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 September 30, 1999

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the
                         SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to

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

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

                               6601 S. Bermuda Rd.
                             Las Vegas, Nevada 89119
               (Address of principal executive offices) (Zip Code)

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



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. [X] Yes [ ] No

The  number of  shares of Common  Stock,  $0.10  par  value,  outstanding  as of
November 1, 1999  according  to the records of the  registrant's  registrar  and
transfer agent was 10,252,380.







<PAGE>


                          ALLIANCE GAMING CORPORATION
                                   FORM 10-Q

                   For the Quarter Ended September 30, 1999





                                   I N D E X



PART I.  FINANCIAL INFORMATION                                              Page


Item 1.     Unaudited Financial Statements

      Unaudited Condensed Consolidated Balance Sheets as of
           June 30, 1999 and September 30, 1999                               3

      Unaudited Condensed Consolidated Statements of Operations
           for the three months ended September 30, 1998 and 1999             4

      Unaudited Condensed Consolidated Statements of Stockholders'
           Deficiency for the three months ended September 30, 1999           5

      Unaudited Condensed Consolidated Statements of Cash Flows
           for the three months ended September 30, 1998 and 1999             6

      Notes to Unaudited Condensed Consolidated Financial Statements          7

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

Item 3.     Quantitative and Qualitative Disclosures About Market Risk       32


PART II. OTHER INFORMATION


Item 1.     Legal Proceedings                                                32

Item 6.     Exhibits and Reports on Form 8-K                                 32


SIGNATURES                                                                   33










<PAGE>




                                     PART 1

                           ALLIANCE GAMING CORPORATION
                 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                          (In 000's, except share data)
<TABLE>
<CAPTION>


                                                               June 30,    Sept. 30,
                                                                 1999        1999
<S>                                                           <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents                                   $ 16,930    $ 22,194
  Accounts and notes receivable, net of allowance
   for doubtful accounts of $12,705 and $13,150                 92,665      95,606
  Inventories, net of reserves of $7,077 and $6,319             46,138      50,651
  Other current assets                                          11,423      11,384
                                                               -------     -------
   Total current assets                                        167,156     179,835
                                                               -------     -------
Long-term notes receivable, net of allowance for
  doubtful accounts of $991 and $942                             5,782       5,403
Leased equipment, net of accumulated depreciation of
  $5,111 and $6,470                                             10,981      13,640
Property, plant and equipment, net of accumulated
  depreciation of $51,686 and $54,166                           74,159      75,502
Excess of costs over net assets of acquired businesses,
  net of accumulated amortization of $4,604 and $5,234          57,593      57,747
Intangible assets, net of accumulated amortization of
  $18,351 and $19,630                                           26,854      26,004
Other assets, net reserves of $3,468 and $3,468                 13,782      13,718
                                                               -------     -------
      Total assets                                            $356,307    $371,849
                                                              ========    ========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
  Accounts payable                                            $ 17,372    $ 19,660
  Accrued liabilities                                           39,196      33,053
  Current maturities of long-term debt                           1,927       1,944
                                                                ------      ------
    Total current liabilities                                   58,495      54,657
                                                               -------     -------
Term loan facilities                                           134,096     133,845
Senior Subordinated Notes due 2007, net                        149,298     149,311
Other long-term debt, less current maturities                   33,385      51,150
Other liabilities                                                9,458       9,382
                                                               -------     -------
      Total liabilities                                        384,732     398,345
                                                               -------     -------

Minority interest                                                1,983       1,337
Commitments and contingencies
Stockholders' deficiency:
  Special Stock, 10,000,000 shares authorized:
     Series E, $100 liquidation value; 153,802 shares
      and 47,242 shares issued and outstanding                  15,380       4,724
  Common Stock, $.10 par value; 50,000,000 shares authorized;
     9,791,000 and 10,252,000 shares issued and outstanding        979       1,034
  Treasury stock at cost, 83,000 shares                           (522)       (508)
  Additional paid-in capital                                   129,991     141,030
  Accumulated other comprehensive loss                         (15,986)    (14,308)
  Accumulated deficit                                         (160,250)   (159,085)
                                                              --------    --------
   Total stockholders' deficiency                              (30,408)    (27,833)
                                                              --------    --------
      Total liabilities and stockholders' deficiency          $356,307    $371,849
                                                              ========    ========
</TABLE>



      See notes to unaudited condensed consolidated financial statements.


<PAGE>



                           ALLIANCE GAMING CORPORATION
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                        (In 000's, except per share data)

                                                Three Months Ended September 30,
                                                            1998       1999
Revenues:
    Gaming equipment and systems                         $ 21,942   $ 39,784
    Wall machines and amusement games                      20,611     14,676
    Route operations                                       40,004     46,052
    Casino operations                                      16,214     16,690
                                                          -------    -------
                                                           98,771    117,202
Costs and expenses:
    Cost of gaming equipment and systems                   11,840     22,093
      Cost of wall machines and amusement games            12,068      9,954
      Cost of route operations                             31,129     36,648
      Cost of casino operations                             6,816      6,619
      Selling, general and administrative                  21,012     23,618
  Research and development                                  4,194      3,549
  Depreciation and amortization                             5,402      6,324
                                                           ------     ------
                                                            92,461   108,805

Operating income                                            6,310      8,397

Other income (expense):
    Interest income                                           232        114
    Interest expense                                       (7,903)    (7,777)
  Minority interest                                          (539)      (468)
    Other, net                                               (192)       256
                                                           -------    ------
Income (loss) before income taxes                          (2,092)       522

Income tax provision                                         (184)       (77)
                                                           ------      ------
Net income (loss)                                          (2,276)       445

Special Stock dividends                                      (406)         -
                                                           -------    ------
Net income (loss) applicable to common shares             $(2,682)    $  445
                                                          =======     ======


Basic and diluted earnings (loss) per share:               $(0.28)    $ 0.04
                                                           ======     ======

Weighted average common shares outstanding                  9,423     10,156
                                                            =====     ======

Weighted average common and common
     share equivalents outstanding                          9,423     10,396
                                                            =====     ======


      See notes to unaudited condensed consolidated financial statements.


<PAGE>


                           ALLIANCE GAMING CORPORATION
     UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                      Three Months Ended September 30, 1999
                                   (In 000's)

<TABLE>
<CAPTION>

                                                                                                                        Total
                                                                                              Accumulated               Stock-
                                                                                 Additional     Other                  holders'
                                       Common Stock       Series E     Treasury   Paid-in    Comprehensive   Accum.     Equity
                                     Shares    Dollars  Special Stock    Stock    Capital        Loss       Deficit  (Deficiency)
<S>                                   <C>      <C>        <C>           <C>      <C>         <C>         <C>         <C>
Balances at June 30, 1999             9,791    $   979    $ 15,380      $ (522)  $ 129,991   $ (15,986)  $(160,250)  $ (30,408)

Net income                               --         --          --          --          --          --         445         445
Treasury shares issued upon
  exercise of options                    --         --          --          14          (4)         --          --          10
Special Stock dividends                  --         --         442          --          --          --          --         442
Shares issued upon conversion of
  Special Stock                         544         55     (11,098)         --      11,043          --          --          --
Foreign currency translation
  adjustment                             --         --          --          --          --       1,678          --       1,678
                                     ------     ------      ------       -----     -------     -------     -------     -------
Balances at September 30, 1999       10,335    $ 1,034    $  4,724      $ (508)  $ 141,030   $ (14,308)  $(159,805)  $ (27,833)
                                     ======    =======    ========      ======   =========   =========   =========   =========

</TABLE>














            See notes to unaudited condensed consolidated financial statements.






<PAGE>


                           ALLIANCE GAMING CORPORATION
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (In 000's)

<TABLE>
<CAPTION>


                                                     Three Months Ended September 30,
                                                               1998        1999
<S>                                                          <C>         <C>
Cash flows from operating activities:
  Net income (loss)                                          $(2,276)    $   445
   Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities:
     Depreciation and amortization                             5,402       6,324
     Amortization of debt discounts                               13          13
     Write down of other assets                                  185         407
     Gain on sale of assets                                      (21)        (18)
     Provision for losses in (recovery of) doubtful
       receivables                                              (353)        523
     Other                                                      (198)       (596)
   Net change in operating assets and liabilities:
     Accounts and notes receivable                            10,281      (1,873)
     Inventories                                              (4,420)     (7,778)
     Other current assets                                      2,692         118
     Accounts payable                                         (2,449)      2,246
     Accrued liabilities                                      (9,723)     (5,896)
                                                              ------      ------
       Net cash provided by (used in) operating activities     4,031      (6,085)

Cash flows from investing activities:
   Additions to property, plant and equipment                 (3,483)     (4,502)
   Proceeds from disposal of property and equipment               36          27
   Additions to other long term assets                        (2,008)     (1,187)
       Net cash used in investing activities                  (5,455)     (5,662)

Cash flows from financing activities:
   Reduction of long-term debt                                  (467)       (387)
   Net change in lines of credit                                 300      17,221
   Proceeds from exercise of stock options and warrants        4,843          10
                                                              ------      ------
       Net cash provided by financing activities               4,676      16,844

Effect of exchange rate changes on cash                          177         167

Cash and cash equivalents:
    Increase for period                                        3,429       5,264
    Balance, beginning of period                              23,487      16,930
                                                              ------      ------
    Balance, end of period                                   $26,916     $22,194
                                                             =======     =======

</TABLE>


       See notes to unaudited condensed consolidated financial statements.



<PAGE>




                                ALLIANCE GAMING CORPORATION
               NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                       Three Months Ended September 30, 1998 and 1999



1.  BASIS OF PRESENTATION

    The  accompanying   unaudited  interim  condensed   consolidated   financial
    statements   reflect  all   adjustments,   consisting  of  normal  recurring
    adjustments,  which management  believes are necessary to present fairly the
    financial position,  results of operations and cash flows of Alliance Gaming
    Corporation  ("Alliance"  or  the  "Company")  for  the  respective  periods
    presented.  The  results  of  operations  for  an  interim  period  are  not
    necessarily  indicative  of the results  which may be expected for any other
    interim  period  or for the  year as a  whole.  The  accompanying  unaudited
    interim  condensed  consolidated  financial  statements  should  be  read in
    conjunction  with the  consolidated  financial  statements  and notes in the
    Company's  annual report on Form 10-K as amended for the year ended June 30,
    1999. All  intercompany  accounts and  transactions  have been eliminated in
    consolidation.

    The accompanying  condensed  consolidated  financial  statements at June 30,
    1999 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  prior  period
    financial statements to conform with current period presentation.

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 at June 30, 1999 and
    September 30, 1999:

                                                   June 30,   Sept. 30,
                                                     1999       1999
                                                        (in 000's)

          Raw materials                            $16,676     $17,938
          Work-in-process                            2,057       1,510
          Finished goods                            27,405      31,203
                                                    ------      ------
                Total inventories                  $46,138     $50,651
                                                   =======     =======


<PAGE>


3.  DEBT, LINES OF CREDIT

    Long-term  debt at June 30,  1999 and  September  30,  1999  consists of the
following:

                                                          June 30,   Sept. 30,
                                                            1999       1999
                                                               (in 000's)
      10% Senior Subordinated Notes due 2007, net of
        unamortized discount of $702,000 and $689,000    $149,298    $149,311
      Term loan facilities:
          Tranche B Term Loan                              72,380      72,250
          Tranche C Term Loan                              38,744      38,666
          Delayed Draw Term Facility                       24,372      24,329
      Revolving Credit Facility                            32,200      50,062
      Other, secured by related equipment                   1,712       1,632
                                                          -------     -------
                                                          318,706     336,250
      Less current maturities                               1,927       1,944
                                                          -------     -------
      Long-term debt, less current maturities            $316,779    $334,306
                                                         ========    ========

    In August 1997 the Company completed a refinancing  transaction  whereby the
    Company  repaid  its 12 7/8%  Senior  Notes,  repurchased  its 15%  Series B
    Special  Stock,  and issued $150  million of Senior  Subordinated  Notes and
    entered into bank financing of $230 million. The bank financing provides for
    (i) term loans in the aggregate amount of up to $140 million, comprised of a
    $75 million  tranche with a 7 1/2-year term (the  "Tranche B Term Loan"),  a
    $40 million  tranche with an 8-year term (the "Tranche C Term Loan"),  and a
    $25 million tranche with a 7 1/2-year term (the "Delayed Draw Term Facility"
    and together  with the Tranche B Term Loan and the Tranche C Term Loan,  the
    "Term Loan  Facilities");  and (ii) a $90 million  revolving credit facility
    (the "Revolving  Credit  Facility") with a 6-year term. Each of these credit
    facilities  are variable rate  borrowings in accordance  with a credit grid.
    The interest  rates which are  currently at the highest  level of the credit
    grid and maturity dates are as follows:
                                              Interest           Maturity
                                                Rates               Date
            Tranche B Term Loan          LIBOR + 3.25%  January 31, 2005
            Tranche C Term Loan          LIBOR + 3.50%     July 31, 2005
            Delayed Draw Term Facility   LIBOR + 3.25%  January 31, 2005
            Revolving Credit Facility    LIBOR + 2.75%     July 31, 2003

    The Revolving Credit Facility also allows for German Deutschemark borrowings
    at the euro  deutschmark rate plus 2.75% (or 5.7% at September 30, 1999). In
    an amendment to the bank credit  agreement in October 1999,  the Company has
    agreed to keep the  interest  rate at the  highest  level of the credit grid
    through December 31, 2000.

    The bank facility is  collateralized  by substantially all domestic property
    and is  guaranteed  by each  domestic  subsidiary  of the U.S.  Borrower and
    German Subsidiaries (both as defined), other than the entity which holds the
    Company's  interest  in its  Louisiana  operations  and  other  non-material
    subsidiaries  (as  defined),  and secured by both a U.S.  and German  Pledge
    Agreement  (both  as  defined).  The bank  facility  contains  a  number  of
    maintenance  covenants  and it and  the  Indenture  have  other  significant
    covenants that, among other things,  restrict the ability of the Company and
    certain  of  its  subsidiaries  to  dispose  of  assets,   incur  additional
    indebtedness  and  issue  preferred  stock,  pay  dividends  or  make  other
    distributions, enter into certain acquisitions,  repurchase equity interests
    (as defined) or subordinated indebtedness, issue or sell equity interests of
    the Company's subsidiaries (as defined),  engage in mergers or acquisitions,
    or engage in certain transactions with subsidiaries and affiliates, and that
    otherwise restrict corporate activities.

    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 financing. The Senior Subordinated Notes will be
    fully  and  unconditionally   guaranteed  on  a  joint  and  several  senior
    subordinated   basis  by  all  existing  and  future   domestic   Restricted
    Subsidiaries  (as  defined) of the  Company,  subject to certain  exceptions
    including the partially-owned  entities through which its Mississippi casino
    and Louisiana route operations are conducted.  The Subsidiary Guarantees (as
    defined)  are  general  unsecured  obligations  of the  Guarantors,  ranking
    subordinate  in right of payment to all Senior Debt of the  Guarantors.  The
    Company will be able to designate  other current or future  subsidiaries  as
    Unrestricted   Subsidiaries   (as  defined)  under  certain   circumstances.
    Unrestricted  Subsidiaries  will  not be  required  to  issue  a  Subsidiary
    Guarantee and will not be subject to many of the  restrictive  covenants set
    forth in the Indenture pursuant to which the Senior  Subordinated Notes were
    issued.  The Indenture for the Company's Senior  Subordinated Notes contains
    various  covenants,   including  limitations  on  incurrence  of  additional
    indebtedness,   on   restricted   payments   and  on  dividend  and  payment
    restrictions  on  subsidiaries.  The  Senior  Subordinated  Notes may not be
    redeemed  for the  first  five  years.  Upon the  occurrence  of a Change of
    Control (as defined), the holders of the Senior Subordinated Notes will have
    the right to require the Company to purchase their notes at a price equal to
    101% of the  aggregate  principal  amount  thereof,  plus accrued and unpaid
    interest to the date of purchase.

4.  INCOME TAXES

    The Company's  effective  tax rate for the three months ended  September 30,
    1998 and 1999  differs  from the  statutory  rate of 35% due to state income
    taxes and the impact of taxes  applicable  to  earnings of Bally  Wulff.  In
    addition,  earnings at the Company's domestic  subsidiaries  cannot be fully
    offset by the utilization of net operating loss carryforwards.

5.  SUPPLEMENTAL CASH FLOW INFORMATION

    The following supplemental information is related to the unaudited condensed
    consolidated  statements of cash flows. For the three months ended September
    30, 1998 and 1999, the Company recorded the following  significant  non-cash
    items:
                                                Three months ended September 30,
                                                         1998       1999
                                                            (In 000's)
    Reclassify other assets to property, plant
      and equipment                                    $  108     $    93
    Dividends for Series E Special Stock                  406         442
    Reclassify inventory to equipment                     459       3,694
    Translation rate adjustment                         5,593       1,511
    Capitalized obligation incurred in acquisition
      of route asset                                      652           -
    Conversion of Series E Special Stock into common
     shares                                                -       11,098


6.  LEGAL PROCEEDINGS

    Litigation

    On  September  25,  1995,  BGII was named as a defendant  in a class  action
    lawsuit filed in federal  District  Court in Nevada,  by Larry  Schreirer on
    behalf of himself and all others  similarly  situated.  The plaintiffs filed
    suit against BGII and approximately 45 other  defendants.  Each defendant is
    involved  in the gaming  business as either a gaming  machine  manufacturer,
    distributor,  or casino  operator.  The class action  lawsuit  arises out of
    alleged  fraudulent  marketing and operation of casino video poker  machines
    and electronic  slot machines.  The plaintiffs  allege that the  defendants'
    actions  constitute  violations  of the  Racketeer  Influenced  and  Corrupt
    Organizations  Act  (RICO)  and give rise to claims of common  law fraud and
    unjust enrichment.  The plaintiffs are seeking monetary damages in excess of
    $1.0  billion,  and are  asking  that any  damage  awards be  trebled  under
    applicable Federal law.  Management  believes the plaintiffs'  lawsuit to be
    without merit.  The Company intends to vigorously  pursue all legal defenses
    available to it.

    On July 20, 1999, Bally Gaming,  Inc., sued International Game Technology in
    the United States  District  Court for the District of New Jersey.  The suit
    alleged that provisions in IGT's contracts with Atlantic City casinos barred
    the casinos  from  acquiring  progressive  systems  from IGT's  competitors,
    thereby preserving IGT's monopoly in the lucrative Atlantic City progressive
    market,  violating  federal and state antitrust laws and common law policies
    against unfair competition and restraints of trade, and frustrating  Bally's
    efforts to launch its Thrillions  wide-area  progressive  system in Atlantic
    City. The lawsuit sought  declaratory  and injunctive  relief,  compensatory
    damages,  and other relief. The parties have agreed to a settlement pursuant
    to which  IGT will  notify  its  Atlantic  City  customers  that it will not
    enforce the challenged contract provisions, and Bally will seek dismissal of
    the suit.

    On August 30, 1999,  Cardivan Company, a subsidiary of Jackpot  Enterprises,
    Inc.,  filed an  action  in  federal  court in Nevada  against  Raley's  and
    Albertson's,  Inc.,  in which  Cardivan  sought to forestall the loss of its
    slot machine  operations at fifteen  Albertson's  grocery  stores in the Las
    Vegas  area  after  Albertson's,  Cardivan's  customer,  sold the  stores to
    Raley's,  with whom  Alliance  subsidiary  United  Coin  Machine  Co. has an
    exclusive  contract.  The federal  court  granted a  preliminary  injunction
    allowing  Cardivan to continue  operating  machines at Raley's before trial,
    effectively  preventing United Coin, though not a party to the lawsuit, from
    operating its machines  there  pursuant to its contract with Raley's.  After
    the federal court granted the preliminary injunction, Anchor Gaming moved to
    intervene  and to have  the  preliminary  injunction  extended  to  prohibit
    Raley's  from  removing  Anchor's  slot  machines at four other  stores that
    Albertson's sold to Raley's. The federal court granted the motion,  allowing
    Anchor to intervene.  United Coin likewise moved to intervene, but the court
    denied the motion. Raley's and Albertson's motions for summary judgment were
    heard on November 10, 1999, and trial has been set on an expedited basis for
    December 7, 1999.  United Coin  appealed the federal  court's  denial of its
    motion to intervene to the Ninth Circuit Court of Appeals,  but the court of
    appeals has not yet acted. On September 23, 1999,  United Coin sued Cardivan
    Company  and  Anchor  Gaming in Nevada  state  court for  interference  with
    contractual  relations and  Albertson's  and Raley's for breach of contract.
    The state  court  denied  United  Coin's  motions  for  preliminary  relief,
    deferring  to the federal  court.  The state  court also  denied  Cardivan's
    motion for summary  judgment on  November  2, 1999.  The Company  intends to
    continue vigorously pursuing its rights and remedies in both cases.

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


7.  COMPREHENSIVE INCOME

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

    During  the  three  months  ended   September  30,  1998  and  1999,   total
    comprehensive income amounted to $3.1 million and $2.1 million respectively.

8.  SHARE REPURCHASE  PLAN

    In January 1999 the Company's Board of Directors approved a share repurchase
    plan for up to 1.18  million  shares of its  Common  Stock.  Under the plan,
    subject to price and market  conditions,  purchases  of shares  will be made
    from time to time during  calendar  1999 in the open market or in  privately
    negotiated  transactions.   As  of  September  30,  1999,  the  Company  had
    approximately  83,000  shares  of  common  stock  in  treasury  at a cost of
    $508,000.  The Company  intends to use the acquired  common stock to satisfy
    obligations  pursuant to the exercise of stock  options  under the Company's
    stock option plans.

9.  REVERSE STOCK SPLIT

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

10. EARNINGS PER SHARE

    Basic  earnings  per share  (EPS) is  computed  by  dividing  income  (loss)
    applicable to common shares (the numerator) by the  weighted-average  number
    of  common  shares   outstanding  (the  denominator)  for  the  period.  The
    computation  of  Diluted  EPS is  similar  to  Basic  EPS,  except  that the
    denominator  is increased to include the number of additional  common shares
    that would have been  outstanding if the potentially  dilutive common shares
    had been issued.  Stock options and warrants are reflected in Diluted EPS by
    application of the "Treasury Stock Method" which reduces the dilutive effect
    by assuming  that any proceeds from the exercise of the options and warrants
    would be used to purchase  common shares at the average  market price during
    the  period.  Series  E  Special  Stock  is  reflected  in  Diluted  EPS  by
    application of the  "If-Converted  Method" which assumes full  conversion at
    the beginning of the period.



    The computation of Basic and Diluted EPS is as follows:
<TABLE>
<CAPTION>

                                             Three months ended September 30, 1998
                                            Income (Loss)   Average Shares
                                             (Numerator)    (Denominator)      EPS

                                                  (In 000's except share data)
         <S>                                   <C>             <C>          <C>
         Basic EPS
         Net loss                              $ (2,276)
         Special Stock dividends                   (406)

         Loss applicable to common shares        (2,682)        9,423       $(0.28)

         Effect of Dilutive Securities (a)
         Stock options                                -            -
         Warrants                                     -            -
         Convertible Series E Special Stock           -            -
                                                 ------        ------

         Diluted EPS                           $ (2,682)        9,423       $(0.28)
</TABLE>

    (a) Stock options  outstanding to purchase 11,000 common shares and Series E
    Special Stock  convertible  into 674,000  common shares were not included in
    the   computation   of  Diluted  EPS  because  to  do  so  would  have  been
    anti-dilutive. Additionally, stock options outstanding to purchase 1,522,000
    common shares and warrants  exercisable for 2,294,000 common shares were not
    included in the  computation  of Diluted EPS because either (i) the exercise
    price was greater than the average  market price of the common shares during
    the period or (ii) the  contingent  issue price was greater  that the market
    price of the common shares at the end of the period.

<TABLE>
<CAPTION>

                                             Three months ended September 30, 1999
                                            Income (Loss)   Average Shares
                                             (Numerator)    (Denominator)      EPS
         <S>                                     <C>            <C>         <C>
         Basic EPS
         Net income                              $ 445
         Special Stock dividends                     -
                                                  ----

         Income applicable to common shares        445          10,156      $ 0.04

         Effect of Dilutive Securities (a)
         Stock options                               -              15
         Warrants                                    -               -
         Convertible Series E Special Stock          -             225
                                                  ----          ------

         Diluted EPS                             $ 445          10,396      $ 0.04
</TABLE>

    (a) Stock options  outstanding to purchase about 1,479,000 common shares and
    warrants  exercisable  for 929,000  common  shares were not  included in the
    computation of Diluted EPS because either (i) the exercise price was greater
    than the average market price of the common shares during the period or (ii)
    the  contingent  issue price was greater that the market price of the common
    shares at the end of the period




11. SEGMENT AND GEOGRAPHICAL INFORMATION

    The Company  operates in four business  segments:  (i) Gaming  Equipment and
    Systems   designs,   manufactures   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 regional casinos.
    Operating   income  is  the  primary  measure  used  in  assessing   segment
    performance. Corporate office costs are generally not allocated except where
    those costs can be specifically identified with a segment.

    The tables  below  presents  information  as to the  Company's  revenues and
operating income:

                                               Three Months Ended September 30,
                                                       1998        1999
                                                          (In $000's)
           Revenues:
             Gaming Equipment and Systems           $ 21,942    $ 39,784
             Wall Machines and Amusement Games        20,611      14,676
             Route Operations                         40,004      46,052
             Casino Operations                        16,214      16,690
                                                     -------     -------
           Total revenues                           $ 98,771    $117,202
                                                    ========    ========

           Intersegment revenues:
             Gaming Equipment and Systems             $  177     $ 5,427
             Wall Machines and Amusement Games            28          16
             Route Operations                              -           -
             Casino Operations                             -           -
                                                       -----     -------
           Total intersegment revenues                $  205     $ 5,443
                                                      ======     =======

           Operating income:
             Gaming Equipment and Systems             $  147     $ 5,003
             Wall Machines and Amusement Games         2,157      (1,830)
             Route Operations                          3,076       3,029
             Casino Operations                         4,862       5,964
             Corporate/other                          (3,932)     (3,769)
                                                      ------      ------
           Total operating income                    $ 6,310     $ 8,397
                                                     =======     =======


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


    The table  below  presents  information  as to the  Company's  revenues  and
    operating income by geographic region:

                                         Three Months Ended September 30,
                                                 1998        1999
                                                    (In $000's)
         Revenues:
             United States                    $ 73,515    $ 94,580
             Germany                            23,366      16,946
         Other foreign                           1,890       5,676
                                               -------     -------
         Total revenues                       $ 98,771    $117,202
                                              ========    ========

         Operating income:
             United States                     $ 3,979     $10,372
             Germany                             2,180      (2,007)
         Other foreign                             151          32
                                                ------      ------
         Total operating income                $ 6,310     $ 8,397
                                               =======     =======

12. UNAUDITED CONSOLIDATING FINANCIAL STATEMENTS

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


<PAGE>
                          CONSOLIDATING BALANCE SHEETS
                                  June 30, 1999
                                   (In 000's)
<TABLE>
<CAPTION>

                                                                            Alliance
                                                                             Gaming
                                      Parent and       Non-                Corporation
                                     Guaranteeing  Guaranteeing  Elimina-      and
                                     Subsidiaries  Subsidiaries    tions   Subsidiaries
<S>                                      <C>        <C>        <C>          <C>
ASSETS
Current assets:
  Cash and cash equivalents              $ 6,065    $ 10,865   $            $  16,930
  Accounts and notes receivable, net      46,423      50,917      (4,675)      92,665
  Inventories, net                        30,513      16,154        (529)      46,138
  Other current assets                     8,510       2,913                   11,423
                                          ------      ------      ------      -------
     Total current assets                 91,511      80,849      (5,204)     167,156
                                         -------      ------      ------      -------
Long-term notes receivable, net           99,961       1,797     (95,976)       5,782
Leased equipment, net                      3,923       7,058                   10,981
Property, plant and equipment, net        41,880      32,279                   74,159
Excess of costs over net assets of
  acquired businesses, net                38,904      18,689                   57,593
Intangible assets, net                    26,448         406                   26,854
Investments in subsidiaries               86,993                 (86,993)
Other assets, net                         25,312      (7,337)     (4,193)      13,782
                                         -------     -------     -------      -------
                                        $414,932    $133,741   $(192,366)    $356,307
                                        ========    ========   ==========    ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
  Accounts payable                       $14,706     $ 2,666   $             $ 17,372
  Accrued liabilities                     26,771      13,746      (1,321)      39,196
  Current maturities of long-term debt     6,175       3,299      (7,547)       1,927
                                          ------      ------      ------       ------
     Total current liabilities            47,652      19,711      (8,868)      58,495
                                          ------      ------      ------       ------
Term loan facilities                     134,096                              134,096
Senior Subordinated Notes due 2007, net  149,298                              149,298
Other long-term debt, less current
  maturities                             104,826      24,379     (95,820)      33,385
Other liabilities                          7,370       2,330        (242)       9,458
                                          ------      ------      ------       ------
     Total liabilities                   443,242      46,420    (104,930)     384,732
                                         -------      ------     -------      -------
Minority interest                          1,983                                1,983
Commitments and contingencies
Stockholders' equity (deficiency):
  Series E Special Stock                  15,380                               15,380
  Common Stock                               979      17,832     (17,832)         979
  Treasury stock                            (522)                                (522)
  Additional paid-in capital             129,991      68,700     (68,700)     129,991
  Accumulated other comprehensive loss   (15,845)    (16,143)     16,002      (15,986)
  Retained earnings (accumulated
    deficit)                            (160,276)     16,932     (16,906)    (160,250)
                                         -------      ------     -------     --------
    Total stockholders' equity
      (deficiency)                       (30,293)     87,321     (87,436)     (30,408)
                                         -------      ------     -------      -------
                                        $414,932    $133,741   $(192,366)    $356,307
                                        ========    ========   ==========    ========
</TABLE>


                              See accompanying unaudited note.


<PAGE>




                          CONSOLIDATING BALANCE SHEETS
                               September 30, 1999
                                   (In 000's)
<TABLE>
<CAPTION>

                                                                            Alliance
                                                                             Gaming
                                      Parent and       Non-                Corporation
                                     Guaranteeing  Guaranteeing  Elimina-      and
                                     Subsidiaries  Subsidiaries    tions   Subsidiaries
<S>                                     <C>         <C>         <C>          <C>
ASSETS
Current assets:
  Cash and cash equivalents             $  9,078    $ 13,116    $            $ 22,194
  Accounts and notes receivable, net      50,001      50,255      (4,650)      95,606
  Inventories, net                        35,515      15,665        (529)      50,651
  Other current assets                     7,787       3,597                   11,384
                                          ------      ------      ------      -------
   Total current assets                  102,381      82,633      (5,179)     179,835
                                         -------     -------      ------      -------
Long-term notes receivable, net          101,239       1,571     (97,407)       5,403
Leased equipment, net                      6,537       7,103                   13,640
Property, plant and equipment, net        42,069      33,433                   75,502
Excess of costs over net assets of
  acquired businesses, net                38,640      19,107                   57,747
Intangible assets, net                    25,599         405                   26,004
Investment in subsidiaries                85,446                 (85,446)
Other assets, net                         26,612      (9,785)     (3,109)      13,718
                                         -------     -------     -------      -------
                                        $428,523    $134,467   $(191,141)    $371,849
                                        ========    ========   =========     ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
  Accounts payable                      $ 17,301    $  2,359    $            $ 19,660
  Accrued liabilities                     20,948      13,718      (1,613)      33,053
  Current maturities of long-term debt     4,712       3,367      (6,135)       1,944
                                          ------      ------      ------       ------
   Total current liabilities              42,961      19,444      (7,748)      54,657
                                         -------     -------      ------      -------
Term loan facilities                     133,845                              133,845
Senior Subordinated Notes due 2007, net  149,311                              149,311
Other long-term debt, less current
  maturities                             121,518      26,917     (97,285)      51,150
Other liabilities                          7,267       2,330        (215)       9,382
                                         -------     -------     -------      -------
   Total liabilities                     454,902      48,691    (105,248)     398,345
                                         -------     -------    --------      -------
Minority interest                          1,337                                1,337
Commitments and contingencies
Stockholders' equity (deficiency):
  Series E Special Stock                   4,724                                4,724
  Common Stock                             1,034      17,832     (17,832)       1,034
  Treasury stock                            (508)                                (508)
  Additional paid-in capital             141,030      68,700     (68,700)     141,030
  Accumulated other comprehensive income (14,167)    (14,472)     14,331       (14,308)
  Retained earnings (accumulated
    deficit)                            (159,829)     13,716     (13,692)    (159,805)
                                        --------     -------    --------     --------
   Total stockholders' equity
     (deficiency)                        (27,716)     85,776     (85,893)     (27,833)
                                         -------     -------     -------     --------
                                        $428,523    $134,467   $(191,141)    $371,849
                                        ========    ========   =========     ========

</TABLE>

                            See accompanying unaudited note.


<PAGE>


                    CONSOLIDATING STATEMENTS OF OPERATIONS

                      Three Months Ended September 30, 1998
                                   (In 000's)
<TABLE>
<CAPTION>

                                                                            Alliance
                                                                             Gaming
                                      Parent and       Non-                Corporation
                                     Guaranteeing  Guaranteeing  Elimina-      and
                                     Subsidiaries  Subsidiaries    tions   Subsidiaries
<S>                                      <C>         <C>         <C>          <C>
Revenues:
  Gaming equipment and systems           $20,171     $ 3,072     $(1,301)     $21,942
  Wall machines and amusement games                   20,622         (11)      20,611
  Route operations                        34,889       5,115                   40,004
  Casino operations                        3,307      12,907                   16,214
                                          ------      ------      ------       ------
                                          58,367      41,716      (1,312)      98,771
Costs and expenses:
  Cost of gaming equipment and systems    10,791       2,350      (1,301)      11,840
  Cost of wall machines and amusement
    games                                             12,079         (11)      12,068
  Cost of route operations                27,816       3,313                   31,129
  Cost of casino operations                2,039       4,777                    6,816
  Selling, general and administrative     11,837       9,175                   21,012
  Research and development                 3,436         758                    4,194
  Depreciation and amortization            3,672       1,730                    5,402
                                          ------      ------      ------        -----
                                          59,591      34,182      (1,312)      92,461

Operating income                          (1,224)      7,534                    6,310

Earnings in consolidated subsidiaries      5,102                  (5,102)

Other income (expense):
  Interest income                            315         104        (187)         232
  Interest expense                        (7,701)       (389)        187       (7,903)
  Rainbow royalty                          1,507                  (1,507)
  Minority interest                         (539)                                (539)
  Other, net                                 (13)       (179)                    (192)
                                          ------      ------      ------       ------

Income (loss) before income taxes         (2,553)      5,563      (5,102)      (2,092)
Income tax benefit (provision)               277        (461)                    (184)
                                          ------      ------      ------      -------
Net income (loss)                         (2,276)      5,102      (5,102)      (2,276)
Special Stock dividends                     (406)                                (406)
                                          ------      ------       ------      ------
Net income (loss)applicable to common
  shares                                 $(2,682)     $5,102     $(5,102)     $(2,682)
                                         ========     ======     ========     ========

</TABLE>


                        See accompanying unaudited note.


<PAGE>


                     CONSOLIDATING STATEMENTS OF OPERATIONS

                      Three Months Ended September 30, 1999
                                   (In 000's)
<TABLE>
<CAPTION>

                                                                            Alliance
                                                                             Gaming
                                      Parent and       Non-                Corporation
                                     Guaranteeing  Guaranteeing  Elimina-      and
                                     Subsidiaries  Subsidiaries    tions   Subsidiaries
<S>                                      <C>         <C>         <C>          <C>
Revenues:
  Gaming equipment and systems           $37,524     $ 7,284     $(5,024)     $39,784
  Wall machines and amusement games                   14,676                   14,676
  Route operations                        41,231       4,821                   46,052
  Casino operations                        4,128      12,562                   16,690
                                          ------      ------      ------       ------
                                          82,883      39,343      (5,024)     117,202
Costs and expenses:
  Cost of gaming equipment and systems    21,056       6,061      (5,024)      22,093
  Cost of wall machines and amusement
    games                                  9,954                                9,954
  Cost of route operations                33,532       3,116                   36,648
  Cost of casino operations                2,112       4,507                    6,619
  Selling, general and administrative1     4,736       8,882                   23,618
  Research and development                 2,811         738                    3,549
  Depreciation and amortization            4,417       1,907                    6,324
                                          ------      ------      ------       ------
                                          78,664      35,165      (5,024)     108,805

Operating income                           4,219       4,178                    8,397

Earnings in consolidated subsidiaries      1,947                  (1,947)

Other income (expense):
  Interest income                            135         107        (128)         114
  Interest expense                        (7,465)       (438)        126       (7,777)
  Rainbow royalty                          1,475                  (1,475)
  Minority interest                         (468)                                (468)
  Other, net                                 315         (59)                     256
                                           -----       -----       -----        -----
Income before income taxes                   158       2,313      (1,949)         522
Income tax benefit (provision)               289        (366)                     (77)
                                           -----       -----       -----        -----

Net income applicable to common shares    $  447      $1,947     $(1,949)      $  445
                                          ======      ======     ========      ======

</TABLE>

                            See accompanying unaudited note.


<PAGE>


                     CONSOLIDATING STATEMENTS OF CASH FLOWS
                      Three Months Ended September 30, 1998
                                   (In 000's)
<TABLE>
<CAPTION>

                                                                             Alliance
                                                                              Gaming
                                       Parent and       Non-                Corporation
                                      Guaranteeing  Guaranteeing  Elimina-      and
                                      Subsidiaries  Subsidiaries    tions   Subsidiaries
<S>                                      <C>          <C>          <C>        <C>
Net cash provided by (used in)
  operating activities                   $(6,904)     $11,558      $(623)     $4,031
                                         -------      -------      -----      ------
Cash flows from investing activities:
  Additions to property and equipment     (2,732)        (751)                (3,483)
  Proceeds from disposal of property and
    equipment                                 28            8                     36
  Additions to other long term assets     (2,008)                             (2,008)
                                          ------       ------      -----      ------
    Net cash used in investing activities (4,712)        (743)                (5,455)
                                          ------       ------      -----      ------
Cash flows from financing activities:
  Reduction of long-term debt               (355)        (735)       623        (467)
  Net change in lines of credit              300                                 300
  Proceeds from exercise of stock options
    and warrants                           4,843                   4,843
  Dividends received (paid)               12,862      (12,862)
                                          ------      -------      -----       -----
    Net cash provided by (used in)
      financing activities                17,650      (13,597)       623       4,676
                                          ------      -------       ----      ------

Effect of exchange rate changes on cash                   177                    177

Cash and cash equivalents:
  Increase (decrease) for period           6,034       (2,605)                 3,429
  Balance, beginning of period             8,609       14,878                 23,487
                                          ------       ------      -----      ------
  Balance, end of period                 $14,643      $12,273    $           $26,916
                                         =======      =======    =======     =======

</TABLE>


                                 See accompanying unaudited note.



<PAGE>


                     CONSOLIDATING STATEMENTS OF CASH FLOWS
                      Three Months Ended September 30, 1999
                                   (In 000's)
<TABLE>
<CAPTION>


                                                                              Alliance
                                                                               Gaming
                                        Parent and       Non-                Corporation
                                       Guaranteeing  Guaranteeing  Elimina-      and
                                       Subsidiaries  Subsidiaries    tions   Subsidiaries
<S>                                      <C>           <C>         <C>         <C>
Net cash provided by (used in)
  operating activities                   $(10,996)     $ 5,587     $ (676)     $(6,085)
                                         --------      -------     ------      -------
Cash flows from investing activities:
  Additions to property and equipment      (2,794)      (1,708)                 (4,502)
  Proceeds from disposal of property and
    equipment                                  27                                   27
  Additions to other long term assets      (1,158)         (29)                 (1,187)
                                           ------       ------      -----       ------
    Net cash used in investing activities  (3,952)      (1,710)                 (5,662)
                                           ------       ------      -----       ------
Cash flows from financing activities:
   Reduction of long-term debt               (251)        (812)       676         (387)
  Net change in lines of credit            14,500        2,721                  17,221
  Proceeds from exercise of stock options
    and warrants                               10                                   10
  Dividends received (paid)                 3,700       (3,700)
                                           ------       ------      -----       ------
    Net cash provided by (used in)
      financing activities                 17,959       (1,791)       676       16,844
                                          -------       ------       ----       ------

Effect of exchange rate changes on cash         2          165                     167

Cash and cash equivalents:
  Increase (decrease) for period            3,013        2,251                   5,264
  Balance, beginning of period              6,065       10,865                  16,930
                                           ------      -------      -----      -------
  Balance, end of period                  $ 9,078      $13,116     $           $22,194
                                          =======      =======     ======      =======

</TABLE>

                              See accompanying unaudited note.



<PAGE>



Debt and Lines of Credit

Long-term debt and lines of credit at June 30, 1999 consist of the following :
<TABLE>
<CAPTION>

                                                                               Alliance
                                                                                Gaming
                                        Parent and       Non-                 Corporation
                                       Guaranteeing  Guaranteeing  Elimina-       and
                                       Subsidiaries  Subsidiaries    tions    Subsidiaries
                                                        (in 000's)
<S>                                     <C>              <C>        <C>         <C>
10% Senior Subordinated Notes due
    2007, net of unamortized discount   $149,298         $          $            $149,298
Term loan facilities:
  Tranche B Term Loan                     72,380                                   72,380
  Tranche C Term Loan                     38,744                                   38,744
  Delayed Draw Term Facility              24,372                                   24,372
Revolving Credit Facility                 12,900         19,300                    32,200
Intercompany notes payable                96,701          6,666      (103,367)
Other                                      1,712                                    1,712
                                         -------         ------      --------     -------
                                         394,395         27,678      (103,367)    318,706
Less current maturities                    6,175          3,299        (7,547)      1,927
                                         -------         ------       -------     -------
Long-term debt, less current
  maturities                            $388,220        $24,379      $(95,820)   $316,779
                                        ========        =======      ========    ========

</TABLE>


Long-term  debt and  lines of  credit  at  September  30,  1999  consist  of the
following:
<TABLE>
<CAPTION>

                                                                               Alliance
                                                                                Gaming
                                        Parent and       Non-                 Corporation
                                       Guaranteeing  Guaranteeing  Elimina-       and
                                       Subsidiaries  Subsidiaries    tions    Subsidiaries
                                                           (in 000's)
<S>                                     <C>            <C>          <C>          <C>
10% Senior Subordinated Notes due
    2007, net of unamortized discount   $149,311       $            $            $149,311
Term loan facilities:
  Tranche B Term Loan                     72,250                                   74,250
  Tranche C Term Loan                     38,666                                   38,666
  Delayed Draw Term Facility              24,329                                   24,329
Revolving Credit Facility                 27,400         22,662                    50,062
Intercompany notes payable                97,430          5,990      (103,420)
Other                                      1,632                                    1,632
                                         -------        -------      --------     -------
                                         409,386         30,284      (103,420)    336,250
Less current maturities                    4,712          3,367        (6,135)      1,944
                                         -------        -------       -------     -------
Long-term debt, less current
  maturities                            $404,674        $26,917      $(97,285)   $334,306
                                        ========        =======      =========   ========

</TABLE>

                            See accompanying unaudited note.


<PAGE>




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

Liquidity and Capital Resources

At September 30, 1999, based on the terms of the $90.0 million  Revolving Credit
Facility, the Company would have been able to borrow $73.7 million, of which the
Company had borrowings of approximately $50.1 million outstanding. The borrowing
base for the revolving  credit  facility  consists of eligible  receivables  and
inventory, as defined in the credit agreement.

At  September  30,  1999,  the  Company  had  $22.2  million  in cash  and  cash
equivalents and $23.6 million in unborrowed availability on its revolving credit
facility  pursuant to the  borrowing  base  limitations  contained in the credit
agreement.  In addition, the Company had working capital of approximately $125.2
million, an increase of approximately $16.5 million from June 30, 1999, which is
explained  below.  Consolidated  cash and cash equivalents at September 30, 1999
includes  approximately  $16.9  million of cash which is  utilized in Casino and
Route Operations which is held in vaults, cages or change banks.

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

Management  believes  that cash flow from  operating  activities,  cash and cash
equivalents held and the  availability  under the revolving credit facility will
provide the Company with sufficient  capital resources and liquidity for ongoing
operating  needs. At September 30, 1999, the Company had commitments for capital
expenditures  of  approximately  $3.0 million  related to the  completion of the
Rainbow Casino expansion project.

Working Capital

During the three months ended  September  30, 1999,  working  capital  increased
$16.9 million to $125.3  million.  The primary  fluctuations  in working capital
were: (i) an increase in accounts receivable  resulting from greater revenues at
the Bally Gaming and Systems business unit, (ii) an increase in inventory due to
a larger  number of product  platforms  to support at Bally  Gaming and Systems,
(iii) a decrease in accrued  liabilities  due to  payments  of accrued  interest
payable, (v) the impact of foreign exchange  fluctuations between the dollar and
the deutschemark on all working capital  categories,  (vi) increases in accounts
payable  based on the increase in inventory  levels and timing of payments,  and
(vii)  the  corresponding  impact  of the  above  listed  items on cash and cash
equivalents.

Cash Flow

During the three months ended  September  30, 1999 the Company used $6.1 million
of cash in  operating  activities  resulting  from  net  increases  in  accounts
receivable and inventory and a decrease in accrued liabilities, partially offset
by net income,  an increase in depreciation  and amortization and an increase in
accounts payable.

During the three months ended  September  30, 1999 the Company used $5.7 million
of cash in investing activities primarily resulting from $4.5 million in capital
expenditures and $1.2 million in additions to other long-term assets  including,
$0.3  million  of  payments  made in  acquiring  the rights to  manufacture  and
distribute  several gaming  products,  and $0.4 million of payments in acquiring
gaming rights of route locations.

During the three months ended September 30, 1999,  $16.8 million was provided by
financing  activities  primarily  resulting from additional  borrowings from the
Company's  revolving credit facility of $17.2,  partially offset by $0.4 million
used to reduce the Company's long-term debt.

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

                                          Three Months Ending September 30,
                                                  1998        1999
                                                     (In $000's)

Bally Gaming and Systems                       $   960     $ 6,785
Wall Machines and Amusement Games                3,145        (610)
Route Operations                                 5,678       5,423
Casino Operations                                5,442       6,473
Corporate Administrative Expenses               (3,513)     (3,350)
                                               -------     -------
    EBITDA                                     $11,712     $14,721
                                               =======     =======

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

The Bank Facility is  collateralized  by substantially all domestic property and
is  guaranteed  by each  domestic  subsidiary  of the U.S.  Borrower  and German
Subsidiaries (both as defined),  other than the entity which holds the Company's
interest in its Louisiana  operations and other  non-material  subsidiaries  (as
defined),  and  secured by both a U.S.  and  German  Pledge  Agreement  (both as
defined).  The Bank Facility  contains a number of maintenance  covenants and it
and the Indenture have other  significant  covenants  that,  among other things,
restrict the ability of the Company and certain of its  subsidiaries  to dispose
of assets, incur additional  indebtedness,  issue preferred stock, pay dividends
or make other distributions, enter into certain acquisitions,  repurchase equity
interests  (as  defined)  or  subordinated  indebtedness,  issue or sell  equity
interests  of the  Company's  subsidiaries  (as  defined),  engage in mergers or
acquisitions,   or  engage  in  certain   transactions   with  subsidiaries  and
affiliates, and that otherwise restrict corporate activities.

Sale of Route and Casino Businesses, Bally Wulff matters and bank amendment

The Company has  retained  investment  bankers to explore the sale of its Nevada
and Louisiana Route businesses and its Mississippi and Nevada Casino  businesses
which will enable  management  to focus on its core  gaming  machine and systems
businesses.  The sales are  conditioned  on receiving  offers  acceptable to the
Company. The net proceeds from the sale of these non-core assets will be used in
part to repay the  Company's  bank debt. To facilitate  the  disposition  of the
businesses,  the Company has obtained an amendment to its bank credit agreement.
The amendment  provides the lenders' consent to sell the businesses and provides
other  financial  flexibility  to the Company.  In addition,  the bank amendment
provides  that  if the  Company  should  elect  to  sell  any  of  its  non-core
businesses,  any  restructuring  charges that may be incurred as a result of the
sales may be excluded from the  determination  of EBITDA used in the calculation
of the various financial covenant ratios.

The Company is also  exploring  various  alternatives  to return its Bally Wulff
operations  to higher  levels of  profitability.  The  amendment  to the  credit
agreement  provides the lenders'  consent to a restructuring  of the Bally Wulff
legal  entities.  In addition,  the bank amendment  provides that if the Company
should elect to effect a restructuring  in Germany,  any  restructuring  charges
that may be  incurred  at Bally  Wulff as a result of the  restructuring  may be
excluded from the determination of EBITDA used in the calculation of the various
financial covenant ratios.

Customer Financing

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

Year 2000

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

The Year 2000 issue has an impact on both information  technology ("IT") systems
and non-IT systems,  such as its manufacturing  systems and physical  facilities
including,  but  not  limited  to,  security  systems  and  utilities.  Although
management  believes  that a majority of the  Company's IT systems are Year 2000
ready,  certain  systems  still have to be tested for Year 2000  readiness.  The
Company  plans to  replace or  upgrade  those  systems  that are  identified  as
non-Year  2000 ready during the remainder of calendar  1999.  Certain IT systems
previously identified as non-Year 2000 compliant are being upgraded or replaced.
Most of the systems identified have already been replaced. The Company is in the
process of completing the  replacement on a system at its Louisiana  route,  and
one at its Rail City  Casino.  Both of these are  underway and expected to be in
place by December 31, 1999. The Company has also completed the first significant
phase of its Year 2000 compliance on personal computer equipment, and expects to
achieve compliance by December 31, 1999. Non-IT system issues are more difficult
to identify and  resolve.  The Company  continues  to identify  non-IT Year 2000
issues  concerning its products and services,  as well as its physical  facility
locations.  All non-IT areas  identified  are included in the  company's  formal
action plans to ensure minimal disruption to its business processes.  Management
engaged  outside  consultants to assist and advise  management in its assessment
process  and  has  implemented  their  recommendations.  A  centralized  project
management  organization  has been  established to lead the Company  through its
Year 2000 efforts.  This organization  includes  dedicated outside resources and
internal business representatives. Although management believes that its efforts
will be successful and the costs will be immaterial (currently estimated between
$400,000  to  $500,000  of which  approximately  $320,000  has been  spent as of
September  30,  1999) to its  consolidated  financial  position  and  results of
operations,  it  also  recognizes  that  any  failure  or  delay  could  cause a
disruption in its business and have a significant  financial impact. To minimize
this  potential  impact,  the Company has drafted  Contingency  Plans to support
critical  business  processes for each of its business units. The Company is now
finalizing  those plans and assigning  management  responsibility  for the tasks
involved,  including the development of a Corporate Management Response Team and
a Year 2000 Recovery Administrator, and expects to complete this by November 30,
1999.

The Company has also initiated  efforts to ensure the Year 2000 readiness of its
products  and  services.  As part of its  assessment  of  current  products  and
services,  the Company has upgraded all current  Bally  Systems SDS customers to
version 7.0  software,  for which the Company  developed a Year 2000  compliance
"patch"  which is being  distributed.  Version 7.1 of the  software is Year 2000
compliant and is currently authorized for installation. Customers are also being
advised  that the IBM or Unix  operating  systems  they are  using  must also be
upgraded to versions  that are Year 2000  compliant.  Bally Systems has obtained
the operating  system  upgrades from the vendors and has offered to assist users
in  installing  the  upgrade.  The  Company  has also tested most of the current
products  manufactured  in the  United  States and  Germany  in recent  years to
determine  compliance  with Year 2000.  The Company is actively  evaluating  its
strategy and legal  obligations  for any  communication  to its  customers.  The
Gamblers  Bonus system used in the Company's  Nevada route  operations  has been
tested and found to be Year 2000 compliant.

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

The Company has completed  efforts to assess the Year 2000  readiness of its key
suppliers and business partners.  The Company's  direction in this effort was to
ensure the adequacy of resources and supplies to minimize any potential business
interruptions.  As part of the Company's contingency plans, management has begun
to identify and solidify  relationships with and access to alternative suppliers
and resources to ensure the support and  continuation  of its critical  business
operations.

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

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

The Year 2000 issue has an impact on both information  technology ("IT") systems
and non-IT systems,  such as its manufacturing  systems and physical  facilities
including,  but  not  limited  to,  security  systems  and  utilities.  Although
management  believes  that a majority of the  Company's IT systems are Year 2000
ready, such systems still have to be tested for Year 2000 readiness. The Company
plans to replace or upgrade those  systems that are  identified as non-Year 2000
ready during calendar 1999. Certain IT systems previously identified as non-Year
2000  compliant are being  upgraded or replaced which should be complete by June
30, 1999.  Non-IT system issues are more difficult to identify and resolve.  The
Company is actively  identifying non-IT Year 2000 issues concerning its products
and services,  as well as its physical facility  locations.  As non-IT areas are
identified,  management  formulates  the  necessary  actions  to ensure  minimal
disruption to its business processes. Management has engaged outside consultants
to assist and advise management in this assessment  process and the consultant's
final report and  recommendation is forthcoming.  Although  management  believes
that its efforts  will be  successful  and the costs will be  immaterial  to its
consolidated  financial  position and results of operations,  it also recognizes
that any failure or delay could cause a  disruption  in its  business and have a
significant  financial impact. To minimize this potential impact, the Company is
actively  planning and designing a contingency plan to support critical business
processes.

The Company has also initiated  efforts to ensure the Year 2000 readiness of its
products and services. The Company is actively evaluating its strategy and legal
obligations for any communication to its customers. As part of its assessment of
current  products and  services,  the Company is currently  upgrading  all Bally
Systems  SDS  customers  to version  7.0  software,  for which the  Company  has
developed a Year 2000 compliance  "patch" which is currently being  distributed.
The  Company  plans to have all  customers  upgraded  to version 7.0 by December
1998,  and have the patch  installed  by July 1999.  The  Company  is  currently
shipping  version  7.1 of the  software,  which  is also  Year  2000  compliant.
Customers are also being advised that the IBM or Unix operating systems they are
using must also be  upgraded  to versions  that are Year 2000  compliant.  Bally
Systems has  obtained the  operating  system  upgrades  from the vendors and has
offered to assist users in installing  the upgrade.  The Company has also tested
most of the  products  manufactured  in the United  states and Germany in recent
years to determine compliance with Year 2000 and plans to advise customers what,
if any, non-compliance issues exist before December 31, 1998.

Based upon the results of research and investigation,  management will formulate
further plans as necessary. The Year 2000 readiness of its customers varies, and
the Company is  encouraging  its  customers  to evaluate  and prepare  their own
systems.  These  efforts by customers to address Year 2000 issues may affect the
demand for certain products and services;  however, the impact to the revenue or
any change in revenue patterns is highly uncertain.

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

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

Euro Currency Conversion

The  Company's  Bally  Wulff  subsidiary  uses  the  German  deutschmark  as its
functional currency.  The new Euro currency will replace the deutschmark as well
as most other European  currencies  after a phase in period which begins January
1, 1999. As most of Bally Wulff's transactions are within Germany, the switch to
the Euro is not  expected  to have a material  impact on  revenues,  expenses or
income.  The Company's  products can be brought into Euro compliance by moving a
switch  inside the wall  machine.  The cost of the new front glass  showing Euro
denominations will be borne be the customers.

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

Results of Operations:

Three Months Ended September 30, 1998 and 1999

General

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

The following tables set forth the combined revenues and operating income (loss)
for the four  business  units for the three months ended  September 30, 1998 and
1999:

                                            1998       1999
                                               (In 000's)
Revenues:
  Bally Gaming and Systems              $ 21,942    $ 39,784
  Wall Machines and Amusement Games       20,611      14,676
  Route Operations                        40,004      46,052
  Casino Operations                       16,214      16,690
                                         -------     -------
Total Revenues                          $ 98,771   $ 117,202
                                        ========   =========

Operating income (loss):
  Bally Gaming and Systems              $    147     $ 5,003
  Wall Machines and Amusement Games        2,157      (1,830)
  Route Operations                         3,076       3,029
  Casino Operations                        4,862       5,964
  Corporate and Other                     (3,932)     (3,769)
                                          ------      ------
Total operating income:                  $ 6,310     $ 8,397
                                         =======     =======

Bally Gaming and Systems

For the quarter  ended  September  30, 1999,  Bally Gaming and Systems  reported
revenues of $39.8 million, an 81% increase compared to revenues of $21.9 million
in the prior year quarter.  The improvement was due primarily to a $10.5 million
increase in SDS 6000 game  monitoring  unit and related  sales,  a $3.1  million
increase in recurring  revenue  sources and  increases in units  shipped and the
average selling price of new gaming  machines.  Bally Gaming reported unit sales
of approximately 3,000 new gaming machines,  an increase of 44% compared to unit
sales of  approximately  2,100 in the prior year  quarter,  due  primarily to an
overall  increase  in  market  demand  and the  successful  introduction  of new
products  recently  licensed in more  jurisdictions.  By market  segment,  Bally
Gaming's unit sales for the quarter  consisted of approximately 200 units to the
Nevada and Atlantic City markets,  2,000 units to international  markets and 800
units to riverboats,  Native American and other domestic  markets.  Bally Gaming
reported  revenues  from the sale of new gaming  machines of $18.3  million,  an
increase of 61%  compared  to $11.4  million in the prior year  quarter,  due to
higher unit volume and a 16% increase in average  selling  prices over the prior
year quarter. Bally Systems reported revenues from SDS 6000 game monitoring unit
and related sales of $15.2 million,  an increase of 224% compared to revenues of
$4.7 million in the prior year quarter.  In addition,  revenues  from  recurring
revenue  sources were $4.2 million,  an increase of 284% compared to revenues of
$1.1 million in the prior year  quarter.  At September 30, 1999 Bally Gaming and
Systems had an installed base of  approximately  1,700 gaming machines that earn
revenue on a recurring  basis compared to  approximately  100 gaming machines at
September 30, 1998.

Gross margin for the quarter ended  September 30, 1999 decreased to 44% compared
to 46% in the prior year quarter.  The decrease was due primarily to an increase
in  royalty  expense,  higher  cost of goods  sold and a greater  provision  for
inventory  obsolescence in the current quarter,  partially offset by a change in
product mix to higher  margin gaming  machines and greater  revenues from higher
margin SDS Systems  product and recurring  revenue  units.  The gross margin for
recurring revenue sources was 57% or $2.4 million.

For the quarter  ended  September  30, 1999,  Bally Gaming and Systems  reported
operating income of $5.0 million compared to operating income of $0.1 million in
the prior year quarter.  The improvement resulted from higher revenues and lower
research and development  costs,  partially offset by a decrease in gross margin
percentage and higher  selling,  general and  administrative  costs  including a
higher  provision for doubtful  accounts,  higher costs to support the recurring
revenue units and higher costs from the start of  commercial  sales in Australia
and an  increase  in  depreciation  expense as a result of the  increase  in the
installed  base of  recurring  revenue  units.  Research and  development  costs
totaled $2.8 million, a decrease of 18 percent over the prior year quarter.

Wall Machines and Amusement Games

For the quarter ended  September 30, 1999, the Wall Machines and Amusement Games
business unit reported  revenues of $14.7  million,  a 29% decrease  against the
prior year quarter.  The lower revenues  resulted from a 28 percent  decrease in
shipments of new wall machines,  a 17% decrease in the average  selling price of
new wall machines,  a 10% decrease in leased machine revenues and a 37% decrease
in  amusement  game  distribution  revenues.  The foreign  currency  fluctuation
between the dollar and the  deutschmark  decreased  revenues by $0.6 million and
increased  EBITDA by less than $0.1 million in the quarter  ended  September 30,
1999. The Company  believes that the soft demand for new wall machines is due to
the potential changes in the laws regulating wall machines. The soft demand will
likely  remain  until the  outcome of the  proposed  law  changes is known.  The
ultimate  outcome and timing of the proposed changes is not determinable at this
time.

Wall  Machines  and  Amusement  Games  continued  to expand its leasing  program
whereby new wall machines are leased to customers  pursuant to operating leases.
These leases provide Wall Machines and Amusement Games with a stream of revenues
and cash flow over the life of the leases,  which range from six months to three
and one half years.  As of  September  30, 1999 a total of 5,250  machines  were
deployed in the leasing plan  compared to 4,500  deployed at September 30, 1998.
The  average  monthly  lease rate  decreased  by 6%  compared  to the prior year
quarter due to competitive pricing pressures.

For the quarter ended September 30, 1998,  gross profit margin  decreased to 32%
compared  to 41%  in the  prior  year  quarter.  This  decrease  was  due to the
unfavorable impact of a higher volume of trade-ins of used equipment and a lower
fixed  cost  absorption  rate,  partially  offset  by  sales  of  higher  margin
progressive  jackpot  machines.  Wall Machines and Amusement  Games  reported an
operating loss of $1.8 million  compared to operating  income of $2.2 million in
the prior  year  quarter,  due  primarily  to lower  revenues  and  margins  and
increases in the  provision  for doubtful  accounts  and  depreciation  expense,
partially  offset  by  lower  selling,   general  and  administrative  expenses,
principally a decrease in marketing expenses.

Route Operations

For the quarter ended  September 30, 1999,  the Route  Operations  business unit
reported  revenues of $46.1 million,  an increase of 15% compared to revenues of
$40.0  million in the prior year  quarter.  Revenues  for the Nevada  operations
increased  18% as net win per gaming  machine per day  increased  to $58.30 from
$52.60 in the prior year quarter,  while the average  number of gaming  machines
increased to 7,610 from 7,140 in the prior year quarter resulting primarily from
machines  added as a result of new  locations  and taking over the  contracts to
operate  locations  previously  served by competitors.  Revenues  continue to be
strong in Southern  Nevada,  particularly  in Gamblers  Bonus  locations.  As of
September 30, 1999,  the Gamblers  Bonus product was installed in  approximately
2,800 gaming machines at 260 locations statewide or 37% of the installed base of
gaming  machines.  Revenues  for  the  Louisiana  operations  decreased  6%  due
primarily  to the July 1, 1999  closing of two OTB's  that,  pursuant to a prior
vote,  effective  July 1, 1999 were  required  to close.  This  resulted in a 7%
decrease in the average  number of gaming units  deployed to 670.  This decrease
was partially  offset by a modest increase in net win per day per gaming machine
to $77.40 from $77.00 in the prior year quarter.

For the quarter  ended  September  30, 1999,  cost of revenues  increased 18% to
$36.6  million  compared  to $31.1  million  in the  prior  year  quarter.  As a
percentage of revenues,  cost of revenues increased to 80% from 78% in the prior
year quarter.  Nevada route operations cost of revenues  increased 20%, and as a
percentage of revenues increased to 81% from 80% in the prior year quarter,  due
primarily to the lower margins in Southern  Nevada route  operations.  The lower
margins resulted primarily from the impact of the start-up costs for the Raley's
stores where we can't operate and gaming machine  rental costs which  aggregated
$1.0  million.  Louisiana  operations  cost of revenues  decreased  6%, and as a
percentage of revenues remained  consistent at 65% between  quarters.  The Route
Operations  business unit reported  operating income of $3.0 million, a decrease
of 2% compared to operating  income of $3.1  million in the prior year  quarter.
The decrease in operating income resulted  primarily from higher operating costs
and higher selling,  general and administrative  expenses,  primarily  increased
marketing  costs at the  Nevada  route  operations,  partially  offset by higher
revenues.

Casino Operations

For the quarter ended  September 30, 1999, the Casino  Operations  business unit
reported  revenues of $16.7  million,  an increase of 3% compared to revenues of
$16.2  million in the prior year  quarter.  This  increase was a result of a 25%
increase at the Rail City Casino partially offset by a 3 percent decrease at the
Rainbow Casino. The revenue improvement at the Rail City Casino was attributable
to an increase in the average  gaming machine net win per day of 22% to $72 from
$59 in the prior year  quarter  and an 11%  increase  in the  average  number of
gaming machines, partially offset by a lower table games revenue. Rainbow Casino
revenues  decreased by 3% to $12.6 million as a result of an 11% decrease in the
average number of gaming machines, partially offset by an 11 percent increase in
net win per day per gaming  machine to $170 from $153 in the prior year quarter.
The decrease in revenues was  attributable  to the adverse impact of temporarily
removing  machines  as part of the  casino  expansion  and  internal  remodeling
projects.  The expansion  space at the Rainbow Casino is expected to open during
November 1999.

For the quarter  ended  September  30,  1999,  the cost of  revenues  for Casino
Operations  decreased 3% to $6.6  million  compared to $6.8 million in the prior
year quarter and, as a percentage  of revenues,  improved to 40% from 42% in the
prior year quarter.  The Casino  Operations  business  unit  reported  operating
income of $5.9 million,  an improvement  of 23% compared to operating  income of
$4.9  million  in the  prior  year  quarter.  Rainbow  Casino  operating  income
increased  12% to $5.0  million  due  primarily  to lower  selling,  general and
administrative  costs,  partially offset by the decrease in revenues.  Rail City
Casino  operating  income increased by 162% to $0.9 million due primarily to the
increase in revenues,  partially  offset by an increase in selling,  general and
administrative costs, primarily gaming machine rent.

Consolidated

Total revenues for the quarter ended September 30, 1999 were $117.2 million,  an
increase of 19% compared to revenues of $98.8 million in the prior year quarter.
The  increase is due  primarily  to the  aforementioned  increases  at the Bally
Gaming and Systems,  Route  Operations  and Casino  Operations  business  units,
partially offset by a decrease at the Wall Machines and Amusement Games business
unit.

Cost of revenues for the quarter ended September 30, 1999 was $75.3 million,  an
increase of 22%  compared to $61.9  million in the prior year  quarter.  Cost of
revenues as a percentage of total revenues increased slightly to 64% from 63% in
the prior year quarter. The increase was due primarily to the increases in costs
as a percentage  of revenues at the Bally Gaming and Systems,  the Wall Machines
and Amusement Games and the Route Operations business units, partially offset by
an improvement in costs as a percentage of revenues at Casino Operations.

Selling, general and administrative expenses for the quarter ended September 30,
1999 were approximately  $23.6 million,  an increase of 12% compared to costs of
$21.0 million for the prior year  quarter.  This increase is due to increases in
expenses at the Bally Gaming and Systems and the Route Operations business units
and an increase in the provision for doubtful  accounts,  partially  offset by a
decrease in  Corporate  expenses,  primarily in payroll and related  costs,  and
decreases in expenses at the Wall  Machines and  Amusement  Games and the Casino
operations business units.

Research and  development  costs for the quarter  ended  September 30, 1999 were
approximately  $3.5 million, a decrease of 15% compared to costs of $4.2 million
in the prior year  quarter.  This  decrease is due to  decreases in costs at the
Bally Gaming and Systems and the Wall  Machines  and  Amusement  Games  business
units.

Depreciation  and  amortization  for the quarter  ended  September  30, 1999 was
approximately  $6.3 million,  an increase of 17% compared to $5.4 million in the
prior year  quarter.  The increase  was due  primarily to increases at the Bally
Gaming and Systems and the Wall Machines and  Amusement  Games  business  units,
partially  offset by decreases  at the Route  Operations  and Casino  Operations
business units.

Net Interest Expense and Income Taxes

Net  interest  expense in the three  months ended  September  30, 1999  remained
constant at $7.7 million  between  quarters as a lower  average  amount of total
borrowings was offset by slightly higher interest rates.

The Company recorded an income tax provision of $0.1 million in the 1999 quarter
compared to an income tax  provision of $0.2 million in the prior year  quarter.
The current quarter provision is due to various state income tax provisions.


                                         * * * * *

The  information  contained  in this  Form  10-Q may  contain  "forward-looking"
statements  within the meaning of section 27A of the  Securities Act of 1933, as
amended,  and  Section 21E of the  Securities  Act of 1933,  as amended,  and is
subject to the safe harbor created thereby.  Such information involves important
risks and uncertainties  that could  significantly  affect results in the future
and,  accordingly,  such results may differ from those  expressed in any forward
looking statements herein. Future operating results may be adversely affected as
a result of a number of factors such as the Company's high leverage, its holding
company structure, its operating history and recent losses,  competition,  risks
of product  development,  customer  financing,  sales to non-traditional  gaming
markets, foreign operations,  dependence on key personnel,  strict regulation by
gaming  authorities,  gaming  taxes and value added taxes,  uncertain  effect of
National  Gambling  Commission,  and other risks including Year 2000 issues,  as
detailed  from time to time in the  Company's  filings with the  Securities  and
Exchange Commission.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCOSURES ABOUT MARKET RISK

Refer  to Part 1,  Item 7A of the  Company's  annual  report  on Form  10-K,  as
amended,  for the fiscal year ended June 30,  1999.  There have been no material
changes in market risks since the prior fiscal year end.


                                          PART II

Item 1.   Legal Proceedings

          See "Notes to Unaudited Condensed Consolidated Financial Statements-
          5. Legal Proceedings" for a description of certain legal proceedings.

Item 6.   Exhibits and Reports on Form 8-K

          a.    Exhibits

          4.5   Third Amendment and Consent among Alliance  Gaming  Corporation,
                Bally  Wulff  Vertriebs  GmbH,  Bally Wulff  Automaten  GmbH and
                various   lenders,   and   Credit   Suisse   First   Boston   as
                administrative  agent,  dated  October 28,  1999 (omits  certain
                confidential information that has been filed separately with the
                Commission pursuant to a Confidential Treatment Request)

          10.82 Amended and Restated Executive Employment  Agreement,  effective
                November 4, 1999 between the Company and Robert L. Miodunski

          27.1  Financial Data Schedule

          27.2  Restated Financial Data Schedule

          b.    Reports on Form 8-K

                No reports on Form 8-K were filed during the quarter ended
                September  30, 1999.





<PAGE>


                                  SIGNATURES


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



    ALLIANCE GAMING CORPORATION
         (Registrant)





    By      /s/ Robert Miodunski
          ----------------------------
          Chief Operating Officer
          (Principal Executive Officer)




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