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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarter ended December 31, 2001

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     
to

Commission File Number 0-4281
 ALLIANCE GAMING CORPORATION(Exact name of registrant as specified in its charter)

|                                                                               |  |                                                
|------------------------------------------------------------------------------ |  | -----------------------------------------------
|NEVADA
(State or other jurisdiction of
incorporation or organization)          |  | 88-0104066
(I.R.S. Employer
Identification No.)
|                                                                               |  |                                                
|6601 S. Bermuda Rd.
Las Vegas, Nevada
(Address of principal executive offices) |  | 89119
(Zip Code)                               

Registrants telephone number: (702) 270-7600

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 such
filing requirements for the past 90 days.
[X] Yes    [   ] No

The number of shares of Common Stock, $0.10 par value, outstanding as of
February 1, 2001, according to the records of the registrants registrar and
transfer agent was 23,591,000.



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TABLE OF CONTENTS



|              |                                                                                               |                                                                         |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- |  |  |  |  |  | 
|PART 1       
|              |                                                                                               | UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS                        
|              |                                                                                               | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS              
|              |                                                                                               | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS              
|              |                                                                                               | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIENCY
|              |                                                                                               | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS              
|              |                                                                                               | NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS         
|              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II      
|              | Item 1. Legal Proceedings                                                                    
|              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES   
|Exhibit 4.8  
|Exhibit 10.34



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I N D E X

|           |  |                                                                                                                    |  |      
|---------- |  | ------------------------------------------------------------------------------------------------------------------ |  | -----
|           |  |                                                                                                                    |  | Page 
|           |  |                                                                                                                    |  |      
|PART I     |  | FINANCIAL INFORMATION                                                                                              |  |      
|          
|          
|          
|          
|Item 1.    |  | Unaudited Financial Statements                                                                                     |  |      
|          
|          
|          
|          
|           |  | Unaudited Condensed Consolidated Balance Sheets as of June 30, 2001
and December 31, 2001                          |  | 3    
|          
|          
|          
|          
|           |  | Unaudited Condensed Consolidated Statements of Operations
for the three months ended December 31, 2000 and 2001    |  | 4    
|          
|          
|          
|          
|           |  | Unaudited Condensed Consolidated Statements of Operations
for the six months ended December 31, 2000 and 2001      |  | 5    
|          
|          
|          
|          
|           |  | Unaudited Condensed Consolidated Statements of Stockholders Deficiency
for the six months ended December 31, 2001 |  | 6    
|          
|          
|          
|          
|           |  | Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended December 31, 2000 and 2001      |  | 7    
|          
|          
|          
|          
|           |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                     |  | 8-21 
|          
|          
|          
|          
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                              |  | 22-29
|          
|          
|          
|          
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                         |  | 30   
|          
|          
|          
|          
|PART II    |  | OTHER INFORMATION                                                                                                  |  |      
|          
|          
|          
|          
|Item 1.    |  | Legal Proceedings                                                                                                  |  | 30   
|          
|          
|          
|          
|Item 4.    |  | Submission of matters to a vote of Security Holders                                                                |  | 30   
|          
|          
|          
|          
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                                   |  | 30   
|SIGNATURES |  | 31                                                                                                                

2



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##### Table of Contents






PART 1




ALLIANCE GAMING CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS  (In 000s, except share data)


|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |          |         |        |         | 
|------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------------------- | ---------------------------------------------- | ------- | -------- | ------- | -------- | ------- | ------ | ------- | 
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         | June 30, |         | Dec. 31,
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         | 2001     |         | 2001    
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|ASSETS                                                                                                       |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|Current assets:                                                                                              |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|                                                                                                             | Cash and cash equivalents                                                                                                       |                                | $                         | 54,845                                         |         |          | $       | 55,322   |        
|                                                                                                             | Accounts and notes receivable, net of allowance for doubtful
accounts of $15,991 and $14,534                                    |                                |                           | 79,369                                         |         |          |         | 89,006   |        
|                                                                                                             | Inventories, net of reserves of $7,128 and $8,943                                                                               |                                |                           | 35,082                                         |         |          |         | 43,222   |        
|                                                                                                             | Other current assets                                                                                                            |                                |                           | 10,814                                         |         |          |         | 11,856   |        
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|                                                                                                             |                                                                                                                                 | Total current assets           |                           |                                                | 180,110 |          |         |          | 199,406 |       
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|Long-term notes receivable, net of allowance for doubtful
accounts of $10 and $40                            |                                                                                                                                 |                                | 1,433                     |                                                |         |          | 2,327   |         
|Leased equipment, net of accumulated depreciation of $14,986 and $16,124                                     |                                                                                                                                 |                                | 22,677                    |                                                |         |          | 24,253  |         
|Property, plant and equipment, net of accumulated depreciation
of $74,245 and $80,879                        |                                                                                                                                 |                                | 88,412                    |                                                |         |          | 91,569  |         
|Excess of costs over net assets of acquired businesses, net of
accumulated amortization of $7,433 and $7,522 |                                                                                                                                 |                                | 49,514                    |                                                |         |          | 50,778  |         
|Intangible assets, net of accumulated amortization of $20,693 and $23,465                                    |                                                                                                                                 |                                | 22,212                    |                                                |         |          | 33,388  |         
|Deferred tax assets, net of valuation allowance of $66,829 and $57,227                                       |                                                                                                                                 |                                | 11,944                    |                                                |         |          | 12,241  |         
|Other assets, net of reserves of $1,826 and $1,876                                                           |                                                                                                                                 |                                | 3,895                     |                                                |         |          | 3,732   |         
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|                                                                                                             |                                                                                                                                 |                                |                           | Total assets                                   |         | $        | 380,197 |          |         | $      | 417,694 | 
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|LIABILITIES AND STOCKHOLDERS DEFICIENCY                                                                     |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|Current liabilities:                                                                                         |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|                                                                                                             | Accounts payable                                                                                                                |                                | $                         | 19,531                                         |         |          | $       | 21,289   |        
|                                                                                                             | Accrued liabilities                                                                                                             |                                |                           | 46,978                                         |         |          |         | 52,738   |        
|                                                                                                             | Current maturities of long-term debt                                                                                            |                                |                           | 932                                            |         |          |         | 1,790    |        
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|                                                                                                             |                                                                                                                                 |                                | Total current liabilities |                                                |         | 67,441   |         |          |         | 75,817 |        
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|Long-term debt, net                                                                                          |                                                                                                                                 |                                | 339,168                   |                                                |         |          | 341,632 |         
|Other liabilities                                                                                            |                                                                                                                                 |                                | 11,493                    |                                                |         |          | 11,154  |         
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|                                                                                                             |                                                                                                                                 |                                |                           | Total liabilities                              |         |          | 418,102 |          |         |        | 428,603 | 
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|Minority interest                                                                                            |                                                                                                                                 |                                | 1,300                     |                                                |         |          | 1,280   |         
|Commitments and contingencies                                                                                |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|Stockholders deficiency:                                                                                    |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|                                                                                                             | Special Stock, 10,000,000 shares authorized: Series E, $100 liquidation value;
120 shares and 115 shares issued and outstanding |                                |                           | 12                                             |         |          |         | 12       |        
|                                                                                                             | Common Stock, $.10 par value; 50,000,000 shares authorized;
21,776,000 and 23,311,000 shares issued and outstanding             |                                |                           | 2,178                                          |         |          |         | 2,326    |        
|                                                                                                             | Treasury stock at cost, 256,000 shares                                                                                          |                                |                           | (501                                           | )       |          |         | (501     | )      
|                                                                                                             | Additional paid-in capital                                                                                                      |                                |                           | 147,828                                        |         |          |         | 151,760  |        
|                                                                                                             | Accumulated other comprehensive losses                                                                                          |                                |                           | (27,919                                        | )       |          |         | (25,227  | )      
|                                                                                                             | Accumulated deficit                                                                                                             |                                |                           | (160,803                                       | )       |          |         | (140,559 | )      
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|                                                                                                             |                                                                                                                                 | Total stockholders deficiency |                           |                                                | (39,205 | )        |         |          | (12,189 | )     
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |         
|                                                                                                             |                                                                                                                                 |                                |                           | Total liabilities and stockholders deficiency |         | $        | 380,197 |          |         | $      | 417,694 | 
|                                                                                                             |                                                                                                                                 |                                |                           |                                                |         |          |         |         

See notes to unaudited condensed consolidated financial statements.

3



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ALLIANCE GAMING CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (In 000s, except per share data)


|                                                                 |                                           |   |         |                                 |   |      |         |        |   | 
|---------------------------------------------------------------- | ----------------------------------------- | - | ------- | ------------------------------- | - | ---- | ------- | ------ | - | 
|                                                                 |                                           |   |         | Three Months Ended December 31,
|                                                                 |                                           |   |         |                                
|                                                                 |                                           |   |         | 2000                            |   | 2001
|                                                                 |                                           |   |         |                                 |   |     
|Revenues:                                                        |                                           |   |         |                                 |   |      |         |       
|                                                                 | Gaming equipment and systems              |   | $       | 38,551                          |   |      | $       | 51,631 |  
|                                                                 | Wall machines and amusement games         |   |         | 20,578                          |   |      |         | 25,462 |  
|                                                                 | Route operations                          |   |         | 53,926                          |   |      |         | 55,764 |  
|                                                                 | Casino operations                         |   |         | 17,093                          |   |      |         | 17,607 |  
|                                                                 |                                           |   |         |                                 |   |      |         |       
|                                                                 |                                           |   | 130,148 |                                 |   |      | 150,464 |       
|                                                                 |                                           |   |         |                                 |   |      |         |       
|Costs and expenses:                                              |                                           |   |         |                                 |   |      |         |       
|                                                                 | Cost of gaming equipment and systems      |   |         | 17,897                          |   |      |         | 22,844 |  
|                                                                 | Cost of wall machines and amusement games |   |         | 11,172                          |   |      |         | 13,108 |  
|                                                                 | Cost of route operations                  |   |         | 43,584                          |   |      |         | 44,201 |  
|                                                                 | Cost of casino operations                 |   |         | 8,023                           |   |      |         | 7,866  |  
|                                                                 | Selling, general and administrative       |   |         | 24,169                          |   |      |         | 30,922 |  
|                                                                 | Research and development                  |   |         | 3,481                           |   |      |         | 3,807  |  
|                                                                 | Depreciation and amortization             |   |         | 6,664                           |   |      |         | 7,316  |  
|                                                                 |                                           |   |         |                                 |   |      |         |       
|                                                                 |                                           |   | 114,990 |                                 |   |      | 130,064 |       
|                                                                 |                                           |   |         |                                 |   |      |         |       
|Operating income                                                 |                                           |   | 15,158  |                                 |   |      | 20,400  |       
|Other income (expense):                                          |                                           |   |         |                                 |   |      |         |       
|                                                                 | Interest income                           |   |         | 201                             |   |      |         | 369    |  
|                                                                 | Interest expense                          |   |         | (8,840                          | ) |      |         | (7,033 | )
|                                                                 | Minority interest                         |   |         | (461                            | ) |      |         | (405   | )
|                                                                 | Other, net                                |   |         | (297                            | ) |      |         | (432   | )
|                                                                 |                                           |   |         |                                 |   |      |         |       
|Income before income taxes                                       |                                           |   | 5,761   |                                 |   |      | 12,899  |       
|Income tax provision                                             |                                           |   | (252    | )                               |   |      | (83     | )     
|                                                                 |                                           |   |         |                                 |   |      |         |       
|Net income                                                       |                                           | $ | 5,509   |                                 |   | $    | 12,816  |       
|                                                                 |                                           |   |         |                                 |   |      |         |       
|Basic earnings per share                                         |                                           | $ | 0.27    |                                 |   | $    | 0.57    |       
|                                                                 |                                           |   |         |                                 |   |      |         |       
|Diluted earnings per share                                       |                                           | $ | 0.26    |                                 |   | $    | 0.54    |       
|                                                                 |                                           |   |         |                                 |   |      |         |       
|Weighted average common shares outstanding                       |                                           |   | 20,706  |                                 |   |      | 22,475  |       
|                                                                 |                                           |   |         |                                 |   |      |         |       
|Weighted average common and common
share equivalents outstanding |                                           |   | 21,190  |                                 |   |      | 23,629  |       
|                                                                 |                                           |   |         |                                 |   |      |         |       

See notes to unaudited condensed consolidated financial statements.

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ALLIANCE GAMING CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In 000s, except per share data)


|                                                                 |                                           |   |         |                               |   |      |         |         |   | 
|---------------------------------------------------------------- | ----------------------------------------- | - | ------- | ----------------------------- | - | ---- | ------- | ------- | - | 
|                                                                 |                                           |   |         | Six Months Ended December 31,
|                                                                 |                                           |   |         |                              
|                                                                 |                                           |   |         | 2000                          |   | 2001
|                                                                 |                                           |   |         |                               |   |     
|Revenues:                                                        |                                           |   |         |                               |   |      |         |        
|                                                                 | Gaming equipment and systems              |   | $       | 72,212                        |   |      | $       | 96,792  |  
|                                                                 | Wall machines and amusement games         |   |         | 35,438                        |   |      |         | 38,123  |  
|                                                                 | Route operations                          |   |         | 106,829                       |   |      |         | 109,564 |  
|                                                                 | Casino operations                         |   |         | 34,975                        |   |      |         | 35,786  |  
|                                                                 |                                           |   |         |                               |   |      |         |        
|                                                                 |                                           |   | 249,454 |                               |   |      | 280,265 |        
|                                                                 |                                           |   |         |                               |   |      |         |        
|Costs and expenses:                                              |                                           |   |         |                               |   |      |         |        
|                                                                 | Cost of gaming equipment and systems      |   |         | 33,265                        |   |      |         | 42,395  |  
|                                                                 | Cost of wall machines and amusement games |   |         | 19,467                        |   |      |         | 20,613  |  
|                                                                 | Cost of route operations                  |   |         | 86,200                        |   |      |         | 86,779  |  
|                                                                 | Cost of casino operations                 |   |         | 15,504                        |   |      |         | 16,201  |  
|                                                                 | Selling, general and administrative       |   |         | 46,894                        |   |      |         | 56,477  |  
|                                                                 | Research and development                  |   |         | 6,664                         |   |      |         | 7,499   |  
|                                                                 | Depreciation and amortization             |   |         | 13,171                        |   |      |         | 15,040  |  
|                                                                 |                                           |   |         |                               |   |      |         |        
|                                                                 |                                           |   | 221,165 |                               |   |      | 245,004 |        
|                                                                 |                                           |   |         |                               |   |      |         |        
|Operating income                                                 |                                           |   | 28,289  |                               |   |      | 35,261  |        
|Other income (expense):                                          |                                           |   |         |                               |   |      |         |        
|                                                                 | Interest income                           |   |         | 356                           |   |      |         | 764     |  
|                                                                 | Interest expense                          |   |         | (17,879                       | ) |      |         | (14,680 | )
|                                                                 | Minority interest                         |   |         | (1,004                        | ) |      |         | (868    | )
|                                                                 | Other, net                                |   |         | (176                          | ) |      |         | (12     | )
|                                                                 |                                           |   |         |                               |   |      |         |        
|Income before income taxes                                       |                                           |   | 9,586   |                               |   |      | 20,465  |        
|Income tax provision                                             |                                           |   | (712    | )                             |   |      | (221    | )      
|                                                                 |                                           |   |         |                               |   |      |         |        
|Net income                                                       |                                           | $ | 8,874   |                               |   | $    | 20,244  |        
|                                                                 |                                           |   |         |                               |   |      |         |        
|Basic earnings per share                                         |                                           | $ | 0.44    |                               |   | $    | 0.92    |        
|Diluted earnings per share                                       |                                           | $ | 0.43    |                               |   | $    | 0.89    |        
|Weighted average common shares outstanding                       |                                           |   | 20,370  |                               |   |      | 21,893  |        
|                                                                 |                                           |   |         |                               |   |      |         |        
|Weighted average common and common
share equivalents outstanding |                                           |   | 20,676  |                               |   |      | 22,850  |        
|                                                                 |                                           |   |         |                               |   |      |         |        

See notes to unaudited condensed consolidated financial statements.

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ALLIANCE GAMING CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIENCY


Six Months Ended December 31, 2001
(In 000s)


|                                                    |                            |  |              |  |          |   |          |  |         |   |               |  |        |   |         |   |              |   |               |  |  |   |             |   |  |   |          |   |       |   |         |        | 
|--------------------------------------------------- | -------------------------- |  | ------------ |  | -------- | - | -------- |  | ------- | - | ------------- |  | ------ | - | ------- | - | ------------ | - | ------------- |  |  | - | ----------- | - |  | - | -------- | - | ----- | - | ------- | ------ | 
|                                                    |                            |  |              |  |          |   |          |  |         |   |               |  |        |   |         |   |              |   |               |  |  |   |             |   |  |   |          |   |       |  
|                                                    |                            |  |              |  |          |   |          |  |         |   |               |  |        |   |         |   |              |   |               |  |  |   | Accumulated |   |  |   |          |   | Total
|                                                    |                            |  | Common Stock |  | Series E |   |          |  |         |   | Additional    |  | Other  |   |         |   |              |   | Stockholders'
|                                                    |                            |  |              |  | Special  |   | Treasury |  | Paid-in |   | Comprehensive |  | Accum. |   | Equity 
|                                                    |                            |  | Shares       |  | Dollars  |   | Stock    |  | Stock   |   | Capital       |  | Loss   |   | Deficit |   | (Deficiency)
|                                                    |                            |  |              |  |          |   |          |  |         |   |               |  |        |   |         |   |             
|Balances at June 30, 2001                           |                            |  | 21,776       |  |          | $ | 2,178    |  |         | $ | 12            |  |        | $ | (501    | ) |              | $ | 147,828       |  |  | $ | (27,919     | ) |  | $ | (160,803 | ) |       | $ | (39,205 | )     
|Net income                                          |                            |  |             |  |          |   |         |  |         |   |              |  |        |   |        |   |              |   |              |  |  |   |            |   |  |   | 20,244   |   |       |   | 20,244  |       
|Foreign currency translation
adjustment             |                            |  |             |  |          |   |         |  |         |   |              |  |        |   |        |   |              |   |              |  |  |   | 2,692       |   |  |   |         |   |       |   | 2,692   |       
|                                                    |                            |  |              |  |          |   |          |  |         |   |               |  |        |   |         |   |              |   |               |  |  |   |             |   |  |   |          |   |       |   |         |       
|                                                    | Total comprehensive income |  |              |  |          |   |          |  |         |   |               |  |        |   |         |   |              |   |               |  |  |   |             |   |  |   |          |   |       |   |         | 22,936 | 
|Shares issued upon exercise
of options and warrants |                            |  | 1,535        |  |          |   | 148      |  |         |   |              |  |        |   |        |   |              |   | 3,932         |  |  |   |            |   |  |   |         |   |       |   | 4,080   |       
|                                                    |                            |  |              |  |          |   |          |  |         |   |               |  |        |   |         |   |              |   |               |  |  |   |             |   |  |   |          |   |       |   |         |       
|Balances at December 31, 2001                       |                            |  | 23,311       |  |          | $ | 2,326    |  |         | $ | 12            |  |        | $ | (501    | ) |              | $ | 151,760       |  |  | $ | (25,227     | ) |  | $ | (140,559 | ) |       | $ | (12,189 | )     
|                                                    |                            |  |              |  |          |   |          |  |         |   |               |  |        |   |         |   |              |   |               |  |  |   |             |   |  |   |          |   |       |   |         |       

See notes to unaudited condensed consolidated financial statements.

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ALLIANCE GAMING CORPORATION  UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (In 000s)


|                                        |            |                                                                                   |                              |                                                     |         |                               |         |        |        |        |         |  
|--------------------------------------- | ---------- | --------------------------------------------------------------------------------- | ---------------------------- | --------------------------------------------------- | ------- | ----------------------------- | ------- | ------ | ------ | ------ | ------- | -
|                                        |            |                                                                                   |                              |                                                     |         | Six Months Ended December 31,
|                                        |            |                                                                                   |                              |                                                     |         |                              
|                                        |            |                                                                                   |                              |                                                     |         | 2000                          |         | 2001  
|                                        |            |                                                                                   |                              |                                                     |         |                               |         |       
|Cash flows from operating activities:   |            |                                                                                   |                              |                                                     |         |                               |         |       
|                                        | Net income |                                                                                   | $                            | 8,874                                               |         |                               | $       | 20,244 |       
|                                        |            | Adjustments to reconcile net income to net
cash provided by operating activities: |                              |                                                     |         |                               |         |        |        |       
|                                        |            |                                                                                   |                              | Depreciation and amortization                       |         |                               | 13,171  |        |        |        | 15,040  |  
|                                        |            |                                                                                   |                              | Amortization of debt discount                       |         |                               | 26      |        |        |        | 40      |  
|                                        |            |                                                                                   |                              | (Gain) loss on sale of assets                       |         |                               | 284     |        |        |        | 97      |  
|                                        |            |                                                                                   |                              | Provision for losses on doubtful receivables        |         |                               | 2,271   |        |        |        | 1,719   |  
|                                        |            |                                                                                   |                              | Other                                               |         |                               | 180     |        |        |        | 1,401   |  
|                                        |            | Net change in operating assets and liabilities:                                   |                              |                                                     |         |                               |         |        |        |       
|                                        |            |                                                                                   |                              | Accounts and notes receivable                       |         |                               | 5,543   |        |        |        | (10,312 | )
|                                        |            |                                                                                   |                              | Deferred taxes                                      |         |                               |        |        |        |        | (215    | )
|                                        |            |                                                                                   |                              | Inventories                                         |         |                               | (4,990  | )      |        |        | (11,024 | )
|                                        |            |                                                                                   |                              | Other current assets                                |         |                               | 1,007   |        |        |        | (781    | )
|                                        |            |                                                                                   |                              | Accounts payable                                    |         |                               | 9,307   |        |        |        | 1,702   |  
|                                        |            |                                                                                   |                              | Accrued liabilities                                 |         |                               | (2,092  | )      |        |        | 2,847   |  
|                                        |            |                                                                                   |                              |                                                     |         |                               |         |       
|                                        |            |                                                                                   |                              | Net cash provided by operating activities           |         |                               | 33,581  |        |        |        | 20,758  |  
|                                        |            |                                                                                   |                              |                                                     |         |                               |         |       
|Cash flows from investing activities:   |            |                                                                                   |                              |                                                     |         |                               |         |       
|                                        |            | Additions to property, plant and equipment                                        |                              |                                                     | (4,389  | )                             |         |        | (6,205 | )     
|                                        |            | Additions to participation gaming devices                                         |                              |                                                     | (4,596  | )                             |         |        | (8,248 | )     
|                                        |            | Additions to other long term assets                                               |                              |                                                     | (338    | )                             |         |        | (1,976 | )     
|                                        |            | Acquisition, net of cash acquired                                                 |                              |                                                     |        |                               |         |        | (6,731 | )     
|                                        |            | Proceeds from disposal of property and equipment and
other assets                 |                              |                                                     |        |                               |         |        | 42     |       
|                                        |            |                                                                                   |                              |                                                     |         |                               |         |       
|                                        |            |                                                                                   |                              | Net cash used in investing activities               |         |                               | (9,323  | )      |        |        | (23,118 | )
|                                        |            |                                                                                   |                              |                                                     |         |                               |         |       
|Cash flows from financing activities:   |            |                                                                                   |                              |                                                     |         |                               |         |       
|                                        |            | Reduction of long-term debt                                                       |                              |                                                     | (2,044  | )                             |         |        | (746   | )     
|                                        |            | Capitalized debt issuance costs                                                   |                              |                                                     |        |                               |         |        | (651   | )     
|                                        |            | Net increase (decrease) in revolving credit facility                              |                              |                                                     | (12,726 | )                             |         |        |       |       
|                                        |            | Purchase of common stock for treasury                                             |                              |                                                     | (436    | )                             |         |        |       |       
|                                        |            | Proceeds from exercise of stock options and warrants                              |                              |                                                     | 228     |                               |         |        | 4,080  |       
|                                        |            |                                                                                   |                              |                                                     |         |                               |         |       
|                                        |            |                                                                                   |                              | Net cash provided by (used in) financing activities |         |                               | (14,978 | )      |        |        | 2,683   |  
|                                        |            |                                                                                   |                              |                                                     |         |                               |         |       
|Effect of exchange rate changes on cash |            |                                                                                   | (36                          | )                                                   |         |                               | 154     |       
|Cash and cash equivalents:              |            |                                                                                   |                              |                                                     |         |                               |         |       
|                                        |            |                                                                                   | Increase for period          |                                                     |         | 9,244                         |         |        |        | 477    |        
|                                        |            |                                                                                   | Balance, beginning of period |                                                     |         | 32,044                        |         |        |        | 54,845 |        
|                                        |            |                                                                                   |                              |                                                     |         |                               |         |       
|                                        |            |                                                                                   | Balance, end of period       |                                                     | $       | 41,288                        |         |        | $      | 55,322 |        
|                                        |            |                                                                                   |                              |                                                     |         |                               |         |       

See notes to unaudited condensed consolidated financial statements

7



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##### Table of Contents






ALLIANCE GAMING CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Six Months Ended December 31, 2000 and 2001



|1. |  | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The accompanying unaudited interim condensed consolidated financial
statements reflect all adjustments, consisting of normal recurring
adjustments, which management believes are necessary to present fairly the
financial position, results of operations and cash flows of Alliance Gaming
Corporation (Alliance or the Company) for the respective periods
presented. The results of operations for an interim period are not
necessarily indicative of the results, which may be expected for any other
interim period, or for the year as a whole. The accompanying unaudited
interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes in the
Companys annual report on Form 10-K for the year ended June 30, 2001. All
intercompany accounts and transactions have been eliminated in
consolidation.
|  
|   |  | The accompanying condensed consolidated financial statements at June 30,
2001, were derived from audited consolidated financial statements, but do
not include all disclosures required under generally accepted accounting
principles. Certain reclassifications have been made to conform to the
current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | On October 29, 2001, the Company announced the acquisition of Casino Market
Place Development Corporation (CMP), a leading supplier of player marketing,
bonusing and promotions software. The $12.0 million purchase, consisting of
cash and a two year subordinated note, was accounted for pursuant to the
provisions of Statement of Financial Accounting Standards No.141 Business
Combinations (SFAS No. 141).                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|2. |  | INVENTORIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market. Cost elements included for work-in-process and
finished goods include raw materials, freight, direct labor and
manufacturing overhead.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | Inventories, net of reserves, consist of the following (in 000s):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                |                   |   |          |        |          |   |        |        | 
|--------------- | ----------------- | - | -------- | ------ | -------- | - | ------ | ------ | 
|                |                   |   | June 30, |        | Dec. 31,
|                |                   |   | 2001     |        | 2001    
|                |                   |   |          |        |         
|Raw materials   |                   | $ | 15,222   |        |          | $ | 16,554 |       
|Work-in-process |                   |   | 1,774    |        |          |   | 2,737  |       
|Finished goods  |                   |   | 18,086   |        |          |   | 23,931 |       
|                |                   |   |          |        |          |   |        |       
|                | Total inventories |   | $        | 35,082 |          |   | $      | 43,222 | 
|                |                   |   |          |        |          |   |        |       



|3. |  | DEBT                                                
|-- |  | ----------------------------------------------------
|  
|   |  | Long-term debt consists of the following (in 000s):

|                                                                                     |                                         |   |          |         |          |   |         |         | 
|------------------------------------------------------------------------------------ | --------------------------------------- | - | -------- | ------- | -------- | - | ------- | ------- | 
|                                                                                     |                                         |   | June 30, |         | Dec. 31,
|                                                                                     |                                         |   | 2001     |         | 2001    
|                                                                                     |                                         |   |          |         |         
|Term loan facility                                                                   |                                         | $ | 190,000  |         |          | $ | 190,000 |        
|10% Senior Subordinated Notes due 2007, net
of unamortized
discount of $495 and $456 |                                         |   | 149,505  |         |          |   | 149,544 |        
|Other subordinated debt                                                              |                                         |   |         |         |          |   | 3,495   |        
|Other, primarily secured by related equipment                                        |                                         |   | 595      |         |          |   | 383     |        
|                                                                                     |                                         |   |          |         |          |   |         |        
|                                                                                     |                                         |   | 340,100  |         |          |   | 343,422 |        
|Less current maturities                                                              |                                         |   | 932      |         |          |   | 1,790   |        
|                                                                                     |                                         |   |          |         |          |   |         |        
|                                                                                     | Long-term debt, less current maturities |   | $        | 339,168 |          |   | $       | 341,632 | 
|                                                                                     |                                         |   |          |         |          |   |         |        

8



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##### Table of Contents



ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended December 31, 2000 and 2001



| |  | On June 22, 2001, the Company completed a senior bank debt refinancing
transaction whereby the Company entered into a $190 million term loan
facility and a $25 million revolving credit facility (which can be increased
by $15 million at the Companys discretion through the term of the revolving
credit facility). Proceeds from the new term loan were used to repay the
existing bank term loans and credit facility, totaling $166.0 million, repay
certain gaming equipment operating leases totaling $13.0 million, and to pay
transaction fees and expenses. The term loan has an interest rate of LIBOR
plus 3.75% (or 5.9% as of December 31, 2001), has a 1% per year mandatory
principal amortization, and a 5.5 year maturity. The revolving credit
facility commitment decreases ratably over its 5 year commitment. As of
December 31, 2001, there were no borrowings outstanding on the revolving
credit facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As partial consideration for the purchase of CMP, the Company issued a
subordinated note payable with an original principal balance of $4.0
million, with quarterly payments of principal and interest over its 2-year
term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The bank facility is collateralized by substantially all domestic
property and is guaranteed by each domestic subsidiary of the U.S. Borrower
and German Subsidiaries (both as defined), other than the entity, which
hold the Companys interest in its Louisiana and Mississippi operations,
and is secured by both a U.S. and German Pledge Agreement (both as defined).
The bank facility contains a number of maintenance covenants and has other
significant covenants that, among other things, restrict the ability of the
Company and certain of its subsidiaries to dispose of assets, incur
additional indebtedness and issue preferred stock, pay dividends or make
other distributions, enter into certain acquisitions, repurchase equity
interests or subordinated indebtedness, issue or sell equity interests of
the Companys subsidiaries, engage in mergers or acquisitions, or engage in
certain transactions with subsidiaries and affiliates, and that otherwise
restrict corporate activities. As of December 31, 2001 the Company is in
compliance with these covenants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The Senior Subordinated Notes bear interest at 10%, are due in 2007, and are
general unsecured obligations of the Company, ranking subordinate in right
of payment to all Senior Debt (as defined) of the Company, including
indebtedness under the bank facility. The Senior Subordinated Notes are
fully and unconditionally guaranteed on a joint and several, senior
subordinated basis by all existing and future domestic Restricted
Subsidiaries of the Company, subject to certain exceptions including the
partially-owned entities through which its Mississippi casino and Louisiana
route operations are conducted. The Subsidiary Guarantees are general
unsecured obligations of the Guarantors, ranking subordinate in right of
payment to all Senior Debt of the Guarantors. The Company will be able to
designate other current or future subsidiaries as Unrestricted Subsidiaries
under certain circumstances. Unrestricted Subsidiaries will not be required
to issue a Subsidiary Guarantee and will not be subject to many of the
restrictive covenants set forth in the Indenture pursuant to which the
Senior Subordinated Notes were issued. The Indenture for the Companys
Senior Subordinated Notes contains various covenants, including limitations
on incurrence of additional indebtedness, on restricted payments and on
dividend and payment restrictions on subsidiaries. The Senior Subordinated
Notes indenture generally allows for redemption at 105% beginning on August 1,
2002. Upon the occurrence of a Change of Control (as defined), the
holders of the Senior Subordinated Notes will have the right to require the
Company to purchase their notes at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. The Company is in compliance with the operational covenants
contained in the indenture for the Senior Subordinated Notes.

9



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##### Table of Contents



ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended December 31, 2000 and 2001



|4. |  | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Companys effective tax rate for the six months ended December 31, 2000,
and 2001, differ from the statutory rate of 35% primarily because no Federal
income tax expense has been recorded for the taxable income produced by the
Companies domestic subsidiaries as such earnings were offset against net
operating loss carryforwards. The tax expense recorded represents primarily
state income and franchise taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|5. |  | NEW ACCOUNTING PRONOUNCEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | In June 2001, the Financial
Accounting Standards Board SFAS issued No. 141 and No. 142,
Goodwill and Other Intangible Assets (SFAS No. 142).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | SFAS No. 141 establishes accounting and reporting standards for business
combinations and the related issues of allocations of purchase price to
assets and liabilities acquired. The Company adopted the provision of SFAS
No. 141 effective July 1, 2001. The adoption of SFAS
No. 141 will not have a
material impact on the financial position or results of operations of the
Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | SFAS No. 142 revises the existing accounting standards for both goodwill and
intangible assets. The Company adopted the provisions of SFAS No. 142
effective July 1, 2001, pursuant to the early adoption rules. In accordance
with the transition rules, the Company engaged an independent third-party
specialist to provide a valuation for certain of the Companys reporting
units which have associated goodwill. As a result of this valuation
assessment, the Company determined that there was no impairment of goodwill
as of the adoption date. The Company will continue to perform tests of
potential impairment of goodwill on an annual basis. In accordance with the
provision of SFAS No. 142, goodwill is no longer being amortized, therefore
amortization expense decreased by $0.3 million for the quarter ended
December 31, 2001 compared to the prior year period.
|  
|6. |  | EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | The computation of basic and diluted earnings per share is as follows (in
000s except per share amounts):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                                    |                                     |   |                    |     |                  |   |        |     |      |   |        |     |  |   |        |     | 
|--------------------------------------------------- | ----------------------------------- | - | ------------------ | --- | ---------------- | - | ------ | --- | ---- | - | ------ | --- |  | - | ------ | --- | 
|                                                    |                                     |   | Three months ended |     | Six months ended
|                                                    |                                     |   | December 31,       |     | December 31,    
|                                                    |                                     |   |                    |     |                 
|                                                    |                                     |   | 2000               |     | 2001             |   | 2000   |     | 2001
|                                                    |                                     |   |                    |     |                  |   |        |     |     
|Net income                                          |                                     | $ | 5,509              |     |                  | $ | 12,816 |     |      | $ | 8,874  |     |  | $ | 20,244 |    
|Wt. average common shares outstanding               |                                     |   | 20,706             |     |                  |   | 22,475 |     |      |   | 20,370 |     |  |   | 21,893 |    
|                                                    | Effect of stock options outstanding |   |                    | 376 |                  |   |        | 847 |      |   |        | 198 |  |   |        | 803 | 
|                                                    | Effect of warrants outstanding      |   |                    |    |                  |   |        | 306 |      |   |        |    |  |   |        | 153 | 
|                                                    | Effect of Series E Special Stock    |   |                    | 108 |                  |   |        | 1   |      |   |        | 108 |  |   |        | 1   | 
|                                                    |                                     |   |                    |     |                  |   |        |     |      |   |        |     |  |   |        |    
|Wt. average common and potential
shares outstanding |                                     |   | 21,190             |     |                  |   | 23,629 |     |      |   | 20,676 |     |  |   | 22,850 |    
|Basic earnings per share                            |                                     | $ | 0.27               |     |                  | $ | 0.57   |     |      | $ | 0.44   |     |  | $ | 0.92   |    
|                                                    |                                     |   |                    |     |                  |   |        |     |      |   |        |     |  |   |        |    
|Diluted earnings per share                          |                                     | $ | 0.26               |     |                  | $ | 0.54   |     |      | $ | 0.43   |     |  | $ | 0.89   |    
|                                                    |                                     |   |                    |     |                  |   |        |     |      |   |        |     |  |   |        |    



10



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##### Table of Contents



ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended December 31, 2000 and 2001



|   |  | During the quarter ended December 31, 2001, certain vesting provisions tied
to the Companys stock price were met for two of the three tranches of
warrants outstanding. Each tranche is convertible into approximately 476,000 shares of common stock. On January 2, 2002, the third and final
tranche of warrants also vested and were therefore not included in the
calculation of earnings per share for the periods ended December 31, 2001.                                                                                           
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On December 11, 2001 the shareholders approved the Companys 2001 Long Term
Incentive Plan (2001 Plan), which allows for issuance of up to 1.0 million
stock options. To date a total of approximately 300,000 options have granted
under the 2001 Plan.                                                                                                                                                                                                                                                                                    
|  
|7. |  | SEGMENT AND GEOGRAPHICAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | The Company operates in four business segments: (i) Gaming Equipment and
Systems which designs, manufactures, operates and distributes gaming
machines and computerized monitoring systems for gaming machines, (ii) Wall
Machines and Amusement Games designs, manufactures and distributes
wall-mounted gaming machines and distributes third party manufactured
amusement games, (iii) Route Operations owns and manages a significant
installed base of gaming machines, and (iv) Casino Operations which owns and
operates two casinos.
|  
|   |  | The tables below present
information as to the Companys revenues, intersegment revenues
and operating
income (in 000s):                                                                                                                                                                                                                                                                                                                                                                                                                   

|                            |                                   |   |                    |        |                  |   |         |        |      |   |         |         |   |   |         |         |  
|--------------------------- | --------------------------------- | - | ------------------ | ------ | ---------------- | - | ------- | ------ | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                            |                                   |   | Three Months Ended |        | Six Months Ended
|                            |                                   |   | December 31,       |        | December 31,    
|                            |                                   |   |                    |        |                 
|                            |                                   |   | 2000               |        | 2001             |   | 2000    |        | 2001
|                            |                                   |   |                    |        |                  |   |         |        |     
|Revenues:                   |                                   |   |                    |        |                  |   |         |        |      |   |         |         |   |   |         |        
|                            | Gaming equipment and systems      |   | $                  | 38,551 |                  |   | $       | 51,631 |      |   | $       | 72,212  |   |   | $       | 96,792  |  
|                            | Wall machines and amusement games |   |                    | 20,578 |                  |   |         | 25,462 |      |   |         | 35,438  |   |   |         | 38,123  |  
|                            | Route operations                  |   |                    | 53,926 |                  |   |         | 55,764 |      |   |         | 106,829 |   |   |         | 109,564 |  
|                            | Casino operations                 |   |                    | 17,093 |                  |   |         | 17,607 |      |   |         | 34,975  |   |   |         | 35,786  |  
|                            |                                   |   |                    |        |                  |   |         |        |      |   |         |         |   |   |         |        
|Total revenues              |                                   | $ | 130,148            |        |                  | $ | 150,464 |        |      | $ | 249,454 |         |   | $ | 280,265 |        
|                            |                                   |   |                    |        |                  |   |         |        |      |   |         |         |   |   |         |        
|Intersegment revenues:      |                                   |   |                    |        |                  |   |         |        |      |   |         |         |   |   |         |        
|                            | Gaming equipment and systems      |   | $                  | 2,032  |                  |   | $       | 4,752  |      |   | $       | 4,465   |   |   | $       | 8,286   |  
|                            | Wall machines and amusement games |   |                    | 15     |                  |   |         |       |      |   |         | 28      |   |   |         |        |  
|                            | Route operations                  |   |                    |       |                  |   |         |       |      |   |         |        |   |   |         |        |  
|                            | Casino operations                 |   |                    |       |                  |   |         |       |      |   |         |        |   |   |         |        |  
|                            |                                   |   |                    |        |                  |   |         |        |      |   |         |         |   |   |         |        
|Total intersegment revenues |                                   | $ | 2,047              |        |                  | $ | 4,752   |        |      | $ | 4,493   |         |   | $ | 8,286   |        
|                            |                                   |   |                    |        |                  |   |         |        |      |   |         |         |   |   |         |        
|Operating income:           |                                   |   |                    |        |                  |   |         |        |      |   |         |         |   |   |         |        
|                            | Gaming equipment and systems      |   | $                  | 6,742  |                  |   | $       | 10,009 |      |   | $       | 12,415  |   |   | $       | 19,939  |  
|                            | Wall machines and amusement games |   |                    | 2,108  |                  |   |         | 4,491  |      |   |         | 2,642   |   |   |         | 3,133   |  
|                            | Route operations                  |   |                    | 3,718  |                  |   |         | 4,024  |      |   |         | 7,461   |   |   |         | 7,144   |  
|                            | Casino operations                 |   |                    | 5,517  |                  |   |         | 5,284  |      |   |         | 11,672  |   |   |         | 11,151  |  
|                            | Corporate                         |   |                    | (2,927 | )                |   |         | (3,408 | )    |   |         | (5,901  | ) |   |         | (6,106  | )
|                            |                                   |   |                    |        |                  |   |         |        |      |   |         |         |   |   |         |        
|Total operating income      |                                   | $ | 15,158             |        |                  | $ | 20,400  |        |      | $ | 28,289  |         |   | $ | 35,261  |        
|                            |                                   |   |                    |        |                  |   |         |        |      |   |         |         |   |   |         |        

11



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##### Table of Contents



ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended December 31, 2000 and 2001



| |  | The Company has operations based primarily in the United States and Germany.
The German operations customers are a diverse group of operators of wall
machines and amusement games at arcades, hotels, restaurants and taverns,
primarily in Germany. Gaming Equipment and Systems customers are primarily
casinos and gaming machine distributors in the United States and abroad.
Receivables of the German operations and Gaming Equipment and Systems are
generally collateralized by the related equipment.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The table below presents information as to the Companys revenues and
operating income by geographic region (in $000s):                                                                                                                                                                                                                                                                                                                                                                                          

|                       |               |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |         | 
|---------------------- | ------------- | - | ------------------ | ------- | ---------------- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                       |               |   | Three Months Ended |         | Six Months Ended
|                       |               |   | December 31,       |         | December 31,    
|                       |               |   |                    |         |                 
|                       |               |   | 2000               |         | 2001             |   | 2000    |         | 2001
|                       |               |   |                    |         |                  |   |         |         |     
|Revenues:              |               |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|                       | United States |   | $                  | 106,419 |                  |   | $       | 117,393 |      |   | $       | 206,955 |  |   | $       | 230,121 | 
|                       | Germany       |   |                    | 22,567  |                  |   |         | 30,361  |      |   |         | 39,277  |  |   |         | 44,857  | 
|                       | Other foreign |   |                    | 1,162   |                  |   |         | 2,710   |      |   |         | 3,222   |  |   |         | 5,287   | 
|                       |               |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|Total revenues         |               | $ | 130,148            |         |                  | $ | 150,464 |         |      | $ | 249,454 |         |  | $ | 280,265 |        
|                       |               |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|Operating income:      |               |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|                       | United States |   | $                  | 12,438  |                  |   | $       | 14,074  |      |   | $       | 24,441  |  |   | $       | 29,363  | 
|                       | Germany       |   |                    | 2,355   |                  |   |         | 5,658   |      |   |         | 2,735   |  |   |         | 4,432   | 
|                       | Other foreign |   |                    | 365     |                  |   |         | 668     |      |   |         | 1,113   |  |   |         | 1,466   | 
|                       |               |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        
|Total operating income |               | $ | 15,158             |         |                  | $ | 20,400  |         |      | $ | 28,289  |         |  | $ | 35,261  |        
|                       |               |   |                    |         |                  |   |         |         |      |   |         |         |  |   |         |        



|8. |  | SUPPLEMENTAL CASH FLOW INFORMATION                                                                                 
|-- |  | -------------------------------------------------------------------------------------------------------------------
|  
|   |  | The following supplemental information is related to the unaudited condensed
consolidated statements of cash flows.

|                                                         |  |                  |       |      |  |   |        |  
|-------------------------------------------------------- |  | ---------------- | ----- | ---- |  | - | ------ | -
|                                                         |  | Six months ended
|                                                         |  | December 31,    
|                                                         |  |                 
|                                                         |  | 2000             |       | 2001
|                                                         |  |                  |       |     
|Non-cash transactions:                                   |  |                  |       |      |  |   |        |  
|Reclassify other assets to property, plant and equipment |  | $                | 1,356 |      |  | $ | 3,037  |  
|(Favorable)/unfavorable translation rate adjustment      |  |                  | 915   |      |  |   | (2,538 | )
|Conversion of Series E Special Stock into commonstock    |  |                  | 3,506 |      |  |   |       |  
|Subordinated note payable issued in CMP acquisition      |  |                  |      |      |  |   | 4,000  |  



|9. |  | UNAUDITED CONSOLIDATING FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The following unaudited condensed consolidating financial statements are
presented to provide certain financial information regarding guaranteeing
and non-guaranteeing subsidiaries in relation to the Companys Senior
Subordinated Notes (see note 2). The financial information presented
includes Alliance Gaming Corporation (the Parent) and its wholly-owned
guaranteeing subsidiaries (together the Parent and Guaranteeing
Subsidiaries), and the non-guaranteeing subsidiaries Video Services, Inc.,
United Gaming Rainbow, BGI Australia Pty. Limited, Bally Gaming de Puerto
Rico, Inc., and Alliance Automaten GmbH & Co. KG (the subsidiary that holds
the Companys German interests) (together the Non-Guaranteeing
Subsidiaries). The notes to consolidating financial statements should be
read in conjunction with these consolidating financial statements.

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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING BALANCE SHEETS
June 30, 2001
(In 000s)

|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |          |          |         | 
|----------------------------------------------------------- | --------------------------------------- | --------------------------------------- | ------------------------- | -------- | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------------ | ------- | ----------- | ------- | ------- | -------- | -------- | ------- | 
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |          | Alliance
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |          | Gaming  
|                                                            |                                         |                                         |                           |          | Parent and   |         | Non-         |         |              |        |              |         | Corporation
|                                                            |                                         |                                         |                           |          | Guaranteeing |         | Guaranteeing |         |              |        |              |         | and        
|                                                            |                                         |                                         |                           |          | Subsidiaries |         | Subsidiaries |         | Eliminations |        | Subsidiaries
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |             
|ASSETS                                                      |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|Current assets:                                             |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|                                                            | Cash and cash equivalents               |                                         | $                         | 41,502   |              |         | $            | 13,343  |              |        | $            |        |             |         | $       | 54,845   |         
|                                                            | Accounts and notes receivable, net      |                                         |                           | 58,769   |              |         |              | 37,769  |              |        |              | (17,169 | )           |         |         | 79,369   |         
|                                                            | Inventories, net                        |                                         |                           | 24,555   |              |         |              | 10,527  |              |        |              |        |             |         |         | 35,082   |         
|                                                            | Other current assets                    |                                         |                           | 8,178    |              |         |              | 2,636   |              |        |              |        |             |         |         | 10,814   |         
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|                                                            |                                         |                                         | Total current assets      |          |              | 133,004 |              |         |              | 64,275 |              |         |             | (17,169 | )       |          |          | 180,110 | 
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|Long-term notes receivable, net                             |                                         |                                         | 53,162                    |          |              |         | 433          |         |              |        | (52,162      | )       |             |         | 1,433   |         
|Leased equipment, net                                       |                                         |                                         | 16,374                    |          |              |         | 6,303        |         |              |        |             |         |             |         | 22,677  |         
|Property, plant and equipment, net                          |                                         |                                         | 54,399                    |          |              |         | 34,013       |         |              |        |             |         |             |         | 88,412  |         
|Excess of costs over net assets of acquired
businesses, net |                                         |                                         | 35,547                    |          |              |         | 13,967       |         |              |        |             |         |             |         | 49,514  |         
|Intangible assets, net                                      |                                         |                                         | 22,096                    |          |              |         | 116          |         |              |        |             |         |             |         | 22,212  |         
|Investments in subsidiaries                                 |                                         |                                         | 84,228                    |          |              |         |             |         |              |        | (84,228      | )       |             |         |        |         
|Deferred tax assets, net                                    |                                         |                                         | 10,137                    |          |              |         | 1,807        |         |              |        |             |         |             |         | 11,944  |         
|Other assets, net                                           |                                         |                                         | 10,167                    |          |              |         | (6,638       | )       |              |        | 366          |         |             |         | 3,895   |         
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|                                                            |                                         | $                                       | 419,114                   |          |              | $       | 114,276      |         |              | $      | (153,193     | )       |             | $       | 380,197 |         
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)           |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|Current liabilities:                                        |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|                                                            | Accounts payable                        |                                         | $                         | 17,118   |              |         | $            | 2,413   |              |        | $            |        |             |         | $       | 19,531   |         
|                                                            | Accrued liabilities                     |                                         |                           | 37,648   |              |         |              | 9,999   |              |        |              | (669    | )           |         |         | 46,978   |         
|                                                            | Current maturities of long-term debt    |                                         |                           | 488      |              |         |              | 16,955  |              |        |              | (16,511 | )           |         |         | 932      |         
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|                                                            |                                         |                                         | Total current liabilities |          |              | 55,254  |              |         |              | 29,367 |              |         |             | (17,180 | )       |          |          | 67,441  | 
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|Long term debt                                              |                                         |                                         | 391,032                   |          |              |         | 132          |         |              |        | (51,996      | )       |             |         | 339,168 |         
|Other liabilities                                           |                                         |                                         | 10,733                    |          |              |         | 760          |         |              |        |             |         |             |         | 11,493  |         
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|                                                            |                                         |                                         | Total liabilities         |          |              | 457,019 |              |         |              | 30,259 |              |         |             | (69,176 | )       |          |          | 418,102 | 
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|Minority interest                                           |                                         |                                         | 1,300                     |          |              |         |             |         |              |        |             |         |             |         | 1,300   |         
|Commitments and contingencies                               |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|Stockholders equity (deficiency):                          |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|                                                            | Series E Special Stock                  |                                         |                           | 12       |              |         |              |        |              |        |              |        |             |         |         | 12       |         
|                                                            | Common Stock                            |                                         |                           | 2,178    |              |         |              | 17,832  |              |        |              | (17,832 | )           |         |         | 2,178    |         
|                                                            | Treasury stock                          |                                         |                           | (501     | )            |         |              |        |              |        |              |        |             |         |         | (501     | )       
|                                                            | Additional paid-in capital              |                                         |                           | 147,828  |              |         |              | 7,862   |              |        |              | (7,862  | )           |         |         | 147,828  |         
|                                                            | Accumulated other comprehensive loss    |                                         |                           | (27,919  | )            |         |              | (27,939 | )            |        |              | 27,939  |             |         |         | (27,919  | )       
|                                                            | Retained earnings (accumulated deficit) |                                         |                           | (160,803 | )            |         |              | 86,262  |              |        |              | (86,262 | )           |         |         | (160,803 | )       
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|                                                            |                                         | Total stockholders equity (deficiency) |                           |          | (39,205      | )       |              |         | 84,017       |        |              |         | (84,017     | )       |         |          | (39,205  | )      
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         
|                                                            |                                         | $                                       | 419,114                   |          |              | $       | 114,276      |         |              | $      | (153,193     | )       |             | $       | 380,197 |         
|                                                            |                                         |                                         |                           |          |              |         |              |         |              |        |              |         |             |         |         |         

See accompanying unaudited note.

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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING BALANCE SHEETS
December 31, 2001
(In 000s)

|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |          |          |         | 
|----------------------------------------------------------- | --------------------------------------- | --------------------------------------- | ------------------------- | -------- | ------------ | ------- | ------------ | ------- | ----------- | ------ | ------------ | ------- | ----------- | ------- | ------- | -------- | -------- | ------- | 
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |          | Alliance
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |          | Gaming  
|                                                            |                                         |                                         |                           |          | Parent and   |         | Non-         |         |             |        |              |         | Corporation
|                                                            |                                         |                                         |                           |          | Guaranteeing |         | Guaranteeing |         |             |        |              |         | and        
|                                                            |                                         |                                         |                           |          | Subsidiaries |         | Subsidiaries |         | Adjustments |        | Subsidiaries
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |             
|ASSETS                                                      |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|Current assets:                                             |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|                                                            | Cash and cash equivalents               |                                         | $                         | 40,071   |              |         | $            | 15,251  |             |        | $            |        |             |         | $       | 55,322   |         
|                                                            | Accounts and notes receivable, net      |                                         |                           | 63,131   |              |         |              | 41,249  |             |        |              | (15,374 | )           |         |         | 89,006   |         
|                                                            | Inventories, net                        |                                         |                           | 31,737   |              |         |              | 11,485  |             |        |              |        |             |         |         | 43,222   |         
|                                                            | Other current assets                    |                                         |                           | 10,645   |              |         |              | 1,211   |             |        |              |        |             |         |         | 11,856   |         
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|                                                            |                                         |                                         | Total current assets      |          |              | 145,584 |              |         |             | 69,196 |              |         |             | (15,374 | )       |          |          | 199,406 | 
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|Long-term notes receivable, net                             |                                         |                                         | 56,823                    |          |              |         | 318          |         |             |        | (54,814      | )       |             |         | 2,327   |         
|Leased equipment, net                                       |                                         |                                         | 16,783                    |          |              |         | 7,470        |         |             |        |             |         |             |         | 24,253  |         
|Property, plant and equipment, net                          |                                         |                                         | 57,475                    |          |              |         | 34,094       |         |             |        |             |         |             |         | 91,569  |         
|Excess of costs over net assets of acquired
businesses, net |                                         |                                         | 36,377                    |          |              |         | 14,401       |         |             |        |             |         |             |         | 50,778  |         
|Intangible assets, net                                      |                                         |                                         | 33,134                    |          |              |         | 254          |         |             |        |             |         |             |         | 33,388  |         
|Investments in subsidiaries                                 |                                         |                                         | 92,869                    |          |              |         |             |         |             |        | (92,869      | )       |             |         |        |         
|Deferred tax assets, net                                    |                                         |                                         | 10,352                    |          |              |         | 1,889        |         |             |        |             |         |             |         | 12,241  |         
|Other assets, net                                           |                                         |                                         | 9,045                     |          |              |         | (5,671       | )       |             |        | 358          |         |             |         | 3,732   |         
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|                                                            |                                         | $                                       | 458,442                   |          |              | $       | 121,951      |         |             | $      | (162,699     | )       |             | $       | 417,694 |         
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)           |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|Current liabilities:                                        |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|                                                            | Accounts payable                        |                                         | $                         | 19,009   |              |         | $            | 2,280   |             |        | $            |        |             |         | $       | 21,289   |         
|                                                            | Accrued liabilities                     |                                         |                           | 41,833   |              |         |              | 11,979  |             |        |              | (1,074  | )           |         |         | 52,738   |         
|                                                            | Current maturities of long-term debt    |                                         |                           | 1,437    |              |         |              | 14,672  |             |        |              | (14,319 | )           |         |         | 1,790    |         
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|                                                            |                                         |                                         | Total current liabilities |          |              | 62,279  |              |         |             | 28,931 |              |         |             | (15,393 | )       |          |          | 75,817  | 
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|Long term debt                                              |                                         |                                         | 396,262                   |          |              |         | 18           |         |             |        | (54,648      | )       |             |         | 341,632 |         
|Other liabilities                                           |                                         |                                         | 10,810                    |          |              |         | 344          |         |             |        |             |         |             |         | 11,154  |         
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|                                                            |                                         |                                         | Total liabilities         |          |              | 469,351 |              |         |             | 29,293 |              |         |             | (70,041 | )       |          |          | 428,603 | 
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|Minority interest                                           |                                         |                                         | 1,280                     |          |              |         |             |         |             |        |             |         |             |         | 1,280   |         
|Commitments and contingencies                               |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|Stockholders equity (deficiency):                          |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|                                                            | Series E Special Stock                  |                                         |                           | 12       |              |         |              |        |             |        |              |        |             |         |         | 12       |         
|                                                            | Common Stock                            |                                         |                           | 2,326    |              |         |              | 17,832  |             |        |              | (17,832 | )           |         |         | 2,326    |         
|                                                            | Treasury stock                          |                                         |                           | (501     | )            |         |              |        |             |        |              |        |             |         |         | (501     | )       
|                                                            | Additional paid-in capital              |                                         |                           | 151,760  |              |         |              | 7,862   |             |        |              | (7,862  | )           |         |         | 151,760  |         
|                                                            | Accumulated other comprehensive loss    |                                         |                           | (25,227  | )            |         |              | (25,247 | )           |        |              | 25,247  |             |         |         | (25,227  | )       
|                                                            | Retained earnings (accumulated deficit) |                                         |                           | (140,559 | )            |         |              | 92,211  |             |        |              | (92,211 | )           |         |         | (140,559 | )       
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|                                                            |                                         | Total stockholders equity (deficiency) |                           |          | (12,189      | )       |              |         | 92,658      |        |              |         | (92,658     | )       |         |          | (12,189  | )      
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         
|                                                            |                                         | $                                       | 458,442                   |          |              | $       | 121,951      |         |             | $      | (162,699     | )       |             | $       | 417,694 |         
|                                                            |                                         |                                         |                           |          |              |         |              |         |             |        |              |         |             |         |         |         

See accompanying unaudited note.

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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended December 31, 2000
(In 000s)

|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |        |  
|------------------------------------- | ----------------------------------------- | - | ------------ | ------ | ------------ | - | ----------- | ------ | ------------ | - | ----------- | ------ | - | - | -------- | ------ | -
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   | Alliance
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   | Gaming  
|                                      |                                           |   | Parent and   |        | Non-         |   |             |        |              |   | Corporation
|                                      |                                           |   | Guaranteeing |        | Guaranteeing |   |             |        |              |   | and        
|                                      |                                           |   | Subsidiaries |        | Subsidiaries |   | Adjustments |        | Subsidiaries
|                                      |                                           |   |              |        |              |   |             |        |             
|Revenues:                             |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|                                      | Gaming equipment and systems              |   | $            | 37,360 |              |   | $           | 3,149  |              |   | $           | (1,958 | ) |   | $        | 38,551 |  
|                                      | Wall machines and amusement games         |   |              |       |              |   |             | 20,578 |              |   |             |       |   |   |          | 20,578 |  
|                                      | Route operations                          |   |              | 49,842 |              |   |             | 4,084  |              |   |             |       |   |   |          | 53,926 |  
|                                      | Casino operations                         |   |              | 4,772  |              |   |             | 12,321 |              |   |             |       |   |   |          | 17,093 |  
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|                                      |                                           |   | 91,974       |        |              |   | 40,132      |        |              |   | (1,958      | )      |   |   | 130,148  |       
|Costs and expenses:                   |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|                                      | Cost of gaming equipment and systems      |   |              | 17,913 |              |   |             | 1,942  |              |   |             | (1,958 | ) |   |          | 17,897 |  
|                                      | Cost of wall machines and amusement games |   |              |       |              |   |             | 11,172 |              |   |             |       |   |   |          | 11,172 |  
|                                      | Cost of route operations                  |   |              | 40,934 |              |   |             | 2,650  |              |   |             |       |   |   |          | 43,584 |  
|                                      | Cost of casino operations                 |   |              | 2,771  |              |   |             | 5,252  |              |   |             |       |   |   |          | 8,023  |  
|                                      | Selling, general and administrative       |   |              | 15,274 |              |   |             | 8,895  |              |   |             |       |   |   |          | 24,169 |  
|                                      | Research and development                  |   |              | 2,817  |              |   |             | 664    |              |   |             |       |   |   |          | 3,481  |  
|                                      | Depreciation and amortization             |   |              | 4,770  |              |   |             | 1,894  |              |   |             |       |   |   |          | 6,664  |  
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|                                      |                                           |   | 84,479       |        |              |   | 32,469      |        |              |   | (1,958      | )      |   |   | 114,990  |       
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|Operating income                      |                                           |   | 7,495        |        |              |   | 7,663       |        |              |   |            |        |   |   | 15,158   |       
|Earnings in consolidated subsidiaries |                                           |   | 5,048        |        |              |   |            |        |              |   | (5,048      | )      |   |   |         |       
|Other income (expense):               |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|                                      | Interest income                           |   |              | 118    |              |   |             | 140    |              |   |             | (57    | ) |   |          | 201    |  
|                                      | Interest expense                          |   |              | (8,383 | )            |   |             | (514   | )            |   |             | 57     |   |   |          | (8,840 | )
|                                      | Rainbow royalty                           |   |              | 1,520  |              |   |             | (1,520 | )            |   |             |       |   |   |          |       |  
|                                      | Minority interest                         |   |              | (461   | )            |   |             |       |              |   |             |       |   |   |          | (461   | )
|                                      | Other, net                                |   |              | (317   | )            |   |             | 20     |              |   |             |       |   |   |          | (297   | )
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|Income before income taxes            |                                           |   | 5,020        |        |              |   | 5,789       |        |              |   | (5,048      | )      |   |   | 5,761    |       
|Income tax benefit (provision)        |                                           |   | 489          |        |              |   | (741        | )      |              |   |            |        |   |   | (252     | )     
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|Net income                            |                                           | $ | 5,509        |        |              | $ | 5,048       |        |              | $ | (5,048      | )      |   | $ | 5,509    |       
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       

See accompanying unaudited note.

15



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended December 31, 2001
(In 000s)

|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |        |  
|------------------------------------- | ----------------------------------------- | - | ------------ | ------ | ------------ | - | ----------- | ------ | ------------ | - | ----------- | ------ | - | - | -------- | ------ | -
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   | Alliance
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   | Gaming  
|                                      |                                           |   | Parent and   |        | Non-         |   |             |        |              |   | Corporation
|                                      |                                           |   | Guaranteeing |        | Guaranteeing |   |             |        |              |   | and        
|                                      |                                           |   | Subsidiaries |        | Subsidiaries |   | Adjustments |        | Subsidiaries
|                                      |                                           |   |              |        |              |   |             |        |             
|Revenues:                             |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|                                      | Gaming equipment and systems              |   | $            | 48,328 |              |   | $           | 7,609  |              |   | $           | (4,306 | ) |   | $        | 51,631 |  
|                                      | Wall machines and amusement games         |   |              |       |              |   |             | 25,462 |              |   |             |       |   |   |          | 25,462 |  
|                                      | Route operations                          |   |              | 52,283 |              |   |             | 3,481  |              |   |             |       |   |   |          | 55,764 |  
|                                      | Casino operations                         |   |              | 4,986  |              |   |             | 12,621 |              |   |             |       |   |   |          | 17,607 |  
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|                                      |                                           |   | 105,597      |        |              |   | 49,173      |        |              |   | (4,306      | )      |   |   | 150,464  |       
|Costs and expenses:                   |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|                                      | Cost of gaming equipment and systems      |   |              | 22,375 |              |   |             | 4,775  |              |   |             | (4,306 | ) |   |          | 22,844 |  
|                                      | Cost of wall machines and amusement games |   |              |       |              |   |             | 13,108 |              |   |             |       |   |   |          | 13,108 |  
|                                      | Cost of route operations                  |   |              | 41,888 |              |   |             | 2,313  |              |   |             |       |   |   |          | 44,201 |  
|                                      | Cost of casino operations                 |   |              | 2,784  |              |   |             | 5,082  |              |   |             |       |   |   |          | 7,866  |  
|                                      | Selling, general and administrative       |   |              | 20,154 |              |   |             | 10,768 |              |   |             |       |   |   |          | 30,922 |  
|                                      | Research and development                  |   |              | 3,142  |              |   |             | 665    |              |   |             |       |   |   |          | 3,807  |  
|                                      | Depreciation and amortization             |   |              | 5,590  |              |   |             | 1,726  |              |   |             |       |   |   |          | 7,316  |  
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|                                      |                                           |   | 95,933       |        |              |   | 38,437      |        |              |   | (4,306      | )      |   |   | 130,064  |       
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|Operating income                      |                                           |   | 9,664        |        |              |   | 10,736      |        |              |   |            |        |   |   | 20,400   |       
|Earnings in consolidated subsidiaries |                                           |   | 8,837        |        |              |   |            |        |              |   | (8,837      | )      |   |   |         |       
|Other income (expense):               |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|                                      | Interest income                           |   |              | 418    |              |   |             | 242    |              |   |             | (291   | ) |   |          | 369    |  
|                                      | Interest expense                          |   |              | (7,021 | )            |   |             | (303   | )            |   |             | 291    |   |   |          | (7,033 | )
|                                      | Rainbow royalty                           |   |              | 1,589  |              |   |             | (1,589 | )            |   |             |       |   |   |          |       |  
|                                      | Minority interest                         |   |              | (405   | )            |   |             |       |              |   |             |       |   |   |          | (405   | )
|                                      | Other, net                                |   |              | (303   | )            |   |             | (129   | )            |   |             |       |   |   |          | (432   | )
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|Income before income taxes            |                                           |   | 12,779       |        |              |   | 8,957       |        |              |   | (8,837      | )      |   |   | 12,899   |       
|Income tax benefit (provision)        |                                           |   | 37           |        |              |   | (120        | )      |              |   |            |        |   |   | (83      | )     
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       
|Net income                            |                                           | $ | 12,816       |        |              | $ | 8,837       |        |              | $ | (8,837      | )      |   | $ | 12,816   |       
|                                      |                                           |   |              |        |              |   |             |        |              |   |             |        |   |   |          |       

See accompanying unaudited note.

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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENTS OF OPERATIONS
Six Months Ended December 31, 2000
(In 000s)

|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |         |  
|-------------------------------------- | ----------------------------------------- | - | ------------ | ------- | ------------ | - | ----------- | ------ | ------------ | - | ----------- | ------ | - | - | -------- | ------- | -
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   | Alliance
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   | Gaming  
|                                       |                                           |   | Parent and   |         | Non-         |   |             |        |              |   | Corporation
|                                       |                                           |   | Guaranteeing |         | Guaranteeing |   |             |        |              |   | and        
|                                       |                                           |   | Subsidiaries |         | Subsidiaries |   | Adjustments |        | Subsidiaries
|                                       |                                           |   |              |         |              |   |             |        |             
|Revenues:                              |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|                                       | Gaming equipment and systems              |   | $            | 69,462  |              |   | $           | 7,060  |              |   | $           | (4,310 | ) |   | $        | 72,212  |  
|                                       | Wall machines and amusement games         |   |              |        |              |   |             | 35,438 |              |   |             |       |   |   |          | 35,438  |  
|                                       | Route operations                          |   |              | 98,395  |              |   |             | 8,434  |              |   |             |       |   |   |          | 106,829 |  
|                                       | Casino operations                         |   |              | 9,177   |              |   |             | 25,798 |              |   |             |       |   |   |          | 34,975  |  
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|                                       |                                           |   | 177,034      |         |              |   | 76,730      |        |              |   | (4,310      | )      |   |   | 249,454  |        
|Costs and expenses:                    |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|                                       | Cost of gaming equipment and systems      |   |              | 33,225  |              |   |             | 4,350  |              |   |             | (4,310 | ) |   |          | 33,265  |  
|                                       | Cost of wall machines and amusement games |   |              |        |              |   |             | 19,467 |              |   |             |       |   |   |          | 19,467  |  
|                                       | Cost of route operations                  |   |              | 80,763  |              |   |             | 5,437  |              |   |             |       |   |   |          | 86,200  |  
|                                       | Cost of casino operations                 |   |              | 5,114   |              |   |             | 10,390 |              |   |             |       |   |   |          | 15,504  |  
|                                       | Selling, general and administrative       |   |              | 29,719  |              |   |             | 17,175 |              |   |             |       |   |   |          | 46,894  |  
|                                       | Research and development                  |   |              | 5,397   |              |   |             | 1,267  |              |   |             |       |   |   |          | 6,664   |  
|                                       | Depreciation and amortization             |   |              | 9,324   |              |   |             | 3,847  |              |   |             |       |   |   |          | 13,171  |  
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|                                       |                                           |   | 163,542      |         |              |   | 61,933      |        |              |   | (4,310      | )      |   |   | 221,165  |        
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|Operating income                       |                                           |   | 13,492       |         |              |   | 14,797      |        |              |   |            |        |   |   | 28,289   |        
|Earnings in consolidated subsidiaries  |                                           |   | 8,974        |         |              |   |            |        |              |   | (8,974      | )      |   |   |         |        
|Other income (expense):                |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|                                       | Interest income                           |   |              | 272     |              |   |             | 217    |              |   |             | (133   | ) |   |          | 356     |  
|                                       | Interest expense                          |   |              | (16,982 | )            |   |             | (1,030 | )            |   |             | 133    |   |   |          | (17,879 | )
|                                       | Rainbow royalty                           |   |              | 3,223   |              |   |             | (3,223 | )            |   |             |       |   |   |          |        |  
|                                       | Minority interest                         |   |              | (1,004  | )            |   |             |       |              |   |             |       |   |   |          | (1,004  | )
|                                       | Other, net                                |   |              | 165     |              |   |             | (341   | )            |   |             |       |   |   |          | (176    | )
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|Income before income taxes             |                                           |   | 8,140        |         |              |   | 10,420      |        |              |   | (8,974      | )      |   |   | 9,586    |        
|Income tax benefit (provision)         |                                           |   | 734          |         |              |   | (1,446      | )      |              |   |            |        |   |   | (712     | )      
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|Net income applicable to common shares |                                           | $ | 8,874        |         |              | $ | 8,974       |        |              | $ | (8,974      | )      |   | $ | 8,874    |        
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        

See accompanying unaudited note.

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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENTS OF OPERATIONS
Six Months Ended December 31, 2001
(In 000s)

|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |         |  
|-------------------------------------- | ----------------------------------------- | - | ------------ | ------- | ------------ | - | ----------- | ------ | ------------ | - | ----------- | ------ | - | - | -------- | ------- | -
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   | Alliance
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   | Gaming  
|                                       |                                           |   | Parent and   |         | Non-         |   |             |        |              |   | Corporation
|                                       |                                           |   | Guaranteeing |         | Guaranteeing |   |             |        |              |   | and        
|                                       |                                           |   | Subsidiaries |         | Subsidiaries |   | Adjustments |        | Subsidiaries
|                                       |                                           |   |              |         |              |   |             |        |             
|Revenues:                              |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|                                       | Gaming equipment and systems              |   | $            | 91,999  |              |   | $           | 12,021 |              |   | $           | (7,228 | ) |   | $        | 96,792  |  
|                                       | Wall machines and amusement games         |   |              |        |              |   |             | 38,123 |              |   |             |       |   |   |          | 38,123  |  
|                                       | Route operations                          |   |              | 102,554 |              |   |             | 7,010  |              |   |             |       |   |   |          | 109,564 |  
|                                       | Casino operations                         |   |              | 9,963   |              |   |             | 25,823 |              |   |             |       |   |   |          | 35,786  |  
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|                                       |                                           |   | 204,516      |         |              |   | 82,977      |        |              |   | (7,228      | )      |   |   | 280,265  |        
|Costs and expenses:                    |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|                                       | Cost of gaming equipment and systems      |   |              | 42,098  |              |   |             | 7,525  |              |   |             | (7,228 | ) |   |          | 42,395  |  
|                                       | Cost of wall machines and amusement games |   |              |        |              |   |             | 20,613 |              |   |             |       |   |   |          | 20,613  |  
|                                       | Cost of route operations                  |   |              | 82,179  |              |   |             | 4,600  |              |   |             |       |   |   |          | 86,779  |  
|                                       | Cost of casino operations                 |   |              | 5,554   |              |   |             | 10,647 |              |   |             |       |   |   |          | 16,201  |  
|                                       | Selling, general and administrative       |   |              | 37,106  |              |   |             | 19,371 |              |   |             |       |   |   |          | 56,477  |  
|                                       | Research and development                  |   |              | 6,212   |              |   |             | 1,287  |              |   |             |       |   |   |          | 7,499   |  
|                                       | Depreciation and amortization             |   |              | 11,630  |              |   |             | 3,410  |              |   |             |       |   |   |          | 15,040  |  
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|                                       |                                           |   | 184,779      |         |              |   | 67,453      |        |              |   | (7,228      | )      |   |   | 245,004  |        
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|Operating income                       |                                           |   | 19,737       |         |              |   | 15,524      |        |              |   |            |        |   |   | 35,261   |        
|Earnings in consolidated subsidiaries  |                                           |   | 11,070       |         |              |   |            |        |              |   | (11,070     | )      |   |   |         |        
|Other income (expense):                |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|                                       | Interest income                           |   |              | 934     |              |   |             | 459    |              |   |             | (629   | ) |   |          | 764     |  
|                                       | Interest expense                          |   |              | (14,648 | )            |   |             | (661   | )            |   |             | 629    |   |   |          | (14,680 | )
|                                       | Rainbow royalty                           |   |              | 3,235   |              |   |             | (3,235 | )            |   |             |       |   |   |          |        |  
|                                       | Minority interest                         |   |              | (868    | )            |   |             |       |              |   |             |       |   |   |          | (868    | )
|                                       | Other, net                                |   |              | 694     |              |   |             | (706   | )            |   |             |       |   |   |          | (12     | )
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|Income before income taxes             |                                           |   | 20,154       |         |              |   | 11,381      |        |              |   | (11,070     | )      |   |   | 20,465   |        
|Income tax benefit (provision)         |                                           |   | 90           |         |              |   | (311        | )      |              |   |            |        |   |   | (221     | )      
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        
|Net income applicable to common shares |                                           | $ | 20,244       |         |              | $ | 11,070      |        |              | $ | (11,070     | )      |   | $ | 20,244   |        
|                                       |                                           |   |              |         |              |   |             |        |              |   |             |        |   |   |          |        

See accompanying unaudited note.

18



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENTS OF CASH FLOWS

Six Months Ended December 31, 2000
(In 000s)

|                                          |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        |          |         |  
|----------------------------------------- | ----------------------------------------------------------------- | --------------------------------------------------- | ------ | ------------ | ------- | ------------ | ----- | ----------- | ------ | ------------ | ------ | ----------- | ----- | - | ------ | -------- | ------- | -
|                                          |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        | Alliance
|                                          |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        | Gaming  
|                                          |                                                                   |                                                     |        | Parent and   |         | Non-         |       |             |        |              |        | Corporation
|                                          |                                                                   |                                                     |        | Guaranteeing |         | Guaranteeing |       |             |        |              |        | and        
|                                          |                                                                   |                                                     |        | Subsidiaries |         | Subsidiaries |       | Adjustments |        | Subsidiaries
|                                          |                                                                   |                                                     |        |              |         |              |       |             |        |             
|Net cash provided by operating activities |                                                                   | $                                                   | 25,841 |              |         | $            | 9,213 |             |        | $            | (1,473 | )           |       | $ | 33,581 |         
|                                          |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        |         
|Cash flows from investing activities:     |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        |         
|                                          | Additions to property and equipment                               |                                                     |        | (3,492       | )       |              |       | (897        | )      |              |        |            |       |   |        | (4,389   | )      
|                                          | Additions to participation gaming devices                         |                                                     |        | (4,596       | )       |              |       |            |        |              |        |            |       |   |        | (4,596   | )      
|                                          | Proceeds from disposal of property and equipment
and other assets |                                                     |        |             |         |              |       |            |        |              |        |            |       |   |        |         |        
|                                          | Additions to other long term assets                               |                                                     |        | (338         | )       |              |       |            |        |              |        |            |       |   |        | (338     | )      
|                                          |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        |         
|                                          |                                                                   | Net cash used in investing activities               |        |              | (8,426  | )            |       |             | (897   | )            |        |             |      |   |        |          | (9,323  | )
|                                          |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        |         
|Cash flows from financing activities:     |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        |         
|                                          | Reduction of long-term debt                                       |                                                     |        | (1,666       | )       |              |       | (1,846      | )      |              |        | 1,468       |       |   |        | (2,044   | )      
|                                          | Net decrease in revolving credit facility                         |                                                     |        | (11,400      | )       |              |       | (1,326      | )      |              |        |            |       |   |        | (12,726  | )      
|                                          | Proceeds from exercise of stock options                           |                                                     |        |             |         |              |       |            |        |              |        |            |       |   |        |         |        
|                                          | Purchase of common stock for treasury                             |                                                     |        | (436         | )       |              |       | (5          | )      |              |        | 5           |       |   |        | (436     | )      
|                                          | Issued Treasury share                                             |                                                     |        | 228          |         |              |       |            |        |              |        |            |       |   |        | 228      |        
|                                          | Dividends received (paid)                                         |                                                     |        | 1,819        |         |              |       | (1,819      | )      |              |        |            |       |   |        |         |        
|                                          |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        |         
|                                          |                                                                   | Net cash provided by (used in) financing activities |        |              | (11,455 | )            |       |             | (4,996 | )            |        |             | 1,473 |   |        |          | (14,978 | )
|                                          |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        |         
|Effect of exchange rate changes on cash   |                                                                   |                                                     | (3     | )            |         |              | (33   | )           |        |              |       |             |       |   | (36    | )       
|Cash and cash equivalents:                |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        |         
|                                          | Increase for period                                               |                                                     |        | 5,957        |         |              |       | 3,287       |        |              |        |            |       |   |        | 9,244    |        
|                                          | Balance, beginning of period                                      |                                                     |        | 19,528       |         |              |       | 12,516      |        |              |        |            |       |   |        | 32,044   |        
|                                          |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        |         
|                                          | Balance, end of period                                            |                                                     | $      | 25,485       |         |              | $     | 15,803      |        |              | $      |            |       |   | $      | 41,288   |        
|                                          |                                                                   |                                                     |        |              |         |              |       |             |        |              |        |             |       |   |        |         

See accompanying unaudited note.

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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 2001
(In 000s)

|                                                    |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        |          |         |  
|--------------------------------------------------- | ----------------------------------------------------------------- | --------------------------------------------------- | ------ | ------------ | ------- | ------------ | ------ | ----------- | ------ | ------------ | ------ | ----------- | ----- | - | ------ | -------- | ------- | -
|                                                    |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        | Alliance
|                                                    |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        | Gaming  
|                                                    |                                                                   |                                                     |        | Parent and   |         | Non-         |        |             |        |              |        | Corporation
|                                                    |                                                                   |                                                     |        | Guaranteeing |         | Guaranteeing |        |             |        |              |        | and        
|                                                    |                                                                   |                                                     |        | Subsidiaries |         | Subsidiaries |        | Adjustments |        | Subsidiaries
|                                                    |                                                                   |                                                     |        |              |         |              |        |             |        |             
|Net cash provided by (used in)
operating activities |                                                                   | $                                                   | 12,597 |              |         | $            | 11,231 |             |        | $            | (3,070 | )           |       | $ | 20,758 |         
|                                                    |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        |         
|Cash flows from investing activities:               |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        |         
|                                                    | Additions to property and equipment                               |                                                     |        | (5,127       | )       |              |        | (1,078      | )      |              |        |            |       |   |        | (6,205   | )      
|                                                    | Acquisition, net of cash acquired                                 |                                                     |        | (6,731       | )       |              |        |            |        |              |        |            |       |   |        | (6,731   | )      
|                                                    | Additions to gaming machines on participation or lease            |                                                     |        | (8,248       | )       |              |        |            |        |              |        |            |       |   |        | (8,248   | )      
|                                                    | Proceeds from disposal of property and equipment
and other assets |                                                     |        | 15           |         |              |        | 27          |        |              |        |            |       |   |        | 42       |        
|                                                    | Additions to other long term assets                               |                                                     |        | (1,976       | )       |              |        |            |        |              |        |            |       |   |        | (1,976   | )      
|                                                    |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        |         
|                                                    |                                                                   | Net cash used in investing activities               |        |              | (22,067 | )            |        |             | (1,051 | )            |        |             |      |   |        |          | (23,118 | )
|                                                    |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        |         
|Cash flows from financing activities:               |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        |         
|                                                    | Reduction of long-term debt                                       |                                                     |        | (511         | )       |              |        | (3,305      | )      |              |        | 3,070       |       |   |        | (746     | )      
|                                                    | Net decrease in revolving credit facility                         |                                                     |        |             |         |              |        |            |        |              |        |            |       |   |        |         |        
|                                                    | Capitalized debt issuance costs                                   |                                                     |        | (651         | )       |              |        |            |        |              |        |            |       |   |        | (651     | )      
|                                                    | Proceeds from exercise of stock options                           |                                                     |        | 4,080        |         |              |        |            |        |              |        |            |       |   |        | 4,080    |        
|                                                    | Dividends received (paid)                                         |                                                     |        | 5,121        |         |              |        | (5,121      | )      |              |        |            |       |   |        |         |        
|                                                    |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        |         
|                                                    |                                                                   | Net cash provided by (used in) financing
activities |        |              | 8,039   |              |        |             | (8,426 | )            |        |             | 3,070 |   |        |          | 2,683   |  
|                                                    |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        |         
|Effect of exchange rate changes on cash             |                                                                   |                                                     |       |              |         |              | 154    |             |        |              |       |             |       |   | 154    |         
|Cash and cash equivalents:                          |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        |         
|                                                    | Increase (decrease) for period                                    |                                                     |        | (1,431       | )       |              |        | 1,908       |        |              |        |            |       |   |        | 477      |        
|                                                    | Balance, beginning of period                                      |                                                     |        | 41,502       |         |              |        | 13,343      |        |              |        |            |       |   |        | 54,845   |        
|                                                    |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        |         
|                                                    | Balance, end of period                                            |                                                     | $      | 40,071       |         |              | $      | 15,251      |        |              | $      |            |       |   | $      | 55,322   |        
|                                                    |                                                                   |                                                     |        |              |         |              |        |             |        |              |        |             |       |   |        |         

See accompanying unaudited note.

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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Debt and Revolving Credit Facility

Long-term debt and lines of credit at June 30, 2001 consisted of the following (in 000s):

|                                                                    |  |              |         |              |  |              |        |              |  |             |         |   |  |          |         | 
|------------------------------------------------------------------- |  | ------------ | ------- | ------------ |  | ------------ | ------ | ------------ |  | ----------- | ------- | - |  | -------- | ------- | 
|                                                                    |  |              |         |              |  |              |        |              |  |             |         |   |  | Alliance
|                                                                    |  |              |         |              |  |              |        |              |  |             |         |   |  | Gaming  
|                                                                    |  | Parent and   |         | Non-         |  |              |        |              |  | Corporation
|                                                                    |  | Guaranteeing |         | Guaranteeing |  |              |        |              |  | and        
|                                                                    |  | Subsidiaries |         | Subsidiaries |  | Eliminations |        | Subsidiaries
|                                                                    |  |              |         |              |  |              |        |             
|Term loan facility                                                  |  | $            | 190,000 |              |  | $            |       |              |  | $           |        |   |  | $        | 190,000 | 
|10% Senior Subordinated Notes due
2007, net of unamortized discount |  |              | 149,505 |              |  |              |       |              |  |             |        |   |  |          | 149,505 | 
|Revolving credit facility                                           |  |              |        |              |  |              |       |              |  |             |        |   |  |          |        | 
|Intercompany notes payable                                          |  |              | 51,996  |              |  |              | 16,511 |              |  |             | (68,507 | ) |  |          |        | 
|Other                                                               |  |              | 19      |              |  |              | 576    |              |  |             |        |   |  |          | 595     | 
|                                                                    |  |              |         |              |  |              |        |              |  |             |         |   |  |          |         | 
|                                                                    |  |              | 391,520 |              |  |              | 17,087 |              |  |             | (68,507 | ) |  |          | 340,100 | 
|Less current maturities                                             |  |              | 488     |              |  |              | 16,955 |              |  |             | (16,511 | ) |  |          | 932     | 
|                                                                    |  |              |         |              |  |              |        |              |  |             |         |   |  |          |         | 
|Long-term debt, less current
maturities                             |  | $            | 391,032 |              |  | $            | 132    |              |  | $           | (51,996 | ) |  | $        | 339,168 | 
|                                                                    |  |              |         |              |  |              |        |              |  |             |         |   |  |          |         | 

Long-term debt and lines of credit at December 31, 2001 consisted of the following (in 000s):

|                                                                    |  |              |         |              |  |             |        |              |  |             |         |   |  |          |         | 
|------------------------------------------------------------------- |  | ------------ | ------- | ------------ |  | ----------- | ------ | ------------ |  | ----------- | ------- | - |  | -------- | ------- | 
|                                                                    |  |              |         |              |  |             |        |              |  |             |         |   |  | Alliance
|                                                                    |  |              |         |              |  |             |        |              |  |             |         |   |  | Gaming  
|                                                                    |  | Parent and   |         | Non-         |  |             |        |              |  | Corporation
|                                                                    |  | Guaranteeing |         | Guaranteeing |  |             |        |              |  | and        
|                                                                    |  | Subsidiaries |         | Subsidiaries |  | Adjustments |        | Subsidiaries
|                                                                    |  |              |         |              |  |             |        |             
|Term loan facility                                                  |  | $            | 190,000 |              |  | $           |       |              |  | $           |        |   |  | $        | 190,000 | 
|10% Senior Subordinated Notes due
2007, net of unamortized discount |  |              | 149,544 |              |  |             |       |              |  |             |        |   |  |          | 149,544 | 
|Revolving credit facility                                           |  |              |        |              |  |             |       |              |  |             |        |   |  |          |        | 
|Other subordinated note                                             |  |              | 3,495   |              |  |             |       |              |  |             |        |   |  |          | 3,495   | 
|Intercompany notes payable                                          |  |              | 54,648  |              |  |             | 14,319 |              |  |             | (68,967 | ) |  |          |        | 
|Other                                                               |  |              | 12      |              |  |             | 371    |              |  |             |        |   |  |          | 383     | 
|                                                                    |  |              |         |              |  |             |        |              |  |             |         |   |  |          |         | 
|                                                                    |  |              | 397,699 |              |  |             | 14,690 |              |  |             | (68,967 | ) |  |          | 343,422 | 
|Less current maturities                                             |  |              | 1,437   |              |  |             | 14,672 |              |  |             | (14,319 | ) |  |          | 1,790   | 
|                                                                    |  |              |         |              |  |             |        |              |  |             |         |   |  |          |         | 
|Long-term debt, less current Maturities                             |  | $            | 396,262 |              |  | $           | 18     |              |  | $           | (54,648 | ) |  | $        | 341,632 | 
|                                                                    |  |              |         |              |  |             |        |              |  |             |         |   |  |          |         | 

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ALLIANCE GAMING CORPORATION
FORM 10-Q

For the Quarter Ended December 31, 2001




|         |  |                                                                                      
|-------- |  | -------------------------------------------------------------------------------------
|ITEM  2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

As of December 31, 2001, the Company had $55.3 million in cash and cash
equivalents, and $25.0 million in unborrowed availability on its revolving
credit facility. In addition the Company had net working capital of
approximately $123.6 million, an increase of approximately $10.9 million from
June 30, 2001, which is explained in the working capital section below.
Consolidated cash and cash equivalents at December 31, 2001 includes
approximately $21.7 million of cash which is utilized in Casino and Route
Operations which is held in vaults, cages or change banks. Pursuant to various
state gaming regulations the Company maintains restricted cash accounts to
ensure availability of funds to pay wide-area progressive jackpot awards, which
totaled approximately $6.9 million at December 31, 2001.

Management believes that cash flows from operating activities, cash and cash
equivalents held and the up to $40.0 million revolving credit facility
commitment will provide the Company with sufficient capital resources and
liquidity. At December 31, 2001, the Company had no material commitments for
capital expenditures.

The Company has entered into a definitive purchase agreement to acquire 100% of
the stock of Advanced Casino Systems Corporation (ACSC) for $14.6 million. The
transaction is subject to certain approvals by the bankruptcy court as the ACSC
parent company had filed for bankruptcy, however the transaction is expected to
close before March 31, 2002.

Working Capital

The following table presents the components of consolidated working capital
balance at (in $000s):

|                                                   |                           |   |          |         |          |   |        |         |  |   |       |        | 
|-------------------------------------------------- | ------------------------- | - | -------- | ------- | -------- | - | ------ | ------- |  | - | ----- | ------ | 
|                                                   |                           |   | June 30, |         | Dec. 31, |   |        |         | 
|                                                   |                           |   | 2001     |         | 2001     |   | Change
|                                                   |                           |   |          |         |          |   |       
|Cash, cash equivalents, and short term investments |                           | $ | 54,845   |         |          | $ | 55,322 |         |  | $ | 477   |       
|Accounts and notes receivable, net                 |                           |   | 79,369   |         |          |   | 89,006 |         |  |   | 9,637 |       
|Inventories, net                                   |                           |   | 35,082   |         |          |   | 43,222 |         |  |   | 8,140 |       
|Other current assets                               |                           |   | 10,814   |         |          |   | 11,856 |         |  |   | 1,042 |       
|                                                   |                           |   |          |         |          |   |        |         |  |   |       |       
|                                                   | Total current assets      |   |          | 180,110 |          |   |        | 199,406 |  |   |       | 19,296 | 
|Accounts payable                                   |                           |   | 19,531   |         |          |   | 21,289 |         |  |   | 1,758 |       
|Accrued liabilities                                |                           |   | 46,978   |         |          |   | 52,738 |         |  |   | 5,760 |       
|Current maturities of long-term debt               |                           |   | 932      |         |          |   | 1,790  |         |  |   | 858   |       
|                                                   |                           |   |          |         |          |   |        |         |  |   |       |       
|                                                   | Total current liabilities |   |          | 67,441  |          |   |        | 75,817  |  |   |       | 8,376  | 
|                                                   |                           |   |          |         |          |   |        |         |  |   |       |       
|                                                   | Net working capital       |   | $        | 112,669 |          |   | $      | 123,589 |  |   | $     | 10,920 | 
|                                                   |                           |   |          |         |          |   |        |         |  |   |       |       

The primary fluctuations contributing to the increase in working capital were:
(i) a net increase in accounts receivable resulting from an increase in sales,
primarily in the Bally Gaming and Systems and Bally Wulff business units (ii)
an increase in accrued liabilities resulting from timing of revenue
recognitions for certain SDS installations and an increase in progressive
jackpot liability reserves, (iii) an increase in accounts payable resulting
from timing of payments for inventory purchases, (iv) and the impact of foreign
exchange fluctuations between the dollar and the deutschemark on all working
capital categories.

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ALLIANCE GAMING CORPORATION
FORM 10-Q

For the Quarter Ended December 31, 2001

Cash Flows

During the six months ended December 31, 2001, cash provided from operating
activities totaled $20.8 million, a decrease of $12.8 million compared to the
cash flows from operations in the prior year period. This change is a result of
an increase in inventories and receivables, partially offset by increase in
accrued liabilities and accounts payable.

During the six months ended December 31, 2001, the Company used $23.1 million
of cash in investing activities resulting primarily from capital expenditures
totaling $6.2 million, costs incurred to produce participation games totaling
$8.2 million, net cash used in acquisition of the CMP of $6.7 million, payments
for gaming rights for route locations totaling $0.7 million, and payments made
to acquire other long term assets totaling $1.3 million.

During the six months ended December 31, 2001, cash flow from financing
activities included $4.1 million of cash provided from the exercise of stock
options and warrants, offset by principal payments on other long term debt
totaling $0.7 million and $0.7 million to pay bank debt issuance costs.

Customer Financing

Management believes that customer financing terms and leasing have become an
increasingly important competitive factor for the Bally Gaming and Systems and
Wall Machine and Amusement Games business units. Competitive conditions
sometimes require Bally Gaming and Systems to grant extended payment terms on
gaming machines, systems and other gaming equipment, especially for sales in
emerging markets. While these financings are normally collateralized by such
equipment, the resale value of the collateral in the event of default may be
less than the amount financed. Accordingly, the Company has greater exposure to
the financial condition of its customers in emerging markets than had
historically been the case in established markets like Nevada and Atlantic
City. Bally Wulff provides customer financing for approximately 20% of its
sales and also provides lease financing to its customers. Lease terms are
generally for six months, but are also available for terms up to 43 months.

Euro Currency Conversion

The Companys Bally Wulff subsidiary formerly used the German deutschemark as
its functional currency. The new Euro currency replaced the deutschemark as
well as most other European Union currencies on January 1, 2002. As most of
Bally Wulffs transactions are within Germany, the switch to the Euro is not
expected to have a material impact on revenues, expenses or income.

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ALLIANCE GAMING CORPORATION
FORM 10-Q

For the Quarter Ended December 31, 2001

Results of Operations:

General

The following tables set forth the earnings before interest, taxes,
depreciation and amortization (EBITDA) and operating income for the Companys
four business units excluding unusual charges, for the following periods (in
000s):

|                                  |                        |   |                                  |        |                                |   |        |        |      |   |        |        |  |   |        |        | 
|--------------------------------- | ---------------------- | - | -------------------------------- | ------ | ------------------------------ | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                  |                        |   | Three Months Ending December 31, |        | Six Months Ending December 31,
|                                  |                        |   |                                  |        |                               
|                                  |                        |   | 2000                             |        | 2001                           |   | 2000   |        | 2001
|                                  |                        |   |                                  |        |                                |   |        |        |     
|EBITDA by Business Unit:          |                        |   |                                  |        |                                |   |        |        |      |   |        |        |  |   |        |       
|Bally Gaming and Systems          |                        | $ | 8,850                            |        |                                | $ | 12,405 |        |      | $ | 16,518 |        |  | $ | 24,289 |       
|Wall Machines and Amusement Games |                        |   | 3,405                            |        |                                |   | 5,782  |        |      |   | 5,312  |        |  |   | 5,693  |       
|Route Operations                  |                        |   | 6,017                            |        |                                |   | 6,596  |        |      |   | 11,947 |        |  |   | 13,236 |       
|Casino Operations                 |                        |   | 6,089                            |        |                                |   | 5,759  |        |      |   | 12,792 |        |  |   | 12,085 |       
|Corporate Administrative Expenses |                        |   | (2,539                           | )      |                                |   | (2,826 | )      |      |   | (5,109 | )      |  |   | (5,002 | )     
|                                  |                        |   |                                  |        |                                |   |        |        |      |   |        |        |  |   |        |       
|EBITDA                            |                        | $ | 21,822                           |        |                                | $ | 27,716 |        |      | $ | 41,460 |        |  | $ | 50,301 |       
|                                  |                        |   |                                  |        |                                |   |        |        |      |   |        |        |  |   |        |       
|Operating Income (Expense):       |                        |   |                                  |        |                                |   |        |        |      |   |        |        |  |   |        |       
|Bally Gaming and Systems          |                        | $ | 6,742                            |        |                                | $ | 10,009 |        |      | $ | 12,415 |        |  | $ | 19,939 |       
|Wall Machines and Amusement Games |                        |   | 2,108                            |        |                                |   | 4,491  |        |      |   | 2,642  |        |  |   | 3,133  |       
|Route Operations                  |                        |   | 3,718                            |        |                                |   | 4,024  |        |      |   | 7,461  |        |  |   | 7,144  |       
|Casino Operations                 |                        |   | 5,517                            |        |                                |   | 5,284  |        |      |   | 11,672 |        |  |   | 11,151 |       
|Corporate Administrative Expenses |                        |   | (2,927                           | )      |                                |   | (3,408 | )      |      |   | (5,901 | )      |  |   | (6,106 | )     
|                                  |                        |   |                                  |        |                                |   |        |        |      |   |        |        |  |   |        |       
|                                  | Total Operating Income |   | $                                | 15,158 |                                |   | $      | 20,400 |      |   | $      | 28,289 |  |   | $      | 35,261 | 
|                                  |                        |   |                                  |        |                                |   |        |        |      |   |        |        |  |   |        |       

The Company believes that the analysis of EBITDA is a useful adjunct to net
income, cash flow and other GAAP measurements. However, EBITDA should not be
construed as an alternative to other GAAP measures of performance such as cash
flows generated by operating, investing and financing activities as a measure
of liquidity. EBITDA may not be comparable to similarly titled measures
reported by other companies.

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ALLIANCE GAMING CORPORATION
FORM 10-Q

For the Quarter Ended December 31, 2001

Three Months Ended December 31, 2000 and 2001

Bally Gaming and Systems

For the quarter ended December 31, 2001, the Bally Gaming and Systems business
unit reported revenues of $51.6 million, an increase of 34% compared to
revenues of $38.6 million in the prior year quarter. Gaming Products sales
totaled $26.9 million, an increase of 27% compared to $21.2 million in the
prior year quarter. New unit sales totaled 3,250 units, a 25% increase compared
to 2,600 in the prior year quarter. The average new unit selling price
increased 4% from the prior year quarter to $6,500. Bally Systems reported
revenues of $11.8 million, an increase of 6% compared to $11.1 million in the
prior year quarter. Bally Systems reported shipments of 8,500 game monitoring
units, a slight increase compared to 8,400 units in the prior year quarter. The
Bally Systems revenue growth was primarily a result of continued strength in
new system installations and higher levels of recurring hardware and software
support revenues resulting from the larger base of installed systems. Gaming
Operations reported revenues of $12.9 million, an increase of 105% compared to
$6.3 million in the prior year quarter. The increased revenues were driven by
an increase in the installed base of recurring revenue units, which total
approximately 3,700 units as of December 31, 2001, compared to approximately
2,660 units at December 31, 2000, and an increase in the revenue per unit as a
result of a 124% increase in the base of higher revenue wide-area progressive
games deployed.

For the quarter ended December 31, 2001, the overall gross margin percentage
for Bally Gaming and Systems improved to 56% compared to 54% in the prior year
quarter. The improvement was due to improved margin contribution for gaming
machines sales as a result of the improved fixed cost absorption rate resulting
from the increased volume of new unit sales.

The Bally Gaming and Systems business unit reported operating income of $10.0
million, compared to an operating income of $6.7 million in the prior year
quarter. The increase in operating income resulted primarily from increases in
revenues and improved margins, as well as the reduced overhead cost structure.
Research and development costs totaled $3.1 million, an increase of 12%
compared to the prior year quarter.

Wall Machines and Amusement Games

For the quarter ended December 31, 2001, Wall Machines and Amusement Games
reported revenues of $25.5 million, an increase of 24% compared to revenues of
$20.6 million in the prior year quarter. The increase in revenues resulted
primarily from a 10% increase in the selling price of new wall machines, and a
24% increase in the number of leased wall machines, offset by 3% decrease in
the number of new wall machine units sold. There have been several recent
regulatory changes, which had a significant impact on the wall machine market.
First, in order to assist arcade operators with the transition to the Euro
currency, the normal 48 month life for a wall machine was allowed to be
extended for the period from October 2001 to February 2002. Secondly, the
regulations regarding play parameters have been amended to increase the speed
of play of wall machines by 25%. In addition, with the adoption of the Euro on
January 1, 2002, customers purchased conversion kits for the Euro currency
resulting in revenues of $3.0 million, which will likely cease in the March
2002 quarter. The Company experienced strong demand for its Euro denominated
wall machines as well as games with the new faster play programs. The currency
translation impact of the fluctuation of the German mark versus the U.S. dollar
increased revenues by $0.8 million during the current quarter.

The Wall Machines and Amusement Games business unit continued its leasing
program whereby new wall machines and certain amusement games are leased to
customers pursuant to operating leases which provide a stream of revenues and
cash flows over the term of the leases which range from six months to three and
one half years. As of December 31,

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ALLIANCE GAMING CORPORATION
FORM 10-Q

For the Quarter Ended December 31, 2001

2001, a total of 7,130 machines were deployed in the leasing program compared
to 5,770 at December 31, 2000, an increase of 24%.

For the quarter ended December 31, 2001, gross profit margin increased to 49%
from 46% in the prior year quarter. This increase was primarily due to an
increase in the average new unit selling price, offset by a decrease in the
number of units sold which impacted the fixed cost absorption rate. Wall
Machines and Amusement Games reported an operating income of $4.5 million,
compared to operating income of $2.1 million in the prior year quarter.

Route Operations

For the quarter ended December 31, 2001, the Route Operations business unit
reported total revenues of approximately $55.8 million, an increase of 3%
compared to revenues of $53.9 million in the prior year quarter. Revenues from
the Nevada route operations increased to approximately $52.3 million or 5% over
the prior year quarter. This improvement was attributable to an increase in
the average net win per gaming machine per day of 1% to $67.25 from $66.40 in
the prior year quarter and a 4% increase in the weighted average number of
gaming machines during the current quarter to 8,380 units as compared to 8,040
units in the prior year quarter. Gamblers Bonus, a cardless players club and
player tracking system continued to have a favorable impact on the net win per
day. As of December 31, 2001, the Gamblers Bonus product was installed in
over 3,975 gaming machines at approximately 386 locations statewide or 48% of
the installed base of gaming machines. Revenues from route operations in
Louisiana totaled $3.5 million, a decrease of 15% compared to the prior year
quarter. This decrease was primarily the result of a decline in the net win
per gaming machine per day of 15% to $55.50 from $65.30 in the prior year
quarter and slightly lower average number of gaming units deployed. These
revenue declines also reflect the competitive market resulting from the
significant increase in the number of truck stop casinos in the metro New
Orleans area. During the quarter, the Company entered into an extension of the
operating agreement with the host establishments, allowing the Company to
continue to operate gaming devices in the locations until April 2003 and
continues to hold a right of first refusal for additional five-year term.

For the quarter ended December 31, 2001, cost of revenues for Route Operations
totaled as a percentage of revenues, decreased to 79% from 81% in the prior
year quarter. This improvement is the result of reduced game rental costs,
which resulted from the payoff of high cost game leases in June 2001.

For the quarter ended December 31, 2001, the Route Operations business unit
reported operating income of $4.0 million, an increase of 8% compared to
operating income of $3.7 million in the prior year quarter.

Casino Operations

For the quarter ended December 31, 2001, the Casino Operations business unit
reported revenues of $17.6 million, an increase of 3% compared to revenues of
$17.1 million in the prior year quarter. This improvement is due to a 5%
increase in revenues at the Rail City Casino and a 2% increase in revenues at
the Rainbow Casino. Rainbow Casino revenue increase was attributable to a 2%
increase in the average number of gaming machines, and offset by a 1% decrease
in the net win per day to $134. Since the events of September 11th, weekday play
has been below historical norms. The revenue improvement at the Rail City
Casino was attributable to a 9% increase in the average number of gaming
machines and offset by a decrease in the average gaming machine net win per day
of 4% to $81 from $85 in the prior year quarter.

For the quarter ended December 31, 2001, the cost of revenues for Casino
Operations as a percentage of revenues, improved to 45% compared to 47% for the
prior year quarter. This improvement was a result of the increase in revenues,
which were achieved without incremental increases in certain operating costs.
Cost of casino revenues includes gaming taxes, rental costs and direct labor
including payroll taxes and benefits.

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ALLIANCE GAMING CORPORATION
FORM 10-Q

For the Quarter Ended December 31, 2001

Net Interest Expense and Income Taxes

Interest expense (net of interest income) for the quarter ended December 31,
2001, totaled $6.7 million, and compared to the net interest expense of $8.6
million in the prior year quarter. The decrease is a result of a lower
interest rates on the bank credit facility.

The Company recorded an income tax provision of $0.1 million in the quarter
ended December 31, 2001, compared to a provision of $0.3 million in the prior
year quarter. The current year quarter tax provision represents primarily
estimated state income and franchise taxes.

Six Months Ended December 31, 2000 and 2001

Bally Gaming and Systems

For the six months ended December 31, 2001, the Bally Gaming and Systems
business unit reported revenues of $96.8 million, an increase of 34% compared
to revenues of $72.2 million in the prior year quarter. Gaming Products sales
totaled $47.9 million, an increase of 25% compared to $38.3 million in the
prior year period. New unit sales totaled 5,700 units, a 22% increase compared
to 4,700 in the prior year period. The average new unit selling price increased
2% from the prior year period to $6,400. Bally Systems reported revenues of
$24.6 million, an increase of 19% compared to $20.6 million in the prior year
period. Bally Systems reported shipments of 17,580 game monitoring units, a 22%
increase compared to 14,400 units in the prior year period. Gaming Operations
reported revenues of $24.3 million, an increase of 83% compared to $13.3
million in the prior year period. The overall gross margin percentage for Bally
Gaming and Systems improved to 56% compared to 54% in the prior year period.
The Bally Gaming and Systems business unit reported operating income of $19.9
million, compared to an operating income of $12.4 million in the prior year
period. Research and development costs totaled $6.2 million, an increase of 15%
compared to the prior year period.

Wall Machines and Amusement Games

For the six months ended December 31, 2001, Wall Machines and Amusement Games
reported revenues of $38.1 million, an increase of 8% compared to revenues of
$35.4 million in the prior year period. The increase in revenues resulted
primarily from a 2% increase in the selling price of new wall machines, and a
24% increase in the number of leased wall machines, offset by 7% decrease in
the number of new wall machine units sold. The currency translation impact of
the fluctuation of the German mark versus the U.S. dollar increased revenues by
$0.4 million during the current period. The gross profit margin slightly
improved to 46% from 45% in the prior year period. Wall Machines and Amusement
Games reported an operating income of $3.1 million, compared to operating
income of $2.6 million in the prior year period. The current year to date
operating income reverses the operating loss reported in the first quarter and
was driven by the increased revenue and improved margins as discussed above.

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ALLIANCE GAMING CORPORATION
FORM 10-Q

For the Quarter Ended December 31, 2001

Route Operations

For the six months ended December 31, 2001, the Route Operations business unit
reported total revenues of approximately $109.6 million, an increase of 3%
compared to revenues of $106.8 million in the prior year period. Revenues from
the Nevada route operations increased to approximately $102.6 million or 4%
over the prior year period. This improvement was attributable to an increase in
the average net win per gaming machine per day of 2% to $66.80 from $65.40 in
the prior year period and a 4% increase in the weighted average number of
gaming machines during the current period to 8,275 units as compared to 7,980
units in the prior year period. Revenues from route operations in Louisiana
totaled $7.0 million, a decrease of 17% compared to the prior year period.
This decrease was primarily the result of a decline in the net win per gaming
machine per day of 15% to $58.00 from $68.00 in the prior year period and
slightly lower average number of gaming units deployed. Cost of revenues for
Route Operations totaled as a percentage of revenues, decreased to 79% from 81%
in the prior year period. The Route Operations business unit reported operating
income of $7.1 million, a decrease of 4% compared to operating income of $7.5
million in the prior year period.

Casino Operations

For the six months ended December 31, 2001, the Casino Operations business unit
reported revenues of $35.8 million, an increase of 2% compared to revenues of
$35.0 million in the prior year period. This improvement is due to a 9%
increase in revenues at the Rail City Casino and a 1% increase in revenues at
the Rainbow Casino. The slight improvement in revenue at the Rainbow Casino was
attributable to a 2% increase in the net win per day to $141, and offset by a
3% decrease in the average number of gaming machines. The revenue improvement
at the Rail City Casino was attributable to an increase in the average gaming
machine net win per day of 1% to $84 from $83 in the prior year period and a 9%
increase in the average number of gaming machines. The cost of revenues for
Casino Operations as a percentage of revenues, was 45% compared to 44%
for the prior year period.

Net Interest Expense and Income Taxes

Interest expense (net of interest income) for the six months ended December 31,
2001, totaled $13.9 million, compared to $17.5 million in the prior year
period. The decrease is a result of a lower interest rates on the bank credit
facility.

The Company recorded an income tax provision of $0.2 million in the six months
ended December 31, 2001, compared to $0.7 million in the prior year period. The
current year period tax provision represents primarily estimated state income
and franchise taxes.

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ALLIANCE GAMING CORPORATION
FORM 10-Q

For the Quarter Ended December 31, 2001

* * * * *

The information contained in this Form 10-Q may contain forward-looking
statements within the meaning of section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Act of 1933, as amended, and is
subject to the safe harbor created thereby. Such information involves important
risks and uncertainties that could significantly affect results in the future
and, accordingly, such results may differ from those expressed in any forward
looking statements herein. Future operating results may be adversely affected
as a result of a number of factors such as the Companys high leverage, its
holding company structure, its operating history and recent losses,
competition, risks of product development, customer financing, sales to
non-traditional gaming markets, foreign operations, dependence on key
personnel, strict regulation by gaming authorities, gaming taxes and value
added taxes, and other risks, as detailed from time to time in the Companys
filings with the Securities and Exchange Commission.

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ALLIANCE GAMING CORPORATION
FORM 10-Q

For the Quarter Ended December 31, 2001




ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to Part 1, Item 7A, of the Companys annual report on Form 10-K, for the
fiscal year ended June 30, 2001. There have been no material changes in market
risks since the fiscal year end.




PART II




ITEM  1.  Legal Proceedings



| | Refer to Part 1, Item 3, of the Companys annual report on Form 10-K
for the fiscal year ended June 30, 2001. There have been no material
changes in any legal proceedings since the fiscal year end.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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



| | On December 11, 2001, the Company held its annual shareholders meeting
at which the shareholders were asked to vote on the election of two
directors and the approval of the Companys 2001 Long Term Incentive
Plan (the 2001 Plan). Of the 22,056,863 shares of common stock
outstanding, 19,209,225 shares were voted for, and 830,424 withheld
from Mr. Morton Topfer; and 17,460,609 shares were voted for, and
2,579,040 withheld from Mr. Jacques Andre; and 8,923,198 shares were
voted for and 4,881,786 shares against the approval of the 2001 Plan.
Additionally, the shareholders ratified the Board of Director's
appointment of Arthur Andersen LLP to act as independent public
accountants of the Company for the fiscal year ending June 30,
2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM  6.  Exhibits and Reports on Form 8-K

| |    |  |                                                                                                                                                                                                                                   |  |                                                                                                                                                                                                                     
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. |  | Exhibits                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                     
|
| |    |  | 4.8                                                                                                                                                                                                                               |  | Amendment No. 1 to Loan Agreement dated
June 22, 2001 among Alliance Gaming Corporation, Bally
Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH and
various lenders and Bank of America, N.A. (Administration
Agent)
|
| |    |  | 10.34                                                                                                                                                                                                                             |  | Amended and restated 2001 Long Term Incentive Plan.                                                                                                                                                                 
|
| | b. |  | Reports on Form 8-K                                                                                                                                                                                                              
|
| |    |  | The Company filed a Form 8-K on October 29, 2001 announcing the
completion of the acquisition of 100% of the stock of Casino
Market Place Development Corporation.                                                               
|
| |    |  | The Company filed a Form 8-K on December 20, 2001 announcing
the signing of a definitive purchase agreement to acquire 100%
of the stock of Advance Casino Systems Corporation, which is
expected to close before March 31, 2002.

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ALLIANCE GAMING CORPORATION
FORM 10-Q

For the Quarter Ended December 31, 2001




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.

| |  |                                          |  |                                                                                                                                                                              
| |  | ---------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | ALLIANCE GAMING CORPORATION
(Registrant)
|
| |  | By                                       |  | /s/   Robert Miodunski
                President and Chief Executive Officer
                (Principal Executive Officer)                                                   
|
|
| |  | By                                       |  | /s/   Robert L. Saxton
                Sr. Vice President,
                Chief Financial Officer and Treasurer
                (Principal Financial and Accounting Officer)

31