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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

                    FOR ANNUAL REPORT AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

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   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
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                    FOR THE FISCAL YEAR ENDED JUNE 30, 2000
                                       OR

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   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
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        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                         COMMISSION FILE NUMBER 0-23124
                            ------------------------

                                 ANCHOR GAMING

             (Exact name of Registrant as specified in its charter)

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                NEVADA                                      88-0304253
    (State or other jurisdiction of            (I.R.S. Employer Identification No.)
    incorporation or organization)
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                            815 PILOT ROAD, SUITE G
                            LAS VEGAS, NEVADA 89119
                    (Address of principal executive offices)

                 REGISTRANT'S TELEPHONE NUMBER: (702) 896-7568

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

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    TITLE OF EACH CLASS       NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.01 par value  The Nasdaq Stock Market's National Market
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                            ------------------------

    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. Yes /X/  No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: / /

    The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at September 27, 2000 based on the $79.125 per
share closing price for the Company's common stock on the Nasdaq National Market
was approximately $923,630,635.

    The number of shares of the Registrant's common stock outstanding as of
September 27, 2000 was 11,673,057.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on or about November 17, 2000 (to be filed)
are incorporated by reference into Part III of this Form 10-K.

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                               TABLE OF CONTENTS

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                                            PART I

Item 1.                 Business....................................................      3
Item 2.                 Properties..................................................     31
Item 3.                 Legal Proceedings...........................................     31
Item 4.                 Submission of Matters to a Vote of Securityholders..........     32

                                           PART II

Item 5.                 Market for Registrant's Common Equity and Related                33
                        Stockholder Matters.........................................
Item 6.                 Selected Financial Data.....................................     34
Item 7.                 Management's Discussion and Analysis of Financial Condition      36
                        and Results of Operations...................................
Item 7a.                Quantitative and Qualitative Disclosures About Market            47
                        Risk........................................................
Item 8.                 Financial Statements and Supplementary Data.................     48
Item 9.                 Changes in and Disagreements with Accountants on Accounting      77
                        and Financial Disclosure....................................

                                           PART III

Item 10.                Directors and Executive Officers of the Registrant..........     77
Item 11.                Executive Compensation......................................     77
Item 12.                Security Ownership of Certain Beneficial Owners and              77
                        Management..................................................
Item 13.                Certain Relationships and Related Transactions..............     77

                                           PART IV

Item 14.                Exhibits, Financial Statement Schedules, and Reports on Form     78
                        8-K.........................................................
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                                     PART I

ITEM 1.  BUSINESS

                                    GENERAL

    We are a diversified, global gaming company. We operate principally in three
business segments: gaming machines, gaming operations and gaming systems. We
have equipment and systems operating in the United States, Canada, Asia,
Australia, Europe, South America, South Africa and the West Indies. We design,
develop and distribute proprietary gaming machines, operate two casinos in
Colorado, the Sunland Park Racetrack & Casino in New Mexico, slot machine routes
in Nevada and Montana and hold a 50% interest in the development contract and
seven-year management contract to develop and manage a California Native
American casino that we expect to open in March 2001. We design, manufacture and
sell video gaming machines and central control systems in addition to designing,
manufacturing, selling, installing and operating on-line lottery systems and
computerized pari-mutuel wagering systems.

STOCK PURCHASE TRANSACTION

    On September 25, 2000, we announced the execution of a definitive agreement
with our Chairman, Stanley Fulton, and members of his family and their
affiliates to acquire approximately 4.6 million shares of our common stock for a
purchase price of $66.60 per share. We intend to finance this transaction
through an offering of $250 million of senior subordinated notes and an
amendment to our senior credit facility.

    The Fulton family members and their affiliates will retain ownership of
approximately 539,600 shares after the transaction. Stanley Fulton, his son,
Michael Fulton, and his daughter, Elizabeth Jones have agreed to resign their
positions on our board of directors upon completion of the transaction.

    The purchase consideration for the shares comprises $240.1 million in cash
and $66.0 million principal amount of promissory notes that Stanley Fulton will
receive for a portion of the shares he is selling.

RACETRACK ASSET SALE TRANSACTION

    In conjunction with the stock purchase transaction with the Fulton family,
we have entered into an agreement with Stanley Fulton to sell him substantially
all of the assets relating to our Sunland Park Racetrack & Casino, located in
New Mexico, and our 25% interest in a Massachusetts horse racing facility.
Stanley Fulton has agreed to pay $66.0 million for these assets by canceling our
obligations under the promissory notes. We expect to complete the sale of these
racetrack assets to Mr. Fulton by the end of March 2001, subject to regulatory
approvals and the satisfaction of other conditions. After the sale of these
assets, we will retain the right to manage gaming operations at the
Massachusetts racetrack if casino gaming is legalized in Massachusetts.

FINANCING TRANSACTIONS

    The stock purchase transaction requires an amendment to our existing senior
credit facility. We have received a commitment from Bank of America, N.A. that
provides for the requisite amendment and allows for the offering of the notes.
We intend to finance the stock purchase through the net proceeds from the
offering of the notes and borrowings under our senior credit facility. We expect
the amendment to the senior credit facility and the offering of the notes to
close concurrently with the closing of the stock purchase transaction.

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STOCK SPLIT

    On September 25, 2000, we announced that our board of directors had
authorized a 2-for-1 stock split. As a result of the stock split, stockholders
of record as of October 31, 2000 will receive one additional share of our common
stock for every share then owned. The new shares will be issued as soon as
practicable following the record date. As of September 25, 2000, we had
approximately 11.7 million shares outstanding, exclusive of treasury shares.
After giving effect to the stock purchase transaction, we will have
approximately 7.1 million shares outstanding, exclusive of treasury shares and
without giving effect to the stock split described above.

APPOINTMENT OF DIRECTORS AND OFFICERS

    Upon completion of the stock purchase, T.J. Matthews, our Chief Executive
Officer will be appointed Chairman of the Board of Directors. In addition,
Joseph Murphy, our Vice President, will be named Chief Operating Officer--Gaming
Operations and will be added to the Board of Directors which will also include
the three continuing outside directors.

          SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS AND RISK FACTORS

FORWARD-LOOKING STATEMENTS

    This annual report on Form 10-K contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, both as amended. All statements other than
statements of historical fact are "forward-looking statements" for purposes of
federal and state securities laws, including any projections of earnings,
revenues or other financial items; any statements of the plans, strategies and
objectives of management for future operation; any statements concerning
proposed new products, services or developments; any statements regarding future
economic conditions or performance; any statements of belief; and any statements
of assumptions underlying any of the foregoing. Forward-looking statements may
include the words "may," "will," "estimate," "intend," "continue," "believe,"
"expect" or "anticipate" and other similar words. Such forward-looking
statements may be contained in the sections "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," among other places.

    Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and to inherent risks and
uncertainties, such as those disclosed in this annual report on Form 10-K. We do
not intend, and undertake no obligation, to update any forward-looking
statement. Presently-known risk factors include, but are not limited to, the
following factors:

    - After the issuance of the senior subordinated notes, we will have a
      significant amount of debt, which could restrict our future operating and
      strategic flexibility and expose us to the risks of financial leverage.

    - Our ability to meet our debt service obligations on the senior
      subordinated notes and our other debt will depend on our future
      performance, which will be subject to many factors that are beyond our
      control.

    - The popularity of our games may decline relative to the popularity of our
      competitors' games, and we may be unable to develop new games that achieve
      commercial success.

    - Revenues of our casinos in Colorado could be negatively affected by the
      presence of several new large competitors in the Colorado market.

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    - We derive a large portion of our revenues and profits from the Anchor-IGT
      joint venture. Because our revenues and profits from the Anchor-IGT joint
      venture are integral to the continued success of our business, it is
      important that we maintain a strong relationship with IGT.

    We urge you to review carefully the section "Risk Factors" in this annual
report on Form 10-K for a more complete discussion of the risks associated with
an investment in our securities.

                                  RISK FACTORS

OUR SUCCESS IN THE GAMING INDUSTRY DEPENDS IN LARGE PART ON OUR ABILITY TO
DEVELOP INNOVATIVE PRODUCTS AND SYSTEMS.

    The popularity of any of our existing gaming machines may decline over time
as consumer preferences change or as our competitors introduce new games, and we
could fail to develop new games that achieve market acceptance. We can give you
no assurance that our existing and future games will be able to successfully
compete with those of our competitors.

    If we are unable to develop innovative products or systems in the future, or
if our current products or systems become obsolete, our ability to sustain
current revenues with existing customers or to generate revenue from new
customers would be affected. This could reduce our current profitability or
potential growth.

    Our strategy of creating recurring revenues from our proprietary games by
placing them in casinos under a royalty, revenue participation, fixed daily
rental fee or similar arrangement involves a departure from casinos' traditional
practice of purchasing gaming machines. Because our pricing methodology includes
revenue-sharing arrangements, we are under pressure to reduce the share of
revenues we receive. We believe this pressure will increase if consolidation
trends in the casino markets continue.

    If the popularity of any of our gaming machines were to decline relative to
the popularity of competitors' gaming machines, we might be unable to retain our
revenue-sharing model. Additionally, if our competitors decide to pursue a
revenue-sharing strategy and offer products or terms that are more favorable
than ours, we may not be able to successfully pursue our revenue-sharing
strategy. If either one of these conditions were to occur, our operations and
revenues would be materially and adversely affected.

WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY.

    We compete with domestic and foreign manufacturers of gaming equipment and
providers of traditional on-line lottery systems, many of whom are larger than
we are and have access to greater financial resources. Our failure to
continually adapt our products to consumer preferences could negatively affect
our ability to effectively compete in this industry.

    Our casinos in Colorado face increasing competition from existing, new and
planned casino properties in the immediate vicinity. In particular, in the Black
Hawk, Colorado market, a number of competitors have opened large facilities in
excellent locations with more available parking and a larger number of gaming
machines than we operate, and several more large casinos are in the planning
stages. We expect that the increased competition will have a continued negative
effect on our revenues, as well as on costs of gaming operations, such as
promotions, and costs related to retaining and recruiting employees.
Additionally, the completion of a planned new road into Central City, Colorado
could negatively affect our business in that market by altering existing traffic
patterns, thereby making the location of our casino less desirable.

    Our most significant route operations are in southern Nevada, an area which
has recently experienced significant population growth. We cannot be certain
that this growth trend will continue. If

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it does not continue, or if we face increased competition from expanding grocery
store chains and local casinos, the profitability of our route operations could
be negatively affected.

    Our on-line lottery business faces competition from other on-line lottery
system providers, instant lottery ticket manufacturers and other competitors,
some of whom have substantially greater financial resources than we do. On-line
lottery business is acquired through contracts with state lottery authorities,
which are awarded through a competitive bidding process. We cannot guarantee
that we will be successful in obtaining or maintaining contracts with state
lottery authorities.

OUR GAMING MACHINES SEGMENT DEPENDS ON MAINTAINING A STRONG RELATIONSHIP WITH
IGT.

    We derive a large portion of our revenues and profits from the Anchor-IGT
joint venture. In addition to being our joint venture partner, IGT is also a
significant competitor of ours in several of our businesses and, in particular,
competes in some respects with the Anchor-IGT joint venture. Because our
revenues and profits from the Anchor-IGT joint venture are integral to the
continued success of our business, it is important that we maintain a strong
relationship with IGT.

GOVERNMENT REGULATION COULD HAVE A NEGATIVE EFFECT ON OUR BUSINESS.

    Our operations are subject to extensive state and local regulation in most
jurisdictions, as discussed in the section "Government Regulation." We can give
you no assurances that regulatory authorities will renew our required licenses
or permits in the future or that they will approve any required filings to
conduct business in other gaming jurisdictions.

    The majority of gaming jurisdictions require the testing and approval of the
gaming machines that we manufacture or supply. We can give you no assurances
that regulatory authorities will approve our new game submissions or that games
currently approved will continue to meet new standards imposed by changes to any
gaming laws or regulations.

    We sometimes manufacture games pending regulatory approval, which subjects
us to the risk of having to either retrofit or abandon inventory upon
noncompliance with or modification of gaming laws and regulations. If games do
not receive regulatory approval, costs incurred in their manufacture would
result in additional expense.

    In the United States and many other countries, wagering and lotteries must
be expressly authorized by law. Once authorized, the wagering industry and the
operations of lotteries are subject to extensive and evolving governmental
regulation. We can give you no assurances that additional jurisdictions will
approve the operation of gaming machines, on-line lottery systems, pari-mutuel
wagering systems, video lottery or other forms of wagering or lottery systems or
that those jurisdictions that currently permit these wagering and lottery
activities will continue to permit such activities.

WE RELY ON THIRD-PARTY SUPPLIERS AND CONTRACT MANUFACTURERS.

    The use of outside vendors, some of which are our competitors, to
manufacture a significant portion of our proprietary game machines and parts may
limit our ability to develop machines at costs that will result in acceptable
operating margins. Any inability to obtain gaming machines and components,
production parts and replacement parts on reasonable terms will adversely affect
our operating margins, and any inability to obtain such components and parts on
a timely basis may hinder our ability to introduce new gaming machines on
schedule, delaying revenue from the games.

OUR BUSINESS DEPENDS ON THE PROTECTION OF OUR INTELLECTUAL PROPERTY AND
PROPRIETARY INFORMATION.

    Our success depends, in part, on protecting our intellectual property, which
includes patents and trademarks, as well as some proprietary or confidential
information that is not subject to patent or similar protection. Competitors may
independently develop similar or superior products, software,

                                       6
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systems or business models. Such independent development may, in the case of our
intellectual property that is not protected by an enforceable patent, result in
a significant reduction in the value of our intellectual property.

    We cannot assure you that we will be able to protect our intellectual
property or that unauthorized third parties will not try to copy our products,
business models or systems or use our confidential information to develop
competing products.

    We also cannot assure you that our business activities and products will not
infringe upon the proprietary rights of others, or that other parties will not
assert infringement claims against us. Any such claims and any resulting
litigation, should it occur, could subject us to significant liability for
damages and could result in invalidation of our proprietary rights, distract
management, and require us to enter into costly and burdensome royalty and
licensing agreements. Such royalty and licensing agreements, if required, may
not be available on terms acceptable to us, or may not be available at all. We
may also need to file lawsuits to defend the validity of our intellectual
property rights and trade secrets, or to determine the validity and scope of the
proprietary rights of others. Such litigation, whether successful or
unsuccessful, could result in substantial costs and diversion of resources.

    We also rely on technologies that we license from third parties. We cannot
assure you that these third-party licenses will continue to be available to us
on commercially reasonable terms.

    We also generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to,
and the distribution of, our product designs, documentation and other
proprietary information, as well as the designs, documentation and other
information we license from others. We also may take other steps to protect
these rights and information. Despite our efforts to protect these proprietary
rights, unauthorized parties may copy, develop independently or otherwise obtain
and use our products or technology.

OUR LOTTERY OPERATIONS ARE DEPENDENT ON RENEWABLE CONTRACTS WITH PERFORMANCE
REQUIREMENTS.

    We conduct our lottery operations under contracts with state lottery
authorities that are renewable at the option of the lottery authority. Upon the
expiration of a lottery contract, lottery authorities usually award the new
contract through a competitive bidding process. Contracts representing over 16%
of our fiscal 2000 revenues from on-line lottery operations are scheduled to
expire or reach optional extension dates during the next three years. We cannot
assure you that our current lottery contracts will be extended or that we will
be awarded new lottery contracts.

    In addition, lottery contracts to which we are a party frequently contain
exacting implementation schedules and performance requirements. If we fail to
meet these schedules and requirements, we could be subject to substantial
contractual liquidated damages claims, some as high as $1.0 million per day, as
well as possible contract termination. These liquidated damage claims are
typically negotiated at the time of the alleged breach. Such damages or contract
terminations could have a material adverse effect on our financial performance.
Our lottery contracts also generally require us to post performance bonds, which
in some cases may be substantial, securing our performance under such contracts.

WE RELY ON OUR SENIOR EXECUTIVES AND KEY EMPLOYEES.

    Our future success will depend upon, among other things, our ability to keep
our senior executives and to hire other highly qualified employees at all
levels. We compete with other potential employers for employees, and we may not
succeed in hiring and retaining the executives and other employees that we need.
Our loss of or inability to hire key employees could have a material adverse
effect on our business, financial condition and results of operations.

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OUR OFFICERS AND DIRECTORS CONTROL A LARGE PERCENTAGE OF OUR COMMON STOCK.

    Our officers and directors and members of their respective families own
beneficially approximately 44% of the outstanding common stock and will continue
to own such a large percentage of stock. The ability to vote these shares gives
management the ability to exert substantial influence over any matter coming to
a vote of stockholders, including the election of directors and certain mergers,
asset sales, or other major corporate transactions affecting us.

    All six of Mr. Stanley E. Fulton's children and a third party have granted
him irrevocable proxies expiring on December 31, 2000 to vote their shares of
common stock. As a result, Mr. Fulton will have voting control of approximately
44% of our outstanding common stock until the transaction with the Fulton family
is finalized. Such voting power, together with certain anti-takeover provisions
included in our Articles of Incorporation and Bylaws and a Shareholder Rights
Plan could have the effect of delaying or discouraging an unsolicited takeover.

    Once the stock purchase transaction with the Fultons is completed, the
Fulton family will own collectively less than 10% of the outstanding common
stock, and Mr. Fulton has agreed to revoke the proxies. The agreement with the
Fulton family is subject to conditions, and we cannot give any assurances that
such transaction will close.

OUR SHAREHOLDER RIGHTS PLAN MAY DETER CHANGE OF CONTROL OFFERS.

    Our Shareholder Rights Plan may deter people from making offers to bring
about a change of control in the Company which may limit the ability of
stockholders to sell stock for a premium.

WE HAVE OBLIGATIONS UNDER AGREEMENTS WITH THE PALA BAND OF MISSION INDIANS THAT
SUBJECT US TO JOINT VENTURE AND SOVEREIGN IMMUNITY RISKS.

    We recently entered into agreements with the Pala Band of Mission Indians to
develop and manage PALA, a casino in northern San Diego County, California. As
part of our development and management agreements with the Pala tribe, we have
agreed to guarantee the tribe's $100.0 million credit facility. If PALA is not
successful, we may incur substantial expense in meeting this guarantee
obligation. We cannot predict whether PALA will be profitable.

    Development of PALA involves significant construction risks. As part of our
development and management agreements with the Pala tribe, we have agreed to
fund PALA's construction cost overruns up to a total amount of $25.0 million. If
development of PALA costs more than our current budget of $115.0 million, or if
we encounter delays in completing the development of PALA, our prospects for
profitable operation of PALA could be affected. Additionally, the compact
between the Pala tribe and the State of California provides that PALA's current
allocation of between 1,500 and 2,000 gaming machines will revert to a pool for
future allocation by the State of California if the casino is not operational by
May 15, 2001. If we do not meet this deadline, we could be required to rebid for
a gaming machine allocation, and we can give no assurances that we would again
receive an allocation at our currently anticipated level of at least 1,500
machines, or that we would not face significant additional costs to reacquire
our allocation from the State of California.

    Our development and management agreements with regard to PALA are with the
sovereign nation of the Pala Band of Mission Indians. Thus, the contract may not
be an enforceable legal obligation, and in the event the Pala tribe were to
default under the development and management agreements, our legal recourse may
be inadequate to cover our damages.

    The term of our management agreement with the Pala tribe is seven years from
the opening date of PALA. We cannot give you any assurances that the management
agreement will be extended beyond its initial seven-year term.

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WE MAY BE SUBJECT TO ADVERSE DETERMINATIONS IN PENDING LITIGATION.

    At present, we are a party to pending litigation matters with GTECH Holdings
Corporation (action by GTECH challenging the validity of our lottery contract
with the State of Florida and the Florida Department of Lottery) and Acres
Gaming (action against Acres alleging infringement of our secondary-events
patents and related counterclaim by Acres), in addition to being involved in
several securities class action lawsuits filed against us and some of our
current and former officers and directors. These matters are more fully
described in the section "Business" under the heading "Litigation." We can give
you no assurance that we will achieve favorable results in any existing or
future litigation.

OUR GAMING MACHINES AND GAMING OPERATIONS SEGMENTS ARE AFFECTED BY SEASONS AND
WEATHER CONDITIONS.

    The second quarter of our fiscal year, which includes the months of October,
November and December, generally produces lower levels of profitability than
other quarters, because of a lack of tourist traffic during those months in most
of the markets in which we operate. Our business during the winter months could
also face the additional negative effects of inclement weather and accompanying
poor road conditions, which would make it more difficult for customers to travel
to our Colorado casinos.

CHANGES IN CONTROL REQUIRE REGULATORY APPROVAL.

    Changes in control and certain other corporate transactions require the
prior approval of some gaming regulatory authorities. This could adversely
affect the marketability of our common stock or prevent some corporate
transactions, including mergers or other business combinations. See the section
"Government Regulation."

WE WILL HAVE A LARGE NUMBER OF OPTIONS OUTSTANDING AFTER COMPLETION OF THE STOCK
PURCHASE TRANSACTION.

    We have recently entered into employment arrangements with our senior
management designed to retain their services and to provide incentives to
successfully operate our business. As a result, after completion of the stock
purchase transaction with our major stockholders, but before the stock split is
effective, approximately 1.6 million shares of our common stock will be subject
to options.

LEVERAGE MAY IMPAIR OUR FINANCIAL CONDITION AND WE MAY INCUR SIGNIFICANT
ADDITIONAL DEBT.

    After the issuance of the senior subordinated notes, we will have a
significant amount of debt. As of June 30, 2000, after giving effect to the
notes, the borrowings under our senior credit facility, the issuance of notes to
Stanley Fulton in connection with the stock purchase transaction and the
application of the proceeds of the senior subordinated notes offering and such
borrowings, our total consolidated debt would have been $542.4 million.

    Our significant debt could have important consequences for us, including:

    - increasing our vulnerability to general adverse economic and industry
      conditions;

    - limiting our ability to obtain additional financing to fund future working
      capital, capital expenditures, acquisitions and other general corporate
      requirements;

    - requiring a substantial portion of our cash flow from operations for the
      payment of interest on our debt and reducing our ability to use our cash
      flow to fund working capital, capital expenditures, acquisitions and
      general corporate requirements;

    - limiting our flexibility in planning for, or reacting to, changes in our
      business and the industry; and

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    - placing us at a competitive disadvantage to other less leveraged
      competitors.

    In addition, we may incur significant additional debt. Subject to specified
limitations, the indenture governing to the senior subordinated notes permits us
and our subsidiaries to incur substantial additional debt and our senior credit
facility will permit additional borrowings.

SERVICING OUR DEBT WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, AND OUR ABILITY TO
GENERATE SUFFICIENT CASH DEPENDS ON MANY FACTORS, SOME OF WHICH ARE BEYOND OUR
CONTROL.

    Our ability to make payments on and refinance our debt and to fund planned
capital expenditures depends on our ability to generate cash flow in the future.
This, to some extent, is subject to general economic, financial, competitive,
legislative and regulatory factors and other factors that are beyond our
control. In addition, the ability to borrow funds under our senior credit
facility in the future will depend on our meeting the financial covenants in the
agreements, including a minimum interest coverage test and a maximum leverage
ratio test. We cannot assure you that our business will generate cash flow from
operations or that future borrowings will be available to us under our senior
credit facility in an amount sufficient to enable us to pay our debt or to fund
other liquidity needs. As a result, we may need to refinance all or a portion of
our debt on or before maturity. Our senior credit facility matures in
June 2004. We cannot assure you that we will be able to refinance any of our
debt on favorable terms, or at all. Any inability to generate sufficient cash
flow or refinance our debt on favorable terms could have a material adverse
effect on our financial condition.

    In conjunction with the stock purchase transaction, we have agreed to sell
two racetrack assets to Stanley Fulton. As consideration for the two racetrack
assets, Mr. Fulton will cancel two one-year promissory notes in the aggregate
amount of $66.0 million, which we will have issued to him as partial
consideration for his shares of our common stock. If the sale of these racetrack
assets does not receive regulatory approval, or if any other condition to the
sale is not satisfied, we will be obligated to pay Stanley Fulton $66.0 million
plus interest in cash. If we are required to pay this amount in cash, our cash
available for other purposes would be reduced.

COVENANT RESTRICTIONS UNDER OUR SENIOR CREDIT FACILITY AND THE INDENTURE MAY
LIMIT OUR ABILITY TO OPERATE OUR BUSINESS.

    Our senior credit facility and the indenture governing the notes will
contain, and certain of our other agreements regarding debt will contain, among
other things, covenants that may restrict our and the subsidiary guarantors'
ability to finance future operations or capital needs or to engage in other
business activities. Our senior credit facility and the indenture restrict,
among other things, our and the guarantors' ability to: borrow money; pay
dividends or distributions; purchase or redeem stock; make investments and
extend credit; engage in transactions with affiliates; engage in sale-leaseback
transactions; consummate certain asset sales; effect a consolidation or merger
or sell, transfer, lease, or otherwise dispose of all or substantially all of
our assets; and create liens on our assets.

    In addition, our senior credit facility will require us to maintain
specified financial ratios and satisfy certain financial condition tests which
may require that we take action to reduce our debt or to act in a manner
contrary to our business objectives. Events beyond our control, including
changes in general economic and business conditions, may affect our ability to
meet those financial ratios and financial condition tests. We cannot assure you
that we will meet those tests or that the lenders will waive any failure to meet
those tests. A breach of any of these covenants would result in a default under
our senior credit facility and the indenture. If an event of default under our
senior credit facility occurs, the lenders could elect to declare all amounts
outstanding thereunder, together with accrued interest, to be immediately due
and payable.

                                       10
<PAGE>
                       OPERATING SEGMENTS OF THE COMPANY

GENERAL

    Financial information by segment, including revenues, income (loss) from
operations and assets, can be seen in Note 5 to the financial statements.

GAMING MACHINES

GENERAL

    Our gaming machines segment includes proprietary game development and
distribution and gaming machine sales. Our proprietary games business unit
focuses on the development of game software and the use of our gaming machines
to generate recurring revenue streams through lease, participation, royalty
revenue or other similar arrangements with our casino customers. Our VLC Casino
business unit manufactures and sells gaming machines.

PROPRIETARY GAMES

    GENERAL.  Our proprietary games are designed to increase gaming customer
play levels by providing more entertainment than competing games. We believe our
games provide a higher win per machine on average than our competitors' existing
gaming machines, while generating recurring streams of revenue from royalty,
revenue participation, fixed daily rental fee or other similar revenue-sharing
arrangements with our casino customers. We have games installed on a
revenue-sharing basis in most casinos in most domestic jurisdictions where
gaming is legal. We seek to capitalize on our established marketing
infrastructure, base of existing casino customers and licenses in most major
domestic gaming jurisdictions to further expand and develop the market for
proprietary games distributed under recurring-revenue arrangements.

    We develop or acquire the rights to stand-alone proprietary gaming machines
and place them with casino customers free of any initial charge, allowing the
casino to avoid up-front purchase costs, through a variety of arrangements that
provide us with recurring revenue streams. We utilize numerous unique concepts
and designs in order to increase overall gaming customer play levels. For
example, our Wheel of Gold-TM- incorporates the opportunity to activate a
three-dimensional wheel with significant potential winnings, providing a
secondary game event and additional excitement to the customer through our "game
within a game" concept.

    In September 1996, we entered into a strategic alliance in the form of a
joint venture with International Game Technology, the largest manufacturer of
computerized casino gaming products, in order to enhance our ability to develop
and distribute proprietary games on a recurring-revenue basis. Through the
Anchor-IGT joint venture, Anchor and IGT develop and install wide area
progressive, or WAP, gaming machines based on both existing proprietary games
and other game designs. The first WAP machine introduced by the Anchor-IGT joint
venture was Wheel of Fortune-TM-, a game that is very similar to our Wheel of
Gold-TM-. There are currently approximately 6,500 Wheel of Fortune-TM- machines
installed in casino locations. The joint venture began distributing the
multi-line, multi-coin video Wheel of Fortune-TM- in September 1999, and there
are currently approximately 4,500 video Wheel of Fortune-TM- machines installed
in casino locations. The video Wheel of Fortune-TM- machine's popularity with
customers has caused a current production backlog of approximately 1,200
machines. In January 2000, Anchor and IGT cross-licensed "coin-free" related
rights and patents and added the I Dream of Jeannie-TM- gaming machine to the
Anchor-IGT joint venture. The I Dream of Jeannie-TM- gaming machine, which we
expect to introduce into the market in October 2000, currently has committed
orders for approximately 900 machines. We believe that the Anchor-IGT joint
venture has facilitated both the expansion of our proprietary games business and
our ability to develop and distribute additional proprietary games.

                                       11
<PAGE>
    In addition to developing and distributing proprietary games, we have also
developed and have begun introducing conversion games to our casino customers
through the Anchor-IGT joint venture. The conversion business involves upgrading
existing casino-owned IGT gaming machines with both software and hardware
upgrades in exchange for a fixed portion of the future incremental revenue
stream generated by the conversion. This upgrade generally takes the form of
placing a secondary bonusing type of event on or in the existing base unit. As
of June 30, 2000, we have received regulatory approval in Nevada and several
other jurisdictions for several different conversion games and have placed some
of the games in casinos on a limited basis. We have also received regulatory
approval in Nevada and several other jurisdictions that allows us to convert
slot machines to accept up to 45 coins per wager. This provides the player with
a multi-line, multi-coin spinning reel slot machine experience. We introduced
this multi-coin feature on the conversion platform during the quarter ended
September 30, 1999. We currently have approximately 1,000 conversion games
placed in casinos.

    Anchor and IGT share in the management and generally share equally in the
profits and losses of the Anchor-IGT joint venture. Property, including
intellectual property, developed through the Anchor-IGT joint venture is owned
by the Anchor-IGT joint venture. The joint venture agreement had an initial
duration of ten years, expiring in September 2006. In 1999, Anchor and IGT
extended the joint venture agreement through December 15, 2015. After the 2015
expiration, unless the parties agree to a further extension, either party may
terminate the Anchor-IGT joint venture upon at least one year's prior notice.
The Anchor-IGT joint venture does not acquire any rights to the individual
intellectual property rights of Anchor or IGT that are developed outside of the
Anchor-IGT joint venture. In March 1999, Anchor granted IGT a non-exclusive
right under its secondary event patents. In exchange, IGT agreed to not make or
distribute gaming machines covered by the claims of the Anchor patents other
than on behalf of the Anchor-IGT joint venture. In addition, IGT granted the
Anchor-IGT joint venture the exclusive rights to the stand-alone Barcrest line
of gaming machines and IGT agreed to develop a multi-line multi-coin video-based
game with the Wheel of Fortune-TM- as a secondary event for the exclusive use of
the Anchor-IGT joint venture.

    DEVELOPMENT.  We are continually engaged in the development of new
proprietary games and in the improvement of existing games. After we have
identified the basic concept for a new game, we work to refine the new game to
maximize player appeal. Our efforts include computer-simulated studies of the
game probabilities to determine the optimal pay schedules; research of, and
application for, any significant intellectual property rights that can be
claimed; design of packaging for the game; establishment of a pricing strategy
for the game; and application for the necessary regulatory approvals. We then
solicit feedback from potential casino customers to further refine the game. At
the production stage, we and the manufacturer refine the technology and
construction of the game. Prior to the release of any new game, we must receive
necessary regulatory approvals.

    DISTRIBUTION.  We have an established sales organization with offices in
Nevada, Missouri, Mississippi, Louisiana, Indiana and New Jersey, servicing an
established customer base of over 300 casinos as of June 30, 2000. We distribute
our proprietary games primarily through a direct sales effort in which sales
representatives call on casinos and other potential customers. We also use
distributors in a limited number of jurisdictions. In deciding whether to use a
distributor in a new jurisdiction, we consider a variety of factors, including
existing relationships with operators and location owners, the ability of a
distributor to service the market after the sale, the distributor's financial
condition, any regulatory constraints and the long-term economics to us of
direct sales as opposed to sales to distributors.

MACHINE SALES

    We develop and manufacture video gaming machines to sell to casino gaming
venues through our VLC Casino business unit. We hold licenses to sell gaming
machines in numerous jurisdictions,

                                       12
<PAGE>
including Nevada, Mississippi and New Jersey, the three largest casino markets
in the U. S., as well as in most other major North American gaming
jurisdictions.

GAMING OPERATIONS

GENERAL

    Our gaming operations segment consists of Colorado Central Station Casino,
Colorado Grande Casino and Sunland Park Racetrack & Casino in New Mexico, and
gaming machine route operations in Nevada and Montana. Additionally, we have a
50% interest in a development contract and seven-year management contract with
the Pala Band of Mission Indians to develop and manage PALA, a casino, dining
and entertainment complex currently under construction in northern San Diego
County, California, which we currently expect to open in the spring of 2001.

CASINO OPERATIONS

    COLORADO CENTRAL STATION CASINO.  We opened the Colorado Central Station
Casino in December 1993. It is located in Black Hawk, Colorado, which is
contiguous with Central City, and serves approximately three million people
living within a 100-mile radius, including residents of Denver and Boulder,
Colorado. We believe that the Colorado Central Station Casino is a market leader
and experiences a higher daily win per machine than its significant competitors.
This casino is approximately 40 miles from Denver and 10 miles from Interstate
70, the main highway connecting Denver to many of Colorado's major ski resorts,
and benefits from a favorable location, as it is one of the first casinos
encountered by customers traveling from Denver to the Black Hawk/Central City
area. The casino features approximately 750 gaming machines, 9 blackjack tables,
6 poker tables, and a food & beverage operation, and offers more than 600
parking spaces.

    COLORADO GRANDE CASINO.  We operate the Colorado Grande Casino, which we
opened in November 1991, through an 80% owned subsidiary. It is located in
Cripple Creek, Colorado, and serves approximately two million people living
within a 100-mile radius, including residents of Colorado Springs and Pueblo,
Colorado. This casino is approximately 55 miles from Colorado Springs and 75
miles from Pueblo, and is located at one of the principal intersections in
Cripple Creek. It features more than 210 gaming machines, 44 adjacent parking
spaces, and a full service restaurant and bar.

    SUNLAND PARK RACETRACK & CASINO.  Sunland Park Racetrack & Casino, which is
adjacent to El Paso, Texas, serves approximately two million people living
within a 100-mile radius of Sunland Park, including residents of El Paso, Texas,
Las Cruces, New Mexico, and Juarez, Mexico. Sunland Park has operated as a
racetrack since 1959, and its casino, which was the first in New Mexico after
the 1997 legalization of casino-style gaming at racetracks by the New Mexico
legislature, opened in February 1999. The facility includes a 10,000 square foot
gaming area, 1-mile racetrack, grandstand, bar, restaurants, stables, and office
space on 152 acres of improved land. Live horse racing is conducted from
November through early April, and both the live and the non-live seasons feature
simulcast racing from tracks throughout North America. We currently operate 300
gaming machines, the maximum permitted by law, including a mix of traditional
reel and video terminals. We have agreed to sell substantially all of the assets
associated with Sunland Park Racetrack & Casino to Mr. Fulton as described
above.

ROUTE OPERATIONS

    We are one of the largest gaming machine route operators in Nevada, with 885
gaming machines in 66 locations at June 30, 2000. We believe we have a higher
win per unit per day than any of our significant route competitors. At June 30,
2000, 771 of our 885 gaming machines in Nevada were located in or near Las
Vegas, which has been one of the fastest growing cities in the United States in
recent years. Our route operations also include video gaming machines and
amusement machines in

                                       13
<PAGE>
business establishments located in three areas in southern Montana. At June 30,
2000, we had over 1,250 video gaming machines and 750 amusement machines in
Montana. We believe that our route operation contracts provide us with a stable
long-term revenue source.

    Our gaming machine route operations involve the installation, operation, and
service of gaming machines (virtually all video poker machines) under space
leases with retail chains and revenue participation agreements with local
taverns and retail stores. Space leases require payments of fixed monthly fees
on a per store basis. Revenue participation agreements provide for payment to
the location owner of a percentage of revenues generated by our machines at such
location. Both types of agreements generally give us the exclusive right to
install gaming machines at such locations, and both generally require us to pay
all installation, maintenance and insurance expenses related to our operations
at each location. We pay all applicable taxes under space leases, and generally
share such taxes on the same basis as revenues under revenue participation
arrangements. Our largest route contract is a space lease with Smith's Food and
Drug Centers, Inc. At June 30, 2000, it covered 359 machines, and it extends
through 2010. The contract with Smith's grants us the exclusive right to install
gaming machines at all Smith's stores in Nevada, including any stores opened in
the future.

    Our marketing strategy in our route operations is to attract and retain
gaming machine patrons by offering an attractive selection of gaming machines.
Prior to installing machines at a location, we study the market potential and
customer base of the location in order to determine the appropriate mix of
gaming machines. We also offer progressive jackpots at most of our route
locations. Our strategy for attracting and retaining location owners is to offer
quality service. We operate and service our machines using our own employees,
who routinely repair and maintain our gaming machines in order to improve
reliability and in-service time. In addition to physical service of the gaming
machines, our employees remove coins and bills from the machines, refill
machines that have exhausted their supply of coins, and provide payment of
jackpots in excess of machine limits. We also operate change booths at most of
our retail store locations.

AGREEMENTS WITH PALA BAND OF MISSION INDIANS

    In September 1999, we announced the signing of development and management
agreements with the Pala Band of Mission Indians for the design, construction,
financing, operation, and management of PALA, a 187,000 square-foot casino,
dining and entertainment complex and parking structure on the federally
recognized Pala reservation near San Diego, California. PALA will be located in
a densely populated area of northern San Diego County, closer to the residences
of approximately 700,000 potential casino patrons than any other existing, new
or planned casino. The facility will include more than 1,500 slot machines, 46
table games, five food and beverage outlets and two entertainment venues. We
believe this is the first master-planned, Las Vegas-style casino in Southern
California. We currently expect the facility to open in the early spring of
2001.

    The National Indian Gaming Commission approved our agreements with the Pala
tribe in August 2000. The management agreement, pursuant to which we will
receive management fees, extends for a period of seven years from the opening
date of the facility. Our agreements with the Pala tribe remain subject to the
continuing oversight and approval of various regulatory agencies.

    Under the terms of the agreements, we agreed to assist the Pala tribe in
obtaining financing for the construction and operation of PALA and to advance
funds during the design and development stages. The Pala tribe secured a
$100.0 million credit facility through a loan agreement and ancillary financial
documents finalized on June 15, 2000. As a condition to receiving financing, we
agreed to guarantee the full payment and performance of the obligations of the
Pala tribe under the loan agreement. In addition, we have agreed to fund PALA
project cost overruns up to a total amount of $25.0 million. Under agreements we
have entered into with Jerry Turk, a longtime casino principal and executive, we
will pay to Mr. Turk monthly consulting fees for development and management

                                       14
<PAGE>
assistance, and 50% of the management and development fees and project costs
incurred prior to the assignment of a prior agreement.

    Anchor Pala Development LLC, our wholly-owned subsidiary, will receive a
development fee based on the actual total project costs and a project fee based
on net gaming and non-gaming PALA revenues. As additional consideration for all
costs, risks, restrictions, and expenses associated with providing the
guarantee, we will receive fees based primarily on a percentage of the
outstanding loan balance.

RACETRACK ASSET SALES

    In connection with the stock purchase and racetrack asset sale transactions
with some of our major stockholders, we are currently holding for disposition
two assets that were formerly included in our gaming operations segment. We
expect the sale of these assets to be completed by the end of March 2001. These
assets include substantially all of the assets of Nuevo Sol Turf Club, Inc.,
which owns Sunland Park Racetrack & Casino in New Mexico, and our 25% equity
interest in Ourway Realty, LLC, which owns the Plainridge Racetrack in
Plainville, Massachusetts. After the disposition of these assets, we will retain
the rights to manage gaming operations at the Massachusetts location.

GAMING SYSTEMS

GENERAL

    Our gaming systems segment consists of on-line lottery operations and
systems, video lottery systems and pari-mutuel wagering systems and products.

ON-LINE LOTTERY

    We develop, manufacture, install and operate or license computer-based
on-line lottery systems through our subsidiary Automated Wagering
International, Inc. On-line lotteries are conducted through a computerized
lottery system in which lottery terminals are connected to a central computer,
usually by dedicated telephone lines. In 1971, AWI designed and installed the
country's first on-line lottery system for the New Jersey State Lottery. Since
that time, we have developed and installed many system and service features that
have subsequently become common in the lottery industry. In our lottery systems
segment, in addition to designing new and innovative lottery games, we design,
manufacture and distribute lottery terminals, central computers and software,
and have developed the expertise to interface these products with a wide range
of communications networks including telephone lines and alternate
communications systems. An on-line lottery system includes both the hardware and
software needed to process lottery transactions. The hardware consists of
terminals located in retail outlets, a telecommunications network and a central
computer system. Software components include communications applications, as
well as the software that operates the system and processes sales and validation
of lottery game tickets.

    In the United States, we typically market our products and services to state
lottery authorities through long-term contracts awarded through a competitive
bidding process. Under this system, we maintain ownership of the lottery system
and operate it for the state in return for a percentage of lottery ticket sales.
Once a contract is awarded to a lottery vendor, that vendor is typically the
sole provider of on-line lottery services and operations to that jurisdiction
for a specified time period within a defined geographic area. In contrast, in
foreign jurisdictions and a minority of United States jurisdictions, lottery
equipment and systems are generally sold, and related software is licensed to
lottery authorities. In addition to providing equipment, we also train lottery
personnel in the operation of the system for a fixed fee or a fixed plus
percentage of handle fee, and offer add-on services, such as system
enhancements, equipment maintenance and ticket stock production, under separate
contracts.

                                       15
<PAGE>
    We generally install and commence operations of a lottery network within six
to twelve months after being awarded a new lottery contract and, following the
start-up of the lottery network, we are responsible for all aspects of the
network's operations. We operate lottery systems in each jurisdiction with two
or more central computer systems. In addition, we employ a dedicated workforce
in each jurisdiction, which consists of a site manager, computer and hotline
operators and customer service and terminal replacement and repair technicians.
The equipment used in any jurisdiction must comply with specifications
established by that jurisdiction, and new contracts typically require new
equipment of recent manufacture. We depreciate the equipment and related
implementation costs over the term of the related contract, including extensions
upon their exercise by the lottery authority.

    Our on-line lottery revenues fluctuate depending on the relative sizes of
jackpots, the number of terminals on-line and the volume of tickets sold in the
jurisdictions in which we operate. All of our current domestic lottery contracts
are facilities management contracts under which we install, operate and maintain
a lottery network while retaining ownership or control of the lottery terminal
network. The facilities management contracts have initial terms of approximately
five to nine years, and generally contain one or more options permitting the
lottery authority to extend the initial contract term. Prior to the expiration
of the initial or extended term, a lottery authority is generally required by
law to commence a competitive bidding process for a new lottery contract. The
table below sets forth information regarding the term of each of our domestic
lottery contracts and, as of June 30, 2000, the approximate number of retail
terminals installed in each jurisdiction.

<TABLE>
<CAPTION>
                                       ORIGINAL     CURRENT    EXPIRATION
                                       CONTRACT    CONTRACT      DATE OF     LOTTERY AUTHORITY      ON-LINE
                                       EFFECTIVE   EFFECTIVE     CURRENT         EXTENSION       TERMINALS AT
JURISDICTION                             DATE        DATE      CONTRACT(1)        OPTIONS        JUNE 30, 2000
------------                           ---------   ---------   -----------   -----------------   -------------
<S>                                    <C>         <C>         <C>           <C>                 <C>
Delaware.............................  1/24/78     4/26/94      9/30/02           none                  345
Florida(2)...........................   1/8/88     10/29/98    12/31/04        2 two-year             8,503
Indiana..............................  1/13/99     1/13/99      8/28/06        3 one-year             3,981
Maryland(3)..........................  12/6/95     12/6/95      7/5/06            none                4,165
Minnesota............................  5/25/90     3/27/97      8/12/02        5 one-year             1,968
Pennsylvania.........................   3/1/77     2/23/98     12/31/05        3 one-year             5,530
South Dakota.........................  7/17/90     3/12/99      9/30/06        3 one-year               356
West Virginia(4).....................  2/29/00     2/29/00      7/1/05         2 one-year             1,399
</TABLE>

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

(1) Expiration dates do not reflect the exercise of the lottery authorities'
    extension options.

(2) In March 1999, the Department of Lottery of the State of Florida
    renegotiated and signed an amended contract for on-line lottery system and
    related services whereby we will design, install and operate a new statewide
    on-line lottery system for five years and three months, with 2 two-year
    renewal options. See the section "Business" under the heading "Litigation."

(3) In August 2000, the Maryland Board of Public Works granted us the maximum
    5-year extension.

(4) The contract for provision of services to the West Virginia Lottery was
    awarded in 1999 and operations commenced July 1, 2000.

    In the United States, revenues from lottery ticket sales have grown, and
many states have become increasingly dependent on their lotteries as significant
funding sources. In 1970, only two states had authorized traditional lotteries,
selling an aggregate of approximately $49.2 million in tickets. According to
recent industry statistics, as of June 30, 2000, 38 jurisdictions in the United
States were operating lottery systems, with aggregate lottery sales in excess of
approximately $35 billion. Internationally, governments in approximately 80
countries have authorized lottery games, primarily as a means of generating
non-tax revenues. Over 200 lotteries are operating worldwide, many of which are
government-operated or privately licensed. We currently operate lottery systems
for eight states, and have sold to and currently support or maintain lottery
systems for customers in Canada, Chile, China,

                                       16
<PAGE>
Norway, Switzerland, Vietnam and the West Indies. We believe that we are well
positioned to take advantage of anticipated future growth in the on-line lottery
market, both in the United States and around the world.

VIDEO LOTTERY

    Video lottery gaming is the use of video gaming machines to provide low
stakes gaming entertainment to enhance revenue for states and other lottery
jurisdictions. The machines, offering games including poker, blackjack, bingo,
keno, as well as spinning reel games, are generally located in age-restricted
establishments. The stakes on video lottery gaming machines typically range from
$0.25 to $2.50 per play, and payoffs typically are capped at $100 to $1,000.
Currently, eight U.S. states (Delaware, Louisiana, Montana, New Mexico, Oregon,
South Dakota, Rhode Island, and West Virginia), five states in Australia, eight
Canadian provinces, Iceland, Norway, Sweden and South Africa have authorized
various levels and forms of video lottery gaming.

    Video lottery gaming machines can be operated either through a central
control system controlled by a governmental authority or on a stand-alone basis.
In every domestic video lottery gaming jurisdiction except Montana, the gaming
machines are connected to a central control system. We believe that the greater
control and monitoring ability offered through central control systems will
encourage new jurisdictions to adopt a video lottery program and use such
systems. Casinos also use similar technology to monitor and manage progressive
systems.

    We provide central control systems for video lottery gaming to government
entities through our VLC Government business unit. We derive revenues from our
central control system software through the granting of licenses to use the
software and by providing installation and maintenance services with respect to
the software. We have designed and installed software for video lottery central
control systems for Delaware, New Mexico, South Dakota, Loto Quebec, the
Atlantic Lottery Commission's multi-jurisdictional system now covering four
provinces in eastern Canada, Tattersall's and TABCORP in Victoria, Australia,
Independent Gaming Corporation in South Australia, the Northern Territory
Racing & Gaming Authority of Northern Territory, Australia, and the Icelandic
Gaming Fund Raising in Iceland.

    Our central control systems incorporate state-of-the-art technology, and are
designed with features intended to appeal to the concerns of the operator,
including: security of communications, central control of gaming machines on the
system, the compatibility of our central control system with gaming machines
made by other manufacturers, economy of operation due to the ability to use a
dial-up format (as opposed to requiring dedicated lines), on-demand generation
of reports and audits, the capability to transfer funds electronically and the
flexibility to meet the needs of markets of various sizes, accommodate
regulatory changes and adapt to new game designs and features. Our Advanced
Gaming System software is modular in design, and allows for the addition of new
features, such as player tracking, wide-area progressives and downloadable
software to gaming machines. We market our central control system software
through our direct sales force, generally beginning when a legislative body is
considering the adoption of video lottery enabling legislation.

                                       17
<PAGE>
PARI-MUTUEL

    Pari-mutuel wagering is pooled wagering in which a central system totals the
amounts wagered and adjusts the payouts to reflect the relative amounts bet on a
racing event's various outcomes. The pooled wagers are paid out to bettors as
winnings, to the applicable regulatory or taxing authorities, and as purses to
the owners and trainers of the horses or greyhounds to encourage them to enter
the racetrack's live races. The balance of the pooled wagers is retained by the
wagering facility.

    Pari-mutuel wagering is currently authorized in 42 U. S. states, all
provinces in Canada, and many foreign countries, and is conducted at horse and
greyhound racetracks, off-track betting facilities and jai alai frontons. We
provide pari-mutuel wagering services, through our United Tote subsidiary, to
over 120 of the approximately 350 pari-mutuel facilities in North America, as
well as to facilities in South America, the Philippines, Spain and the West
Indies. We have the ability to manage large volume pari-mutuel operations, as
demonstrated by the fact that our largest pari-mutuel customer is currently
Churchill Downs, one of the most prominent horse racetracks in the United
States.

    Our pari-mutuel business has significant growth potential. While on-track
attendance and handle from pari-mutuel wagering at live events in the United
States has markedly decreased over the last decade, this decline has been more
than offset by the increase in simulcast and off-track wagering handle during
the same period. For example, according to recent industry statistics,
pari-mutuel horse-racing wagering handle in the United States grew from
$9.9 billion in 1994 to $13.7 billion in 1999, a compound annual growth rate of
7%. The increase in remote wagering has resulted in increased pari-mutuel handle
by facilitating around-the-clock wagering availability, year-round racing events
upon which to wager (previously impracticable due to seasonal nature of regional
racing activity), and the consolidation of "live" racing. In addition to
opportunities in the pari-mutuel business, we also expect that our relationships
with pari-mutuel facilities could provide us with gaming machine placement
opportunities in the future if, as current trends in some jurisdictions indicate
may be the case, jurisdictions that currently permit only pari-mutuel wagering
decide to permit gaming machine activity in pari-mutuel facilities.

    In addition to providing, maintaining and operating pari-mutuel systems, we
also design products used in those systems. These products include
high-performance computer hardware and software systems that are used in
pari-mutuel terminals, as well as the terminals themselves. Our terminals
feature an enhanced display and a built in magnetic card reader. Some of our
terminals are portable and wireless, and others allow telephone wagering.
Approximately 8,500 of our terminals are presently in service at customer
locations.

COMPETITION

    GAMING MACHINES.  We compete with domestic and foreign manufacturers of
video gaming equipment and providers of traditional on-line lottery systems and
casino-based gaming machines. Among our competitors in this market are Alliance
Gaming, Aristocrat, Atronic, Casino Data Systems, GTECH, IGT, Silicon Gaming,
Spielo Gaming International and WMS Industries. We must continually adapt our
products to consumer preferences in order to effectively compete in this market,
particularly since many of our competitors are larger than we are and have
access to greater financial resources.

    GAMING OPERATIONS.  Our casinos in Colorado face competition from several
large new casinos that have opened in their areas within the past few years, and
we are aware of several other casino projects in various stages of planning. Our
route operations in Nevada must compete with the broad gaming opportunities that
are available in Nevada, and our Montana route operations compete directly with
other machine route businesses and with companies selling video lottery gaming
machines directly to location owners.

                                       18
<PAGE>
    GAMING SYSTEMS.  Relatively few new or rebid on-line lottery contracts are
awarded each year, and lottery contract awards in the United States are often
challenged by unsuccessful bidders through litigation. Our principal competitor
in the on-line lottery business, GTECH, is significantly larger than we are,
currently supplying lottery systems to 26 of the 38 United States on-line
lottery jurisdictions. GTECH also has a substantial international presence.
Other lottery competitors include Autotote Corporation, EssNet/Alcatel,
International des Jeux (Lotto France), International Lottery and Totalizer
Systems and several other companies. In jurisdictions with both on-line and
video lottery gaming products, the products may compete with each other for
wagering market share. Our principal pari-mutuel competitors are AmTote,
Autotote and, at some facilities, a limited number of other smaller, local and
regional companies. Pari-mutuel competition outside of North America is more
fragmented, with competition provided by several international and regional
companies. No single pari-mutuel company maintains a dominant market position
internationally, although some companies possess regional strengths.

INTELLECTUAL PROPERTY RIGHTS

    We have secured, and endeavor to secure, to the extent possible, exclusive
rights in some of our proprietary gaming machines, on-line lottery systems and
pari-mutuel products, primarily through federal and foreign intellectual
property rights, such as patents and trademarks. The United States Patent and
Trademark Office has issued patents to us covering various games and concepts,
all of which extend until at least 2008. The most notable of our patents is our
patent on bonusing features related to our market-leading "game within a game"
concept, which incorporates into a slot machine a "secondary event." This is the
concept that we use in the Wheel of Gold-TM- and Wheel of Fortune-TM- gaming
machines. We have also filed patent applications and trademark applications in
strategically selected foreign countries. We are not aware of any pending claims
of infringement or other challenges to our right to use our patents, trademarks
or other intellectual property in any of our current businesses.

MANUFACTURING AND SUPPLIERS

    Almost all of our gaming machines are manufactured by third parties,
including Bally Gaming International, Casino Data Systems, IGT and Sigma Games.
We expect to continue our reliance on third parties for the manufacture of our
proprietary games. Our primary manufacturing facility for on-line lottery and
pari-mutuel systems and products is located in Bozeman, Montana. The
manufacturing operations at this location consist primarily of assembly and
testing of lottery system terminals, gaming system machines and pari-mutuel
systems machines.

EMPLOYEES

    At June 30, 2000, we employed approximately 2,790 persons, the substantial
majority of whom are non-management personnel. None of our employees is covered
by a collective bargaining agreement, and we believe that we have satisfactory
employee relations.

                                       19
<PAGE>
                             GOVERNMENT REGULATION

OVERVIEW OF GAMING REGULATION

    The manufacture and distribution of gaming machines and the operation of
gaming facilities are subject to extensive federal, state, provincial and local
regulation. While the regulatory requirements vary from jurisdiction to
jurisdiction, virtually all jurisdictions require licenses, findings of
suitability and other required approvals with respect to us, our key personnel
and products. These authorizations typically involve rigorous background
investigations of officers, directors, and key personnel and a comprehensive
review of our business transactions and operations. Gaming machines and
associated equipment must also be tested and approved to ensure compliance with
required standards of operation and play. The gaming laws and regulations of
substantially all jurisdictions require beneficial owners of more than 5% of our
outstanding common stock to file reports and may require them, at the discretion
of the gaming regulatory authorities, to file an application for a finding of
suitability depending on the amount of stock ownership and the person's ability
to influence or control our management.

    Laws of the various gaming regulatory agencies generally serve to protect
the public and ensure that gaming related activity is conducted honestly,
competitively, and free of corruption and unsuitable persons. Gaming regulatory
authorities may bring an action to revoke, suspend, condition, or restrict a
license for any cause determined to be in violation of its laws or regulations.
Fines for violation of gaming laws or regulations may be levied against the
holder of a license and persons involved.

    The regulation of state video lottery programs is similar to the regulatory
oversight in casino jurisdictions. In general, licenses, product testing, and
findings of suitability are required of manufacturers, distributors, and
operators of video lottery terminals, or VLTs, by the state lottery or
governmental agency administering the video lottery program. There are presently
eight video lottery operations authorized under state law in the United States.
We manufacture and market VLTs and central monitoring systems for
government-sponsored video lottery programs in the United States and
international jurisdictions. Generally, maximum wagers and prize awards are
limited to smaller amounts than those authorized in casino jurisdictions. VLTs
are typically linked to a central computer for accounting and security purposes
and are monitored by state lotteries or other government agencies. We and our
affiliated gaming subsidiaries have received licenses to engage in gaming
operations from the regulatory jurisdictions listed in the chart below. We can,
however, give no assurances that we will be able to secure the renewal of
required licenses or permits in the future or that new licenses applied for will
be granted.

CASINO OPERATIONS

    Our Colorado Grande Casino and the Colorado Central Station Casino located
and operating in Cripple Creek and Black Hawk, Colorado, respectively, are
subject to the licensing and regulatory control of the Colorado Limited Gaming
Control Commission (the "Colorado Commission") and the Colorado Division of
Gaming (the "Colorado Division"), (collectively the "Colorado Authorities").
Each casino in Colorado requires a retail gaming license, which must be renewed
annually.

    Our Sunland Park Racetrack & Casino located and operating in Sunland Park,
New Mexico is subject to the licensing and regulatory control of the New Mexico
Racing Commission and New Mexico Gaming Control Board (collectively the "New
Mexico Authorities"). The casino requires a current license to conduct
pari-mutuel wagering at the racetrack facility and a gaming operator's license,
both of which are renewable annually. The sale of alcoholic beverages at our
casinos is subject to licensing, control, and regulation by the applicable state
and local authorities. All alcoholic beverage licenses are revocable and are not
transferable. Alcoholic beverages are not permitted in the casino area of the
Sunland Park facility.

                                       20
<PAGE>
    The legislation and regulations governing the Colorado and New Mexico casino
operations mandate investigations for findings of suitability, registration and
other approvals which are similar to those required of other gaming
jurisdictions discussed above. These include, but are not limited to, findings
of suitability for officers, directors and key personnel; individuals accruing
beneficial stock ownership in our publicly traded shares; approval of the
placement and operation of gaming machines; and notification and approval of any
change in ownership or corporate officers and directors, us or our subsidiaries.

    Additionally, the casino operations are subject to extensive scrutiny and
regulation in certain areas of the operations for which procedures and plans
must be developed and approved by the Colorado and New Mexico Authorities. These
include, but are not limited to: administrative, accounting, security, prize
payouts, age requirements for patrons; game placement, purchase of approved
gaming machines and associated equipment; business operations, licensing of all
casino employees; and internal controls. New Mexico is the first state to
mandate responsible gambling guidelines for the industry as part of their
licensing requirements. Applicants for a license must develop a Compulsive
Gambling Assistance Plan ("Plan") to assist in the prevention, education and
treatment of compulsive gambling for submission and state approval. The Plan
must include a detailed description of the program, its estimated costs for
administration, and educational training sessions for the licensee's employees
that address methods of recognizing compulsive gambling behavior, intervention
techniques and other subjects as determined by the Board. The New Mexico
Authorities approved our Plan in the granting of Sunland's gaming operator's
license. We have a Director of Responsible Gaming, who is responsible for
administering the responsible gaming program and Plan at Sunland Park
Racetrack & Casino as well as for other areas of our operation. In addition,
 .25% of net win is paid to support a state administered problem gaming fund.

    The Colorado and New Mexico Authorities have broad discretion to revoke,
suspend, not renew, condition, limit, or fine a licensee for failure to satisfy
the requirements for licensure or any violation of the state gaming statutes or
regulations. Our licenses have been renewed each year since they were initially
received in 1991 for the Colorado Grande Casino, 1993 for the Colorado Central
Station Casino, and 1999 for the Sunland Park Casino. We can give no assurances,
however, that these Authorities will give or renew such required licenses,
permits or approvals in the future, and their failure to do so would have a
material adverse effect on our operations.

    In addition to the annual license fees, we must pay gaming taxes on a
percentage of the net proceeds generated at our three casino locations. Casino
gaming operators in New Mexico are taxed at 25% of the net take, which is
defined under New Mexico law as the total amount wagered and other compensation
received for operating games less the total amount paid out in prizes and
amounts paid to purchase annuities for progressive jackpots. Gaming machines are
limited to 300 at each casino location. Effective July 1 of each year, the
Colorado Gaming Commission establishes the gross gaming revenue tax for the
following 12 months. Effective July 1, 1999, the Colorado Gaming Commission
approved a revised tax structure reducing the annual tax on adjusted gross
proceeds ("AGP"), defined under Colorado law as the total amount wagered minus
the total amount paid out in prizes. Gaming taxes for the period of July 1, 1999
through June 30, 2001 have been set at .25% of the first $2.0 million of AGP, 2%
from $2.0 million to $4.0 million of AGP, 4% from $4.0 million to $5.0 million
of AGP, 11% from $5.0 million to $10.0 million of AGP, 16% from $10.0 million to
$15.0 million AGP, and 20% of amounts in excess of $15.0 million of AGP. The tax
rate from October 1996 through June 1999 for casino operations was set by the
Colorado Gaming Commission at 2% of the first $2.0 million of AGP, 4% from
$2.0 million to $4.0 million of AGP, 14% from $4.0 million to $5.0 million of
AGP, 18% from $5.0 million to $10.0 million of AGP, and 20% of amounts in excess
of $10.0 million of AGP.

                                       21
<PAGE>
    The City of Cripple Creek currently imposes a two-tiered quarterly device
fee of $225 per device on the first 50 devices and $300 per device on devices of
51 or more. Black Hawk's annual fee per device is $750.00. Black Hawk and
Cripple Creek also impose liquor licensing fees, restaurant fees, and parking
impact fees. Further, we have paid, and in the future may be required to pay,
local parking and other municipal "impact fees" based on the square footage of
our facilities. Under the Colorado Constitution, the Commission is authorized to
increase the gaming tax rate to as much as 40%.

    There can be no assurance that the taxes or fees applicable to our casino
operations will not be increased in the future, either by the electorate,
legislation, or action by the New Mexico or Colorado Gaming Authorities
resulting in an adverse effect on our operations. Also, there can be no
assurances that future initiatives or other legislative changes imposing
additional restrictions or prohibitions on gaming in the two states will not be
introduced. If passed, such measures could cause a significant adverse affect on
our operations in Colorado and New Mexico.

       CURRENT JURISDICTIONS IN WHICH THE COMPANY OR CERTAIN SUBSIDIARIES
                        ARE LICENSED TO CONDUCT BUSINESS

<TABLE>
<CAPTION>
                                               UNITED STATES                                                     INTERNATIONAL
-----------------------------------------------------------------------------------------------------------  ---------------------
                                                           PARI-MUTUEL                                          CASINO OR VIDEO
    VIDEO LOTTERY               CASINO SUPPLIER               RACING               NATIVE AMERICAN              GAMING SUPPLIER
---------------------   --------------------------------  --------------   --------------------------------  ---------------------
<S>                     <C>                               <C>              <C>                               <C>
Delaware                Colorado                          Arizona          Arizona (8 jurisdictions)         AUSTRALIA
Louisiana               Illinois                          Ak-Chin, AZ      California (7 jurisdictions)      New South Wales
Montana                 Indiana                           Colorado         Connecticut (2 jurisdictions)     South Australia
Oregon                  Iowa                              Florida          Iowa (3 jurisdictions)            Tasmania
Rhode Island            Louisiana                         Idaho            Kansas (3 jurisdictions)          Victoria
South Dakota            Michigan                          Indiana          Louisiana (3 jurisdictions)       Western Australia
West Virginia           Missouri                          Iowa             Michigan (9 jurisdictions)        CANADA
                        Mississippi                       Sac & Fox, IA    Minnesota (9 jurisdictions)       Alberta
                        Nevada                            Kansas           Mississippi (1 jurisdiction)      New Brunswick
                        New Jersey                        Kentucky         New Mexico (11 jurisdictions)     Newfoundland
                        South Dakota                      Louisiana        North Dakota (4 jurisdictions)    Nova Scotia
                                                          Carencro, LA     Oregon (7 jurisdictions)          Ontario
CHARITABLE              CASINO OPERATOR                   Maine            South Dakota (4 jurisdictions)    Prince Edward Island
------------            ------------------                Montana          Wisconsin (8 jurisdictions)       Quebec
Mississippi             COLORADO                          New Jersey                                         Saskatchewan
                        Colorado Central Station Casino   New Mexico                                         SOUTH AFRICA
                        Colorado Grande Casino            Ohio                                               Gauteng
                        NEW MEXICO                        Rhode Island                                       Mpumalanga
                        Nuevo Sol Turf Club d/b/a         Texas
                        Sunland Park Racetrack & Casino   West Virginia
                                                          Wisconsin
                                                          CANADA
                                                          Ontario
                                                          Saskatchewan
</TABLE>

LOTTERY OVERVIEW

    There are currently 38 lotteries operating in the United States and District
of Columbia. All the lotteries operate under legislative authorization of each
respective state and offer various forms of lotto and instant scratcher games.
We provide on-line systems, terminals, technical operations and marketing
services to the following state lotteries: Delaware; Florida; Indiana; Maryland;
Minnesota; Pennsylvania; South Dakota; and West Virginia. We also provide
on-line systems and services to lotteries in Chile, China, Norway, Switzerland,
Vietnam and the West Indies. Policy and management decisions of lottery
operations in the United States are generally governed by a commission appointed
by the governor or other official of each state with the day-to-day operations
of the lottery administered by a director appointed either by the governor or
lottery commission.

                                       22
<PAGE>
    To ensure the integrity of their lottery operations, most United States
jurisdictions require detailed background disclosure and investigations of
vendors providing goods and services under a contract award for a major
procurement, which typically include: on-line systems, terminals, and services;
instant ticket printing; ticket validation systems; drawing equipment; and
advertising services. Background investigations typically are conducted on
company subsidiaries, affiliates, officers, directors, and stockholders who own
5% or more of our outstanding capital stock for purposes of meeting suitability
standards defined under statutes and regulations of each jurisdiction.
Additionally, jurisdictions require vendors to meet comprehensive standards as
described in a lottery's request for proposals or invitation for bid for the
goods and services contracted. Failure on the part of a vendor to meet the
described suitability standards or provider requirements could jeopardize the
award of a lottery contract to us or provide grounds for the termination of an
existing lottery contract. Additionally, we are subject to the imposition of
liquidated damages by the lottery regulators for central system and terminal
downtime and have made payments to some state lotteries under the liquidated
damages provisions of our contract.

    The award of lottery contracts and ongoing operations of lotteries in
international jurisdictions are also often highly regulated, although the
operations typically vary from lotteries in the United States. In addition,
foreign jurisdictions may impose restrictions on United States corporations
seeking to do business in those jurisdictions.

    We regularly engage public affairs advisors and lobbyists in various United
States jurisdictions to advise legislators and the public in connection with
lottery legislation, and to advise us in connection with contract proposals.

    In recent years, it has become increasingly common in the United States for
procurement procedures to allow an unsuccessful lottery provider to appeal a
decision to award the lottery to another party. Appeals typically take the form
of an administrative hearing, or a judicial hearing or both. Once an appeal is
filed, it may be several years before the outcome of the appeal is finally known
assuming the appellant exercises all available avenues of appeal. This
introduces an element of unpredictability into the on-line lottery market that
may continue long after procurements have been awarded.

PARI-MUTUEL RACING REGULATION

    Our operations in the manufacturing, sale and operation of live and
simulcast wagering systems for pari-mutuel wagering facilities in certain
jurisdictions are also subject to extensive state regulatory and licensing
requirements similar to our on-line lottery, video lottery and gaming machine
subsidiaries.

    The most extensive pari-mutuel regulation affecting us is in the State of
New Mexico, the only venue in which our subsidiaries are licensed as a racetrack
operator and a supplier of pari-mutuel wagering equipment. These operations are
subject to the licensing and regulation of the New Mexico Racing Commission. The
NMRC annually approves licenses to conduct live quarter horse and thoroughbred
race meets and to participate in simulcasting based upon applications submitted
by the racetrack. In the horse racing industry, simulcasting involves sending
and receiving audio and video signals of live races to and from off-track
facilities, including other racetracks, for the purpose of wagering.

    Although we and our affiliated gaming subsidiaries have received licenses to
engage in pari-mutuel wagering operations from the regulatory jurisdictions
listed in the preceding chart, we can give no assurances that these
jurisdictions will renew our required licenses or permits in the future or
approve any additional required filings.

FEDERAL REGULATION AND RELATED DEVELOPMENTS

    The Federal Gambling Devices Act of 1962 (the "Federal Act") makes it
unlawful, in general, for a person to manufacture, deliver or receive gaming
machines, gaming machine devices and components

                                       23
<PAGE>
across interstate lines unless that person has first registered with the
Attorney General of the United States. We and those subsidiaries involved in
gaming activities are registered and must renew their registrations annually. In
addition, various record keeping and equipment identification requirements are
imposed by the Federal Act. Violation of the Federal Act may result in seizure
or forfeiture of equipment, as well as other penalties.

NEVADA REGULATORY MATTERS

    The manufacturing and distribution of gaming devices and the ownership and
operation of gaming machine routes in Nevada are subject to (i) the Nevada
Gaming Control Act and the regulations promulgated thereunder (collectively, the
"Nevada Act") and (ii) various local regulations. Generally, gaming activities
may not be conducted in Nevada unless licenses are obtained from the Nevada
Gaming Commission (the "Nevada Commission") and appropriate county and city
licensing agencies. The Nevada Commission, the Nevada State Gaming Control Board
(the "Nevada Board"), and the various county and city licensing agencies are
collectively referred to as the "Nevada Gaming Authorities."

    The laws, regulations, and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things, (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping, and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the prevention of
cheating and fraudulent practices; and (v) providing a source of state and local
revenues through taxation and licensing fees. Changes in such laws, regulations,
and procedures could have an adverse effect on Anchor.

    Anchor Gaming is registered by the Nevada Commission as a publicly traded
corporation ("Registered Corporation") and has been found suitable as the sole
stockholder of Anchor Coin and Powerhouse Technologies, Inc. Powerhouse
Technologies is registered by the Nevada Commission as an Intermediary Company
and has been found suitable as the sole stockholder of VLC of Nevada, Inc. and
VLC, Inc. (f/k/a Video Lottery Consultants, Inc.) Anchor Coin, a wholly-owned
subsidiary of Anchor Gaming, is licensed as a manufacturer, distributor, and
operator of a slot machine route by the Nevada Gaming Authorities. VLC of
Nevada, Inc., a wholly-owned subsidiary of Powerhouse Technologies, is licensed
as a manufacturer, distributor, and slot machine route operator in the State of
Nevada. VLC, Inc., a wholly-owned subsidiary of Powerhouse Technologies, is also
licensed by the Nevada Authorities as a manufacturer and distributor.

    For purposes of this section regarding Nevada Regulatory matters, Powerhouse
Technologies is referred to as the "Intermediary Company." Anchor Coin,
VLC, Inc. and VLC of Nevada, Inc. are collectively referred to as ("Gaming
Subsidiaries"). Gaming licenses held by the Gaming Subsidiaries require the
periodic payment of fees and taxes and are not transferable. As a Registered
Corporation, we are required to periodically submit detailed financial and
operating reports to the Nevada Commission and furnish any other information
that the Nevada Commission may require. No person may become a stockholder of,
or receive any percentage of profits from the Intermediary Company or the
licensed Gaming Subsidiaries without first obtaining licenses and approvals from
the Nevada Gaming Authorities. We, Intermediary Company and Gaming Subsidiaries
have obtained the various registrations, approvals, permits, findings of
suitability and licenses from the Nevada Gaming Authorities required to engage
in the manufacture and distribution of gaming devices and operation of slot
routes in Nevada.

    All gaming devices and cashless wagering systems that are manufactured, sold
or distributed for use or play in Nevada, or for distribution outside of Nevada,
must be manufactured by licensed

                                       24
<PAGE>
manufacturers and distributed or sold by licensed distributors. All gaming
devices manufactured for use or play in Nevada must be approved by the Nevada
Commission before distribution or exposure for play. The approval process for
gaming devices includes rigorous testing by the Nevada Board, a field trial and
a determination as to whether the gaming device meets strict technical standards
that are set forth in the regulations of the Nevada Commission. Associated
equipment must be administratively approved by the Chairman of the Nevada Board
before it is distributed for use in Nevada.

    License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which gaming operations are to be conducted. Depending
upon the particular fee or tax involved, these fees and taxes are payable
monthly, quarterly or annually and are based upon either: (i) a percentage of
the gross revenues received; or (ii) the number of gaming devices operated.
Annual fees are also payable to the State of Nevada for renewal of licenses as a
manufacturer, distributor and operator of a slot machine route.

    Legislation amending the Gaming Control Act was passed in 1999 that requires
any person, including an operator of an inter-casino linked system, who is
authorized to receive a share of the revenue from any slot machine or gaming
device operated on the premises of a licensee, to remit and be liable to the
licensee for that person's proportionate share of the license fees and tax paid
by the licensee. The legislation did not increase the tax, which for
unrestricted locations ranges from 3% to 6% of gross revenues (the difference
between amounts wagered by casino patrons and payments made to casino patrons).
The legislation will have some impact on our operations in those revenue
participation arrangements where the associated costs of fees and taxes have not
been shared. Historically, however, our gaming subsidiary, Anchor Coin, has paid
all taxes and fees under lease agreements with retail chains in its slot route
operations. In the operation of gaming machines under a number of participation
arrangements, taxes and fees are typically shared on the same basis as revenues.
Significant increases in the fixed fees or taxes currently levied per machine or
the tax currently levied on gross revenues could have a material adverse effect
on us.

    The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, us, Intermediary Company
or licensed Gaming Subsidiaries in order to determine whether such individual is
suitable or should be licensed as a business associate of a gaming licensee.
Officers, directors, and certain key employees of the licensed Gaming
Subsidiaries must file applications with the Nevada Gaming Authorities and are
required to be licensed by the Nevada Gaming Authorities. Officers, directors,
and key employees of us and Intermediary Company who are actively and directly
involved in the gaming activities of the licensed Gaming Subsidiaries may be
required to be licensed or found suitable by the Nevada Gaming Authorities. The
Nevada Gaming Authorities may deny an application for licensing or a finding of
suitability for any cause they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities, and, in addition to their authority to deny an application
for a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.

    If the Nevada Gaming Authorities were to find an officer, director, or key
employee unsuitable for licensing or to have a continuing relationship with us,
Intermediary Company or a licensed Gaming Subsidiary, the companies involved
would have to sever all relationships with such person. In addition, the Nevada
Commission may require us, Intermediary Company or licensed Gaming Subsidiaries
to terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.

    We and licensed Gaming Subsidiaries are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities, and

                                       25
<PAGE>
similar financing transactions by Anchor Coin must be reported to or approved
by, the Nevada Commission.

    If it were determined that a licensed Gaming Subsidiary violated the Nevada
Act, the gaming licenses it holds could be limited, conditioned, suspended, or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, we, Intermediary Company, licensed Gaming Subsidiaries and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Act at the discretion of the Nevada Commission.
Limitation, conditioning, or suspension of any gaming license or the appointment
of a supervisor could (and revocation of any gaming license would) materially
and adversely affect Anchor.

    Any beneficial holder of our voting securities, regardless of the number of
shares owned, may be required to file an application, be investigated, and have
his or her suitability as a beneficial holder of our voting securities
determined if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the state of
Nevada. The applicant must pay all costs of investigation incurred by the Nevada
Gaming Authorities in conducting any such investigation.

    The Nevada Act requires any person who acquires more than five percent of
our voting securities to report the acquisition to the Nevada Commission. The
Nevada Act requires that beneficial owners of more than 10% of our voting
securities apply to the Nevada Commission for a finding of suitability within
thirty days after the Chairman of the Nevada Board mails a written notice
requiring such filing. Under certain circumstances, an "institutional investor,"
as defined in the Nevada Act, that acquires more than 10% but not more than 15%
of our voting securities, may apply to the Nevada Commission for a waiver of
such finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor will not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of our board of directors,
any change in our corporate charter or bylaws, management, policies, or our
operations or any of our gaming affiliates, or any other action that the Nevada
Commission finds to be inconsistent with holding our voting securities for
investment purposes only. Activities that are not deemed to be inconsistent with
holding voting securities for investment purposes only include: (i) voting on
all matters voted on by stockholders; (ii) making financial and other inquiries
of management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies, or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities that must be found suitable is a corporation, partnership, or trust,
it must submit detailed business and financial information including a list of
its beneficial owners. The applicant is required to pay all costs of
investigation.

    Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board, may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identity
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock of a Registered
Corporation beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. We are subject to disciplinary
action if, after we receive notice that a person is unsuitable to be a
stockholder or to have any other relationship with us, Intermediary Company or
licensed Gaming Subsidiaries, we do any of the following: (i) pay that person
any dividend or interest upon our voting securities; (ii) allow that person to
exercise, directly or indirectly, any voting right conferred through securities
held by that person; (iii) pay remuneration in any form to that person for
services rendered or otherwise; or (iv) fail to pursue all lawful efforts to
require such unsuitable person to relinquish his or her voting securities for
cash at fair market value.

                                       26
<PAGE>
    The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated, and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.

    We are required to maintain a current stock ledger in Nevada that may be
examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. We are also required to render maximum assistance in determining the
identity of the beneficial owner. The Nevada Commission has the power to require
our stock certificates to bear a legend indicating that such securities are
subject to the Nevada Act.

    We may not make a public offering of our securities without the prior
approval of the Nevada Commission if the securities or the proceeds therefrom
are intended to be used to construct, acquire, or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation or approval by
the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities. Any representation to the
contrary is unlawful. The filing of an exchange offer registration statement or
shelf registration statement with respect to the notes constitutes a public
offering of our securities that requires the prior approval of the Nevada
Commission. On June 24, 1999, the Nevada Commission granted us prior approval to
make public offerings for a period of two years, subject to certain conditions
("Shelf Approval"). However, the Shelf Approval may be rescinded for good cause
without prior notice upon the issuance of an interlocutory stop order by the
Chairman of the Nevada Board and must be renewed at the end of the two year
approval period. The Shelf Approval also applies to any affiliated company
wholly-owned by us (an "Affiliate") which is a publicly traded corporation or
would thereby become a publicly traded corporation pursuant to a public
offering. The Shelf Approval also includes approval for our gaming subsidiaries
to guarantee any security issued by, or to hypothecate their assets to secure
the payment or performance of any obligations evidenced by a security issued by,
us or one of our affiliates in a public offering under the Shelf Approval. The
Shelf Approval also includes approval to place restrictions upon the transfer
of, and to enter into agreements not to encumber the equity securities of our
gaming subsidiaries (collectively, "Stock Restrictions"). The Shelf Approval
does not constitute a finding, recommendation or approval by the Nevada
Commission or the Nevada Board as to the accuracy or adequacy of the prospectus
or the investment merits of the securities offered. Any representation to the
contrary is unlawful. The exchange offer for our senior subordinated notes that
we anticipate issuing in connection with the Fulton family transaction will
constitute a public offering (as defined in the Nevada Act) and will be made
pursuant to the Shelf Approval. Any Stock Restrictions in respect of our senior
subordinated notes that we anticipate issuing in connection with the Fulton
family transaction to be issued in the exchange offer are covered by the Shelf
Approval. However, any Stock Restrictions in respect of our senior subordinated
notes that we anticipate issuing in connection with the Fulton family
transaction are not covered by the Shelf Approval and will require the prior
approval of the Nevada Commission in order to be effective. Although we will
file an application for such approval, there can be no assurance that such
approval will be granted.

    Changes in our control through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby such person obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a

                                       27
<PAGE>
Registered Corporation must satisfy the Nevada Board and the Nevada Commission
concerning a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors, and other persons having a material
relationship or involvement with the entity proposing to acquire control to be
investigated and licensed as part of the approval process of the transaction.

    The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities, and corporate defense tactics
affecting Nevada gaming licensees and Registered Corporations that are
affiliated with those operations may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates;
(ii) preserve the beneficial aspects of conducting business in the corporate
form; and (iii) promote a neutral environment for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before we can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by our board of
directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purpose of acquiring control of the
Registered Corporation.

    Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of the Licensees' participation in such foreign gaming. The
revolving fund is subject to increase or decrease in the discretion of the
Nevada Commission. Thereafter, Licensees are also required to comply with
certain reporting requirements imposed by the Nevada Act. Licensees are also
subject to disciplinary action by the Nevada Commission if they knowingly
violate any laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations, engage
in activities that are harmful to the state of Nevada or its ability to collect
gaming taxes and fees, or employ a person in the foreign operation who has been
denied a license or a finding of suitability in Nevada on the ground of personal
unsuitability.

NATIVE AMERICAN GAMING REGULATIONS

    We, through our various gaming subsidiaries, manufacture and supply gaming
equipment to several Native American tribes and are engaged in the development
of a Class III gaming and entertainment facility on the reservation land of the
Pala Band of Mission Indians. Gaming on Native American lands is extensively
regulated under federal law, tribal-state compacts and tribal law. The Indian
Gaming Regulatory Act of 1988 ("IGRA") provides the framework for federal and
state control over all gaming on Native American lands. IGRA regulates the
conduct of gaming on Native American lands and the terms and conditions of
contracts with third parties for management of gaming operations. IGRA
established the National Indian Gaming Commission ("NIGC") to operate as an
independent agency, within the U. S. Department of the Interior, to exercise
primary federal regulatory responsibility over certain tribal gaming activities.
The NIGC has authority to issue regulations governing tribal gaming activities,
approve tribal ordinances for regulating Class II and Class III gaming, approve
management agreements for gaming facilities, conduct investigations and monitor
tribal gaming generally. The IGRA is subject to interpretation by the NIGC and
may be subject to judicial and legislative clarification or amendment.

    The IGRA classifies games that may be conducted on Native American lands
into three categories. "Class I Gaming" includes social games solely for prizes
of minimal value, or traditional forms of

                                       28
<PAGE>
Native American Gaming engaged in by individuals as part of, or in connection
with, tribal ceremonies or celebrations. "Class II Gaming" includes bingo,
pulltabs, lotto, punch boards, tip jars, instant bingo, and other games similar
to bingo, if those games are played at the same location as bingo is played.
"Class III Gaming" includes all other commercial forms of gaming, such as table
games, slots, video casino games, and other commercial gaming (e.g., sports
betting and pari-mutuel wagering).

    Class I Gaming on Native American lands is within the exclusive jurisdiction
of the Native American tribes and is not subject to the provisions of IGRA.
Class II Gaming is permitted on Native American lands if (a) the state in which
the Native American lands lie permits such gaming for any purpose by any person,
organization or entity; (b) the gaming is not otherwise specifically prohibited
on Native American lands by federal law; (c) the gaming is conducted in
accordance with a tribal ordinance or resolution which has been approved by the
NIGC; (d) a Native American tribe has sole proprietary interest and
responsibility for the conduct of gaming; (e) the primary management officials
and key employees are tribally licensed; and (f) several other requirements are
met. Class III Gaming is permitted on Native American lands if the conditions
applicable to Class II Gaming are met and, in addition, the gaming is conducted
in conformance with the terms of a written agreement between a tribal government
and the government of the state within whose boundaries the tribe's lands lie (a
"tribal-state compact"). The IGRA prohibits all forms of Class III Gaming unless
the tribal-state compact specifically authorizes the types of Class III Gaming
the tribe may offer. Such tribal-state compacts also provide, among other
things, the manner and extent to which each state will conduct background
investigations and certify the suitability of the manager, its officers,
directors, and key employees to conduct gaming on tribal lands.

    The IGRA requires NIGC approval of management contracts for Class II and
Class III Gaming, as well as the review of all agreements collateral to the
management contracts. The Management Contract relating to our agreement with
Pala has been approved by the NIGC. The NIGC will not approve a management
contract if a director or a 10% stockholder of the management company: (i) is an
elected member of the Indian Tribal Government which owns the facility
purchasing or leasing the games; (ii) has been or is convicted of a felony
gaming offense; (iii) has knowingly and willfully provided materially false
information to the NIGC or the tribes; (iv) has refused to respond to questions
from the NIGC; or (v) is a person whose prior history, reputation and
associations pose a threat to the public interest or to effective gaming
regulation and control, or create or enhance the chance of unsuitable activities
in gaming or the business and financial arrangements incidental thereto. In
addition, the NIGC will not approve a management contract if the management
company or any of its agents have attempted to unduly influence any decision or
process of tribal government relating to gaming, if the management company has
materially breached the terms of the management contract or the tribe's gaming
ordinance, or if a trustee, exercising due diligence, would not approve such
management contract. A management contract will be approved only after the NIGC
determines that the contract provides, among other things, for: (i) adequate
accounting procedures and verifiable financial reports, which must be furnished
to the tribe; (ii) tribal access to the daily operations to the daily operations
of the gaming enterprise, including the right to verify daily gross revenues and
the income; (iii) minimum guaranteed payments to the tribe, which must have
priority over the retirement of development and construction costs; (iv) a
ceiling on the repayment of such development and construction costs; and (v) a
contract term not exceeding five years and a management fee not exceeding 30% of
net revenues, as determined by the NIGC; provided that the NIGC may approve up
to a seven-year term and a management fee not to exceed 40% of net revenues if
the NIGC is satisfied that the capital investment required, and the income
projections for the particular gaming activity require the larger fee and longer
term period. The agreement between us and Pala has been approved for a
seven-year term. There is no periodic or ongoing review of approved contracts by
the NIGC. The only post-approval action which could result in possible
modification or cancellation of a contract would be as the result of an
enforcement action taken by the NIGC based on a violation of law or an issue
affecting suitability.

                                       29
<PAGE>
    Title 25, Section 81 of the United States Code states that "no agreement
shall be made by any person with any tribe of Indians, or individual Indians not
citizens of the United States, for the payment or delivery of any money or other
thing of value . . . in consideration of services for said Indians relative to
their lands . . . unless such contract or agreement be executed and approved" by
the Secretary or his or her designee. An agreement or contract for services
relative to Indian lands which fails to conform with the requirements of
Section 81 is void and unenforceable. All money or other thing of value paid to
any person by any Indian or tribe for or on his or their behalf, or on an
account of such services, in excess of any amount approved by the Secretary or
his or her authorized representative will be subject to forfeiture. We believe
that we have complied with the requirements of Section 81 with respect to our
Management Contract for Pala and intend to comply with Section 81 with respect
to any other contract to manage casinos located on Indian land in the United
States.

    Indian tribes are sovereign in their own governmental systems, which have
primary regulatory authority over gaming on land within the tribes'
jurisdiction. Thus, a contract with an Indian tribe may not be an enforceable
legal obligation under the laws of any state or of the United States.
Additionally, persons engaged in gaming activities with Indian tribes, as we
are, are subject to the provisions of tribal ordinances and regulations on
gaming. These ordinances are subject to review by the NIGC under certain
standards established by IGRA. The NIGC may determine that some or all of the
ordinances require amendment, and that additional requirements, including
additional licensing requirements, may be imposed on us. We have received no
such notification regarding Pala.

OTHER JURISDICTIONS AND GOVERNMENT APPROVALS

    Most of the other jurisdictions in which we and our subsidiaries conduct
business or intend to conduct business in the future require various licenses,
permits, findings of suitability or other approvals (collectively "Government
Approvals") in connection with the manufacture and/or distribution of gaming
devices or as a supplier of system, equipment, and services to the lottery and
racing industries. These jurisdictions exert substantial regulatory controls
over us typically involving restrictions similar in most respects to those of
Nevada. Obtaining required approvals and licenses can be time consuming and
costly and there can be no assurance of success.

    Some jurisdictions allow us to operate under a temporary Government Approval
or on a transactional basis during a pending comprehensive background
investigation. While we have received Government Approvals in all of the
jurisdictions in which our applications have been acted upon, there can be no
assurance that required Government approvals will be given or renewed in the
future. In addition, there can be no assurance that regulations adopted, taxes
imposed, or legislation limiting gaming by other states will permit profitable
operations by us.

    The filing of an exchange offer registration statement or shelf registration
statement with respect to our senior subordinated notes that we anticipate
issuing in connection with the Fulton family transaction constitutes a public
offering of our securities that requires the prior approval of the Mississippi
Gaming Commission. In March 2000, the Mississippi Gaming Commission granted us a
shelf approval to make public offerings of securities for a period of two years,
subject to some conditions. This shelf approval may be rescinded for good cause
without prior notice upon the issuance of any interlocutory stop order by the
Executive Director of the Mississippi Gaming Commission. Our shelf approval in
Mississippi expires on March 16, 2002. If this shelf approval is rescinded, then
the exchange offer or shelf registration will require the separate prior
approval of the Mississippi Gaming Commission. We can give you no assurance
that, if a separate prior approval is required, such approval will be granted in
a timely fashion, or at all.

                                       30
<PAGE>
ITEM 2.  PROPERTIES

PROPERTIES

    Our principal properties consist of the following:

    AWI FACILITY.  Our Clifton, New Jersey facility is a 140,000 square foot
leased facility used in the gaming systems segment.

    BOZEMAN, MONTANA MANUFACTURING FACILITY.  Our Bozeman, Montana facility
houses our on-line lottery and pari-mutuel terminal manufacturing operations, as
well as administrative and engineering functions. We own this facility, which
includes nearly 80,000 square feet of manufacturing and office space. In
addition, we lease 73,500 square feet of warehouse, manufacturing and office
space in Bozeman and the surrounding area.

    COLORADO CENTRAL STATION CASINO.  The Colorado Central Station Casino, which
is owned by us and used in the gaming operations segment, is situated on
approximately 1.8 acres of land on the south end of Black Hawk, near Main Street
and Colorado State Highway 119.

    COLORADO GRANDE CASINO.  The Colorado Grande Casino, which is a leased
facility used in the gaming operations segment, is located 55 miles from
Colorado Springs and 75 miles from Pueblo, Colorado.

    CORPORATE HEADQUARTERS.  Our Las Vegas headquarters facility is located in
Las Vegas, which is leased, includes 34,000 square feet of office space and
30,000 square feet of sub-assembly and warehouse space. We use the facility for
executive offices, as well as for the Nevada route operations, proprietary games
business and certain administrative and engineering functions.

    SUNLAND PARK RACETRACK & CASINO.  Sunland Park Racetrack & Casino is located
on 152 acres of improved land in New Mexico, adjacent to El Paso, Texas and near
Juarez, Mexico. Sunland Park is managed under our gaming operations segment and
is currently being held for disposition in connection with the racetrack asset
sale transaction.

    We have additional leases of various small facilities throughout the
jurisdictions in which we operate for sales and customer service functions. We
believe that the properties described above will be adequate for our business
needs for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

LITIGATION

    On February 17, 2000, we filed a complaint in U.S. District Court, District
of Nevada against former officers of Powerhouse Technologies, Inc. and other
parties. The complaint questions certain specified accounting practices that
were used prior to the acquisition.

    In February 1999, GTECH Holdings Corporation filed a complaint for
declaratory judgment, injunction, and violation of the Public Records Law
against the State of Florida, Department of Lottery and AWI, a subsidiary of
ours, in the Circuit Court, Second Judicial Circuit, in Leon County, Florida.
The complaint requests the Circuit Court to declare the contract between AWI and
the Florida Lottery void in the event the First District Court of Appeal of
Florida upholds the Florida Lottery's decision to award the on-line lottery
services contract to AWI. Subsequent to the execution of the renegotiated
contract between AWI and the Florida Lottery in March 1999, GTECH Holdings
Corporation amended the complaint.

    On January 28, 2000 the Circuit Court of Leon County granted GTECH Holdings
Corporation's cross motion for summary judgment on Count II of the complaint
filed by GTECH in March 1999.

                                       31
<PAGE>
Count II of GTECH's complaint challenges the validity of the amended contract
entered into on March 9, 1999 between the State of Florida, the Department of
Lottery, and AWI, on the grounds that, among other things, the amended contract
is materially different from the proposal which AWI submitted. The ruling
declares null and void the amended contract between the Florida Lottery and AWI
effective February 2, 2000. The Florida Lottery filed an appeal on February 2,
2000 and as a result, an automatic stay of the prior order took place. The
Florida Lottery and AWI filed an appeal on March 27, 2000. The appeal is
currently pending. AWI continues to provide its on-line gaming services and
products to the Florida Lottery under the terms of the amended contract. We will
vigorously defend and protect AWI's rights under this lottery agreement. There
can be no assurance, however, that our AWI subsidiary will be successful in its
efforts or that the ultimate results of this litigation will be favorable to us.
As of the date of this annual report on Form 10-K, we have invested
approximately $35 million in equipment and systems for the Florida Lottery. If
we are unsuccessful in this litigation, this capital expenditure may be
jeopardized.

    In February 1999, we and the Anchor-IGT joint venture filed an action in U.
S. district court, District of Nevada, against Acres Gaming, Inc. ("Acres"). The
complaint alleges infringement of our secondary event patents as well as various
contract breaches by Acres. In April 1999, Acres responded to our lawsuit by
filing an answer and counterclaim against us and the Anchor-IGT joint venture.
Additionally, in April 1999, Acres filed an action in Oregon state circuit court
against us and the Anchor-IGT joint venture alleging wrongful use of Acres
intellectual property and breach of fiduciary duties. We believe Acres'
counterclaim and state circuit court lawsuit are without merit and intends to
vigorously contest the claims. The Oregon state circuit court action has been
moved to the U.S. District Court, District of Oregon, and has been stayed
pending the outcome of the Nevada actions.

    Several securities class action lawsuits have been filed against us and
certain of our current and former officers and directors. The lawsuits were
filed in various jurisdictions following our announcement in early
December 1997 that our results for the December quarter might not meet analysts'
expectations. The lawsuits have been brought on behalf of a purported class of
purchasers of our stock and allege violations of state and/or federal securities
laws arising out of alleged misstatements and omissions to state material facts
over various periods of time covered by the suits. The lawsuits were
consolidated in Nevada, both in federal and state court. The consolidated
federal action, captioned In re Anchor Gaming Securities Litigation, Civil
Action No. CV-S-97-01751-PMP (RJJ), was dismissed on January 6, 1999 with the
court entering a judgment in our favor. The consolidated state action, captioned
Ryan, et al. v. Anchor Gaming, et al., Civil No. 98-A383456-C, has been stayed
by order of the court. Certain other actions have been transferred and/or
dismissed. We believe that the claims are without merit, and we intend to
vigorously contest the lawsuits. We cannot presently state the nature of further
proceedings, if any, in the state or federal actions.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

    None

                                       32
<PAGE>
                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Our common stock is listed on the Nasdaq National
Market-Registered Trademark- and trades under the symbol "SLOT." The following
table sets forth the high and low closing prices per share of our common stock
on the Nasdaq National Market for the described periods. We have not declared
any dividends from the time of the IPO until the filing date of the 10-K.

<TABLE>
<CAPTION>
                                                                    PRICE RANGE
                                                              -----------------------
FISCAL 2000                                                     HIGH           LOW
-----------                                                   --------       --------
<S>                                                           <C>            <C>
  First quarter.............................................    $59 1/2        $44 7/8
  Second quarter............................................    $63 7/16       $41 25/32
  Third quarter.............................................    $47 5/16       $36
  Fourth quarter............................................    $48 3/8        $35
</TABLE>

<TABLE>
<CAPTION>
                                                                    PRICE RANGE
                                                              -----------------------
FISCAL 1999                                                     HIGH           LOW
-----------                                                   --------       --------
<S>                                                           <C>            <C>
  First quarter.............................................    $74 1/4        $48
  Second quarter............................................    $59 7/8        $44 1/8
  Third quarter.............................................    $60 1/4        $33 1/8
  Fourth quarter............................................    $51 7/16       $38 13/16
</TABLE>

    As of September 20, 2000, there were approximately 4,000 beneficial holders
of our common stock.

    The board of directors intends to retain any of our earnings to support
operations and to finance expansion and does not intend to pay cash dividends on
our common stock in the foreseeable future. We are a party to a revolving credit
facility with a bank that restricts the payment of dividends. We also intend, as
of the date of this report, to issue $250 million principal amount of senior
subordinated notes that will restrict our ability to pay dividends. Subject to
contractual restrictions, any future determinations as to the payment of
dividends will be at the discretion of our board of directors, and will depend
on our financial condition, results of operations, capital requirements, and
such other factors as the board of directors deems relevant.

                                       33
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

    You should read the following financial data in conjunction with, the
section "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements and related notes
included elsewhere or incorporated by reference in this annual report on
Form 10-K. The closing of the Powerhouse acquisition occurred virtually
concurrently with the end of our fiscal year ended June 30, 1999 and, as a
result, our financial statements for the years ended June 30, 1999 and earlier
do not include any Powerhouse results of operations in the accompanying table
with the exception of the acquired in-process research and development charge
recorded for the year ended June 30, 1999. The income statement and balance
sheet data for each of the five years ended June 30, 2000 were derived from our
audited consolidated financial statements.

<TABLE>
<CAPTION>
                                                                 FISCAL YEAR ENDED JUNE 30,
                                                    -----------------------------------------------------
                                                      1996       1997       1998       1999       2000
                                                    --------   --------   --------   --------   ---------
                                                                       (IN THOUSANDS)
<S>                                                 <C>        <C>        <C>        <C>        <C>
  INCOME STATEMENT DATA:
  Revenues:
    Gaming machines...............................  $ 21,457   $ 49,716   $113,677   $123,698   $ 154,680
    Gaming operations.............................    95,009    104,033    118,255    125,233     189,938
    Gaming systems................................        --         --         --         --     180,585
                                                    --------   --------   --------   --------   ---------
      Total revenues..............................   116,466    153,749    231,932    248,931     525,203
                                                    --------   --------   --------   --------   ---------
  Costs of revenues:
    Gaming machines...............................    12,113     11,397     25,054     34,401      35,892
    Gaming operations.............................    45,288     54,639     62,721     70,419     124,529
    Gaming systems................................        --         --         --         --     105,083
                                                    --------   --------   --------   --------   ---------
      Total costs of revenues.....................    57,401     66,036     87,775    104,820     265,504
                                                    --------   --------   --------   --------   ---------
  Gross margin....................................    59,065     87,713    144,157    144,111     259,699
  Other costs:
    Selling, general and administrative...........    21,074     21,581     23,343     24,243      69,343
    Research and development......................        --      2,023      1,922      1,173      16,528
    Acquired in-process research and
      development(1)..............................        --         --         --     17,500          --
    Project cost write-downs......................        --      2,117         --         --          --
    Impairment and restructuring charges(2).......        --         --         --         --       2,641
    Depreciation and amortization.................     4,110      8,798     12,661     17,380      50,951
                                                    --------   --------   --------   --------   ---------
      Total other costs...........................    25,184     34,519     37,926     60,296     139,463
                                                    --------   --------   --------   --------   ---------
  Income from operations..........................    33,881     53,194    106,231     83,815     120,236
  Interest income.................................     2,028      3,793      2,989      3,850       1,998
  Interest expense................................      (429)      (288)      (226)      (113)    (16,475)
  Other income (expense)(3).......................        43        (22)       446       (623)      1,611
                                                    --------   --------   --------   --------   ---------
  Income before provision for income taxes........    35,523     56,677    109,440     86,929     107,370
  Provision for income taxes......................    13,188     21,001     41,040     39,422      42,411
                                                    --------   --------   --------   --------   ---------
  Net income......................................  $ 22,335   $ 35,676   $ 68,400   $ 47,507   $  64,959
  Weighted average shares outstanding.............    11,820     13,321     12,751     12,164      11,833
  Basic earnings per share........................  $   1.89   $   2.68   $   5.36   $   3.91   $    5.49
  Weighted average common and common equivalent
    shares outstanding............................    12,038     13,542     13,161     12,428      12,011
  Diluted earnings per share......................  $   1.86   $   2.63   $   5.20   $   3.82   $    5.41

OTHER DATA:
  Capital expenditures............................  $ 28,190   $ 38,597   $ 24,421   $ 13,957   $  82,586
                                                    ========   ========   ========   ========   =========
</TABLE>

                                       34
<PAGE>

<TABLE>
<CAPTION>
                                                                        AS OF JUNE 30,
                                                     ----------------------------------------------------
                                                       1996       1997       1998       1999       2000
                                                     --------   --------   --------   --------   --------
                                                                        (IN THOUSANDS)
<S>                                                  <C>        <C>        <C>        <C>        <C>
  BALANCE SHEET DATA:
  Cash and cash equivalents........................  $ 78,113   $ 66,427   $ 73,187   $ 32,835   $ 25,883
  Total assets.....................................   162,312    188,876    245,134    507,169    548,719
  Total debt.......................................     3,750      2,800         --    216,856    224,294
  Stockholders' equity.............................   146,307    171,331    210,482    220,353    270,520
</TABLE>

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

(1) We recorded a charge of $17.5 million for acquired in-process research and
    development in fiscal 1999 related to the value of research and development
    projects that were in various stages of completion at the date of the
    Powerhouse acquisition.

(2) We incurred impairment and restructuring charges of $2.6 million in fiscal
    2000 in connection with the restructuring of our VLC subsidiary.

(3) Other income (expense) consists of minority interest in earnings of
    consolidated subsidiary, and other income (expense).

                                       35
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    The following discussion and analysis should be read in conjunction with the
section "Selected Consolidated Financial Data" and the consolidated financial
statements and related notes included elsewhere in this annual report on
Form 10-K.

    The information contained below may be subject to risk factors. We urge you
to review carefully the section "Risk Factors" in this annual report Form 10-K
for a more complete discussion of the risks associated with an investment in our
securities. See "Special Note on Forward-Looking Statements and Risk Factors"
above under Item 1.

OVERVIEW

    We are a diversified, global gaming company operating principally through
three business segments:

    - Gaming Machines, which includes the design, development and distribution
      of proprietary gaming machines.

    - Gaming Operations, which includes the operations of two casinos in
      Colorado, a racetrack and casino in New Mexico, slot machine routes in
      Nevada and Montana, and a 50% interest in the development contract and
      seven-year management contract to develop and manage a California Native
      American casino that we expect to open in March 2001.

    - Gaming Systems, which includes the design, manufacture and sale of video
      gaming machines and central control systems and the design, manufacture,
      sale, installation and operation of on-line lottery systems and
      computerized pari-mutuel wagering systems.

    On June 29, 1999, we completed our acquisition of Powerhouse
Technologies, Inc. for approximately $220 million plus Powerhouse net debt of
$68 million. We funded the Powerhouse acquisition through a combination of cash
and borrowing under our $300 million senior credit facility. We accounted for
the Powerhouse acquisition using the purchase method of accounting. Because the
closing of the Powerhouse acquisition occurred virtually concurrently with the
end of our fiscal year, our financial statements for the year ended June 30,
1999 do not include any results of operations or cash flows for Powerhouse,
except for a non-recurring charge for acquired in-process research and
development that was recorded in fiscal 1999.

    In September 1999, we announced the signing of development and management
agreements with the Pala Band of Mission Indians for the design, construction,
financing, operation and management of PALA, a casino and entertainment facility
on the federally recognized Pala reservation in northern San Diego County,
California. The management agreement is for a period of seven years commencing
on the opening date of the casino facility, which we expect to be in the spring
of 2001. The Pala tribe secured a $100 million credit facility through a loan
agreement and ancillary financial documents finalized on June 15, 2000. As a
condition to the financing, we agreed to guarantee the full payment and
performance of the obligations of the Pala tribe under the loan agreement.

    In the fourth quarter of fiscal 2000, we restructured the operations of our
VLC subsidiary. As a result, we now manage and account for the VLC subsidiary as
two separate business units, VLC Government and VLC Casino. VLC Government
focuses on sales of central systems and video lottery gaming machines to
governmental jurisdictions under our gaming systems segment. VLC Casino, which
was formerly based in Bozeman, Montana, and is now based in Las Vegas, focuses
on the development and sales of gaming machines to casinos under our gaming
machines segment. In conjunction with this

                                       36
<PAGE>
restructuring, we have changed our financial reporting segments from four
segments to the three segments outlined above.

    On September 25, 2000, we announced the execution of a definitive agreement
with our Chairman, Stanley Fulton, and members of his family and their
affiliates to acquire approximately 4.6 million shares of our common stock for a
purchase price of $66.60 per share.

    The Fulton family members and their affiliates will retain ownership of
approximately 539,600 shares after the transaction. Stanley Fulton, his son,
Michael Fulton, and his daughter, Elizabeth Jones have agreed to resign their
positions on our board of directors upon completion of the transaction.

    The purchase consideration for the shares comprises $240.1 million in cash
and $66.0 million principal amount of promissory notes that Stanley Fulton will
receive for a portion of the shares he is selling.

    In conjunction with the stock purchase transaction with the Fulton family,
we have entered into an agreement with Stanley Fulton to sell him substantially
all of the assets relating to our Sunland Park Racetrack & Casino, located in
New Mexico, and our 25% interest in a Massachusetts horse racing facility.
Mr. Fulton has agreed to pay $66.0 million for these assets by canceling our
obligations under the promissory notes. We expect to complete the sale of these
racetrack assets to Mr. Fulton during the first quarter of fiscal 2001, subject
to regulatory approvals and the satisfaction of other conditions. After the sale
of these assets, we will retain the right to manage gaming operations at the
Massachusetts racetrack if casino gaming is legalized in Massachusetts. The
discussion of our gaming operations segment in this section includes Sunland
Park Racetrack & Casino.

    The demand for our gaming machines currently exceeds our production
capacity. The Anchor-IGT joint venture currently has a production backlog of
approximately 1,200 video Wheel of Fortune-TM- games and approximately 1,200
conversion games. The Anchor-IGT joint venture's newest offering, the I Dream of
Jeannie-TM- gaming machine, currently have committed orders for approximately
900 machines.

    The following tables and discussion present pro forma figures for 1999 as if
the Powerhouse acquisition occurred on July 1, 1998 and exclude non-recurring
items such as charges for acquired in-process research and development and the
cumulative effect of a change in accounting principle. Prior to the Powerhouse
acquisition in June 1999, we had no gaming systems business.

<TABLE>
<CAPTION>
                                              ACTUAL FISCAL YEAR 1998        ACTUAL FISCAL YEAR 1999
                                            ----------------------------   ----------------------------
                                            REVENUES   COSTS OF REVENUES   REVENUES   COSTS OF REVENUES
                                            --------   -----------------   --------   -----------------
                                                                  (IN THOUSANDS)
<S>                                         <C>        <C>                 <C>        <C>
  Gaming machines.........................  $113,677        $25,054        $123,698        $ 34,401
  Gaming operations.......................   118,255         62,721         125,233          70,419
  Gaming systems..........................        --             --              --              --
                                            --------        -------        --------        --------
    Total.................................  $231,932        $87,775        $248,931        $104,820
                                            ========        =======        ========        ========
</TABLE>

<TABLE>
<CAPTION>
                                             PRO FORMA FISCAL YEAR 1999       ACTUAL FISCAL YEAR 2000
                                            -----------------------------   ----------------------------
                                            REVENUES    COSTS OF REVENUES   REVENUES   COSTS OF REVENUES
                                            ---------   -----------------   --------   -----------------
                                                                   (IN THOUSANDS)
<S>                                         <C>         <C>                 <C>        <C>
  Gaming machines.........................  $150,729        $ 53,318        $154,680        $ 35,892
  Gaming operations.......................   159,632          96,145         189,938         124,529
  Gaming systems..........................   155,564          90,972         180,585         105,083
                                            --------        --------        --------        --------
    Total.................................  $465,925        $240,435        $525,203        $265,504
                                            ========        ========        ========        ========
</TABLE>

                                       37
<PAGE>

<TABLE>
<CAPTION>
                                                               FISCAL YEAR ENDED JUNE 30,
                                                --------------------------------------------------------
                                                ACTUAL 1998   ACTUAL 1999   PRO FORMA 1999   ACTUAL 2000
                                                -----------   -----------   --------------   -----------
<S>                                             <C>           <C>           <C>              <C>
SOURCES OF REVENUES:
  Gaming machines.............................       49%           50%             32%            30%
  Gaming operations...........................       51            50              34             36
  Gaming systems..............................       --            --              34             34
                                                    ---           ---             ---            ---
    Total.....................................      100%          100%            100%           100%
                                                    ===           ===             ===            ===
GROSS MARGIN:
  Gaming machines.............................       78%           72%             65%            77%
  Gaming operations...........................       47            44              40             34
  Gaming systems..............................       --            --              42             42
Total consolidated gross margin...............       62%           58%             48%            49%
</TABLE>

FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999

GAMING MACHINES

    Gaming machines accounted for 50% and 30% of total revenues during the years
ended June 30, 1999 and 2000, respectively. On a pro forma basis this segment
accounted for 32% of total revenues during the year ended June 30, 1999.

    Revenues from gaming machines were $154.7 million for the year ended
June 30, 2000, an increase of $31.0 million or 25% from $123.7 million for the
year ended June 30, 1999. The increase in segment revenues can be primarily
attributed to the increased equity earnings in the Anchor-IGT joint venture,
which, for accounting purposes, are recorded net of expense. The increase is
also due to the addition of VLC Casino revenues of approximately $15.9 million
related to the Powerhouse acquisition and was offset by net decreases in
revenues from our non-joint venture, or stand-alone, proprietary games. Revenues
from the Anchor-IGT joint venture increased $21.9 million or 29% from
$76.5 million in fiscal 1999 to $98.4 million in fiscal 2000. At June 30, 2000,
there were approximately 11,300 games, primarily Wheel of Fortune-TM-, operating
within the Anchor-IGT joint venture, compared to approximately 6,400 games at
June 30, 1999. Revenues from stand-alone proprietary games decreased
$6.8 million or 14% from $47.6 million in fiscal 1999 to $40.8 million in fiscal
2000. During the year ended June 30, 2000, our installed base of stand-alone
proprietary games, without regard to our Anchor-IGT joint venture games,
increased 7% from the year ended June 30, 1999. However, a decrease in the
average net win per unit for the installed base of stand-alone proprietary games
during the same period resulted in an overall 14% decline in stand-alone
revenues.

    On a pro forma basis, revenues from gaming machines for the year ended
June 30, 2000, increased $4.0 million or 3% from the pro forma revenues of
$150.7 million for the year ended June 30, 1999. This increase is primarily a
result of the increase in revenues from the Anchor-IGT joint venture, as
discussed above, offset by decreased machine sales at VLC Casino and stand-alone
proprietary game revenues. Revenues from VLC Casino decreased $11.1 million or
42% from $27.0 million in fiscal 1999 to $15.9 million in fiscal 2000. The
decrease in VLC Casino machine sales results from declines in machine sales to
governmental jurisdictions, as we lessen our focus on sales to the casino gaming
market in favor of recurring revenue arrangements.

    Costs of gaming machines were $35.9 million for fiscal year 2000, an
increase of $1.5 million or 4% from $34.4 million for the historical fiscal year
1999. The addition of VLC Casino in the Powerhouse acquisition accounted for an
increase in historical costs by contributing approximately $10.6 million to
costs of gaming machines during fiscal year 2000. This increase was offset by a
lower level of write-downs related to gaming machines within our stand-alone
proprietary games operations,

                                       38
<PAGE>
and to a lesser extent, by decreases in royalty expenses as a result of
decreased revenues from our stand-alone games and an overall decrease in the
royalty expense rate.

    Gaming machines segment gross margin increased to 77% during fiscal year
2000 from 72% during fiscal year 1999. Within the segment, in fiscal 2000, gross
margins were 97% for the Anchor-IGT joint venture (due to its accounting
treatment under the equity method), 46% for the stand-alone proprietary games
division and 33% for VLC Casino. In fiscal 1999 gross margins were 93% for the
Anchor-IGT joint venture, 39% for stand-alone proprietary games and 30% for VLC
Casino.

    On a pro forma basis, gaming machines segment costs decreased $17.4 million
or 33% from $53.3 million in 1999 due to the decreased historical proprietary
games costs and due to decreases in costs related to decreased revenues from VLC
Casino. Gaming machines segment gross margin increased to 77% during the year
ended June 30, 2000 from 65% during the pro forma year ended June 30, 1999. This
is due primarily to the increase in equity earnings and the decrease in machine
sales from VLC Casino, which has achieved lower margins historically when
compared to the margins achieved in the proprietary games operations, including
the Anchor-IGT joint venture.

    Changes in interest rates could have an effect on the earnings of the
Anchor-IGT joint venture. Since jackpot expense is a function of the present
value of future jackpot payments, future changes in the interest rate
environment will affect the profitability of the Anchor-IGT joint venture.
Specifically, decreases in interest rates will increase the then current
period's jackpot expense of the Anchor-IGT joint venture while future increases
in interest rates will decrease the then current period's jackpot expense of the
Anchor-IGT joint venture.

GAMING OPERATIONS

    Gaming operations accounted for 50% and 36% of total revenues during the
years ended June 30, 1999 and 2000, respectively. On a pro forma basis, this
segment accounted for 34% of total revenues during the year ended June 30, 1999.

    Total revenues from the gaming operations segment were $189.9 million for
fiscal year 2000, an increase of $64.7 million or 52% from $125.2 million for
historical year 1999. The additions of slot machine operations at Sunland Park
Racetrack & Casino and the Montana route operation, which occurred due to the
Powerhouse acquisition, accounted for the increase in historical revenues by
contributing approximately $66.0 million to revenues in fiscal year 2000. The
commencement of casino operations in February 1999 at Sunland Park contributed
$28.3 million of revenues for this period. In addition, our Nevada route
operation increased by approximately $3 million. This increase was offset by
decreased revenues at our Colorado casinos of approximately $3 million as a
result of the increased competition in these markets.

    On a pro forma basis, revenues from gaming operations for the year ended
June 30, 2000 increased $30 million or 19% from pro forma revenues for the year
ended June 30, 1999. This increase is primarily due to the commencement of slot
machine operations at Sunland Park, as discussed above, which contributed
increased revenues of $28.3 million.

    Costs of gaming operations revenue were $124.5 million for fiscal year 2000,
an increase of $54.1 million or 77% from $70.4 million in fiscal year 1999.
Gaming operations gross margin decreased to 34% during fiscal year 2000 from 44%
during fiscal year 1999. The addition of Sunland Park and the Montana route
operation contributed approximately $46.6 million to costs of gaming operations
during the fiscal year 2000. The remaining increase is due primarily to
increased costs of approximately $4.3 million at our Colorado casinos resulting
from increased competition, and to a lesser extent, increased costs of
approximately $1.8 million in the Nevada route operation as a result of
increased revenues.

                                       39
<PAGE>
    On a pro forma basis, costs of gaming operations increased $28.4 million or
30% during the year ended June 30, 2000 versus pro forma costs of $96.1 million
for the year ended June 30, 1999. This increase is due primarily to the
commencement of casino operations at Sunland Park in February 1999. Gaming
operations gross margin decreased to 34% during the year ended June 30, 2000
from 40% during the pro forma year ended June 30, 1999. This is due primarily to
the commencement of casino operations at the Sunland Park and the growth in
Nevada route operation costs, both of which have lower margins than the Colorado
casino operations that historically accounted for a greater percentage of gaming
operations revenue. The decrease in gross margin is also the result of decreased
margins at our Colorado casinos, which are the result of increased competition.

GAMING SYSTEMS

    Gaming systems accounted for 34% of total revenues during the year ended
June 30, 2000. We had no gaming systems business prior to the Powerhouse
acquisition. On a pro forma basis this segment accounted for 34% of total
revenues during the year ended June 30, 1999.

    Revenues from gaming systems were $180.6 million for the year ended
June 30, 2000, an increase of $25.0 million or 16% from pro forma revenues of
$155.6 million for the year ended June 30, 1999. The increase over 1999 pro
forma revenues is primarily due to increases in revenues from one-time equipment
sales of approximately $24.6 million in China, Switzerland and the West Indies
during the year ended June 30, 2000, as well as domestic lottery revenue
increases. During the year ended June 30, 2000, we started and continued work on
our Switzerland contract implementation, and completed the installation of a
lottery system in China and the West Indies. Domestically, increased revenues
resulted from the commencement of operations under our on-line lottery contract
with the Hoosier Lottery in Indiana and strong results in Florida. The resulting
increase in revenue was partially offset by the loss of the Montana lottery
contract, which was terminated during the fourth quarter of fiscal 1999.

    Costs of gaming systems were $105.1 million during the year ended June 30,
2000, an increase of $14 million or 16% on a pro forma basis from the pro forma
costs for the year ended June 30, 1999, due primarily to increased revenues. The
gross margin remained constant at 42% in fiscal 2000 and the pro forma
1999 year.

OTHER COSTS

    Selling, general and administrative ("SG&A") expenses were $69.3 million for
fiscal year 2000, an increase of $45.1 million or 186% from $24.2 million for
fiscal year 1999. SG&A expenses as a percentage of total revenue increased to
13% during fiscal year 2000 compared to 10% during fiscal year 1999.

    During the year ended June 30, 2000, businesses acquired in the Powerhouse
acquisition constituted $42.5 million, or 61%, of SG&A expenses. The remaining
increase was due primarily to additional payroll and promotional costs at our
Colorado Central Station Casino. On a pro forma basis, SG&A expenses for the
year ended June 30, 2000 increased $4.7 million or 7% over the pro forma year
ended June 30, 1999, due primarily to the historical increase noted above as
well as the commencement of casino operations at Sunland Park, and to a lesser
extent, increased labor costs and professional fees in our gaming systems
segment.

    Research and development ("R&D") expenses were $16.5 million for fiscal year
2000, an increase of $15.4 million from $1.2 million for fiscal year 1999.
During the year ended June 30, 2000, businesses acquired in the Powerhouse
acquisition contributed $13.5 million in R&D expenses. To a lesser extent, the
increase reflects higher R&D expenses in our proprietary games business within
our gaming machines segment. The remaining increase resulted primarily from a
one-time settlement received from the Ontario provincial government in the prior
year, which reduced R&D expense for fiscal 1999. The

                                       40
<PAGE>
Province of Ontario has mandated that the terms of the settlement be held in
confidence. On a pro forma basis, R&D expenses for the year ended June 30, 2000
increased $5.5 million or 50% from $11.0 million for the pro forma year ended
June 30, 1999, resulting from increased R&D expenses of the acquired operations
within the gaming machines operations, as well as the historical increase noted
above. In addition to the R&D expenses reflected on our financial statements,
R&D costs related to the Anchor-IGT joint venture are recorded within the
Anchor-IGT joint venture and are not included in the amounts disclosed as R&D in
our financial statements.

    In the fourth quarter of fiscal 2000, we implemented a plan, which was not
contemplated at the time of the acquisition, to restructure our VLC subsidiary.
Impairment and restructuring charges of $2.6 million were incurred in fiscal
2000 in connection with the restructuring of VLC. See Note 4 to the consolidated
financial statements.

    Acquired in-process research and development of $17.5 million in fiscal year
1999 was incurred in connection with the Powerhouse acquisition. This
non-recurring expense represents the value of the research and development
projects that were in various stages of completion at the date of the
acquisition. There was no income tax benefit as a result of this expense,
thereby increasing our effective tax rate for fiscal 1999. See Note 3 to the
consolidated financial statements.

    Depreciation and amortization expense was $51.0 million for fiscal year
2000, an increase of $33.6 million or 193% from $17.4 million for historical
fiscal year 1999. During the year ended June 30, 2000, businesses acquired from
Powerhouse contributed $29.8 million in depreciation and amortization expense.
The remaining historical increase resulted from increased depreciation expense
incurred in the gaming machine operations. On a pro forma basis, depreciation
and amortization for the year ended June 30, 2000 increased $9.0 million or 22%
from the pro forma year ended June 30, 1999, due primarily to increased
depreciation and amortization expense incurred at AWI and Sunland Park.
Depreciation increased at AWI primarily due to the capital expenditures
associated with fiscal 2000 domestic contract implementations. The Sunland Park
increase related to the commencement of gaming operations in February 1999.

    INCOME FROM OPERATIONS.  As a result of the factors discussed above, income
from operations was $120.2 million for fiscal year 2000, an increase of
$36.4 million or 44% from $83.8 million for historical fiscal year 1999 and
$12.4 or 12% on a pro forma basis from the year ended June 30, 1999. Excluding
the $17.5 million charge for acquired in-process research and development,
income from operations for fiscal year 1999 would have been $101.3 million. As a
percentage of total revenues, income from operations remained constant at 23%
during fiscal year 2000 and fiscal year 1999.

    OTHER INCOME (EXPENSE).  Interest income was $2.0 million for fiscal year
2000, a decrease of $1.9 million or 48% from $3.9 million for historical fiscal
year ended 1999. The decrease is due to decreased cash balances for investment
as a result of spending for the Powerhouse acquisition. Interest expense of
$16.5 million for fiscal year 2000, an increase of $16.4 million from historical
fiscal year 1999, is the result of borrowings associated with the Powerhouse
acquisition. As a result of the factors discussed above, net other expense was
$12.9 million for fiscal year 2000 compared to net other income of $3.1 million
for fiscal year 1999.

    NET INCOME AND EARNINGS PER SHARE.  As a result of the factors discussed
above, net income was $65.0 million for fiscal year 2000, an increase of
$17.5 million or 37% from $47.5 million for fiscal year 1999. On a pro forma
basis, net income for fiscal 2000 increased $7.5 million or 13% from the pro
forma fiscal 1999 year.

    Diluted earnings per share were $5.41 for fiscal year 2000, an increase of
$1.59 per share from the $3.82 diluted earnings per share for fiscal year 1999
primarily due to the $17.5 million in-process research and development charge in
fiscal 1999.

                                       41
<PAGE>
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998

GAMING MACHINES

    Gaming machines accounted for 49% and 50% of total revenues during the years
ended June 30, 1998 and 1999, respectively.

    Revenues from gaming machines were $123.7 million for the fiscal year ended
June 30, 1999, an increase of $10.0 million or 9% from $113.7 million for the
fiscal year ended June 30, 1998. Revenues from the Anchor-IGT joint venture rose
$19.7 million or 35% from $56.8 million in fiscal 1998 to $76.5 million in
fiscal 1999. Revenues from stand-alone games decreased $8.7 million or 16% from
$56.3 million in fiscal 1998 to $47.6 million in fiscal 1999. The increase in
segment revenues was primarily due to increased equity earnings in the
Anchor-IGT joint venture, which, for accounting purposes, is recorded net of
expense. The increase in revenues was also due to increased revenues from our
proprietary games CashBall-TM- and SafeBuster-TM-. These increases were offset
to some extent by decreased revenues generated from the Wheel of Gold-TM-, Totem
Pole-TM- and Clear Winner-TM- games as well as decreased revenues from the sale
of tokens for the proprietary game Silver Strike-TM-. At June 30, 1999 there
were approximately 6,400 games, primarily Wheel of Fortune-TM-, operating within
the Anchor-IGT joint venture, compared to approximately 5,600 games at June 30,
1998.

    Costs of gaming machine revenues were $34.4 million for the fiscal year
1999, an increase of $9.3 million or 37% from $25.1 million for the fiscal year
1998. The increase in the cost of proprietary games revenues was due primarily
to increased machine parts used in our operations outside the Anchor-IGT joint
venture, increased costs of production and service payroll and shipping and
handling. During fiscal year 1999, we engaged in extensive improvements and
modifications to existing proprietary games in order to maintain performance
levels of the games. The costs associated with the upgrades and regular
maintenance of games in operation are expensed as incurred. These increases were
offset to some extent by decreased costs and expenses relating to the sale of
tokens for the proprietary game Silver Strike-TM-.

    Gaming machines segment gross margin decreased to 72% during fiscal year
1999 from 78% during fiscal year 1998. Within the segment, in fiscal 1998 gross
margins were 100% for the Anchor-IGT joint venture (due to its accounting
treatment under the equity method) and 76% for stand-alone proprietary games. In
fiscal 1999, gross margins were 93% for the Anchor-IGT joint venture and 39% for
stand-alone proprietary games.

GAMING OPERATIONS

    Gaming operations accounted for 51% and 50% of total revenues during the
year ended June 30, 1998 and 1999, respectively.

    Total revenues from gaming operations were $125.2 million for fiscal year
1999, an increase of $7.0 million or 6% from $118.3 million for fiscal year
1998. This increase was primarily due to a $4.3 million increase in route
revenues coupled with increased slot revenues at the Colorado Central Station
Casino and, to a lesser extent, increased slot revenues at the Colorado Grande
Casino. The increase in route revenues was due to the increased number of
machines on route and increased performance of the machines on the route due to
machine mix enhancements. Machines on route increased by 41 machines or 5% to
883 at June 30, 1999 from 842 machines at June 30, 1998. Average machines on
route during fiscal 1999 increased 39 or 5% to 866 from 827 average machines in
fiscal 1998. Increases in route revenues were realized from both participation
locations and space lease locations. The year-over-year increase in casino slot
revenues was realized almost entirely during the first six months of fiscal year
1999 with the second six months of fiscal year 1999 resulting in flat
year-over-year comparisons.

                                       42
<PAGE>
    Costs of gaming operations revenue were $70.4 million for fiscal year 1999,
an increase of $7.7 million or 12% from $62.7 million for fiscal year 1998.
Gaming operations gross margin decreased to 44% during fiscal year 1999 from
47.0% during fiscal year 1998. We incurred increased marketing and personnel
related costs in order to sustain year-over-year revenue levels within our
Colorado casino operations.

OTHER COSTS

    SG&A expenses were $24.2 million for fiscal year 1999, an increase of
$0.9 million or 4% from $23.3 million for fiscal year 1998. SG&A expenses as a
percentage of total revenue remained constant at 10% during fiscal year 1999 and
fiscal year 1998. The increase in SG&A expenses was primarily due to increased
tax and licensing costs within our gaming machines segment, increased costs and
expenses for advertising in our gaming operations segment and increased
administrative payroll at the corporate level.

    Research and development expenses were $1.2 million for fiscal year 1999, a
decrease of $700,000 or 37% from $1.9 million for fiscal year 1998. The decrease
is due to reduced expenses in fiscal year 1999 for development at the corporate
level, offset to some extent by increases in the proprietary games business
within the gaming machines segment. The decrease in corporate development
resulted primarily from reduced development costs related to the Canadian
charity-based casino initiative that was canceled by the Ontario provincial
government on June 26, 1998. In addition to the research and development
expenses reflected on our financial statements, research and development costs
related to the Anchor-IGT joint venture are accounted for on the books of the
Anchor-IGT joint venture and are not included in the amounts disclosed as
research and development in our financial statements.

    Acquired in-process research and development of $17.5 million in fiscal year
1999 was incurred in connection with the Powerhouse acquisition. This
non-recurring expense represents the value of the research and development
projects that were in various stages of completion at the date of the
acquisition. There was no income tax benefit as a result of this expense,
thereby increasing our effective tax rate for fiscal 1999.

    Depreciation and amortization expense was $17.4 million for fiscal year
1999, an increase of $4.7 million or 37% from $12.7 million for fiscal year
1998. This increase was primarily due to increased depreciation and amortization
expense incurred in our proprietary games operations and, to a lesser extent, at
our Colorado Central Station Casino and in our route operations due to the use
of shortened lives for all gaming machines.

    INCOME FROM OPERATIONS.  As a result of the factors discussed above, income
from operations was $83.8 million for fiscal year 1999, a decrease of
$22.4 million or 21% from $106.2 million for fiscal year 1998. Excluding the
$17.5 million charge for acquired in-process research and development, income
from operations for fiscal year 1999 would have been $101.3 million, a decrease
of only $4.9 million or 5% from fiscal year 1998. As a percentage of total
revenues, income from operations decreased to 34% during fiscal year 1999 from
46% during fiscal year 1998.

    OTHER INCOME (EXPENSE).  Interest income was $3.9 million for fiscal year
1999, an increase of $900,000 or 30% from $3.0 million for fiscal year ended
1998. The increase was due to increased short-term investments resulting from
higher average cash balances during the year. Other income decreased
$1.1 million from fiscal year 1998. This was primarily due to reduced net gains
on asset disposals in fiscal year 1999 versus fiscal 1998.

    NET INCOME AND EARNINGS PER SHARE.  As a result of the factors discussed
above, net income was $47.5 million for fiscal year 1999, a decrease of
$20.9 million or 31% from $68.4 million for fiscal year 1998.

                                       43
<PAGE>
    Diluted earnings per share were $3.82 for fiscal year 1999, a decrease of
$1.38 per share from the $5.20 diluted earnings per share for fiscal year 1998.

LIQUIDITY AND CAPITAL RESOURCES

    CASH FLOWS.  At June 30, 2000, we maintained $25.9 million in cash and
equivalents, $47.2 million in working capital, and $75.9 million available under
a revolving credit facility, compared with cash and equivalents at June 30, 1999
of $32.8 million, working capital of $28.9 million, and $81.5 million available
under an unsecured revolving credit facility. To fund the acquisition of
Powerhouse Technologies, Inc., we borrowed $210 million on a new $300 million
senior unsecured reducing revolving credit facility. Amounts drawn on the senior
credit facility bear interest at variable rates based on LIBOR plus an
applicable margin or prime rate plus an applicable margin, at our option. All
borrowings under the senior credit facility are due on June 30, 2004. We have
agreed to maintain certain financial and non-financial covenants customary with
lending arrangements of this type. We believe we are in compliance with
applicable covenants at June 30, 2000.

    We believe that cash provided by operations will remain a significant source
of cash flows, and anticipate that both operations and draws on our senior
credit facility will provide the capital needed for continued business growth.

    During fiscal year 2000, operating activities provided $110.7 million in
cash flows on $65.0 million in net income, compared with $86.7 million in cash
flows on $47.5 million in net income during fiscal year 1999. Net income in
fiscal year 2000 included non-cash expenses (including depreciation and
amortization) of approximately $63.7 million compared with non-cash expenses in
fiscal year 1999 of approximately $43.1 million. The significant non-cash
expenses in 2000 were approximately $51.0 million of depreciation and
amortization. Also in fiscal 2000, we recognized earnings in the Anchor-IGT
joint venture that were approximately $13.1 million greater than cash
distributions to us.

    INVESTING ACTIVITIES AND CAPITAL EXPENDITURES.  In fiscal year 2000, we had
cash outflows for investing activities of $108.3 million primarily related to
the purchase and installation of assets for domestic and international lottery
jurisdictions. We selectively pursue opportunities to win additional and retain
existing on-line wagering contracts. If successful in obtaining new state
lottery contracts, and depending on the size of the jurisdictions served, we may
be required to secure additional funding for the related capital expenditures.
In addition, during fiscal 2000 we contributed $22.2 million to the Anchor-IGT
joint venture and $5.3 million to Anchor Partners, LLC and Ourway Realty, LLC.
In fiscal year 1999, we had cash outflows for investing activities of
$85.4 million primarily related to the acquisition of Powerhouse.

    Our capital expenditure budget for fiscal 2001 is estimated to be between
$45 and $55 million. We believe that cash flows from operations, borrowings
under our senior credit facility, and existing cash balances will be adequate to
satisfy our anticipated uses of capital during fiscal year 2001. We are,
however, continually evaluating our financing needs. If more attractive
financing alternatives or expansion, development or acquisition opportunities
become available to us, we may amend our financing plans assuming such financing
would be permitted under our debt agreements.

    Substantial funds are required for the operation of our gaming systems
segment and may also be required for other future projects. The source of funds
required to meet our working capital needs (including maintenance capital
expenditures) is expected to be cash flow from operations and availability under
our senior credit facility. The source of funds for our future projects may come
from cash flow from operations and availability under our senior credit
facility, additional debt or equity offerings, joint venture partners or other
sources. No assurance can be given that additional financing will be available
or that, if available, such financing will be obtainable on favorable terms.

                                       44
<PAGE>
    The gaming systems segment operates in a capital intensive industry, in
which wagering terminals, computer systems and applications and communications
software must be installed throughout a jurisdiction, often beginning up to one
year before revenues are earned on the long-term contract. When a new
jurisdiction is added to our customer base, capital required to obtain and
install hardware and software can be significant. Generally, initial contract
terms are from five to nine years, often with one or more one to three year
extension options. Upon expiration of a contract and its extensions, the
jurisdiction typically requires vendors to rebid their services and, if
successful, replace existing equipment with new terminals. An incumbent vendor
may have some benefit due to the communications infrastructure already in place,
but most often, a significant portion of the initial capital expenditures must
be replaced upon the reawarding of a lottery contract.

    PALA GUARANTEE.  Under the terms of our development and management
agreements with the Pala Band of Mission Indians, which we executed in
September 1999, we agreed to assist the Pala tribe in obtaining financing for
the construction and operation of PALA and to advance funds during the design
and development stages. The Pala tribe secured a $100.0 million credit facility
through a loan agreement and ancillary financial documents finalized on
June 15, 2000. As a condition to receiving financing, we agreed to guarantee the
full payment and performance of the obligations of the Pala tribe under the loan
agreement. We executed a guarantee that remains in effect until the earlier of
either repayment in full of all guaranteed financial obligations under the loan
agreement or delivery to lenders of a leasehold mortgage on PALA if it has been
in operation for at least twelve months and specified financial and leverage
thresholds have been met. The guarantee will also be released 60 days following
the date on which we or any of our affiliates cease to be the manager of PALA,
unless lenders have demanded payment of outstanding obligations from the Pala
tribe during such period. In addition, we have agreed to fund PALA project cost
overruns up to a total amount of $25.0 million.

    Anchor Pala Development LLC, our wholly-owned subsidiary, will receive a
development fee based on the actual total project costs and a project fee based
on net gaming and non-gaming PALA revenues. As additional consideration for all
costs, risks, restrictions and expenses associated with providing the guarantee,
we will receive fees based primarily on a percentage of the outstanding loan
balance.

    LIQUIDATED DAMAGES UNDER ON-LINE LOTTERY CONTRACTS.  Our lottery contracts
typically permit termination of the contract by the lottery authority at any
time for our failure to perform or for other specified reasons and generally
contain demanding implementation schedules and performance schedules. Failure to
perform under such contracts may result in substantial monetary liquidated
damages, as well as contract termination. Many of our lottery contracts also
permit the lottery authority to terminate the contract at will and do not
specify the compensation, if any, to which we would be entitled should such
termination occur. Some of our United States lottery contracts have contained
provisions for up to $1.0 million a day in liquidated damages for late system
start-up and have provided for up to $15,000 per minute or more in penalties for
system downtime in excess of a stipulated grace period, and some of our
international customers similarly reserve the right to assess monetary damages
in the event of contract termination or breach. Although such liquidated damages
provisions are customary in the lottery industry and the actual liquidated
damages imposed are generally subject to negotiation, such provisions in our
lottery contracts present an ongoing potential for substantial expense. Our
lottery contracts generally require us to post a performance bond, which in some
cases may be substantial, securing our performance under such contracts. We do
not believe that we have any exposure relative to liquidated damages at
June 30, 2000.

    STOCK REPURCHASE PROGRAM.  During fiscal year 2000, we spent $22.3 million
to repurchase 549,000 shares of our common stock pursuant to a board-authorized
stock repurchase program. In April 1997, the board of directors authorized a
repurchase of up to 1,000,000 shares of common stock. The board of directors
authorized additional repurchases of up to 514,000 shares in December 1997,
640,000

                                       45
<PAGE>
shares in October 1998, and 1,000,000 shares in March 2000. From the initial
authorization of the program through June 30, 2000, we have repurchased
2,524,000 shares of common stock at a cost of $115.3 million. During fiscal
1999, we repurchased 810,000 shares at a cost of $40.3 million, and during
fiscal 1998, we repurchased 638,000 shares at a cost of $36.1 million. At
June 30, 2000, a balance of 821,000 authorized shares remained under the stock
repurchase program. Under our senior credit facility, we may repurchase during
any fiscal year 50% of our prior fiscal year net income, plus an additional
one-time $35 million during the term of the facility.

    WORKING CAPITAL REQUIREMENTS.  In addition to cash requirements needed for
the purchase and construction of capital equipment, we require working capital
to finance customer receivables and inventory levels. At June 30, 2000, notes
receivable from customers totaled $19.7 million, primarily resulting from gaming
machine sales. Because we expect the continued growth of the gaming machines
segment and intend to continue financing sales when advantageous to us, notes
receivable balances may increase. Financing gaming machine sales over short
periods is common in the gaming machine sales industry, and most of our customer
notes range from one to two years, with interest rates of up to 14%. Some
international and domestic receivables have repayment periods of up to nine
years.

    We continually seek opportunities to expand our gaming-oriented businesses
in new and existing gaming jurisdictions. If successful in pursuing another
opportunity in any gaming-oriented business and depending on the amount of
funding required, we may be required to obtain additional financing.

RECENTLY ISSUED ACCOUNTING STANDARDS

    Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" was issued in June 1998. This
statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. This statement establishes accounting and reporting
standards for derivative instruments and requires that all derivatives be
marked-to-market on an ongoing basis. This applies whether the derivatives are
stand-alone documents, such as forward currency exchange contracts and interest
rate swaps, or embedded derivatives, such as call options contained in
convertible debt instruments. These market value adjustments are to be included
either in the income statement or stockholders' equity, depending on the
intended use of the derivative and whether it qualifies for hedge accounting. We
expect to adopt the standard in the first quarter of fiscal 2001 as a cumulative
effect of a change in accounting principle. Based on analysis to date, we
believe that our use of derivative instruments is limited and have identified
one item, an interest rate swap arrangement for a notional amount of
$100 million that we entered into in fiscal 2000. We do not believe that the
adoption of SFAS No. 133, including the cumulative effect adjustment and the
ongoing mark-to-market adjustments resulting from the change in value of the
interest rate swap arrangement, will have a significant effect on our
consolidated results of operations, financial position, or cash flows.

    In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." In June 2000, the Securities and Exchange Commission staff amended
SAB 101 to provide registrants with additional time to implement SAB 101. We
will be required to adopt SAB 101 by the fourth quarter of fiscal 2001. We have
not completed our determination of the effect of the adoption of SAB 101 on our
consolidated financial position or results of operation.

                                       46
<PAGE>
ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    We are exposed to market risk from changes in interest rates on our floating
rate debt. The principal balance of floating rate debt at June 30, 2000, was
$221.5 million. To reduce such risks, we selectively use financial instruments.
In fiscal 2000, we entered into an interest rate swap agreement for a notional
amount of $100 million. The agreement calls for us to swap our variable LIBOR
rate (6.69% at June 30, 2000) for a fixed LIBOR rate of 5.93%. The variable
LIBOR rate readjusts each quarter, and the agreement is cancelable by the bank
after one year. The swap agreement terminates in October 2003. The fair value of
the swap asset at June 30, 2000 is approximately $0.2 million based on the
present value of future cash inflows expected based on the LIBOR rate at
June 30, 2000.

    The profitability of our investment in the Anchor-IGT joint venture is also
affected by changes in interest rates. The Anchor-IGT joint venture records
expenses for future jackpots based on current rates for government securities
and bank debt instruments of varying maturities, which are used to fund
liabilities to winners. As interest rates decline, our equity in the earnings of
the Anchor-IGT joint venture also decline.

    We do not have any cash or cash equivalents at June 30, 2000 that are
subject to market risk based on changes in interest rates. We are exposed to the
risk of foreign currency exchange rate fluctuations. As of June 30, 2000, we had
accounts and notes receivable denominated in Canadian currency of $1.6 million
(3.5% of total receivables) and $393,000 (0.9% of total receivables) denominated
in Australian currency. All foreign receivables are expected to be collected
within 12 months. We do not currently hedge against foreign currency exposure.

                                       47
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Independent Auditors' Report................................      49
Consolidated Balance Sheets as of June 30, 1999 and 2000....      50
Consolidated Statements of Income for the Years Ended June
  30, 1998, 1999, and 2000..................................      51
Consolidated Statements of Stockholders' Equity for the
  Years Ended June 30, 1998,
  1999, and 2000............................................      52
Consolidated Statements of Cash Flows for the Years Ended
  June 30, 1998, 1999, and 2000.............................      53
Notes to Consolidated Financial Statements..................      54
</TABLE>

                                       48
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Anchor Gaming and Subsidiaries:

    We have audited the accompanying consolidated balance sheets of Anchor
Gaming and Subsidiaries (the "Company") as of June 30, 1999 and 2000, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended June 30, 2000. Our audits also
include the financial statement schedule listed in the index at Item 14(d).
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

    In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Anchor Gaming and Subsidiaries
at June 30, 1999 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 2000 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.

DELOITTE & TOUCHE LLP

Las Vegas, Nevada
September 25, 2000

                                       49
<PAGE>
                                 ANCHOR GAMING

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     JUNE 30,
                                                              ----------------------
                                                                1999         2000
                                                              ---------   ----------
                                                              (IN THOUSANDS, EXCEPT
                                                                  SHARE AMOUNTS)
<S>                                                           <C>         <C>
                                       ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 32,835    $  25,883
  Accounts and notes receivable, net........................    38,526       43,959
  Inventory, net............................................    21,375       17,378
  Other current assets......................................     8,928       11,339
                                                              --------    ---------
    Total current assets....................................   101,664       98,559
Property and equipment, net.................................   188,048      200,976
Goodwill, net...............................................   117,436      117,218
Other intangible assets, net................................    34,520       43,896
Investments in unconsolidated affiliates....................    29,053       66,822
Other long-term assets......................................    36,448       21,248
                                                              --------    ---------
    Total assets............................................  $507,169    $ 548,719
                                                              ========    =========

                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 21,073    $  17,777
  Current portion of long-term debt.........................     4,051        1,524
  Income tax payable........................................     5,146        1,858
  Other current liabilities.................................    42,486       30,177
                                                              --------    ---------
    Total current liabilities...............................    72,756       51,336
Long-term debt, net of current portion......................   212,805      222,770
Minority interest in consolidated subsidiary................     1,255        4,093
                                                              --------    ---------
    Total liabilities and minority interest in consolidated
      subsidiary............................................   286,816      278,199
                                                              --------    ---------
Stockholders' equity:
  Preferred stock, $.01 par value, 1,000,000 shares
    authorized, 0 shares issued and outstanding at June 30,
    1999 and 2000...........................................        --           --
  Common stock, $.01 par value, 50,000,000 shares
    authorized, 13,841,750 issued and 11,866,307 outstanding
    at June 30, 1999, 14,049,850 issued and 11,525,707
    outstanding at June 30, 2000                                   138          140
  Treasury stock at cost, 1,975,443 shares at June 30, 1999,
    2,524,143 shares at June 30, 2000                          (93,043)    (115,342)
  Additional paid-in capital................................   116,854      124,359
  Retained earnings.........................................   196,404      261,363
                                                              --------    ---------
    Total stockholders' equity..............................   220,353      270,520
                                                              --------    ---------
    Total liabilities and stockholders' equity..............  $507,169    $ 548,719
                                                              ========    =========
</TABLE>

                See notes to consolidated financial statements.

                                       50
<PAGE>
                                 ANCHOR GAMING

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                    YEARS ENDED JUNE 30,
                                                              ---------------------------------
                                                                1998        1999        2000
                                                              ---------   ---------   ---------
                                                               (IN THOUSANDS, EXCEPT PER SHARE
                                                                          AMOUNTS)
<S>                                                           <C>         <C>         <C>
Revenues:
  Gaming machines...........................................  $113,677    $123,698    $154,680
  Gaming operations.........................................   118,255     125,233     189,938
  Gaming systems............................................        --          --     180,585
                                                              --------    --------    --------
    Total revenues..........................................   231,932     248,931     525,203
                                                              --------    --------    --------
Costs of revenues:
  Gaming machines...........................................    25,054      34,401      35,892
  Gaming operations.........................................    62,721      70,419     124,529
  Gaming systems............................................        --          --     105,083
                                                              --------    --------    --------
    Total costs of revenues.................................    87,775     104,820     265,504
                                                              --------    --------    --------
Gross margin................................................   144,157     144,111     259,699
                                                              --------    --------    --------
Other costs:
  Selling, general and administrative.......................    23,343      24,243      69,343
  Research and development..................................     1,922       1,173      16,528
  Acquired in-process research and development..............        --      17,500          --
  Impairment and restructuring charges......................        --          --       2,641
  Depreciation and amortization.............................    12,661      17,380      50,951
                                                              --------    --------    --------
    Total other costs.......................................    37,926      60,296     139,463
                                                              --------    --------    --------
Income from operations......................................   106,231      83,815     120,236
                                                              --------    --------    --------
Other income (expense):
  Interest income...........................................     2,989       3,850       1,998
  Interest expense..........................................      (226)       (113)    (16,475)
  Other income..............................................     1,157          47       2,219
  Minority interest in earnings of consolidated
    subsidiary..............................................      (711)       (670)       (608)
                                                              --------    --------    --------
    Total other income (expense)............................     3,209       3,114     (12,866)
                                                              --------    --------    --------
Income before provision for income taxes....................   109,440      86,929     107,370
Income tax provision........................................    41,040      39,422      42,411
                                                              --------    --------    --------
Net income..................................................  $ 68,400    $ 47,507    $ 64,959
                                                              ========    ========    ========
Basic earnings per share....................................  $   5.36    $   3.91    $   5.49
                                                              ========    ========    ========
Weighted average shares outstanding.........................    12,751      12,164      11,833
                                                              ========    ========    ========
Diluted earnings per share..................................  $   5.20    $   3.82    $   5.41
                                                              ========    ========    ========
Weighted average common and common equivalent shares
  outstanding...............................................    13,161      12,428      12,011
                                                              ========    ========    ========
</TABLE>

                See notes to consolidated financial statements.

                                       51
<PAGE>
                                 ANCHOR GAMING

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                         COMMON STOCK          TREASURY STOCK      ADDITIONAL
                                      -------------------   --------------------    PAID-IN     RETAINED
                                       SHARES     AMOUNT     SHARES     AMOUNT      CAPITAL     EARNINGS    TOTAL
                                      --------   --------   --------   ---------   ----------   --------   --------
                                                                     (IN THOUSANDS)
<S>                                   <C>        <C>        <C>        <C>         <C>          <C>        <C>
Balance--July 1, 1997...............   13,579      $136        (527)   $ (16,569)   $107,267    $ 80,497   $171,331
  Stock issued for exercise of
    options.........................      179         2                                2,558                  2,560
  Treasury shares purchased.........                           (638)     (36,163)                           (36,163)
  Tax effects of stock option
    transactions....................                                                   4,354                  4,354
  Net income........................                                                              68,400     68,400
                                       ------      ----      ------    ---------    --------    --------   --------
Balance--June 30, 1998..............   13,758       138      (1,165)     (52,732)    114,179     148,897    210,482
  Stock issued for exercise of
    options.........................       84                                          1,770                  1,770
  Treasury shares purchased.........                           (810)     (40,311)                           (40,311)
  Tax effects of stock option
    transactions....................                                                     905                    905
  Net income........................                                                              47,507     47,507
                                       ------      ----      ------    ---------    --------    --------   --------
Balance--June 30, 1999..............   13,842       138      (1,975)     (93,043)    116,854     196,404    220,353
  Stock issued for exercise of
    options.........................      208         2                                5,610                  5,612
  Treasury shares purchased.........                           (549)     (22,299)                           (22,299)
  Tax effects of stock option
    transactions....................                                                   1,895                  1,895
  Net income........................                                                              64,959     64,959
                                       ------      ----      ------    ---------    --------    --------   --------
Balance--June 30, 2000..............   14,050      $140      (2,524)   $(115,342)   $124,359    $261,363   $270,520
                                       ======      ====      ======    =========    ========    ========   ========
</TABLE>

                See notes to consolidated financial statements.

                                       52
<PAGE>
                                 ANCHOR GAMING

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   YEARS ENDED JUNE 30,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net income................................................  $ 68,400   $ 47,507   $ 64,959
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Depreciation and amortization...........................    12,833     17,369     50,951
    Acquired in-process research and development............        --     17,500         --
    Impairment and restructuring charge.....................        --         --      2,641
    Unconsolidated affiliates' distributions in excess of
     earnings (earnings in excess of distributions).........   (25,068)     3,586    (13,097)
    Other non-cash expenses, gains and losses, net..........     1,187      8,273     10,075
  (Increase) decrease in assets:
    Accounts receivable.....................................    (3,305)     1,839       (447)
    Inventory...............................................      (673)     1,238      1,509
    Other assets............................................    (9,373)     1,603     (1,340)
  Increase (decrease) in liabilities:
    Accounts payable........................................     3,331      1,836     (3,294)
    Income tax payable......................................    14,684    (11,110)     2,756
    Other liabilities.......................................     6,167     (2,986)    (4,003)
                                                              --------   --------   --------
      Total adjustments.....................................      (217)    39,148     45,751
                                                              --------   --------   --------
    Net cash provided by operating activities...............    68,183     86,655    110,710
                                                              --------   --------   --------
Cash flows from investing activities:
  Expenditures for property and equipment, intangible assets
    and other assets........................................   (24,421)   (13,957)   (82,586)
  Cash paid for acquisition of Powerhouse, net of cash
    acquired................................................        --    (71,674)        --
  Proceeds from sales of assets.............................                             339
  Issuance of notes receivable..............................    (2,040)      (859)      (166)
  Advances to joint venture and investments in
    unconsolidated subsidiary...............................        --         --    (27,500)
  Change in restricted cash deposits........................        --         --       (253)
  Principal reductions on notes receivable and other........     1,441      1,074      1,885
                                                              --------   --------   --------
    Net cash used in investing activities...................   (25,020)   (85,416)  (108,281)
                                                              --------   --------   --------
Cash flows from financing activities:
  Proceeds from borrowing...................................        --         --     56,500
  Repayment of long-term debt...............................    (2,800)        --    (49,061)
  Proceeds from sale of stock...............................     2,560      1,770      5,612
  Payments to acquire treasury stock........................   (36,163)   (40,311)   (22,299)
  Loan fees paid............................................        --     (3,050)      (133)
                                                              --------   --------   --------
    Net cash used in financing activities...................   (36,403)   (41,591)    (9,381)
                                                              --------   --------   --------
Net increase (decrease) in cash and cash equivalents........     6,760    (40,352)    (6,952)
Cash and cash equivalents, beginning of year................    66,427     73,187     32,835
                                                              --------   --------   --------
Cash and cash equivalents, end of year......................  $ 73,187   $ 32,835   $ 25,883
                                                              ========   ========   ========
Supplemental disclosure of cash flow information:
    Cash paid for interest, including capitalized
     interest...............................................  $    226   $     55   $ 17,003
                                                              --------   --------   --------
    Cash paid for income taxes..............................  $ 36,742   $ 50,532   $ 32,592
                                                              --------   --------   --------
Supplemental schedule of non-cash investing and financing
  transactions:
  Acquisition of Powerhouse:
    Fair value of assets and liabilities acquired:
      Current assets, other than cash.......................             $ 56,541
      Property and equipment................................              103,927
      Identifiable intangible assets........................               33,522
      Goodwill..............................................              115,877
      Other long-term assets................................                4,750
      Accounts payable......................................              (13,243)
      Notes payable.........................................               (6,856)
      Other liabilities.....................................              (24,164)
Acquired in-process research and development expensed.......               17,500
                                                                         --------
                                                                          287,854
Debt incurred...............................................             (210,000)
Other liabilities incurred..................................               (6,180)
                                                                         --------
Cash paid, net of cash acquired.............................             $ 71,674
                                                                         ========
</TABLE>

                See notes to consolidated financial statements.

                                       53
<PAGE>
                                 ANCHOR GAMING

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

    Anchor Gaming ("Anchor" or the "Company") is a diversified gaming company
that operates through three business segments: gaming machines, gaming
operations and gaming systems. The gaming machines segment consists of three
business units. These include our joint venture with International Game
Technology ("IGT") through which Anchor and IGT distribute proprietary gaming
machines to casinos primarily on wide area progressive systems; Anchor Games,
which develops and distributes proprietary gaming machines to casinos in
exchange for recurring revenue streams; and the portion of the Company's VLC
subsidiary which manufactures and sells gaming machines to casinos ("VLC
Casino"). Gaming operations are currently conducted through five business units.
These include two casinos in Colorado; Sunland Park Racetrack & Casino in New
Mexico; and gaming machine route operations in both Nevada and Montana. The
Company also has a 50% interest in a development contract and seven year
management contract with the Pala Band of Mission Indians to develop and manage
a casino and entertainment facility currently under construction in northern San
Diego County, California that is presently expected to open in the spring
of 2001. The gaming systems segment consists of three business units. These
include Automated Wagering International ("AWI"), an on-line lottery company;
the portion of the Company's VLC subsidiary that develops and distributes video
lottery central systems and video lottery terminals to government controlled
jurisdictions ("VLC Government"); and United Tote, a pari-mutuel wagering system
company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

    The accompanying consolidated financial statements include the accounts of
Anchor Gaming and subsidiaries (collectively, "Anchor" or the "Company"). All
significant intercompany accounts and transactions have been eliminated. The
financial position and operating results of Colorado Grande Enterprises, Inc.
and Anchor Partners, LLC are included in the consolidated financial statements
as 80% and 51% consolidated subsidiaries, respectively.

CASH AND CASH EQUIVALENTS

    The Company considers short-term, highly liquid investments with an original
maturity of three months or less at the date of purchase to be cash equivalents.
All of the Company's investment securities mature in three months or less from
the date of purchase. The estimated fair value of the Company's portfolio of
investment securities at June 30, 1999 and 2000 approximates amortized cost due
to the short-term nature of the portfolio.

FAIR VALUE OF FINANCIAL INSTRUMENTS

    The carrying value of the Company's cash and cash equivalents, trade and
notes receivables, and trade payables approximates fair value primarily because
of the short maturities of these instruments. The Company estimates fair value
of its long-term receivables and obligations based on quoted market prices or on
the current rates offered to the Company for instruments of the same remaining
maturities. The estimated fair values of the obligations closely approximated
the carrying values at June 30, 1999 and 2000.

                                       54
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE

    Accounts receivable result from the sale of products and services to gaming
properties and government jurisdictions. The Company performs credit evaluations
of its customers and does not generally require collateral except in the case of
financed equipment sales. If the Company finances equipment sales, it generally
will require that the equipment be pledged as collateral against the obligation
of the customer. Management reviews customer balances for potential credit
losses and maintains an allowance for amounts deemed uncollectible.

INVENTORY

    The Company manufactures inventories of gaming and systems equipment for
sale and lease. Additional inventories of silver and silver tokens, parts for
servicing of gaming machines and food and beverage items are maintained. All
inventories are stated at the lower of cost (first-in, first-out) or market
value. Cost includes materials, labor and allocated indirect manufacturing
overhead for manufactured inventories.

PROPERTY AND EQUIPMENT

    Property and equipment are stated at cost. Ordinary maintenance and repairs
are charged to expense as incurred. Equipment acquired under capital leases is
recorded at the lower of the present value of minimum lease payments at the
beginning of the lease term or the fair market value of the asset at the
inception of the lease. The Company manufactures equipment used in the provision
of services pursuant to long-term contracts.

    Costs that materially increase the life or value of existing assets are
capitalized. Assets that have been placed in service are depreciated over their
estimated useful lives or the life of the related contract (including executed
contract extensions). Leasehold improvements and equipment purchased under
capital lease are depreciated or amortized over the shorter of the lease term or
the estimated useful lives of the assets on a straight-line basis. In accordance
with the provisions of SFAS No. 121 "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," the Company evaluates the
potential impairment of long-lived assets when events or changes in
circumstances indicate that the carrying amount of a long-lived asset may not be
recoverable. If it is determined that the carrying value of long-lived assets
may not be recoverable based upon the relevant facts and circumstances, the
Company estimates the future undiscounted cash flows (grouped at the company
wide level) expected to result from the use of the asset and its eventual
disposition. If the sum of the expected undiscounted future cash flows is less
than the carrying value of the asset, the Company will recognize an impairment
loss for the difference between the carrying value of the asset and its fair
value.

CAPITALIZED INTEREST AND DEFERRED LOAN FEES

    The Company capitalizes interest costs associated with debt incurred in
connection with major construction projects. Interest capitalization ceases once
the project is substantially complete or no longer undergoing construction
activities to prepare it for its intended use. When no debt is specifically
identified as being incurred in connection with such construction projects, the
Company capitalizes interest on amounts expended on the project at the Company's
weighted average cost of borrowed

                                       55
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
money. Deferred loan costs are amortized over the life of the respective loans
using the straight-line amortization method.

GOODWILL AND INTANGIBLE ASSETS

    Goodwill primarily includes the excess of purchase price over fair value of
net assets acquired in conjunction with the June 29, 1999 acquisition of
Powerhouse Technologies, Inc. ("Powerhouse" and the "Powerhouse
Acquisition")(see Note 3). Goodwill is amortized on a straight-line basis over
periods ranging from 3 to 40 years. Accumulated amortization was $1,352,000 and
$5,698,000 at June 30, 1999 and 2000, respectively.

    Intangible assets, other than goodwill, include amounts paid to implement
systems used in the provision of services provided pursuant to long-term
contracts, to acquire leases for route locations and casino property, to acquire
route participation agreements, and costs of patents issued. Intangible assets
also include amounts for developed technologies, customer base, assembled work
force and covenants not-to-compete recorded as a result of the Powerhouse
Acquisition (see Note 3). Intangible assets are amortized on a straight-line
basis over estimated useful lives or the lives of the leases or agreements, as
applicable, ranging from 1 to 20 years.

    Goodwill and intangible assets are evaluated for recoverability under the
requirements of Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" whenever impairment indicators are present (see Note 4). The
Company regularly evaluates the recoverability of goodwill and other acquired
intangible assets. The carrying value of such assets would be reduced through a
direct charge if, in management's judgment, it was probable that projected
future operating income (before amortization of goodwill and other acquired
intangible assets) would not be sufficient on an undiscounted basis to recover
the carrying value. Operating earnings considered in such an analysis are those
of the entity acquired.

REVENUE RECOGNITION

    In accordance with industry practice, the Company recognizes gaming revenues
as the net win from gaming operations, which is the difference between amounts
wagered by customers and payments to customers. Revenue derived from royalty,
revenue participation, or other similar short-term recurring revenue
arrangements is recognized as it accrues. Revenue is normally recognized based
on the Company's share of coins wagered, on its share of net winnings, or on the
lease rate. Revenues exclude the retail value of complimentary food and beverage
furnished gratuitously to customers.

    Revenue from the sale of gaming and systems equipment and related parts is
recognized upon delivery to the customer. Revenue from sales of systems and
video gaming central site systems (including customized software and equipment)
is recognized using the percentage of completion method of accounting for
long-term construction type contracts where costs to complete can reasonably be
estimated. Prior to revenue recognition on system sales, costs incurred are
applied against progress billings and recorded as a net accrued liability or
other current asset as appropriate.

    Systems contract services revenues are recognized as the services are
performed and primarily relate to revenues from long-term contracts which
require installation and operation of lottery and pari-mutuel wagering networks.
Revenues under these contracts are generally based on a percentage of

                                       56
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
sales volume, which may fluctuate over the lives of the contracts. Liquidated
damages are expensed as incurred.

INTEREST RATE SWAP

    During fiscal 2000, the Company used interest rate swap agreements to
effectively change a variable rate liability to a fixed rate liability. Amounts
paid under interest rate swap agreements are accrued as interest rates change
and are recognized as an adjustment to interest expense.

RESEARCH AND DEVELOPMENT

    Research and development costs are expensed as incurred.

FOREIGN CURRENCY TRANSACTIONS

    Gains and losses from foreign currency transactions are included in the
results of operations.

RECLASSIFICATIONS

    Certain amounts in the 1998 and 1999 financial statements have been
reclassified to conform with the presentation used in the 2000 financial
statements.

ESTIMATES AND ASSUMPTIONS

    The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.

RECENTLY ISSUED ACCOUNTING STANDARDS

    SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133") was issued in June 1998. This statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, although earlier
application is encouraged. This statement establishes accounting and reporting
standards for derivative instruments and requires that all derivatives be
marked-to-market on an ongoing basis. This applies whether the derivatives are
stand-alone documents, such as forward currency exchange contracts and interest
rate swaps, or embedded derivatives, such as call options contained in
convertible debt investments. These market value adjustments are to be included
either in the income statement or stockholders' equity, depending on the
intended use of the derivative and whether it qualifies for hedge accounting.
The Company expects to adopt the standard in the first quarter of fiscal 2001 as
a cumulative effect of a change in accounting principle. Based on analysis to
date, management believes that the Company's use of derivative instruments is
limited and has identified one item, an interest rate swap arrangement for a
notional amount of $100 million that the Company entered into in fiscal 2000.
Management does not believe that the adoption of SFAS No. 133, including the
cumulative effect adjustment and the ongoing mark-to-market adjustments
resulting from the change in value of the interest rate swap arrangement, will
have a significant effect on the Company's consolidated results of operations,
financial position, or cash flows.

                                       57
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." In June 2000, the SEC staff amended SAB 101 to provide registrants
with additional time to implement SAB 101. The Company will be required to adopt
SAB 101 by the fourth quarter of fiscal 2001. The Company has not completed its
determination of the impact of the adoption of SAB 101 on its consolidated
financial position or results of operation.

3. ACQUISITION OF POWERHOUSE

    On June 29, 1999, the Company completed the acquisition of 100% of the
outstanding common stock of Powerhouse for approximately $220 million plus
Powerhouse net debt of $68 million pursuant to a merger agreement. The
Powerhouse Acquisition was funded through a combination of cash and borrowing
under a new $300 million revolving credit facility. Anchor, through its
acquisition of Powerhouse and its operating units, VLC, AWI and United Tote, is
now a supplier of system software, equipment and related services for on-line
lotteries, video lotteries, and pari-mutuel systems throughout the world, and is
a manufacturer and distributor of gaming devices for casinos.

    The Powerhouse Acquisition was accounted for using the purchase method of
accounting. Under the purchase method of accounting, the results of operations
of any acquired company are to be included in the acquirer's financial
statements since the date of acquisition. The closing of the Powerhouse
Acquisition occurred virtually concurrent with the end of the Company's fiscal
year ended June 30, 1999 and, as a result, the financial statements of the
Company for the years ended June 30, 1998 and 1999 do not include any results of
operations or cash flows related to Powerhouse except for a charge for acquired
in-process research and development of $17.5 million that was recorded in fiscal
1999.

    The excess of the purchase price over the fair value of the net assets
acquired, of approximately $116 million, was recorded as goodwill and will be
amortized on a straight-line basis over periods between 30 and 40 years. In
addition, identifiable intangible assets of approximately $33 million were
recorded and will be amortized on a straight-line basis over periods ranging
from 3 to 20 years. In connection with the Powerhouse Acquisition, the Company
identified certain preacquisition contingencies and developed exit plans for
certain portions of the Powerhouse businesses. At June 30, 1999, the Company's
balance sheet included accrued exit costs of approximately $2.5 million related
to severance and other payments to Powerhouse executives. During the year ended
June 30, 2000, the Company completed its integration plan and its evaluation of
the fair values of certain liabilities that were determined to be preacquisition
contingencies. As a result, the Company made adjustments to the purchase price
of approximately $4.0 million for litigation accruals, employee terminations and
relocations, and other exit costs. As of June 30, 2000, such amounts have been
paid, as have $2.7 million in cash purchase price adjustments, leaving no
expected payments for other exit costs.

    During the year ended June 30, 1999, a $17.5 million charge to income for
acquired in-process research and development was recorded. The value assigned to
acquired in-process research and development was determined by identifying the
various in-process projects purchased, determining the stage of development of
each project at the acquisition date and valuing those projects using an income
approach. The income approach estimates future revenues net of operating
expenses for each project and applies certain other adjustments to arrive at
estimated after-tax cash flow from the project. The revenue and expense
estimates were based on a variety of aspects including revenue growth rates for

                                       58
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITION OF POWERHOUSE (CONTINUED)
the applicable business segments, growth rates for the applicable market
segments, anticipated development and introduction timelines, product sales
cycles and estimated lives of products. The after-tax cash flows were then
discounted using a rate of 25%, which represents a premium to the Company's
weighted average cost of capital due to the risks associated with the fact that
the projects had not reached technological feasibility at the date of the
acquisition and successful completion of each project cannot be assured.

    The accompanying consolidated balance sheets as of June 30, 1999 and 2000
include the balances of Powerhouse. The following summarized unaudited pro forma
financial information assumes the acquisition occurred as of July 1, 1997. The
pro forma data give effect to actual operating results prior to the acquisition
and adjustments to interest expense, depreciation and amortization and income
taxes at a combined 40% tax rate. In addition, an adjustment has been made to
exclude the charge for acquired in-process research and development of
$17.5 million. These pro forma amounts do not purport to be indicative of the
results that might have been obtained if the acquisition had occurred on
July 1, 1997 or that may be obtained in the future.

<TABLE>
<CAPTION>
                                                          YEARS ENDED JUNE 30,
                                                            1998        1999
                                                          ---------   ---------
                                                             (IN THOUSANDS)
<S>                                                       <C>         <C>
Revenues................................................  $432,486    $465,925
Income before cumulative effect of change in accounting
  principle.............................................    60,772      57,503
Net income..............................................    60,772      57,268
Earnings per share before cumulative effect of change in
  accounting principle:
  Basic.................................................  $   4.77    $   4.73
  Diluted...............................................  $   4.62    $   4.63
Earnings per share:
  Basic.................................................  $   4.77    $   4.71
  Diluted...............................................  $   4.62    $   4.61
</TABLE>

4. IMPAIRMENT AND RESTRUCTURING CHARGES

    In the fourth quarter of fiscal 2000, the Company implemented a plan, which
was not contemplated at the time of the acquisition, to restructure the
operations of its VLC subsidiary. As a result, the VLC subsidiary is now managed
and accounted for as two separate business units, VLC Government and VLC Casino.
VLC Government focuses on sales of central systems and video lottery gaming
machines to governmental jurisdictions. All manufacturing activity for this
product line will continue to be serviced through our Bozeman, Montana facility.
VLC Casino, which was formerly based in Bozeman, will now be based in Las Vegas,
and will focus on the development and sales of gaming machines to casinos. In
connection with this plan, the Bozeman engineering and manufacturing staff were
reduced and severance payments were made to these individuals. In addition, the
Company cancelled the lease for a facility that was used for engineering and the
leasehold improvements related to this facility were determined to have no
future economic benefit to the Company. At the time of the Powerhouse
Acquisition, a cost based approach was used to value the assembled workforce at
VLC whereby the fair value of the assembled workforce was determined based upon
the costs for search, interviewing, training and other employee-related
acquisition costs. Due to the reductions in staffing

                                       59
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. IMPAIRMENT AND RESTRUCTURING CHARGES (CONTINUED)
related to the above event and pursuant to SFAS No. 121, the Company determined
that the assembled workforce asset was impaired.

    In addition, our VLC subsidiary terminated a development project due to
concerns about cost and long-term viability of the project as compared to
alternative project designs. At the time of the Powerhouse Acquisition, this
project was classified as core technology and assigned a value based upon the
income approach (see Note 3). This project was completely abandoned and thus has
no fair value at June 30, 2000. The entire book value related to this project
was written off.

    As a result of the items described above, the Company recorded an impairment
and restructuring charge during fiscal 2000 related to the following:

<TABLE>
<CAPTION>
                                                              (IN THOUSANDS)
                                                              --------------
<S>                                                           <C>
Development project abandonment impairment..................      $1,700
Assembled workforce impairment..............................         360
Severance payments..........................................         231
Write-down of leasehold improvements........................         350
                                                                  ------
                                                                  $2,641
                                                                  ======
</TABLE>

5. BUSINESS SEGMENTS

    The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 established standards for the
way public companies are to report information about operating segments in
annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. It also established standards for related disclosures about
products and services, geographic areas, and major customers. In the fourth
quarter of fiscal 2000, the operating segments were reorganized to reflect
organizational changes within the Company and resulting changes in the financial
information that is used by significant decision makers. As a result, the
Company has combined its lottery systems and pari-mutuel systems segments into a
gaming systems segment. The systems segment also includes the Company's video
lottery business, which was previously included in the gaming machines and
systems segment. Segment information for prior periods has been restated.

    Anchor Gaming is a diversified gaming company that operates through three
business segments: gaming machines, gaming operations, and gaming systems. The
gaming machines segment consists of three business units. These include our
joint venture with International Game Technology ("IGT") through which Anchor
and IGT distribute proprietary gaming machines to casinos primarily on wide area
progressive systems; Anchor Games, which develops and distributes proprietary
gaming machines to casinos in exchange for recurring revenue streams; and VLC
Casino. Gaming operations are currently conducted through five business units.
These include two casinos in Colorado; Sunland Park Racetrack & Casino in New
Mexico; and gaming machine route operations in both Nevada and Montana. The
Company also has a 50% interest in a development contract and seven year
management contract with the Pala Band of Mission Indians to develop and manage
a casino currently under construction in Northern San Diego County, California
that is presently expected to open in March 2001. The gaming systems segment
consists of three business units. These include Automated Wagering International
("AWI"), an on-line lottery company; VLC Government; and United Tote, a
pari-mutuel wagering system company.

                                       60
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. BUSINESS SEGMENTS (CONTINUED)

    The Company had no gaming systems revenues prior to the Powerhouse
Acquisition. Revenues and income (loss) for these segments are as follows:

<TABLE>
<CAPTION>
                                                             YEARS ENDED JUNE 30,
                                                        ------------------------------
                                                          1998       1999       2000
                                                        --------   --------   --------
                                                                (IN THOUSANDS)
<S>                                                     <C>        <C>        <C>
Revenues:
  Gaming machines.....................................  $114,120   $124,179   $155,101
  Gaming operations...................................   119,023    126,092    190,706
  Gaming systems......................................        --         --    181,049
  Intercompany revenues...............................    (1,211)    (1,340)    (1,653)
                                                        --------   --------   --------
                                                        $231,932   $248,931   $525,203
                                                        ========   ========   ========

Income (loss) from operations:
  Gaming machines.....................................  $ 74,473   $ 67,955   $ 79,442
  Gaming operations...................................    33,944     31,447     30,116
  Gaming systems......................................        --         --     14,212
  General corporate expenses..........................    (2,186)   (15,587)    (3,534)
                                                        --------   --------   --------
                                                        $106,231   $ 83,815   $120,236
                                                        ========   ========   ========

Depreciation and amortization:
  Gaming machines.....................................  $  8,446   $ 12,406   $ 16,507
  Gaming operations...................................     4,012      4,716      9,364
  Gaming systems......................................        --         --     22,022
  Corporate...........................................       203        258      3,058
                                                        --------   --------   --------
                                                        $ 12,661   $ 17,380   $ 50,951
                                                        ========   ========   ========

Capital expenditures for property and equipment,
  intangible assets and other assets:
  Gaming machines.....................................  $ 20,649   $  8,753   $  9,369
  Gaming operations...................................     3,659      5,063      6,490
  Gaming systems......................................        --         --     63,354
  Corporate...........................................       113        141      3,373
                                                        --------   --------   --------
                                                        $ 24,421   $ 13,957   $ 82,586
                                                        ========   ========   ========

Identifiable assets:
Gaming machines.......................................  $ 98,884   $142,736   $111,882
Gaming operations.....................................    72,618    102,528    117,188
Gaming systems........................................        --    101,217    182,945
Corporate.............................................    73,632     44,811     20,340
Unallocated intangibles...............................        --    115,877    116,364
                                                        --------   --------   --------
                                                        $245,134   $507,169   $548,719
                                                        ========   ========   ========
</TABLE>

                                       61
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. BUSINESS SEGMENTS (CONTINUED)
    The Company had total international revenues of approximately $36.2 million
in fiscal 2000, primarily within its gaming systems segment. In fiscal 1998 and
1999, international revenues were immaterial.

6. ACCOUNTS AND NOTES RECEIVABLE

    The Company finances sales of gaming and systems equipment to certain
customers meeting minimum credit standards. These installment notes bear
interest at rates up to 18% and are to be paid over periods ranging from one to
nine years. Notes receivable also include notes due from various slot route
location owners with interest rates ranging from 8% to 12% to be paid over
periods ranging from 3 months to 20 years. Accounts and notes receivable consist
of the following:

<TABLE>
<CAPTION>
                                                                 JUNE 30,
                                                            -------------------
                                                              1999       2000
                                                            --------   --------
                                                              (IN THOUSANDS)
<S>                                                         <C>        <C>
Accounts receivable, trade................................  $31,897    $36,763
Notes receivable..........................................   20,948     19,743
                                                            -------    -------
                                                             52,845     56,506
Less allowance for doubtful accounts......................   (3,173)    (4,563)
                                                            -------    -------
Total accounts and notes receivable.......................   49,672     51,943
Less current portion:
  Accounts receivable.....................................   29,373     33,494
  Notes receivable........................................    9,153     10,465
                                                            -------    -------
Long-term notes receivable, net...........................  $11,146    $ 7,984
                                                            =======    =======
</TABLE>

    Long-term notes receivable, net, are included in other long-term assets in
the accompanying consolidated balance sheet. At June 30, 1999 and 2000,
approximately 20% and 14% of trade receivables, respectively, were from various
governments or their designated agencies. On June 30, 2000 the Company had
advanced approximately $6.5 million on behalf of the Pala Band of Mission
Indians, which are included in accounts and notes receivable, net on the
consolidated balance sheet at June 30, 2000. These advances were repaid
subsequent to June 30, 2000. The Company, through its 51%-owned consolidated
affiliate, Anchor Partners, LLC, has a receivable from Ourway Realty of
$5.5 million at June 30, 2000. The Company has a 25% ownership interest in
Ourway Realty.

                                       62
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. INVENTORY

    Inventories, net of valuation reserves, consist of the following:

<TABLE>
<CAPTION>
                                                                 JUNE 30,
                                                            -------------------
                                                              1999       2000
                                                            --------   --------
                                                              (IN THOUSANDS)
<S>                                                         <C>        <C>
Manufacturing
  Raw materials...........................................  $ 5,258    $ 5,901
  Work-in-process.........................................    1,795      1,593
  Finished goods..........................................   10,531      7,740
Other finished goods......................................    3,791      2,144
                                                            -------    -------
                                                            $21,375    $17,378
                                                            =======    =======
</TABLE>

    Inventory reserves were approximately $4.4 million at June 30, 1999, and
$6.0 million at June 30, 2000.

8. PROPERTY AND EQUIPMENT

    Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                         JUNE 30,
                                                ESTIMATED LIFE      -------------------
                                                   IN YEARS           1999       2000
                                             --------------------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                          <C>                    <C>        <C>
Land and improvements......................          15             $ 27,608   $ 27,854
Buildings and improvements.................        15 - 40            30,267     31,909
Gaming equipment...........................         3 - 7             92,181     92,417
On-line wagering equipment.................         5 - 7             40,099     74,348
Pari-mutuel equipment......................        3 - 10             16,784     20,423
Furniture, fixtures and equipment..........         3 - 7             16,670     26,095
Leasehold improvements.....................      4 - 31 1/2            8,087     10,442
                                                                    --------   --------
                                                                     231,696    283,488
Less accumulated depreciation..............                           43,648     82,512
                                                                    --------   --------
  Total....................................                         $188,048   $200,976
                                                                    ========   ========
</TABLE>

No interest was capitalized during the years ended June 30, 1998 and 1999.
During the year ended June 30, 2000, interest of $860,000 was capitalized for
construction of long-term assets.

                                       63
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. OTHER INTANGIBLE ASSETS

    Other intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                         JUNE 30,
                                                ESTIMATED LIFE      -------------------
                                                   IN YEARS           1999       2000
                                             --------------------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                          <C>                    <C>        <C>
Contract implementation....................         5 - 9           $     --   $ 15,961
Core technology............................        7 - 20             15,200     13,500
Customer base..............................        7 - 20             11,600     11,600
Assembled workforce........................           8                4,490      3,719
Other......................................         1 - 7              5,030      4,845
                                                                    --------   --------
                                                                      36,320     49,625
Less accumulated amortization..............                            1,800      5,729
                                                                    --------   --------
  Total....................................                         $ 34,520   $ 43,896
                                                                    ========   ========
</TABLE>

    The Company acquired its core technology in the Powerhouse Acquisition, and
has not capitalized any additional software development costs in the three-year
period ended June 30, 2000. Contract implementation costs include the costs of
implementing and installing systems used to provide services under long-term
contracts. These costs are amortized over the lives of the related contracts.

10. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

    The Company has investments in unconsolidated affiliates that are accounted
for under the equity method. Under the equity method, original investments are
recorded at cost and adjusted by the Company's share of earnings, losses and
distributions of these affiliates. Investments in unconsolidated affiliates
consist primarily of a 50% interest in a joint venture (the "Anchor-IGT joint
venture") with International Game Technology ("IGT"). The primary business of
the Anchor-IGT joint venture is to distribute gaming machines on wide-area
progressive systems. The Company's share of net earnings from the Anchor-IGT
joint venture are included in revenue from gaming machines. The Company has
other unconsolidated investments at June 30, 2000, that were not material to the
balance sheet or results of operations.

    The Anchor-IGT joint venture has a fiscal year end of September 30.
Summarized results of operations of the Anchor-IGT joint venture for the years
ended June 30, 1998, 1999, and 2000 are as follows:

<TABLE>
<CAPTION>
                                                     YEARS ENDED JUNE 30,
                                                ------------------------------
                                                  1998       1999       2000
                                                --------   --------   --------
                                                        (IN THOUSANDS)
<S>                                             <C>        <C>        <C>
Revenues......................................  $212,237   $289,472   $343,015
Expenses......................................    99,572    143,535    161,204
Operating income..............................   112,665    145,937    181,811
Net income....................................   113,323    147,849    186,269
</TABLE>

    Depreciation expense was $10.6 million, $17.6 million, and $22.6 million for
the twelve months ended June 30, 1998, 1999, and 2000, respectively.

                                       64
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. INVESTMENTS IN UNCONSOLIDATED AFFILIATES (CONTINUED)
    Summarized balance sheet information of the Anchor-IGT joint venture is as
follows:

<TABLE>
<CAPTION>
                                                                JUNE 30,
                                                           -------------------
                                                             1999       2000
                                                           --------   --------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Current assets...........................................  $92,035    $147,787
Property and other long-term assets, net.................   98,410     102,807
Current liabilities......................................   24,339      39,034
Long-term debt and other liabilities.....................  106,419      82,177
Equity...................................................   59,687     129,383
</TABLE>

    The Anchor-IGT joint venture is subject to various risks and uncertainties
including, but not limited to, gaming regulatory requirements. The Company's
annual report on Form 10-K includes a comprehensive set of the Company's risk
factors, including those related to the Anchor-IGT joint venture. The Anchor-IGT
joint venture's operations are subject to the licensing and regulatory
requirements of multiple jurisdictions throughout the United States and
internationally. The Company's, IGT's and the Anchor-IGT joint venture's gaming
licenses are subject to certain conditions and periodic renewal. Management
believes that the conditions will continue to be satisfied and that subsequent
license renewals will be granted.

11. OTHER CURRENT LIABILITIES

    Other current liabilities consists of the following:

<TABLE>
<CAPTION>
                                                                 JUNE 30,
                                                            -------------------
                                                              1999       2000
                                                            --------   --------
                                                              (IN THOUSANDS)
<S>                                                         <C>        <C>
Labor, compensation and benefits..........................  $11,160    $11,583
Commission and royalties..................................    2,600      2,778
Billings in excess of costs and estimated earnings........      792      3,129
Merger related accruals...................................   11,541         --
Other accrued expenses....................................   16,393     12,687
                                                            -------    -------
                                                            $42,486    $30,177
                                                            =======    =======
</TABLE>

                                       65
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. OTHER CURRENT LIABILITIES (CONTINUED)
Contracts involving a substantial construction component are recorded as
long-term contracts, and associated revenues are recognized on the percentage of
completion method. Included in the Company's consolidated balance sheets are the
following balances related to such contracts in process.

<TABLE>
<CAPTION>
                                                                   JUNE 30,
                                                              -------------------
                                                                1999       2000
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Costs and estimated earnings in excess of billings
  (included within other current assets)....................   $ 547     $ 4,679
Billings in excess of costs and estimated earnings
  (included within other current liabilities)...............    (792)     (3,129)
                                                               -----     -------
                                                               $(245)    $ 1,550
                                                               =====     =======
</TABLE>

12. LONG-TERM DEBT

    Long-term debt, including capitalized lease obligations, consists of the
following:

<TABLE>
<CAPTION>
                                                               JUNE 30,
                                                          -------------------
                                                            1999       2000
                                                          --------   --------
                                                            (IN THOUSANDS)
<S>                                                       <C>        <C>
Variable rate revolving line of credit, rate of 8% as of
  June 30, 2000, due June 30, 2004......................  $210,000   $221,500
Notes payable at interest rates of 0% and 2%, due in
  annual installments through March 2001................     3,931        944
6% to 8% various notes and capital lease obligations,
  due in monthly installments of $3,000 to $40,000
  including interest, maturing through March 2004.......     2,925      1,850
                                                          --------   --------
                                                           216,856    224,294
Less current portion....................................     4,051      1,524
                                                          --------   --------
Long-term debt, net of current portion..................  $212,805   $222,770
                                                          ========   ========
</TABLE>

    The aggregate maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,                                          (IN THOUSANDS)
--------------------                                          --------------
<S>                                                           <C>
2001........................................................     $  1,524
2002........................................................       22,063
2003........................................................       50,394
2004........................................................      150,313
                                                                 --------
                                                                 $224,294
                                                                 ========
</TABLE>

    In June 1999, the Company entered into a $300 million unsecured revolving
credit facility (the "Credit Facility") expiring June 30, 2004. At the option of
the Company, the Credit Facility bears interest at a base rate approximating
prime, plus an applicable margin or LIBOR plus an applicable margin. The base
rate applicable margin may fluctuate between 0% and 1% and the LIBOR applicable

                                       66
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. LONG-TERM DEBT (CONTINUED)
margin may fluctuate between 1% and 2% depending on the Company's consolidated
leverage ratio as defined in the Credit Facility agreement, but is subject to
change based upon the stock purchase transaction discussed in Note 19.

    The Credit Facility contains a reducing feature whereby the total amount of
the available facility is reduced quarterly beginning September 30, 2000 by
$12.5 million per quarter until the total facility has been reduced to
$150 million. Principal payments are required on each quarterly reducing date to
the extent that total indebtedness outstanding under the facility exceeds the
reduced amount of the available facility. The Company may use up to $20 million
of the facility for letters of credit of which $2.6 million was outstanding at
June 30, 2000. The Credit Facility as amended in March 2000 carries customary
restrictive covenants including, but not limited to maintenance of leverage and
fixed charge coverage ratios, limitations on capital expenditures, mergers and
acquisitions, disposition of assets, distributions, additional debt and liens.
Management of the Company believes it is in compliance with these covenants as
of June 30, 2000. Upon closing in June 1999, the Company used $210 million in
proceeds from the Credit Facility to fund the Powerhouse Acquisition.

13. EARNINGS PER SHARE

    A reconciliation of income and shares for basic and diluted earnings per
share (EPS) is as follows:

<TABLE>
<CAPTION>
                                                                 YEARS ENDED JUNE 30,
                          ---------------------------------------------------------------------------------------------------
                                       1998                              1999                              2000
                          -------------------------------   -------------------------------   -------------------------------
                                                PER-SHARE                         PER-SHARE                         PER-SHARE
                           INCOME     SHARES     AMOUNT      INCOME     SHARES     AMOUNT      INCOME     SHARES     AMOUNT
                          --------   --------   ---------   --------   --------   ---------   --------   --------   ---------
                                                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                       <C>        <C>        <C>         <C>        <C>        <C>         <C>        <C>        <C>
Basic EPS:
  Net income............  $68,400     12,751      $5.36     $47,507     12,164      $3.91     $64,959     11,833      $5.49
Effect of Dilutive
  Securities:
  Options...............       --        410       (.16)         --        264       (.09)         --        178       (.08)
                          -------     ------      -----     -------     ------      -----     -------     ------      -----
Diluted EPS:
  Net Income............  $68,400     13,161      $5.20     $47,507     12,428      $3.82     $64,959     12,011      $5.41
                          =======     ======      =====     =======     ======      =====     =======     ======      =====
</TABLE>

                                       67
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK OPTIONS AND STOCK RIGHTS

    As of June 30, 2000, 1,535,000 shares of common stock were reserved for
issuance upon exercise of employee and director stock options under an employee
stock option plan (the "Plan"). Employee and director options to purchase
1,432,000 shares, at the fair market values at the grant dates have been granted
as of June 30, 2000 under the Plan. As of June 30, 2000, options to purchase
872,750 shares had been exercised. These options vest in varying increments over
varying periods. An additional 40,000 shares are reserved for issuance upon
exercise of vested options at the IPO price that were granted to a relative of
certain minority stockholders (none of which were exercised at June 30, 2000).
Options to purchase an additional 600,000 shares were granted at the fair market
value at the grant date to certain employees outside of the Plan. These non-plan
options vest in varying increments over periods from nine months to eight years.

    Summarized information for all options is as follows for the years ended
June 30:

<TABLE>
<CAPTION>
                                            1998                         1999                         2000
                                 --------------------------   --------------------------   --------------------------
                                                WEIGHTED                     WEIGHTED                     WEIGHTED
                                                AVERAGE                      AVERAGE                      AVERAGE
                                  OPTIONS    EXERCISE PRICE    OPTIONS    EXERCISE PRICE    OPTIONS    EXERCISE PRICE
                                 ---------   --------------   ---------   --------------   ---------   --------------
<S>                              <C>         <C>              <C>         <C>              <C>         <C>
Outstanding, beginning of the
  year.........................  1,133,025       $24.98       1,060,925       $30.30         993,550       $31.55
  Granted......................    124,000        56.03          28,800        52.50         448,000        49.62
  Exercised....................   (178,800)       14.31         (83,375)       20.63        (208,100)       26.96
  Canceled.....................    (17,300)       31.57         (12,800)       46.17         (64,200)       26.65
                                 ---------       ------       ---------       ------       ---------       ------
Outstanding, end of the year...  1,060,925       $30.30         993,550       $31.55       1,169,250       $39.56
                                 =========       ======       =========       ======       =========       ======
Exercisable at end of the
  year.........................    271,675       $21.51         426,050       $24.33         287,833       $30.36
                                 =========       ======       =========       ======       =========       ======
Options available for grant....     82,800                      166,800                      103,000
                                 =========                    =========                    =========
</TABLE>

    The following table summarizes information about the options outstanding at
June 30, 2000:

<TABLE>
<CAPTION>
                                             OPTIONS OUTSTANDING                         OPTIONS EXERCISABLE
                              --------------------------------------------------   -------------------------------
                                  NUMBER       WEIGHTED AVERAGE      WEIGHTED          NUMBER          WEIGHTED
                              OUTSTANDING AT      REMAINING          AVERAGE       EXERCISABLE AT      AVERAGE
RANGE OF EXERCISE PRICES      JUNE 30, 2000    CONTRACTUAL LIFE   EXERCISE PRICE   JUNE 30, 2000    EXERCISE PRICE
------------------------      --------------   ----------------   --------------   --------------   --------------
<S>                           <C>              <C>                <C>              <C>              <C>
$12.00 - $13.50............        55,450              3.6            $ 12.27           55,450          $12.27
14.75 - 21.75..............        96,800              5.0              21.63           61,800           21.56
31.88 - 46.88..............       442,700              6.7              32.15          117,350           32.90
49.50 - 72.88..............       574,300              8.9              50.93           53,233           53.83
                                ---------           ------            -------          -------          ------
                                1,169,250              7.5            $ 39.56          287,833          $30.36
                                =========           ======            =======          =======          ======
</TABLE>

    The Company is authorized to issue 1,000,000 shares of preferred stock, $.01
par value per share (the "Preferred Stock"), in one or more series, and to
designate the rights, preferences, limitations, and restrictions of and upon
shares of each series, including voting, redemption, and conversion rights. The
board of directors of the Company also may designate dividend rights and
preferences in liquidation.

    The board of directors of Anchor authorized the Company to enter into a
Stockholder Rights Plan (the "Rights Plan") providing that one right (a "Right")
will be attached to each share of common stock as of a record date to be
determined by the board of directors of Anchor (the "Record Date").

                                       68
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK OPTIONS AND STOCK RIGHTS (CONTINUED)
In connection with the authorization of the Rights Plan, the board of directors
of the Company has authorized the designation of 50,000 shares of Preferred
Stock as Series A Junior Participating Preferred Stock with a par value of
$20.00 per share. Each Right under the Rights Plan will entitle the registered
holder to purchase from the Company a unit (a "Unit") consisting of one
one-thousandth of a share of Series A Junior Participating Preferred stock at a
purchase price of $400 per Unit, subject to adjustment. The Rights convert in
certain circumstances into a right to purchase common stock or securities of a
successor entity.

    The Company has adopted the disclosures-only provision of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Company applies
APB Opinion No. 25 and related interpretations in accounting for its stock
options. Under APB No. 25, no compensation cost has been recognized in the
financial statements for the Stock Option Plan or other stock options granted.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. Had compensation cost for the stock option
grants been determined based on the fair value at the date of grant for awards
consistent with the provision of SFAS No. 123, the Company's net income per
common and common equivalent share would have decreased to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
                                                                    YEARS ENDED JUNE 30,
                                                           ---------------------------------------
                                                             1998           1999           2000
                                                           ---------      ---------      ---------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                        <C>            <C>            <C>
Net income-as reported...............................       $68,400        $47,507        $64,959
Net income-pro forma.................................        66,947         46,411         62,692

Basic earnings per share-as reported.................       $  5.36        $  3.91        $  5.49
Basic earnings per share-pro forma...................          5.25           3.82           5.30

Diluted earnings per share-as reported...............       $  5.20        $  3.82        $  5.41
Diluted earnings per share-pro forma.................          5.09           3.73           5.22
</TABLE>

    The fair value of each option granted in fiscal years 1998, 1999 and 2000
was estimated using the following assumptions for the Black-Scholes option
pricing model: (i) no dividends; (ii) expected volatility of 60% for 1998 and
1999 and 50% for 2000; (iii) risk free interest rates averaging, 6% for 1998, 6%
for 1999, and 6% for 2000; and (iv) an expected average life of 4.6 years for
1998 3.1 years for 1999, and 5.4 years for 2000. The weighted average fair value
of the options granted in 1998, 1999 and 2000 were $30.00, $22.93 and $26.23,
respectively. Because the SFAS No. 123 method of accounting has not been applied
to options granted prior to July 1, 1995, the resulting pro forma net income may
not be representative of that to be expected in future years.

15. RELATED PARTY TRANSACTIONS

    During of the year ended June 30, 1998, notes payable to the principal
stockholder resulted in interest expense of $224,000. The $2,800,000 principal
amount of the notes consisted of unsecured notes payable bearing interest at 8%
that were due July 1, 1998. The notes were paid in full during the year ended
June 30, 1998.

                                       69
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. RELATED PARTY TRANSACTIONS (CONTINUED)

    Richard R. Burt, who became the vice chairman of the board of directors on
June 29, 1999, is the chairman and a founder of IEP Advisors, Inc. ("IEP"),
which has been retained by the Company to provide consulting services and to
assist the Company in connection with its international activities. The Company
paid IEP $250,000 during fiscal 2000. In addition, Mr. Burt and the Company
entered into a consulting agreement in September 1999, under which Mr. Burt is
to provide assistance to the Company and its affiliates in the expansion of
their international activities. The agreement has a two-year term from June 30,
1999, and may be terminated by the Company or by Mr. Burt upon 30 days' prior
written notice. Mr. Burt was paid $60,000 during fiscal 2000 under this
agreement.

16. INCOME TAXES

    The provision for income taxes is as follows:

<TABLE>
<CAPTION>
                                                               YEARS ENDED JUNE 30,
                                                          ------------------------------
                                                            1998       1999       2000
                                                          --------   --------   --------
                                                                  (IN THOUSANDS)
<S>                                                       <C>        <C>        <C>
Current:
  Federal...............................................  $ 47,258   $39,847    $26,087
  State.................................................     4,168     4,012      5,085
                                                          --------   -------    -------
                                                            51,426    43,859     31,172
                                                          --------   -------    -------

Deferred:
  Federal...............................................    (9,510)   (3,870)    10,081
  State.................................................      (876)     (567)     1,158
                                                          --------   -------    -------
                                                           (10,386)   (4,437)    11,239
                                                          --------   -------    -------
Total...................................................  $ 41,040   $39,422    $42,411
                                                          ========   =======    =======
</TABLE>

    The historical provision for income taxes differs from the amount of income
tax determined by applying the applicable U. S. statutory federal income tax
rate to pre-tax income from continuing operations as a result of the following:

<TABLE>
<CAPTION>
                                                                       YEARS ENDED JUNE 30,
                                               ---------------------------------------------------------------------
                                                      1998                     1999                     2000
                                               -------------------      -------------------      -------------------
                                                                          (IN THOUSANDS)
<S>                                            <C>        <C>           <C>        <C>           <C>        <C>
Statutory U. S. tax rate.....................  $38,304      35.0%       $30,425      35.0%       $37,580      35.0%
Increase in tax resulting from:
  State income taxes, net of federal tax
    effect...................................    2,140       2.0          2,240       2.6          4,058       3.8
  Acquired in-process research and
    development not deductible...............                             6,125       7.0
  Other, net.................................      596       0.5            632       0.7            773       0.7
                                               -------      ----        -------      ----        -------      ----
Actual provision for income taxes............  $41,040      37.5%       $39,422      45.3%       $42,411      39.5%
                                               =======      ====        =======      ====        =======      ====
</TABLE>

                                       70
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. INCOME TAXES (CONTINUED)
    SFAS No. 109 "Accounting for Income Taxes" requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or income tax
returns. Deferred income taxes included in other current assets and other
long-term assets on the consolidated balance sheets reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
The tax items creating the Company's net deferred tax asset as of June 30, 1999
and 2000 are as follows:

<TABLE>
<CAPTION>
                                                               JUNE 30,
                                                          -------------------
                                                            1999       2000
                                                          --------   --------
                                                            (IN THOUSANDS)
<S>                                                       <C>        <C>
CURRENT
Deferred tax assets:
  Accrued reserves and allowances.......................  $  4,040   $  3,396
  Other.................................................       399         --
                                                          --------   --------
    Total current asset.................................     4,439      3,396
                                                          --------   --------
LONG-TERM
Deferred tax assets:
  Accrued reserves and allowances.......................    19,508     19,417
  Net operating loss carryforwards......................    14,961      8,030
  Expenses not currently deductible.....................        --         --
  Other.................................................     1,505      1,616
Deferred tax liabilities:
  Difference between book and tax basis of property.....   (12,785)   (13,023)
  Difference between book and tax basis of purchase
    accounting..........................................    (9,620)   (10,253)
  Other.................................................    (2,391)    (6,446)
Valuation allowance.....................................    (1,641)        --
                                                          --------   --------
    Total long-term liability, net......................     9,537       (659)
                                                          --------   --------
Net deferred tax asset..................................  $ 13,976   $  2,737
                                                          ========   ========
</TABLE>

    The ultimate realization of deferred tax assets is dependent upon the
existence of, or generation of, taxable income in the periods in which those
temporary differences and carryforwards are deductible. The utilization of
deferred tax assets may also be dependent upon the existence or generation of
taxable income in specific subsidiaries. Management considers the timing of the
reversal of deferred tax liabilities, taxes paid in carryback years, projected
future taxable income and other tax planning strategies in assessing whether
deferred tax assets will be realizable. Based upon these considerations,
management has determined that the Company will realize the benefits of these
deductible differences and carryforwards and has eliminated the June 30, 1999
valuation allowance.

17. BENEFIT PLAN

    During the year ended June 30, 2000, the Company adopted a defined
contribution benefit plan ("401(k) Plan") for all employees of subsidiaries with
domestic operations. The Company's matching contributions to the 401(k) Plan are
based on a percentage of the employees' contributions to the plan.

                                       71
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. BENEFIT PLAN (CONTINUED)
The Company's contributions to the 401(k) Plan are charged against income as
incurred. The Company contributed approximately $1.2 million to the 401(k) Plan
during the year ended June 30, 2000. The Company has the right under the 401(k)
Plan to discontinue matching contributions at any time and to terminate the
401(k) Plan subject to the provisions of ERISA.

18. COMMITMENTS AND CONTINGENCIES

NON-CANCELABLE OPERATING LEASES

    The Company leases manufacturing space, parking lot space, office space,
casino space, and slot route locations under non-cancelable operating leases.
The original terms of the leases range from 1 to 15 years with various renewal
options from 1 to 15 years. The casino space lease has contingent rentals based
on gaming revenues of the casino occupying the space. The lease provides for a
monthly payment of the greater of a base amount of $12,000 or 5% of adjusted
gross gaming revenue, with a payment ceiling of $400,000 per year. Contingent
rentals paid above base amounts were $256,000 for each year in the three-year
period ended June 30, 2000. Operating lease rental expense was $11,878,000,
$12,833,000, and $17,009,000 for the fiscal years ended June 30, 1998, 1999, and
2000, respectively.

    Future minimum rentals under non-cancelable operating leases at June 30,
2000 are:

<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,                                          (IN THOUSANDS)
--------------------                                          --------------
<S>                                                           <C>
2001........................................................     $ 20,875
2002........................................................       20,646
2003........................................................       19,812
2004........................................................       13,117
2005........................................................       10,195
Thereafter..................................................       49,003
                                                                 --------
                                                                 $133,648
                                                                 ========
</TABLE>

    Included in other assets at June 30, 1999 and 2000 is a space lease deposit
of $3.3 million, which is held by the lessor of several slot route locations
pursuant to an agreement that provides that the deposit, or any portion thereof,
may, at the option of the Company, be applied against rents owing during the
last two years of the lease agreement. Also included in deposits are payments
totaling $10.8 million to this lessor to extend the lease term for these
locations through the year 2010. The lease extension payments are amortized to
rent expense on a straight-line basis over the remaining term of the lease. The
Company's slot route operations at locations leased from this lessor accounted
for more than 10% of the Company's total revenues for the years ended June 30,
1998 and 1999, and for approximately 5% of the Company's total revenues for the
year ended June 30, 2000.

PALA GUARANTY

    Under the terms of the Development Services and Financing Agreement with the
Pala Board of Mission Indians, the Company agreed to assist the Pala tribe in
obtaining financing for the construction and operation of PALA, a casino and
entertainment facility in northern San Diego County, California, and to advance
funds during the design and development stages. The Pala tribe secured a
$100 million credit facility through a loan agreement and ancillary financial
documents finalized on June 15, 2000.

                                       72
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
As a condition to receiving financing, the Company was required to guarantee the
full payment and performance of the obligations of the Pala tribe under the loan
agreement. The Company executed a guaranty, which remains in effect until the
earlier of either repayment in full of all guaranteed financial obligations
under the loan agreement or delivery to lenders of a leasehold mortgage on PALA
if the facility has been in operation for at least twelve months and certain
financial and leverage threshholds have been met. The guaranty will also be
released 60 days following the date on which the Company or any of its
affiliates ceases to be the manager of PALA, unless lenders have demanded
payment of outstanding obligations from the Pala tribe during such period.
Anchor Pala Development LLC, the Company's wholly-owned subsidiary, will receive
a development fee based on the actual total project costs and a project fee
based on net gaming and non-gaming PALA revenues. As additional consideration
for all costs, risks, restrictions, and expenses associated with providing the
guaranty, the Company will receive fees based primarily on a percentage of the
outstanding loan balance. In addition, the Company has agreed to fund PALA
project cost overruns up to a total of $25.0 million.

GAMING REGULATIONS

    The Company's route operations are subject to the licensing and regulatory
requirements of the Nevada State Gaming Control Board, the Nevada Gaming
Commission, and the Montana Department of Justice, Gambling Control Division.
The Company's operating casinos are subject to the licensing and regulatory
requirements of the Colorado Limited Gaming Control Commission, New Mexico
Gaming Control Board, and New Mexico Racing Commission. The Company's
proprietary games operations are subject to the licensing and regulatory
requirements of multiple jurisdictions throughout the United States and Canada
including the Nevada and Colorado requirements. The Company is also subject to
regulations of the New Mexico Racing Commission and the New Mexico Gaming
Control Board as well as regulations governing lotteries and pari-mutuel
systems. The Company's gaming licenses are subject to certain conditions and
periodic renewal. Management believes that the conditions will continue to be
satisfied and that subsequent license renewals will be granted.

ENVIRONMENTAL MATTERS

    The Colorado Central Station Casino is located in an area that has been
designated by the Environmental Protection Agency ("EPA") as a superfund site on
the National Priorities List, known as the Central City-Clear Creek Superfund
Site (the "Site") as a result of contamination from historic mining activity in
the area. The EPA is entitled to proceed against owners and operators of
properties located within the Site for remediation and response costs associated
with their properties and with the entire Site. The Colorado Central Station
Casino is located within the drainage basin of North Clear Creek and is
therefore subjected to potentially contaminated surface and ground water from
upstream mining-related sources. Soil and ground water samples on the Site
indicate that several contaminants exist in concentrations exceeding drinking
water standards. Records relating to historical uses of the Site are uncertain
as to whether mining actually occurred below the Company's property. Records do
indicate that an ore loading dock for a railroad depot was once located on an
adjacent property, and railroad tracks were present on the Company's property.
The Company applied the guidance in Statement of Position 96-1 "Environmental
Remediation Liabilities" and determined that a liability has not been incurred
as the criteria of this standard have not been met.

                                       73
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
    The Colorado Central Station Casino was constructed with foundation drains
to intercept ground water and direct it to a sump, which is then piped to a
leach field on the property. During the year ended June 30, 1999, the Colorado
Central Station Casino ("CCSC") experienced a large increase in the flow of
ground water into its sump. The increase in water flow eventually overwhelmed
the capacity of the leach field and required the water to be pumped into North
Clear Creek. The Colorado State Health Department-Water Quality Control
Commission indicated that a permit for the discharge of the water into North
Clear Creek would be required and that treatment of the discharge, prior to
placing it in North Clear Creek, may also be required. The potential cost of
treating the increased water flows could approach one half million dollars
although there is recent evidence that the water flow may be lessening.

LITIGATION

    On February 17, 2000, the Company filed a complaint in U.S. District Court,
District of Nevada against former officers of Powerhouse Technologies, Inc. and
other parties. The complaint questions certain specified accounting practices
that were used prior to the acquisition.

    In February 1999, GTECH Holdings Corporation filed a complaint for
declaratory judgment, injunction, and violation of the Public Records Law
against the State of Florida, Department of Lottery and AWI, a subsidiary of
ours, in the Circuit Court, Second Judicial Circuit, in Leon County, Florida.
The complaint requests the Circuit Court to declare the contract between AWI and
the Florida Lottery void in the event the First District Court of Appeal of
Florida upholds the Florida Lottery's decision to award the on-line lottery
services contract to AWI. Subsequent to the execution of the renegotiated
contract between AWI and the Florida Lottery in March 1999, GTECH Holdings
Corporation amended the complaint.

    On January 28, 2000 the Circuit Court of Leon County granted GTECH Holdings
Corporation's cross motion for summary judgment on Count II of the complaint
filed by GTECH in March 1999. Count II of GTECH's complaint challenges the
validity of the amended contract entered into on March 9, 1999 between the State
of Florida, the Department of Lottery, and AWI, on the grounds that, among other
things, the amended contract is materially different from the proposal which AWI
submitted. The ruling declares null and void the amended contract between the
Florida Lottery and AWI effective February 2, 2000. The Florida Lottery filed an
appeal on February 2, 2000 and as a result, an automatic stay of the prior order
took place. The Florida Lottery and AWI filed an appeal on March 27, 2000. The
appeal is currently pending. AWI continues to provide its on-line gaming
services and products to the Florida Lottery under the terms of the amended
contract. The Company will vigorously defend and protect AWI's rights under this
lottery agreement. There can be no assurance, however, that our AWI subsidiary
will be successful in its efforts or that the ultimate results of this
litigation will be favorable to the Company. The Company has, to date, invested
approximately $35 million in equipment and systems for the Florida Lottery. If
unsuccessful in this litigation, this capital expenditure may be jeopardized.

    In February 1999, we and the Anchor-IGT joint venture filed an action in U.
S. district court, District of Nevada, against Acres Gaming, Inc. ("Acres"). The
complaint alleges infringement of Company secondary event patents as well as
various contract breaches by Acres. In April 1999, Acres responded to the
lawsuit by filing an answer and counterclaim against us and the Anchor-IGT joint
venture. Additionally, in April 1999, Acres filed an action in Oregon state
circuit court against the

                                       74
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company and the Anchor-IGT joint venture alleging wrongful use of Acres
intellectual property and breach of fiduciary duties. The Company believes
Acres' counterclaim and state circuit court lawsuit are without merit and
intends to vigorously contest the claims. The Oregon state circuit court action
has been moved to the U.S. District Court, District of Oregon, and has been
stayed pending the outcome of the Nevada actions.

    Several securities class action lawsuits have been filed against the Company
and certain of the Company's current and former officers and directors. The
lawsuits were filed in various jurisdictions following the Company's
announcement in early December 1997 that the results for the December quarter
might not meet analysts' expectations. The lawsuits have been brought on behalf
of a purported class of purchasers of the Company's stock and allege violations
of state and/or federal securities laws arising out of alleged misstatements and
omissions to state material facts over various periods of time covered by the
suits. The lawsuits were consolidated in Nevada, both in federal and state
court. The consolidated federal action, captioned In re Anchor Gaming Securities
Litigation, Civil Action No. CV-S-97-01751-PMP (RJJ), was dismissed on
January 6, 1999 with the court entering a judgment in our favor. The
consolidated state action, captioned Ryan, et al. v. Anchor Gaming, et al.,
Civil No. A383456, has been stayed by order of the court. Certain other actions
have been transferred and/or dismissed. The Company believes that the claims are
without merit, and they intend to vigorously contest the lawsuits. The Company
cannot presently state the nature of further proceedings, if any, in the state
or federal actions.

PURCHASE COMMITMENTS

    At June 30, 2000, the Company had entered into various purchase agreements
to purchase gaming equipment for approximately $15.8 million.

19. SUBSEQUENT EVENTS

STOCK PURCHASE TRANSACTION

    On September 25, 2000, the Company announced the execution of a definitive
agreement with the Company's Chairman, Stanley Fulton, and members of his family
and their affiliates to acquire approximately 4.6 million shares of our common
stock for a purchase price of $66.60 per share. The Company intends to finance
this transaction through an offering of $250 million of senior subordinated
notes and an amendment to our senior credit facility.

    The Fulton family members and their affiliates will retain ownership of
approximately 539,600 shares after the transaction. Stanley Fulton, his son
Michael Fulton, and his daughter Elizabeth Jones have agreed to resign their
positions on our board of directors upon completion of the transaction.

    The purchase consideration for the shares comprises $240 million in cash and
$66 million of promissory notes that Stanley Fulton will receive for a portion
of the shares he is selling.

RACETRACK ASSET SALE TRANSACTION

    In conjunction with the stock purchase transaction with the Fulton family,
the Company has entered into an agreement with Stanley Fulton to sell him
substantially all of the assets relating to Sunland Park Racetrack & Casino,
located in New Mexico, and our 25% interest in a Massachusetts

                                       75
<PAGE>
                                 ANCHOR GAMING

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SUBSEQUENT EVENTS (CONTINUED)
horse racing facility. Stanley Fulton has agreed to pay $66.0 million for these
assets by canceling our obligations under the promissory notes. The Company
expects to complete the sale of these racetrack assets to Mr. Fulton by the end
of March 2001, subject to regulatory approvals and the satisfaction of other
conditions. After the sale of these assets, the Company will retain the right to
manage gaming operations at the Massachusetts racetrack if casino gaming is
legalized in Massachusetts. The book value of the assets to be sold was
approximately $52.7 million at June 30, 2000. The Company expects to record a
pre-tax gain of $12.4 million, net of applicable transaction costs. The tax
expense associated with this transaction is expected to be approximately
$18.5 million.

FINANCING TRANSACTIONS

    The stock purchase transaction requires an amendment to their existing
senior credit facility. The Company has received a commitment from Bank of
America, N.A. that provides for the requisite amendment and allows for the
offering of the notes. The Company intends to finance the stock purchase through
the net proceeds from the offering of the notes and borrowings under our senior
credit facility. The Company expects the amendment to the senior credit facility
and the offering of the notes to close concurrently with the closing of the
stock purchase transaction.

CONSULTING AGREEMENT

    In conjunction with the stock purchase transaction and racetrack asset sale,
the Company has executed a 10-year consulting agreement with Stanley Fulton.
Under the terms of the agreement, Mr. Fulton will receive an annual salary of
$245,000 per year and executive-level benefits for 10 years in consideration of
consulting services that he will provide to the Company.

STOCK SPLIT

    On September 25, 2000, the Company announced that the board of directors had
authorized a 2-for-1 stock split. As a result of the stock split, stockholders
of record as of October 31, 2000 will receive one additional share of our common
stock for every share then owned. The new shares will be issued as soon as
practicable following the record date.

    Information provided in the financial statements has not been adjusted to
reflect the stock split.

EXECUTIVE COMPENSATION PLAN

    The Company recently entered into employment arrangements with their senior
executive management. These new employment arrangements include employment
agreements and new restricted stock grants and stock option grants. The Company
has not executed definitive agreements with respect to these executive
compensation arrangements.

                                       76
<PAGE>
              SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                            1ST QTR    2ND QTR    3RD QTR    4TH QTR     TOTAL
                                            --------   --------   --------   --------   --------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                         <C>        <C>        <C>        <C>        <C>
YEAR ENDED JUNE 30, 2000
  Revenues................................  $127,001   $130,745   $125,461   $141,996   $525,203
  Income From Operations..................    29,355     29,073     30,740     31,068    120,236
  Net Income..............................    15,774     15,288     16,013     17,884     64,959
  Basic Earnings Per Share................  $   1.32   $   1.27   $   1.35   $   1.55   $   5.49
  Diluted Earnings Per Share..............  $   1.30   $   1.25   $   1.33   $   1.54   $   5.41
</TABLE>

<TABLE>
<CAPTION>
                                            1ST QTR    2ND QTR    3RD QTR    4TH QTR     TOTAL
                                            --------   --------   --------   --------   --------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                         <C>        <C>        <C>        <C>        <C>
YEAR ENDED JUNE 30, 1999
  Revenues................................  $ 64,603   $ 61,837   $ 59,820   $ 62,671   $248,931
  Income From Operations..................    29,669     25,941     22,452      5,753     83,815
  Net Income..............................    19,048     16,647     14,472     (2,660)    47,507
  Basic Earnings Per Share................  $   1.52   $   1.37   $   1.20   $  (0.22)  $   3.91
  Diluted Earnings Per Share..............  $   1.48   $   1.34   $   1.18   $  (0.22)  $   3.82
</TABLE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE

    None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    Incorporated herein by reference to our proxy statement for the
November 17, 2000, Annual Meeting of Stockholders under the caption
"Management-Directors and Executive Officers."

ITEM 11.  EXECUTIVE COMPENSATION

    Incorporated herein by reference to our proxy statement for the
November 17, 2000, Annual Meeting of Stockholders under the caption "Executive
Compensation and Other Information", provided that the Performance Graph and the
Compensation Committee Report on Executive Compensation are expressly not
incorporated herein.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Incorporated herein by reference to our proxy statement for the
November 17, 2000, Annual Meeting of Stockholders under the caption "Security
Ownership of Certain Beneficial Owners and Management."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Incorporated herein by reference to our proxy statement for the
November 17, 2000, Annual Meeting of Stockholders under the caption "Executive
Compensation and Other Information-Compensation Committee Interlocks and Insider
Participation."

                                       77
<PAGE>
                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>

       <S>                   <C>
       (a)(1)                The following documents are filed as part of this Report:

                             Consolidated Balance Sheets as of June 30, 1999 and 2000

                             Consolidated Statements of Income for the fiscal years ended
                             June 30, 1998, 1999, and 2000

                             Consolidated Statements of Stockholders' Equity for the
                             fiscal years ended June 30, 1998, 1999, and 2000

                             Consolidated Statements of Cash Flows for the fiscal years
                             ended June 30, 1998, 1999, and 2000

                             Notes to Consolidated Financial Statements

                             Independent Auditors' Report

       (a)(2)                The following financial schedules for fiscal years ending
                             June 30, 1998, 1999, and 2000 are submitted herewith:

                             Schedule II-Valuation and Qualifying Accounts

                             All other schedules are omitted as the required information
                             is inapplicable

       (a)(3)                Management Contract or Compensatory Plan

                             See Index to Exhibits. Each of the following Exhibits
                             described on the Index to Exhibits is a management contract
                             or compensatory plan: Exhibits 10.10 through 10.28 and 10.31
                             through 10.34.

       (b)                   Reports on Form 8-K

                             Current Report on Form 8-K dated September 26, 2000.

       (c)                   Exhibits

                             See Index to Exhibits.

       (d)                   Financial Statement Schedule filed in Part IV of this report
                             is as follows:
</TABLE>

SCHEDULE:

II--Valuation and Qualifying Accounts-Years Ended June 30, 1998, 1999, and 2000.

                                       78
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Anchor Gaming has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S>                                                    <C>  <C>
                                                       ANCHOR GAMING

                                                       By:            /s/ THOMAS J. MATTHEWS
                                                            -----------------------------------------
                                                                        Thomas J. Matthews
                                                                     CHIEF EXECUTIVE OFFICER

                                                       By:             /s/ GEOFFREY A. SAGE
                                                            -----------------------------------------
                                                                         Geoffrey A. Sage
                                                                     CHIEF FINANCIAL OFFICER
</TABLE>

Date: September 28, 2000

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                        NAME                                      TITLE                    DATE
                        ----                                      -----                    ----
<C>                                                    <S>                          <C>
                 /s/ STUART D. BEATH
     -------------------------------------------       Director                     September 28, 2000
                   Stuart D. Beath

                 /s/ RICHARD R. BURT
     -------------------------------------------       Director                     September 28, 2000
                   Richard R. Burt

                /s/ MICHAEL B. FULTON
     -------------------------------------------       Director                     September 28, 2000
                  Michael B. Fulton

                /s/ STANLEY E. FULTON
     -------------------------------------------       Director                     September 28, 2000
                  Stanley E. Fulton

                /s/ GLEN J. HETTINGER
     -------------------------------------------       Director                     September 28, 2000
                  Glen J. Hettinger

               /s/ ELIZABETH F. JONES
     -------------------------------------------       Director                     September 28, 2000
                 Elizabeth F. Jones
</TABLE>

                                       79
<PAGE>
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBITS
--------
<C>                     <S>
        2.1             Agreement and Plan of Merger dated as of March 9, 1999 among
                        Anchor Gaming, Olive AP Acquisition Corporation and
                        Powerhouse Technologies, Inc. (Incorporated by reference to
                        Exhibit 2.1 of our Current Report on Form 8-K dated March
                        12, 1999.)
        2.2             Amendment No. 1 to Merger Agreement dated as of March 19,
                        1999 among Anchor Gaming, Olive AP Acquisition Corporation
                        and Powerhouse Technologies, Inc. (Incorporated by reference
                        to Exhibit 2.2 of our Current Report on Form 8-K dated July
                        14, 1999)
        3.1             Restated Articles of Incorporation of Anchor Gaming.
                        (Incorporated by reference to Exhibit 3.1 to our
                        Registration Statement on Form S-1 (Registration No.
                        33-71870)).
        3.2             Restated Bylaws of Anchor Gaming. (Incorporated by reference
                        to Exhibit 3.2 to our Registration Statement on Form S-1
                        (Registration No. 33-71870)).
        4.1             Specimen of Common Stock Certificate. (Incorporated by
                        reference to Exhibit 4.1 to our Registration Statement on
                        Form S-1 (Registration No. 33-71870)).
        4.2             Rights Agreement between Anchor Gaming and the Rights Agent.
                        (Incorporated by reference to Exhibit 4.2 to our June 30,
                        1998 Annual Report on Form 10-K (File No. 0-23124)).
        4.3             Certificate of Designation, Preferences, and Rights of
                        Series A Junior Participating Preferred Stock (Incorporated
                        by reference to Exhibit 4.3 to our June 30, 1998 Annual
                        Report on Form 10-K (File No. 0-23124)).
        9.1             Irrevocable Proxy of Michael B. Fulton in favor of Stanley
                        E. Fulton dated January 19, 1999. (Incorporated by reference
                        to Exhibit 9.10 to our June 30, 1999 Annual Report on Form
                        10-K (File No. 0-23124)).
        9.2             Irrevocable Proxy of Stanley M. Fulton in favor of Stanley
                        E. Fulton dated January 19, 1999. (Incorporated by reference
                        to Exhibit 9.11 to our June 30, 1999 Annual Report on Form
                        10-K (File No. 0-23124)).
        9.3             Irrevocable Proxy of Elizabeth F. Jones in favor of Stanley
                        E. Fulton dated January 19, 1999. (Incorporated by reference
                        to Exhibit 9.12 to our June 30, 1999 Annual Report on Form
                        10-K (File No. 0-23124)).
        9.4             Irrevocable Proxy of Lucinda F. Tischer in favor of Stanley
                        E. Fulton dated January 19, 1999. (Incorporated by reference
                        to Exhibit 9.13 to our June 30, 1999 Annual Report on Form
                        10-K (File No. 0-23124)).
        9.5             Irrevocable Proxy of Deborah J. Fulton in favor of Stanley
                        E. Fulton dated January 19, 1999. (Incorporated by reference
                        to Exhibit 9.14 to our June 30, 1999 Annual Report on Form
                        10-K (File No. 0-23124)).
        9.6             Irrevocable Proxy of Maryland Park Apartments, Inc. in favor
                        of Stanley E. Fulton dated January 22, 1999. (Incorporated
                        by reference to Exhibit 9.15 to our June 30, 1999 Annual
                        Report on Form 10-K (File No. 0-23124)).
        9.7             Irrevocable Proxy of Virginia L. Fulton in favor of Stanley
                        E. Fulton dated January 19, 1999. (Incorporated by reference
                        to Exhibit 9.16 to our June 30, 1999 Annual Report on Form
                        10-K (File No. 0-23124)).
       10.1             Promissory Notes of Anchor Coin, D D Stud, Inc., and C. G.
                        Investments, Inc. to Stanley E. Fulton. (Incorporated by
                        reference to Exhibit 10.4 to our Registration Statement on
                        Form S-1 (Registration No. 33-71870)).
       10.2             Promissory Note of Colorado Grande Enterprises, Inc. to C.G.
                        Investments, Inc. (Incorporated by reference to Exhibit 10.5
                        to our Registration Statement on Form S-1 (Registration No.
                        33-71870)).
</TABLE>

                                       80
<PAGE>

<TABLE>
<CAPTION>
EXHIBITS
--------
<C>                     <S>
       10.3             Lease and Sublease Agreement between Smith's Food & Drug
                        Centers, Inc. and Anchor Coin, dated July 28, 1993.
                        (Confidential Treatment for a portion of this document was
                        requested and granted pursuant to Rule 406 under the
                        Securities Act). (Incorporated by reference to Exhibit 10.10
                        to our Registration Statement on Form S-1 (Registration No.
                        33-71870)).
       10.4*            Fourth Amendment to Lease and Sublease Agreement dated
                        February 27, 1996 between Smith's Food and Drug Centers,
                        Inc. and Anchor Coin.
       10.5             Employment Agreement between Anchor Gaming and Stanley E.
                        Fulton. (Incorporated by reference to Exhibit 10.10 to our
                        June 30, 1994 Annual Report on Form 10-K (File No.
                        0-23124)).
       10.6             Option Agreement between Thomas J. Matthews and Anchor
                        Gaming. (Incorporated by reference to Exhibit 10.19 to our
                        June 30, 1994 Annual Report on Form 10-K (File No.
                        0-23124)).
       10.7             Option Agreement between Joseph Murphy and Anchor Gaming.
                        (Incorporated by reference to Exhibit 10.20 to our June 30,
                        1994 Annual Report on Form 10-K (File No. 0-23124)).
       10.8             Option Agreement between William Randall Adams and Anchor
                        Gaming. (Incorporated by reference to Exhibit 10.21 to our
                        June 30, 1994 Annual Report on Form 10-K (File No.
                        0-23124)).
       10.9             Option Agreement between Geoffrey A. Sage and Anchor Gaming.
                        (Incorporated by reference to Exhibit 10.25 to our June 30,
                        1994 Annual Report on Form 10-K (File No. 0-23124)).
       10.10            Option Agreement between Stuart D. Beath and Anchor Gaming.
                        (Incorporated by reference to Exhibit 10.26 to our June 30,
                        1994 Annual Report on Form 10-K (File No. 0-23124)).
       10.11            Form of Stock Option Agreement between Glen J. Hettinger and
                        Anchor Gaming. (Incorporated by reference to Exhibit 10.28
                        to our June 30, 1996 Annual Report on Form 10-K (File No.
                        000-23124)).
       10.12            Form of Indemnification Agreement between Officers and
                        Directors and Anchor Gaming. (Incorporated by reference to
                        Exhibit 10.28 to our June 30, 1994 Annual Report on Form
                        10-K (File No. 0-23124)).
       10.13            Indemnification Agreement between Glen J. Hettinger and
                        Anchor Gaming. (Incorporated by reference to Exhibit 10.30
                        to our June 30, 1998 Annual Report on Form 10-K (File No.
                        0-23124)).
       10.14            Tax Indemnification Agreement between Stanley E. Fulton,
                        Anchor Gaming and its subsidiaries. (Incorporated by
                        reference to Exhibit 10.29 to our June 30, 1994 Annual
                        Report on Form 10-K (File No. 0-23124)).
       10.15            Option Agreement between Elizabeth Fulton and Anchor Gaming.
                        (Incorporated by reference to Exhibit 10.30 to our June 30,
                        1994 Annual Report on Form 10-K (File No. 0-23124)).
       10.16            Anchor Gaming 1995 Employee Stock Option Plan. (Incorporated
                        by reference to Exhibit 10.31 to our June 30, 1995 Annual
                        Report on Form 10-K (File No. 0-23124)).
       10.17            Joint Venture Agreement, dated as of December 3, 1996 by and
                        between Anchor Games, a
                        d/b/a/ of Anchor Coin, a Nevada corporation and our
                        Subsidiary, and IGT (File No. 000-23124)). (Incorporated by
                        reference to Exhibit 10.37 to our June 30, 1997 Annual
                        Report on Form 10-K (File No. 0-23124)).
       10.18            Stock Option Agreement of William Adams dated April 2, 1997.
                        (Incorporated by reference to Exhibit 4.1 to our
                        Registration Statement on Form S-8 (File No. 333-53257)).
       10.19            Stock Option Agreement of Thomas J. Matthews dated April 2,
                        1997. (Incorporated by reference to Exhibit 4.2 to our
                        Registration Statement on Form S-8 (File No. 333-53257)).
       10.20            Stock Option Agreement of Joseph Murphy dated April 2, 1997.
                        (Incorporated by reference to Exhibit 4.3 to our
                        Registration Statement on Form S-8 (File No. 333-53257)).
</TABLE>

                                       81
<PAGE>

<TABLE>
<CAPTION>
EXHIBITS
--------
<C>                     <S>
       10.21            Loan Agreement, dated as of June 29, 1999 among Anchor
                        Gaming as borrower, the lenders therein named, and Bank of
                        America national Trust and Savings Association as
                        administrative agent. (Incorporated by reference to Exhibit
                        10.35 to our June 30, 1999 Annual Report on Form 10-K (File
                        No. 0-23124)).
       10.22            Form of Stock Option Agreement. (Incorporated by reference
                        to Exhibit 10.36 to our June 30, 1996 Annual Report on Form
                        10-K (File No. 0-23124)).
       10.23*           Amendment No. 1 to Loan Agreement dated March 24, 2000
                        between Anchor Gaming, as borrower, Bank of America, N.A.,
                        as administrative agent and the other lenders named therein.
       10.24*           Guaranty dated June 15, 2000 of Anchor Gaming in favor of
                        Bank of America, N.A., as administrative agent for the
                        benefit of lenders to the Pala Band of Mission Indians.
       10.25            Asset Purchase Agreement dated September 24, 2000 by and
                        between My Way Holdings LLC and Nuevo Del Sol Turf Club,
                        Inc. (Incorporated by reference to Exhibit 99.2 to the
                        Current Report on Form 8-K filed September 26, 2000. (File
                        No. 0-23124)).
       10.26            Stock Purchase Agreement dated September 24, 2000 between
                        Anchor Gaming and members of the Fulton family and their
                        affiliates. (Incorporated by reference to Exhibit 99.3 to
                        the Current Report on Form 8-K filed September 26, 2000
                        (File No. 0-23124)).
       10.27            Assignment of Membership Interests in Ourway Realty, L.L.C.
                        dated September 24, 2000 between Anchor Gaming and Stanley
                        Fulton. (Incorporated by reference to Exhibit 99.4 to the
                        Current Report on Form 8-K filed September 26, 2000 (File
                        No. 0-23124)).
       10.28            Consulting Agreement dated September 24, 2000 entered into
                        by Stanley Fulton and Anchor Gaming. (Incorporated by
                        reference to Exhibit 99.5 to the Current Report on Form 8-K
                        filed September 26, 2000 (File No. 0-23124)).
       21.1*            List of Subsidiary Corporations.
       27.1*            Financial Data Schedule.
</TABLE>

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

*   Filed herewith

                                       82
<PAGE>
                                 ANCHOR GAMING

                                  SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                               BALANCE AT       ADDITIONS
                                              BEGINNING OF   CHARGED TO COST       OTHER        BALANCE AT
                                                  YEAR        AND EXPENSES     ADJUSTMENTS(1)   END OF YEAR
                                              ------------   ---------------   --------------   -----------
                                                                      (IN THOUSANDS)
<S>                                           <C>            <C>               <C>              <C>
Year Ended June 30, 1998:
  Allowance for doubtful accounts
    (accounts receivable)...................     $  666           $  812          $  (146)         $ 1,332
  Allowance for doubtful accounts
    (notes receivable)......................        922               33             (626)             329
                                                 ------           ------          -------          -------
                                                 $1,588           $  845          $  (772)         $ 1,661
                                                 ======           ======          =======          =======
Year Ended June 30, 1999:
  Allowance for doubtful accounts
    (accounts receivable)...................     $1,332           $  423          $   770          $ 2,525
  Allowance for doubtful accounts
    (notes receivable)......................        329               25              294              648
  Allowance for inventory valuation.........         --              500            3,900            4,400
                                                 ------           ------          -------          -------
                                                 $1,661           $  948          $ 4,964          $ 7,573
                                                 ======           ======          =======          =======
Year Ended June 30, 2000:
  Allowance for doubtful accounts
    (accounts receivable)...................     $2,525           $1,237          $  (493)         $ 3,269
  Allowance for doubtful accounts
    (notes receivable)......................        648            1,079             (433)           1,294
  Allowance for inventory valuation.........      4,400            2,881           (1,240)           6,041
                                                 ------           ------          -------          -------
                                                 $7,573           $5,197          $(2,166)         $10,604
                                                 ======           ======          =======          =======
</TABLE>

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

(1) Includes amounts deemed to be uncollectible, amounts recovered or written
    off and amounts added as a result of Powerhouse Acquisition that were not
    charged to expense in consolidated statements

                                       83