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Mikohn Gaming Reports Loss

Total revenue for the quarter ended September 30, 2002 increased 18% to $29.6 million from $25.2 million one year earlier. Revenue from gaming operations was $11.2 million compared with $12.4 million in the prior year quarter. Revenue from product sales increased 44% to $18.5 million from $12.8 million in the prior year quarter.

Net loss for the third quarter was $30.2 million, or $(2.35) per basic and diluted share, compared with a net loss of approximately $1.4 million, or $(0.12) per basic and diluted share, in the 2001 third quarter. Included in 2002 third quarter results are previously announced charges of $27.4 million related to the Company's restructuring initiatives, impairment losses, losses from discontinued operations and various other items. Net loss before the $27.4 million charge was approximately $2.8 million or $(0.22) per share. Included in the net loss for the three months ended September 30, 2001 was a charge of $3.4 million for the early extinguishment of debt and a loss from discontinued operations.

The charges aggregating $27.4 million taken during the 2002 third quarter are as follows:

--$5.6 million related to corporate restructuring, of which approximately $1.0 million was a cash charge paid in the third quarter 2002, primarily related to the reduction in force (on a going forward basis, the Company expects to have quarterly cash outlays on long-term lease obligations of approximately $300,000 per quarter through July 2004, at which point the quarterly cash outlays become approximately $100,000).

--$6.3 million related to impairment of long-term assets, all of which were non-cash charges.

--$2.5 million related to discontinued operations, of which approximately $300,000 was a cash charge paid in the third quarter.

--$3.9 million related to obsolete or slow moving inventory, all of which were non-cash charges.

--$4.3 million related principally to bad debt provisions, all of which were non-cash charges.

--$4.8 million related to officer severance agreements, of which $1.5 million was a cash charge paid in the third quarter 2002 (on a going forward basis, the Company expects to have quarterly cash outlays of approximately $300,000 through June 2003, approximately $200,000 quarterly thereafter to August 2004 and approximately $30,000 quarterly to August 2006. A one-time cash outlay of approximately $600,000 is required in Q2 of 2003).

Excluding the $27.4 million of charges, EBITDAR (defined by the Company as earnings before interest, income taxes, depreciation and amortization, and rent on slot machine operating leases) was $6.0 million, compared to $8.1 million in the corresponding quarter of the previous year. Slot rent expense accounted for approximately $1.4 million during the quarter ended September 30, 2002.

Commenting on the numerous actions during the quarter, John Garner, chief financial officer, said, "We recorded the necessary charges for the third quarter resulting from the significant restructuring of our business operations and from our balance sheet analysis. We are confident that the actions taken will improve future financial results. As of today, the company maintains cash balances of approximately $16.5 million. As previously stated, we anticipate year-end cash balances of approximately $15 million."

The Company had 2,351 average branded machines in casinos during the quarter, which earned approximately $29.37 per day after royalties. Non-branded machines in casinos averaged 354 during the quarter and earned $23.23 per day. Leased games in casinos for which the Company does not provide game hardware averaged 139 during the quarter and earned $3.98 per day net of joint venture expenses. At September 30, 2002, the number of branded, nonbranded and licensed games in casinos totaled 2,375, 375 and 196, respectively. The number of table games in casinos during the quarter averaged 1,068 and averaged $1,250 per month in lease revenues. As of September 30, 2002 the total number of table games in casinos totaled 1,061.

Revenue for the nine months ended September 30, 2002 increased 7% to approximately $75.5 million from $70.2 million during the prior year period. Net loss was $38.0 million, or $(2.96) per share, compared to net income of approximately $462,000, or $0.04 per share, for the nine months ended September 30, 2001. Net loss for the nine months ended September 30, 2002 included approximately $29.4 million of charges for restructuring, impairment losses, discontinued operation losses and various other items, $2.0 million of which was recorded in the second quarter of 2002. Net income for the nine months ended September 30, 2001 included discontinued operating losses and a charge for the early extinguishment of debt of approximately $3.1 million.

Russ McMeekin, president and chief executive officer, stated, "With this difficult period now behind us, we can focus our attention and resources on growth. During the quarter we realized net branded slot game placements of approximately 190 units, 130 of which are games on the SDG platform and 60 from our own inventory. Going forward, we anticipate growth in slot placements fueled by the debut of TRIVIAL PURSUIT® in December 2002, the anticipated release of YAHTZEE Looking for Love early in 2003 and our new licensing agreement with Aristocrat.

"We successfully implemented the world's first Wide Area Progressive (WAP) system on table games with Rank in the United Kingdom, and we are on track to complete the 30-casino WAP systems rollout by the end of the fourth quarter. With extremely positive feedback, we continue to aggressively pursue opportunities for a table game WAP in Nevada and several other jurisdictions. Furthermore, we are excited that the State of California approved our popular Caribbean Stud game, and installations of a version of this game are currently underway in prominent California card clubs.

"Our interior sign and electronics business continues to grow, and we are pleased with the efficiencies gained from consolidating operations to one location. We are confident that these key developments, in addition to our completed restructuring, will yield positive cash flow and a return to profitability in the fourth quarter. We anticipate fourth quarter EBITDAR to be approximately $8.0 million."

Mikohn is a diversified supplier to the casino gaming industry worldwide, specializing in the development of innovative products with recurring revenue potential. Mikohn develops, manufactures and markets an expanding array of slot games, table games and advanced player tracking and accounting systems for slot machines and table games. The company is also a leader in exciting visual displays and progressive jackpot technology for casinos worldwide. There is a Mikohn product in virtually every casino in the world.

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