C>
Capital expenditures:
 North America                           $ 10,266              $   2,460         $    2,478  
 Australia                                    218                    178                120
  Europe                                       83                    102                142 
  South America                               229                    179
                                     ---------------     ---------------     ---------------
                                         $ 10,796              $   2,919         $    2,740
                                     ===============     ===============     ===============
</TABLE>

                                      -28-
<PAGE>
 
MIKOHN GAMING CORPORATION
QUARTERLY RESULTS OF OPERATIONS (Unaudited)

<TABLE>
<CAPTION>
                                                                                                  
                               1st            2nd              3rd             4th             Annual
                               ---            ---              ---             ---             ------
<S>                        <C>             <C>              <C>             <C>             <C> 
Sales:
 1998                        $21,779        $25,622          $20,209          $31,422          $99,032    
                           =========        ========         =======          ========         ======= 
 1997                        $24,156        $25,807          $23,611          $24,974          $98,548
                           =========        ========         =======          ========         =======

Gross profit:
 1998                        $ 7,747        $11,028          $ 6,942          $13,152          $38,869
                           =========        ========         =======          ========         =======
 1997                        $ 8,806        $ 9,691          $ 8,991          $ 9,860          $37,348
                           =========        ========         =======          ========         =======

Net income (loss):
 1998                        $  (559)       $   698          $(8,793)         $   628          $(8,026)
                           =========        ========         =======          ========         =======
 1997                        $   472        $   852          $   392          $   658          $ 2,374
                           =========        ========         =======          ========         =======

Weighted average shares
outstanding:
 Basic -
  1998                        10,306         10,520           10,626           10,652           10,527
  1997                         9,903          9,884            9,894           10,127            9,952
 
 Diluted -
  1998                        10,306         10,639           10,626           10,658           10,527
  1997                         9,942          9,894            9,988           10,263           10,057

Net income (loss) per
share:
 Basic -
  1998                        $(0.05)         $0.07           $(0.83)           $0.06           $(0.76)
                           =========        ========         =======          ========         =======
  1997                         $0.05          $0.09            $0.04            $0.07            $0.24
                           =========        ========         =======          ========         =======

 Diluted -
  1998                        $(0.05)         $0.07           $(0.83)           $0.06           $(0.76)
                           =========        ========         =======          ========         =======           
  1997                         $0.05          $0.09            $0.04            $0.06            $0.24
                           =========        ========         =======          ========         =======
</TABLE>

                                      -29-
<PAGE>
 
                                   SIGNATURE


     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 12, 1999                     By:     /s/  Don Stevens
                                        -------------------------------------
                                        Don W. Stevens, Executive Vice
                                        President, Treasurer, Principal
                                              Financial Officer