UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, 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 March 31, 1999

                                       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 88-0104066
                (State or other jurisdiction of (I.R.S. Employer
               incorporation or organization) Identification No.)

                               6601 S. Bermuda Rd.
                             Las Vegas, Nevada 89119
               (Address of principal executive offices) (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 May 3,
1999 according to the records of the  registrant's  registrar and transfer agent
was 9,705,852.












<PAGE>


                          ALLIANCE GAMING CORPORATION
                                   FORM 10-Q

                     For the Quarter Ended March 31, 1999



                                   I N D E X



PART I.  FINANCIAL INFORMATION                                        Page


Item 1.     Unaudited Financial Statements

      Unaudited Condensed Consolidated Balance Sheets as of June 30, 
           1998 and March 31, 1999                                     3

      Unaudited Condensed Consolidated Statements of Operations
           for the three months ended March 31, 1998 and 1999          4

      Unaudited Condensed Consolidated Statements of Operations
           for the nine months ended March 31, 1998 and 1999           5

      Unaudited Condensed Consolidated Statements of Stockholders'
           Deficiency for the nine months ended March 31, 1999         6

      Unaudited Condensed Consolidated Statements of Cash Flows
           for the nine months ended March 31, 1998 and 1999           7

      Notes to Unaudited Condensed Consolidated Financial Statements   8

Item 2.Management's Discussion and Analysis of Financial Condition 
       and Results of Operations                                      22



PART II. OTHER INFORMATION


Item 6.Exhibits and Reports on Form 8-K                               33


SIGNATURES                                                            34







<PAGE>



                                     PART I

                           ALLIANCE GAMING CORPORATION
                 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                          (In 000's, except share data)
                                                          June 30,    Mar. 31,
                                                            1998        1999
ASSETS
Current assets:
  Cash and cash equivalents                              $ 23,487    $ 29,214
  Accounts and notes receivable, net of allowance for 
   doubtful accounts of $11,932 and $12,583                93,459      82,982
  Inventories, net of reserves of $6,797 and $6,408        42,418      46,529
   Other current assets                                    11,711       8,498
                                                         --------     -------
   Total current assets                                   171,075     167,223
                                                          -------     -------
Long-term notes receivable, net of allowance for doubtful
  accounts of $1,109 and $1,022                             7,931       6,439
Leased equipment, net of accumulated depreciation of 
  $4,020 and $3,950                                         7,325       7,871
Property, plant and equipment, net of accumulated 
  depreciation of $46,090 and $52,299                      77,905      78,637
Excess of costs over net assets of acquired businesses, 
  net of accumulated amortization of $3,199 and $4,288     59,952      58,782

Intangible assets, net of accumulated amortization of 
 $13,358 and $16,659                                       26,732      26,708
Other assets, net of reserves of $3,488 and $3,488         15,917      16,847
                                                          -------     -------   
      Total assets                                       $366,837    $362,507
                                                         ========    ========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
  Accounts payable                                       $ 10,477    $ 15,709
  Accrued liabilities                                      39,122      35,669
  Current maturities of long-term debt                      1,996       1,962
                                                           ------      ------
    Total current liabilities                              51,595      53,340
                                                         --------     -------
Term loan facilities                                      137,800     134,348
Senior Subordinated Notes due 2007, net                   149,245     149,285
Other long-term debt, less current maturities              36,912      40,525
Other liabilities                                          12,718      12,519
                                                          -------     -------
      Total liabilities                                   388,270     390,017
                                                         --------     -------

Minority interest                                           2,315       2,118
Commitments and contingencies
Stockholders' deficiency:
  Special Stock, 10,000,000 shares authorized:
     Series E, $100 liquidation value; 137,317 shares 
      and 149,504 shares issued and outstanding            13,732      14,950
  Common Stock, $.10 par value; 50,000,000 shares 
     authorized; 9,178,000 shares and 9,790,000 shares 
     issued and outstanding                                 3,212       3,426
  Treasury Stock, at cost, 85,300 shares                                 (522)
  Additional paid-in capital                              122,980     127,544
  Accumulated other comprehensive loss                    (13,946)    (13,204)
  Accumulated deficit                                    (149,726)   (161,822)
                                                         --------    --------
      Total stockholders' deficiency                      (23,748)    (29,628)
                                                         --------    --------
        Total liabilities and stockholders' deficiency   $366,837    $362,507
                                                         ========    ========


     See notes to unaudited condensed consolidated financial statements.


<PAGE>


                           ALLIANCE GAMING CORPORATION
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                        (In 000's, except per share data)

Three Months Ended March 31,
                                                            1998       1999  
Revenues:
    Gaming equipment and systems                         $ 21,538    $38,406
    Wall machines and amusement games                      28,340     24,845
    Route operations                                       37,054     46,037
    Casino operations                                      15,294     16,445    
                                                          -------    -------    
                                                          102,226    125,733 
                                                          -------    -------    
Costs and expenses:
    Cost of gaming equipment and systems                   13,046     20,564
      Cost of wall machines and amusement games            16,102     14,820
      Cost of route operations                             28,761     36,223
      Cost of casino operations                             6,385      6,845
      Selling, general and administrative                  19,472     26,944
  Research and development                                  3,956      4,949
  Depreciation and amortization                             6,516      5,710
                                                           ------     ------
                                                           94,238    116,055

Operating income                                            7,988      9,678

Other income (expense):
    Interest income                                           184         47
    Interest expense                                       (7,464)    (8,151)
  Minority interest                                          (489)      (555)
    Other, net                                                293        (74)
                                                             ----       -----
Income before income taxes                                    512        945

Income tax (provision) benefit                             (1,243)       246
                                                           ------       ----
Net (loss) income                                            (731)     1,191

Special Stock dividends                                      (384)      (430)
                                                            -----      -----
Net (loss) income available to common shares              $(1,115)      $761
                                                          =======       ====

Basic and diluted (loss) earnings per share                $(0.12)     $0.08
                                                           ======      =====


Weighted average common shares outstanding                  9,155      9,742
Weighted average common and common share equivalents 
  outstanding                                               9,155      9,747



      See notes to unaudited condensed consolidated financial statements.




<PAGE>


                           ALLIANCE GAMING CORPORATION
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                          (In 000's, except share data)

                                                     Nine Months Ended March 31,
                                                           1998        1999  
Revenues:
    Gaming equipment and systems                         $ 76,160    $82,847
    Wall machines and amusement games                      77,132     69,225
    Route operations                                      109,749    128,791
    Casino operations                                      43,870     47,551 
                                                          -------     -------
                                                          306,911    328,414 
Costs and expenses:
    Cost of gaming equipment and systems                   44,615     45,798
      Cost of wall machines and amusement games            42,835     41,562
      Cost of route operations                             84,584    100,868
      Cost of casino operations                            18,916     20,165
      Selling, general and administrative                  64,034     75,847
  Research and development                                 10,270     13,094
  Depreciation and amortization                            17,328     16,869
  Unusual items                                            (2,545)       -   
                                                          -------    -------
                                                          280,037    314,203

Operating income                                           26,874     14,211

Other income (expense):
    Interest income                                           625        420
    Interest expense                                      (21,030)   (23,556)
    Rainbow royalty                                          (587)       -
    Rainbow royalty buyout                                (19,000)       -
    Minority interest                                      (1,325)    (1,603)
    Other, net                                                345       (621)
                                                            -----      ------

Loss before income taxes                                  (14,098)   (11,149)
Income tax (provision) benefit                            ( 2,163)       307
                                                           -------     -----
Loss before extraordinary item                            (16,261)   (10,842)
Extraordinary loss, without tax benefit (note 2)          (42,033)       -   
                                                          -------    ------- 
Net loss                                                  (58,294)   (10,842)

Special Stock dividends (note 2)                           (3,157)    (1,254)
Premium on repurchase/redemption of Series B 
    Special  Stock                                        (16,553)       -   
Net loss applicable to common shares                     $(78,004)  $(12,096)

Basic and diluted loss per share:
  Loss before extraordinary item                           $(3.92)    $(1.25)
  Extraordinary loss                                        (4.62)       -   
                                                            -----      -----
   Net loss                                                $(8.54)    $(1.25)
                                                           =======    =======

Weighted average common shares outstanding                  9,130      9,651
Weighted average common and common share 
   equivalents outstanding                                  9,130      9,651

         See notes to unaudited condensed consolidated financial statements.

<PAGE>



                                ALLIANCE GAMING CORPORATION
         UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                       Nine Months Ended March 31, 1999
                                  (In 000's)
<TABLE>
<CAPTION>
                                                                             Accumulated                Total
                                                                  Additional    Other                  Stock-
                                  Series E    Common   Treasury    Paid-in  Comprehensive  Accum.      holders'
                               Special Stock   Stock     Stock     Capital  Income (Loss)  Deficit   Deficiency
 
<S>                               <C>        <C>        <C>      <C>          <C>        <C>          <C>      
Balances at June 30, 1998         $ 13,732   $ 3,212    $ --     $ 122,980    $(13,946)  $(149,726)   $(23,748)

Net loss                              --        --        --          --          --       (10,842)    (10,842)
Shares issued upon exercise of
  options and warrants                --         214      --         4,564        --          --         4,778
Special Stock dividends              1,218      --        --          --          --        (1,254)        (36)
Repurchases of common stock for
  treasury                            --        --        (522)       --          --          --          (522)
Foreign currency translation
  adjustment                          --        --        --          --           742        --           742
                                  --------    ------    ------    --------     -------   ---------     -------
Balances at March 31, 1999        $ 14,950   $ 3,426    $ (522)  $ 127,544    $(13,204)  $(161,822)   $(29,628)
                                   =======    ======    ======   ========     ========   =========    ========       


</TABLE>










            See notes to unaudited condensed consolidated financial statements.






<PAGE>


                                ALLIANCE GAMING CORPORATION
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (In 000's)

                                                     Nine Months Ended March 31,
                                                            1998       1999
Cash flows from operating activities:
  Net loss                                               $(58,294)   $(10,842)
   Adjustments to reconcile net loss
    to net cash provided by (used in) operating activities:
     Depreciation and amortization                         17,328      16,869
     Amortization of debt discounts                            31          39
     Extraordinary item                                    42,033          -
     Write down of other assets                             2,307         765
     Loss on sale of assets                                    35         117
     Provision for losses on (recovery of) receivables     (7,330)      1,713
     Other                                                  1,305       (211)
  Net change in operating assets and liabilities:
     Accounts and notes receivable                         12,627       9,743
     Inventories                                           (6,171)     (9,254)
     Other current assets                                  (1,528)      2,540
     Accounts payable                                      (2,258)      5,239
     Accrued liabilities                                   (8,250)     (2,760)
                                                           ------      ------   
 Net cash (used in) provided by operating activities       (8,165)     13,958
                                                                 
Cash flows from investing activities:
   Additions to property, plant and equipment             (10,231)     (7,909)
   Proceeds from disposal of property and equipment           304         141
   Additions to other long term assets                     (1,862)     (4,218)
                                                           ------      ------
      Net cash used in investing activities               (11,789)    (11,986)

Cash flows from financing activities:
   Refinancing fees and expenses                          (32,752)         -
   Capitalized debt issuance costs                        (11,456)         -
   Proceeds from issuance of long-term debt               303,734          -
   Repayments of long-term debt                          (178,834)     (4,696)
   Net change in lines of credit                           16,191       4,200
   Repurchase/redemption of Series B Special Stock        (77,568)          -
   Proceeds from exercise of stock options and warrants       729       4,778   
   Repurchases of common stock for treasury                    -         (522)
                                                          -------     -------
    Net cash provided by financing activities              20,044        3,760

Effect of exchange rate changes on cash                      (356)         (5)

Cash and cash equivalents:
    Increase (decrease) for period                           (266)      5,727
    Balance, beginning of period                           28,924      23,487
                                                          -------     -------
    Balance, end of period                               $ 28,658    $ 29,214
                                                         ========    ========


            See notes to unaudited condensed consolidated financial statements.


<PAGE>


                                ALLIANCE GAMING CORPORATION
               NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                         Nine Months Ended March 31, 1998 and 1999



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 as amended for the year ended June 30,
    1998. All  intercompany  accounts and  transactions  have been eliminated in
    consolidation.

    The accompanying  condensed  consolidated  financial  statements at June 30,
    1998 were derived from the audited consolidated financial statements, but do
    not include all  disclosures  required under generally  accepted  accounting
    principles.  Certain  reclassifications  have  been  made  to  prior  period
    financial statements to conform with current period presentation.

2.  DEBT, LINES OF CREDIT AND REFINANCING TRANSACTION

    Long-term debt at June 30, 1998 and March 31, 1999 consists of the
      following:

                                                         June 30,    Mar. 31,
                                                           1998       1999
                                                               (in 000's)
      10% Senior Subordinated Notes due 2007, net 
          of unamortized discount of $755 and $715       $149,245    $149,285
      Term loan facilities:
          Tranche B Term Loan                              74,438      72,511
          Tranche C Term Loan                              39,700      38,821
          Delayed Draw Term Facility                       25,000      24,416
      Revolving Credit Facility                            34,971      39,143
      Other, secured by related equipment                   2,599       1,944
                                                          -------     -------
                                                          325,953     326,120
      Less current maturities                               1,996       1,962
                                                           ------      ------
      Long-term debt, less current maturities            $323,957    $324,158
                                                         ========    ========

    In August 1997 the Company completed a refinancing  transaction  whereby the
    Company  repaid  its 12 7/8%  Senior  Notes,  repurchased  its 15%  Series B
    Special  Stock,  and issued $150  million of Senior  Subordinated  Notes and
    entered into a bank financing agreement of $230 million.  The bank financing
    provides for (i) term loans in the  aggregate  amount of up to $140 million,
    comprised of a $75 million  tranche with a 7 1/2-year  term (the  "Tranche B
    Term Loan"),  a $40 million tranche with an 8-year term (the "Tranche C Term
    Loan"),  and a $25 million tranche with a 7 1/2-year term (the "Delayed Draw
    Term  Facility"  and together with the Tranche B Term Loan and the Tranche C
    Term Loan,  the "Term Loan  Facilities");  and (ii) a $90 million  revolving
    credit  facility  (the  "Revolving  Credit  Facility")  with a  6-year  term
    (collectively  the "Bank  Facilty").  Each of these  credit  facilities  are
    variable rate  borrowings in accordance  with a credit grid as amended.  The
    interest  rates which are  currently at the highest level of the credit grid
    as amended and maturity dates are as follows:


<PAGE>


                           ALLIANCE GAMING CORPORATION
   NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                    Nine Months Ended March 31, 1998 and 1999

                                              Interest           Maturity
                                                Rates               Date
            Tranche B Term Loan          LIBOR + 3.25%  January 31, 2005
            Tranche C Term Loan          LIBOR + 3.50%     July 31, 2005
            Delayed Draw Term Facility   LIBOR + 3.25%  January 31, 2005
            Revolving Credit Facility    LIBOR + 2.75%     July 31, 2003

    The Revolving Credit Facility also allows for German Deutschemark borrowings
    at the euro deutschmark rate plus 2.75% (or 5.9% at March 31, 1999).

    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 holds the
    Company's  interest  in its  Louisiana  operations  and  other  non-material
    subsidiaries  (as  defined),  and secured by both a U.S.  and German  Pledge
    Agreement  (both as defined).  The credit  agreement  for the Bank  Facility
    contains a number of maintenance  covenants and 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  (as  defined)  or
    subordinated  indebtedness,  issue or sell equity interests of the Company's
    subsidiaries (as defined),  engage in mergers or acquisitions,  or engage in
    certain  transactions with  subsidiaries and affiliates,  and that otherwise
    restrict corporate  activities.  In the quarter ended December 31, 1998, the
    Company did not meet certain  financial  covenants in the credit  agreement.
    The  Company and the banks have  amended  the  current and future  financial
    maintenance  covenants in the credit agreement  effective  December 31, 1998
    such that the Company is in compliance with such 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  (as  defined) 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 (as
    defined)  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   (as  defined)  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 may not be
    redeemed  for the  first  five  years.  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  refinancing  transaction  was  completed  in September  1997,  and as a
    result,  the  Company  recorded  an  extraordinary  loss  of  $42.0  million
    consisting  of the $27.7  million  premium  paid to  repurchase  the  Senior
    Secured Notes, the payment of related transaction fees and expenses, and the
    charge-off of the  unamortized  debt discount and deferred  financing  fees.
    There  was no  tax  benefit  recognized  for  the  extraordinary  item  as a
    valuation  allowance was recorded to fully reserve the net operating  losses
    created.  The Company also recorded a $19.0  million  charge for the cost of
    the Rainbow  Royalty  Buyout.  Additionally,  the  Company  recorded a $16.6
    million  charge  to  equity  and a  corresponding  increase  in the net loss
    applicable to common shares for the  difference  between the carrying  value
    and the  liquidation  value of the Series B Special Stock,  all of which was
    redeemed on  September 8, 1997 at the  liquidation  price of $100 per share,
    plus accrued dividends.

3.  INCOME TAXES

    The  Company's  effective tax rate for the three and nine months ended March
    31, 1998 and 1999  differs from the  statutory  rate of 35% due to losses at
    the  Company's  domestic  subsidiaries  which  add  to  net  operating  loss
    carryforwards  and for which no benefit is recorded in the income  statement
    and tax losses at Bally Wulff which will be carried  back to the prior year,
    partially offset by state income taxes.

4.  SUPPLEMENTAL CASH FLOW INFORMATION

    The following supplemental information is related to the unaudited condensed
    consolidated  statements of cash flows.  For the nine months ended March 31,
    1998 and 1999,  the Company  recorded  the  following  significant  non-cash
    items:
                                                    Nine months ended March 31,
                                                             1998       1999
                                                                (In 000's)
    Reclassify other assets to property, plant and
    equipment                                              $  249      $  306
    Dividends for Series E and , for the 1998 period, 
      Series B Special Stock                                3,157       1,254
    Reclassify inventory to equipment                       3,964       5,133
    Translation rate adjustment                             4,106         747
    Reclassify accounts receivable to intangible assets        60         405
    Reclassify other current assets to accrued liabilities      -         672

5.  LEGAL PROCEEDINGS

    Litigation

    On September 25, 1995, Bally Gaming  International,  Inc. ("BGII") was named
    as a defendant in a class action lawsuit filed in Federal  District Court in
    Nevada,  by Larry  Schreirer  on behalf of himself and all others  similarly
    situated.  The plaintiffs filed suit against BGII and approximately 45 other
    defendants.  Each  defendant is involved in the gaming  business as a gaming
    machine  manufacturer,  distributor,  or casino  operator.  The class action
    lawsuit arises out of alleged  fraudulent  marketing and operation of casino
    video poker machines and electronic  slot  machines.  The plaintiffs  allege
    that the  defendants  have engaged in a course of fraudulent  and misleading
    conduct  intended to induce people into playing their gaming  machines based
    on a false belief  concerning how those machines actually operate as well as
    the extent to which  there is actually  an  opportunity  to win on any given
    play.  The  plaintiffs  allege  that  the  defendants'   actions  constitute
    violations of the Racketeer Influenced and Corrupt  Organizations Act (RICO)
    and give  rise to claims of common  law  fraud and  unjust  enrichment.  The
    plaintiffs are seeking monetary  damages in excess of $1.0 billion,  and are
    asking that any damage awards be trebled under  applicable  Federal law. The
    case is in the discovery and motions  stage.  A trial date has not been set.
    Management believes the plaintiffs' lawsuit to be without merit. The Company
    intends to vigorously pursue all legal defenses available to it.

    The Company is also a party to various lawsuits  relating to routine matters
    incidental to its business.  Management does not believe that the outcome of
    such litigation,  including the matters above, in the aggregate, will have a
    material adverse effect on the Company.


6.  UNUSUAL ITEMS

    In December 1997 the Company,  Alpha Hospitality and General Electric Credit
    Corporation  settled certain  customer notes receivable on which the Company
    had certain recourse  obligations.  The Company  contributed $2.5 million to
    the final settlement with the holder of the notes, and reversed $6.0 million
    of  reserves  previously  established  for these  recourse  obligations.  In
    addition,  as part of the  settlement  the Company  became the sole owner of
    approximately  566,000 shares of Alpha Hospitality common stock which trades
    on the NASDAQ Small Cap market. The Company is selling this stock within the
    limitations provided for in the settlement agreement.

    As a result  of  settling  a  dispute  over  the  exclusive  use of  certain
    technologies and changes in gaming  regulations,  the Company  evaluated the
    cash flow of  certain  of its  technology  assets,  in  accordance  with the
    provisions  of  Financial  Accounting  Standards  Board  Statement  No. 121,
    "Accounting for the Impairment of Long-Lived Assets and Long-lived Assets to
    be Disposed of," and  determined  certain items met the definition of having
    become impaired.  In December 1997 the Company recorded write-downs totaling
    $2.8 million for these items, which amount is included in unusual items.

    Additionally,  the Company  accrued  $0.7  million for the present  value of
    contractual  payments due to a former  member of the board of directors  who
    was not  re-elected  to the board at the December  1997 annual  shareholders
    meeting.

7.  COMPREHENSIVE INCOME (LOSS)

    As of July 1, 1998, the Company  adopted  Statement of Financial  Accounting
    Standards No. 130, "Reporting  Comprehensive  Income" ("SFAS 130"). SFAS 130
    establishes new rules for the reporting of  comprehensive  income (loss) and
    its  components;  however,  the  adoption  of SFAS 130 had no  impact on the
    Company's net income (loss) or stockholders'  deficiency.  SFAS 130 requires
    the changes in the  cumulative  translation  adjustment  account (which is a
    component  of  stockholders'  deficiency)  to be included as a component  of
    other comprehensive income (loss).

    During the nine months  ended March 31, 1998 and 1999,  total  comprehensive
    (loss) income amounted to $(62.8) million and $(10.1) million, respectively.

8.  REVERSE STOCK SPLIT

    On  January  14,  1999  the  Company's   Board  of  Directors   announced  a
    one-for-three-and-one-half reverse stock split of its Common Stock effective
    February  1,  1999.  The  effects  of the  reverse  split were to reduce the
    authorized number of common shares from 175.0 million to 50.0 million and to
    decrease the number of shares of Common Stock  outstanding from 34.3 million
    to 9.8 million.  In  connection  with the reverse  split,  the share number,
    exercise  price and the trigger  prices,  as  applicable,  for the Company's
    stock  options  and  warrants  were  proportionately  adjusted.  In  lieu of
    fractional  shares  resulting  from the  reverse  split,  stockholders  will
    receive a cash payment from the sale of the aggregate  fractional  shares on
    the open market. The reverse split also impacted the conversion ratio on the
    Company's  Series E Special  Stock.  Each share of Series E Special Stock is
    now convertible  into 4.859 shares of Common Stock instead of 17.007 shares.
    All share and per share data  included in this report have been  restated to
    reflect the reverse split.


9.  SHARE REPURCHASE PLAN

    In January 1999 the Company's Board of Directors approved a share repurchase
    plan for up to 1.18 million shares of its Common Stock. Subject to price and
    market  conditions,  purchases of shares will be made from time to time over
    the  next  twelve  months  in the open  market  or in  privately  negotiated
    transactions  using available cash financing.  During the three months ended
    March 31, 1999, the Company  repurchased  85,300 shares of common stock at a
    cost of $522,500.

10. 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 which were issued in the  refinancing  transaction  (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.


<PAGE>


                                ALLIANCE GAMING CORPORATION
      NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                CONSOLIDATING BALANCE SHEETS
                                       June 30, 1998
                                         (In 000's)
<TABLE>
<CAPTION>

                                                                                 Alliance
                                                                                  Gaming
                                           Parent and     Non-                 Corporation
                                          Guaranteeing Guaranteeing   Adjust-      and
                                          Subsidiaries Subsidiaries   ments    Subsidiaries
<S>                                          <C>         <C>         <C>        <C>   
ASSETS
Current assets:      
Cash and cash equivalents                    $   8,609   $ 14,878    $          $  23,487
Accounts and notes receivable, net              44,757     52,380      (3,678)     93,459
Inventories, net                                27,957     14,990        (529)     42,418
Other current assets                             7,998      3,713                  11,711
                                             ---------  ---------   ---------   ---------
   Total current assets                         89,321     85,961      (4,207)    171,075
                                             ---------  ---------   ---------   ---------
Long-term notes receivable, net                 95,036      1,926     (89,031)      7,931
Leased equipment, net                                2      7,323                   7,325
Property, plant and equipment, net              45,052     32,853                  77,905
Excess of costs over net assets of acquired
    businesses, net                             39,963     19,989                  59,952
Intangible assets, net                          26,248        484                  26,732
Investment in subsidiaries                     104,219               (104,219)
Other assets, net                               22,453     (1,124)     (5,412)     15,917
                                             ---------  ---------   ---------   ---------
                                             $ 422,294   $147,412   $(202,869)  $ 366,837
                                             =========  =========   =========   =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable                             $   7,373   $  3,104   $           $  10,477
Accrued liabilities                             26,415     13,705        (998)     39,122
Current maturities of long-term debt             6,912      3,176      (8,092)      1,996
                                              --------   --------    --------   ---------
  Total current liabilities                     40,700     19,985      (9,090)     51,595
                                              --------   --------    --------   ---------
Term loan facilities                           137,800                            137,800
Senior Subordinated Notes due 2007, net        149,245                            149,245
Other long-term debt, less current 
    maturities                                 105,279     20,878     (89,245)     36,912
Other liabilities                               10,729      2,330        (341)     12,718
                                              --------   --------    --------   ---------
  Total liabilities                            443,753     43,193     (98,676)    388,270
                                              --------   --------    --------   ---------
Minority interest                                2,315                              2,315
Commitments and contingencies
Stockholders' equity (deficiency):
Series E Special Stock                          13,732                             13,732
Common Stock                                     3,212     17,832     (17,832)      3,212
Additional paid-in capital                     122,980     68,700     (68,700)    122,980
Accumulated other comprehensive loss           (13,946)   (14,140)     14,140     (13,946)
Retained earnings (accumulated deficit)       (149,752)    31,827     (31,801)   (149,726)
                                              --------   --------    --------   ---------
   Total stockholders' equity (deficiency)     (23,774)   104,219    (104,193)    (23,748)
                                              --------   --------    --------   ---------
                                              $422,294   $147,412   $(202,869)   $366,837
                                              ========   ========   =========    ========                   
</TABLE>

                              See accompanying unaudited note.

<PAGE>

                                CONSOLIDATING BALANCE SHEETS

                                       March 31, 1999
                                         (In 000's)
<TABLE>
<CAPTION>

                                                                                 Alliance
                                                                                  Gaming
                                           Parent and     Non-                 Corporation
                                          Guaranteeing Guaranteeing   Adjust-      and
                                          Subsidiaries Subsidiaries   ments    Subsidiaries
<S>                                          <C>        <C>          <C>        <C>         
ASSETS
Current assets:
Cash and cash equivalents                    $  12,312  $  16,902    $          $  29,214
Accounts and notes receivable, net              38,385     48,290      (3,693)     82,982
Inventories, net                                32,511     14,547        (529)     46,529
Other current assets                             6,348      2,150                   8,498
                                             ---------  ---------    --------   ---------
   Total current assets                         89,556     81,889      (4,222)    167,223
                                             ---------  ---------    --------   ---------
Long-term notes receivable, net                 99,316      2,058     (94,935)      6,439
Leased equipment, net                                       7,871                   7,871
Property, plant and equipment, net              46,829     31,808                  78,637
Excess of costs over net assets of acquired
    businesses, net                             39,169     19,613                  58,782
Intangible assets, net                          26,246        462                  26,708

Investment in subsidiaries                      90,180                (90,180)       --
Other assets, net                               25,708     (9,372)        511      16,847
                                             ---------  ---------    --------   ---------
                                             $ 417,004  $ 134,329   $(188,826)   $362,507
                                             =========   ========   =========   =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable                             $  12,007  $   3,702    $          $  15,709
Accrued liabilities                             20,379     16,251        (961)     35,669
Current maturities of long-term debt             1,400      3,284      (2,722)      1,962
                                             ---------   --------    --------   ---------
  Total current liabilities                     33,786     23,237      (3,683)     53,340
                                             ---------   --------    --------   ---------
Term loan facilities                           134,348                            134,348
Senior Subordinated Notes due 2007, net        149,285                            149,285
Other long-term debt, less current
    maturities                                 116,615     18,231     (94,321)     40,525
Other liabilities                               10,506      2,330        (317)     12,519
                                             ---------   --------    --------   ---------
  Total liabilities                            444,540     43,798     (98,321)    390,017
                                             ---------   --------    --------   ---------
Minority interest                                2,118                              2,118
Commitments and contingencies
Stockholders' equity (deficiency):
Series E Special Stock                          14,950                             14,950
Common Stock                                     3,426     17,832     (17,832)      3,426
Treasury stock                                    (522)                              (522)
Additional paid-in capital                     127,544     68,700     (68,700)    127,544
Accumulated other comprehensive loss           (13,204)   (13,406)     13,406     (13,204)
Retained earnings (accumulated deficit)       (161,848)    17,405     (17,379)   (161,822)
                                              --------    -------    --------   ---------
  Total stockholders' equity (deficiency)      (29,654)    90,531     (90,505)    (29,628)
                                              --------    -------    --------   ---------        
                                              $417,004   $134,329   $(188,826)   $362,507
                                              ========   ========   =========   =========          
</TABLE>

                            See accompanying unaudited note.


<PAGE>


                     CONSOLIDATING STATEMENTS OF OPERATIONS

                        Three Months Ended March 31, 1998
                                   (In 000's)
<TABLE>
<CAPTION>

                                                                                 Alliance
                                                                                  Gaming
                                           Parent and     Non-                 Corporation
                                          Guaranteeing Guaranteeing   Adjust-      and
                                          Subsidiaries Subsidiaries   ments    Subsidiaries
<S>                                            <C>        <C>        <C>         <C>     
Revenues:
  Gaming equipment and systems                 $ 19,582   $  3,601   $ (1,645)   $ 21,538
  Wall machines and amusement games                         28,443       (103)     28,340
  Route operations                               31,445      5,609                 37,054
  Casino operations                               3,251     12,043                 15,294
                                                 ------    -------    -------    --------
                                                 54,278     49,696     (1,748)    102,226
                                               
Costs and expenses:
  Cost of gaming equipment and systems           11,996      2,695     (1,645)     13,046
  Cost of wall machines and amusement
    games                                                   16,205       (103)     16,102
  Cost of route operations                       25,162      3,599                 28,761
  Cost of casino operations                       1,937      4,448                  6,385
  Selling, general and administrative            10,715      8,757                 19,472
  Research and development                        3,234        722                  3,956
  Depreciation and amortization                   4,247      2,269                  6,516
                                                -------    -------    -------    --------
                                                 57,291     38,695     (1,748)    94,238
                                                -------    -------    -------    --------
Operating income (loss)                          (3,013)    11,001                  7,988

Earnings in consolidated subsidiaries             7,532                (7,532)

Other income (expense):
  Interest income                                   290        102       (208)        184
  Interest expense                               (7,173)      (499)       208      (7,464)
  Rainbow royalty                                 1,411     (1,411)
  Minority interest                                (489)                             (489)
  Other, net                                        410       (117)                   293
                                                 ------     ------    -------    --------
Income (loss) before income taxes                (1,032)     9,076     (7,532)        512
Income tax (provision) benefit                      301     (1,544)                (1,243)
                                                -------    -------    -------    --------
Net income (loss)                                  (731)     7,532     (7,532)       (731)

Special Stock dividends                            (384)                             (384)
                                                -------    ------     -------     -------    
Net income (loss) applicable to common shares   $(1,115)   $7,532    $(7,532)     $(1,115)
                                                ========   ======    ========     =======
</TABLE>

                                 See accompanying unaudited note.


<PAGE>


                     CONSOLIDATING STATEMENTS OF OPERATIONS

                        Three Months Ended March 31, 1999
                                   (In 000's)
<TABLE>
<CAPTION>
 
                                                                                Alliance
                                                                                  Gaming
                                           Parent and     Non-                 Corporation
                                          Guaranteeing Guaranteeing   Adjust-      and
                                          Subsidiaries Subsidiaries   ments    Subsidiaries
<S>                                      <C>          <C>          <C>          <C>      
Revenues:
  Gaming equipment and systems           $  37,405    $   2,444    $  (1,443)   $  38,406
  Wall machines and amusement games                      24,845                    24,845
  Route operations                          40,280        5,757                    46,037
  Casino operations                          3,759       12,686                    16,445
                                           -------     --------     --------     --------
                                            81,444       45,732       (1,443)     125,733
Costs and expenses:
  Cost of gaming equipment and systems      19,879        2,128       (1,443)      20,564
  Cost of wall machines and amusement
    games                                                14,820                    14,820
  Cost of route operations                  32,509        3,714                    36,223
  Cost of casino operations                  2,221        4,624                     6,845
  Selling, general and administrative       16,923       10,021                    26,944
  Research and development                   4,142          807                     4,949
  Depreciation and amortization              3,923        1,787                     5,710
                                          --------     --------     --------     --------
                                            79,597       37,901       (1,443)     116,055
                                          --------     --------     --------     --------
Operating income                             1,847        7,831                     9,678

Earnings in consolidated subsidiaries        5,830                    (5,830)

Other income (expense):
  Interest income                              125           72         (150)          47
  Interest expense                          (7,924)        (377)         150       (8,151)
  Rainbow royalty                            1,494       (1,494)
  Minority interest                           (555)                                  (555)
  Other, net                                    50         (124)                      (74)
                                            ------     --------     --------     --------
Income before income taxes                     867        5,908       (5,830)         945
Income tax benefit (provision)                 324          (78)                      246
                                           -------     --------     --------     --------
Net income                                   1,191        5,830       (5,830)       1,191

Special Stock dividends                       (430)                                  (430)
                                           -------     --------     --------     --------
Net income applicable to common shares      $  761      $ 5,830     $ (5,830)      $  761
                                            ======      =======     ========       ======

</TABLE>


                              See accompanying unaudited note.

<PAGE>


                     CONSOLIDATING STATEMENTS OF OPERATIONS
                        Nine Months Ended March 31, 1998
                                   (In 000's)
<TABLE>
<CAPTION>

                                                                                   Alliance
                                                                                    Gaming
                                            Parent and      Non-                  Corporation
                                           Guaranteeing  Guaranteeing    Adjust-      and
                                           Subsidiaries  Subsidiaries    ments    Subsidiaries
<S>                                          <C>          <C>          <C>          <C>   
Revenues:  
  Gaming equipment and systems               $  72,716    $   8,641    $  (5,197)   $  76,160
  Wall machines and amusement games                          77,235         (103)      77,132
  Route operations                              94,160       15,589                   109,749
  Casino operations                              9,979       33,891                    43,870
                                              --------     --------     --------     --------
                                               176,855      135,356       (5,300)     306,911
                                              --------     --------     --------     --------
Costs and expenses:
  Cost of gaming equipment and systems          43,544        6,326       (5,255)      44,615
  Cost of wall machines and amusement
    games                                                    42,938         (103)      42,835
  Cost of route operations                      74,538       10,046                    84,584
  Cost of casino operations                      6,104       12,812                    18,916
  Selling, general and administrative           34,500       29,534                    64,034
  Research and development                       8,076        2,194                    10,270
  Depreciation and amortization                 10,632        6,696                    17,328
  Unusual items                                 (2,545)                                (2,545)
                                              --------     --------     --------     --------
                                               174,849      110,546       (5,358)     280,037
                                              --------     --------     --------     --------
Operating income                                 2,006       24,810           58       26,874

Earnings in consolidated subsidiaries           16,659                   (16,659)

Other income (expense):
  Interest income                                  922          309         (606)         625
  Interest expense                             (20,241)      (1,395)         606      (21,030)
  Rainbow royalty                                3,387       (3,974)                     (587)
  Rainbow royalty buyout                       (19,000)                               (19,000)
  Minority interest                             (1,325)                                (1,325)
  Other, net                                       441          (96)                      345
                                               -------     --------     --------     --------
Income (loss) before income taxes              (17,151)      19,654      (16,601)     (14,098)
Income tax (provision) benefit                     832       (2,995)                   (2,163)
                                              --------     --------     --------     --------
Net income (loss) before extraordinary item    (16,319)      16,659      (16,601)     (16,261)
Extraordinary loss, without tax benefit        (42,033)                               (42,033)
                                              --------     --------     --------     --------         
Net income (loss)                              (58,352)      16,659      (16,601)     (58,294)

Special Stock dividends                         (3,157)                                (3,157)
Premium on repurchase of Series B
  Special Stock                                (16,553)                               (16,553)
                                              --------    ---------    ---------    ---------
Net income (loss) applicable to common 
  shares                                     $ (78,062)   $  16,659    $ (16,601)   $ (78,004)
                                             =========    =========    =========    =========
</TABLE>

                            See accompanying unaudited note.


<PAGE>



                     CONSOLIDATING STATEMENTS OF OPERATIONS
                        Nine Months Ended March 31, 1999
                                   (In 000's)

<TABLE>
<CAPTION>

                                                                                   Alliance
                                                                                    Gaming
                                            Parent and      Non-                  Corporation
                                           Guaranteeing  Guaranteeing    Adjust-      and
                                           Subsidiaries  Subsidiaries    ments    Subsidiaries
<S>                                          <C>          <C>          <C>          <C>    
Revenues: 
  Gaming equipment and systems               $  79,863    $   8,521    $  (5,537)   $  82,847
  Wall machines and amusement games                          69,236          (11)      69,225
  Route operations                             112,539       16,252                   128,791
  Casino operations                             10,619       36,932                    47,551
                                              --------     --------     --------     --------
                                               203,021      130,941       (5,548)     328,414
                                              --------     --------     --------     --------
Costs and expenses:
  Cost of gaming equipment and systems          44,492        6,843       (5,537)      45,798
  Cost of wall machines and amusement
    games                                                    41,573          (11)      41,562
  Cost of route operations                      90,219       10,649                   100,868
  Cost of casino operations                      6,383       13,782                    20,165
  Selling, general and administrative           44,892       30,955                    75,847
  Research and development                      10,731        2,363                    13,094
  Depreciation and amortization                 11,338        5,531                    16,869
                                              --------     --------     --------     --------
                                               208,055      111,696       (5,548)     314,203
                                              --------     --------     --------     --------
Operating income (loss)                         (5,034)      19,245                    14,211

Earnings in consolidated subsidiaries           13,081                   (13,081)

Other income (expense):
  Interest income                                  668          280         (528)         420
  Interest expense                             (22,893)      (1,191)         528      (23,556)
  Rainbow royalty                                4,334       (4,334)
  Minority interest                             (1,603)                                (1,603)
  Other, net                                      (140)        (481)                     (621)
                                              --------     --------     --------     --------
Income (loss) before income taxes              (11,587)      13,519      (13,081)     (11,149)
Income tax benefit (provision)                     745         (438)                      307
                                               -------     --------     --------     --------
Net income (loss)                              (10,842)      13,081      (13,081)     (10,842)

Special Stock dividends                         (1,254)                                (1,254)
                                               -------     --------     --------     --------
Net income (loss) applicable to common 
  shares                                     $ (12,096)   $  13,081    $ (13,081)   $ (12,096)
                                             =========     ========    =========    =========

</TABLE>


                            See accompanying unaudited note.




<PAGE>


                           CONSOLIDATING STATEMENTS OF CASH FLOWS
                              Nine Months Ended March 31, 1998
                                         (In 000's)
<TABLE>
<CAPTION>

                                                                                   Alliance
                                                                                    Gaming
                                            Parent and      Non-                  Corporation
                                           Guaranteeing  Guaranteeing    Adjust-      and
                                           Subsidiaries  Subsidiaries    ments    Subsidiaries
<S>                                          <C>          <C>          <C>          <C>       
Cash flows from operating activities:
       Net cash provided by (used in)
       operating activities                  $ (25,429)   $  18,794    $  (1,530)   $  (8,165)
                                              --------     --------     --------     --------
Cash flows from investing activities:
   Additions to property and equipment          (7,520)      (2,711)                  (10,231)
   Proceeds from disposal of property and
     equipment                                     205           99                       304
   Additions to other long-term assets          (1,656)        (206)                   (1,862)
                                              --------     --------     --------     --------
      Net cash used in investing activities     (8,971)      (2,818)                  (11,789)
                                              --------     --------     --------     --------
Cash flows from financing activities:
   Refinancing fees and expenses               (32,752)                               (32,752)
   Capitalized new debt issue costs            (11,456)                               (11,456)
  Proceeds from long-term debt                 303,734                                303,734
   Reduction of long-term debt                (178,459)      (1,905)       1,530     (178,834)
  Net change in lines of credit                 10,852        5,339                    16,191
  Redemption of Series B Special Stock         (77,568)                               (77,568)
  Proceeds from exercise of stock options          729                                    729
  Dividends received (paid)                     13,406      (13,406)
                                              --------     --------     --------     --------
      Net cash provided by (used in)
        financing activities                    28,486       (9,972)       1,530       20,044
                                              --------     --------     --------     --------
Effect of exchange rate changes on cash                        (356)                     (356)
                                              --------     --------     --------     --------
Cash and cash equivalents:
   Increase (decrease) for period               (5,914)       5,648                      (266)
   Balance, beginning of period                 16,462       12,462                    28,924
                                              --------     --------     --------     --------
  Balance, end of period                     $  10,548    $  18,110     $    --     $  28,658
                                             =========    =========     ========    =========

</TABLE>




                            See accompanying unaudited note.




<PAGE>


                           CONSOLIDATING STATEMENTS OF CASH FLOWS
                              Nine Months Ended March 31, 1999
                                         (In 000's)
<TABLE>
<CAPTION>

                                                                                     Alliance
                                                                                      Gaming
                                              Parent and      Non-                  Corporation
                                             Guaranteeing  Guaranteeing    Adjust-      and
                                             Subsidiaries  Subsidiaries    ments    Subsidiaries
<S>                                             <C>          <C>         <C>         <C>     
Cash flows from operating activities:
  Net cash provided by (used in)
     operating activities                       $(12,547)    $ 28,418    $ (1,913)   $ 13,958
                                                 -------      -------     -------     -------
Cash flows from investing activities:
   Additions to property and equipment            (6,085)      (1,824)                 (7,909)
   Proceeds from disposal of property and
     equipment                                        96           45                     141
   Additions to other long term assets            (4,105)        (113)                 (4,218)
                                                 --------     -------     -------     -------
      Net cash used in investing  activities     (10,094)      (1,892)                (11,986)
                                                 -------      -------     -------     -------
Cash flows from financing activities:
  Repayments of long-term debt                    (4,098)      (2,511)      1,913      (4,696)
  Net change in lines of credit                    4,200                                4,200
  Proceeds from exercise of stock options
    and warrants                                   4,778                                4,778
  Repurchase common stock for treasury              (522)                                (522)
  Dividends received (paid)                       21,986      (21,986)          
                                                 -------      -------     -------     -------
      Net cash provided by (used in) financing
               activities                         26,344      (24,497)      1,913       3,760
                                                 -------      -------     -------     -------
Effect of exchange rate changes on cash                            (5)                     (5)
                                                 -------      -------     -------     -------

Cash and cash equivalents:
   Decrease for period                             3,703        2,024                   5,727
   Balance, beginning of period                    8,609       14,878                  23,487
                                                 -------      -------     -------     -------
  Balance, end of period                        $ 12,312     $ 16,902    $   --      $ 29,214
                                                ========      ========   ========    ========
</TABLE>

                              See accompanying unaudited note.



<PAGE>



Debt and Lines of Credit

Long-term debt and lines of credit at March 31, 1999 consist of the following:
<TABLE>
<CAPTION>

                                                                              Alliance
                                                                               Gaming
                                       Parent and      Non-                  Corporation
                                      Guaranteeing  Guaranteeing   Adjust-       and
                                      Subsidiaries  Subsidiaries   ments     Subsidiaries
                                                         (in 000's)
<S>                                     <C>           <C>         <C>          <C>     
10% Senior Subordinated Notes due
    2007, net of unamortized discount   $149,285                               $149,285
Term loan facilities:
  Tranche B Term Loan                     72,511                                 72,511
  Tranche C Term Loan                     38,821                                 38,821
  Delayed Draw Term Facility              24,416                                 24,416
Revolving Credit Facility                 26,900      12,243                     39,143
Intercompany notes payable                89,715       7,328      (97,043)          -
Other                                                  1,944                      1,944 
                                        --------     -------      -------      --------
                                         401,648      21,515      (97,043)      326,120
Less current maturities                    1,400       3,284       (2,722)        1,962 
                                         -------     -------      -------      --------
Long-term debt, less current
  maturities                            $400,248     $18,231     $(94,321)     $324,158
                                        ========     =======     ========      ========

</TABLE>


<PAGE>


                           ALLIANCE GAMING CORPORATION
                                    FORM 10-Q

                      For the Quarter Ended March 31, 1999




ITEM 2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND 
         RESULTS  OF OPERATIONS

Liquidity and Capital Resources

At March 31,  1999,  based on the terms of the $90.0  million  Revolving  Credit
Facility, the Company would have been able to borrow $63.0 million, of which the
Company had borrowings of approximately $39.1 million outstanding. The borrowing
base for the revolving  credit  facility  consists of eligible  receivables  and
inventory, as defined in the credit agreement.

At March 31, 1999,  the Company had $29.2  million in cash and cash  equivalents
and $23.9 million in unborrowed  availability  on its revolving  credit facility
pursuant to the borrowing base limitations contained in the credit agreement. In
addition,  the Company had working capital of  approximately  $113.9 million,  a
decrease of  approximately  $5.6 million from June 30, 1998,  which is explained
below.  Consolidated  cash  and cash  equivalents  at March  31,  1999  includes
approximately  $15.8  million  of cash  which is  utilized  in Casino  and Route
Operations which is held in vaults, cages or change banks.

The Company is in compliance with the financial and maintenance  covenants under
both the credit agreement for the Bank Facility as amended and the Indenture for
the Senior Subordinated Notes.

Management  believes  that cash flow from  operating  activities,  cash and cash
equivalents held and the  availability  under the revolving credit facility will
provide the Company with sufficient  capital  resources and liquidity.  At March
31,  1999,  the Company  did not have any  significant  commitments  for capital
expenditures.

Working Capital

During the nine months  ended March 31, 1999,  working  capital  decreased  $5.6
million to $113.9 million. The primary fluctuations in working capital were: (i)
a decrease in accounts  receivable  resulting  from cash  collections  and lower
revenues at the Wall Machine and Amusement Game business unit,  (ii) an increase
in inventory due new  proprietary  gaming  products  manufactured in the current
quarter and expected to be deployed in the June 1999  quarter,  (iii) a decrease
in other current  assets  resulting from  amortizing  prepaid  expenses,  (iv) a
decrease in accrued  liabilities due to payments of accrued interest payable and
a final payment in settlement of litigation,  (v) the impact of foreign exchange
fluctuations  between the dollar and the  deutschemark  on all  working  capital
categories,  (vi)  increases  in  accounts  payable  based  on the  increase  in
inventory levels and timing of payments,  and (vii) the corresponding  impact of
the above listed items on cash and cash equivalents.

Cash Flow

During the nine months ended March 31,  1999,  $14.0  million was provided  from
operating  activities  resulting from a net decrease in accounts  receivable,  a
decrease  in  other  current  assets,   an  increase  in  accounts  payable  and
depreciation  and  amortization,  partially offset by a net loss, an increase in
inventories  primarily at Bally  Gaming and  Systems,  and a decrease in accrued
expenses based on timing of interest payments.

During the nine months  ended March 31, 1999 the Company  used $12.0  million of
cash in investing  activities  primarily  resulting from $7.9 million in capital
expenditures,  $1.5  million  of  payments  made  in  acquiring  the  rights  to
manufacture and distribute several gaming products, and $1.5 million of payments
in acquiring gaming rights of route locations.

During the nine  months  ended March 31,  1999,  $3.8  million  was  provided by
financing  activities  primarily  resulting from additional  borrowings from the
Company's  revolving  credit  facility of $4.2  million and $4.8 million of cash
proceeds  from the  exercise  of certain  warrants  to  purchase  common  stock,
partially offset by $4.7 million used to reduce the Company's long-term debt and
$0.5 million used to repurchase the Company's common stock for treasury.

The following is a summary of the Company's  earnings  before  interest,  taxes,
depreciation and amortization (EBITDA) by business unit:

                                      Three Months              Nine Months
                                    Ending March 31,          Ending March 31,
                                      1998     1999            1998      1999
                                                 (In $000's)
EBITDA by Business Unit:
Bally Gaming and Systems            $ (539)  $ 4,777         $ 5,387    $ 2,205
Wall Machines and Amusement Games    6,598     3,178          14,409      7,610
Route Operations                     6,364     6,504          18,746     18,217
Casino Operations                    5,724     6,106          14,938     16,153
Corporate Administrative Expenses   (3,643)   (5,177)        (11,823)   (13,105)
Unusual Items                          -         -             2,545         - 
                                   -------   -------         -------    -------
    EBITDA                         $14,504   $15,388         $44,202    $31,080 
                                   =======   =======         =======    =======

The Company  believes  that the  analysis  of EBITDA is a useful  adjunct to net
income, cash flow and other GAAP measurements.  However, this information should
not be  construed as an  alternative  to net income or any other GAAP measure of
performance as an indicator of the Company's performance or to GAAP-defined cash
flows generated by operating, investing and financing activities as an indicator
of cash flows or a measure of liquidity.

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 holds the Company's
interest in its Louisiana  operations and other  non-material  subsidiaries  (as
defined),  and  secured by both a U.S.  and  German  Pledge  Agreement  (both as
defined).  The Bank Facility  contains a number of maintenance  covenants and it
and the Indenture have 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,  issue preferred stock, pay dividends
or make other distributions, enter into certain acquisitions,  repurchase equity
interests  (as  defined)  or  subordinated  indebtedness,  issue or sell  equity
interests  of the  Company's  subsidiaries  (as  defined),  engage in mergers or
acquisitions,   or  engage  in  certain   transactions   with  subsidiaries  and
affiliates,  and that otherwise  restrict corporate  activities.  In the quarter
ended  December 31,  1998,,  the Company did not meet  certain  covenants in the
credit agreement.  The Company and the banks have amended the current and future
financial  maintenance  covenants in the credit agreement effective December 31,
1998 such that the Company is in compliance with such covenants.

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,  respectively.  Competitive
conditions  sometimes  require  Gaming  Equipment 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
will have  greater  exposure to the  financial  condition  of its  customers  in
emerging markets than has historically been the case in established markets like
Nevada  and  Atlantic  City.  Bally  Wulff  provides   customer   financing  for
approximately  15% of  its  sales  and  also  provides  lease  financing  to its
customers.  Lease terms are generally for six months, but are also available for
up to 43 months.

Year 2000

The Year 2000 readiness issue,  which is common to most businesses,  arises from
the inability of information systems, and other time and date sensitive products
and systems, to properly recognize and process date-sensitive information on and
beyond  January 1, 2000. The result could create errors in information or system
failures. Assessments of the potential cost and effects of Year 2000 issues vary
significantly  among  businesses,  and it is extremely  difficult to predict the
actual impact. Recognizing this uncertainty, management has and is continuing to
actively  analyze,  assess  and plan for  various  Year 2000  issues  across its
businesses.

The Year 2000 issue has an impact on both information  technology ("IT") systems
and non-IT systems,  such as its manufacturing  systems and physical  facilities
including,  but  not  limited  to,  security  systems  and  utilities.  Although
management  believes  that a majority of the  Company's IT systems are Year 2000
ready,  certain  systems  still have to be tested for Year 2000  readiness.  The
Company  plans to  replace or  upgrade  those  systems  that are  identified  as
non-Year  2000  ready  during  calendar  1999.  Certain  IT  systems  previously
identified  as non-Year  2000  compliant  are being  upgraded or replaced  which
should be complete by October 31,, 1999. Non-IT system issues are more difficult
to identify and resolve.  The Company is actively  identifying  non-IT Year 2000
issues  concerning its products and services,  as well as its physical  facility
locations.  As non-IT areas are identified,  management formulates the necessary
actions to ensure  minimal  disruption  to its  business  processes.  Management
engaged  outside  consultants to assist and advise  management in its assessment
process and  received the  consultant's  final  report.  The Company has already
started to implement their  recommendations,  such as establishing a centralized
project  management  organization  to lead the  Company  through  its Year  2000
efforts.  This  organization  includes  dedicated outside resources and internal
business representatives.  Although management believes that its efforts will be
successful  and  the  costs  will be  immaterial  (currently  estimated  between
$400,000 to  $500,000)  to its  consolidated  financial  position and results of
operations,  it  also  recognizes  that  any  failure  or  delay  could  cause a
disruption in its business and have a significant  financial impact. To minimize
this  potential  impact,  the  Company is  actively  planning  and  designing  a
contingency plan to support critical business processes.

The Company has also initiated  efforts to ensure the Year 2000 readiness of its
products  and  services.  As part of its  assessment  of  current  products  and
services,  the Company is  currently  upgrading  all current  Bally  Systems SDS
customers to version 7.0  software,  for which the Company has  developed a Year
2000 compliance "patch" which is currently being distributed.  The Company plans
to have all customers  upgraded to version 7.0 with the patch by July 1999.  The
Company is in the final  stages of testing  version 7.1 of the  software,  which
will be  Year  2000  compliant.  The  Company  expects  to  begin  shipping  and
distributing version 7.1 by June 1999. Customers are also being advised that the
IBM or Unix  operating  systems they are using must also be upgraded to versions
that are Year 2000  compliant.  Bally Systems has obtained the operating  system
upgrades  from the  vendors and has offered to assist  users in  installing  the
upgrade.  The Company has also tested most of the current products  manufactured
in the United  States and Germany in recent years to determine  compliance  with
Year 2000. The Company is actively evaluating its strategy and legal obligations
for any communication to its customers.

Management  continues to  formulate  new plans and update  existing  plans as it
progresses  in its research and  investigation.  The Year 2000  readiness of its
customers  varies,  and the Company is encouraging its customers to evaluate and
prepare  their own  systems.  These  efforts by  customers  to address Year 2000
issues may affect the demand for certain  products and  services;  however,  the
impact to the revenue or any change in revenue patterns is highly uncertain.

The Company has also initiated  efforts to assess the Year 2000 readiness of its
key suppliers and business partners.  The Company's  direction in this effort is
to ensure the  adequacy of  resources  and  supplies to minimize  any  potential
business interruptions.  Management plans to complete this part of its Year 2000
readiness  plan in the third quarter of calendar  1999. As part of the Company's
contingency plans,  management will begin to identify and solidify relationships
with and access to alternative suppliers and resources to ensure the support and
continuation of its critical business operations.

The Year 2000 issue  presents  a number of other  risks and  uncertainties  that
could impact the Company,  such as public  utility  failures,  potential  claims
against it for damages arising from products and services that are not Year 2000
compliant,  and the  responsibility of certain government and gaming commissions
of the various  jurisdictions  where the Company  conducts  business.  While the
Company  continues  to believe  the Year 2000  issues  described  above will not
materially affect its consolidated  financial position or results of operations,
it remains uncertain as to what extent, if any, the Company may be impacted.

Euro Currency Conversion

The  Company's  Bally  Wulff  subsidiary  uses  the  German  deutschmark  as its
functional currency.  The new Euro currency will replace the deutschmark as well
as most other European  currencies after a phase in period,  which began January
1, 1999. 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.  The Company's  products can be brought into Euro compliance by moving a
switch  inside the wall  machine,  changing the coin  handling  tubes inside the
machine and modifying the front glass to show Euros instead of deutschmarks. The
cost of this conversion to Euro denominations will be borne by the customers.

The  Company  currently  has  borrowings  outstanding  on its  revolving  credit
facility,  a portion of which has a floating  rate of interest  tied to the Euro
deutschmark  rate.  Upon the full  implementation  of the Euro, as of January 1,
2002, the interest rate will be tied to this new index. The impact of the change
in this index, if any, is not known and can not be quantified at this time.


<PAGE>


Results of Operations:

General

The Company operates through four segments  organized by the following  business
units: (i) gaming equipment and systems,  (ii) wall machines and amusement games
(consisting of the manufacture and distribution of wall-mounted  gaming machines
and  distribution of other  recreational  and amusement  machines),  (iii) route
operations and (iv) casino operations.

The following tables set forth the combined revenues and operating income (loss)
for the four business units for the three months and nine months ended March 31,
1998 and 1999:

                                 Three Months Ending       Nine Months Ending
                                      March 31,                March 31,
                                   1998      1999           1998       1999
                                                 (In $000's)
Revenues:
 Bally Gaming and Systems         $ 21,538   $ 38,406       $ 76,160   $ 82,847
 Wall Machines and Amusement Games  28,340     24,845         77,132     69,225
 Route Operations                   37,054     46,037        109,749    128,791
 Casino Operations                  15,294     16,445         43,870     47,551
                                   -------    -------        -------    -------
Total Revenues                    $102,226   $125,733       $306,911   $328,414
                                  ========   ========       ========   ========

Operating Income (Loss):
 Bally Gaming and Systems          $(2,504)    $3,726        $ 1,021    $  (581)
 Wall Machines and Amusement Games   5,246      2,234         10,113      4,513
 Route Operations                    4,309      3,789         12,752     10,226
 Casino Operations                   5,203      5,524         13,403     14,409
 Corporate Administrative Expenses  (4,266)    (5,595)       (12,960)   (14,356)
                                    ------     ------        -------    -------
   Subtotal                          7,988      9,678         24,329     14,211
 Unusual Items                          -          -           2,545         -
                                    ------     ------        -------    -------
Total Operating Income (Loss)       $7,988     $9,678        $26,874    $14,211 
                                    ======     ======        =======    =======

Three Months Ended March 31, 1998 and 1999

Bally Gaming and Systems

For the quarter  ended March 31, 1999,  Bally Gaming and Systems  business  unit
reported revenues of $38.4 million, a 78% increase compared to revenues of $21.5
million  in the  prior  year  quarter.  Bally  Gaming  reported  unit  sales  of
approximately  4,450 new gaming  machines,  an increase of 137% compared to unit
sales of  approximately  1,900 in the prior year  quarter  due  primarily  to an
overall  increase  in  market  demand  and the  successful  introduction  of new
products  recently  licensed in more  jurisdictions.  By market  segment,  Bally
Gaming's unit sales for the quarter  consisted of approximately 750 units to the
Nevada and Atlantic City markets,  3,000 units to international  markets and 700
units to riverboats,  Native American and other domestic  markets.  Bally Gaming
reported  revenues  from the sale of new gaming  machines of $26.3  million,  an
increase  of 168%  compared  to $9.8  million in the prior year  quarter  due to
higher unit volume and a 12% increase in average  selling  prices over the prior
year quarter.  Bally Systems reported  revenues of $6.7 million,  an increase of
10% compared to revenues of $6.1 million in the prior year quarter. In addition,
revenues from recurring  revenue  sources were $1.7 million,  an increase of 55%
compared to revenues of $1.1 million in the prior year quarter.

For the quarter ended March 31, 1999, gross profit margins increased to 46% from
39% in the prior year quarter.  The improvement was due primarily to a change in
product  mix to higher  margin  gaming  machines,  higher  revenues  from gaming
machines that provide  recurring revenue to the Company and the impact of higher
production  at the  manufacturing  facility.  Bally Gaming and Systems  reported
operating  income of $3.7 million  compared to an operating loss of $2.5 million
in the prior year quarter.  The improvement resulted from higher revenues and an
improved gross margin  percentage,  partially offset by higher selling,  general
and administrative  costs, and higher research and development  costs.  Research
and development  costs totaled $4.1 million,  an increase of 28 percent over the
prior year quarter,  resulting from the Company's  ongoing efforts to expand its
new and existing product offerings. Selling, general and administrative expenses
increased due to higher  marketing costs related to new product launches and the
implementation of a product management organization focus.

Wall Machines and Amusement Games

For the quarter  ended March 31, 1999,  the Wall  Machines and  Amusement  Games
business unit reported revenues of $24.8 million,  a decrease of 12% compared to
revenues  of $28.3  million  in the prior  year  quarter.  The  revenue  decline
resulted from a 28 percent decrease in unit shipments of new wall machines, a 12
percent  decrease in leased wall machine  revenues,  discussed  below,  and a 25
percent  decrease in  amusement  game  distribution  revenues  both due to lower
market demand. This was partially offset by a 40 percent increase in the average
selling  price of new wall  machines  due  primarily  to sales of wall  machines
coupled with a new single-site  progressive jackpot system. The foreign currency
fluctuation between the dollar and the deutschmark increased revenues and EBITDA
by $1.0 million and $0.1 million,  respectively,  in the quarter ended March 31,
1999.

Wall Machines and Amusement  Games continued its leasing program whereby new and
used wall  machines  and new and used  amusement  games are leased to  customers
pursuant to operating  leases.  These leases provide Wall Machines and Amusement
Games with a stream of revenues and cash flow over the life of the leases, which
range from six months to three and one half years.  Lease revenues  decreased as
the total number of machines out on lease decreased by 15% between  quarters and
the  average  monthly  lease rate  decreased  by 1% due to  competitive  pricing
pressures.

For the quarter ended March 31, 1999,  gross profit margin decreased to 40% from
43% in the prior year quarter.  This decrease was due to the unfavorable  impact
of lower  revenues,  a higher volume of trade-ins of used equipment on the sales
of new wall machines and lower production at the  manufacturing  facility.  Wall
Machines and Amusement Games reported operating income of $2.2 million, compared
to $5.2 million in the prior year quarter.  The decrease in operating income was
primarily   due  to  decreased   revenues  and  higher   selling,   general  and
administrative  expenses,  including a higher  provision for doubtful  accounts,
partially offset by lower depreciation  expense resulting from a lower installed
base of leased equipment.

Route Operations

For the  quarter  ended  March 31,  1999,  the Route  Operations  business  unit
reported  revenues of $46.0 million,  an increase of 24% compared to revenues of
$37.1  million in the prior year  quarter.  Revenues  for the Nevada  operations
increased  28% as net win per gaming  machine per day  increased  to $60.50 from
$55.00 in the prior year quarter,  while the average  number of gaming  machines
increased to 7,330 from 6,310 in the prior year quarter primarily resulting from
the  additional  machines added as a result of new locations and taking over the
contracts  to  operate  locations  previously  served by  competitors.  Revenues
continue  to be  strong in  Southern  Nevada,  particularly  in  Gamblers  Bonus
locations.  As of March 31, 1999,  the Gamblers  Bonus  product was installed in
approximately  2,300 gaming  machines at 200  locations  statewide or 32% of its
installed  base  of  gaming  machines.  Revenues  for the  Louisiana  operations
increased  3%. The revenue  improvement  was primarily due to an increase in the
average  gaming machine net win per day of 8% to $85.40 from $79.20 in the prior
year  quarter,  partially  offset a  decrease  in the  average  number of gaming
machines deployed of 4% to 750 machines from 780 machines.

For the quarter  ended March 31, 1999,  cost of revenues  increased 26% to $36.2
million compared to $28.8 million in the prior year quarter.  As a percentage of
revenues,  cost of revenues increased to 79% from 78% in the prior year quarter.
Nevada route  operations cost of revenues  increased 29%, and as a percentage of
revenues  increased to 81% from 80% in the prior year  quarter due  primarily to
the lower  margins in  Southern  Nevada  route  locations  due  primarily  to an
increase in rental and  participation  payments on gaming  machines  and reduced
margins at new locations.  Louisiana  operations cost of revenues  increased 3%,
and as a percentage of revenues remained consistent at 64% between quarters. The
Route  Operations  business unit reported  operating  income of $3.8 million,  a
decrease of 12% compared to  operating  income of $4.3 million in the prior year
quarter.  The  decrease  in  operating  income  resulted  primarily  from higher
operating costs, higher selling, general and administrative expenses,  primarily
increased  marketing  costs at the Nevada  route  operations  and an increase in
depreciation  from an increase  in the number of gaming  machines  deployed  and
amortization of costs incurred in taking over contracts in the prior fiscal year
for the Nevada route operations, partially offset by higher revenues.

Casino Operations

For the quarter  ended  March 31,  1999,  the Casino  Operations  business  unit
reported  revenues of $16.4  million,  an increase of 8% compared to revenues of
$15.3  million in the prior year  quarter.  This  increase  was a result of a 5%
increase at the Rainbow Hotel Casino and a 16% increase at the Rail City Casino.
The  improvement at the Rainbow Hotel Casino was  attributable to an increase in
the average gaming machine net win per day of 15% to $172 from $150 in the prior
year quarter,  partially offset by a 1 percent decrease in the average number of
gaming machines and the impact from the removal of 3 table games.  The number of
gaming machines decreased from the March 1998 quarter as a result of temporarily
removing  machines  as part of an  internal  remodeling  project  which  will be
completed during the September 1999 quarter. The revenue improvement at the Rail
City Casino was  attributable  to an increase in the average  gaming machine net
win per day of 8% to $65 from $60 in the prior year  quarter  and an 8% increase
in the average number of gaming machines,  partially offset by a lower number of
table games.

For the quarter ended March 31, 1999, the cost of revenues for Casino Operations
increased 7% to $6.8 million  compared to $6.4 million in the prior year quarter
but, as a percentage  of revenues,  remained  stable at 42% between  quarters as
costs  increased  proportionally  with the  increase  in  revenues.  The  Casino
Operations   business  unit  reported  operating  income  of  $5.5  million,  an
improvement of 6% compared to operating income of $5.2 million in the prior year
quarter.  Operating  income at the Rainbow Hotel Casino  increased by 3% to $4.9
million due  primarily to the increase in revenues,  partially  offset by higher
selling, general and administrative  expenses,  primarily higher promotional and
marketing  costs.  Operating  income at the Rail City  increased  by 47% to $0.6
million  primarily due to the increase in revenues coupled with stable operating
costs and  selling,  general  and  administrative  expenses as a  percentage  of
revenues.

Consolidated

Total  revenues for the quarter  ended March 31, 1999,  were $125.7  million,  a
increase  of 23%  compared  to  revenues  of $102.2  million  in the prior  year
quarter.  The increase is primarily due to the  aforementioned  increases at the
Bally Gaming and Systems, Route Operations and Casino Operations business units,
partially  offset by a decrease in revenues from the Wall Machines and Amusement
Games business unit.

Cost of revenues for the quarter ended March 31, 1999,  were $78.5  million,  an
increase of 22%  compared to $64.3  million in the prior year  quarter.  Cost of
revenues as a percentage of total revenues improved to 62% from 63% in the prior
year quarter.  The  improvement  was primarily due to the decrease in costs as a
percentage of revenues at the Bally Gaming and Systems business unit,  partially
offset by an increase in costs as a percentage  of revenues at the Wall Machines
and Amusement Games and the Route Operations business units.

Selling,  general and  administrative  expenses for the quarter  ended March 31,
1999 were  approximately  $26.9  million,  an increase  38% compared to costs of
$19.5 million for the prior year  quarter.  This increase is due to increases in
expenses  at all of the  business  units,  an increase  in  Corporate  expenses,
primarily  an  increase in payroll  and  related  costs,  and an increase in the
provision for doubtful accounts.

Research  and  development  costs for the  quarter  ended  March  31,  1999 were
approximately $4.9 million, an increase of 25% compared to costs of $4.0 million
in the prior year  quarter.  This  increase is due to  increases in costs at the
Bally Gaming and Systems and the Wall  Machines  and  Amusement  Games  business
units.

Depreciation  and  amortization  for  the  quarter  ended  March  31,  1999  was
approximately  $5.7  million,  a decrease of 12% compared to $6.5 million in the
prior year  quarter as  decreases  at the Bally  Gaming and Systems and the Wall
Machines and Amusement  Games business units were partially  offset by increases
at the Route Operations and Casino Operations business units.

Net Interest Expense and Income Taxes

Net interest  expense in the three months ended March 31, 1999 increased to $8.1
million from $7.3 million in the 1998 quarter.  The increase is primarily due to
a one time fee  associated  with amending the credit  agreement,  coupled with a
higher  average  amount of working  capital  borrowings in the current  quarter,
partially  offset by lower  interest  rates.  During the  quarter,  the  Company
increased its total  indebtedness  by $8.8  million,  primarily due to increased
working  capital  borrowings and the  semi-annual  payment of interest on its 10
percent subordinated notes.

The Company recorded an income tax benefit of $0.2 million in the March 31, 1999
quarter  compared to an income tax  provision  of $1.2 million in the prior year
quarter.  The current  quarter  benefit is  primarily  due to tax losses for the
Bally Wulff  entities,  which will be carried back to the prior year,  partially
offset by various state income tax provisions.

Nine Months Ended March 31, 1998 and 1999

Bally Gaming  and Systems

For the nine months ended March 31, 1999 the Bally  Gaming and Systems  business
unit reported revenues of $82.8 million,  an increase of 9% compared to revenues
of $76.2 million in the prior year period.  The improvement was primarily due to
an increase in System sales, an increase in recurring  revenue from  proprietary
gaming machines and an increase in average selling price of new gaming machines,
partially  offset by a decrease in unit sales.  Bally Gaming reported unit sales
of approximately  8,400 new gaming machines,  a decrease of 11% compared to unit
sales of approximately 9,500 in the prior year period. By market segment,  Bally
Gaming's unit sales for the period consisted of approximately 1,700 units to the
Nevada and Atlantic City markets, 5,300 units to international markets and 1,400
units to riverboats,  Native American and other domestic  markets.  Bally Gaming
reported  revenues  from the sale of new gaming  machines  of $46.9  million,  a
decrease of 2% compared to $47.8  million in the prior year quarter due to lower
unit volume  partially  offset by a 9% increase in average  selling price of new
gaming machines.  Bally Systems sales increased to $17.9 million, a 20% increase
compared to $14.9 million in the prior year period.  In addition,  revenues from
recurring  revenue  sources  were $4.4  million,  an increase of 64% compared to
revenues of $2.7 million in the prior year period.

For the nine months  ended March 31, 1999 gross profit  margins  improved to 45%
from 41% in the prior year period. The improvement was due primarily to a change
in product mix to higher margin gaming  machines,  higher revenues from machines
that  provide  recurring  revenue  to the  Company  and  the  impact  of  higher
production at the manufacturing  facility.  Bally Gaming and Systems reported an
operating loss of $0.6 million, compared to operating income of $1.0 million for
the prior year period. The decrease in operating income resulted primarily from,
higher selling, general and administrative expenses,  primarily higher marketing
costs  related  to new  product  launches  and the  implementation  of a product
management  organization  focus  and  higher  research  and  development  costs,
partially offset by higher revenues and improved gross margins.

Wall Machines and Amusement Games

For the nine months ended March 31, 1999, the Wall Machines and Amusement  Games
business unit reported revenues of $69.2 million,  a decrease of 10% compared to
revenues of $77.1  million in the prior year period.  The  currency  translation
impact of the  fluctuation of the deutschmark  versus the U.S. dollar  increased
revenues by $2.7 million  during the current year period.  The revenue  decrease
resulted  primarily  from a 28% decrease in unit  shipments of new wall machines
due to lower market demand, a 9% decrease in leased wall machine revenues due to
a lower  installed base of leased  machines and a 12% decrease in amusement game
distribution  revenues,  partially offset by a 14% increase in the average sales
price of new wall machines, due primarily to sales of wall machines coupled with
a new single-site  progressive  jackpot  system,  and a 9% increase in used wall
machine revenues.

Wall  Machines and  Amusement  Games  continued  to develop its leasing  program
whereby new and used wall machines and new and used  amusement  games are leased
to customers  pursuant to  operating  leases  which  provide  Wall  Machines and
Amusement  Games  with a stream of  revenues  and cash flow over the life of the
leases,  which range from six months to three and one half years. Lease revenues
decreased as the total number of machines out on lease  decreased by 15% between
periods and the average  monthly lease rate  decreased by 3% due to  competitive
pricing pressures.  At March 31, 1999  approximately  5,050 machines were out on
lease compared to approximately 5,900 machines at March 31, 1998.

For the nine months ended March 31, 1999,  gross profit margin  decreased to 40%
from 44% in the  prior  year  period.  The  decrease  in gross  margin  resulted
primarily  from higher volume of trade-ins of used  equipment on the sale of new
wall  machines,  higher  fixed costs per unit due to lower sales volume and by a
decrease in higher margin lease  revenues.  Wall  Machines and  Amusement  Games
reported  operating income of $4.5 million compared to operating income of $10.1
million in the prior year  period.  The decrease in  operating  income  resulted
primarily from the aforementioned  decrease in revenues and lower gross margins.
Selling,  general and  administrative  expenses  have  increased by less than 1%
between periods.

Route Operations

For the nine months ended March 31, 1999,  the Route  Operations  business  unit
reported revenues of $128.8 million,  an increase of 17% compared to revenues of
$109.7  million in the prior  year  period.  Nevada  route  operations  revenues
increased 20% as net win per gaming  machine per day increased 5% to $56.20 from
$53.60  in the prior  year  period  and the  average  number of gaming  machines
increased 14% to 7,240 from 6,370 in the prior year period.  The increase in the
average number of gaming  machines in Nevada  reflects the  additional  machines
added for new  locations  and taking  over the  contracts  to operate  locations
previously served by competitors.  The improvement in net win per gaming machine
per day in Nevada  resulted  primarily from the continuing  favorable  impact of
Gamblers  Bonus,  a cardless  slot  player's  club and player  tracking  system.
Louisiana route operations  revenues  increased 4% as net win per gaming machine
per day  increased  6% to $80.40 from $76.10 in the prior year period  while the
average number of gaming machines decreased 1% to 740 machines.

For the nine months  ended  March 31,  1999,  Nevada  route  operations  cost of
revenues  increased 21% and, as a percentage of revenues,  increased to 80% from
79% in the prior year  period  primarily  due to an  increase  in direct  costs,
principally an increase in rental and participation  payments on gaming machines
and  reduced  margins  at new  locations.  Louisiana  route  operations  cost of
revenues  increased 6% and as a percentage of revenues increased to 65% from 64%
in the prior  year  period due to higher  direct  costs,  principally  increased
health insurance  costs.  Route  Operations  reported  operating income of $10.2
million,  a decrease of 20% compared to operating income of $12.8 million in the
prior year quarter. The decrease in operating income resulted primarily from the
increase in operating costs, an increase in selling,  general and administrative
expenses due to  increases in  promotions  and  advertising  costs at the Nevada
route operations,  a higher provision for doubtful receivables,  and an increase
in  depreciation  expense  as a result of the  increase  in the number of gaming
machines deployed and amortization of costs incurred in taking over contracts in
the prior fiscal year for the Nevada route  operations,  partially offset by the
increase in revenues.

Casino Operations

For the nine months ended March 31, 1999,  the Casino  Operations  business unit
reported  revenues of $47.6  million,  an increase of 8% compared to revenues of
$43.9 million in the prior year period.  This increase reflects a 9% increase at
the  Rainbow  Hotel  Casino  and a 6%  increase  at the Rail  City  Casino.  The
improvement at the Rainbow Hotel Casino was  attributable  to an increase in the
average gaming machine net win per day of 4% to $152 from $146 in the prior year
quarter coupled with a 2% increase in the average number of gaming machines. The
increase in revenues  at the Rail City Casino  resulted  from an increase in the
average  gaming  machine net win per day of 5% to $62 from $59 in the prior year
quarter and a 4% increase in the average  number of gaming  machines,  partially
offset by lower food and beverage revenues.

For the nine  months  ended  March 31,  1999,  the cost of  revenues  for Casino
Operations  increased 7% to $20.2 million compared to $18.9 million in the prior
year period but, as a percentage  of  revenues,  improved to 42% from 43% in the
prior year period. Casino Operations reported operating income of $14.4 million,
an improvement of 8% compared to operating  income of $13.4 million in the prior
year period.  Operating  income at the Rainbow  Hotel Casino  increased by 5% to
$12.9  million due  primarily to the increase in revenues,  partially  offset by
higher  selling,   general  and   administrative   expenses,   primarily  higher
promotional  and  marketing  costs  and an  increase  in  depreciation  expense.
Operating income at the Rail City increased by 38% to $1.5 million primarily due
to  the   increase  in  revenues   and  a  decrease  in  selling,   general  and
administrative expenses.

Consolidated

Total revenues for the nine months ended March 31, 1999, were $328.4 million, an
increase of 7%  compared to revenues of $306.9  million in the prior year period
as the improvements at Bally Gaming and Systems, the Route Operations and Casino
Operations business were partially offset by a decrease at the Wall Machines and
Amusement Games business unit.

Cost of revenues for the nine months ended March 31, 1999,  were $208.4 million,
an increase of 9% compared to $191.0  million in the prior year period.  Cost of
revenues as a  percentage  of total  revenues  increased  to 64% from 62% in the
prior year period as the improvements at the Bally Gaming and Systems and Casino
Operations  business  units  were more  than  offset  by  increases  at the Wall
Machines and Amusement Games and Route Operations business units.

Selling, general and administrative expenses for the nine months ended March 31,
1999 were approximately  $75.8 million,  an increase of 18% compared to costs of
$64.0 million for the prior year quarter. This increase is due to an increase in
expenses at all of the business units,  an increase in Corporate  expenses and a
higher provision for doubtful receivables.

Research  and  development  costs for the nine months  ended March 31, 1999 were
approximately  $13.1  million,  an  increase  of 28%  compared to costs of $10.3
million in the prior year.  This  increase is due to  increases  in costs at the
Bally Gaming and Systems and the Wall  Machines  and  Amusement  Games  business
units.

Depreciation and amortization for the nine months ended March 31, 1999 was $16.9
million,  a 3%  decrease  compared to  depreciation  and  amortization  of $17.3
million  in the prior year  quarter as  increases  at the Route  Operations  and
Casino  Operations  business  units more than offset by  decreases  at the Bally
Gaming and Systems and the Wall Machines and Amusement Games business units.

Net Interest Expense and Income Taxes

Net interest  expense in the nine months ended March 31, 1999 increased to $23.1
million  compared to the net interest expense of $20.4 million in the prior year
period.  The increase is due primarily to higher  interest  costs which resulted
from the additional  debt taken on in the Refinancing  Transaction  completed in
September  1997, a higher  average amount of working  capital  borrowings in the
current period and a one time fee associated with amending the credit  agreement
in January 1999,  partially offset by the elimination of interest on the 12 7/8%
Senior Secured Notes and lower interest rates.

The Company  recorded  an income tax benefit of $0.3  million in the nine months
ended March 31, 1999  compared to a provision  of $2.2 million in the prior year
period.  The current year benefit is due primarily to tax losses,  which will be
carried back for the Bally Wulff  entities,  partially  offset by various  state
income tax provisions.

                                         * * * * *

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,  uncertain  effect of
National  Gambling  Commission,  and other risks including Year 2000 issues,  as
detailed  from time to time in the  Company's  filings with the  Securities  and
Exchange Commission.



<PAGE>



                                          PART II



Item 6.   Exhibits and Reports on Form 8-K

          a.    Exhibits

          11    Computation of per share amounts

          27.1  Financial Data Schedule

          27.2  Restated Financial Data Schedule







<PAGE>


                                  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/ Morris Goldstein  
          -----------------------------            
          President and Chief Executive Officer
          (Principal Executive Officer)




    By      /s/ Scott D. Schweinfurth  
          -----------------------------      
          Sr. Vice President, Chief Financial
          Officer and Treasurer (Principal
          Financial and Accounting Officer)