UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
                     For the Quarter ended March 31, 1998

                                      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 April
30, 1998  according to the records of the  registrant's  registrar  and transfer
agent was 32,120,308.












<PAGE>


                          ALLIANCE GAMING CORPORATION
                                   FORM 10-Q

                     For the Quarter Ended March 31, 1998










                                   I N D E X



PART I.  FINANCIAL INFORMATION                                        Page


Item 1.     Unaudited Financial Statements

      Unaudited Condensed Consolidated Balance Sheets as of 
           June 30, 1997 and March 31, 1998                            3

      Unaudited Condensed Consolidated Statements of Operations
           for the three months ended March 31, 1997 and 1998          4

      Unaudited Condensed Consolidated Statements of Operations
           for the nine months ended March 31, 1997 and 1998           5

      Unaudited Condensed  Consolidated  Statements of Stockholders' 
           Equity (Net Capital Deficiency) for the nine months ended 
           March 31, 1998                                              6

      Unaudited Condensed Consolidated Statements of Cash Flows
           for the nine months ended March 31, 1997 and 1998           7

      Notes to Unaudited Condensed Consolidated Financial Statements   8

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



PART II. OTHER INFORMATION


Item 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)
                                                          June 30,    Mar. 31,
                                                             1997       1998
ASSETS
Current assets:
  Cash and cash equivalents                              $ 28,924    $ 28,658
  Accounts and notes receivable, net of allowance for 
   doubtful accounts of $21,929 and $13,164                87,701      82,418
  Inventories, net of reserves of $8,856 and $8,092        37,329      39,536
   Other current assets                                     9,627       8,661
                                                         --------    --------
   Total current assets                                   163,581     159,273
                                                         --------    --------
Long-term notes receivable, net of allowance for doubtful
  accounts of $1,972 and $1,288                             8,981       8,952
Leased equipment, net of accumulated depreciation of 
  $3,377 and $4,116                                         7,902       7,722
Property, plant and equipment, net of accumulated 
  depreciation of $39,695 and $45,963                      74,647      75,567
Excess of costs over net assets of acquired businesses, 
  net of accumulated amortization of $1,723 and $2,808     62,098      59,890
Intangible assets, net of accumulated amortization of 
  $9,626 and $12,102                                       18,231      19,989
Other assets, net                                          16,576      15,175
      Total assets                                       $352,016    $346,568
                                                         ========    ========

LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
  Accounts payable                                       $ 14,270    $ 12,012
  Accrued liabilities                                      37,392      28,569
  Current maturities of long-term debt                      1,124       2,310
                                                           ------     -------
    Total current liabilities                              52,786      42,891
Term loan facilities                                        -         138,150
Senior Subordinated Notes due 2007, net of unamortized 
  discount of  $767                                         -         149,233
Senior Secured Notes, net of unamortized discount         151,224        -
Other long-term debt, less current maturities              21,491      27,893
Other liabilities                                          12,433      13,449
                                                         --------     -------
      Total liabilities                                   237,934     371,616
                                                         --------    --------

Minority interest                                           1,546       2,039
Series B Special Stock, $.10 par value, $100 liquidation 
  value; 754,198 shares issued and outstanding at
  June 30, 1997, net of discount                           58,981        -
Commitments and contingencies 
Stockholders' equity (net capital deficiency):
  Special Stock, 10,000,000 shares authorized:
     Series E, $100 liquidation value; 123,689 shares 
       and 133,479 shares issued and outstanding           12,368      13,348
  Common Stock, $.10 par value; 175,000,000 shares 
     authorized; 31,852,000 shares and 32,086,000 shares 
issued and outstanding                                      3,185       3,208
  Additional paid-in capital                              138,590     122,858
  Cumulative translation adjustment                       (11,719)    (16,181)
  Accumulated deficit                                     (88,869)   (150,320)
                                                          --------   --------
   Total stockholders' equity (net capital deficiency)     53,555     (27,087)
            Total liabilities and stockholders' equity 
              (net capital deficiency)                   $352,016    $346,568
                                                         ========    ========

       See notes to unaudited condensed consolidated financial statements.


<PAGE>

                         ALLIANCE GAMING CORPORATION
          UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                         (In 000's, except share data)
                                                    Three Months Ended March 31,
                                                            1997       1998
Revenues:
    Gaming equipment and systems                          $23,712    $21,538
    Wall machines and amusement games                      32,168     28,340
    Route operations                                       32,858     37,054
    Casino operations                                      12,953     15,294
                                                          -------    -------
                                                          101,691    102,226

Costs and expenses:
  Cost of gaming equipment and systems                     15,373     13,046
      Cost of wall machines and amusement games            18,182     16,102
      Cost of route operations                             24,684     28,761
      Cost of casino operations                             5,496      6,385
      Selling, general and administrative                  23,870     23,428
  Depreciation and amortization                             5,204      6,516
                                                           ------     ------
                                                           92,809     94,238

Operating income                                            8,882      7,988

Other income (expense):
    Interest income                                           297        184
    Interest expense                                       (6,159)    (7,464)
    Rainbow royalty                                        (1,205)       ---
    Minority interest                                        (317)      (489)
    Other, net                                                 (4)       293
                                                          --------    ------
Income before income taxes                                  1,494        512

Income tax provision                                          933      1,243
                                                            -----     ------

Net income (loss)                                             561       (731)

Special Stock dividends                                     2,981        384
                                                           ------      -----
Net loss applicable to common shares                      $(2,420)   $(1,115)
                                                          ========   ========

Basic loss per share                                      $ (0.08)   $ (0.03)
                                                          ========   ========
Diluted loss per share                                    $ (0.08)   $ (0.03)
                                                          ========   ========

Weighted average common shares outstanding                 31,837     32,042
Weighted average common and common share equivalents 
  outstanding                                              31,837     32,042





     See notes to unaudited condensed consolidated financial statements.



<PAGE>

                         ALLIANCE GAMING CORPORATION
          UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                         (In 000's, except share data)

                                                     Nine Months Ended March 31,
                                                            1997       1998
Revenues:
    Gaming equipment and systems                         $100,890    $76,160
    Wall machines and amusement games                     100,866     77,132
    Route operations                                       93,441    109,749
    Casino operations                                      38,110     43,870
                                                          -------   --------
                                                          333,307    306,911
Costs and expenses:
   Cost of gaming equipment and systems                    63,664     44,615
      Cost of wall machines and amusement games            53,600     42,835
      Cost of route operations                             70,222     84,584
      Cost of casino operations                            16,414     18,916
      Selling, general and administrative                  80,617     74,304
  Depreciation and amortization                            16,343     17,328
  Unusual items                                               700     (2,545)
                                                          -------    -------
                                                          301,560    280,037

Operating income                                           31,747     26,874

Other income (expense):
    Interest income                                         1,331        625
    Interest expense                                      (18,038)   (21,030)
    Rainbow royalty                                        (3,481)      (587)
    Rainbow Royalty Buyout                                    ---    (19,000)
    Minority interest                                        (743)    (1,325)
    Other, net                                                 48        345
                                                          -------     ------
Income (loss) before income taxes                          10,864    (14,098)
Income tax provision                                        5,523      2,163
                                                           ------    -------
Income (loss) before extraordinary item                     5,341    (16,261)
Extraordinary loss, without tax benefit (note 2)             ---      42,033
                                                           ------     ------
Net income (loss)                                           5,341    (58,294)
Special Stock dividends (note 2)                            8,261      3,157
Premium on repurchase/redemption of Series B Special Stock    710     16,553
                                                           ------    -------
Net loss applicable to common shares                      $(3,630)  $(78,004)
                                                          ========  =========

Basic loss per share:
  Loss before extraordinary item                           $(0.11)    $(1.12)
  Extraordinary loss                                           -       (1.32)
                                                            -----      -----
   Net loss                                                $(0.11)    $(2.44)
                                                           =======    =======

Diluted loss per share:
  Loss before extraordinary item                           $(0.11)    $(1.12)
  Extraordinary loss                                           -       (1.32)
                                                            ------     -----
   Net loss                                                 $(0.11)   $(2.44)
                                                            =======   =======

Weighted average common shares outstanding                  31,814     31,956
Weighted average common and common share equivalents 
  outstanding                                               31,814     31,956


     See notes to unaudited condensed consolidated financial statements.


<PAGE>

                         ALLIANCE GAMING CORPORATION
     UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           (NET CAPITAL DEFICIENCY)

                       Nine Months Ended March 31, 1998
                                  (In 000's)
<TABLE>
<CAPTION>
                                                                                                                           Total
                                                                                                                           Stock-
                                                                                                                           holders'
                                                                    Series E        Additional              Cumulative   Equity (Net
                                            Common Stock          Special Stock      Paid-in      Accum.    Translation   Capital
                                          Shares    Dollars      Shares   Dollars    Capital      Deficit    Adjustment  Deficiency)
<S>                                       <C>        <C>           <C>    <C>        <C>         <C>         <C>          <C>       

Balances at June 30, 1997                 31,852     $3,185        123   $ 12,368    $138,590    $(88,869)   $(11,719)    $ 53,555

Net loss ............................          -          -          -          -           -     (58,294)          -      (58,294)
Shares issued upon exercise of
  options ...........................        214         21          -          -         708           -           -          729
Special Stock dividends .............          -          -         11      1,095           -      (3,157)          -       (2,062)
Conversion of Series E Special
  Stock to common stock .............         20          2          -       (115)        113           -           -           -
Special Stock redemption premium ....          -          -          -          -     (16,553)          -           -      (16,553)
Foreign currency translation
  adjustment ........................          -          -          -          -           -           -      (4,462)      (4,462)
                                        --------   --------   --------   --------    --------    --------    --------     --------

Balances at March 31, 1998                32,086     $3,208        134    $13,348    $122,858   $(150,320)   $(16,181)    $(27,087)
</TABLE>



















     See notes to unaudited condensed consolidated financial statements.


<PAGE>


                         ALLIANCE GAMING CORPORATION
           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (In 000's)
                                                     Nine Months Ended March 31,
                                                            1997       1998
Cash flows from operating activities:
    Net income (loss)                                     $ 5,341   $(58,294)
   Adjustments to reconcile net income (loss)
    to net cash provided by (used in) operating activities:
     Depreciation and amortization                         16,343     17,328
     Amortization of debt discounts                           729         31
     Extraordinary item                                         -     42,033
     Write down of other assets                             1,306      2,307
     Loss on sale of assets                                 1,986         35
     Provision for losses on (recovery of) receivables      6,539     (7,330)
     Other                                                 (2,656)     1,305
   Net change in operating assets and liabilities:
     Accounts and notes receivable                          3,029     12,627
     Inventories                                          (13,806)    (6,171)
     Other current assets                                  (4,206)    (1,528)
     Accounts payable                                      (4,705)    (2,258)
     Accrued liabilities                                    1,090     (8,250)
       Net cash provided by (used in) operating 
        activities                                         10,990     (8,165)

Cash flows from investing activities:
   Additions to property, plant and equipment              (8,844)   (10,231)
   Proceeds from disposal of property and equipment         1,887        304
   Other                                                   (2,371)    (1,862)
                                                           ------     ------
       Net cash used in investing activities               (9,328)   (11,789)

Cash flows from financing activities:
   Refinancing fees and expenses                                -    (32,752)
   Capitalized debt issue costs                                 -    (11,456)
   Proceeds from issuance of long-term debt                    41    303,734
   Reduction of long-term debt                             (5,725)  (178,834)
   Net change in lines of credit                           (9,495)    16,191
   Repurchase/redemption of Series B Special Stock         (3,877)   (77,568)
   Proceeds from exercise of stock options                    139        729
                                                          -------     ------
    Net cash provided by (used in) financing activities   (18,917)    20,044

Effect of exchange rate changes on cash                      (228)      (356)

Cash and cash equivalents:
    Decrease for period                                   (17,483)      (266)
    Balance, beginning of period                           48,057     28,924
                                                          -------    -------
    Balance, end of period                               $ 30,574    $28,658
                                                         ========    =======



      See notes to unaudited condensed consolidated financial statements.


<PAGE>

                         ALLIANCE GAMING CORPORATION
        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                March 31, 1998



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,
    1997. All  intercompany  accounts and  transactions  have been eliminated in
    consolidation.

    The accompanying  condensed  consolidated  financial  statements at June 30,
    1997 were derived from the audited consolidated financial statements, but do
    not include all  disclosures  required under generally  accepted  accounting
    principles.  Certain  reclassifications  have  been  made  to  prior  period
    financial statements to conform with current period presentation.

2.  DEBT AND LINES OF CREDIT

    As  discussed  in  detail   below,   substantially   all  of  the  Company's
    indebtedness  shown  below  at  June  30,  1997  was  repaid  as part of the
    Refinancing  (as defined below).  Long-term debt at June 30, 1997,  prior to
    the Refinancing and at March 31, 1998,  after the  Refinancing,  consists of
    the following:

June 30,                                                   Mar. 31,
                                                            1997      1998
                                                              (in 000's)
      10% Senior Subordinated Notes due 2007, net of 
          unamortized discount of $767,000            $     -      $149,233
      Tranche B Term Loan                                   -        74,625
      Tranche C Term Loan                                   -        39,800
      Delayed Draw Term Facility                            -        25,000
      Revolving Credit Facility                             -        25,764
      12 7/8% Senior Secured Notes due 2003, net of 
          unamortized discount of $2,776,000              151,224      -
      Bally Wulff revolving lines of credit                 9,611      -
      Hospitality Franchise Systems note payable,
         secured by the assets of the Rainbow Casino        6,569      -
      7.5% Convertible subordinated debentures due 2003, 
          unsecured                                         1,642      -
      Other, secured by related equipment                   4,793     3,164
                                                          -------    ------
                                                          173,839   317,586
      Less current maturities                               1,124     2,310
                                                           ------    ------
      Long-term debt, less current maturities            $172,715  $315,276
                                                         ========  ========

    In August 1997 the  Company  effected a series of related  transactions  (as
    described  below,  the  "Refinancing").  The  Refinancing  consisted  of the
    private  placement of $150.0  million of Senior  Subordinated  Notes and the
    closing of $230.0 million of bank financing. The bank financing provides for
    (i) term loans in the aggregate amount of up to $140.0 million, comprised of
    a $75.0 million  tranche with a 7 1/2-year term (the "Tranche B Term Loan"),
    a $40.0 million tranche with an 8-year term (the "Tranche C Term Loan"), and
    a $25.0  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 $90.0 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  at the  highest  level of the  credit  grid and
    maturity dates are as follows:
                                          Initial            Maturity
                                           Rate                Date
            Tranche B Term Loan          LIBOR + 2.75%  January 31, 2005
            Tranche C Term Loan          LIBOR + 3.00%     July 31, 2005
            Delayed Draw Term Facility   LIBOR + 2.75%  January 31, 2005
            Revolving Credit Facility    LIBOR + 2.25%     July 31, 2003

    The Revolving Credit Facility also allows for German Deutschemark borrowings
    at the Eurodeutschemark rate plus 2.25% (or 5.8% at March 31, 1998).

    As part of the  Refinancing,  the  Company  used the  proceeds of the Senior
    Subordinated  Note offering,  together with  borrowings  under the Revolving
    Credit  Facility,  the Term Loan Facilities and cash on hand to fund (a) the
    repurchase at a premium of substantially all of the Company's 12 7/8% Senior
    Secured  Notes  plus  accrued  interest  to August 8, 1997  totaling  $181.6
    million,  (b) the  redemption at  liquidation  value of all of the Company's
    Series B Special Stock on September 8, 1997 totaling $77.6 million,  (c) the
    purchase  from  HFS  Gaming  Corporation  of the  right to  receive  royalty
    payments  based on  revenues of the Rainbow  Casino for $19.0  million  (the
    "Rainbow Royalty Buyout"),  (d) the repayment of related debt owed to an HFS
    affiliate,  National Gaming  Mississippi,  Inc., on August 12, 1997 totaling
    $7.3 million,  (e) repayment of amounts  outstanding  under the domestic and
    foreign  revolving  lines of credit and (f) the payment of transaction  fees
    and expenses totaling $16.6 million. At March 31, 1998, borrowings under the
    $90.0 million  Revolving  Credit  Facility  totaled $25.8 million,  of which
    $15.0 million were German Deutschemark borrowings. Based on the terms of the
    Revolving  Credit  Facility,  the Company  would have been able to borrow an
    additional  $40.1 million as of March 31, 1998.  The borrowing  base for the
    revolving credit facility  includes  eligible  receivables and inventory (as
    defined).  Additionally,  in July 1997 the Company  redeemed  the  remaining
    balance of the 7 1/2% Convertible  Debentures at a price of 104%, or a total
    of $1.7 million.

    The bank  facility 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 new credit facility.  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.

3.  REFINANCING CHARGES

    As a result of the  Refinancing  described  above,  the Company  recorded an
    extraordinary  loss of $42.0 million consisting of the $27.7 million premium
    paid to  repurchase  the  Senior  Secured  Notes,  the  payment  of  related
    transaction  fees and expenses,  and the charge-off of the unamortized  debt
    discount and deferred  financing fees.  There was no tax benefit  recognized
    for the  extraordinary  item as a valuation  allowance was recorded to fully
    reserve the net operating losses created.

    The Company also recorded a $19.0 million charge for the cost of the Rainbow
    Royalty Buyout. Additionally, the Company recorded a $16.5 million charge to
    equity and a  corresponding  increase in the net loss  applicable  to common
    shares for the  difference  between the carrying  value and the  liquidation
    value of the Series B Special Stock,  all of which was redeemed on September
    8, 1997 at the liquidation price of $100 per share, plus accrued dividends.

4.  INCOME TAXES

    The  Company's  effective tax rate for the three and nine months ended March
    31, 1997 and 1998 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 nine months ended March 31,
    1997 and 1998,  the Company  recorded  the  following  significant  non-cash
    items:

                                                     Nine months ended March 31,
                                                            1997      1998
                                                              (In 000's)
    Reclassify other assets to property, plant and  
      equipment                                          $  1,572    $  249
    Reclassify excess costs over net assets of acquired 
      business to property, plant and equipment             1,436        -
    Dividends for Series E and Series B Special Stock       8,261     3,157
    Reclassify inventory to property, plant and equipment  10,086     3,964
    Translation rate adjustments                            6,774     4,106


6.  LEGAL PROCEEDINGS

    In the  action  filed on  December  2,  1996,  the  Company  was  named as a
    defendant in an action  brought by  Canpartners  Investments IV and Cerberus
    Partners, pending in federal district court for the Southern District of New
    York.  The Company  entered into certain  loan  commitment  letters with the
    plaintiffs  in August 1995,  contemplating  that the  plaintiffs  would lend
    approximately  $30.0 million to partially  fund the  Company's  then pending
    hostile  tender  offer for Bally  Gaming  International,  Inc.  (BGII).  The
    Company  entered into a merger  agreement  with BGII in October 1995 and did
    not use funds provided by the plaintiffs to fund the  acquisition of BGII in
    June 1996.  On October 27,  1997,  the court  granted in part the  Company's
    motion to dismiss the Canyon/Cerebus complaint. The claims for breach of the
    duty of good  faith and fair  dealing,  seeking  damages  in excess of $12.0
    million,  and fraudulent  concealment have been dismissed in their entirety,
    without   prejudice  to  plaintiffs'   right  to  replead.   The  claim  for
    indemnification   has  been   dismissed  to  the  extent   plaintiffs   seek
    reimbursement  of costs and fees relating to the litigation,  but remains to
    the  extent  they  seek   reimbursement   of  expenses  in  connection  with
    negotiation  of the  commitment  letter and loan  documents.  The court left
    intact the plaintiffs'  claim for breach of contract;  however,  the Company
    believes  it has strong  defenses  to the  plaintiffs'  claim and intends to
    vigorously defend the action.

    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.  In  December  1997,  the  judge   dismissed  the
    defendants'  motion to  dismiss  all  claims in the  litigation.  Management
    believes the plaintiffs' lawsuit to be without merit. The Company intends to
    vigorously pursue all legal defenses available to it.


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

7.  UNUSUAL ITEMS

    In December 1997 the Company,  Alpha Hospitality and General Electric Credit
    Corporation  settled a dispute  concerning certain customer notes receivable
    on  which  the  Company  had  certain  recourse  obligations.   The  Company
    contributed  $2.5  million  to the final  settlement  with the holder of the
    notes,  and reversed  $6.0 million of reserves  previously  established  for
    these  recourse  obligations.  In addition,  as part of the  settlement  the
    Company  became  the sole  owner of  approximately  566,000  shares of Alpha
    Hospitality  common  stock  which  trades on the  NASDAQ  Small Cap  market.
    Pursuant to the limitations  provided for in the settlement  agreement,  the
    Company has sold approximately  115,000 shares of Alpha Hospitality  through
    March 31, 1998.

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

    Additionally, during the quarter ended December 31, 1997 the Company accrued
    $0.7 million for the present value of  contractual  payments due to a former
    member of the board of directors who was not  re-elected to the board at the
    December 1997 annual shareholders meeting.

    During the quarter ended  September 30, 1996, the Company  incurred  unusual
    charges of $0.7 million  related  primarily to separation  costs of Alliance
    personnel subsequent to the acquisition of Bally Gaming International, Inc.

8.  STOCKHOLDER RIGHTS PLAN

    In February  1998,  the Company's  Board of Directors  adopted a Stockholder
    Rights Plan ("Plan").  The Plan is designed to preserve the long-term  value
    of the shareholders'  investment in the Company.  Pursuant to the Plan, each
    shareholder  received  a  distribution  of one Right  for each  share of the
    Company's  outstanding  Common Stock, which were distributed to shareholders
    of record on March 12,  1998 that will  expire  ten years  thereafter.  Each
    Right entitles the holder to purchase one  one-hundredth  (1/100) of a share
    of a new series of  participating  preferred  stock for $25.  Initially  the
    Rights are represented by the Company's  Common Stock  certificates  and are
    not exercisable.  The Rights become exercisable only after a person or group
    acquires  beneficial  ownership of 10% or more of the Company's Common Stock
    (or 15% if the acquirer is an institutional  investor) or publicly announces
    its  intention  to  commence  a  tender  offer  that  would  result  in that
    beneficial ownership level. Under certain circumstances  involving a buyer's
    acquisition  of 10% of the Company's  Common Stock (or 15% in the case of an
    institutional  investor),  all  Rights  holders  except  the  buyer  will be
    entitled to purchase  Common Stock at half price. If the Company is acquired
    through a merger,  after such an acquisition,  all Rights holders except the
    buyer will be  entitled to  purchase  stock in the buyer at half price.  The
    Company may redeem the rights at $0.001 at any time before a buyer  acquires
    10%  (or 15% in the  case of an  institutional  investor)  of the  Company's
    Common Stock.

9.  UNAUDITED CONSOLIDATING FINANCIAL STATEMENTS

    The following unaudited  consolidating financial statements are presented to
    provide   certain   financial   information   regarding   guaranteeing   and
    non-guaranteeing   subsidiaries   in  relation  to  the   Company's   Senior
    Subordinated  Notes  which  were  issued  in  the  Refinancing   transaction
    completed in August 1997 (see note 2). The financial  information  presented
    includes  Alliance Gaming  Corporation  (the "Parent") and its  wholly-owned
    guaranteeing   subsidiaries   (together   the   "Parent   and   Guaranteeing
    Subsidiaries"),  and the non-guaranteeing subsidiaries Video Services, Inc.,
    United Gaming Rainbow,  BGI Australia Pty.  Limited,  Bally Gaming de Puerto
    Rico, Inc., and Alliance  Automaten GmbH & Co. KG (the subsidiary that holds
    the   Company's   German   interests)   (together   the    "Non-Guaranteeing
    Subsidiaries").  The notes to consolidating  financial  statements should be
    read in conjunction with these consolidating financial statements.


<PAGE>


                         ALLIANCE GAMING CORPORATION
        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                         CONSOLIDATING BALANCE SHEETS

                                June 30, 1997
                                  (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            $ 16,462    $ 12,462     $         $ 28,924
Accounts and notes receivable, net     31,799      57,207     (1,305)     87,701
Inventories, net                       19,231      18,778       (680)     37,329
Other current assets                    6,695       2,932                  9,627
                                       ------      ------     ------     -------
   Total current assets                74,187      91,379     (1,985)    163,581
                                       ------      ------     ------     -------
Long-term notes receivable, net        96,271       1,501    (88,791)      8,981
Leased equipment, net                               7,902                  7,902
Property, plant and equipment, net     41,836      32,811                 74,647
Excess of costs over net assets of 
    acquired businesses, net           41,185      21,031       (118)     62,098
Intangible assets, net                 17,979         252                 18,231
Investment in subsidiaries            100,478               (100,478)
Other assets, net                      22,310      (5,758)        24      16,576
                                     --------     -------    -------     -------
                                     $394,246    $149,118  $(191,348)   $352,016
                                     ========    ========   =========   ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                     $  9,936     $ 4,262     $   72    $ 14,270
Accrued liabilities                    21,129      16,727       (464)     37,392
Current maturities of long-term debt      585       1,348       (809)      1,124
                                        -----       -----      ------     ------
  Total current liabilities            31,650      22,337     (1,201)     52,786
                                       ------      ------     -------     ------
Senior Secured Notes due 2003, net    151,224                            151,224
Other long-term debt, less current 
  maturities                           87,924      22,676    (89,109)     21,491
Other liabilities                       9,366       3,500       (433)     12,433
                                      -------      ------    -------     -------
  Total liabilities                   280,164      48,513    (90,743)    237,934
                                      -------      ------    -------     -------

Minority interest                       1,546                              1,546
Series B Special Stock                 58,981                             58,981
 
Stockholders' equity:
Common Stock                            3,185      17,832    (17,832)      3,185
Series E Special Stock                 12,368                             12,368
Additional paid-in capital            138,590      68,699    (68,699)    138,590
Cumulative translation adjustment     (11,719)    (11,880)    11,880     (11,719)
Retained earnings (accumulated 
  deficit)                            (88,869)     25,954    (25,954)    (88,869)
                                       ------      ------    -------     -------
   Total stockholders' equity          53,555     100,605   (100,605)     53,555
                                     --------    --------    --------    -------
                                     $394,246    $149,118  $(191,348)   $352,016
                                     ========    ========   =========   ========
</TABLE>

                            See accompanying unaudited note.


<PAGE>

                         CONSOLIDATING BALANCE SHEETS

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

                                                                         Alliance
                                                                          Gaming
                                   Parent and       Non-                Corporation
                                  Guaranteeing  Guaranteeing  Elimina-     and
                                  Subsidiaries  Subsidiaries   tions    Subsidiaries
<S>                                   <C>         <C>        <C>               
ASSETS
Current assets:
Cash and cash equivalents             $10,548     $18,110    $           $28,658
Accounts and notes receivable, net     32,643      54,378     (4,603)     82,418
Inventories, net                       25,205      14,828       (497)     39,536
Other current assets                    5,344       3,317                  8,661
                                       ------      ------     ------      ------
   Total current assets                73,740      90,633     (5,100)    159,273
                                      -------     -------     ------     -------
Long-term notes receivable, net        83,719       1,685    (76,452)      8,952
Leased equipment, net                               7,722                  7,722
Property, plant and equipment, net     43,111      32,456                 75,567
Excess of costs over net assets of 
  acquired businesses, net             40,209      19,681                 59,890
Intangible assets, net                 19,538         451                 19,989
Investment in subsidiaries             99,339                (99,339)
Other assets, net                      31,141      (6,563)    (9,403)     15,175
                                      -------     -------    -------     -------
                                     $390,797    $146,065  $(190,294)   $346,568
                                     ========    ========   =========   ========

LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable                     $  8,943    $  3,069    $           $12,012
Accrued liabilities                    17,771      12,549     (1,751)     28,569
Current maturities of long-term debt    1,817       3,016     (2,523)      2,310
                                       ------      ------     ------      ------
  Total current liabilities            28,531      18,634     (4,274)     42,891
                                      -------     -------     ------     -------
Term loan facilities                  138,150                            138,150
Senior Subordinated Notes due 2007, 
  net                                 149,233                            149,233
Other long-term debt, less current 
  maturities                           89,860      24,292    (86,259)     27,893
Other liabilities                      10,071       3,742       (364)     13,449
                                       ------      ------     ------      ------
   
  Total liabilities                   415,845      46,668    (90,897)    371,616
                                      -------      ------    -------     -------

Minority interest                       2,039                              2,039

Stockholders' equity (net capital 
  deficiency):
Common Stock                            3,208      17,832    (17,832)      3,208
Series E Special Stock                 13,348                             13,348
Additional paid-in capital            122,858      68,700    (68,700)    122,858
Cumulative translation adjustment     (16,181)    (16,342)    16,342     (16,181)
Retained earnings (accumulated 
  deficit)                           (150,320)     29,207    (29,207)   (150,320)
                                     --------     -------    -------    --------
  Total stockholders' equity (net 
    capital deficiency)               (27,087)     99,397    (99,397)    (27,087)
                                      -------      ------    --------    -------
   
                                     $390,797    $146,065  $(190,294)   $346,568
                                     ========    ========   =========   ========
</TABLE>

                            See accompanying unaudited note.


<PAGE>

                    CONSOLIDATING STATEMENTS OF OPERATIONS

                      Three Months Ended March 31, 1997
                                  (In 000's)
<TABLE>
<CAPTION>
                                                                        Alliance
                                                                         Gaming
                                  Parent and      Non-                 Corporation
                                 Guaranteeing  Guaranteeing  Elimina-      and
                                 Subsidiaries  Subsidiaries   tions    Subsidiaries

Revenues:
<S>                                   <C>        <C>         <C>         <C>    
  Gaming equipment and systems        $20,692    $ 4,238     $(1,218)    $23,712
  Wall machines and amusement games               32,225         (57)     32,168
  Route operations                     27,759      5,099                  32,858
  Casino operations                     2,835     10,118                  12,953
                                      -------     ------      ------     -------
                                       51,286     51,680      (1,275)    101,691
                                      -------    -------      ------     -------
Costs and expenses:
  Cost of gaming equipment and systems 13,448      3,648      (1,723)     15,373
  Cost of wall machines and amusement 
    games                                         18,182                  18,182
  Cost of route operations             21,436      3,248                  24,684
  Cost of casino operations             1,868      3,628                   5,496
  Selling, general and administrative  12,226     11,701         (57)     23,870
  Depreciation and amortization         3,239      1,965                   5,204
                                       ------     ------      ------     -------
                                       52,217     42,372      (1,780)     92,809
                                      -------    -------      ------     -------

Operating income                         (931)     9,308         505       8,882

Earnings in consolidated subsidiaries   6,911                 (6,911)

Other income (expense):
  Interest income                         314         85        (102)        297
  Interest expense                     (5,268)      (993)        102      (6,159)
  Rainbow royalty                                 (1,205)                 (1,205)
  Minority interest                      (317)                              (317)
  Other, net                                9        (13)                     (4)
                                        -----     -------     ------      ------

Income before income taxes                718      7,182      (6,406)      1,494
Income tax provision                      157        776                     933
                                       ------     ------      ------      ------

Net income                                561      6,406      (6,406)        561

Special Stock dividends                 2,981                              2,981
                                       ------     ------       -----      ------
Net income (loss) applicable to 
  common shares                       $(2,420)   $ 6,406     $(6,406)    $(2,420)
                                      =======    =======     =======     =======
</TABLE>



                       See accompanying unaudited note.


<PAGE>

                    CONSOLIDATING STATEMENTS OF OPERATIONS

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

                                                                        Alliance
                                                                         Gaming
                                  Parent and      Non-                 Corporation
                                 Guaranteeing  Guaranteeing  Elimina-      and
                                 Subsidiaries  Subsidiaries   tions    Subsidiaries
<S>                                   <C>        <C>         <C>         <C> 
Revenues:   
  Gaming equipment and systems        $19,582    $ 3,601     $(1,645)    $21,538
  Wall machines and amusement games               28,443        (103)     28,340
  Route operations                     31,445      5,609                  37,054
  Casino operations                     3,251     12,043                  15,294
                                      -------    -------      ------     -------
                                       54,278     49,696      (1,748)    102,226
                                      -------    -------      ------     -------
Costs and expenses:
  Cost of gaming equipment and systems 11,996      2,695      (1,645)     13,046
  Cost of wall machines and amusement 
    games                                         16,205        (103)     16,102
  Cost of route operations             25,162      3,599                  28,761
  Cost of casino operations             1,937      4,448                   6,385
  Selling, general and administrative  13,949      9,479                  23,428
  Depreciation and amortization         4,247      2,269                   6,516
                                       ------     ------      ------      ------
                                       57,291     38,695      (1,748)     94,238
                                      -------    -------      ------     -------

Operating income (loss)                (3,013)    11,001                   7,988

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

Other income (expense):
  Interest income                         290        102        (208)        184
  Interest expense                     (7,173)      (499)        208      (7,464)
  Rainbow royalty                       1,411     (1,411)
  Minority interest                      (489)                              (489)
  Other, net                              410       (117)                    293
                                        -----      -----       -----       -----

Income (loss) before income taxes      (1,032)     9,076      (7,532)        512
Income tax provision                     (301)     1,544                   1,243
                                       ------      -----      ------       -----

Net income (loss)                        (731)     7,532      (7,532)       (731)

Special Stock dividends                   384                                384
                                        -----     ------       -----       -----

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

                          See accompanying unaudited note.



<PAGE>

                    CONSOLIDATING STATEMENTS OF OPERATIONS

                       Nine Months Ended March 31, 1997
                                  (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       $ 95,613   $  9,824     $(4,547)   $100,890
  Wall machines and amusement games              100,923         (57)    100,866
  Route operations                     79,508     13,933                  93,441
  Casino operations                     8,882     29,228                  38,110
                                      -------    -------      ------     -------
                                      184,003    153,908      (4,604)    333,307
                                      -------    -------      ------     -------
Costs and expenses:
  Cost of gaming equipment and systems 59,712      8,199      (4,247)     63,664
  Cost of wall machines and amusement 
    games                                         53,600                  53,600
  Cost of route operations             61,289      8,933                  70,222
  Cost of casino operations             5,651     10,763                  16,414
  Selling, general and administrative  43,469     37,205         (57)     80,617
  Depreciation and amortization         9,827      6,516                  16,343
  Unusual items                           700                                700
                                      -------    -------      ------     -------
                                      180,648    125,216      (4,304)    301,560
                                      -------    -------      ------     -------

Operating income                        3,355     28,692        (300)     31,747

Earnings in consolidated subsidiaries  16,979                (16,979)

Other income (expense):
  Interest income                       1,398        256        (323)      1,331
  Interest expense                    (15,844)    (2,517)        323     (18,038)
  Rainbow royalty                                 (3,481)                 (3,481)
  Minority interest                      (743)                              (743)
  Other, net                              (68)       116                      48
                                       ------      -----      ------      ------

Income before income taxes              5,077     23,066     (17,279)     10,864
Income tax provision                     (264)     5,787                   5,523
                                       ------     ------     -------      ------

Net income                              5,341     17,279     (17,279)      5,341

Special Stock dividends                 8,261                              8,261
Premium on repurchase of Series B 
  Special Stock                           710                                710

Net income (loss) applicable to 
  common shares                       $(3,630)   $17,279    $(17,279)    $(3,630)
                                      =======    =======    ========     =======
</TABLE>



                          See accompanying unaudited note.


<PAGE>

                       CONSOLIDATING STATEMENTS OF OPERATIONS

                           Nine Months Ended March 31, 1998
                                     (In 000's)
<TABLE>
<CAPTION>
                                                                        Alliance
                                                                         Gaming
                                  Parent and       Non-                Corporation
                                 Guaranteeing  Guaranteeing  Elimina-     and
                                 Subsidiaries  Subsidiaries   tions    Subsidiaries
<S>                                  <C>        <C>          <C>         <C>
Revenues:     
  Gaming equipment and systems        $72,716    $ 8,641     $(5,197)    $76,160  
  Wall machines and amusement games               77,235        (103)     77,132
  Route operations                     94,160     15,589                 109,749
  Casino operations                     9,979     33,891                  43,870
                                       ------    -------      ------     -------
                                      176,855    135,356      (5,300)    306,911
                                      -------    -------      ------     -------
Costs and expenses:
  Cost of gaming equipment and systems 43,544      6,326      (5,255)     44,615
  Cost of wall machines and amusement 
    games                                         42,938        (103)     42,835
  Cost of route operations             74,538     10,046                  84,584
  Cost of casino operations             6,104     12,812                  18,916
  Selling, general and administrative  42,576     31,728                  74,304
  Depreciation and amortization        10,632      6,696                  17,328
  Unusual items                        (2,545)                            (2,545)
                                      -------    -------      ------     -------
                                      174,849    110,546      (5,358)    280,037
                                      -------    -------      ------     -------

Operating income                        2,006     24,810          58      26,874

Earnings in consolidated subsidiaries  16,717                (16,717)

Other income (expense):
  Interest income                         922        309        (606)        625
  Interest expense                    (20,241)    (1,395)        606     (21,030)
  Rainbow royalty                       3,387     (3,974)                   (587)
  Rainbow royalty buyout              (19,000)                           (19,000)
  Minority interest                    (1,325)                            (1,325)
  Other, net                              441        (96)                    345
                                       ------      -----      ------     ------

Income (loss) before income taxes     (17,093)    19,654     (16,659)    (14,098)
Income tax provision (benefit)           (832)     2,995                   2,163
                                       ------     ------     -------     -------

Net income (loss) before 
  extraordinary item                  (16,261)    16,659     (16,659)    (16,261)
Extraordinary loss, without tax 
  benefit                             (42,033)                           (42,033)
Net income (loss)                     (58,294)    16,659     (16,659)    (58,294)

Special Stock dividends                 3,157                              3,157
Premium on repurchase of Series B 
  Special Stock                        16,553                             16,553
                                       ------     ------      ------      ------

Net income (loss) applicable to 
  common shares                      $(78,004)   $16,659    $(16,659)   $(78,004)
                                     ========    =======    ========    ========
</TABLE>

                            See accompanying unaudited note.


<PAGE>


                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                       Nine Months Ended March 31, 1997
                                  (In 000's)
<TABLE>
<CAPTION>

                                                                            Alliance
                                                                             Gaming
                                       Parent and      Non-               Corporation
                                       Guaranteeing Guaranteeing Elimina-     and
                                       Subsidiaries Subsidiaries  tions   Subsidiaries
<S>                                        <C>        <C>        <C>        <C>    
Cash flows from operating activities:
     Net cash provided by (used in)
       operating activities:               $(2,733)   $13,532     $ 191     $10,990
                                            ------   -------      -----     -------
Cash flows from investing activities:
  Additions to property and equipment       (6,103)    (2,741)               (8,844)
  Proceeds from disposal of property  
    and equipment                               69      1,818                 1,887
  Other                                     (2,251)      (120)               (2,371)
     Net cash used in investing activities  (8,285)    (1,043)               (9,328)
                                            ------     ------     -----      ------
Cash flows from financing activities:
  Proceeds from long-term debt                  41                               41
  Reduction of long-term debt                 (889)    (4,645)     (191)     (5,725)
  Net change in lines of credit             (7,525)    (1,970)               (9,495)
  Repurchase of Series B Special Stock      (3,877)                          (3,877)
  Dividends received (paid)                  1,211     (1,211)
  Issuance of common stock upon exercise 
   of stock options                            139                              139
                                            ------      -----     -----      ------
     Net cash used in financing activities (10,900)    (7,826)     (191)    (18,917)

Effect of exchange rate changes on cash                  (228)                 (228)

Cash and cash equivalents:
  Increase (decrease) for period           (21,918)     4,435               (17,483)
  Balance, beginning of period              36,954     11,103                48,057
                                            ------     ------     -----     -------
   Balance, end of period                  $15,036    $15,538     $         $30,574
                                           =======    =======     =====     =======
</TABLE>


                                   See accompanying unaudited note.


<PAGE>


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

                                                                            Alliance
                                                                             Gaming
                                       Parent and      Non-               Corporation
                                       Guaranteeing Guaranteeing Elimina-     and
                                       Subsidiaries Subsidiaries  tions   Subsidiaries
<S>                                        <C>          <C>       <C>        <C>    
Cash flows from operating activities:
     Net cash provided by (used in)

      operating activities                $(25,429)    $18,794   $(1,530)   $(8,165)
                                           -------      ------    ------     ------
Cash flows from investing activities:
  Additions to property and equipment       (7,520)     (2,711)             (10,231)
  Proceeds from disposal of property 
    and equipment                              205          99                  304
  Other                                     (1,656)       (206)              (1,862)
                                            ------       -----     -----     ------
     Net cash used in investing activities  (8,971)     (2,818)             (11,789)
                                            ------      ------     -----     ------
Cash flows from financing activities:
  Refinancing fees and expenses            (32,752)                         (32,752)
  Capitalized new debt issue costs         (11,456)                         (11,456)
  Proceeds from long-term debt             303,734                          303,734
  Reduction of long-term debt             (178,459)     (1,905)    1,530   (178,834)
  Net change in lines of credit             10,852       5,339               16,191
  Redemption of Series B Special Stock     (77,568)                         (77,568)
  Proceeds from exercise of stock options      729                              729
  Dividends received (paid)                 13,406     (13,406)
                                            ------     -------     -----     ------
     Net cash provided by (used in) 
       financing activities                 28,486      (9,972)    1,530     20,044
                                            ------      ------     -----     ------

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

Cash and cash equivalents:
  Increase (decrease) for period            (5,914)      5,648                 (266)
  Balance, beginning of period              16,462      12,462               28,924
                                            ------     -------     -----     ------
  Balance, end of period                   $10,548     $18,110     $        $28,658
                                           =======     =======     =====    =======
</TABLE>





                            See accompanying unaudited note.


<PAGE>


Debt and Lines of Credit

Long-term debt and lines of credit at March 31, 1998 consist of the following :

                                                                      Alliance
                                                                       Gaming
                                  Parent and      Non-               Corporation
                                 Guaranteeing Guaranteeing Elimina-      and
                                 Subsidiaries Subsidiaries  tions   Subsidiaries
                                              (in 000's)
10% Senior Subordinated Notes due
  2007, net of unamortized discount  $149,233     $         $           $149,233
Tranche B Term Loan                    74,625                             74,625
Tranche C Term Loan                    39,800                             39,800
Delayed Draw Term Facility             25,000                             25,000
Revolving Credit Facility              10,814      14,950                 25,764
Intercompany notes payable             78,930       9,852   (88,782)         -
Other                                     658       2,506                  3,164
                                      -------      ------   --------     -------
                                      379,060      27,308   (88,782)     317,586
Less current maturities                 1,817       3,016    (2,523)       2,310
                                      -------      ------   --------     -------
Long-term debt, less current
  maturities                         $377,243     $24,292  $(86,259)    $315,276
                                     ========     =======  ========     ========


<PAGE>


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

Liquidity and Capital Resources

In August  1997 the  Company  completed  a series  of  related  transactions  as
described below ("the  Refinancing") which consisted of the private placement of
$150.0 million of Senior Subordinated Notes and the closing of $230.0 million of
bank financing.  The bank financing provides for (i) term loans in the aggregate
amount of up to $140.0  million,  comprised of a $75.0 million  tranche with a 7
1/2-year  term (the  "Tranche B Term  Loan"),  a $40.0  million  tranche with an
8-year term (the "Tranche C Term Loan"),  and a $25.0  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
$90.0  million  revolving  credit  facility  with a 6-year term (the  "Revolving
Credit Facility").

As  part of the  Refinancing,  the  Company  used  the  proceeds  of the  Senior
Subordinated Note offering,  together with borrowings under the Revolving Credit
Facility,  the Term Loan Facilities and cash on hand, to fund (a) the repurchase
at a premium of substantially all of the Company's 12 7/8% Senior Secured Notes,
plus  accrued  interest  to August  8, 1997  totaling  $181.6  million,  (b) the
redemption at liquidation  value of all of the Company's  Series B Special Stock
on September 8, 1997 totaling  $77.6  million,  (c) the purchase from HFS Gaming
Corporation  of the right to receive  royalty  payments based on revenues of the
Rainbow  Casino  and the  purchase  of  related  debt owed to an HFS  affiliate,
National Gaming Mississippi, Inc., on August 12, 1997 totaling $26.3 million and
(d) the  payment  of  transaction  fees and  expenses  totaling  $16.6  million.
Additionally,  in July 1997 the Company redeemed the remaining  balance of its 7
1/2% Convertible Debentures at a price of 104%, or a total of $1.7 million.

At March 31, 1998,  borrowings under the $90.0 million Revolving Credit Facility
totaled  $25.8  million and the Company  would have been able to borrow,  net of
credit line  restrictions,  an additional $40.1 million.  The borrowing base for
the revolving credit facility consists of eligible receivables and inventory, as
defined in the credit agreement.

At March 31,  1998,  the  Company  actually  had $28.7  million in cash and cash
equivalents  and $40.1 million in additional  availability on its revolving line
of credit. In addition,  the Company had working capital of approximately $116.4
million,  an increase of approximately  $5.6 million from June 30, 1997 which is
explained  below.  Consolidated  cash and cash  equivalents  at March  31,  1998
includes  approximately  $12.6  million of cash which is  utilized in Casino and
Route  Operations which is held in vaults,  cages or change banks,  which amount
has  increased due to the growth in locations  serviced by the Route  Operations
business unit.

Management  believes  that cash flow from  operating  activities,  cash and cash
equivalents  held and the new  $90.0  million  Revolving  Credit  Facility  will
provide the Company with sufficient  capital  resources and liquidity.  At March
31,  1998,  the Company  did not have any  significant  commitments  for capital
expenditures.

Working Capital

During the nine months  ended March 31, 1998,  working  capital  increased  $5.6
million to $116.4 million. The primary fluctuations contributing to the increase
in working  capital  were:  (i)  reductions  in  accounts  payable  and  accrued
liabilities of $11.1 million,  (ii) an increase in accounts receivable resulting
from the reversal of the provision for doubtful receivables related to the Alpha
Hospitality  obligation  discussed  below, and (iii) an increase in inventory of
$2.2 million,  partially offset by decreases in accounts  receivable due to cash
collections and the impact of foreign exchange  fluctuations  between the dollar
and the deutschemark.

Cash Flow

During the nine months ended March 31, 1998, the Company used cash for operating
activities of $8.2 million  primarily  related to cash  payments for  inventory,
accounts  payable and accrued  liabilities,  partially  offset by cash collected
from accounts receivable.

During the nine months ended March 31, 1998 the Company used cash from investing
activities of $11.8 million primarily related to capital expenditures.

During the nine  months  ended March 31,  1998,  $20.0  million was  provided by
financing  activities from the issuance of the Senior Subordinated Notes and the
new credit facility, and was used to repurchase the Senior Secured Notes, redeem
the Series B Special Stock, fund the Rainbow Royalty Buyout and pay related fees
and expenses.

--------------

The following is a summary of EBITDA by business unit:

                                      Three Months              Nine Months
                                    Ending March 31,          Ending March 31,
                                     1997      1998           1997       1998
                                                   (In $000's)
EBITDA by Business Unit:
Gaming Equipment and Systems       $ 1,304    $ (539)       $ 13,075     $5,387
Wall Machines and Amusement Games    6,177     6,598          21,085     14,409
Route Operations                     5,766     6,364          15,527     18,746
Casino Operations                    4,362     5,724          13,098     14,938
Corporate Administrative Expenses   (3,523)   (3,643)        (13,995)   (11,823)
Unusual Items                          -         -              (700)     2,545
                                    ------    ------          ------      -----
    EBITDA                         $14,086   $14,504         $48,090    $44,202
                                    ======    ======          ======     ======

The Company  believes that the above  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 new credit  facility 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 is  secured by both a U.S.  and German  Pledge
Agreement  (both as  defined).  The new  credit  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 Company believes it is in compliance with the debt covenants in
both the credit agreement and the indenture.

Customer Financing

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

Bally Wulff provides  customer  financing for approximately 14% of its sales and
also  provides  lease  financing  to its  customers.  Lease terms range from six
months to 43 month terms.

Year 2000

The Company is continuing to actively  address the Year 2000  compliance  issue.
The Year 2000  compliance  issue,  which is common  to most  businesses,  mainly
concerns the  inability of  information  systems,  primarily  computer  software
programs,  to properly recognize and process  date-sensitive  information on and
beyond  January 1, 2000.  The costs  incurred in this effort will be expensed as
incurred,  unless  new  software  is  purchased  that  will  be  capitalized  in
accordance  with the  Company's  policy.  The Company does not believe that such
costs will be material to the  Company's  results of  operations,  liquidity  or
consolidated financial position.





<PAGE>


Results of Operations:

Three Months Ended March 31, 1997 and 1998

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 three months ended March 31, 1997 and 1998:

                                            1997       1998
                                               (In 000's)
Revenues:
  Gaming Equipment and Systems            $23,712     $21,538
  Wall Machines and Amusement Games        32,168      28,340
  Route Operations                         32,858      37,054
  Casino Operations                        12,953      15,294
                                          -------     -------
Total revenues                           $101,691    $102,226
                                          =======     =======

Operating income (loss):
  Gaming Equipment and Systems             $   35     $(2,504)
  Wall Machines and Amusement Games         4,814       5,246
  Route Operations                          3,942       4,309
  Casino Operations                         3,872       5,203
  Corporate Administrative Expenses        (3,781)     (4,266)
Total operating income                    $ 8,882     $ 7,988
                                           ======      ======

Gaming Equipment and Systems

For the quarter ended March 31, 1998, the Gaming  Equipment and Systems business
unit reported revenues of $21.5 million,  a decrease of 9%, compared to revenues
of $23.7 million in the prior year quarter.  Bally Gaming reported  shipments of
new gaming  machines  of  approximately  1,900,  a decrease  of 39%  compared to
shipments of approximately  3,100 in the prior year quarter.  By market segment,
Bally  Gaming's  shipments of new gaming  machines for the quarter  consisted of
approximately 350 units to the Nevada and Atlantic City markets,  1,300 units to
international  markets and 250 units to  riverboats,  Native  American and other
domestic markets.  Management  believes the industry-wide  decrease in number of
units shipped  resulted  primarily from lower  replacement  demand from existing
casinos as casino  operators  await  regulatory  approval of new  products  that
gaming  manufacturers  displayed at the World Gaming  Congress in October  1997.
Bally  Gaming  reported  revenues  from the sale of new gaming  machines of $9.8
million,  a decrease of 19% compared to $12.2  million in the prior year quarter
due to lower unit  volume,  partially  offset by a 3%  increase  in the  average
selling price of new gaming  machines.  In addition,  Systems  reported sales of
$6.1 million,  a 65% increase  compared to revenues of $3.7 million in the prior
year quarter.

Gross margin for the quarter ended March 31, 1998 was 39 percent  compared to 35
percent in the prior year quarter. The increase was due principally to a greater
proportion of higher margin System  revenues and a higher average  selling price
of new gaming machines.  Operating results were lower due to decreased revenues,
higher research and development costs and higher depreciation expense, partially
offset by improved gross margins and a lower provision for doubtful receivables.

Wall Machines and Amusement Games

For the quarter  ended March 31, 1998,  the Wall  Machines and  Amusement  Games
business unit reported revenues of $28.3 million,  a decrease of 12% compared to
revenues of $32.2  million in the prior year quarter.  The currency  translation
impact of the  fluctuation  of the German  mark versus the U.S.  dollar  reduced
revenues by $2.8 million during the 1998 quarter.  The revenue decline  resulted
primarily from a 15% decrease in unit shipments of new wall machines,  partially
offset by a 10%  increase in  amusement  game  distribution  revenues  and a 16%
increase in leased wall machine revenues.

Wall  Machines  and  Amusement  Games  continued  to expand its leasing  program
whereby wall machines are leased to customers pursuant to operating leases which
provide  Wall  Machines and  Amusement  Games with a stream of revenues and cash
flow over the life of the  leases,  which range from six months to three and one
half  years.  At March 31,  1998,  a total of 5,900  machines  were out on lease
versus 4,400 at March 31, 1997.

Gross margin  remained  relatively flat at 43% between with a decrease in margin
on new wall machine  sales due to lower sales unit  volumes  being offset by the
increase in higher  margin lease  revenues and a change in the mix of product to
higher margin products.  Operating  income of $5.2 million  increased by 9%, due
primarily to lower selling,  general and administrative  expenses resulting from
no trade show taking place in the current year quarter and a lower provision for
doubtful receivables, partially offset by lower revenues.

Route Operations

For the  quarter  ended  March 31,  1998,  the Route  Operations  business  unit
reported  revenues of $37.1 million,  an increase of 13% compared to revenues of
$32.9  million  in the  prior  year  quarter.  Revenues  for  the  Nevada  route
operations  increased  13% as net win per gaming  machine per day  increased  to
$55.00 from $53.70 in the prior year quarter, while the average number of gaming
machines  increased  to 6,310  from 5,690 in the prior  year  quarter  primarily
resulting  from  the  additional  machines  added  as a result  of  taking  over
operations of the Westronics route and the Scolari's locations.  The improvement
in net win per gaming  machine  per day in Nevada  resulted  primarily  from the
continuing favorable impact of Gamblers Bonus, a cardless slot player's club and
player tracking system.  Gamblers Bonus is currently  installed in approximately
2,000  gaming  machines at over 180  locations or 31% of the  installed  base of
gaming machines.  Revenues for the Louisiana operations increased 10% as net win
per gaming  machine  per day  increased  to $79.20 from $74.30 in the prior year
quarter and the average number of gaming  machines  increased to 780 from 760 in
the prior year quarter

For the  quarter  ended  March  31,  1998,  Route  Operations  cost of  revenues
increased 16% to $28.8 million, and as a percentage of revenues increased to 78%
from 75% in the prior year  quarter.  Nevada route  operations  cost of revenues
increased 17% to $25.2 million, and as a percentage of revenues increased to 80%
from 77% in the prior year quarter.  The increase is due to higher direct costs,
primarily  increased  health  insurance  costs  and  costs  associated  with the
Scolari's and  Westronics  acquisitions  and lower  margins on several  contract
renewals  resulting  from  increased  competitive  pressures.   Louisiana  route
operations cost of revenues  increased 11% to $3.6 million,  and as a percentage
of revenues remained  relatively flat at 64% between periods, as costs increased
proportionately  with  revenues.  The Route  Operations  business  unit reported
operating income of $4.3 million,  a 9% increase compared to operating income of
$3.9 million in the prior year  quarter.  The increase was due  primarily to the
increase in revenues and a lower provision for doubtful  receivables,  partially
offset by the increase in operating costs as a percentage of revenues.

Casino Operations

For the quarter  ended  March 31,  1998,  the Casino  Operations  business  unit
reported  revenues of $15.3 million,  an increase of 18% compared to revenues of
$13.0 million in the prior year quarter.  This increase  reflects a 19% increase
at  the  Rainbow  Casino  and a 15%  increase  at  the  Rail  City  Casino.  The
improvement at the Rainbow Casino was attributable to the continuing  success of
its direct  marketing  campaigns  with an 8%  increase in net win per day and an
increase in the average  number of gaming  machines.  Revenues for the Rail City
Casino  improved  as a  result  of  enhanced  marketing  efforts  including  the
introduction of the Rail City Players Club and a 25% increase in the net win per
gaming  machine per day resulting  from the  replacement  of 20% of older gaming
machines with new gaming machines during the December 1997 quarter.

For the quarter ended March 31, 1998, the cost of revenues for Casino Operations
increased  16% to $6.4  million  compared  to $5.5  million  in the  prior  year
quarter,  but as a percentage of revenues  remained  relatively flat at 42%. The
Casino Operations  business unit reported  operating income of $5.2 million,  an
increase of 34% compared to  operating  income of $3.9 million in the prior year
quarter.  The  increase in operating  income  resulted  from the  aforementioned
increase in revenues and the  improvements in operating costs as a percentage of
revenues and selling,  general and  administrative  expenses as a percentage  of
revenues.

Consolidated

Total  revenues  for the quarter  ended March 31, 1998 were $102.2  million,  an
increase of less than 1%  compared  to  revenues of $101.7  million in the prior
year quarter.  The increase is primarily due to the aforementioned  increases in
revenues at the Route Operations and Casino Operations business units, partially
offset by  decreases  in  revenues  at Gaming  Equipment  and  Systems  and Wall
Machines and Amusement  Games business units and the impact of foreign  exchange
rate fluctuations.

Cost of revenues for the quarter ended March 31, 1998,  were $64.3  million,  an
increase  of less than one 1%  compared  to costs of $63.7  million in the prior
year  quarter.  Cost of  revenues as a  percentage  of total  revenues  remained
relatively  flat at 63%  between  quarters  as the  improvements  at the  Casino
Operations  and Gaming  Equipment and Systems  business  units were offset by an
increase at the Route Operations business unit.

Selling,  general and  administrative  expenses for the quarter  ended March 31,
1998 were approximately  $23.4 million, a decrease of 2% compared to expenses of
$23.9  million for the prior year  quarter.  This decrease is due primarily to a
decrease in expenses at the Wall Machines and Amusement  Games business unit and
a decrease in the provision  for doubtful  receivables,  partially  offset by an
increase in expenses at the Gaming  Equipment  and Systems  business unit and an
increase in corporate administrative expenses.

Depreciation  and  amortization  for the  quarter  ended March 31, 1998 was $6.5
million,  a 25%  increase  compared to  depreciation  and  amortization  of $5.2
million in the prior year quarter, due primarily to the increase in amortization
of deferred financing costs and increased  depreciation related to the growth in
the number of gaming machines in the leasing program at the Gaming Equipment and
Systems and Wall Machines and Amusement Games business units.

Net Interest Expense and Income Taxes

Net  interest  expense in the quarter  ended March 31,  1998  increased  to $7.3
million  compared  to net  interest  expense  of $5.9  million in the prior year
quarter.  The increase is primarily due to a higher level of debt resulting from
the  Company's  new 10%  Senior  Subordinated  Notes  due 2007 and the term loan
facilities  which  replaced  substantially  all of the  Company's 12 7/8% Senior
Secured Notes and the 15% Series B Special Stock as part of the  refinancing  of
the  Company's  capital  structure  completed  in September  1997,  resulting in
substantially lower overall fixed charges.

The Company  recorded  an income tax  provision  of $1.2  million in the quarter
ended March 31, 1998  compared to an income tax provision of $0.9 million in the
prior year  quarter.  The current  quarter  provision is primarily due to income
taxes for the Wall Machines and Amusement  Games  business unit and state income
taxes.

Nine Months Ended March 31, 1997 and 1998

General

The following  tables set forth the combined  revenues and operating  income for
the nine months ended March 31, 1997 and 1998:

                                            1997       1998
                                               (In 000's)
Revenues:
  Gaming Equipment and Systems         $ 100,890     $76,160
  Wall Machines and Amusement Games      100,866      77,132
  Route Operations                        93,441     109,749
  Casino Operations                       38,110      43,870
                                        --------     -------
Total revenues                          $333,307    $306,911
                                        ========    ========

Operating income:
  Gaming Equipment and Systems          $  9,086     $ 1,021
  Wall Machines and Amusement Games       16,336      10,113
  Route Operations                        10,224      12,752
  Casino Operations                       11,648      13,403
  Corporate Administrative Expenses      (14,847)    (12,960)
                                         -------    ---------
  Subtotal                                32,447      24,329
  Unusual items                             (700)      2,545
                                         -------      ------
Total operating income                   $31,747     $26,874
                                         =======     =======

Gaming Equipment and Systems

For the nine  months  ended March 31,  1998,  the Gaming  Equipment  and Systems
business unit reported revenues of $76.2 million,  a decrease of 24% compared to
revenues  of $100.9  million in the prior year  period.  Bally  Gaming  reported
shipments  of new gaming  machines  of  approximately  9,500,  a decrease of 30%
compared to  shipments  of  approximately  13,500 in the prior year  period.  By
market segment,  Bally Gaming's  shipments of new gaming machines for the period
consisted of approximately  2,800 units to the Nevada and Atlantic City markets,
4,300  units to  international  markets and 2,400  units to  riverboats,  Native
American and other  domestic  markets.  The decrease in number of units  shipped
resulted  primarily from fewer new casino openings and lower replacement  demand
from  existing  casinos.  Bally Gaming  reported  revenues  from the sale of new
gaming machines of $47.8 million, a decrease of 29% compared to $66.9 million in
the prior  year  period due to lower unit  volume and a 3%  decrease  in average
selling price of new gaming machines. Systems reported sales of $14.9 million, a
10% decrease compared to revenues of $16.6 million in the prior year period.

For the nine months  ended March 31, 1998 gross profit  margins  improved to 41%
from 37% in the prior year period. The increase was due principally to a greater
proportion of higher margin System  revenues and lower  provisions for inventory
obsolescence in the current year period.  Gaming  Equipment and Systems reported
operating  income of $1.0  million,  a decrease  of 89% over  prior year  period
results. The decrease in operating income resulted primarily from lower revenues
and higher  research and development  costs and  depreciation  and  amortization
expense,  partially  offset by improved gross margins and a lower  provision for
doubtful receivables.

Wall Machines and Amusement Games

For the nine months ended March 31, 1998, the Wall Machines and Amusement  Games
business unit reported revenues of $77.1 million,  a decrease of 24% compared to
revenues of $100.9  million in the prior year period.  The currency  translation
impact of the  fluctuation  of the German  mark versus the U.S.  dollar  reduced
revenues by $11.6 million during the current year period.  The revenue  decrease
resulted  primarily  from a 22% decrease in unit  shipments of new wall machines
and a 16% decrease in amusement game distribution revenues partially offset by a
41% increase in leased wall machine  revenues.  Management  believes the general
slowdown in the German  economy  during the current  year period has resulted in
customers  acquiring only enough units to replace those units whose licenses are
expiring, and deferring purchases of other equipment.

Wall  Machines  and  Amusement  Games  continued  to expand its leasing  program
whereby new wall machines are leased to customers  pursuant to operating  leases
which provide Wall  Machines and  Amusement  Games with a stream of revenues and
cash flow over the life of the leases,  which range from six months to three and
one half years.  From June 30, 1997 through March 31, 1998,  the total number of
wall machines that were out on lease increased by 1,529 units.

For the nine months ended March 31, 1998,  gross profit margin  decreased to 44%
from 47% in the  prior  year  period.  The  decrease  in gross  margin  resulted
primarily  from  higher  fixed  costs per unit due to lower  sales  volume and a
decrease in the average selling price of new wall machines,  partially offset by
an increase in higher margin lease  revenues.  Wall Machines and Amusement Games
reported  operating  income of $10.1 million,  a decrease of 38% over prior year
period results.  The decrease in operating  income  resulted  primarily from the
aforementioned decrease in revenues and lower gross margin,  partially offset by
lower selling,  general and  administrative  expenses and a lower  provision for
doubtful receivables.

Route Operations

For the nine months ended March 31, 1998,  the Route  Operations  business  unit
reported revenues of $109.7 million,  an increase of 18% compared to revenues of
$93.4  million  in the prior  year  period.  Nevada  route  operations  revenues
increased  18% as net win per gaming  machine per day  increased  to $53.60 from
$51.70 in the prior year  period,  while the average  number of gaming  machines
increased  to 6,370 from 5,620 in the prior year  period.  The  increase  in the
average number of gaming  machines in Nevada  reflects the  additional  machines
added as a result of taking  over  operations  of the  Westronics  route and the
Scolari's  locations.  The  improvement in net win per gaming machine per day in
Nevada  resulted  primarily  from the  continuing  favorable  impact of Gamblers
Bonus, a cardless slot player's club and player tracking system. Louisiana route
operations  revenues  increased  12% as net  win  per  gaming  machine  per  day
increased to $76.10 from $72.40 in the prior year period and the average  number
of gaming machines increased to 750 from 700 in the prior year period.

For the nine months  ended March 31,  1998,  Route  Operations  cost of revenues
increased 20% and, as a percentage of revenues, increased to 77% from 75% in the
prior year period.  Nevada  operations cost of revenues  increased 22% and, as a
percentage  of revenues,  increased to 79% from 77% in the prior year period due
primarily to increased  health  insurance  costs and costs  associated  with the
Scolari's and  Westronics  acquisitions,  and lower margins on several  contract
renewals  resulting  from  increased  competitive  pressures.   Louisiana  route
operations  cost of  revenues  increased  12% and as a  percentage  of  revenues
remained   relatively   flat  at  64%   between   periods  as  costs   increased
proportionally  with revenues.  Route  Operations  reported  operating income of
$12.8 million,  an increase of 25% compared to operating income of $10.2 million
in the prior year quarter.  The operating income improvement  resulted primarily
from the aforementioned increase in revenues, an improvement in selling, general
and  administrative  expenses as a percentage  of revenues and a decrease in the
provision  for  doubtful  receivables,  partially  offset  by  the  increase  in
operating  costs as a percentage of revenues and increases in  depreciation  and
amortization expense due to increased capital expenditures and route acquisition
costs.

Casino Operations

For the nine months ended March 31, 1998,  the Casino  Operations  business unit
reported  revenues of $43.9 million,  an increase of 15% compared to revenues of
$38.1 million in the prior year period. This increase reflects a 16% increase at
the Rainbow Casino and a 12% increase at the Rail City Casino.  The  improvement
at the Rainbow Casino was attributable to the continuing impact of its marketing
campaigns and the addition of new gaming  machines.  Revenues from the Rail City
Casino improved as a result of enhanced marketing efforts and an increase in net
win per gaming  machine per day resulting  from the  replacement of older gaming
machines  with new  gaming  machines.  Both  Rainbow  and Rail City  experienced
increases in the average number of gaming  machines  deployed and in net win per
day per gaming machine.

For the nine  months  ended  March 31,  1998,  the cost of  revenues  for Casino
Operations increased 15% to $18.9 million compared to $16.4 million in the prior
year period but, as a percentage of revenues, remained relatively flat at 43% as
costs  increased  proportionately  with  revenues.  Casino  Operations  reported
operating  income of $13.4  million,  an increase of 15%  compared to  operating
income  of  $11.6  million  in the  prior  year  period.  The  operating  income
improvement  resulted from the  aforementioned  increase in revenues,  partially
offset by a slight increase in selling, general and administrative expenses as a
percentage of revenues primarily from increased marketing costs at both casinos.

Consolidated

Total revenues for the nine months ended March 31, 1998, were $306.9 million,  a
decrease of 8% compared to revenues of $333.3  million in the prior year period.
The  decrease  is  primarily  due  to the  aforementioned  decreases  in  Gaming
Equipment and Systems and Wall Machines and Amusement  Games  business units and
the impact of foreign exchange rate fluctuations,  partially offset by increases
in revenues at the Route Operations and Casino Operations business units.

Cost of revenues for the nine months ended March 31, 1998,  were $191.0 million,
a decrease of 6% compared to $203.9  million in the prior year  period.  Cost of
revenues as a percentage of total revenues increased slightly to 62% from 61% in
the prior year period as the  improvements  at the Gaming  Equipment and Systems
business unit were offset by increases at the Wall Machines and Amusement  Games
and Route Operations business units.

Selling, general and administrative expenses for the nine months ended March 31,
1998 were  approximately  $74.3  million,  a decrease of 8% compared to costs of
$80.6  million for the prior year period.  This decrease is due to a decrease in
corporate  administrative  expenses, a decrease in expenses at the Wall Machines
and Amusement  Games  business unit and a decrease in the provision for doubtful
receivables,  partially  offset by increases in expenses at the Gaming Equipment
and Systems, Route Operations and the Casino Operations business units.

Depreciation and amortization for the nine months ended March 31, 1998 was $17.3
million,  a 6%  increase  compared to  depreciation  and  amortization  of $16.3
million in the prior year period. The increase is due primarily due to increases
in amortization of deferred financing costs and increased  depreciation  related
to the growth in the number of gaming  machines  in the  leasing  program at the
Gaming  Equipment and Systems and the Wall Machines and Amusement Games business
units and increases in gaming machines deployed at the Route Operations business
unit.

Net Interest Expense and Income Taxes

Net interest  expense in the nine months ended March 31, 1998 increased to $20.4
million  compared to the net interest expense of $16.7 million in the prior year
period.  The increase is due primarily to a higher level of debt  resulting from
the  Company's  new 10%  Senior  Subordinated  Notes  due 2007 and the term loan
facilities  which  replaced  substantially  all of the  Company's 12 7/8% Senior
Secured Notes and the 15% Series B Special Stock as part of the  refinancing  of
the Company's capital structure, completed in September 1997.

The Company  recorded an income tax provision of $2.2 million in the nine months
ended March 31, 1998  compared to a provision  of $5.5 million in the prior year
period.  The current  period  provision is due primarily to income taxes for the
Wall Machines and Amusement Games business unit and state income taxes.

                                  * * * * *

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 detailed from time to time in the
Company's filings with the Securities and Exchange Commission.


<PAGE>





                                   PART II

Item 1.   Legal Proceedings

          See "Notes to Unaudited Condensed Consolidated Financial 
          Statements- 6. Legal Proceedings" for a description of certain legal 
          proceedings.

Item 6.   Exhibits and Reports on Form 8-K

          a.    Exhibits

          Exhibit
          Number            Description
          10.80       Employment agreement, dated as of January 1, 1998 between 
                      the Company and Robert L. Miodunski.

          11          Computation of per share amounts

          27.1        Financial Data Schedule

          b.    Reports on Form 8-K

                The Company filed a report on Form 8-K on March 9, 1998
                regarding the Shareholder's Rights Plan.





<PAGE>


                                  SIGNATURES


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



    ALLIANCE GAMING CORPORATION
         (Registrant)





    By      /s/ Morris Goldstein
          President and Chief Executive Officer
          (Principal Executive Officer)




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