<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K



   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)
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<CAPTION> 
<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
                                                    -----------------------
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          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 March 15, 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>
 
                     DOCUMENTS INCORPORATED BY REFERENCE:
                                        
  Part III hereof incorporates by reference portions of the Proxy Statement for
the Annual Meeting of Stockholders to be held on May 11, 1999 (to be filed with
the Securities and Exchange Commission within 120 days after December 31, 1998).
<PAGE>
 
                               CAUTIONARY NOTICE
                               -----------------

  This Annual Report of Mikohn Gaming Corporation on Form 10-K contains forward-
looking statements subject to the "safe harbor" legislation appearing at Section
27A of the Securities Act of 1993, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Statements expressing expectations regarding
the Company's future and projections relating to products, sales, revenues and
earnings are typical of such statements.

  All forward-looking statements, although made in good faith, are subject to
the uncertainties inherent in predicting the future.  Factors such as
competition, customer dissatisfaction, failure to gain new product acceptance,
the Company's operating history and recent losses, its high leverage and
accompanying debt service obligations, onerous taxation and other adverse
government action, unusual risks attending foreign transactions, unanticipated
Y2K problems and general deterioration in economic conditions may cause results
to differ materially from any that are projected.  However, management knows of
no extraordinary risk associated with any projection contained in this report.

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


<PAGE>
 
                           MIKOHN GAMING CORPORATION
                      ANNUAL REPORT ON FORM 10-K FOR THE
                         YEAR ENDED DECEMBER 31, 1998
 

                               TABLE OF CONTENTS


                                    PART I

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<S>               <C>                                                  <C> 
Item 1.  Business........................................................    2
Item 2.  Properties......................................................   25
Item 3.  Legal Proceedings...............................................   26
Item 4.  Submission of Matters to a Vote of Security Holders.............   26
 
                                    PART II

Item 5.  Market for Registrant's Common Stock and Related Shareholder 
         Matters.........................................................   27
Item 6.  Selected Financial Data.........................................   28
Item 7.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations.............................   29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......   41
Item 8.  Consolidated Financial Statements  and Supplementary Data.......   43
Item 9.  Changes in and Disagreements with Accountants on             
         Accounting and Financial Disclosure.............................   72
 
                                   PART III

Item 10. Directors and Executive Officers of the Registrant..............   72
Item 11. Executive Compensation..........................................   72
Item 12. Security Ownership of Certain Beneficial Owners and          
         Management......................................................   72
Item 13. Certain Relationships and Related Transactions..................   72
 
                                    PART IV
                                                                      
Item 14. Exhibits, Financial Statement Schedules & Reports on Form 8-K...   72

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<PAGE>
 
                                    PART l

Item 1.  Business
 
Overview of the Company

  Your company is a leading developer, manufacturer and distributor to the
gaming industry of (i) merchandising products for casino operators and gaming
machine manufacturers including interior and exterior signage, (ii) electronics
components used in progressive jackpot systems for gaming machines and in player
tracking and information control systems for gaming machines and table games and
(iii) proprietary table games and, to a lesser extent, gaming machines.  It has
achieved leading market positions with a number of its products, which are
recognized as innovative and technologically advanced.  In this report, you will
see your company referred to as "Mikohn," "Company" and often simply as "we."
These terms are used interchangeably, and unless otherwise noted, they include
domestic and foreign subsidiaries, whether wholly or partially owned.

  Our signage products are customized, highly sophisticated and characterized by
their extraordinary visual appeal.  They differentiate themselves on the basis
of artistic design, quality of construction and advanced technology.  The
Company is the industry leader in interior casino signage, which is often sold
in combination with its progressive jackpot systems and provides the casino
operator and gaming machine manufacturer with customized merchandising solutions
for the gaming machine area of the casino.

  The Company also is the principal original equipment manufacturer of
specialized electronic components used in progressive jackpot systems and is the
principal independent supplier of such equipment to casino operators and the
major gaming machine manufacturers.

  The Company's product lines are complementary and provide the casino operator
with integrated, value-added solutions that can increase revenues and reduce
costs.  Our products are found throughout the casino, both on the floor and in
the back office.  For areas of the casino featuring gaming machines, the Company
(i) designs and manufactures customized interior signage as an extension of the
casino's interior thematic design, (ii) provides progressive jackpot and
bonusing systems that stimulate player wagering (in terms of the number of
participants, the wagering level and the duration of play) and increase casino
revenues and (iii) provides networks using proprietary software to link multiple
gaming machines.  Such networks facilitate, on a real-time basis, player
tracking and data collection, which promote patron loyalty and enhance the cost
effectiveness of casino marketing programs.

  As part of its proprietary gaming machine business, the Company develops and
distributes several specialty gaming machines, including coin-push gaming
machines, oversized slot machines and customized touch-screen multi-game and
multi-coin video machines with second game bonus features.  These products
provide casino operators with greater product variety and opportunities for
increased win per gaming machine.

  In September 1998, the Company acquired all of the outstanding stock of
Progressive Games, Inc. (PGI) the developer of Caribbean Stud(R), 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 ("P&S
Leasing"). The Company's Caribbean Stud exclusive distribution rights are world-
wide except for the state of California, Nevada and South Carolina. The Company
paid an aggregate cash consideration of $35.8 million for PGI and $3.3 million
for P&S Leasing.

                                      -2-
<PAGE>
 
  For table game areas, the Company develops and distributes proprietary
versions of stud poker, draw poker and blackjack that incorporate networked
progressive jackpot systems to create additional wagering opportunities and
stimulate play. We own exclusive rights to the TableLink(TM) (formerly
SafeGames(TM)) technology, a patented, state-of-the-art player tracking and
information system for blackjack and other table games.  In April 1998, the
Company entered into a cross-licensing agreement with Harrah's Entertainment,
Inc., one of the country's premier gaming companies. Under this agreement, the
Company, using both its own technology and like technology being independently
developed by Harrah's, will further develop the TableLink system, and Harrah's
will field test and, assuming successful development and operation, will
purchase and install TableLink in those of its casinos where it believes this
system will  improve its operations. Management believes that the TableLink
technology enables the casino to more accurately recognize and reward players
and enhances game security and integrity.

   We believe that Mikohn's principal business strengths include our
demonstrated ability to supply the legal gaming industry with superior products,
our worldwide manufacturing, sales and service facilities, our long-standing
customer relationships, and our reputation for experience, competence, integrity
and knowledge of how to successfully conduct business in the exceedingly complex
regulatory environments of the numerous legal gaming jurisdictions into which
the industry is segmented.  Amplifying our strengths is the reality that any
potential new competitor would face the formidable task of substantially
duplicating them in order to successfully challenge us in the marketplace.  The
magnitude of this task in the regulatory area alone may be measured by the
amount of time, energy, information and commitment required of applicants for
licenses to conduct business with casinos and other gaming operators in the many
disparate regulatory jurisdictions. Mikohn has applied for and been granted 128
licenses or equivalent authorizations in gaming jurisdictions around the world,
and has never had an application rejected.

  The Company conducts its operations directly and, where circumstances
recommend,  through subsidiaries that are wholly owned except for the occasional
foreign jurisdiction that requires a small number of qualifying shares of a
subsidiary to be owned by a national of that jurisdiction. The Company's primary
domestic subsidiaries are Mikohn Nevada, Progressive Games, Inc, MGC, Inc and
Casino Excitement, Inc.  The Company's primary foreign subsidiaries are Mikohn
Europe, B.V., a Netherlands corporation, Mikohn Australasia Pty., Ltd., an
Australian corporation and Mikohn South America, S.A., a Peruvian corporation.

  The Company's headquarters and its principal executive offices are located in
Las Vegas, NV, where it maintains the largest part of its production facilities.
Additional production facilities are located in Gulfport, MS and Rapid City, SD
and sales, service and/or support offices are located in Nevada, Mississippi and
eight additional states.  The Company intends to close its Rapid City, SD plant
in 1999 and to open a Hurricane, UT manufacturing facility in June, 1999.  To
better serve international markets we maintain comprehensive production, sales
and service facilities in the Netherlands, Australia and Peru, and a sales
office in Argentina.  We employ approximately 800 people worldwide.

  The address of the Company's headquarters office is 1045 Palms Airport Drive,
Las Vegas, Nevada 89119 and its telephone number is (702) 896-3890.

                                      -3-
<PAGE>
 
Overview of the Legal Gaming Industry

  The legal gaming industry has enjoyed extraordinary growth both domestically
and internationally. From 1982 to 1996, the domestic gaming industry experienced
a compound annual growth rate of 11.2%, realizing $47.6 billion in revenues in
1996.  The percentage of households from which someone visited a casino to
gamble increased from 17% in 1990 to 32% in 1996, representing over 36 million
households and 176 million visits according to Harrah's 1997 Survey of Casino
Entertainment.  The increase in gaming demand results in part from the greater
public acceptance of legal casino gaming.  Research recently conducted by
Yankelovich Partners, Inc. found that 92% of U.S. adults view casino gambling as
an acceptable form of entertainment for themselves and others.  This acceptance
is reflected in the number of domestic jurisdictions in which casino gaming in
some form is now permitted.

  Many foreign jurisdictions also have legalized or have expanded legal casino
gaming in recent years.  Significant foreign gaming jurisdictions now include
Canada, Australia, New Zealand, France, the Netherlands, and various South
American, Asian and Eastern European nations.

  The growth of legal gaming has resulted in a huge increase in the number of
gaming machines, among them a host of video poker and other games as well as
more traditional slot machines. Gaming machines are by far the most popular form
of gambling; at the major Nevada and New Jersey casinos, they account for
approximately two-thirds of total gaming revenues.  These gaming machines, along
with traditional casino table games such as blackjack, can be more accurately
controlled and accounted for with the help of Mikohn's technologically
innovative products and systems, and we believe our Company is well positioned
to usefully and profitably serve this expanding market.  The next large
expansion of casino gaming is expected to take place in Detroit and California.
In Detroit, the first of the city's three temporary casinos may open in late
summer 1999.  The more elaborate, permanent casinos are scheduled to open four
years later.  Recently, the voters in California approved Proposition 5 which
allows casino style gaming on Native American lands.  However, the California
Supreme Court has ordered that the new law cannot go into effect; it stated that
it needs time to decide whether Proposition 5 violates the state's constitution.

Competitive Strengths

  Management believes that the Company's competitive strengths include the
following:

  Substantial Gaming Presence and Strong Relationships with Customers. The
Company's products can be found in nearly every major domestic casino and in
many major international casinos, including casinos operated by Boyd Gaming,
Caesars, Circus Circus, Crown Casino, Harrah's, Park Place (formerly Grand
Casino and Hilton/Bally's), Holland Casino, MGM Grand, Mirage and Station
Casinos, and are sold to major gaming machine manufacturers including
Alliance/Bally Gaming, Aristocrat, IGT, Sigma and WMS Industries. Management
believes that the Company's interior signage is preferred by most developers of
major new casino projects that employ extensive thematic design and by gaming
machine manufacturers to merchandise progressive jackpot gaming machine
networks.  The Company's Caribbean Stud(R) is the most popular proprietary table
game and is found in more than 370 casinos located in most major gaming
jurisdictions.  The Company's progressive jackpot systems for gaming machines
and table games are the most widely used in the industry.  The Company's
proprietary player tracking software is among the most technologically advanced
and has gained acceptance in new international markets, notably Canada, where
there is need to network and monitor multiple sites involving thousands of
gaming machines.

                                      -4-
<PAGE>
 
  Worldwide Distribution Capability / Diversified Revenue Base. The Company's
revenues are highly diversified by customer and geography. The Company's
products are distributed in more than 60 countries by the Company's own sales
force as well as by independent sales representatives.

  Significant Recurring Revenue.  Since 1993, the Company's objectives have
included the development and expansion of its proprietary gaming machine and
table game products and its progressive jackpot, bonusing and player tracking
systems, all of which can be marketed through lease, license, structured
participation and/or ongoing maintenance arrangements and all of which generate
recurring revenue.

  Product Innovation and Technology Development.  The Company focuses on
developing technology platforms that can be utilized with multiple new and
existing products. Progressive jackpot systems were originally developed for
individual gaming machines, evolved into networks of multiple gaming machines
linked to common jackpots and, most recently, have been enhanced with bonusing
features, such as the Company's MoneyTime(TM) system, which increase the
frequency of payouts among multiple players.

  The Company's TableLink technology and progressive jackpot table games
platforms reflect the evolution and adaptation of technology for table games.
PGI's side-bet progressive jackpot technology was originally developed for stud
poker and, more recently, has been adapted for draw poker and blackjack. The
TableLink technology, originally developed for blackjack tables, is in the
process of being adapted for use with other popular table games, including
baccarat and roulette. The Company's SuperLink(TM) and CasinoLink(TM) systems
provide multi-site gaming machine monitoring, data collection, real-time player
tracking and game management. These advanced systems have been installed in many
large domestic and international gaming venues that employ state-of-the-art
information technology to manage thousands of gaming machines at multiple
locations.

  Significant Patent and Trademark Protection. The Company has secured and
endeavors to secure exclusive rights in its proprietary games, electronics,
bonusing and control systems, and displays, primarily by obtaining U.S. and
foreign patents. The Company owns or holds exclusive rights to more than 45
issued patents (including continuation patents) and has more than 40 pending
patent applications. In addition, the Company maintains trademarks relating to
more than 45 products.

  Mikohn's U.S. patents and pending patent applications relate to, among other
things, our Flip-It(TM) coin-push gaming machines, Mystery Jackpot(TM) system,
MoneyTime system, jackpot features which may be incorporated into new or
existing table games, and certain elements of our TableLink technology. We also
holds rights (including license rights) to patents and pending patent
applications relating to Harrah's Total Track(TM) and Mikohn's TableLink(TM) 
(formerly Safe Jack(TM)) systems.

  Our exclusive rights to patents and pending patents cover a number of its key
products, including: (i) its method of playing Caribbean Stud(R); (ii) methods
of playing progressive blackjack; (iii) methods of jackpot table gaming,
including progressive jackpots; (iv) various types of apparatus used for jackpot
table gaming, including progressive jackpots; and (v) methods of playing
electronic poker with an optional side-bet for a progressive jackpot.

  We actively seek patent and trademark protection and vigorously enforce our
intellectual property rights in all major domestic and international markets.
Management believes that the Company's protection of its patents and trademarks
and other intellectual property raises the barriers to entry for prospective
competitors and results in higher marginal revenues than could be earned from
non-

                                      -5-
<PAGE>
 
protected products.

  Extensive Jurisdictional Approvals. Licensing or other regulatory approval is
required of the Company and its senior managers, directors, key shareholders,
gaming equipment components, proprietary gaming machines and table games. The
Company is licensed in 20 states (including licensing with 76 Native American
tribal lands within such states) and 5 foreign countries.  In addition, the
Company sells products in more than 45 additional foreign jurisdictions that do
not require licensing approval. Management believes that the time and cost of
seeking approval in multiple jurisdictions for any new product or market
applicant present significant obstacles to entry or expansion.

Operations

  The Company's worldwide operations are concentrated in three principal
business segments: (i) signs, (ii) gaming products and (iii) gaming operations.
Set forth below is a description of each of the Company's three principal
business segments. For the financial results by the Company's business segments
see Note 16 - Business Segments of the Consolidated Notes to Financial
Statements.

  Signs:

  Interior Casino Signage.  Mikohn is the industry leader in interior casino
signage in terms of product design, manufacturing capacity and worldwide
distribution.  The Company designs and manufactures interior signage and
displays that are marketed and sold either as stand-alone signs or in
combination with progressive jackpot systems.

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

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

  In 1999, the Company signed an exclusive contract with AVVA Technologies Inc.
of Calgary, Alberta, to distribute that Canadian company's edge-lit signs to the
casino industry through the Company's worldwide sales and marketing network.

  The average construction period for an interior signage project is
approximately 6 to 8 weeks. The costs of interior signage projects vary widely,
but most fall within a range of $100,000 to $4.0 million. We typically require a
50% downpayment before commencing manufacturing, with an 

                                      -6-
<PAGE>
 
additional 25% due at shipping and the balance due upon completion of the
installation. While Mikohn's interior signage is increasingly being incorporated
into large projects, remodeling and small projects continue to stimulate demand.

  The popularity and growth of progressive jackpots throughout the gaming
industry have led increasingly to the incorporation of Mikohn's interior signage
into the sophisticated merchandising programs of new mega-casinos and remodeling
projects at older casinos. Mikohn believes that in 1998, revenues from the sale
of interior signs that were incorporated into progressive jackpot systems
comprised more than half of Mikohn's aggregate revenues from the sale of
interior signage.

  Exterior Signage.  Mikohn also designs, manufactures, installs and maintains
exterior signage. These projects can vary from themed directional signage to
multi-story, double-faced pylon signage such as the two new exterior signs at
the Bellagio in Las Vegas.  Mikohn targets the gaming industry for its exterior
lighting and signage products and has supplied signs or lighting systems to
major casinos in the U.S. and to a number of international customers.

  Mikohn has successfully developed MikohnVision(R), a full color low voltage
exterior lamp bank video system that enables users to produce spectacular
displays on huge screens in up to 16.7 million colors. Mikohn has filed
applications for patents, one of which has issued and the balance of which
remain pending, to protect various features unique to the MikohnVision system.
MikohnVision makes it possible to offer real-time graphics, animation, text and
video clips; to display photos, logos, video and real-time images; and to create
instant, spectacular animations and messages at adjustable speeds.  During 1998,
the Company installed the MikohnVision system at the Aladdin in Las Vegas.

  The exterior signage business is much more competitive and therefore less
profitable than interior signage.  The sales price of exterior signage varies
widely, although most contracts fall within a range of $200,000 to $2.0 million.
Typically, Mikohn receives an initial deposit and additional payments during the
course of design, manufacture and installation.

  Gaming Products:

  Progressive Jackpot System.  A progressive jackpot system monitors play on one
or more gaming machines and accumulates in real-time a predetermined percentage
of each coin bet to create a jackpot. This jackpot increases continuously until
it is awarded. The system then can be reset automatically to accumulate and
present subsequent jackpots. Progressive jackpot systems can be either for a
single machine or electronically linked with a number of gaming machines to
generate an even greater collective jackpot. Progressive jackpot systems were
originated to create larger jackpots so as to contribute added excitement to the
game and provide an incentive for players to play the maximum number of coins.
Management believes that progressive jackpots can increase the revenues from
gaming machines by 15% to 30%.

  Mikohn's progressive jackpot and bonusing systems typically are comprised of
three components: controllers, a color display of light emitting diodes ("LEDs")
and accompanying software. The controllers draw data from the linked gaming
machines and continuously update the amount of the progressive jackpot from a
number of games. This information is flashed in real-time to the electronic
displays in and around carousels of participating machines, accompanied by
graphics, animation and sound effects. The software enables the casino operator
to program the controllers and displays and to set various game options. The
electronic displays capture and maintain a player's interest by continuously
showing on a real-time basis the current amounts of the progressive jackpot and
subsequently by celebrating when a jackpot is hit.

                                      -7-
<PAGE>
 
  Although controllers, displays and software are all included in every Mikohn
progressive jackpot system, controllers and displays also are sold separately to
gaming machine manufacturers and casino operators. The software used to program
the displays and controllers and monitor the systems and machine usage is
proprietary, thereby inhibiting the operator from substituting components made
by other manufacturers. Mikohn's progressive jackpot systems can be connected
into multi-site progressive links among multiple casinos. The operator of the
gaming machine, not Mikohn, is responsible for the payout of all jackpots.

  Controllers.  Mikohn's proprietary controllers are designed to be compatible
  ------------                                                                
with the gaming equipment made by the major gaming machine manufacturers,
including Aristocrat, Atronic, Alliance/Bally Gaming, Novomatic Industries
("Novomatic"), Sigma, Universal de Desarrollos Electroonicos, S.A. ("UNIDESA/
Cirsa"), WMS Industries and the industry giant, IGT. Mikohn's controllers are
licensed in every major gaming jurisdiction.  Management believes that Mikohn
has the largest installed base of controllers in the industry.  The sale of
Mikohn's controllers for a progressive jackpot system is frequently accompanied
by the sale of Mikohn electronic displays for such system.

  Electronic Displays.  Management believes that Mikohn's electronic displays
  --------------------                                                       
are installed with most gaming machines manufactured by Alliance/Bally Gaming,
Aristocrat, IGT, Novomatic, Sigma, UNIDESA/Cirsa and WMS Industries.  Mikohn's
electronic displays are in casinos in virtually every major gaming jurisdiction
throughout the world.  The Company produces alphanumeric and graphic electronic
displays for use in real-time applications with all major brands and models of
gaming machines.

  Mikohn manufactures displays in the widest variety of sizes and designs in the
industry to accommodate the technical, aesthetic and price requirements of its
casino customers. Overhead displays, which are typically integrated with
customized casino signs manufactured by Mikohn, are used by casinos to attract
attention to machines offering progressive or bonus jackpots and to celebrate
winners. Once the player begins to play a gaming machine linked to a progressive
jackpot system, a display installed on or in the gaming machine maintains the
player's interest by continuously showing on a real-time basis the current
amounts of the increasing progressive jackpots or other merchandizing bonus
messages.

  Mikohn's displays primarily use LEDs which can be turned on and off
approximately 100 times per second and can be programmed to display information
in a wide variety of formats, including flashing, traveling from side to side,
odometer (high speed odometer good for wide area applications), pulsating,
scrolling up or down, painting (each character is formed from the top down),
morphing and dancing colors (each character alternates color). LEDs also can
utilize foreground or background color, user selectable and downloadable font
and text justification. Cells of LEDs may be combined to display characters and
graphics in a variety of sizes ranging from small to very large. The Company
supplies displays for IGT's most popular wide-area progressive systems.

  In addition to the Company's proprietary line of LED displays, Mikohn now
offers casinos the ability to attract players using the latest in high
resolution plasma displays.  Utilizing Mikohn's PC based PlasmaPack(TM)
controller, casinos can run real-time applications such as bonusing and
progressives on large, high-resolution plasma displays.

  Due to the flexibility of the Company's software, we have been able to
implement our competition's software protocol so that our displays can still be
sold even when we are not the chosen progressive system vendor.

                                      -8-
<PAGE>
 
  Software.  Each progressive jackpot system that Mikohn sells includes
  ---------                                                            
application software that enables the casino operator to program the controllers
and displays and set various game options. Mikohn designs software for use in
connection with its progressive jackpot system.  The software permits the casino
operator to set jackpot frequencies and levels in response to competitive
factors and variations in customer demand and to set a maximum amount to be
displayed as a jackpot (which effectively limits the casino's liability in the
event of a programming or technical error). The software is programmable to
accommodate a variety of international currencies, and is supplied either on a
diskette for installation on the casino's stand-alone personal computer or on a
memory card sold by Mikohn for installation in a palmtop computer.

  Mikohn's SuperLink software package supplies a comprehensive, multi-faceted
system for managing a progressive jackpot network from a central location. The
SuperLink system consists of Mikohn bonus and/or standard progressive
controllers, a Mikohn smart interface board for each machine and a PC hosted
monitoring system. The system PC provides reports and statistics of bonus game
play and features screens for configuration and set-up. The system links the
interface packages of electronic displays, controllers and software into one
total integrated package, permitting centralized control and facilitating the
operation, programming and monitoring of progressive jackpots and bonuses. As a
result, management believes that the SuperLink system enables casino operators
to manage their slot machines with greater efficiency, and increases
productivity, enhances security and reduces costs. Moreover, the SuperLink
system, with its built-in flexibility, is a system that will enhance both
existing and new gaming machines with new progressive, bonusing and
merchandising features, including Mikohn's MoneyTime, Mystery Jackpot and Bonus
Jackpot(TM).  Since its introduction in May 1996, the SuperLink system has been
sold to and installed in eleven casinos.  Major installations include the Beau
Rivage in Biloxi, MS, the Monte Carlo, New York-New York, The Orleans, The
Reserve and Venetian in Las Vegas, NV, the Station Casino Kansas City in Kansas
City, MO and the Mohegan Sun Resort in Uncasville, CT.

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

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

  Controllers and displays are designed by Mikohn and assembled using components
manufactured to its specifications by various suppliers. A standard controller
can link up to 32 gaming machines and sells for approximately $1,500
(proprietary software included).  The Company's newest controllers can link up
to 96 gaming machines and sell for approximately $2,000.  Mikohn's most popular
types of LEDs sell in the $5,000 to $10,000 range, depending on specifications.
A basic progressive jackpot system sells in the $8,000 to $10,000 range. A basic
bonusing system sells in the $25,000 to $30,000 range. After analyzing the
operating results of its 

                                      -9-
<PAGE>
 
initial MoneyTime system installed at New York-New York, management concluded
that this product was well suited for, and would generate enhanced and recurring
revenues through, lease, license and structured participation arrangements.
Mikohn's progressive jackpot systems are often sold in combination with its
interior casino signage to provide the casino operator and gaming machine
manufacturer with customized merchandising solutions for the gaming machine area
of the casino. In each case, installation and signage are extra and are a source
of significant additional revenue to Mikohn. Because of the customization
involved in signage, the sales price of signage typically exceeds the sales
price of the system.

  Player Tracking and Data Collection Systems.  Mikohn develops and markets
automated data collection systems for player tracking and accounting for gaming
machines.  These products include Mikohn's patented CasinoLink technology.

  Data collection control systems automatically collect play data about each
gaming device. This information is transmitted to a central computer system
where it is available to the casino manager and stored for future analysis and
reporting. Gaming machines can be networked to monitor all machine functions
including coins deposited in the machine, coins paid out of the machine, number
of games played, jackpot occurrences and other machine functions.

  Player tracking systems collect performance data about individual players or
groups of players. The player tracking system builds upon the casino accounting
system to gather and record information about individual players. Using the
information gathered by the player tracking system, the casino can reward a
patron, much like an airline's "frequent flyer" program. Each customer who
elects to enroll as a casino "slot club" member is given a plastic card that
uniquely identifies the "slot club" member to such casino. The player inserts
the card into an electronic card reader on the gaming machine and the system
automatically records the player's level of play. The casino management can use
this information to provide special incentives and rewards to individual players
or groups of players. Mikohn has no responsibility for the actual operation of a
casino's "slot club."

  CasinoLink.  CasinoLink system is the first system which integrates the
  -----------                                                            
advanced features of the Microsoft(R) Windows NT(R) platform in a gaming machine
accounting, player tracking and game management module. The advanced technology
of the CasinoLink system provides real-time information on player activity,
casino revenues and cashier functions, monitors gaming machines and table games,
and has the capability to network multiple sites. The system tracks gaming
machines, keno and bingo and is available from remote terminal units that allow
casinos to access player related information, such as a player's game preference
and wagering history.  The CasinoLink advanced tracking system enables casinos
to make informed decisions by offering players complimentary benefits
commensurate with their play.

  The CasinoLink system is installed throughout the gaming operations of 16 
accounts worldwide.  In the United States, CasinoLink is utilized in a 
single-site capacity by operators in Nevada, Colorado and Oregon.  Mikohn holds 
the dominant share of the gaming system market in Canada, with multi-site 
CasinoLink installations in the provincial lottery corporations of Alberta, 
British Columbia, Ontario and Saskatchewan.  The European market is home to 
single-site CasinoLink installations in Finland, Hungary and Greece and 2 
multi-site operations, including a city-wide progressive jackpot network in St. 
Petersburg, Russia and an enterprise-wide installation at Holland Casino.  We 
have entered into a development agreement with Holland Casino, which operates 
ten casinos in the Netherlands, for the development and installation of a casino
management system networking 4,000 gaming machines.  Mikohn installed the first 
CasinoLink system under this agreement in May 1998, and to date, six casinos are
up and running.

  Mikohn has also reached a definitive agreement with Australia's largest 
private company, Tattersall's Holding Pty., LTD., covering the installation of a
CasinoLink system networking multiple gaming machines at multiple sites in 
Queensland, Australia.  Lastly, Mikohn made its systems debut in the Asian 
gaming market this year through an agreement with SRDM covering a 12-site 
progressive link in Macao.  In total, existing CasinoLink contracts span 
approximately 30,000 gaming machines in more than 220 locations.


                                      -10-
<PAGE>
 
management believes that the installations covered by these contracts will be
completed by mid-2000.

  Oversized Gaming Machines.  In 1994, Mikohn entered into an exclusive license
agreement with IGT to manufacture and distribute oversized and giant gaming
machines known as Mini-Bertha(TM) and Colossus(TM), respectively. Under the
terms of the license agreement with IGT, Mikohn has exclusive worldwide
distribution rights. These oversized gaming machines come in electronic video
and slot-reel formats, feature many of IGT's popular games and can be linked
within a casino on a progressive network. These oversized gaming machines
provide greater visual appeal and variety, and management believes that they
generate a greater win per machine than conventional gaming machines. The
machines are available for sale, lease or license and IGT receives a royalty
based upon the income derived from the machines that are placed. The revenues
relating to these machines as reported by Mikohn in its financial statements are
net of such amounts paid to IGT. See Gaming Operations.

  Keno. Mikohn has a licensing agreement with XpertX, Inc. ("XpertX") covering
the exclusive worldwide distribution rights (except for Nevada) to the
XpertX(TM) keno system. Mikohn has non-exclusive distribution rights in Nevada,
other than the counties of Washoe (including Reno), Douglas and Carson City,
where XpertX retains all rights. Key features of this keno system include player
tracking (player account information, player trip history, play and win amounts
and buy-in limits); advanced customized reporting (customized audit/management
reports and inter-property progressive capabilities); display functions (in-room
television keno display and advertising options); and built-in diagnostic
software and disc mirroring features.

  Touch-Screen Multi-Game and Multi-Coin Video Machines.  In July 1997, Mikohn
acquired the intellectual property rights to P&M Coin's touch-screen multi-game
video machines. These games, called Mikohn Classics(TM), can be customized from
44 available games and encased in various thematic cabinets to increase casino
floor game variety and entertainment. The importance of gaming diversity on the
floor has resulted in an increase in the demand for multiple game and game-
within-a-game concepts through a single machine. Mikohn's multiple game video
machines provide a number of game options for the player, and the casino can
vary the number and types of games offered per machine. Mikohn manufactures
these games and, other than limited exclusions in Nevada, holds exclusive
worldwide distribution rights to them. Anticipating the latest emerging trends,
the newest versions of the Mikohn Roll `N Bonus(TM) series emphasize multi-line,
multi-coin games for individual players. Each game utilizes unique line and
betting configurations and provides new graphics, bonusing and special sound
packages. These new games are scheduled to make their debut in Nevada in the
second quarter of 1999.

  Surveillance and Security Systems. Mikohn engineers, designs, installs and
maintains surveillance, security and communications systems for casinos, hotels,
and other private and governmental facilities. The surveillance and security
systems integrate equipment supplied by a number of manufacturers. Most
surveillance and security systems contracts are awarded as part of a
construction bid or major renovation project, and typically include equipment
and installation. Additional revenues often are derived from component sales
that upgrade existing systems.

  Accessories.  The Company's product line also includes a number of accessory
products that allow the casino customer to operate a wider variety of
progressive games, provide promotional messages, animated and graphic displays,
and generate additional statistical and operating information from the gaming
machines linked to progressive jackpot systems.  Other available accessories
include devices to boost electrical outputs to a large number of displays, cable
and fiber-optic connectors, devices to trigger visual or aural signals when a
progressive jackpot is hit, and 

                                      -11-
<PAGE>
 
circuitry for the display of progressive jackpot amounts on the screens of video
gaming machines.

  Gaming Operations:

  In recent years, proprietary games have become an increasingly important
segment of the Company's business. In 1993, Mikohn established its games
division to develop, acquire, manufacture and distribute proprietary games,
machines and tables. We have devoted increased attention to the games division
because of the high recurring revenue and profit margin potential in this
business line. The Company 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.
The Company places its proprietary games in casinos under sale, license, lease
or structured participation arrangements.  Sales of proprietary games are
included in Gaming Products while license, lease or structured participation in
revenues are included in Gaming Operations.

  Set forth below is a description of some of the Company's significant
proprietary gaming machines and table games that are placed under license,
leased or structured participation arrangements.

  Progressive Jackpot Table Games.  As noted above, in September, 1998, the
Company acquired PGI and two of its distributors.  With these acquisitions, the
Company gained the rights to Caribbean Stud, Caribbean Draw(R), Progressive
Blackjack(TM) and Progressive Super Sevens(TM). Prior to the acquisition, Mikohn
was a distributor for PGI in several jurisdictions.  Each of these games has a
progressive side-bet feature.  We expect our player-appealing signs to help
bring the same excitement to the table games business that we added to the
gaming machine business.

  Caribbean Stud.  Caribbean Stud is one of the most popular table games in the
  ---------------                                                              
gaming industry and the most popular proprietary table game.  There are more
than 900 Mikohn Caribbean Stud tables in service in 38 jurisdictions world-wide.
Caribbean Stud(R) allows a player to make two wagers, one that pays if the
player's hand beats the dealer's hand and one that pays either a flat fee or a
portion of a progressive jackpot if the player receives a flush or better.  In
order to win 100% of the jackpot, the player must have placed the progressive
side-bet and have a royal flush. Progressive bet payouts of lesser amounts are
awarded for a straight flush, four of a kind, full house and flush.  Caribbean
Stud table games have been available in casinos since 1988.

  Caribbean Draw.  Caribbean Draw resembles Caribbean Stud(R) and includes its
  ---------------                                                             
progressive side-bet feature, but the player has the opportunity to exchange up
to two cards originally dealt for new cards, as in a standard draw poker game.
Caribbean Draw(R) was developed in 1996 by PGI and patents are pending in the US
and foreign jurisdictions.

  Caribbean Stud and Caribbean Draw can be linked together to feed the jackpot
and create additional player interest in the games.

  Wild Aruba Stud(TM).  Wild Aruba Stud is Mikohn's latest offering in this line
  --------------------                                                          
of poker games.  Wild Aruba Stud is a variation of 5 card stud poker.  Each
player makes an ante bet and may fold or call with an additional back bet of
twice the ante.  The game uses Wild Deuces to increase the fun and allow for
strategic bluffing.  The dealer qualifies with a pair of eights or better.  A
player who makes the additional progressive bet can win all or part of the
progressive jackpot even if he loses the hand. Wild Aruba Stud can also be
linked to the same progressive jackpot as Caribbean Stud and Caribbean Draw.
Wild Aruba Stud has been submitted for regulatory approval in most jurisdictions
and is expected to be approved in most areas by the second quarter of 1999.

                                      -12-
<PAGE>
 
  Progressive Blackjack / Progressive Super Sevens.  Progressive Blackjack and
  -------------------------------------------------                           
Progressive Super Sevens fill out the rest of the current Mikohn table game
line-up.  Progressive Blackjack and Progressive Super Sevens are played as basic
blackjack games with an optional progressive side-bet.  Players receive jackpot
payments determined by a payout formula based on certain card combinations which
may be dealt to a player.  Casinos benefit from the game because of the
additional volume and win created with the increased excitement produced by the
jackpot feature.

  Mikohn places table games directly with casino operators for a monthly license
fee that is either a fixed rate per table or a participation agreement.  Most of
the agreements with the casinos are for three year terms with a 30 day early
cancellation clause.  As of December 31, 1998, Mikohn had 1,003 revenue
producing table games installed.

  Mikohn does not have the rights to Caribbean Stud(R) in Nevada and in
California has only limited rights that do not permit the distribution of the
game in its present configuration.  Another party holds the rights, in Nevada
only, to Caribbean Stud(R) and any games that this party may devise using the
Company's Caribbean Stud(R) patents.

  New Table Games in Development.  Mikohn has several new games in development
that will be submitted for regulatory approval in 1999.

  Tre' Card Stud(TM).  Tre' Card Stud is a new three card stud game.  This is a
  ------------------                                                           
fast-paced, fun game in which all hands including the dealer's hand have only
three cards.  Players ante one unit to receive hands of three cards, face-down,
and at this point may either call with a bet of two units (twice the ante) or
fold.  The dealer needs a certain combination of cards to play.  A progressive
bet may be made for bonus jackpots on certain hands.  This game will be
submitted for regulatory approval early in 1999.

  Coin-Push Gaming Machines.  In 1995, Mikohn acquired the exclusive U.S. patent
rights to an electromechanical coin-push gaming machine, known as Flip-It, that
it now manufactures and distributes. Mikohn leases or licenses Flip-It to
operators on a participation or fixed rental basis that produces a recurring
revenue stream. Currently, Flip-It games have been approved for play in Nevada,
where Mikohn participates in the casino revenues generated by the game, and in
Michigan, Mississippi, New Mexico and Uruguay, where Mikohn leases the game for
a flat rental.  During the last three years, there has been a general decline in
the number of Mikohn's Flip-It coin-push gaming machines in service. Management
believes that the decline in the number of Flip-It games is due in part to the
level of maintenance that has been required for the mechanical components in
this coin-push machine. We are in the process of developing an electronic
version of the game, which management believes will have greater reliability and
correspondingly increased casino acceptance.

  MoneyTime.  MoneyTime is a new branded progressive jackpot system developed by
Mikohn in 1997.  It uses bonusing to initiate, extend and increase play.
Typically, 40 gaming machines are configured in a carousel with extensive
overhead thematic signage manufactured by Mikohn promoting the MoneyTime
progressive jackpot system. Each such gaming machine is linked into one
MoneyTime system. When the progressive pool generated reaches a randomly
determined level within a specified range, the system triggers a bonus mode in
which multiple players are awarded portions of the jackpot in rapid succession.
Management believes the average win per unit is higher on its MoneyTime machines
than on similar machines located in casinos that are supplied by others.

  The MoneyTime name is used to identify the system in all casinos in which it
has been installed. MoneyTime is in operation at New York-New York and the
Imperial Palace in Las Vegas, Nevada, 

                                      -13-
<PAGE>
 
at Native American casinos in New Mexico and Michigan, at the Sands Regency in
Reno, Nevada, at Boomtown in Biloxi, Mississippi, at a casino in Windsor,
Ontario and at the Lodge in Blackhawk, Colorado. It was also installed at the
Beau Rivage in Biloxi, Mississippi and Fitzgeralds in Reno, Nevada during in the
first quarter of 1999. Mikohn has been awarded 14 contracts to install its
MoneyTime system and has already installed it on approximately 419 gaming
machines. When Mikohn completes all of these installations the MoneyTime system
will have been installed on approximately 532 gaming machines. We derive
recurring revenues from all MoneyTime games, but the Company is not responsible
for the payout of any jackpots. In Nevada we participate in the gaming revenues
from the MoneyTime game; in other jurisdictions we receive fixed lease payments.
For those casinos with which Mikohn has a lease, license or other structured
participation arrangement, we bear the cost of the machines, customized interior
signage and electronics in exchange for the monthly fee.

  Hot Potato(TM).  Mikohn's newest bonusing jackpot system, to be launched in
1999, is Hot Potato. Hot Potato is designed to operate on IGT's Vision gaming
machines, which are IGT's latest and most technologically advanced machines. Hot
Potato is a multiplier bonus system.

  TableLink.  Mikohn develops and markets automated data collection systems for
player tracking and accounting for table games. These products include the
Company's patented TableLink technology.

  In 1995, Mikohn acquired the exclusive worldwide rights to develop,
manufacture, market and distribute the TableLink technology, a player tracking
and data collection system for table games. Management believes that the
technology enables the casino to recognize and reward players, and enhances game
security and integrity. The TableLink technology employs (i) special casino
chips that incorporate computer microchips which transmit encrypted radio
frequency signals, (ii) sensors at each player position at the table, (iii)
player identification card readers, (iv) optical readers for card game
applications, (v) table computer displays and (vi) proprietary software
networked to a central data collection point. Information is compiled by
patented instruments and computer and sensor technology which electronically
track all bets in real-time as the chips are placed, producing a record of each
game.  In addition to providing player tracking, chip tracking and game
tracking, the technology can be used to integrate a progressive jackpot system
with other table games to stimulate player excitement and improve revenue
production.  The technology used in the TableLink system, for the first time,
provides casino operators with real-time accounting of the play of each table
game player.  Improved accuracy and player initiated ratings not only are very
useful to the casino in identifying and directing complimentary benefits to the
customer, but improve customer loyalty.  It also redirects supervisor time from
administrative to customer relationship tasks.

  The benefits of accurate data collection and player tracking for a network of
gaming machines are also available on table games with TableLink.  Players
initiate their ratings using their player cards when they begin play.  The
TableLink system tracks the time played, wagers made and game results.  The
information can be interfaced with the casino's main database and used for
rewarding patrons as well as building marketing information.  TableLink is
available in three tiers:  PT (Player Tracking), CT (Chip Tracking) and GT (Game
Tracking).  TableLink PT is the base product on which the CT and GT products
offerings are built.

  Management believes TableLink has the potential to become one of the most
important technological advances in casino gaming since the introduction of
microprocessors in gaming machines. Blackjack is the world's most popular table
game and there are, management believes, approximately 20,000 tables in use
worldwide. Management believes that Mikohn's TableLink technology can be adapted
for use with other popular table games, including baccarat and roulette. 

                                      -14-
<PAGE>
 
Working prototypes for baccarat have been exhibited at gaming trade shows.

  In April 1998, the Company announced that it had entered into a definitive
agreement with Harrah's pursuant to which Mikohn acquired the exclusive U.S.
rights to Harrah's patented Total Track player tracking and management
information system. Harrah's is committed to the installation by Mikohn, on a
minimum of 100 table games in several of Harrah's casinos, of a table game
tracking and accounting TableLink system.  The Company has also entered into a
development agreement with Gaming Casino Systems (GCS), developer of the
PitTrak(TM) system installed on 200 tables at Star City Casino in Australia.
This agreement gives Mikohn exclusive U.S. rights to PitTrak and among other
things allows us to utilize the efforts and resources of GCS to incorporate
PitTrak into the TableLink system.

  Mini-Bertha.  The Company has entered into an agreement with IGT for a $5.00
denomination wide-area progressive on the Mini-Bertha platform.  This product is
scheduled for the third quarter 1999.  See discussion of Gaming Products above.

Competition

  The markets for the Company's products are highly competitive. The Company
competes with a number of developers, manufacturers and distributors of products
similar to those that the Company produces and distributes.  Some of these
competitors are larger and have greater access to capital resources than the
Company. The Company's future performance may be affected by numerous factors,
some of which are (i) the continued popularity of the Company's existing
products and its ability to develop and introduce new products that gain market
acceptance and satisfy consumer preferences, (ii) the Company's ability to
maintain existing regulatory approvals and obtain future approvals in order to
conduct its business and (iii) the Company's ability to enforce its existing
intellectual property rights and to adequately secure and enforce such rights
for new products and obtain future approvals.

  Many of the Company's products require regulatory approval. Management
believes that the amount of time and money consumed in the course of obtaining
licenses in new jurisdictions and new product approvals in multiple
jurisdictions constitute significant obstacles to entry or expansion by new
competitors.  In addition to regulatory constraints, the Company's exclusive
patents and trademarks protect its proprietary products. The Company actively
seeks patent and trademark protection and vigorously enforces its intellectual
property rights in all major domestic and international markets.

  Signs:

  Management believes that Mikohn is not only the leading worldwide manufacturer
of interior casino signs; it is also the dominant competitor in this specialized
market and is recognized as the industry leader in technology integration,
artistic concepts, library of designs, creative staff, distribution network and
structural design, all of which are essential to the more complex thematic
signage found in the new mega-casinos. These factors, in the aggregate, create
significant obstacles to entry by new competitors. Competitors in the interior
sign business include Casino Data Systems (CDS), Young Electric Sign Company
(YESCO), B&D Signs and A.C. Coin & Slot Company. The market for exterior signs
and exterior lamp bank video systems is highly competitive. YESCO is the
dominant firm in this market.

                                      -15-
<PAGE>
 
  Gaming Products:

  In the electronics, bonusing and control systems market, management believes
that the Company's components for progressive jackpot systems have the highest
market share and name recognition in the industry. The primary competitors for
the Company's progressive jackpot system components are CDS and Acres Gaming
(Acres) (see "Legal Proceedings"). Although IGT currently uses the controllers
and software it manufactures solely in connection with its own proprietary
gaming machines, there can be no assurance that IGT will not commence sales of
such components to other gaming machine manufacturers and casino operators. In
the placement of progressive jackpot bonusing systems, the Company competes with
Acres and the major gaming machine manufacturers who have developed their own
proprietary gaming products that incorporate progressive jackpot bonusing
systems into their games.

  Mikohn's CasinoLink system competes against systems from Alliance/Bally
Gaming, Acres, CDS, IGT and, to a lesser extent, Gaming Systems International.
This market is highly competitive. Pricing, product features and functions,
accuracy and reliability are key factors in determining a provider's success in
selling its system. Due to the high initial costs of installing a computerized
monitoring system, customers for such systems generally have tended not to
change suppliers once they have installed such a system. Future growth will be
based on penetration of the international markets and further expansion in the
established and emerging markets, as well as continued development efforts by
the Company to provide customers with new and innovative hardware and software
products. Management believes that the Company has a competitive advantage
because its CasinoLink system, the first player tracking and accounting control
system currently available using the Microsoft Windows NT platform, provides
greater ease of use and the ability to link multiple sites.

  In the gaming machine market, for product sales under Gaming Products and, for
lease and participation from products included under Gaming Operations, the
Company competes against major gaming machine manufacturers as well as
manufacturers of specialty gaming products. The major gaming machine
manufacturers are Alliance/Bally Gaming, Aristocrat, Atronic Casino Technology,
Ltd., IGT, Novomatic, Sega Enterprises Ltd., Sigma, UNIDESA/Cirsa, Universal
Distributing of Nevada, Inc., Powerhouse Technologies, Inc. and WMS Industries.
Although these major gaming machine manufacturers compete against the Company
directly with specialty gaming products and indirectly with mass market gaming
products (a market in which the Company does not compete significantly),
management believes that the Company competes most directly against other
specialty gaming machine manufacturers, such as Anchor Gaming Company, A.C. Coin
& Slot Company, CDS, Innovative Gaming Corporation of America and Shuffle
Master. In addition, other technology-oriented companies, such as Silicon
Gaming, Inc., have entered or may enter the gaming machine business. Specialty
gaming product manufacturers compete primarily on player appeal and the
resulting relative win per unit generated for the casino. Management believes
that the Company is in a strong competitive position in the specialty gaming
product market because of its extensive distribution network and historic
customer relationships across a number of diverse product lines.

  Gaming Operations

  In the proprietary table game market, PGI, which the Company acquired in 1998,
is the premier designer, manufacturer and distributor of proprietary progressive
jackpot table games, and we believe our patents create a barrier to the
development of competing table games with progressive or electronically enhanced
side-bet features. The only significant competitor in proprietary table games is
Shuffle Master, which markets the Let It Ride(TM) games. We believe that the Let
It Ride games infringe on some of our patents, and this matter is the subject of
litigation commenced by PGI
                                      -16-
<PAGE>
 
against Shuffle Master. See "Legal Proceedings."

  Mikohn's TableLink technology is unique in its ability to automatically
capture and record exact wagering information in real-time. This information
includes the exact amount wagered, a critical element that gaming operators
traditionally have had great difficulty in ascertaining and confirming.
Management believes that there currently is no other system on the market that
has the ability to identify and record all wagers placed, all cards dealt and
the results of each hand played.  Prior to the introduction of the TableLink
technology, casinos could only estimate the amounts wagered. Mikohn holds
exclusive worldwide rights to this system. A patent protecting the system and
several of its unique features has been issued in a European jurisdiction, and
patent applications are pending in the U.S. and many other foreign
jurisdictions, thereby creating a significant barrier to entry for potential
competitors.

Manufacturing

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


<TABLE>
<CAPTION>
 
================================================================================================================== 
                                                                         Area                            
                       Location / Activity                            (Sq. Ft.)               Owned / Leased   
                       -------------------                            ---------               -------------- 
<S>                                                                    <C>                    <C>
Las Vegas, NV - Corporate Administration                                 36,429                    Leased  *
Las Vegas, NV - Interior Signs - Manufacturing                           47,350                     Owned
Las Vegas, NV - Exterior Signs - Manufacturing                           45,976                     Leased
Las Vegas, NV - Games And Electronics - Manufacturing                    85,638                     Leased
Las Vegas, NV - Engineering And Service                                  30,500                     Leased
Las Vegas, NV - Slot Glass / Human Resources                             17,225                     Leased
Las Vegas, NV - Sculpture - Manufacturing                                12,500                     Leased
Reno, NV - Administration / Service                                      19,222                     Leased
Rapid City, SD - Manufacturing  **                                       48,881                     Owned
Gulfport, MS - Manufacturing                                             28,000                     Owned
St. Charles, MO - Service                                                13,740                     Leased
Ft. Lauderdale, FL - Service                                             11,000                     Leased
Albuquerque, NM - Service                                                 4,500                     Leased
Golden, CO - Service                                                      3,000                     Leased
Egg Harbor, NJ - Service                                                  2,800                     Leased
Sydney, Australia - Manufacturing                                        24,750                     Leased
Amsterdam, The Netherlands - Manufacturing                               20,000                     Leased
Lima, Peru - Manufacturing                                               35,674                     Leased
                                                                         ------

*   Purchase is in escrow which is scheduled to close in April
**  Expected to close in 1999                                           487,185
                                                                        =======
================================================================================================================== 
</TABLE>

  There are many sources of supply for nearly all of the components and raw
materials used in the Company's products, including exterior lighting, signage
and security and surveillance materials, and 

                                      -17-
<PAGE>
 
there are many suppliers who can assemble the Company's progressive jackpot
products. Accordingly, the Company is not dependent in any significant way upon
any single supplier or vendor.

Marketing and Distribution

  The Company's major product areas are signs, games and electronics and
systems.  It maintains facilities to sell and service its products to markets
throughout the world.  In addition to the Las Vegas corporate headquarters, the
Company has regional sales offices in Reno, NV; St. Louis, MO; Ft. Lauderdale,
FL; Atlantic City, NJ; Golden, CO; Gulfport, MS; Rapid City, SD; Amsterdam, The
Netherlands; Buenos Aires, Argentina; Lima, Peru; and Sydney, Australia.

  Historically, the Company's marketing efforts have been domestically focused,
as measured by the percentage of sales to customers in the U.S.  However, since
1994 we have broadened our distribution capabilities to better serve
international markets, take advantage of growth opportunities and
correspondingly reduce our dependence on domestic casino operators and gaming
machine manufacturers.  We expect to continue this strategy as more
international jurisdictions legalize gaming.  The Company intends to further
strengthen its extensive distribution network by offering products licensed from
other companies that complement its proprietary products.

  The Company and its distributors service the Company's progressive jackpot
products, and the Company, a subcontractor or the customer typically services
the Company's interior signs. The Company performs maintenance on exterior
lighting and signs, typically under multi-year contracts, and provides limited
warranties on most of its progressive jackpot and interior sign products.

Research and Development

  During the fiscal years ended December 31, 1998, 1997, and 1996, the Company
expended approximately $5.5 million,  $3.9 million, and $3.1 million,
respectively, on research and development activities.

  As previously noted, the casino gaming industry is intensely competitive, for
which reason casinos constantly seek out, evaluate and introduce new and
upgraded gaming products in an effort to attract and retain gaming customers.
An important part of the Company's strategy is to provide its casino customers
with new and upgraded products, games and services that enhance their revenue
stream and facilitate operating efficiencies.  The Company's current emphasis in
research and development is the enhancement of the CasinoLink system, the
development of the TableLink system and the development of new game machines and
progressive table games.

Employees

    On February 11, 1999, the Company had a worldwide total of 779 employees, of
whom approximately 374 were in manufacturing, 65 were in sales and distribution,
52 were in art/CAD design, 130 were in installation and service, 56 were in
research and development and 102 were in administration.  Of that total, 89 were
in management.   A total of 104 of the Company's employees, all of whom are
employed in its exterior signs operations in Las Vegas and Atlantic City, are
represented by unions.  We consider our relationships with our employees to be
good.

                                      -18-
<PAGE>
 
Backlog

  As of December 31, 1998, 1997, and 1996, the Company had backlogs of orders,
believed to be firm, of $22.0 million, $19.4 million, and $18.5 million,
respectively.  Orders in the backlog at December 31st typically are filled
within 120 days.

Government Regulation

Overview

  The Company is subject to regulation by authorities in most jurisdictions in
which its progressive jackpot systems and related products are sold or used by
persons or entities licensed to conduct gaming activities.  Gaming regulatory
requirements vary from jurisdiction to jurisdiction, and obtaining licenses,
findings of suitability and/or other required approvals with respect to the
Company, its personnel and its products (collectively, "authorizations") is time
consuming and expensive.

  Generally, gaming regulatory authorities have broad discretionary powers and
may deny applications for or revoke authorizations on any basis they deem
reasonable.  Although our experience is excellent, there is no guarantee that
the Company, its products or its personnel will receive or be able to maintain
any necessary authorizations.

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

  The Company has a provisional license in Puerto Rico, which permits the
Company to transact its business pending completion by the jurisdiction of its
processing of the Company's completed license application.

  Certain Indian tribes throughout the United States that have compacts with the
states in which their tribal dominions are located operate or propose to operate
casinos, and these tribes may require suppliers of gaming and gaming related
equipment, such as the Company, to obtain authorizations. The Company has and
will continue to work with these tribes to obtain the necessary authorizations
when requested to do so.


                                      -19-
<PAGE>
 
Associated Equipment

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

Gaming Devices and Equipment

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

Regulation of Stockholders

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


Regulation and Licensing - Nevada

Gaming

  The manufacture, sale and distribution of gaming devices for use or play in
Nevada or for distribution outside of Nevada, the manufacture and distribution
of associated equipment for use in Nevada, and the operation of slot machine
routes and inter-casino linked systems in Nevada are subject to (i) The Nevada
Gaming Control Act and the regulations promulgated thereunder (collectively,
"Nevada Act") and (ii) various local ordinances and regulations.  Such
activities are subject to the licensing and regulatory control of the Nevada
Gaming Commission ("Nevada Commission"), the Nevada State Gaming Control Board
("Nevada Board"), and various local, city and county regulatory agencies
(collectively referred to as the "Nevada Gaming Authorities").

  The laws, regulations and supervisory practices of the Nevada Gaming
Authorities are based upon declarations of public policy having as their
objectives (i) preventing any involvement, direct or indirect, of any unsavory
or unsuitable persons in gaming or the manufacture or distribution of gaming
devices at any time or in any capacity; (ii) strictly regulating all persons,
locations, practices and activities related to the operation of licensed gaming
establishments and the manufacture or distribution of gaming devices and
equipment; (iii) establishing and maintaining responsible 

                                      -20-
<PAGE>
 
accounting practices and procedures; (iv) maintaining effective controls over
the financial practices of licensees (including requirements covering minimum
procedures for internal fiscal controls and safeguarding assets and revenues,
reliable recordkeeping and periodic reports to be filed with Nevada Gaming
Authorities); (v) preventing cheating and fraudulent practices and (vi)
providing and monitoring sources of state and local revenue based on taxation
and licensing fees. Changes in such laws, regulations and procedures, depending
upon their nature, could have an adverse effect on the Company's operations.

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

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

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

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

  If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or Mikohn Nevada, the 

                                      -21-
<PAGE>
 
companies involved would have to sever all relationships with that person. In
addition, the Nevada Commission may require the Company or Mikohn Nevada to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.

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

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


Regulation of Security Holders

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

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

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

                                      -22-
<PAGE>
 
including a list of beneficial owners.  The applicant is required to pay all
costs of investigation.

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

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

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

  The Company also is required to render maximum assistance in determining the
identity of the beneficial owners of its securities.  The Nevada Commission has
the power to require the Company to imprint its stock certificates with a legend
stating that the securities are subject to the Nevada Act. To date, the Nevada
Commission has imposed no such a requirement on the Company.

  The Company may not make a public offering of its securities without the prior
approval of the Nevada Commission if the securities or proceeds therefrom are to
be used to construct, acquire or finance gaming facilities in Nevada, or to
retire or extend obligations incurred for such purposes. Such approval, if
given, does not constitute a finding, recommendation or approval by the Nevada
Commission or the Nevada Board as to the accuracy or adequacy of the prospectus
or the investment merit of the offered securities, and any representation to the
contrary is unlawful.

  Changes in control of a Registered Corporation through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct, by which anyone obtains control, may not lawfully occur without the
prior approval of the Nevada Commission.  Entities seeking to acquire control of
a Registered Corporation must meet the strict standards established 

                                      -23-
<PAGE>
 
by the Nevada Board and the Nevada Commission prior to assuming control of a
Registered Corporation. The Nevada Commission also may require persons who
intend to become controlling stockholders, officers or directors, and other
persons who expect to have a material relationship or involvement with the
acquired company to be investigated and licensed as part of the approval
process.

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

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

  Any person who is licensed, required to be licensed, registered, required to
be registered, or who is under common control with any such persons
(collectively, "Licensees") and who proposes to become involved in a gaming
venture outside of Nevada is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of his or her participation
outside of Nevada.  The revolving fund is subject to increase or decrease at the
discretion of the Nevada Commission.  Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
also are subject to disciplinary action by the Nevada Commission if they
knowingly violate any laws of the foreign jurisdiction pertaining to the non-
Nevada gaming operation, fail to conduct the foreign gaming operation in
accordance with the standards of honesty and integrity required of Nevada gaming
operations, engage in activities that are harmful to the State of Nevada or its
ability to collect gaming taxes and fees, or employ a person in the non-Nevada
operation who has been denied a license or finding of suitability in Nevada on
the ground of personal unsuitability.


Other Jurisdictions

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

                                      -24-
<PAGE>
 
Federal Regulation

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


Application of Future or Additional Regulatory Requirements

  In the future, the Company intends to seek the necessary licenses, approvals
and findings of suitability for the Company, its products and its personnel in
other jurisdictions throughout the world where significant sales are expected to
be made.  However, there is no assurance that such licenses, approvals or
findings of suitability will be obtained and that they will not be revoked,
suspended or unsuitably conditioned or that the Company will be able to timely
obtain the necessary approvals for its future products as they are developed, or
at all.  If a license, approval or finding of suitability is required by a
regulatory authority and the Company fails to seek or does not receive the
necessary license or finding of suitability, the Company may be prohibited from
selling its products for use in that jurisdiction or may be required to sell its
products through other licensed entities at a reduced profit to the Company.


Item 2.  Properties

    The properties the Company owns and leases are listed in detail in the table
under the heading "Business  Manufacturing", above.  The Company has announced
its plans to close the Rapid City, SD facility and intends to open a Hurricane,
UT manufacturing facility in June, 1999.  In Nevada, the Company currently
leases 11 facilities, nine of which are currently occupied by the Company.
These leases expire over various periods through the end of 2004.  The Rapid
City facility as well as the Las Vegas and Gulfport interior sign manufacturing
facilities are owned by the Company.

  The Company leases sales, service and/or support offices and other facilities
in New Jersey, Minnesota, Missouri, Florida and Colorado as well as several
small service properties.  These leases expire on various dates through the end
of 2001.

  The Mikohn Lighting and Sign facility in Las Vegas is located on property
leased from a company owned by the John Renton Young Trust.  The Company is in
process of acquiring the facility  which is scheduled to close in April 1999.
See "Notes to Consolidated Financial Statements" at Note 1-Organization.


Item 3.  Legal Proceedings

  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 as noted below.

                                      -25-
<PAGE>
 
  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
counterclaimed 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.


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

    See Proxy Statement.

                                      -26-
<PAGE>
 
                                    PART II


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

  The Company's Common Stock trades on the NASDAQ National Market System under
the symbol "MIKN".  The following table sets forth the range of high and low
last sale prices per share by quarter for the Common Stock.


<TABLE>
<CAPTION>
 
                                                      High          Low
                                                      ----          ---
<S>                                                   <C>         <C>
1998                                                
----                                                
First Quarter                                         $8.7500      $6.7500
Second Quarter                                         7.7500       5.8750 
Third Quarter                                          7.3750       3.8750 
Fourth Quarter                                         5.7500       3.5000 
                                                    
1997                                                
----                                                
First Quarter                                         $5.6250      $4.0625
Second Quarter                                         4.6250       3.5000 
Third Quarter                                          7.2500       4.3750 
Fourth Quarter                                         8.5000       5.6875 
</TABLE> 

  The Company believes there were approximately 2,740 beneficial owners of its
Common Stock as of March 15, 1999.  The approximate number of beneficial owners
as of that date was reached by estimating the number whose stock is held for
them in street name by brokerage houses, by trusts and other nominees and by
participants in a clearing agency.  There were 237 holders of record of the
Company's Common Stock on March 15, 1999.

  The Company has never paid dividends nor has it any plans to pay dividends in
the future. It is the present intent of the Board of Directors to retain all
future earnings for use in the development of the Company's business. The $86.0
million Credit Agreement dated September 2, 1998, between the Company, First
Source Financial LLP, as agent, and each of lending consortium expressly
prohibits the payment of cash dividends.

                                      -27-
<PAGE>
 
Item 6.  Selected Financial Data

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

<TABLE>
<CAPTION>
                                         1998              1997              1996             1995             1994
                                      -----------       -----------       ----------       ----------       ----------
<S>                                     <C>             <C>               <C>             <C>               <C> 
Statement of Operations Data:
   Net sales                            $99,032           $98,548           $91,402          $77,796          $57,782
   Cost of sales                         60,163            61,200            59,647           54,876           32,797
                                         ------            ------           -------           ------           ------ 
   Gross profit                          38,869            37,348            31,755           22,920           24,985
   Selling, general and administrative   38,837            31,073            29,190           29,186           15,897
   Write-off of assets and other          4,493                                                3,572
                                         ------            ------           -------           ------           ------ 
   Operating income (loss)               (4,461)            6,275             2,565           (9,838)           9,088
   Interest expense                      (5,115)           (2,555)           (1,934)          (1,126)             (64)
   Other income and expense                 112                11               410              666              717
                                         ------            ------           -------           ------           ------ 
   Income (loss) before income taxes     (9,464)            3,731             1,041          (10,298)           9,741
   Income tax (provision) benefit         3,190            (1,357)             (429)           3,650           (3,340)
                                         ------            ------           -------           ------           ------ 
   Net income (loss) from continuing
     Operations before extraordinary
     Item                                (6,274)            2,374               612           (6,648)           6,401
  Extraordinary loss (net of taxes)      (1,752)
                                         ------            ------           -------           ------           ------ 
   Net income (loss)                    $(8,026)           $2,374              $612          $(6,648)          $6,401
                                         ======            ======           =======           ======           ====== 
Weighted average common shares
   Outstanding:
   Basic                                 10,527             9,952             9,847            9,802            9,724
                                         ======            ======           =======           ======           ====== 
   Diluted                               10,527            10,057            10,070            9,802            9,724
                                         ======            ======           =======           ======           ====== 
Earnings (loss) per common share:
   Basic                                 $(0.76)            $0.24             $0.06           $(0.68)           $0.66
                                         ======            ======           =======           ======           ====== 
   Diluted                               $(0.76)            $0.24             $0.06           $(0.68)           $0.66
                                         ======            ======           =======           ======           ====== 
Balance Sheet Data:
   Total assets                        $153,232           $97,588           $90,453          $86,324          $70,479
   Total debt                            87,003            30,226            22,719           23,091            1,257
   Stockholders' equity                  46,727            52,570            50,144           49,352           56,013

</TABLE> 

                                      -28-
<PAGE>
 
Item 7.  Management's Discussion and Analysis of Financial Condition
         and Result of Operations

Note:  Amounts are reported are rounded to the nearest thousand unless otherwise
stated.

Background Information

  For background information on the formation and history of the Company, the
public sale of its Common Stock and the acquisitions of its principal business
units, see "Notes to Consolidated Financial Statements" at Note 1 -
Organization.

  In 1995, Mikohn acquired the exclusive worldwide rights to develop,
manufacture, market and distribute the TableLink technology, a player tracking
and data collection system for table games. Management believes that the
technology enables the casino to recognize and reward players, and enhances game
security and integrity. The TableLink technology employs (i) special casino
chips that incorporate computer microchips which transmit encrypted radio
frequency signals, (ii) sensors at each player position at the table, (iii)
player identification card readers, (iv) optical readers for card game
applications, (v) table computer displays and (vi) proprietary software
networked to a central data collection point. Information is compiled by
patented instruments and computer and sensor technology which electronically
track all bets in real-time as the chips are placed, producing a record of each
game.  In addition to providing player tracking, chip tracking and game
tracking, the technology can be used to integrate a progressive jackpot system
with other table games to stimulate player excitement and improve revenue
production.  The technology is used in the TableLink system which, for the first
time, provides casino operators with real-time accounting of the play of each
table game player.  Improved accuracy and player initiated ratings not only are
very useful to the casino in identifying and directing complimentary benefits to
the customer, but improve customer loyalty through acceptance of rating
information and redirecting supervisor time to the customer.

  CasinoLink system is the first system which integrates the advanced features
of the Microsoft Windows NT platform in a gaming machine accounting, player
tracking and game management module. The advanced technology of the CasinoLink
system provides real-time information on player activity, casino revenues and
cashier functions, monitors gaming machines and table games, and has the
capability to network multiple sites. The system tracks gaming machines, keno
and bingo and is available from remote terminal units that allow casinos to
access player related information, such as a player's game preference and
wagering history.  The CasinoLink advanced tracking system enables casinos among
other things to offer players complimentary benefits commensurate with their
play.
 
  In recent years, proprietary games have become an increasingly important
segment of the Company's business. In 1993, Mikohn established its games
division to develop, acquire, manufacture and distribute proprietary games,
machines and tables. We have devoted increased attention to the games division
because of the high recurring revenue and profit margin potential in this
business line. The Company 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.
The Company places its proprietary games in casinos under sale, license, lease
or structured participation arrangements.

  In 1994, Mikohn entered into an exclusive license agreement with IGT to
manufacture and distribute oversized and giant gaming machines known as Mini-
Bertha and Colossus, respectively. 

                                      -29-
<PAGE>
 
Under the terms of the license agreement with IGT, Mikohn has exclusive
worldwide distribution rights. These oversized gaming machines come in
electronic video and slot-reel formats, feature many of IGT's popular games and
can be linked on a progressive network. These oversized gaming machines provide
greater visual appeal and variety, and management believes that they generate a
greater win per machine than conventional gaming machines. The machines are
available for sale, lease or structured participation and IGT receives a royalty
based upon the income derived from the machines that are placed. The revenues
relating to these machines as reported by Mikohn in its financial statements are
net of such amounts paid to IGT.

  In September, 1998, the Company acquired PGI and two of its distributors.
With these acquisitions, the Company gained the rights to Caribbean Stud,
Caribbean Draw, Progressive Blackjack and Progressive Super Sevens.  Each of
these games has a progressive side-bet feature. We expect our player-appealing
signs to help bring the same excitement to the table games business that they
have added to the gaming machine business

  Although no assurance can be given, management believes that the Company is
well-positioned to benefit from growth in the casino industry because of its
worldwide reputation for high quality products and customer service, its
worldwide distribution system (which management believes is one of the strongest
in the gaming industry), its large installed base, its relationships with gaming
machine manufacturers and casino operators and its experience in working with
gaming regulatory agencies.  Management believes further that the expansion of
the Company's product lines has the potential to produce additional sales
growth; that opportunities for growth will extend into 1999 and beyond; and that
new gaming facilities on Native American lands throughout the country, the
construction of announced large hotel/casino complexes in Las Vegas, NV,
Atlantic City, NJ and Detroit, MI and the expansion of gaming on an
international basis will contribute to this growth.

  As the Company has realigned the reporting of its business units, certain
items of prior year revenue and expense have been reclassified to follow the
Company's current reporting practice. Additionally, all intercompany activity
has been eliminated.  Amounts reported in prior years have been adjusted to be
consistent with the Company's current reporting of intercompany activity.  All
amounts reported in this section are rounded to the nearest thousand unless
otherwise stated.  All percentages reported are based on those rounded numbers.

                                      -30-
<PAGE>
 
RESULTS OF OPERATIONS

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
---------------------------------------------------------------------

SALES

<TABLE>
<CAPTION>
                                                                                       Change
                                                                                       ------
       Business Segment                  1998               1997              Amount                %               Comment
       ----------------                  ----               ----              ------                --              -------
<S>                                     <C>               <C>                <C>                 <C>               <C> 
Revenues:
    Signs                               $50,840            $57,478            $(6,638)             -11.5%              1
    Gaming products                      36,216             35,621                595                1.7%              2
    Gaming operations                    11,976              5,449              6,527              119.8%              3
                                       --------           --------           --------
                                        $99,032            $98,548            $   484                0.5%
                                       ========           ========           ========
Percentage of total revenues:
    Signs                                 51.3%              58.3%
    Gaming products                       36.6%              36.2%
    Gaming operations                     12.1%               5.5%
                                       --------           --------
                                         100.0%             100.0%
                                       ========           ========
</TABLE> 

1 This decrease is due primarily to: (i) reduced domestic sign sales of $5,478
  as a result of fewer major casino openings and significant refurbishment
  projects as compared to 1997, (ii) reduced international sign sales of $2,628
  as a result of regulatory and market conditions in Australia and (iii)
  increased exterior sign sales of $1,950.

2 This increase is related to increased sales of slot management systems which
  were partially offset by lower Mini-Bertha sales.

3 This increase is due to: (i) the inclusion of four months results of PGI and
  P&S Leasing following their acquisition by the Company and (ii) the roll out
  of the Company's MoneyTime slot bonusing system.

                                      -31-
<PAGE>
 
GROSS PROFIT

<TABLE>
<CAPTION>
                                                                                     Change
                                                                                     ------
      Business Segment                 1998               1997              Amount           %              Comment
      ----------------                 ----               ----              ------           --             -------
<S>                                 <C>                 <C>               <C>               <C>             <C> 
Gross profit:                                                                             
    Signs                            $14,723            $17,741            $(3,018)        -17.0%                1
    Gaming products                   13,992             15,129             (1,137)         -7.5%                2
    Gaming operations                 10,154              4,478              5,676         126.8%                3
                                   ---------          ---------          ---------        
    Total                            $38,869            $37,348             $1,521           4.1%
                                   =========          =========          =========

Gross profit margin:
    Signs                              29.0%              30.9%
    Gaming products                    38.6%              42.5%
    Gaming operations                  84.8%              82.2%

    Total                              39.2%              37.9%
</TABLE>

1 This decrease is due to lower interior sign sales volume and lower margins on
  several large casino projects during 1998.

2 This decrease is due to (i) lower gross profit from the Company's surveillance
  and security division, (ii) decreased sales and related profits for the
  Company's slot machines and (iv) increased inventory reserves. Offsetting what
  would have been a larger unfavorable variance were increased sales of the
  Company's system products.

3 This increase is due to the higher gross margins associated with increased
  sales volume from the company's MoneyTime system and the inclusion of four
  months of results of PGI and P&S Leasing.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

  Selling, general and administrative expenses for the year ended December 31,
1998, increased by 25% or $7,764, from $31,073 for the year ended December 31,
1997, to $38,837 for the year ended December 31, 1998. The significant factors
causing this increase were as follows:

  Selling, product development and marketing expenses for the year ended
December 31, 1998, increased by 17% or $2,107, from $12,565 for the year ended
December 31, 1997, to $14,672 for the year ended December 31, 1998.
Individually, these departmental expenses increased by $368, $1,138 and $601,
respectively. These increases were due primarily to (i) increased marketing
expenses associated with the roll-out of the Company's MoneyTime system and (ii)
the full expansion of the product development and management unit within the
Company to bring new products to market on a more timely basis.

  General and administrative expenses for the year ended December 31, 1998
increased by 15% or $1,563, from $10,338 for the year ended December 31, 1997 to
$11,901 for the year ended December 31, 1998. This increase is due mostly to an
accounts receivable reserve charge of $1,400 taken during the third quarter of
1998. This additional reserve was taken to provide a greater measure of
protection from the occurrence of bad debts and as well to more closely match
the higher levels of accounts receivable and contract receivables at the year
end.

  Research and development expenses for the year ended December 31, 1998,
increased by 44% or $1,682, from $3,856 for the year ended December 31, 1997, to
$5,538 for the year ended 

                                      -32-
<PAGE>
 
December 31, 1998. This increase reflects (i) increased expenses for the
development of new games and (ii) increased expenses related to the further
development of the Company's CasinoLink product line.

  For the year ended December 31, 1998, the Company capitalized certain costs
related to software development of new products that have achieved technological
feasibility. Capitalized software development costs for the year ended December
31, 1998 decreased by 38% or $272, from $709 for the year ended December 31,
1997, to $437 for the year ended December 31, 1998. For the year ended December
31, 1998 the Company recognized amortization expense related to these costs of
$93.  At December 31, 1998, the net book value of capitalized software
development costs totaled $1,053.

  Depreciation expense for the year ended December 31, 1998, increased by 47% or
$1,307, from $2,784 for the year ended December 31, 1997, to $4,091 for the year
ended December 31, 1998. This increase is primarily the result of (i) increased
depreciation associated with the Company's capitalized recurring revenue games
and (ii) increased depreciation related to the acquisition of PGI.

  Amortization expense for the year ended December 31, 1998, increased by 72% or
$1,105, from $1,530 for the year ended December 31, 1997, to $2,635 for the year
ended December 31, 1998. This increase is primarily due to increased goodwill
amortization related to the acquisitions of PGI and P&S Leasing.


INTEREST EXPENSE

  Interest expense for the year ended December 31, 1998, increased by 100% or
$2,560, from $2,555 for the year ended December 31, 1997, to $5,115 for the year
ended December 31, 1998. This increase is due to (i) the full year effect of the
increased debt associated with the Company's debt refinancing of October 1997
and (ii) the increased debt related to the acquisitions of PGI and P&S Leasing.
The average interest rate on the average amount of all outstanding debt for the
year ended December 31, 1998 was 9.5% as compared to 9.3% for the year ended
December 31, 1997.


WRITE-OFF OF ASSETS AND OTHER

  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 surveillance and security
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.

OTHER INCOME AND EXPENSE

  For the year ended December 31, 1998, the net of other income and expense
activity was a net expense decrease of 7% or $23, from a net expense of $322 for
the year ended December 31, 1997 to a net expense of $299 for the year ended
December 31, 1998.

  Interest income for the year ended December 31, 1998, increased by 23% or $78,
from $333 for the year ended December 31, 1997, to $411 for the year ended
December 31, 1998.  This increase is due entirely to the increased levels of
contract receivables held during 1998 as compared to 1997.

                                      -33-
<PAGE>
 
INCOME TAXES

  Income taxes from continuing operations for the year ended December 31, 1998,
decreased as compared to the year ended December 31, 1997, from a tax provision
of $1,357 for the year ended December 31, 1997 to a tax benefit of $3,190 for
the year ended December 31, 1998. This decrease is primarily due to the tax
benefits associated with the non-recurring charges taken during 1998  and the
pre-tax loss the Company experienced during the 1998 annual period. The
effective tax rate, after add-backs and adjustments, for the year ended December
31, 1998, was 33.8% as compared to 36.4% for the year ended December 31, 1997.

EXTRAORDINARY ITEM

  For the year ended December 31, 1998 the Company recorded an extraordinary
loss on the early extinguishment of debt in the amount of $2,662. The associated
tax benefit of $910 was offset to arrive at the net extraordinary loss of
$1,752. These charges were related to the debt refinancing of September, 1998.

EARNINGS (LOSS) PER SHARE

  Both basic and diluted earnings (loss) per share for the year ended December
31, 1998, were $(0.76) on basic and diluted weighted average common shares
outstanding of 10,527 and 10,527, respectively. For the year ended December 31,
1997, basic and diluted earnings (loss) per share were $0.24 and $0.24 on basic
and diluted weighted average common shares outstanding of 9,952 and 10,057,
respectively.

                                      -34-
<PAGE>
 
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
---------------------------------------------------------------------

SALES

<TABLE> 
<CAPTION>
                                                                              Change
                                                                              ------
Business Segment                   1997             1996              Amount           %               Comment
----------------                   ----             ----              ------          --               -------
<S>                              <C>              <C>                <C>            <C>                 <C> 
Revenues:
    Signs                         $57,478          $56,169            $1,309          2.3%                 1
    Gaming products                35,621           30,338             5,283         17.4%                 2
    Gaming operations               5,449            4,895               554         11.3%                 3
                                 --------         --------          -------- 
                                  $98,548          $91,402            $7,146          7.8%
                                 ========         ========          ========
Percentage of total revenues:
    Signs                           58.3%            61.4%
    Gaming products                 36.2%            33.2%
    Gaming operations                5.5%             5.4%
                                 --------         --------
                                   100.0%           100.0%
                                 ========         ========
</TABLE>

1  This increase is due to the increase in sign sales in by the Company's
   Australian, European and Peruvian subsidiaries.

2  This increase is due to increased sales of the Company's Mini-Bertha slot
   machine products and increased sales of the Company's system products.

3  This increase is due to a greater number of slot machines on route during the
   1997 annual period.

                                      -35-
<PAGE>
 
GROSS PROFIT

<TABLE>
<CAPTION>
                                                                   Change
                                                                   ------
  Business Segment             1997          1996          Amount           %            Comment
  ----------------             ----          ----          ------           --           -------
<S>                         <C>            <C>           <C>              <C>            <C> 
Gross profit:
    Signs                    $17,741        $17,168          $573           3.3%             1
    Gaming products           15,129         10,160         4,969          48.9%             2
    Gaming operations          4,478          4,427            51           1.2%             3
                             -------        -------        ------ 
    Total                    $37,348        $31,755        $5,593          17.6%
                             =======        =======        ======
Gross profit margin:
    Signs                      30.9%          30.6%
    Gaming products            42.5%          33.5%
    Gaming operations          82.2%          90.4%

    Total                      37.9%          34.7%
</TABLE>

1  This improvement is due to the increased sales volume. The percentage of
   gross profit improvement closely mirrors that of the increase in sales.

2  This increase is largely due to the increased sales of the higher margin
   slot machine products, including Mini-Bertha slot machines. Gross profit was
   also positively affected by improved gross profit margins in the CasinoLink
   line

3  This slight increase is due to the increased number of machines on the
   Company's slot route. The gross profit margin slipped during the period as a
   result of the lower performance of the Mini-Bertha and Flip-It machines.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

  Selling, general and administrative expenses for the year ended December 31,
1997, increased by 6% or $1,883, from $29,190 for the year ended December 31,
1996, to $31,073 for the year ended December 31, 1997. The significant factors
for this increase are as follows:

  Selling and marketing expenses for the year ended December 31, 1997, decreased
by 5% or $652, from $13,217 for the year ended December 31, 1996, to $12,565 for
the year ended December 31, 1997. This decrease was due primarily to lower
advertising expenses during the 1997 annual period.

  General and administrative expenses for the year ended December 31, 1997,
increased by 22% or $1,874, from $8,464 for the year ended December 31, 1996, to
$10,338 for the year ended December 31, 1997. This increase was due primarily
to: (i) increased legal, licensing and tax expenses associated with the
expansion of the Company's gaming license portfolio and (ii) increased rent
expenses.

  Research and development expenses for the year ended December 31, 1997,
increased by 25% or $763, from $3,093 for the year ended December 31, 1996, to
$3,856 for the year ended December 31, 1997. This increase was due entirely to
the development of the Company's CasinoLink, SafeJack (now TableLink) and
MoneyTime product lines.

                                      -36-
<PAGE>
 
  Depreciation expense for the year ended December 31, 1997, increased by 15% or
$353, from $2,431 for the year ended December 31, 1996, to $2,784 for the year
ended December 31, 1997. This increase was primarily the result of increased
depreciation associated with the increase in the number of games capitalized in 
the Company's recurring revenue line of business.

  Amortization expense for the year ended December 31, 1997, decreased by 23% or
$455, from $1,985 for the year ended December 31, 1996, to $1,530 for the year
ended December 31, 1997. This decrease was due to a restatement of the
amortization rates of certain intangible assets.

  For the year ended December 31, 1997, the Company capitalized certain costs
related to software development of new products that have achieved technological
feasibility. Capitalized software development costs for the year ended December
31, 1997, amounted to $709.  The Company did not incur amortization expense of
these capitalized costs during the year ended December 31, 1997, as the products
developed were not yet placed in service.  No similar capitalization occurred
during the comparable 1996 annual period.


INTEREST EXPENSE

  Interest expense for the year ended December 31, 1997, increased by 32% or
$621, from $1,934 for the year ended December 31, 1996, to $2,555 for the year
ended December 31, 1997. This increase was due to the increased debt associated
with the debt refinancing of October 1997. The average interest rate on the
average amount of all outstanding debt for the year ended December 31, 1997, was
9.3% as compared to 8.4% for the year ended December 31, 1996.


OTHER INCOME AND EXPENSE

  For the year ended December 31, 1997, the net of other income and expense
activity was a net expense increase of $438, from a net other income of
$116 for the year ended December 31, 1996, to a net expense of $322 for the year
ended December 31, 1997. This change is due primarily to foreign exchange
translation losses that occurred during the 1997 annual period.

  Interest income for the year ended December 31, 1997, increased by 13% or $39,
from $294 for the year ended December 31, 1996, to $333 for the year ended
December 31, 1997. This increase is due primarily to increased sales under long-
term receivable contracts within the Company's exterior sign division.


INCOME TAXES

  Income taxes for the year ended December 31, 1997, increased 216% or $928,
from a tax provision of $429 for the year ended December 31, 1996, to a tax
provision of $1,357 for the year ended December 31, 1997. This increase is due
entirely to the increased pre tax income during the 1997 annual period. The
effective tax rate, after add-backs and adjustments, for the year ended December
31, 1997, was 36.4% as compared to 41.2% for the year ended December 31, 1996.

                                      -37-
<PAGE>
 
EARNINGS PER SHARE

  Basic and diluted earnings per share for the year ended December 31, 1997,
were $0.24 and $0.24 on basic and diluted weighted average common shares
outstanding of 9,952 and 10,057, respectively. For the year ended December 31,
1996, basic and diluted earnings per share were $0.06 and $0.06 on basic and
diluted weighted average common shares outstanding of 9,847 and 10,070,
respectively.


LIQUIDITY AND CAPITAL RESOURCES

  In 1998, the Company had a net loss of $8,026. Net cash used in operating
activities for the period was $10,408 as compared to $2,092 during 1997.  This
change includes non-recurring charges including an extraordinary loss net of tax
benefit of $1,752 for the early extinguishment of debt.  Also impacting cash
used in operations were a $7,822 increase in account receivables,  a $186
increase in installment receivables, a $93 decrease in inventories, a $5,538
increase in prepaid expenses and other assets, a $2,016 increase in intangible
assets, a $3,651 increase in deferred tax assets, offset by increases of $410
in accrued liabilities, $1,171 in customer deposits and $2,226 in trade
accounts payable. 

  Total cash used in operating activities during 1998 was most significantly
effected by increases in prepaid assets, accounts receivable and deferred tax
assets between the years ended December 31, 1997 and December 31, 1998. The
increase in prepaid expenses is primarily due to increased prepaid loan fees
associated with the Company's debt refinancing in September 1998. The increase
in accounts receivable is due primarily to the significantly increased sales
levels the company experienced during the fourth quarter of 1998 as compared to
the same period during the prior year and as well to the consolidation of the
accounts receivables of PGI into the Company's accounts. The increase in
deferred tax assets is associated with the net loss the Company experienced
during the year which was significantly impacted by the non-recurring charges
that occurred during 1998. As a result the Company does not believe that the
1998 cash used in operations amount is indicative of what the Company would
expect to occur in 1999. Additionally, management expects that the acquisitions
of PGI and P&S Leasing will be accretive to cash provided by operations during
1999.  

  Net cash used in investing activities consisted of $5,166 for the net increase
in property, plant and equipment including $1,916 for the purchase of the
Company's exterior sign manufacturing facility. In addition, cash used in
investing activities included $5,630 for gaming equipment leased to customers
and $39,147 for the purchase of PGI and P&S Leasing. Net cash provided by
financing activities was $59,152 for the period and consisted mainly of the
additional receipt of $51,000 in term loans and revolving credit facility (See
Note 8, Notes to Consolidated Financial Statements). Cash balances as of
December 31, 1998, were $3,732, down from $4,896 at the same time in 1997.

  On September 2, 1998, the Company completed the closing of an Amended and
Restated Credit Agreement. This package was funded by First Source Financial LLP
and a consortium of lenders and 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 proceeds of this placement were used to acquire the stock of PGI and
P&S Leasing as well as to provide additional working capital. First Source
Financial LLP is acting as the lenders' agent for this transaction. The term
loans will begin maturing in April 2002, with equal 16.7% principal repayments
due every six months until complete maturity on October 24, 2004. As of the date
of this filing, the Company has borrowed $2,000 of the funds available under the
revolving line of credit and has $3,000 available under this line. For a full
description of the new credit facility, see Note 8, Notes to Consolidated
Financial Statements. 

  The Company expects that this revolving line of credit combined with cash
provided by operating earnings will be sufficient to meet its cash requirements
for the immediate future.


YEAR 2000

  The approach of the year 2000 poses a problem for businesses utilizing
computers or embedded technology (such as micro controllers) in their
operations.  Many computer programs and systems operating machinery and
equipment are date sensitive and will only recognize the last two digits of 

                                      -38-
<PAGE>
 
the year. Such programs and systems may recognize the year 2000 as the year 1900
or not at all. This problem is commonly described as the "Year 2000 Issue" or
Y2K and it has the potential to produce errors in information and system
failures. Assessments of the potential cost and effect of the Year 2000 Issue
vary significantly among businesses, and it is extremely difficult to predict
the actual impact. Recognizing this uncertainty, management has made and is
continually updating its comprehensive assessment of the Company's exposure to
the Year 2000 Issue and what will be required to ensure that the Company is Year
2000 compliant.

  The Company manufactures and sells a number of products that include software
components. As part of its overall assessment of the Year 2000 Issue, the
Company has identified products or product versions that will require
modification or other remedial action and has developed a plan to facilitate
this effort, which includes prioritizing timelines and estimating costs. The
corrective action plan includes modifications, upgrades or replacements of non-
compliant software systems. The Company anticipates that the required
modifications, upgrades and replacements of software systems will most likely be
completed and approved by the various gaming jurisdictions during 1999 and
leaving enough time for additional testing, revisions and installations, before
year end.

  The Company believes that its corrective action plan, including the timelines,
is adequate and realistic. Nevertheless, if one or more of the Company's systems
has been overlooked or if implementation of the corrective action plan fails to
achieve Year 2000 compliance for one or more software systems, there could be a
material adverse impact on the Company's business operations and/or financial
performance.

  The Year 2000 readiness of the Company's customers varies.  In light of this,
the Company is encouraging its customers to evaluate their own system
requirements and needs.  Efforts by customers to address the Year 2000 Issue may
affect the demand for certain of the Company's products and services.  However,
to-date, the Company is unable to determine what impact, if any, there will be
on its revenue.  The Company is also in the process of assessing the Year 2000
readiness of its key suppliers and business partners.   The Year 2000 Issue
presents a number of other risks and uncertainties that could impact the
Company, such as the ability of certain governments and gaming commissions of
the various jurisdictions where the Company conducts business to timely act on
updates to its software that require regulatory approval before the Company's
customers can lawfully use them.

  The primary computer programs utilized in the Company's operations and
financial reporting systems have been acquired from independent software
vendors.  All of these vendors have been formally contacted to determine whether
their systems are Year 2000 compliant.  To the extent they are not, timelines
have been established as to when the Company will receive the required upgrades
to assure that these systems will be Year 2000 compliant.  Maintenance or
modification of any existing software will be expensed as incurred, while the
purchase of new software will be capitalized and amortized over the software's
useful life.  The Company does not expect to incur costs in connection with the
Year 2000 Issue that would have a material impact on operations. Although the
Company believes that its computer software systems will be Year 2000 compliant,
no assurance can be given that all systems provided by software vendors will
have all modifications necessary to make them Year 2000 compliant on a timely
basis.

  The Year 2000 Issue has an impact on non-information technology systems (i.e.,
embedded data) such as the Company's manufacturing systems and physical
facilities including, but not limited to, security systems and utilities.  The
non-information technology system issues are more difficult to identify and
resolve. The Company is actively identifying non-technology Year 2000 Issues
concerning its products and services, as well as those that impact its physical
facility locations. As 

                                      -39-
<PAGE>
 
the various non-information technology systems are identified, management is
formulating action plans to ensure minimal disruption of its business processes.
Although management believes that its efforts will be successful and the costs
will not be material to its consolidated financial position and results of
operations, it recognizes that any failure or delay could cause a disruption in
its business that might have a significant financial impact.
 
  The Company has estimated total costs to achieve Year 2000 compliance on its
internal software and systems to be $300.  The Company expects to capitalize
costs that are planned system upgrades and expense costs that are incurred only
to make the software Y2K compliant. The Company has incurred costs of
approximately $200 to-date, of which $175 was capitalized as part of the
Company's internally used software upgrade program, the remaining $25 was
expensed during the most recent quarter. The additional $100 the Company
anticipates incurring will be capitalized as part of planned system upgrades.

  The Company's preliminary cost estimate for efforts associated with achieving
compliance with the products that it manufactures, markets, distributes or
otherwise sells to its customers is estimated at $630. Of this $630, $280 is
expected to be capitalized in accordance with the Company's capitalization of
costs related to the Company's Caribbean Stud product line. This capitalization
policy properly matches the Company's monthly stream of revenue to a depreciated
asset expense over the useful life of the asset. The costs associated with the
Year 2000 Issue upgrade of the Company's Caribbean Stud product line will be
charged back to the previous owner under the terms and conditions of the Stock
Purchase Agreement between Mikohn and PGI. To the extent the recovery of these
amounts is not forthcoming, the Company will charge the cost to the goodwill
account establish during the acquisition 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 and to effect all required adjustments
prior to the end of the one year window. The remaining $350 of costs are related
to the Company's CasinoLink product line and will be expensed as they are
incurred.

  The Company expects to fund these Year 2000 Issue costs from its operating
cash flows and does not believe the Year 2000 Issue will have a material impact
on the Company's cash resources or liquidity.

  To minimize any potential, unforeseen impact, the Company is in the process of
developing a contingency plan. Management will continue to formulate additional
plans as necessary, based upon the results of current research and
investigation. It is the Company's intention to ensure that it has adequate
resources and sources of supplies to minimize any potential business
interruptions. Although the Company believes the Year 2000 Issue described above
will not materially affect its consolidated financial position or results of
operations, its acknowledges that it cannot state with certainty that the Year
2000 Issues will not, in some manner now unforeseen, have an adverse impact upon
it.

Recently Issued Accounting Standards

  In June 1998, the FASB issued Statement of Financial Accounting Standards 
("SFAS") No. 133 - Accounting for Derivative Instruments and Hedging Activities.
SFAS 133 standardizes the accounting for derivative instruments, including 
certain derivative instruments embedded in other contracts.  Under the standard,
entities are required to carry all derivative instruments in the statement of 
financial position at fair value.  SFAS 133 is effective beginning in the third 
quarter of the Company's fiscal year ending December 31, 1999.  The Company has 
not determined the impact that SFAS 133 will have on its financial statements 
and believes that such determination will not be material.

                                      -40-
<PAGE>
 
Item 7A. Quantitative and Qualitative Disclosures about Market Risk


MARKET RISK

Foreign Currency Risk

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

  The Company is subject to foreign currency exchange risk relating to the
translation of the Company's foreign subsidiaries asset, liability, income and
expense accounts. The Company's foreign subsidiaries use the local currency as
their functional currency. The assets and liabilities of these subsidiaries are
translated into U.S. dollars at the rate of exchange at the end of the period.
The income and expense accounts are translated using the average rate of
exchange during the period. Due to the long-term nature of the Company's
investment in its foreign operations, 80% of the Company's translation
adjustment are reflected as a separate component of stockholders' equity, the
remaining amount is recognized in the Company's Consolidated Statement of
Operations. Although the Company does not regularly incur, nor are the amounts
material, gains or losses of specific foreign currency transactions would be
reflected in the Company's Consolidated Statement of Operations. The Company has
established a foreign currency translation hedging program that will use either
forward or option contracts to hedge the Company's risk of translation
adjustments when it is deemed appropriate. As of the year ended December 31,
1998, the Company did not have any forwards, options or other derivative
contracts in force. The Company does not consider its existing foreign currency
translation exposure to be material. Management estimates that unfavorable
changes of 10% in the foreign currency exchange rates between the U.S. dollar
and Australian dollar as well as between the U.S. dollar and Dutch guilder would
adversely impact the Company's stockholders' equity account by $277 and the
Company's pre-tax income by $69.

Interest Rate Risk

  The Company has exposure to the fluctuation of market interest rates on
portions of its long term debt. The Company has $67,500 of long term debt (see
Note 8--Consolidated Financial Statements) that bears interest at either the
prime rate plus 225 basis points or LIBOR plus 325 basis points per annum. In
addition, the Company has $2,000 of revolving debt (see Note 8--Consolidated
Financial Statements) that bears interest at either prime plus 175 basis points
or LIBOR plus 275 basis points per annum. The Company periodically reviews its
interest rate exposure on its long-term debt and, as market conditions warrant,
the Company may enter into interest rate cap or swap agreements in order to
manage this exposure. As of the year ended December 31, 1998, the Company did
not have any agreements in force and does not consider its existing interest
rate exposure to be material.  Management estimates that a 10% increase in
interest rates, specifically the prime rate and the LIBOR rate, would
unfavorably impact the Company's pre-tax income by $614.

                                      -41-
<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.................................................................   44
Consolidated Balance Sheets as of December 31, 1998 and 1997.................................   45
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 
and 1996.....................................................................................   46
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended 
December 31, 1998, 1997 and 1996.............................................................   47
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended 
December 31, 1998, 1997 and 1996.............................................................   48
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 
and 1996.....................................................................................   49
Notes to Consolidated Financial Statements...................................................   51
Quarterly Results of Operations (Unaudited)..................................................   71

</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.

                                      -42-
<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

                                      -43-
<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

                                      -44-
<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>

                                      -45-
<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

                                      -46-
<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

                                      -47-
<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                        (2,016)               (3,032)                 (315)
      Intangible assets                                        (6,489)               (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)
 

                                      -48-
<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

                                      -49-
<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.

                                      -50-
<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

                                      -51-
<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 

                                      -52-
<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:



                                      -53-
<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>

                                      -54-
<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 

                                      -55-
<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.

                                      -56-
<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>

                                      -57-
<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

                                      -58-
<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>

                                      -59-
<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.

                                      -60-
<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>

                                      -61-
<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.

                                      -62-
<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> 

                                      -63-
<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.

                                      -64-
<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> 
  
                                      -65-
<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.

                                      -66-
<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>

                                      -67-
<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>

                                      -68-
<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>

                                      -69-
<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>

                                      -70-
<PAGE>
 
Item 9.   Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Not applicable




                                    PART III
                                        


Item 10.  Directors and Executive Officers of the Registrant

Item 11.  Executive Compensation

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Item 13.  Certain Relationships and Related Transactions

  The information required by Items 10 through 13 is set forth under the
captions "Election of Directors", "Management", "Executive Compensation",
"Principal Stockholders" and "Certain Transactions" in Mikohn Gaming
Corporation's definitive proxy statement for the 1999 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A of the Securities Exchange Act of 1934, as amended, and is
incorporated herein by reference as if set forth in full.



                                    PART IV
                                        

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

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

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

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

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

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

       4.1   Portion of Purchase Agreement dated December 9, 1993 between the
             Company, Casino Signs Pty Limited, Club Casino Products Pty
             Limited, Casino Signs Holding Pty Limited, Wentworth Hill and
             William Redshaw, incorporated by reference to Exhibit 4.1 to the
             Company's Form 10-Q for the quarter ended March 31, 1994.

                                      -71-
<PAGE>
 
       4.2     Portion of Employment Agreement, dated March 1, 1994, between
               Michael Bennett and the Company, incorporated by reference to
               Exhibit 4.2 to the Company's Form 10-Q for the quarter ended
               March 31, 1994.
             
       4.3     Portion of Employment Agreement, dated March 1, 1994, between
               Cynthia Bennett and the Company, incorporated by reference to
               Exhibit 4.3 to the Company's Form 10-Q for the quarter ended
               March 31, 1994.
             
       4.4     Agreement and Plan of Merger dated June 10, 1994 between the
               Company, Trans Sierra Communications, Inc., Dan Hartwell and
               Jytte Hartwell, including certain exhibits thereto and a
               supplemental list identifying all exhibits and schedules thereto,
               incorporated by reference to Exhibit 2.1 to the Company's Form 
               10-Q for the quarter ended June 30, 1994.

       4.5     Form of First Amendment to Agreement and Plan of Merger dated
               August 31, 1994 among Trans Sierra Communications, Inc., Dan
               Hartwell, Jytte Hartwell and the Company incorporated by
               reference to Exhibit 2.2 to the Company's Form 8-K/A dated
               September 1, 1994.

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

      10.1     Option Agreement, dated July 9, 1993, among the Company, Casino
               Signs, Inc., Casino Products, W. Ben Maze, Kay A. Maze, Michael
               D. Rogers, David J. Thompson and Terrance W. Oliver, incorporated
               by reference to Exhibit 10.1 to Amendment No. 1 to the Company's
               Registration Statement on Form S-1 (No. 33-69076).

      10.2     First Amendment to Option Agreement, dated September 24, 1993,
               among the Company, Casino Signs, Inc., Casino Products, W. Ben
               Maze, Kay A. Maze, Michael D. Rogers, David J. Thompson and
               Terrance W. Oliver, incorporated by reference to Exhibit 10.2 to
               the Company's Quarterly Report on Form 10-Q for the quarter ended
               March 31, 1994.

      10.3     Second Amendment to Option Agreement, dated November 24, 1993,
               among the Company, Casino Signs, Inc., Casino Products, W. Ben
               Maze, Kay A. Maze, Michael D. Rogers, David J. Thompson and
               Terrance W. Oliver, incorporated by reference to Exhibit 10.3 to
               the Company's Quarterly Report on Form 10-Q for the quarter ended
               March 31, 1994.

      10.4     U.S. Bank of Nevada Line of Credit agreements and secured term
               loan agreements, incorporated by reference to Exhibit 10.2 to
               Amendment No. 1 to the Company's Registration Statement on Form
               S-1 (No. 33-69076).

      10.5     Agreement and Plan of Merger, dated September 14, 1993, among the
               Company, Casino Signs North, Inc. ("CSN"), A&D Sign
               Manufacturing, Inc. ("A&D") and Peterson Sign Art, Inc. ("PSA"),
               including a list describing exhibits and schedules thereto, and
               form of First Amendment to Agreement and Plan of Merger.  See
               also Exhibit 99.1, incorporated by reference to Exhibit 10.3  to
               Amendment No. 1 to the Company's Registration Statement on Form
               S-1 (No. 33-69076).

                                      -72-
<PAGE>
 
      10.6     First Amendment to Agreement and Plan of Merger dated as of
               September 30, 1993, among the Company, CSN, A&D, PSA and the
               respective stockholders of CSN, A&D and PSA, incorporated by
               reference to Exhibit 10.4 to the Company's Quarterly Report on
               Form 10-Q for the quarter ended March 31, 1994.

      10.7     Option Agreement dated August 1993 among the Company, Current
               Technology Systems, Inc., Lawrence A. Kaye, Ronald A. Johnson and
               Janice Bowman, including a list describing exhibits and schedules
               thereto. See also Exhibit 99.1, incorporated by reference to
               Exhibit 10.4 to Amendment No. 1 to the Company's Registration
               Statement on Form S-1 (No. 33-69076).

      10.8     Registration Rights Agreement, dated as of November 23, 1993,
               among the Company, David J. Thompson, Terrance W. Oliver,
               Trustee, Dennis Garcia and Bruce Peterson, incorporated by
               reference to Exhibit 10.5 to the Company's Quarterly Report on
               Form 10-Q for the quarter ended March 31, 1994.

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

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

      10.11    Dividend Notes, dated November 23, 1993, issued to stockholders
               of the Company, CSN, and PSA, incorporated by reference to
               Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for
               the quarter ended March 31, 1994.

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

     *10.13    Employment Agreement dated October 17, 1988, as amended, between
               the Company and David J. Thompson, incorporated by reference to
               Exhibit 10.10 to Amendment No. 1 to the Company's Registration
               Statement on Form S-1 (No. 33-69076).

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

     *10.15    Employment Agreement, dated as of November 23, 1993, between the

                                      -73-
<PAGE>
 
               Company and Dennis Garcia, incorporated by reference to Exhibit
               10.11 to the Company's Quarterly Report on Form 10-Q for the
               quarter ended March 31, 1994.

     *10.16    Employment Agreement, dated as of November 23, 1993, between the
               Company and Bruce Peterson, incorporated by reference to Exhibit
               10.12 to the Company's Quarterly Report on Form 10-Q for the
               quarter ended March 31, 1994.

     *10.17    Employment Agreement, dated as of November 23, 1993, between the
               Company and Ronald Radcliffe, incorporated by reference to
               Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for
               the quarter ended March 31, 1994.

      10.18    Security Agreement and Pledge of Stock, dated as of November 23,
               1993, between the Company and Dennis A. and Addie B. Garcia,
               incorporated by reference to Exhibit 10.15 to the Company's
               Quarterly Report on Form 10-Q for the quarter ended March 31,
               1994.

      10.19    Security Agreement and Pledge of Stock, dated as of November 23,
               1993, between the Company and Bruce Peterson, incorporated by
               reference to Exhibit 10.16 to the Company's Quarterly Report on
               Form 10-Q for the quarter ended March 31, 1994.

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

      10.21    Option Agreement dated June, 1994, between Daniel H. And Jytte M.
               Hartwell as trustees of the Hartwell Family 1988 Trust, and the
               Company, including exhibits thereto, incorporated by reference to
               Exhibit 10.2 to the Company's Report on Form 8-K/A dated
               September 1, 1994.

     *10.22    Employment Agreement dated September 1, 1994, between the Company
               and Dan Hartwell.

     *10.23    Letter of Agreement between Bank of America Nevada and the
               Company dated March 17, 1995, regarding commitment of a $20.0
               million senior secured credit facility.

      10.24    Option Agreement dated July 26, 1994, between Michael Wichinsky
               dba Games of Nevada and the Company.

      10.25    Sales Agreement dated January 6, 1995, between Michael Wichinsky
               dba Games of Nevada and the Company

      10.26    Consulting Agreement dated February 1, 1995, between the Company
               and Michael Wichinsky.

      10.27    $20.0 million senior secured credit facility between the Company
               and Bank of America Nevada dated April 21, 1995.

                                      -74-
<PAGE>
 
     *10.28    Employment Agreement dated July, 1995, between the Company and
               Richard H. Irvine.

      10.29.1  Amendment to Business Loan Agreement dated June 23, 1995, between
               the Company and Bank of America Nevada.

      10.30    Letter dated June 23, 1995, from Bank of America Nevada waiving a
               loan covenant.

      10.31    Letter dated November 9, 1995, from Bank of America Nevada
               deferring any action on loan covenant defaults until November 30,
               1995.

      10.32    $20.0 million Business Loan Agreement between the Company and
               Bank of America Nevada dated January 10, 1996 (replaces Exhibit
               10.27).

     *10.33    Employment Agreement dated October 23, 1995, between the Company
               and Seamus McGill.

     *10.34    Employment Agreement dated May 19, 1996, between the Company and
               Carolan Pepin.

     *10.35    Employment Agreement dated June 2, 1996, between the Company and
               Don Stevens.

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

     *10.37    Employment Agreement dated April 25, 1997, between the Company
               and Behnam Bavarian incorporated by reference to Exhibit 10.27 of
               the Company's Form 10-Q dated June 30, 1997.

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

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

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

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

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

                                      -75-
<PAGE>
 
      10.43    Guaranty Executed by Borrower and Each Guarantor under the Credit
               Agreement incorporated by reference to Exhibit 10.40 of the
               Company's Form 10-Q dated September 30, 1997.

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

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

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

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

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

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

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

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

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

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

      10.54    $86,000 Amended and Restated Credit Agreement among Mikohn Gaming
               Corporation, as Borrower, Each of the Financial Institutions
               Initially a Signatory Hereto, together with their assignees
               Pursuant to Section 11.8 Hereof as Lenders, and First Source
               Financial LLP, as Agent dated as of August 28, 1998 incorporated
               by reference to Exhibit 10.53 of the Company's Form 10-Q dated
               September 30, 1998.

                                      -76-
<PAGE>
 
      10.55    Annex and Schedules to Amended and Restated Credit Agreement
               Dated as of August 28, 1998 incorporated by reference to Exhibit
               10.54 of the Company's Form 10-Q dated September 30, 1998.

     *10.56    Employment Agreement dated September 22, 1998, between the
               Company and Robert J. Smyth.

      21.1     Subsidiaries
 
      23.4     Consent of Deloitte & Touche LLP

      27       Financial Data Schedules


    *Management contracts and compensation plans 

    (b)      Reports on Form 8-K filed during the last quarter of 1998.

             None

                                      -77-
<PAGE>
 
                                   SIGNATURES


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



                                   MIKOHN GAMING CORPORATION



March 30, 1999                     By:     /s/  Don W. Stevens
                                        -------------------------------------
                                        Don W. Stevens, Executive Vice
                                        President, Treasurer, Principal
                                              Financial Officer



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


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


 /s/   David J. Thompson      Chairman of the            March 30, 1999
---------------------------   Board, President and
David J. Thompson             Chief Executive Officer
                              


 /s/   Dennis A. Garcia       EVP - Proprietary Games     March 30, 1999
--------------------------    Director
Dennis A. Garcia              


 /s/  Bruce E. Peterson       Director                   March 30, 1999
---------------------------                               
Bruce E. Peterson


 /s/  Terrance W. Oliver      Director                   March 30, 1999
---------------------------                                
Terrance W. Oliver


 /s/  John K Campbell         Director                   March 30, 1999
---------------------------                                
John K. Campbell



--------------------------- 
James E. Meyer                Director    



 /s/   Douglas M. Todoroff    Director                   March 30, 1999
---------------------------                                 
Douglas M. Todoroff

                                      -78-