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PDS Gaming Reports Q3 Results Down

For the three month period ended September 30, 2002 ("third quarter 2002"), the Company reported income from continuing operations of $24,000, or $0.01 per diluted share, compared with income of $650,000, or $0.16 per diluted share, for the three months ended September 30, 2001 ("third quarter 2001"). Revenues from continuing operations were $7.3 million and $11.5 million in the third quarters 2002 and 2001, respectively. The decrease in revenues is primarily attributable to a decrease in equipment sales and sales-type leases of $2.0 million and a decrease in fee income, which is generally non-recurring in nature, of $1.6 million. The Company completed $7.5 million in originations during the third quarter 2002, compared with $4.0 million in the third quarter 2001.

Selling, general and administrative costs declined approximately 34%, or $570,000, in the third quarter 2002 as compared to the third quarter 2001, reflecting head count reductions and non-recurring legal fees incurred in the third quarter 2001.

Casino operations resulted in a pre-tax loss of $66,000 in the third quarter 2002, compared to pre-tax income of $42,000 in the third quarter 2001. The loss reflects generally unfavorable conditions in the Reno gaming market.

At the end of the first quarter 2002, the Company discontinued operations of its Table Games division and certain components of its Casino Slot Exchange division, due to unacceptable operating results. Accordingly, the Company has reclassified these activities as discontinued operations in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. For the third quarter 2002, the results of discontinued operations were a loss of $348,000, or $0.10 per diluted share, compared to a loss of $264,000, or $0.07 per diluted share, in the third quarter 2001.

For the nine month period ended September 30, 2002, the Company reported a loss from continuing operations of $486,000, or $0.13 per diluted share, compared to income of $2,519,000, or $0.65 per diluted share, in the first nine months of 2001. Revenues from continuing operations approximated $25.6 million in the first nine months of 2002, compared with $32.2 million in the same period last year. The higher level of revenues in 2001 is primarily the result of non-recurring finance and fee income. The Company completed $37.4 million in originations in the first nine months of 2002, compared with $25.3 million in the same period of 2001 (the year earlier period also included a purchase of a lease transaction from a third party for $17 million). Approximately 2,600 and 4,900 gaming devices were shipped to customers in the nine-month periods ended September 30, 2002 and 2001, respectively.

For the nine months ended September 30, 2002, the results of discontinued operations were a loss of $2,224,000, or $0.59 per diluted share, compared to a loss of $1,141,000, or $0.31 per diluted share, in the same period in 2001.

"In the third quarter 2002, we made significant progress in restructuring our operations to focus on our core business--finance and lease originations. I am pleased that the efforts of our team have resulted in a profit from continuing operations. During the quarter, which historically is a low quarter for originations, we completed $7.5 million in new financing originations, up from $4.0 million in the comparable quarter last year. We have worked our inventory levels down another 13% this quarter and have grown our backlog of new business to a record high level, which should benefit us in the future," stated Peter D. Cleary, President and Chief Operating Officer of PDS Gaming Corporation.

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