##### Table of Contents



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, 2002
 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
incorporation or organization) |  | (I.R.S. Employer
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 1,
2002, according to the records of the registrants registrar and transfer agent
was 48,730,000.



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TABLE OF CONTENTS



|           |                                                                                               |                                                                     |  |  |  |  |  | 
|---------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- |  |  |  |  |  | 
|PART 1    
|           |                                                                                               | UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS                    
|           |                                                                                               | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS          
|           |                                                                                               | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|           |                                                                                               | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS          
|           |                                                                                               | NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS     
|           | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|           | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II   
|           | ITEM 1. Legal Proceedings                                                                    
|           | ITEM 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES



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##### Table of Contents



ALLIANCE GAMING CORPORATION
FORM 10-Q
 March 31, 2002
 I N D E X

|                                   |                                                                                                              |      |       |  | 
|---------------------------------- | ------------------------------------------------------------------------------------------------------------ | ---- | ----- |  | 
|PART I.      FINANCIAL INFORMATION |                                                                                                              | Page
|                                   |                                                                                                             
|Item 1.                            | Unaudited Financial Statements                                                                               |     
|                                  
|                                   | Unaudited Condensed Consolidated Balance Sheets as of June 30, 2001
and March 31, 2002                       |      | 3     | 
|                                  
|                                   | Unaudited Condensed Consolidated Statements of Operations
for the three months ended March 31, 2001 and 2002 |      | 4     | 
|                                  
|                                   | Unaudited Condensed Consolidated Statements of Operations
for the nine months ended March 31, 2001 and 2002  |      | 5     | 
|                                  
|                                   | Unaudited Condensed Consolidated Statements of Stockholders Equity
for the nine months ended March 31, 2002 |      | 6     | 
|                                  
|                                   | Unaudited Condensed Consolidated Statements of Cash Flows
for the nine months ended March 31, 2001 and 2002  |      | 7     | 
|                                  
|                                   | Notes to Unaudited Condensed Consolidated Financial Statements                                               |      | 8-21  | 
|                                  
|Item 2.                            | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |      | 22-28 | 
|                                  
|Item 3.                            | Quantitative and Qualitative Disclosures About Market Risk                                                   |      | 29    | 
|                                  
|PART II.    OTHER INFORMATION     
|                                  
|Item 1.                            | Legal Proceedings                                                                                            |      | 29    | 
|                                  
|Item 6.                            | Exhibits and Reports on Form 8-K                                                                             |      | 29    | 
|                                  
|SIGNATURES                         |                                                                                                              | 30  



2



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##### Table of Contents






PART 1




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

|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |           |         |         |         | 
|------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------------------- | ------------------------------------------ | ------- | -------- | ------- | --------- | ------- | ------- | ------- | 
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         | June 30, |         | March 31,
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         | 2001     |         | 2002     
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|ASSETS                                                                                                       |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|Current assets:                                                                                              |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|                                                                                                             | Cash and cash equivalents                                                                                                       |                      | $                         | 54,845                                     |         |          | $       | 48,982    |        
|                                                                                                             | Accounts and notes receivable, net of allowance for doubtful
accounts of $15,591 and $15,260                                    |                      |                           | 79,369                                     |         |          |         | 91,255    |        
|                                                                                                             | Inventories, net of reserves of $7,128 and $8,328                                                                               |                      |                           | 35,082                                     |         |          |         | 48,813    |        
|                                                                                                             | Other current assets                                                                                                            |                      |                           | 10,814                                     |         |          |         | 10,958    |        
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|                                                                                                             |                                                                                                                                 | Total current assets |                           |                                            | 180,110 |          |         |           | 200,008 |        
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|Long-term notes receivable, net of allowance for doubtful
accounts of $410 and $648                          |                                                                                                                                 |                      | 1,433                     |                                            |         |          | 1,905   |          
|Leased equipment, net of accumulated depreciation of $14,986 and $14,175                                     |                                                                                                                                 |                      | 22,677                    |                                            |         |          | 26,019  |          
|Property, plant and equipment, net of accumulated depreciation
of $74,245 and $77,181                        |                                                                                                                                 |                      | 88,412                    |                                            |         |          | 95,080  |          
|Excess of costs over net assets of acquired businesses, net of
accumulated amortization of $7,433 and $7,481 |                                                                                                                                 |                      | 49,514                    |                                            |         |          | 54,576  |          
|Intangible assets, net of accumulated amortization of $20,693 and $25,189                                    |                                                                                                                                 |                      | 22,212                    |                                            |         |          | 37,036  |          
|Deferred tax assets, net of valuation allowance of $66,829 and $53,977                                       |                                                                                                                                 |                      | 11,944                    |                                            |         |          | 15,524  |          
|Other assets, net of reserves of $1,826 and $1,875                                                           |                                                                                                                                 |                      | 3,895                     |                                            |         |          | 4,023   |          
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|                                                                                                             |                                                                                                                                 |                      | Total assets              |                                            | $       | 380,197  |         |           | $       | 434,171 |        
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                         |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|Current liabilities:                                                                                         |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|                                                                                                             | Accounts payable                                                                                                                |                      | $                         | 19,531                                     |         |          | $       | 17,830    |        
|                                                                                                             | Accrued liabilities                                                                                                             |                      |                           | 45,714                                     |         |          |         |           |        
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          | 46,404  |          
|                                                                                                             | Jackpot Liabilities                                                                                                             |                      |                           | 1,264                                      |         |          |         |           |        
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          | 6,018   |          
|                                                                                                             | Current maturities of long-term debt                                                                                            |                      |                           | 932                                        |         |          |         | 2,142     |        
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|                                                                                                             |                                                                                                                                 |                      | Total current liabilities |                                            |         | 67,441   |         |           |         | 72,394  |        
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|Long-term debt, net                                                                                          |                                                                                                                                 |                      | 339,168                   |                                            |         |          | 341,047 |          
|Other liabilities                                                                                            |                                                                                                                                 |                      | 11,493                    |                                            |         |          | 14,406  |          
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|                                                                                                             |                                                                                                                                 |                      | Total liabilities         |                                            |         | 418,102  |         |           |         | 427,847 |        
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|Minority interest                                                                                            |                                                                                                                                 |                      | 1,300                     |                                            |         |          | 1,372   |          
|Commitments and contingencies                                                                                |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|Stockholders deficiency:                                                                                    |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|                                                                                                             | Special Stock, 10,000,000 shares authorized: Series E, $100 liquidation value;
120 shares and 115 shares issued and outstanding |                      |                           | 12                                         |         |          |         | 12        |        
|                                                                                                             | Common Stock, $.10 par value; 100,000,000 shares authorized;
21,776,000 and 49,170,000 shares issued and outstanding            |                      |                           | 2,178                                      |         |          |         | 4,922     |        
|                                                                                                             | Treasury stock at cost, 513,000 shares                                                                                          |                      |                           | (501                                       | )       |          |         | (501      | )      
|                                                                                                             | Additional paid-in capital                                                                                                      |                      |                           | 147,828                                    |         |          |         | 151,613   |        
|                                                                                                             | Accumulated other comprehensive losses                                                                                          |                      |                           | (27,919                                    | )       |          |         | (26,434   | )      
|                                                                                                             | Accumulated deficit                                                                                                             |                      |                           | (160,803                                   | )       |          |         | (124,660  | )      
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|                                                                                                             |                                                                                                                                 |                      |                           | Total stockholders equity                 |         |          | (39,205 | )         |         |         | 4,952   | 
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |          
|                                                                                                             |                                                                                                                                 |                      |                           | Total liabilities and stockholders equity |         | $        | 380,197 |           |         | $       | 434,171 | 
|                                                                                                             |                                                                                                                                 |                      |                           |                                            |         |          |         |          

See notes to unaudited condensed consolidated financial statements.



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

|                                                                 |                                           |   |                              |        |      |   |         |        |  
|---------------------------------------------------------------- | ----------------------------------------- | - | ---------------------------- | ------ | ---- | - | ------- | ------ | -
|                                                                 |                                           |   | Three Months Ended March 31,
|                                                                 |                                           |   |                             
|                                                                 |                                           |   | 2001                         |        | 2002
|                                                                 |                                           |   |                              |        |     
|Revenues:                                                        |                                           |   |                              |        |      |   |         |       
|                                                                 | Gaming equipment and systems              |   | $                            | 41,367 |      |   | $       | 57,519 |  
|                                                                 | Wall machines and amusement games         |   |                              | 20,561 |      |   |         | 20,531 |  
|                                                                 | Route operations                          |   |                              | 56,385 |      |   |         | 57,781 |  
|                                                                 | Casino operations                         |   |                              | 20,156 |      |   |         | 19,001 |  
|                                                                 |                                           |   |                              |        |      |   |         |       
|                                                                 |                                           |   | 138,469                      |        |      |   | 154,832 |       
|                                                                 |                                           |   |                              |        |      |   |         |       
|Costs and expenses:                                              |                                           |   |                              |        |      |   |         |       
|                                                                 | Cost of gaming equipment and systems      |   |                              | 21,486 |      |   |         | 24,279 |  
|                                                                 | Cost of wall machines and amusement games |   |                              | 10,807 |      |   |         | 9,608  |  
|                                                                 | Cost of route operations                  |   |                              | 45,381 |      |   |         | 45,547 |  
|                                                                 | Cost of casino operations                 |   |                              | 8,633  |      |   |         | 8,104  |  
|                                                                 | Selling, general and administrative       |   |                              | 25,419 |      |   |         | 30,292 |  
|                                                                 | Research and development                  |   |                              | 3,553  |      |   |         | 4,227  |  
|                                                                 | Depreciation and amortization             |   |                              | 7,048  |      |   |         | 8,070  |  
|                                                                 |                                           |   |                              |        |      |   |         |       
|                                                                 |                                           |   | 122,327                      |        |      |   | 130,127 |       
|                                                                 |                                           |   |                              |        |      |   |         |       
|Operating income                                                 |                                           |   | 16,142                       |        |      |   | 24,705  |       
|Other income (expense):                                          |                                           |   |                              |        |      |   |         |       
|                                                                 | Interest income                           |   |                              | 157    |      |   |         | 282    |  
|                                                                 | Interest expense                          |   |                              | (8,578 | )    |   |         | (6,820 | )
|                                                                 | Minority interest                         |   |                              | (655   | )    |   |         | (609   | )
|                                                                 | Other, net                                |   |                              | (97    | )    |   |         | (757   | )
|                                                                 |                                           |   |                              |        |      |   |         |       
|Income before income taxes                                       |                                           |   | 6,969                        |        |      |   | 16,801  |       
|Income tax provision                                             |                                           |   | (149                         | )      |      |   | (902    | )     
|                                                                 |                                           |   |                              |        |      |   |         |       
|Net income                                                       |                                           | $ | 6,820                        |        |      | $ | 15,899  |       
|                                                                 |                                           |   |                              |        |      |   |         |       
|Basic earnings per share                                         |                                           | $ | 0.17                         |        |      | $ | 0.33    |       
|                                                                 |                                           |   |                              |        |      |   |         |       
|Diluted earnings per share                                       |                                           | $ | 0.16                         |        |      | $ | 0.32    |       
|                                                                 |                                           |   |                              |        |      |   |         |       
|Weighted average common shares outstanding                       |                                           |   | 41,724                       |        |      |   | 48,118  |       
|                                                                 |                                           |   |                              |        |      |   |         |       
|Weighted average common and common
share equivalents outstanding |                                           |   | 43,260                       |        |      |   | 49,570  |       
|                                                                 |                                           |   |                              |        |      |   |         |       

See notes to unaudited condensed consolidated financial statements.



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

|                                                                 |                                           |   |                             |         |      |   |         |         |  
|---------------------------------------------------------------- | ----------------------------------------- | - | --------------------------- | ------- | ---- | - | ------- | ------- | -
|                                                                 |                                           |   | Nine Months Ended March 31,
|                                                                 |                                           |   |                            
|                                                                 |                                           |   | 2001                        |         | 2002
|                                                                 |                                           |   |                             |         |     
|Revenues:                                                        |                                           |   |                             |         |      |   |         |        
|                                                                 | Gaming equipment and systems              |   | $                           | 113,579 |      |   | $       | 154,311 |  
|                                                                 | Wall machines and amusement games         |   |                             | 55,999  |      |   |         | 58,654  |  
|                                                                 | Route operations                          |   |                             | 163,214 |      |   |         | 167,345 |  
|                                                                 | Casino operations                         |   |                             | 55,131  |      |   |         | 54,787  |  
|                                                                 |                                           |   |                             |         |      |   |         |        
|                                                                 |                                           |   | 387,923                     |         |      |   | 435,097 |        
|                                                                 |                                           |   |                             |         |      |   |         |        
|Costs and expenses:                                              |                                           |   |                             |         |      |   |         |        
|                                                                 | Cost of gaming equipment and systems      |   |                             | 54,751  |      |   |         | 66,674  |  
|                                                                 | Cost of wall machines and amusement
games |   |                             | 30,274  |      |   |         | 30,221  |  
|                                                                 | Cost of route operations                  |   |                             | 131,581 |      |   |         | 132,326 |  
|                                                                 | Cost of casino operations                 |   |                             | 24,137  |      |   |         | 24,305  |  
|                                                                 | Selling, general and administrative       |   |                             | 72,313  |      |   |         | 86,769  |  
|                                                                 | Research and development                  |   |                             | 10,217  |      |   |         | 11,726  |  
|                                                                 | Depreciation and amortization             |   |                             | 20,219  |      |   |         | 23,110  |  
|                                                                 |                                           |   |                             |         |      |   |         |        
|                                                                 |                                           |   | 343,492                     |         |      |   | 375,131 |        
|                                                                 |                                           |   |                             |         |      |   |         |        
|Operating income                                                 |                                           |   | 44,431                      |         |      |   | 59,966  |        
|Other income (expense):                                          |                                           |   |                             |         |      |   |         |        
|                                                                 | Interest income                           |   |                             | 513     |      |   |         | 1,046   |  
|                                                                 | Interest expense                          |   |                             | (26,457 | )    |   |         | (21,500 | )
|                                                                 | Minority interest                         |   |                             | (1,659  | )    |   |         | (1,477  | )
|                                                                 | Other, net                                |   |                             | (273    | )    |   |         | (769    | )
|                                                                 |                                           |   |                             |         |      |   |         |        
|Income before income taxes                                       |                                           |   | 16,555                      |         |      |   | 37,266  |        
|Income tax provision                                             |                                           |   | (861                        | )       |      |   | (1,123  | )      
|                                                                 |                                           |   |                             |         |      |   |         |        
|Net income                                                       |                                           | $ | 15,694                      |         |      | $ | 36,143  |        
|                                                                 |                                           |   |                             |         |      |   |         |        
|                                                                
|Basic earnings per share                                         |                                           | $ | 0.38                        |         |      | $ | 0.80    |        
|                                                                 |                                           |   |                             |         |      |   |         |        
|Diluted earnings per share                                       |                                           | $ | 0.38                        |         |      | $ | 0.77    |        
|                                                                 |                                           |   |                             |         |      |   |         |        
|Weighted average common shares outstanding                       |                                           |   | 40,896                      |         |      |   | 45,060  |        
|                                                                 |                                           |   |                             |         |      |   |         |        
|Weighted average common and common
share equivalents outstanding |                                           |   | 41,696                      |         |      |   | 46,904  |        
|                                                                 |                                           |   |                             |         |      |   |         |        

See notes to unaudited condensed consolidated financial statements.



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ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 
Nine Months Ended March 31, 2002
(In 000s)

|                                                    |  |              |        |          |  |               |       |         |  |               |    |            |  |         |      |              |  |   |         |          |  |             |         |   |  |   |          |        |  |       |         |  
|--------------------------------------------------- |  | ------------ | ------ | -------- |  | ------------- | ----- | ------- |  | ------------- | -- | ---------- |  | ------- | ---- | ------------ |  | - | ------- | -------- |  | ----------- | ------- | - |  | - | -------- | ------ |  | ----- | ------- | -
|                                                    |  |              |        |          |  |               |       |         |  |               |    |            |  |         |      |              |  |   |         |          |  |             |         |   |  |   |          |        |  | Total
|                                                    |  |              |        |          |  |               |       |         |  |               |    |            |  |         |      |              |  |   |         |          |  | Accumulated |         |   |  |   |          | Stock-
|                                                    |  | Common Stock |        |          |  |               |       |         |  |               |    | Additional |  | Other   |      |              |  |   |         | holders'
|                                                    |  |              |        | Series E |  | Treasury      |       | Paid-in |  | Comprehensive |    | Accum.     |  | Equity 
|                                                    |  | Shares       |        | Dollars  |  | Special Stock |       | Stock   |  | Capital       |    | Loss       |  | Deficit |      | (Deficiency)
|                                                    |  |              |        |          |  |               |       |         |  |               |    |            |  |         |      |             
|Balances at June 30, 2001                           |  |              | 21,776 |          |  | $             | 2,178 |         |  | $             | 12 |            |  | $       | (501 | )            |  | $ | 147,828 |          |  | $           | (27,919 | ) |  | $ | (160,803 | )      |  | $     | (39,205 | )
|Net income                                          |  |              |       |          |  |               |      |         |  |               |   |            |  |         |     |              |  |   |        |          |  |             |        |   |  |   | 36,143   |        |  |       | 36,143  |  
|Foreign currency translation
adjustment             |  |              |       |          |  |               |      |         |  |               |   |            |  |         |     |              |  |   |        |          |  |             | 1,485   |   |  |   |         |        |  |       | 1,485   |  
|                                                    |  |              |        |          |  |               |       |         |  |               |    |            |  |         |      |              |  |   |         |          |  |             |         |   |  |   |          |        |  |       |         |  
|Total comprehensive income                          |  |              |        |          |  |               |       |         |  |               |    |            |  |         |      |              |  |   |         |          |  |             |         |   |  |   |          |        |  |       | 37,628  |  
|Shares issued upon exercise
of options and warrants |  |              | 2,809  |          |  |               | 283   |         |  |               |   |            |  |         |     |              |  |   | 6,246   |          |  |             |        |   |  |   |         |        |  |       | 6,529   |  
|Common shares issued upon
2-for-1 stock split       |  |              | 24,585 |          |  |               | 2,461 |         |  |               |   |            |  |         |     |              |  |   | (2,461  | )        |  |             |        |   |  |   |         |        |  |       |        |  
|                                                    |  |              |        |          |  |               |       |         |  |               |    |            |  |         |      |              |  |   |         |          |  |             |         |   |  |   |          |        |  |       |         |  
|Balances at March 31, 2002                          |  |              | 49,170 |          |  | $             | 4,922 |         |  | $             | 12 |            |  | $       | (501 | )            |  | $ | 151,613 |          |  | $           | (26,434 | ) |  | $ | (124,660 | )      |  | $     | 4,952   |  
|                                                    |  |              |        |          |  |               |       |         |  |               |    |            |  |         |      |              |  |   |         |          |  |             |         |   |  |   |          |        |  |       |         |  

See notes to unaudited condensed consolidated financial statements.



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

|                                        |            |                                                                                   |                                              |                                                     |        |                             |         |        |         |         |         |  
|--------------------------------------- | ---------- | --------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------------------------- | ------ | --------------------------- | ------- | ------ | ------- | ------- | ------- | -
|                                        |            |                                                                                   |                                              |                                                     |        | Nine Months Ended March 31,
|                                        |            |                                                                                   |                                              |                                                     |        |                            
|                                        |            |                                                                                   |                                              |                                                     |        | 2001                        |         | 2002  
|                                        |            |                                                                                   |                                              |                                                     |        |                             |         |       
|Cash flows from operating activities:   |            |                                                                                   |                                              |                                                     |        |                             |         |       
|                                        | Net income |                                                                                   | $                                            | 15,694                                              |        |                             | $       | 36,143 |        
|                                        |            | Adjustments to reconcile net income to net
cash provided by operating activities: |                                              |                                                     |        |                             |         |        |         |        
|                                        |            |                                                                                   | Depreciation and amortization                |                                                     |        | 20,219                      |         |        |         | 23,110  |        
|                                        |            |                                                                                   | Amortization of debt discount                |                                                     |        | 40                          |         |        |         | 59      |        
|                                        |            |                                                                                   | (Gain) loss on sale of assets                |                                                     |        | 460                         |         |        |         | 250     |        
|                                        |            |                                                                                   | Provision for losses on doubtful receivables |                                                     |        | 3,415                       |         |        |         | 3,266   |        
|                                        |            |                                                                                   | Deferred taxes                               |                                                     |        |                            |         |        |         | (215    | )      
|                                        |            |                                                                                   | Other                                        |                                                     |        | 1,630                       |         |        |         | 375     |        
|                                        |            | Net change in operating assets and liabilities:                                   |                                              |                                                     |        |                             |         |        |         |        
|                                        |            |                                                                                   | Accounts and notes receivable                |                                                     |        | 1,772                       |         |        |         | (12,393 | )      
|                                        |            |                                                                                   | Inventories                                  |                                                     |        | (8,788                      | )       |        |         | (18,469 | )      
|                                        |            |                                                                                   | Other current assets                         |                                                     |        | 1,976                       |         |        |         | 1,581   |        
|                                        |            |                                                                                   | Accounts payable                             |                                                     |        | 9,182                       |         |        |         | (3,328  | )      
|                                        |            |                                                                                   | Accrued liabilities                          |                                                     |        | (2,762                      | )       |        |         | 701     |        
|                                        |            |                                                                                   |                                              |                                                     |        |                             |         |       
|                                        |            |                                                                                   |                                              | Net cash provided by operating activities           |        |                             | 42,838  |        |         |         | 31,080  |  
|                                        |            |                                                                                   |                                              |                                                     |        |                             |         |       
|Cash flows from investing activities:   |            |                                                                                   |                                              |                                                     |        |                             |         |       
|                                        |            | Additions to property, plant and equipment                                        |                                              |                                                     | (9,171 | )                           |         |        | (12,218 | )      
|                                        |            | Additions to participation gaming devices                                         |                                              |                                                     | (6,555 | )                           |         |        | (12,498 | )      
|                                        |            | Additions to other long-term assets                                               |                                              |                                                     | (2,189 | )                           |         |        | (4,368  | )      
|                                        |            | Acquisitions, net of cash acquired                                                |                                              |                                                     |       |                             |         |        | (15,333 | )      
|                                        |            | Proceeds from disposal of property and equipment and other
assets                 |                                              |                                                     | 139    |                             |         |        | 67      |        
|                                        |            |                                                                                   |                                              |                                                     |        |                             |         |       
|                                        |            |                                                                                   |                                              | Net cash used in investing activities               |        |                             | (17,776 | )      |         |         | (44,350 | )
|                                        |            |                                                                                   |                                              |                                                     |        |                             |         |       
|Cash flows from financing activities:   |            |                                                                                   |                                              |                                                     |        |                             |         |       
|                                        |            | Reduction of long-term debt                                                       |                                              |                                                     | (2,360 | )                           |         |        | (1,376  | )      
|                                        |            | Capitalized debt issuance costs                                                   |                                              |                                                     |       |                             |         |        | (660    | )      
|                                        |            | Net increase (decrease) in revolving credit facility                              |                                              |                                                     | (8,118 | )                           |         |        |        |        
|                                        |            | Purchase of common stock for treasury                                             |                                              |                                                     | (436   | )                           |         |        |        |        
|                                        |            | Proceeds from exercise of stock options and warrants                              |                                              |                                                     | 443    |                             |         |        | 6,529   |        
|                                        |            |                                                                                   |                                              |                                                     |        |                             |         |       
|                                        |            |                                                                                   |                                              | Net cash provided by (used in) financing activities |        |                             | (10,471 | )      |         |         | 4,493   |  
|                                        |            |                                                                                   |                                              |                                                     |        |                             |         |       
|Effect of exchange rate changes on cash |            |                                                                                   | (161                                         | )                                                   |        |                             | 2,914   |       
|Cash and cash equivalents:              |            |                                                                                   |                                              |                                                     |        |                             |         |       
|                                        |            | Increase (decrease) for period                                                    |                                              |                                                     | 14,430 |                             |         |        | (5,863  | )      
|                                        |            | Balance, beginning of period                                                      |                                              |                                                     | 32,044 |                             |         |        | 54,845  |        
|                                        |            |                                                                                   |                                              |                                                     |        |                             |         |       
|                                        |            | Balance, end of period                                                            |                                              | $                                                   | 46,474 |                             |         | $      | 48,982  |        
|                                        |            |                                                                                   |                                              |                                                     |        |                             |         |       

See notes to unaudited condensed consolidated financial statements



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The accompanying unaudited interim condensed consolidated financial
statements reflect all normal recurring adjustments, that management
believes are necessary to present fairly the financial position, results of
operations and cash flows of Alliance Gaming Corporation (Alliance or the
Company) for the respective periods presented. The results of operations
for an interim period are not necessarily indicative of the results, which
may be expected for any other interim period, or for the year as a whole.
The accompanying unaudited interim condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes in the Companys annual report on Form 10-K for the
year ended June 30, 2001. All intercompany accounts and transactions have
been eliminated in consolidation.

| |                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The accompanying condensed consolidated financial statements at June 30,
2001, were derived from audited consolidated financial statements, but do
not include all disclosures required under generally accepted accounting
principles. Certain reclassifications have been made to conform to the
current year presentation.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On March 19, 2002, the Company completed the acquisition of Advance
Casino Systems Corporation (ACSC), a provider of hotel and casino management
systems, which is included in the reported results for Bally Gaming and
Systems since the acquisition date. The Company paid approximately $8.5
million net of cash received for ACSC, which was accounted for pursuant to
the provisions of Statement of Financial Accounting Standards No. 141
Business Combinations (SFAS No. 141).

2.   INVENTORIES

| |                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market. Cost elements included for work-in-process and
finished goods include raw materials, freight, direct labor and
manufacturing overhead.

| |                                                                   
| | ------------------------------------------------------------------
| | Inventories, net of reserves, consist of the following (in 000s):

|                |                   |   |          |        |          |   |        |        | 
|--------------- | ----------------- | - | -------- | ------ | -------- | - | ------ | ------ | 
|                |                   |   | June 30, |        | Mar. 31,
|                |                   |   | 2001     |        | 2002    
|                |                   |   |          |        |         
|Raw materials   |                   | $ | 15,222   |        |          | $ | 17,129 |       
|Work-in-process |                   |   | 1,774    |        |          |   | 2,093  |       
|Finished goods  |                   |   | 18,086   |        |          |   | 29,591 |       
|                |                   |   |          |        |          |   |        |       
|                | Total inventories |   | $        | 35,082 |          |   | $      | 48,813 | 
|                |                   |   |          |        |          |   |        |       

3.   DEBT

Long-term debt consists of the following (in 000s):

|                                                                                     |                                         |   |          |         |          |   |         |         | 
|------------------------------------------------------------------------------------ | --------------------------------------- | - | -------- | ------- | -------- | - | ------- | ------- | 
|                                                                                     |                                         |   | June 30, |         | Mar. 31,
|                                                                                     |                                         |   | 2001     |         | 2002    
|                                                                                     |                                         |   |          |         |         
|Term loan facility                                                                   |                                         | $ | 190,000  |         |          | $ | 190,000 |        
|10% Senior Subordinated Notes due 2007, net of unamortized
discount of $495 and $436 |                                         |   | 149,505  |         |          |   | 149,564 |        
|Other subordinated debt                                                              |                                         |   |         |         |          |   | 2,995   |        
|Other, primarily secured by related equipment                                        |                                         |   | 595      |         |          |   | 630     |        
|                                                                                     |                                         |   |          |         |          |   |         |        
|                                                                                     |                                         |   | 340,100  |         |          |   | 343,189 |        
|Less current maturities                                                              |                                         |   | 932      |         |          |   | 2,142   |        
|                                                                                     |                                         |   |          |         |          |   |         |        
|                                                                                     | Long-term debt, less current maturities |   | $        | 339,168 |          |   | $       | 341,047 | 
|                                                                                     |                                         |   |          |         |          |   |         |        



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On June 22, 2001, the Company completed a senior bank debt refinancing
transaction whereby the Company entered into a $190 million term loan
facility and a $25 million revolving credit facility (which can be increased
by $15 million at the Companys discretion through the term of the revolving
credit facility). Proceeds from the new term loan were used to repay the
existing bank term loans and credit facility, totaling $166.0 million, to
repay certain gaming equipment operating leases totaling $13.0 million, and
to pay transaction fees and expenses. The term loan has an interest rate of
LIBOR plus 3.75% (or 5.9% as of March 31, 2002), has a 1% per year mandatory
principal amortization, and a 5.5 year maturity. Effective April 29, 2002,
the Company obtained an amendment to the credit agreement, which reduced the
term loan interest rate to Libor plus 3.25%. The revolving credit facility
commitment decreases ratably over its 5-year commitment. During the quarter
ended March 31, 2002, the Company borrowed $5.0 million on the revolving
credit facility and then repaid the borrowing before the end of the quarter.
As of March 31, 2002, there were no borrowings outstanding on the revolving
credit facility.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 entities that hold
the Companys interest in its Louisiana and Mississippi operations, and is
secured by both a U.S. and German Pledge Agreement (both as defined). The
bank facility contains a number of maintenance covenants and has other
significant covenants that, among other things, restrict the ability of the
Company and certain of its subsidiaries to dispose of assets, incur
additional indebtedness and issue preferred stock, pay dividends or make
other distributions, enter into certain acquisitions, repurchase equity
interests or subordinated indebtedness, issue or sell equity interests of
the Companys subsidiaries, engage in mergers or acquisitions, or engage in
certain transactions with subsidiaries and affiliates, and that may
otherwise restrict corporate activities. As of March 31, 2002, the Company
is in compliance with these covenants.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Senior Subordinated Notes bear interest at 10%, are due in 2007, and are
general unsecured obligations of the Company, ranking subordinate in right
of payment to all Senior Debt (as defined) of the Company, including
indebtedness under the bank facility. The Senior Subordinated Notes are
fully and unconditionally guaranteed on a joint and several, senior
subordinated basis by all existing and future domestic Restricted
Subsidiaries of the Company, subject to certain exceptions including the
partially-owned entities through which its Mississippi casino and Louisiana
route operations are conducted. The Subsidiary Guarantees are general
unsecured obligations of the Guarantors, ranking subordinate in right of
payment to all Senior Debt of the Guarantors. The Company will be able to
designate other current or future subsidiaries as Unrestricted Subsidiaries
under certain circumstances. Unrestricted Subsidiaries will not be required
to issue a Subsidiary Guarantee and will not be subject to many of the
restrictive covenants set forth in the Indenture pursuant to which the
Senior Subordinated Notes were issued. The Indenture for the Companys
Senior Subordinated Notes contains various covenants, including limitations
on incurrence of additional indebtedness, on restricted payments and on
dividend and payment restrictions on subsidiaries. The Senior Subordinated
Notes indenture generally allows for redemption of the notes, in whole or in
part, beginning on August 1, 2002 at 105%; after August 1, 2003 at 103.3%;
after August 1, 2004 at 101.7%; and any time after August 1, 2005 at par.
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. The Company is in
compliance with the operational covenants contained in the indenture for the
Senior Subordinated Notes.

4.   INCOME TAXES

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys effective tax rate for the nine months ended March 31, 2001,
and 2002, differ from the statutory rate of 35% primarily because no Federal
income tax expense has been recorded for the taxable income produced by the
Companies domestic subsidiaries as such earnings were offset against net
operating loss (NOL) carry forwards. The tax expense recorded represents
primarily estimated state income taxes and a $0.5 million tax charge in
Germany.



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.   NEW ACCOUNTING PRONOUNCEMENTS

| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | In June 2001, the Financial Accounting Standards Board issued SFAS No. 141
and No. 142, Goodwill and Other Intangible Assets (SFAS No. 142).

| |                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SFAS No. 141 establishes accounting and reporting standards for business
combinations and the related issues of allocations of purchase price to
assets and liabilities acquired. The Company adopted the provision of SFAS
No. 141 effective July 1, 2001. The adoption of SFAS No. 141 did not have a
material impact on the financial position or results of operations of the
Company.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SFAS No. 142 revises the existing accounting standards for both goodwill and
intangible assets. The Company adopted the provisions of SFAS No. 142
effective July 1, 2001. In accordance
with the transition rules, the Company engaged an independent third-party
specialist to provide a valuation for certain of the Companys reporting
units, which have associated goodwill. As a result of this valuation
assessment, the Company determined that there was no impairment of goodwill
as of the adoption date. The Company will continue to perform tests
for potential impairment of goodwill on an annual basis. In accordance with the
provision of SFAS No. 142, goodwill is no longer being amortized, therefore
amortization expense decreased by $0.3 million for the quarter ended March
31, 2002, compared to the prior year period.

6.   STOCK SPLIT

| |                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective March 20, 2002, the
Company's Board of Directors approved a 2-for-1
stock split effective as of April 9, 2002. All share and per share information presented
in the Unaudited Condensed Consolidated Financial Statements and notes
thereto has been adjusted to reflect this stock split.

7.   EARNINGS PER SHARE

| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | The computation of basic and diluted earnings per share, reflecting the
April 9, 2002 stock split, is as follows (in 000s except per share
amounts):

|                                                    |                                              |   |                    |       |                   |   |        |       |      |   |        |     |  |   |        |       | 
|--------------------------------------------------- | -------------------------------------------- | - | ------------------ | ----- | ----------------- | - | ------ | ----- | ---- | - | ------ | --- |  | - | ------ | ----- | 
|                                                    |                                              |   | Three months ended |       | Nine months ended
|                                                    |                                              |   | March 31,          |       | March 31,        
|                                                    |                                              |   |                    |       |                  
|                                                    |                                              |   | 2001               |       | 2002              |   | 2001   |       | 2002
|                                                    |                                              |   |                    |       |                   |   |        |       |     
|Net income                                          |                                              | $ | 6,820              |       |                   | $ | 15,899 |       |      | $ | 15,694 |     |  | $ | 36,143 |      
|Wt. average common shares outstanding               |                                              |   | 41,724             |       |                   |   | 48,118 |       |      |   | 40,896 |     |  |   | 45,060 |      
|                                                    | Effect of stock options outstanding          |   |                    | 1,452 |                   |   |        | 1,448 |      |   |        | 792 |  |   |        | 1,326 | 
|                                                    | Effect of warrants outstanding               |   |                    | 76    |                   |   |        | 2     |      |   |        |    |  |   |        | 516   | 
|                                                    | Effect of Series E Special Stock outstanding |   |                    | 8     |                   |   |        | 2     |      |   |        | 8   |  |   |        | 2     | 
|                                                    |                                              |   |                    |       |                   |   |        |       |      |   |        |     |  |   |        |      
|Wt. average common and potential
shares outstanding |                                              |   | 43,260             |       |                   |   | 49,570 |       |      |   | 41,696 |     |  |   | 46,904 |      
|                                                   
|Basic earnings per share                            |                                              | $ | 0.17               |       |                   | $ | 0.33   |       |      | $ | 0.38   |     |  | $ | 0.80   |      
|                                                    |                                              |   |                    |       |                   |   |        |       |      |   |        |     |  |   |        |      
|Diluted earnings per share                          |                                              | $ | 0.16               |       |                   | $ | 0.32   |       |      | $ | 0.38   |     |  | $ | 0.77   |      
|                                                    |                                              |   |                    |       |                   |   |        |       |      |   |        |     |  |   |        |      

| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On January 2, 2002, the third and final tranche of certain stock purchase
warrants became vested. During the nine months ended March 31, 2002, a total
of 2.8 million post-split shares were issued in satisfaction of these
warrants.



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.   SEGMENT AND GEOGRAPHICAL INFORMATION

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company operates in four business segments: (i) Gaming Equipment and
Systems designs, manufactures, operates and distributes gaming machines and
computerized monitoring systems for gaming machines, (ii) Wall Machines and
Amusement Games designs, manufactures and distributes wall-mounted gaming
machines and distributes third party manufactured amusement games, (iii)
Route Operations owns and manages a significant installed base of gaming
machines, and (iv) Casino Operations owns and operates two casinos.

| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | The tables below present information as to the Companys revenues,
intersegment revenues and operating income (in 000s):

|                            |                                   |   |                    |        |                   |   |         |        |      |   |         |         |   |   |         |         |  
|--------------------------- | --------------------------------- | - | ------------------ | ------ | ----------------- | - | ------- | ------ | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                            |                                   |   | Three Months Ended |        | Nine Months Ended
|                            |                                   |   | March 31,          |        | March 31,        
|                            |                                   |   |                    |        |                  
|                            |                                   |   | 2001               |        | 2002              |   | 2001    |        | 2002
|                            |                                   |   |                    |        |                   |   |         |        |     
|Revenues:                   |                                   |   |                    |        |                   |   |         |        |      |   |         |         |   |   |         |        
|                            | Gaming equipment and systems      |   | $                  | 41,367 |                   |   | $       | 57,519 |      |   | $       | 113,579 |   |   | $       | 154,311 |  
|                            | Wall machines and amusement games |   |                    | 20,561 |                   |   |         | 20,531 |      |   |         | 55,999  |   |   |         | 58,654  |  
|                            | Route operations                  |   |                    | 56,385 |                   |   |         | 57,781 |      |   |         | 163,214 |   |   |         | 167,345 |  
|                            | Casino operations                 |   |                    | 20,156 |                   |   |         | 19,001 |      |   |         | 55,131  |   |   |         | 54,787  |  
|                            |                                   |   |                    |        |                   |   |         |        |      |   |         |         |   |   |         |        
|Total revenues              |                                   | $ | 138,469            |        |                   | $ | 154,832 |        |      | $ | 387,923 |         |   | $ | 435,097 |        
|                            |                                   |   |                    |        |                   |   |         |        |      |   |         |         |   |   |         |        
|Intersegment revenues:      |                                   |   |                    |        |                   |   |         |        |      |   |         |         |   |   |         |        
|                            | Gaming equipment and systems      |   | $                  | 994    |                   |   | $       | 1,189  |      |   | $       | 2,828   |   |   | $       | 5,600   |  
|                            | Wall machines and amusement games |   |                    | 14     |                   |   |         |       |      |   |         | 42      |   |   |         |        |  
|                            | Route operations                  |   |                    |       |                   |   |         |       |      |   |         |        |   |   |         |        |  
|                            | Casino operations                 |   |                    |       |                   |   |         |       |      |   |         |        |   |   |         |        |  
|                            |                                   |   |                    |        |                   |   |         |        |      |   |         |         |   |   |         |        
|Total intersegment revenues |                                   | $ | 1,008              |        |                   | $ | 1,189   |        |      | $ | 2,870   |         |   | $ | 5,600   |        
|                            |                                   |   |                    |        |                   |   |         |        |      |   |         |         |   |   |         |        
|Operating income:           |                                   |   |                    |        |                   |   |         |        |      |   |         |         |   |   |         |        
|                            | Gaming equipment and systems      |   | $                  | 5,428  |                   |   | $       | 13,638 |      |   | $       | 17,843  |   |   | $       | 33,577  |  
|                            | Wall machines and amusement games |   |                    | 2,597  |                   |   |         | 3,207  |      |   |         | 5,239   |   |   |         | 6,340   |  
|                            | Route operations                  |   |                    | 3,717  |                   |   |         | 4,648  |      |   |         | 11,178  |   |   |         | 11,792  |  
|                            | Casino operations                 |   |                    | 7,525  |                   |   |         | 6,435  |      |   |         | 19,197  |   |   |         | 17,586  |  
|                            | Corporate                         |   |                    | (3,125 | )                 |   |         | (3,223 | )    |   |         | (9,026  | ) |   |         | (9,329  | )
|                            |                                   |   |                    |        |                   |   |         |        |      |   |         |         |   |   |         |        
|                            | Total operating income            |   | $                  | 16,142 |                   |   | $       | 24,705 |      |   | $       | 44,431  |   |   | $       | 59,966  |  
|                            |                                   |   |                    |        |                   |   |         |        |      |   |         |         |   |   |         |        

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has operations based primarily in the United States and Germany.
The German operations customers are a diverse group of operators of wall
machines and amusement games at arcades, hotels, restaurants and taverns,
primarily in Germany. Gaming Equipment and Systems customers are primarily
casinos and gaming machine distributors in the United States and abroad.
Receivables of the German operations and Gaming Equipment and Systems are
generally collateralized by the related equipment.



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | The table below presents information as to the Companys revenues and
operating income by geographic region (in $000s):

|                       |               |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |         | 
|---------------------- | ------------- | - | ------------------ | ------- | ----------------- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                       |               |   | Three Months Ended |         | Nine Months Ended
|                       |               |   | March 31,          |         | March 31,        
|                       |               |   |                    |         |                  
|                       |               |   | 2001               |         | 2002              |   | 2001    |         | 2002
|                       |               |   |                    |         |                   |   |         |         |     
|Revenues:              |               |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        
|                       | United States |   | $                  | 115,741 |                   |   | $       | 129,228 |      |   | $       | 322,696 |  |   | $       | 359,349 | 
|                       | Germany       |   |                    | 21,018  |                   |   |         | 24,410  |      |   |         | 60,295  |  |   |         | 69,267  | 
|                       | Other foreign |   |                    | 1,710   |                   |   |         | 1,194   |      |   |         | 4,932   |  |   |         | 6,481   | 
|                       |               |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        
|Total revenues         |               | $ | 138,469            |         |                   | $ | 154,832 |         |      | $ | 387,923 |         |  | $ | 435,097 |        
|                       |               |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        
|Operating income:      |               |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        
|                       | United States |   | $                  | 13,452  |                   |   | $       | 20,491  |      |   | $       | 37,893  |  |   | $       | 49,854  | 
|                       | Germany       |   |                    | 2,309   |                   |   |         | 3,965   |      |   |         | 5,044   |  |   |         | 8,397   | 
|                       | Other foreign |   |                    | 381     |                   |   |         | 249     |      |   |         | 1,494   |  |   |         | 1,715   | 
|                       |               |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        
|Total operating income |               | $ | 16,142             |         |                   | $ | 24,705  |         |      | $ | 44,431  |         |  | $ | 59,966  |        
|                       |               |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        

9.   SUPPLEMENTAL CASH FLOW INFORMATION

| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | The following supplemental information is related to the unaudited condensed
consolidated statements of cash flows.

|                                                         |  |                             |       |      |  |   |       | 
|-------------------------------------------------------- |  | --------------------------- | ----- | ---- |  | - | ----- | 
|                                                         |  | Nine months ended March 31,
|                                                         |  |                            
|                                                         |  | 2001                        |       | 2002
|                                                         |  |                             |       |     
|Non-cash transactions:                                   |  |                             |       |      |  |   |       | 
|Reclassify other assets to property, plant and equipment |  | $                           | 600   |      |  | $ | 341   | 
|(Favorable)/unfavorable translation rate adjustment      |  |                             | 4,523 |      |  |   | 1,429 | 
|Conversion of Series E Special Stock into common stock   |  |                             | 4,585 |      |  |   |      | 
|Reclassify inventory to equipment                        |  |                             | 2,050 |      |  |   | 4,649 | 

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



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 CONSOLIDATING BALANCE SHEETS
June 30, 2001
(In 000s)

|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |          |         |  
|----------------------------------------------------------- | --------------------------------------- | --------------------------------------- | ------- | ------------ | ------- | ------------ | ------- | -------- | ------ | ------------ | -------- | ----------- | ------- | - | ------- | -------- | ------- | -
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         | Alliance
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         | Gaming  
|                                                            |                                         |                                         |         | Parent and   |         | Non-         |         |          |        |              |          | Corporation
|                                                            |                                         |                                         |         | Guaranteeing |         | Guaranteeing |         | Elimina- |        | and         
|                                                            |                                         |                                         |         | Subsidiaries |         | Subsidiaries |         | tions    |        | Subsidiaries
|                                                            |                                         |                                         |         |              |         |              |         |          |        |             
|ASSETS                                                      |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|Current assets:                                             |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|                                                            | Cash and cash equivalents               |                                         | $       | 41,502       |         |              | $       | 13,343   |        |              | $        |            |         |   | $       | 54,845   |        
|                                                            | Accounts and notes receivable, net      |                                         |         | 58,769       |         |              |         | 37,769   |        |              |          | (17,169     | )       |   |         | 79,369   |        
|                                                            | Inventories, net                        |                                         |         | 24,555       |         |              |         | 10,527   |        |              |          |            |         |   |         | 35,082   |        
|                                                            | Other current assets                    |                                         |         | 8,178        |         |              |         | 2,636    |        |              |          |            |         |   |         | 10,814   |        
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|                                                            |                                         | Total current assets                    |         |              | 133,004 |              |         |          | 64,275 |              |          |             | (17,169 | ) |         |          | 180,110 |  
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|Long-term notes receivable, net                             |                                         |                                         | 53,162  |              |         |              | 433     |          |        |              | (52,162  | )           |         |   | 1,433   |         
|Leased equipment, net                                       |                                         |                                         | 16,374  |              |         |              | 6,303   |          |        |              |         |             |         |   | 22,677  |         
|Property, plant and equipment, net                          |                                         |                                         | 54,399  |              |         |              | 34,013  |          |        |              |         |             |         |   | 88,412  |         
|Excess of costs over net assets of acquired
businesses, net |                                         |                                         | 35,547  |              |         |              | 13,967  |          |        |              |         |             |         |   | 49,514  |         
|Intangible assets, net                                      |                                         |                                         | 22,096  |              |         |              | 116     |          |        |              |         |             |         |   | 22,212  |         
|Investments in subsidiaries                                 |                                         |                                         | 84,228  |              |         |              |        |          |        |              | (84,228  | )           |         |   |        |         
|Deferred tax assets, net                                    |                                         |                                         | 10,137  |              |         |              | 1,807   |          |        |              |         |             |         |   | 11,944  |         
|Other assets, net                                           |                                         |                                         | 10,167  |              |         |              | (6,638  | )        |        |              | 366      |             |         |   | 3,895   |         
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|                                                            |                                         | $                                       | 419,114 |              |         | $            | 114,276 |          |        | $            | (153,193 | )           |         | $ | 380,197 |         
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|                                                           
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)          
|                                                           
|Current liabilities:                                        |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|                                                            | Accounts payable                        |                                         | $       | 17,118       |         |              | $       | 2,413    |        |              | $        |            |         |   | $       | 19,531   |        
|                                                            | Accrued liabilities                     |                                         |         | 36,384       |         |              |         | 9,999    |        |              |          | (669        | )       |   |         | 45,714   |        
|                                                            | Jackpot liabilities                     |                                         |         | 1,264        |         |              |         |         |        |              |          |            |         |   |         | 1,264    |        
|                                                            | Current maturities of long-term debt    |                                         |         | 488          |         |              |         | 16,955   |        |              |          | (16,511     | )       |   |         | 932      |        
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|                                                            |                                         | Total current liabilities               |         |              | 55,254  |              |         |          | 29,367 |              |          |             | (17,180 | ) |         |          | 67,441  |  
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|Long term debt                                              |                                         |                                         | 391,032 |              |         |              | 132     |          |        |              | (51,996  | )           |         |   | 339,168 |         
|Other liabilities                                           |                                         |                                         | 10,733  |              |         |              | 760     |          |        |              |         |             |         |   | 11,493  |         
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|                                                            |                                         | Total liabilities                       |         |              | 457,019 |              |         |          | 30,259 |              |          |             | (69,176 | ) |         |          | 418,102 |  
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|Minority interest                                           |                                         |                                         | 1,300   |              |         |              |        |          |        |              |         |             |         |   | 1,300   |         
|Commitments and contingencies                               |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|Stockholders equity (deficiency):                          |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|                                                            | Series E Special Stock                  |                                         |         | 12           |         |              |         |         |        |              |          |            |         |   |         | 12       |        
|                                                            | Common Stock                            |                                         |         | 2,178        |         |              |         | 17,832   |        |              |          | (17,832     | )       |   |         | 2,178    |        
|                                                            | Treasury stock                          |                                         |         | (501         | )       |              |         |         |        |              |          |            |         |   |         | (501     | )      
|                                                            | Additional paid-in capital              |                                         |         | 147,828      |         |              |         | 7,862    |        |              |          | (7,862      | )       |   |         | 147,828  |        
|                                                            | Accumulated other comprehensive loss    |                                         |         | (27,919      | )       |              |         | (27,939  | )      |              |          | 27,939      |         |   |         | (27,919  | )      
|                                                            | Retained earnings (accumulated deficit) |                                         |         | (160,803     | )       |              |         | 86,262   |        |              |          | (86,262     | )       |   |         | (160,803 | )      
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|                                                            |                                         | Total stockholders equity (deficiency) |         |              | (39,205 | )            |         |          | 84,017 |              |          |             | (84,017 | ) |         |          | (39,205 | )
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         
|                                                            |                                         | $                                       | 419,114 |              |         | $            | 114,276 |          |        | $            | (153,193 | )           |         | $ | 380,197 |         
|                                                            |                                         |                                         |         |              |         |              |         |          |        |              |          |             |         |   |         |         

See accompanying unaudited note.



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 CONSOLIDATING BALANCE SHEETS
 
March 31, 2002
(In 000s)

|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |          |         | 
|----------------------------------------------------------- | --------------------------------------- | -------------------------- | ------- | ------------ | ------- | ------------ | ------- | ------- | ------ | ------------ | -------- | ----------- | ------- | - | ------- | -------- | ------- | 
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         | Alliance
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         | Gaming  
|                                                            |                                         |                            |         | Parent and   |         | Non-         |         |         |        |              |          | Corporation
|                                                            |                                         |                            |         | Guaranteeing |         | Guaranteeing |         | Adjust- |        | and         
|                                                            |                                         |                            |         | Subsidiaries |         | Subsidiaries |         | ments   |        | Subsidiaries
|                                                            |                                         |                            |         |              |         |              |         |         |        |             
|ASSETS                                                      |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|Current assets:                                             |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|                                                            | Cash and cash equivalents               |                            | $       | 34,731       |         |              | $       | 14,251  |        |              | $        |            |         |   | $       | 48,982   |        
|                                                            | Accounts and notes receivable, net      |                            |         | 64,485       |         |              |         | 41,820  |        |              |          | (15,050     | )       |   |         | 91,255   |        
|                                                            | Inventories, net                        |                            |         | 35,106       |         |              |         | 13,707  |        |              |          |            |         |   |         | 48,813   |        
|                                                            | Other current assets                    |                            |         | 9,196        |         |              |         | 1,762   |        |              |          |            |         |   |         | 10,958   |        
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|                                                            |                                         | Total current assets       |         |              | 143,518 |              |         |         | 71,540 |              |          |             | (15,050 | ) |         |          | 200,008 | 
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|Long-term notes receivable, net                             |                                         |                            | 57,723  |              |         |              | 408     |         |        |              | (56,226  | )           |         |   | 1,905   |         
|Leased equipment, net                                       |                                         |                            | 18,232  |              |         |              | 7,787   |         |        |              |         |             |         |   | 26,019  |         
|Property, plant and equipment, net                          |                                         |                            | 59,673  |              |         |              | 35,407  |         |        |              |         |             |         |   | 95,080  |         
|Excess of costs over net assets of acquired
businesses, net |                                         |                            | 40,456  |              |         |              | 14,120  |         |        |              |         |             |         |   | 54,576  |         
|Intangible assets, net                                      |                                         |                            | 36,816  |              |         |              | 220     |         |        |              |         |             |         |   | 37,036  |         
|Investment in subsidiaries                                  |                                         |                            | 95,845  |              |         |              |        |         |        |              | (95,845  | )           |         |   |        |         
|Other assets, net                                           |                                         |                            | 22,616  |              |         |              | (3,455  | )       |        |              | 386      |             |         |   | 19,547  |         
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|                                                            |                                         | $                          | 474,879 |              |         | $            | 126,027 |         |        | $            | (166,735 | )           |         | $ | 434,171 |         
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY                        |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|Current liabilities:                                        |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|                                                            | Accounts payable                        |                            | $       | 14,858       |         |              | $       | 2,972   |        |              | $        |            |         |   | $       | 17,830   |        
|                                                            | Accrued liabilities                     |                            |         | 34,609       |         |              |         | 13,009  |        |              |          | (1,214      | )       |   |         | 46,404   |        
|                                                            | Jackpot liabilities                     |                            |         | 6,018        |         |              |         |        |        |              |          |            |         |   |         | 6,018    |        
|                                                            | Current maturities of long-term debt    |                            |         | 1,909        |         |              |         | 14,060  |        |              |          | (13,827     | )       |   |         | 2,142    |        
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|                                                            |                                         | Total current liabilities  |         |              | 57,394  |              |         |         | 30,041 |              |          |             | (15,041 | ) |         |          | 72,394  | 
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|Long term debt                                              |                                         |                            | 397,092 |              |         |              | 15      |         |        |              | (56,060  | )           |         |   | 341,047 |         
|Other liabilities                                           |                                         |                            | 14,069  |              |         |              | 337     |         |        |              |         |             |         |   | 14,406  |         
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|                                                            |                                         | Total liabilities          |         |              | 468,555 |              |         |         | 30,393 |              |          |             | (71,101 | ) |         |          | 427,847 | 
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|Minority interest                                           |                                         |                            | 1,372   |              |         |              |        |         |        |              |         |             |         |   | 1,372   |         
|Commitments and contingencies                               |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|Stockholders equity (deficiency):                          |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|                                                            | Series E Special Stock                  |                            |         | 12           |         |              |         |        |        |              |          |            |         |   |         | 12       |        
|                                                            | Common Stock                            |                            |         | 4,922        |         |              |         | 17,832  |        |              |          | (17,832     | )       |   |         | 4,922    |        
|                                                            | Treasury stock                          |                            |         | (501         | )       |              |         |        |        |              |          |            |         |   |         | (501     | )      
|                                                            | Additional paid-in capital              |                            |         | 151,613      |         |              |         | 7,862   |        |              |          | (7,862      | )       |   |         | 151,613  |        
|                                                            | Accumulated other comprehensive income  |                            |         | (26,434      | )       |              |         | (26,454 | )      |              |          | 26,454      |         |   |         | (26,434  | )      
|                                                            | Retained earnings (accumulated deficit) |                            |         | (124,660     | )       |              |         | 96,394  |        |              |          | (96,394     | )       |   |         | (124,660 | )      
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|                                                            |                                         | Total stockholders equity |         |              | 4,952   |              |         |         | 95,634 |              |          |             | (95,634 | ) |         |          | 4,952   | 
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         
|                                                            |                                         | $                          | 474,879 |              |         | $            | 126,027 |         |        | $            | (166,735 | )           |         | $ | 434,171 |         
|                                                            |                                         |                            |         |              |         |              |         |         |        |              |          |             |         |   |         |         

See accompanying unaudited note.



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
CONSOLIDATING STATEMENTS OF OPERATIONS
 
Three Months Ended March 31, 2002
(In 000s)

|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |        |  
|------------------------------------- | ----------------------------------------- | - | ------------ | ------ | ------------ | - | ------- | ------ | ------------ | - | ----------- | ------ | - | - | -------- | ------ | -
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   | Alliance
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   | Gaming  
|                                      |                                           |   | Parent and   |        | Non-         |   |         |        |              |   | Corporation
|                                      |                                           |   | Guaranteeing |        | Guaranteeing |   | Adjust- |        | and         
|                                      |                                           |   | Subsidiaries |        | Subsidiaries |   | ments   |        | Subsidiaries
|                                      |                                           |   |              |        |              |   |         |        |             
|Revenues:                             |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|                                      | Gaming equipment and systems              |   | $            | 55,339 |              |   | $       | 5,073  |              |   | $           | (2,893 | ) |   | $        | 57,519 |  
|                                      | Wall machines and amusement games         |   |              |       |              |   |         | 20,531 |              |   |             |       |   |   |          | 20,531 |  
|                                      | Route operations                          |   |              | 53,581 |              |   |         | 4,200  |              |   |             |       |   |   |          | 57,781 |  
|                                      | Casino operations                         |   |              | 5,054  |              |   |         | 13,947 |              |   |             |       |   |   |          | 19,001 |  
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|                                      |                                           |   | 113,974      |        |              |   | 43,751  |        |              |   | (2,893      | )      |   |   | 154,832  |       
|Costs and expenses:                   |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|                                      | Cost of gaming equipment and systems      |   |              | 24,301 |              |   |         | 2,871  |              |   |             | (2,893 | ) |   |          | 24,279 |  
|                                      | Cost of wall machines and amusement games |   |              |       |              |   |         | 9,608  |              |   |             |       |   |   |          | 9,608  |  
|                                      | Cost of route operations                  |   |              | 42,827 |              |   |         | 2,720  |              |   |             |       |   |   |          | 45,547 |  
|                                      | Cost of casino operations                 |   |              | 2,843  |              |   |         | 5,261  |              |   |             |       |   |   |          | 8,104  |  
|                                      | Selling, general and administrative       |   |              | 19,474 |              |   |         | 10,818 |              |   |             |       |   |   |          | 30,292 |  
|                                      | Research and development                  |   |              | 3,588  |              |   |         | 639    |              |   |             |       |   |   |          | 4,227  |  
|                                      | Depreciation and amortization             |   |              | 6,327  |              |   |         | 1,743  |              |   |             |       |   |   |          | 8,070  |  
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|                                      |                                           |   | 99,360       |        |              |   | 33,660  |        |              |   | (2,893      | )      |   |   | 130,127  |       
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|Operating income                      |                                           |   | 14,614       |        |              |   | 10,091  |        |              |   |            |        |   |   | 24,705   |       
|Earnings in consolidated subsidiaries |                                           |   | 7,119        |        |              |   |        |        |              |   | (7,119      | )      |   |   |         |       
|Other income (expense):               |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|                                      | Interest income                           |   |              | 371    |              |   |         | 191    |              |   |             | (280   | ) |   |          | 282    |  
|                                      | Interest expense                          |   |              | (6,804 | )            |   |         | (296   | )            |   |             | 280    |   |   |          | (6,820 | )
|                                      | Rainbow royalty                           |   |              | 1,739  |              |   |         | (1,739 | )            |   |             |       |   |   |          |       |  
|                                      | Minority interest                         |   |              | (609   | )            |   |         |       |              |   |             |       |   |   |          | (609   | )
|                                      | Other, net                                |   |              | (394   | )            |   |         | (363   | )            |   |             |       |   |   |          | (757   | )
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|Income before income taxes            |                                           |   | 16,036       |        |              |   | 7,884   |        |              |   | (7,119      | )      |   |   | 16,801   |       
|Income tax benefit (provision)        |                                           |   | (137         | )      |              |   | (765    | )      |              |   |            |        |   |   | (902     | )     
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|Net income                            |                                           | $ | 15,899       |        |              | $ | 7,119   |        |              | $ | (7,119      | )      |   | $ | 15,899   |       
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       

See accompanying unaudited note.



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 CONSOLIDATING STATEMENTS OF OPERATIONS
 
Three Months Ended March 31, 2001
(In 000s)

|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |        |  
|------------------------------------- | ----------------------------------------- | - | ------------ | ------ | ------------ | - | ------- | ------ | ------------ | - | ----------- | ------ | - | - | -------- | ------ | -
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   | Alliance
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   | Gaming  
|                                      |                                           |   | Parent and   |        | Non-         |   |         |        |              |   | Corporation
|                                      |                                           |   | Guaranteeing |        | Guaranteeing |   | Adjust- |        | and         
|                                      |                                           |   | Subsidiaries |        | Subsidiaries |   | ments   |        | Subsidiaries
|                                      |                                           |   |              |        |              |   |         |        |             
|Revenues:                             |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|                                      | Gaming equipment and systems              |   | $            | 40,232 |              |   | $       | 2,168  |              |   | $           | (1,033 | ) |   | $        | 41,367 |  
|                                      | Wall machines and amusement games         |   |              |       |              |   |         | 20,561 |              |   |             |       |   |   |          | 20,561 |  
|                                      | Route operations                          |   |              | 52,012 |              |   |         | 4,373  |              |   |             |       |   |   |          | 56,385 |  
|                                      | Casino operations                         |   |              | 4,946  |              |   |         | 15,210 |              |   |             |       |   |   |          | 20,156 |  
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|                                      |                                           |   | 97,190       |        |              |   | 42,312  |        |              |   | (1,033      | )      |   |   | 138,469  |       
|Costs and expenses:                   |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|                                      | Cost of gaming equipment and systems      |   |              | 21,074 |              |   |         | 1,445  |              |   |             | (1,033 | ) |   |          | 21,486 |  
|                                      | Cost of wall machines and amusement games |   |              |       |              |   |         | 10,807 |              |   |             |       |   |   |          | 10,807 |  
|                                      | Cost of route operations                  |   |              | 42,580 |              |   |         | 2,801  |              |   |             |       |   |   |          | 45,381 |  
|                                      | Cost of casino operations                 |   |              | 2,851  |              |   |         | 5,782  |              |   |             |       |   |   |          | 8,633  |  
|                                      | Selling, general and administrative       |   |              | 16,179 |              |   |         | 9,240  |              |   |             |       |   |   |          | 25,419 |  
|                                      | Research and development                  |   |              | 2,926  |              |   |         | 627    |              |   |             |       |   |   |          | 3,553  |  
|                                      | Depreciation and amortization             |   |              | 5,080  |              |   |         | 1,968  |              |   |             |       |   |   |          | 7,048  |  
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|                                      |                                           |   | 90,690       |        |              |   | 32,670  |        |              |   | (1,033      | )      |   |   | 122,327  |       
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|Operating income                      |                                           |   | 6,500        |        |              |   | 9,642   |        |              |   |            |        |   |   | 16,142   |       
|Earnings in consolidated subsidiaries |                                           |   | 6,823        |        |              |   |        |        |              |   | (6,823      | )      |   |   |         |       
|Other income (expense):               |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|                                      | Interest income                           |   |              | 99     |              |   |         | 100    |              |   |             | (42    | ) |   |          | 157    |  
|                                      | Interest expense                          |   |              | (8,066 | )            |   |         | (554   | )            |   |             | 42     |   |   |          | (8,578 | )
|                                      | Rainbow royalty                           |   |              | 1,882  |              |   |         | (1,882 | )            |   |             |       |   |   |          |       |  
|                                      | Minority interest                         |   |              | (655   | )            |   |         |       |              |   |             |       |   |   |          | (655   | )
|                                      | Other, net                                |   |              | 144    |              |   |         | (241   | )            |   |             |       |   |   |          | (97    | )
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|Income before income taxes            |                                           |   | 6,727        |        |              |   | 7,065   |        |              |   | (6,823      | )      |   |   | 6,969    |       
|Income tax benefit (provision)        |                                           |   | 93           |        |              |   | (242    | )      |              |   |            |        |   |   | (149     | )     
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       
|Net income                            |                                           | $ | 6,820        |        |              | $ | 6,823   |        |              | $ | (6,823      | )      |   | $ | 6,820    |       
|                                      |                                           |   |              |        |              |   |         |        |              |   |             |        |   |   |          |       

See accompanying unaudited note.



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 CONSOLIDATING STATEMENTS OF OPERATIONS
 
Nine Months Ended March 31, 2002
(In 000s)

|                                      |                                           |   |              |         |              |   |         |        |              |   |             |         |   |   |          |         |  
|------------------------------------- | ----------------------------------------- | - | ------------ | ------- | ------------ | - | ------- | ------ | ------------ | - | ----------- | ------- | - | - | -------- | ------- | -
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |         |   |   | Alliance
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |         |   |   | Gaming  
|                                      |                                           |   | Parent and   |         | Non-         |   |         |        |              |   | Corporation
|                                      |                                           |   | Guaranteeing |         | Guaranteeing |   | Adjust- |        | and         
|                                      |                                           |   | Subsidiaries |         | Subsidiaries |   | ments   |        | Subsidiaries
|                                      |                                           |   |              |         |              |   |         |        |             
|Revenues:                             |                                           |   |              |         |              |   |         |        |              |   |             |         |   |   |          |        
|                                      | Gaming equipment and systems              |   | $            | 147,338 |              |   | $       | 17,094 |              |   | $           | (10,121 | ) |   | $        | 154,311 |  
|                                      | Wall machines and amusement games         |   |              |        |              |   |         | 58,654 |              |   |             |        |   |   |          | 58,654  |  
|                                      | Route operations                          |   |              | 156,135 |              |   |         | 11,210 |              |   |             |        |   |   |          | 167,345 |  
|                                      | Casino operations                         |   |              | 15,017  |              |   |         | 39,770 |              |   |             |        |   |   |          | 54,787  |  
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |         |   |   |          |        
|                                      |                                           |   | 318,490      |         |              |   | 126,728 |        |              |   | (10,121     | )       |   |   | 435,097  |        
|Costs and expenses:                   |                                           |   |              |         |              |   |         |        |              |   |             |         |   |   |          |        
|                                      | Cost of gaming equipment and systems      |   |              | 66,399  |              |   |         | 10,396 |              |   |             | (10,121 | ) |   |          | 66,674  |  
|                                      | Cost of wall machines and amusement games |   |              |        |              |   |         | 30,221 |              |   |             |        |   |   |          | 30,221  |  
|                                      | Cost of route operations                  |   |              | 125,006 |              |   |         | 7,320  |              |   |             |        |   |   |          | 132,326 |  
|                                      | Cost of casino operations                 |   |              | 8,397   |              |   |         | 15,908 |              |   |             |        |   |   |          | 24,305  |  
|                                      | Selling, general and administrative       |   |              | 56,580  |              |   |         | 30,189 |              |   |             |        |   |   |          | 86,769  |  
|                                      | Research and development                  |   |              | 9,800   |              |   |         | 1,926  |              |   |             |        |   |   |          | 11,726  |  
|                                      | Depreciation and amortization             |   |              | 17,957  |              |   |         | 5,153  |              |   |             |        |   |   |          | 23,110  |  
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |         |   |   |          |        
|                                      |                                           |   | 284,139      |         |              |   | 101,113 |        |              |   | (10,121     | )       |   |   | 375,131  |        
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |         |   |   |          |        
|Operating income                      |                                           |   | 34,351       |         |              |   | 25,615  |        |              |   |            |         |   |   | 59,966   |        
|Earnings in consolidated subsidiaries |                                           |   | 18,189       |         |              |   |        |        |              |   | (18,189     | )       |   |   |         |        
|Other income (expense):               |                                           |   |              |         |              |   |         |        |              |   |             |         |   |   |          |        
|                                      | Interest income                           |   |              | 1,305   |              |   |         | 650    |              |   |             | (909    | ) |   |          | 1,046   |  
|                                      | Interest expense                          |   |              | (21,452 | )            |   |         | (957   | )            |   |             | 909     |   |   |          | (21,500 | )
|                                      | Rainbow royalty                           |   |              | 4,974   |              |   |         | (4,974 | )            |   |             |        |   |   |          |        |  
|                                      | Minority interest                         |   |              | (1,477  | )            |   |         |       |              |   |             |        |   |   |          | (1,477  | )
|                                      | Other, net                                |   |              | 300     |              |   |         | (1,069 | )            |   |             |        |   |   |          | (769    | )
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |         |   |   |          |        
|Income before income taxes            |                                           |   | 36,190       |         |              |   | 19,265  |        |              |   | (18,189     | )       |   |   | 37,266   |        
|Income tax benefit (provision)        |                                           |   | (47          | )       |              |   | (1,076  | )      |              |   |            |         |   |   | (1,123   | )      
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |         |   |   |          |        
|Net income                            |                                           | $ | 36,143       |         |              | $ | 18,189  |        |              | $ | (18,189     | )       |   | $ | 36,143   |        
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |         |   |   |          |        

See accompanying unaudited note.



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 CONSOLIDATING STATEMENTS OF OPERATIONS
 
Nine Months Ended March 31, 2001
(In 000s)

|                                      |                                           |   |              |         |              |   |         |        |              |   |             |        |   |   |          |         |  
|------------------------------------- | ----------------------------------------- | - | ------------ | ------- | ------------ | - | ------- | ------ | ------------ | - | ----------- | ------ | - | - | -------- | ------- | -
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |        |   |   | Alliance
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |        |   |   | Gaming  
|                                      |                                           |   | Parent and   |         | Non-         |   |         |        |              |   | Corporation
|                                      |                                           |   | Guaranteeing |         | Guaranteeing |   | Adjust- |        | and         
|                                      |                                           |   | Subsidiaries |         | Subsidiaries |   | ments   |        | Subsidiaries
|                                      |                                           |   |              |         |              |   |         |        |             
|Revenues:                             |                                           |   |              |         |              |   |         |        |              |   |             |        |   |   |          |        
|                                      | Gaming equipment and systems              |   | $            | 109,694 |              |   | $       | 9,228  |              |   | $           | (5,343 | ) |   | $        | 113,579 |  
|                                      | Wall machines and amusement games         |   |              |        |              |   |         | 55,999 |              |   |             |       |   |   |          | 55,999  |  
|                                      | Route operations                          |   |              | 150,407 |              |   |         | 12,807 |              |   |             |       |   |   |          | 163,214 |  
|                                      | Casino operations                         |   |              | 14,123  |              |   |         | 41,008 |              |   |             |       |   |   |          | 55,131  |  
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |        |   |   |          |        
|                                      |                                           |   | 274,224      |         |              |   | 119,042 |        |              |   | (5,343      | )      |   |   | 387,923  |        
|Costs and expenses:                   |                                           |   |              |         |              |   |         |        |              |   |             |        |   |   |          |        
|                                      | Cost of gaming equipment and systems      |   |              | 54,299  |              |   |         | 5,795  |              |   |             | (5,343 | ) |   |          | 54,751  |  
|                                      | Cost of wall machines and amusement games |   |              |        |              |   |         | 30,274 |              |   |             |       |   |   |          | 30,274  |  
|                                      | Cost of route operations                  |   |              | 123,343 |              |   |         | 8,238  |              |   |             |       |   |   |          | 131,581 |  
|                                      | Cost of casino operations                 |   |              | 7,965   |              |   |         | 16,172 |              |   |             |       |   |   |          | 24,137  |  
|                                      | Selling, general and administrative       |   |              | 45,898  |              |   |         | 26,415 |              |   |             |       |   |   |          | 72,313  |  
|                                      | Research and development                  |   |              | 8,323   |              |   |         | 1,894  |              |   |             |       |   |   |          | 10,217  |  
|                                      | Depreciation and amortization             |   |              | 14,404  |              |   |         | 5,815  |              |   |             |       |   |   |          | 20,219  |  
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |        |   |   |          |        
|                                      |                                           |   | 254,232      |         |              |   | 94,603  |        |              |   | (5,343      | )      |   |   | 343,492  |        
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |        |   |   |          |        
|Operating income                      |                                           |   | 19,992       |         |              |   | 24,439  |        |              |   |            |        |   |   | 44,431   |        
|Earnings in consolidated subsidiaries |                                           |   | 15,797       |         |              |   |        |        |              |   | (15,797     | )      |   |   |         |        
|Other income (expense):               |                                           |   |              |         |              |   |         |        |              |   |             |        |   |   |          |        
|                                      | Interest income                           |   |              | 371     |              |   |         | 317    |              |   |             | (175   | ) |   |          | 513     |  
|                                      | Interest expense                          |   |              | (25,048 | )            |   |         | (1,584 | )            |   |             | 175    |   |   |          | (26,457 | )
|                                      | Rainbow royalty                           |   |              | 5,105   |              |   |         | (5,105 | )            |   |             |       |   |   |          |        |  
|                                      | Minority interest                         |   |              | (1,659  | )            |   |         |       |              |   |             |       |   |   |          | (1,659  | )
|                                      | Other, net                                |   |              | 309     |              |   |         | (582   | )            |   |             |       |   |   |          | (273    | )
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |        |   |   |          |        
|Income before income taxes            |                                           |   | 14,867       |         |              |   | 17,485  |        |              |   | (15,797     | )      |   |   | 16,555   |        
|Income tax benefit (provision)        |                                           |   | 827          |         |              |   | (1,688  | )      |              |   |            |        |   |   | (861     | )      
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |        |   |   |          |        
|Net income                            |                                           | $ | 15,694       |         |              | $ | 15,797  |        |              | $ | (15,797     | )      |   | $ | 15,694   |        
|                                      |                                           |   |              |         |              |   |         |        |              |   |             |        |   |   |          |        

See accompanying unaudited note.



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 CONSOLIDATING STATEMENTS OF CASH FLOWS
 
Nine Months Ended March 31, 2002
(In 000s)

|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |          |         |  
|--------------------------------------------------- | ----------------------------------------------------------------- | --------------------------------------------------- | ------ | ------------ | ------- | ------------ | ------ | ------- | ------- | ------------ | ------ | ----------- | ----- | - | ------ | -------- | ------- | -
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        | Alliance
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        | Gaming  
|                                                    |                                                                   |                                                     |        | Parent and   |         | Non-         |        |         |         |              |        | Corporation
|                                                    |                                                                   |                                                     |        | Guaranteeing |         | Guaranteeing |        | Adjust- |         | and         
|                                                    |                                                                   |                                                     |        | Subsidiaries |         | Subsidiaries |        | ments   |         | Subsidiaries
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |             
|Net cash provided by (used in)
operating activities |                                                                   | $                                                   | 21,639 |              |         | $            | 12,692 |         |         | $            | (3,251 | )           |       | $ | 31,080 |         
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|Cash flows from investing activities:               |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|                                                    | Additions to property and equipment                               |                                                     |        | (9,152       | )       |              |        | (3,066  | )       |              |        |            |       |   |        | (12,218  | )      
|                                                    | Acquisition, net of cash acquired                                 |                                                     |        | (15,333      | )       |              |        |        |         |              |        |            |       |   |        | (15,333  | )      
|                                                    | Additions to gaming machines on participation or lease            |                                                     |        | (12,498      | )       |              |        |        |         |              |        |            |       |   |        | (12,498  | )      
|                                                    | Proceeds from disposal of property and equipment
and other assets |                                                     |        | 40           |         |              |        | 27      |         |              |        |            |       |   |        | 67       |        
|                                                    | Additions to other long term assets                               |                                                     |        | (4,368       | )       |              |        |        |         |              |        |            |       |   |        | (4,368   | )      
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|                                                    |                                                                   | Net cash used in investing activities               |        |              | (41,311 | )            |        |         | (3,039  | )            |        |             |      |   |        |          | (44,350 | )
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|Cash flows from financing activities:               |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|                                                    | Reduction of long-term debt                                       |                                                     |        | (1,025       | )       |              |        | (3,602  | )       |              |        | 3,251       |       |   |        | (1,376   | )      
|                                                    | Capitalized debt issuance costs                                   |                                                     |        | (660         | )       |              |        |        |         |              |        |            |       |   |        | (660     | )      
|                                                    | Proceeds from exercise of stock options                           |                                                     |        | 6,529        |         |              |        |        |         |              |        |            |       |   |        | 6,529    |        
|                                                    | Dividends received (paid)                                         |                                                     |        | 8,057        |         |              |        | (8,057  | )       |              |        |            |       |   |        |         |        
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|                                                    |                                                                   | Net cash provided by (used in) financing
activities |        |              | 12,901  |              |        |         | (11,659 | )            |        |             | 3,251 |   |        |          | 4,493   |  
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|Effect of exchange rate changes on cash             |                                                                   |                                                     |       |              |         |              | 2,914  |         |         |              |       |             |       |   | 2,914  |         
|Cash and cash equivalents:                          |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|                                                    | Increase (decrease) for period                                    |                                                     |        | (6,771       | )       |              |        | 908     |         |              |        |            |       |   |        | (5,863   | )      
|                                                    | Balance, beginning of period                                      |                                                     |        | 41,502       |         |              |        | 13,343  |         |              |        |            |       |   |        | 54,845   |        
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|                                                    | Balance, end of period                                            |                                                     | $      | 34,731       |         |              | $      | 14,251  |         |              | $      |            |       |   | $      | 48,982   |        
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         

See accompanying unaudited note.



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2001
(In 000s)

|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |          |         |  
|--------------------------------------------------- | ----------------------------------------------------------------- | --------------------------------------------------- | ------ | ------------ | ------- | ------------ | ------ | ------- | ------- | ------------ | ------ | ----------- | ----- | - | ------ | -------- | ------- | -
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        | Alliance
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        | Gaming  
|                                                    |                                                                   |                                                     |        | Parent and   |         | Non-         |        |         |         |              |        | Corporation
|                                                    |                                                                   |                                                     |        | Guaranteeing |         | Guaranteeing |        | Adjust- |         | and         
|                                                    |                                                                   |                                                     |        | Subsidiaries |         | Subsidiaries |        | ments   |         | Subsidiaries
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |             
|Net cash provided by (used in)
operating activities |                                                                   | $                                                   | 31,902 |              |         | $            | 13,163 |         |         | $            | (2,227 | )           |       | $ | 42,838 |         
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|Cash flows from investing activities:               |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|                                                    | Additions to property and equipment                               |                                                     |        | (6,947       | )       |              |        | (2,224  | )       |              |        |            |       |   |        | (9,171   | )      
|                                                    | Additions to gaming machines on participation or lease            |                                                     |        | (6,555       | )       |              |        |        |         |              |        |            |       |   |        | (6,555   | )      
|                                                    | Proceeds from disposal of property and equipment
and other assets |                                                     |        | 139          |         |              |        |        |         |              |        |            |       |   |        | 139      |        
|                                                    | Additions to other long term assets                               |                                                     |        | (2,189       | )       |              |        |        |         |              |        |            |       |   |        | (2,189   | )      
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|                                                    |                                                                   | Net cash used in investing activities               |        |              | (15,552 | )            |        |         | (2,224  | )            |        |             |      |   |        |          | (17,776 | )
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|Cash flows from financing activities:               |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|                                                    | Reduction of long-term debt                                       |                                                     |        | (2,004       | )       |              |        | (2,583  | )       |              |        | 2,227       |       |   |        | (2,360   | )      
|                                                    | Net decrease in revolving credit facility                         |                                                     |        | (9,380       | )       |              |        | 1,262   |         |              |        |            |       |   |        | (8,118   | )      
|                                                    | Proceeds from exercise of stock options                           |                                                     |        | 443          |         |              |        |        |         |              |        |            |       |   |        | 443      |        
|                                                    | Purchase of common stock for treasury                             |                                                     |        | (436         | )       |              |        |        |         |              |        |            |       |   |        | (436     | )      
|                                                    | Dividends received (paid)                                         |                                                     |        | 9,339        |         |              |        | (9,339  | )       |              |        |            |       |   |        |         |        
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|                                                    |                                                                   | Net cash provided by (used in) financing
activities |        |              | (2,038  | )            |        |         | (10,660 | )            |        |             | 2,227 |   |        |          | (10,471 | )
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|Effect of exchange rate changes on cash             |                                                                   |                                                     |       |              |         |              | (161   | )       |         |              |       |             |       |   | (161   | )       
|Cash and cash equivalents:                          |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|                                                    | Increase (decrease) for period                                    |                                                     |        | 14,312       |         |              |        | 118     |         |              |        |            |       |   |        | 14,430   |        
|                                                    | Balance, beginning of period                                      |                                                     |        | 19,528       |         |              |        | 12,516  |         |              |        |            |       |   |        | 32,044   |        
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         
|                                                    | Balance, end of period                                            |                                                     | $      | 33,840       |         |              | $      | 12,634  |         |              | $      |            |       |   | $      | 46,474   |        
|                                                    |                                                                   |                                                     |        |              |         |              |        |         |         |              |        |             |       |   |        |         

See accompanying unaudited note.



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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Debt and Revolving Credit Facility

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

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

Long-term debt and lines of credit at March 31, 2002 consisted of the following (in 000s):

|                                                                    |  |              |         |              |  |         |        |              |  |             |         |   |  |          |         | 
|------------------------------------------------------------------- |  | ------------ | ------- | ------------ |  | ------- | ------ | ------------ |  | ----------- | ------- | - |  | -------- | ------- | 
|                                                                    |  |              |         |              |  |         |        |              |  |             |         |   |  | Alliance
|                                                                    |  |              |         |              |  |         |        |              |  |             |         |   |  | Gaming  
|                                                                    |  | Parent and   |         | Non-         |  |         |        |              |  | Corporation
|                                                                    |  | Guaranteeing |         | Guaranteeing |  | Adjust- |        | and         
|                                                                    |  | Subsidiaries |         | Subsidiaries |  | ments   |        | Subsidiaries
|                                                                    |  |              |         |              |  |         |        |             
|Term loan facility                                                  |  | $            | 190,000 |              |  | $       |       |              |  | $           |        |   |  | $        | 190,000 | 
|10% Senior Subordinated Notes due
2007, net of unamortized discount |  |              | 149,564 |              |  |         |       |              |  |             |        |   |  |          | 149,564 | 
|Revolving credit facility                                           |  |              |        |              |  |         |       |              |  |             |        |   |  |          |        | 
|Other subordinated note                                             |  |              | 2,995   |              |  |         |       |              |  |             |        |   |  |          | 2,995   | 
|Intercompany notes payable                                          |  |              | 56,060  |              |  |         | 13,827 |              |  |             | (69,887 | ) |  |          |        | 
|Other                                                               |  |              | 382     |              |  |         | 248    |              |  |             |        |   |  |          | 630     | 
|                                                                    |  |              |         |              |  |         |        |              |  |             |         |   |  |          |         | 
|                                                                    |  |              | 399,001 |              |  |         | 14,075 |              |  |             | (69,887 | ) |  |          | 343,189 | 
|Less current maturities                                             |  |              | 1,909   |              |  |         | 14,060 |              |  |             | (13,827 | ) |  |          | 2,142   | 
|                                                                    |  |              |         |              |  |         |        |              |  |             |         |   |  |          |         | 
|Long-term debt, less current
maturities                             |  | $            | 397,092 |              |  | $       | 15     |              |  | $           | (56,060 | ) |  | $        | 341,047 | 
|                                                                    |  |              |         |              |  |         |        |              |  |             |         |   |  |          |         | 



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ALLIANCE GAMING CORPORATION
FORM 10-Q
 March 31, 2002






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

Liquidity and Capital Resources

As of March 31, 2002, the Company had $49.0 million in cash and cash
equivalents, and $25.0 million in unborrowed availability on its revolving
credit facility. In addition the Company had net working capital of
approximately $127.6 million, an increase of approximately $14.9 million from
June 30, 2001, which is explained in the working capital section below.
Consolidated cash and cash equivalents at March 31, 2002, includes
approximately $23.7 million of cash utilized in Casino and Route Operations and
held in vaults, cages or change banks. Pursuant to various state gaming
regulations, the Company maintains restricted cash accounts to ensure
availability of funds to pay wide-area progressive jackpot awards, which
totaled approximately $7.7 million at March 31, 2002.

Management believes that cash flows from operating activities, cash and cash
equivalents held and the up to $40.0 million revolving credit facility
commitment will provide the Company with sufficient capital resources and
liquidity. At March 31, 2002, the Company had no material commitments for
capital expenditures.

Working Capital

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

|                                                   |                           |   |          |         |          |   |        |         |  |   |        |        | 
|-------------------------------------------------- | ------------------------- | - | -------- | ------- | -------- | - | ------ | ------- |  | - | ------ | ------ | 
|                                                   |                           |   | June 30, |         | Mar. 31, |   |        |         | 
|                                                   |                           |   | 2001     |         | 2002     |   | Change
|                                                   |                           |   |          |         |          |   |       
|Cash, cash equivalents, and short term investments |                           | $ | 54,845   |         |          | $ | 48,982 |         |  | $ | (5,863 | )     
|Accounts and notes receivable, net                 |                           |   | 79,369   |         |          |   | 91,255 |         |  |   | 11,886 |       
|Inventories, net                                   |                           |   | 35,082   |         |          |   | 48,813 |         |  |   | 13,731 |       
|Other current assets                               |                           |   | 10,814   |         |          |   | 10,958 |         |  |   | 144    |       
|                                                   |                           |   |          |         |          |   |        |         |  |   |        |       
|                                                   | Total current assets      |   |          | 180,110 |          |   |        | 200,008 |  |   |        | 19,898 | 
|Accounts payable                                   |                           |   | 19,531   |         |          |   | 17,830 |         |  |   | (1,701 | )     
|Accrued liabilities                                |                           |   | 45,714   |         |          |   | 46,404 |         |  |   | 690    |       
|Jackpot liabilities                                |                           |   | 1,264    |         |          |   | 6,018  |         |  |   | 4,754  |       
|Current maturities of long-term debt               |                           |   | 932      |         |          |   | 2,142  |         |  |   | 1,210  |       
|                                                   |                           |   |          |         |          |   |        |         |  |   |        |       
|                                                   | Total current liabilities |   |          | 67,441  |          |   |        | 72,394  |  |   |        | 4,953  | 
|                                                   |                           |   |          |         |          |   |        |         |  |   |        |       
|                                                   | Net working capital       |   | $        | 112,669 |          |   | $      | 127,614 |  |   | $      | 14,945 | 
|                                                   |                           |   |          |         |          |   |        |         |  |   |        |       

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



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ALLIANCE GAMING CORPORATION
FORM 10-Q
 March 31, 2002

Cash Flows

During the nine months ended March 31, 2002, cash provided from operating
activities totaled $31.1 million, a decrease of $11.8 million compared to the
cash flows from operations in the prior year period. This change is a result of
an increase in inventories and receivables, partially offset by an increase in
accrued liabilities.

During the nine months ended March 31, 2002, the Company used $44.4 million of
cash in investing activities resulting primarily from capital expenditures
totaling $12.2 million, costs incurred to produce participation games totaling
$12.5 million, net cash used in the acquisition of CMP of $6.9 million, net
cash used in the acquisition of ACSC of $8.5 million, and payments for gaming
rights totaling $3.4 million.

During the nine months ended March 31, 2002, cash flow from financing
activities included $6.5 million of cash provided from the exercise of stock
options, offset by principal payments on other long term debt totaling $1.4
million and $0.7 million to pay bank debt issuance costs.

Customer Financing

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

Results of Operations:

General

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

|                                  |        |   |                               |        |                              |   |        |        |      |   |        |        |  |   |        |        | 
|--------------------------------- | ------ | - | ----------------------------- | ------ | ---------------------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                  |        |   | Three Months Ending March 31, |        | Nine Months Ending March 31,
|                                  |        |   |                               |        |                             
|                                  |        |   | 2001                          |        | 2002                         |   | 2001   |        | 2002
|                                  |        |   |                               |        |                              |   |        |        |     
|EBITDA by Business Unit:          |        |   |                               |        |                              |   |        |        |      |   |        |        |  |   |        |       
|Bally Gaming and Systems          |        | $ | 7,656                         |        |                              | $ | 16,440 |        |      | $ | 24,174 |        |  | $ | 40,729 |       
|Wall Machines and Amusement Games |        |   | 3,976                         |        |                              |   | 4,472  |        |      |   | 9,288  |        |  |   | 10,165 |       
|Route Operations                  |        |   | 6,187                         |        |                              |   | 7,553  |        |      |   | 18,134 |        |  |   | 20,789 |       
|Casino Operations                 |        |   | 8,108                         |        |                              |   | 6,984  |        |      |   | 20,900 |        |  |   | 19,069 |       
|Corporate Administrative Expenses |        |   | (2,737                        | )      |                              |   | (2,674 | )      |      |   | (7,846 | )      |  |   | (7,676 | )     
|                                  |        |   |                               |        |                              |   |        |        |      |   |        |        |  |   |        |       
|                                  | EBITDA |   | $                             | 23,190 |                              |   | $      | 32,775 |      |   | $      | 64,650 |  |   | $      | 83,076 | 
|                                  |        |   |                               |        |                              |   |        |        |      |   |        |        |  |   |        |       



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ALLIANCE GAMING CORPORATION
FORM 10-Q
 March 31, 2002

|                                  |                        |   |                               |        |                              |   |        |        |      |   |        |        |  |   |        |        | 
|--------------------------------- | ---------------------- | - | ----------------------------- | ------ | ---------------------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                  |                        |   | Three Months Ending March 31, |        | Nine Months Ending March 31,
|                                  |                        |   |                               |        |                             
|                                  |                        |   | 2001                          |        | 2002                         |   | 2001   |        | 2002
|                                  |                        |   |                               |        |                              |   |        |        |     
|Operating Income (Expense):       |                        |   |                               |        |                              |   |        |        |      |   |        |        |  |   |        |       
|Bally Gaming and Systems          |                        | $ | 5,428                         |        |                              | $ | 13,638 |        |      | $ | 17,843 |        |  | $ | 33,577 |       
|Wall Machines and Amusement Games |                        |   | 2,597                         |        |                              |   | 3,207  |        |      |   | 5,239  |        |  |   | 6,340  |       
|Route Operations                  |                        |   | 3,717                         |        |                              |   | 4,648  |        |      |   | 11,178 |        |  |   | 11,792 |       
|Casino Operations                 |                        |   | 7,525                         |        |                              |   | 6,435  |        |      |   | 19,197 |        |  |   | 17,586 |       
|Corporate Administrative Expenses |                        |   | (3,125                        | )      |                              |   | (3,223 | )      |      |   | (9,026 | )      |  |   | (9,329 | )     
|                                  |                        |   |                               |        |                              |   |        |        |      |   |        |        |  |   |        |       
|                                  | Total Operating Income |   | $                             | 16,142 |                              |   | $      | 24,705 |      |   | $      | 44,431 |  |   | $      | 59,966 | 
|                                  |                        |   |                               |        |                              |   |        |        |      |   |        |        |  |   |        |       

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

Three Months Ended March 31, 2001 and 2002

Bally Gaming and Systems

For the quarter ended March 31, 2002, the Bally Gaming and Systems business
unit reported revenues of $57.5 million, an increase of 39% compared to
revenues of $41.4 million in the prior year quarter. Gaming Products sales
totaled $24.5 million, an increase of 3% compared to $23.8 million in the prior
year quarter. New unit sales totaled 3,025 units, a 12% increase compared to
2,700 in the prior year quarter. Bally Gaming performs contract manufacturing
of base gaming devices for several other gaming equipment companies, including
Multimedia Games. Such base games, which generally do not contain a
Bally game theme or other intellectual property, and are therefore
sold at reduced prices. Excluding such contract
manufactured
games, the average domestic new-unit selling price was $7,800 an increase of 6%
compared to the prior year quarter. Bally Systems reported revenues of $18.9
million, an increase of 72% compared to $11.0 million in the prior year
quarter. Bally Systems reported shipments of 13,675 game monitoring units,
compared to 8,300 units in the prior year quarter. The Bally Systems revenue
growth was primarily a result of continued strength in new system installations
and higher levels of recurring hardware and software support revenues resulting
from the larger base of installed systems. Gaming Operations reported revenues
of $14.1 million, an increase of 112% compared to $6.6 million in the prior
year quarter. The increased revenues were driven by an increase in the
installed base of recurring revenue units, which total approximately 3,740
units as of March 31, 2002, compared to approximately 2,670 units at March 31,
2001, and an increase in the revenue per unit as a result of a 96% increase in
the base of higher revenue wide-area progressive games deployed.

For the quarter ended March 31, 2002, the overall gross margin percentage for
Bally Gaming and Systems improved to 58% compared to 48% in the prior year
quarter. The improvement was due to improved margin contribution for gaming
machines sales as a result of the improved fixed cost absorption rate resulting
from the increased volume of new unit sales.

The Bally Gaming and Systems business unit reported operating income of $13.6
million, compared to an operating income of $5.4 million in the prior year
quarter. The increase in operating income resulted primarily from increases in
revenues and improved margins, as well as the reduced overhead cost structure.
Research and development costs totaled $3.6 million, an increase of 23%
compared to the prior year quarter.



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ALLIANCE GAMING CORPORATION
FORM 10-Q
 March 31, 2002

Wall Machines and Amusement Games

For the quarter ended March 31, 2002, Wall Machines and Amusement Games
reported revenues of $20.5 million, no change compared to the prior year
quarter. The revenues were flat as a result of a 37% decrease in the units sold
offset by 12% increase in the average selling price of new wall machines, and a
28% increase in the number of leased wall machines. The conversion to the Euro
currency has now been completed, and the sale of Euro denominated games and
conversion kits had a positive impact on the current quarter. Consistent with
the current quarter, we believe it is likely that customers will continue to
migrate to leasing games versus the purchase of machines, which should further
grow our base of recurring rental revenues.

The Wall Machines and Amusement Games business unit continued its leasing
program whereby new wall machines and certain amusement games are leased to
customers pursuant to operating leases which provide a stream of revenues and
cash flows over the term of the leases which range from six months to three and
one half years. As of March 31, 2002, a total of 7,620 machines were deployed
in the leasing program compared to 5,960 at March 31, 2001, an increase of 28%.

For the quarter ended March 31, 2002, gross profit margin increased to 53% from
47% in the prior year quarter. This increase was primarily due to an increase
in the average new unit selling price, offset by a decrease in the number of
units sold, which negatively impacted the fixed cost absorption rate. Wall
Machines and Amusement Games reported an operating income of $3.2 million,
compared to operating income of $2.6 million in the prior year quarter.

Route Operations

For the quarter ended March 31, 2002, the Route Operations business unit
reported total revenues of approximately $57.8 million, an increase of 3%
compared to revenues of $56.4 million in the prior year quarter. Revenues from
the Nevada route operations increased to approximately $53.6 million or 3% over
the prior year quarter. This improvement was attributable to an increase in
the average net win per gaming machine per day of 1% to $70.50 from $70.20 in
the prior year quarter and a 1% increase in the weighted average number of
gaming machines during the current quarter to 8,240 units as compared to 8,180
units in the prior year quarter. Gamblers Bonus, a cardless players club and
player tracking system continued to have a favorable impact on the net win per
day. As of March 31, 2002, the Gamblers Bonus product was installed in over
3,980 gaming machines at approximately 390 locations statewide or 48% of the
installed base of gaming machines. Revenues from route operations in Louisiana
totaled $4.2 million, a decrease of 4% compared to the prior year quarter. This
decrease was primarily the result of a decline in the net win per gaming
machine per day of 10% to $63.40 from $70.30 in the prior year quarter offset
by a 7% increase in the number of units deployed, which resulted from the
opening of one new OTB with 70 games.

For the quarter ended March 31, 2002, cost of revenues for Route Operations
totaled as a percentage of revenues, decreased to 79% from 81% in the prior
year quarter. This improvement is the result of reduced game rental costs,
which resulted from the payoff of high cost game leases in June 2001.

For the quarter ended March 31, 2002, the Route Operations business unit
reported operating income of $4.6 million, an increase of 25% compared to
operating income of $3.7 million in the prior year quarter.



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ALLIANCE GAMING CORPORATION
FORM 10-Q
 March 31, 2002

Casino Operations

For the quarter ended March 31, 2002, the Casino Operations business unit
reported revenues of $19.0 million, a decrease of 6% compared to revenues of
$20.2 million in the prior year quarter. This revenue decrease is due to an 8%
decrease in revenues at the Rainbow Casino offset by a 2% revenue increase at
the Rail City Casino. Rainbow Casino revenue decrease was attributable to a 12%
decrease in the net win per day to $152, and offset by a 4% increase in the
average number of gaming machines. This decline is a result of the significant
competitive pressure in the market that is growing at less than its historical
norm. The revenue improvement at the Rail City Casino was attributable to a 4%
increase in the average number of gaming machines and an increase in the
average gaming machine net win per day of 2% to $90 from $88 in the prior year
quarter. For the quarter ended March 31, 2002, the cost of revenues for Casino
Operations as a percentage of revenues has remained constant at 43%.

Net Interest Expense and Income Taxes

Interest expense (net of interest income) for the quarter ended March 31, 2002,
totaled $6.5 million, and compared to the net interest expense of $8.4 million
in the prior year quarter. The decrease is a result of a lower interest rates
on the bank credit facility.

The Company recorded an income tax provision of $0.9 million in the quarter
ended March 31, 2002, compared to a provision of $0.1 million in the prior year
quarter. The current quarter tax provision represents primarily estimated state
income taxes and a $0.5 million provision for German income taxes. Federal
taxable income for the period has been completely offset against NOL
carry-forwards.

Pursuant to the provisions of Statement of Financial Accounting Standards No.
109 Accounting for Income Taxes, (SFAS No. 109) the Company continues to
assess its ability to recover certain deferred tax assets, the most significant
of which is its NOL carry forwards generated in the late 1990s. The Company
expects to complete its formal internal budgeting processes in the June 2002
quarter, and believes that this will provide adequate evidential matter to
conclude that the more likely than not criteria for recoverability required
under SFAS No. 109 has been met, and therefore expects to reverse approximately
$32 million to $36 million of the valuation allowance currently recorded
against certain deferred tax assets.

Nine Months Ended March 31, 2001 and 2002

Bally Gaming and Systems

For the nine months ended March 31, 2002, the Bally Gaming and Systems business
unit reported revenues of $154.3 million, an increase of 36% compared to
revenues of $113.6 million in the prior year period. Gaming Products sales
totaled $72.4 million, an increase of 17% compared to $62.0 million in the
prior year period. New unit sales totaled 8,770 units, a 19% increase compared
to 7,400 in the prior year period. The average domestic new unit selling price,
excluding the contract manufacture games, was $7,660 an increase of 5% compared
to the prior year period. Bally Systems reported revenues of $43.5 million, an
increase of 38% compared to $31.7 million in the prior year period. Bally
Systems reported shipments of 31,250 game monitoring units, a 37% increase
compared to 22,800 units in the prior year period. Gaming Operations reported
revenues of $38.4 million, an increase of 93% compared to $19.9 million in the
prior year period. The overall gross margin percentage for Bally Gaming and
Systems improved to 57% compared to 52% in the prior year period. The Bally
Gaming and Systems business unit reported operating income of $33.6 million,
compared to an operating income of $17.8 million in the prior year period.
Research and development costs totaled $9.8 million, a decrease of 18% compared
to the prior year period.



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ALLIANCE GAMING CORPORATION
FORM 10-Q
 March 31, 2002

Wall Machines and Amusement Games

For the nine months ended March 31, 2002, Wall Machines and Amusement Games
reported revenues of $58.7 million, an increase of 5% compared to revenues of
$56.0 million in the prior year period. The increase in revenues resulted
primarily from a 5% increase in the selling price of new wall machines, and a
28% increase in the number of leased wall machines, offset by an 18% decrease
in the number of new wall machine units sold. The gross profit margin improved
to 49% from 46% in the prior year period. Wall Machines and Amusement Games
reported an operating income of $6.3 million, compared to operating income of
$5.2 million in the prior year period.

Route Operations

For the nine months ended March 31, 2002, the Route Operations business unit
reported total revenues of approximately $167.3 million, an increase of 3%
compared to revenues of $163.2 million in the prior year period. Revenues from
the Nevada route operations increased to approximately $156.1 million or 4%
over the prior year period. This improvement was attributable to an increase in
the average net win per gaming machine per day of 1% to $68.00 from $67.30 in
the prior year period and a 3% increase in the weighted average number of
gaming machines during the current period to 8,260 units as compared to 8,060
units in the prior year period. Revenues from route operations in Louisiana
totaled $11.2 million, a decrease of 13% compared to the prior year period.
This decrease was primarily the result of a decline in the net win per gaming
machine per day of 15% to $58.80 from $68.70 in the prior year period and a
slight increase in the average number of gaming units deployed. Cost of
revenues for Route Operations totaled as a percentage of revenues, decreased to
79% from 81% in the prior year period. The Route Operations business unit
reported operating income of $11.8 million, an increase of 6% compared to
operating income of $11.2 million in the prior year period.

Casino Operations

For the nine months ended March 31, 2002, the Casino Operations business unit
reported revenues of $54.8 million, a decrease of 1% compared to revenues of
$55.1 million in the prior year period. This small decrease is due to a 3%
decrease in revenues at the Rainbow Casino offset by a 6% increase in revenues
at the Rail City Casino. The slight decrease in revenue at the Rainbow Casino
was attributable to a 2% decrease in the net win per day to $146, and a 2%
decrease in the average number of gaming machines. The revenue improvement at
the Rail City Casino was attributable to an increase in the average gaming
machine net win per day of 2% to $86 and a 6% increase in the average number of
gaming machines. The cost of revenues for Casino Operations as a percentage of
revenues remained constant at 44%.

Net Interest Expense and Income Taxes

Interest expense (net of interest income) for the nine months ended March 31,
2002, totaled $20.5 million, compared to $25.9 million in the prior year
period. The decrease is a result of a lower interest rates on the bank credit
facility.

The Company recorded an income tax provision of $1.1 million in the nine months
ended March 31, 2002, compared to $0.9 million in the prior year period. The
current year period tax provision represents primarily estimated state income
taxes and a $0.5 million provision for German income taxes.



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ALLIANCE GAMING CORPORATION
FORM 10-Q
 March 31, 2002
 
 
* * * * *

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



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ALLIANCE GAMING CORPORATION
FORM 10-Q
 March 31, 2002




ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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




PART II




ITEM 1. Legal Proceedings

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




ITEM 6. Exhibits and Reports on Form 8-K

a. Exhibits

b. Reports on Form 8-K

| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company filed a Form 8-K on March 19, 2002 announcing the
completion of the acquisition of 100% of the stock of Advance Casino
Systems Corporation.



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ALLIANCE GAMING CORPORATION
FORM 10-Q
 March 31, 2002




SIGNATURES

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

| |                                                                     |                     
| | ------------------------------------------------------------------- | --------------------
| | ALLIANCE GAMING CORPORATION
(Registrant)                           
|
| | By                                                                  | /s/ Robert Miodunski
| |                                                                    
| | President and Chief Executive Officer
(Principal Executive Officer)

| |                                                                                                        |                     
| | ------------------------------------------------------------------------------------------------------ | --------------------
| | By                                                                                                     | /s/ Robert L. Saxton
| |                                                                                                       
| | Sr. Vice President, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)



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