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Acres Gaming Reports Mixed Q4 Results

22 August 2002

LAS VEGAS – (Press Release) -- Acres Gaming Incorporated (Nasdaq: AGAM), the leader in Bonusing(TM) technology for the gaming industry, today announced financial results for its fourth quarter and fiscal year ended June 30, 2002.

Net income for the quarter was $3.0 million, or $0.29 per diluted share, compared to net income of $1.7 million, or $.16 per diluted share in the prior year quarter. Net income for the fiscal year ended June 30, 2002 totaled $3.9 million, or $0.38 per diluted share, compared to net income of $4.2 million, or $.41 per diluted share for the prior fiscal year. Income from Operations for the year totaled $4.0 million compared to $4.0 million for the prior year.

Revenues for the quarter ended June 30, 2002 were $9.3 million, compared to $13.6 million in the prior year quarter. Revenues for the fiscal year ended June 30, 2002 were $26.4 million, compared to $44.1 million in the prior year.

"I'm very proud of the way our organization finished this fiscal year," said Bud Glisson, Acres' CEO. "The $3 million net income for the fourth quarter was a record for any quarter in the company's history, and we did it without the benefit of any Bonusing revenue from our contract with Station Casinos. For the full fiscal year, we nearly equaled the prior year's net income despite the business slowdown that occurred after September 11 and the lack of revenue recognition on Station Bonusing.

"Most importantly," Glisson continued, "our business momentum is quite strong. Gross margins were 66% during the quarter and over 58% for the year, compared to the prior year's 36%, reflecting increased software deliveries and royalty income. We ended the year with an order backlog of $20 million with an estimated 77% gross margin which equals $15.4 million gross profit, virtually equal to the gross profit we realized for the entire fiscal year we just completed. On top of that, we've added 3 new contracts valued at $8.7 million to our order backlog since our June 30 year-end. Based on this order backlog and our momentum in the marketplace, we expect Net Income for the fiscal year ending June 30, 2003 to be more than double the earnings reported for fiscal 2002."

The Company's order backlog at June 30, 2002 was $20.0 million, including deferred revenue of $4.4 million, compared to $21.1 million, including deferred revenue of $6.7 million, at June 30, 2001. Backlog, however, may not be a meaningful indicator of future revenues. The Company's revenues fluctuate significantly based on the timing of the delivery of any large order.

Gross profit margin increased to 66 percent in the current quarter versus 35.2 percent in the prior year quarter. For the fiscal year ended June 30, 2002, gross profit margins were 58.1 percent versus 35.9 percent in fiscal 2001. The increase in gross profit margins was primarily attributable to the fact that software sales and royalty fees, which made up a greater percentage of the current quarter and fiscal 2002 sales, carry a higher gross profit margin than the hardware sales recorded in the prior year fourth quarter and fiscal year.

Net operating expenses decreased to $2.9 million in the current quarter from $3.2 million in the prior year quarter. For fiscal year ended June 30, 2002, net operating expenses decreased to $11.4 million from $11.8 million in the prior year. The decrease in net operating expenses during the current fiscal year consisted of a decrease in general and administrative expenses of $1.6 million, primarily due to reduction in legal expenses and management incentive bonuses; and was partially offset by an increase in research and development expenses of $1 million and an increase in sales and marketing expenses of $184,000.

At June 30, 2002, the Company had $7.3 million in cash and equivalents. During June 2002, the holders of the Company's 6% convertible debentures elected to take common stock in lieu of cash in satisfaction of the first $300,000 principal payment. Subsequent to June 30, 2002, the Company entered into a one year, $3.0 million revolving credit facility with a commercial bank. The credit facility is secured by the Company's accounts receivable and inventory.

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