UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended June 30, 2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period
from                         to

Commission File Number 001-31558

BALLY TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter)

NEVADA(State or other jurisdiction of
incorporation or organization)

88-0104066(I.R.S. Employer
Identification No.)


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

(702) 584-7700(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class

Name of each Exchange on which registeredCommon Stock, $0.10 par value per share

New York Stock Exchange


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    ý Yes    o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    o Yes    ý No

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.    ý Yes    o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    o Yes    o 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.    o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined
in Rule 12b-2 of the Exchange Act). (Check one):

ý Large accelerated filer

o Accelerated filer

o Non-accelerated filer

o Smaller reporting company


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    o Yes    ý No

The aggregate market value of the common stock, $0.10 par value, held by non-affiliates of the registrant, computed based on the closing sale price as of
December 31, 2008 of $24.03 per share as reported by the New York Stock Exchange, was approximately $1,298,000,000.

According
to the records of the registrant's registrar and transfer agent, the number of shares of the registrant's common stock outstanding as of August 14, 2009 was 54,610,000, which do not
include 2,779,000 shares held in treasury.

Documents Incorporated by Reference:Portions of the registrant's Definitive Proxy Statement to be filed with the Securities and Exchange
Commission no later than 120 days after the end of the registrant's fiscal year ended June 30, 2009, are incorporated by reference in Part III of this Annual Report on
Form 10-K.



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TABLE OF CONTENTS

PagePART IItem 1.

Business.

1Item 1A.

Risk Factors

17Item 1B.

Unresolved Staff Comments

24Item 2.

Properties

24Item 3.

Legal Proceedings

26Item 4.

Submission of Matters to a Vote of Security Holders

26PART IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

27Item 6.

Selected Financial Data

30Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

31Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

50Item 8.

Financial Statements and Supplementary Data

50Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

50Item 9A.

Controls and Procedures

50Item 9B.

Other Information

51PART IIIItem 10.

Directors and Executive Officers and Corporate Governance

52Item 11.

Executive Compensation

52Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

52Item 13.

Certain Relationships and Related Transactions, and Director Independence

52Item 14.

Principal Accountant Fees and Services

52PART IVItem 15.

Exhibits and Financial Statement Schedules

52


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BALLY TECHNOLOGIES, INC.  FORM 10-K  Year Ended June 30, 2009

Forward Looking Statements

Certain statements made or incorporated by reference in this Annual Report on Form 10-K, in our other filings with the Securities
and Exchange Commission ("SEC"), in our press releases and in statements made by or with the approval of authorized personnel constitute "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are subject to
the safe harbor created thereby. Forward looking statements reflect our intent, belief or current expectations with respect to, among other things, future events and financial trends affecting us.
Forward looking statements are typically identified by words such as "believes," "estimates," "expects," "anticipates," "plans," "should," "would" and similar expressions.

Although
we believe the expectations reflected in any forward looking statements are reasonable, readers are cautioned that forward looking statements involve known and unknown risks and
uncertainties, are not guarantees of future performance and that actual results, performance or achievements may differ materially from any future results, performance or achievements expressed or
implied by such forward looking statements. These differences can arise as a result of a number of risks, including those described in Item 1A, Risk Factors.

Forward
looking statements in this Annual Report on Form 10-K speak only as of the date hereof, and forward looking statements in documents incorporated by reference speak only as
of the date of those documents. Unless otherwise required by law, we undertake no obligation to publicly update or revise these forward looking statements, whether as a result of new information,
future events or otherwise. In light of these risks and uncertainties, we cannot ensure that the forward looking statements contained in this Annual Report on Form 10-K will, in
fact, transpire.

Unless
the context requires otherwise, the terms "Bally," the "Company," "we" and "our" as used in this Annual Report on Form 10-K refer to Bally Technologies, Inc. and its
subsidiaries.

PART I

ITEM 1.    BUSINESS

General

Bally Technologies, Inc. is a diversified, worldwide gaming company that designs, manufactures, distributes and operates gaming devices and
computerized monitoring, accounting and player-tracking systems for gaming devices. In addition to selling our gaming devices, we also offer our customers a wide range of rental options. Our primary
technologies include gaming devices for land-based, riverboat and Native American casinos, video lottery and central determination markets, and specialized system-based hardware and
software products. Our specialized system-based hardware and software products provide casinos with a wide range of marketing, data management, accounting, security, and other software applications
and tools to more effectively manage their operations. We also own and operate the Rainbow Casino, a dockside riverboat casino in Vicksburg, Mississippi.

We
derive our revenue from the following four sources:



Gaming Equipment



Sale of gaming devices and related equipment, parts and conversion kits;

Gaming Operations



Operation of linked progressive systems, video lottery and centrally determined systems and the rental of gaming devices and content;


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

Systems



Sale of computerized monitoring systems and related recurring hardware and software maintenance revenue; and

Casino Operations



Operation of the Rainbow Casino.


You
can find further information regarding our individual business units in the notes to our consolidated financial statements included in this Annual Report on Form 10-K and
Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

The
Company was incorporated in Nevada on September 30, 1968, under the name Advanced Patent Technologies. Following two other name changes, we became Alliance Gaming Corporation on
December 19, 1994, and on March 6, 2006, we changed our name to Bally Technologies, Inc. Our principal executive offices are located at 6601 South Bermuda Road, Las Vegas, Nevada
89119; telephone (702) 584-7700. Our website is www.BallyTech.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, proxy statements and all amendments to those filings are available on our website, free of charge, as soon as reasonably practicable after such material is
electronically filed with or furnished to the SEC.

Company and Product Overview

Our business consists of two business segments, the Bally Gaming Equipment and Systems segment and the Rainbow Casino ("Rainbow" or "Casino
Operations") in Vicksburg, Mississippi. The Bally Gaming Equipment and Systems segment consists of three primary revenue sources: Gaming Equipment, which includes the sale of gaming devices and
related equipment, parts and conversion kits; Gaming Operations, which includes the operation of linked progressive systems, video lottery, and centrally determined systems and the rental of gaming
devices and content; and Systems, which includes the sale and support of computerized monitoring systems and related recurring hardware and software maintenance revenue. Revenue from the Casino
Operations is derived from the operation of the Rainbow Casino. The following table sets forth the percentage of revenues of our business units for the periods indicated:

Revenue by Business Unit
Year Ended June 30,2009

2008

2007(dollars in 000s)Bally Gaming Equipment and SystemsGaming Equipment

$
357.0


40
%
$
410.1


46
%
$
324.1


47
%Gaming Operations


275.0


31
%

236.0


26
%

176.4


26
%Systems


211.8


24
%

206.3


23
%

134.1


20
%Casino Operations


39.6


5
%

47.3


5
%

47.7


7
%$
883.4


100
%
$
899.7


100
%
$
682.3


100
%


The
financial information required with respect to each of our business segments and with respect to geographical areas can be found in the consolidated financial statements included in this Annual
Report on Form 10-K and the related notes.

Bally Gaming Equipment and SystemsGaming Equipment

We design, manufacture, assemble, sell, maintain and operate a full range of technology-based gaming devices and related equipment, parts and
conversion kits. These devices are normally configured to specific requirements based on a customer's particular order. Gaming devices are differentiated by a number of factors including, but not
limited to, game theme, cabinet style, pay table, game layout, betting denomination and minimum/maximum betting amount.

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Our
gaming devices include a variety of innovative features and layouts in both video and mechanical-reel formats. Our gaming devices come in several different cabinet styles with some
devices featuring high-profile top boxes with various game features and varying sizes geared towards specific market niches. The gaming products we create are the result of comprehensive
product development efforts that include extensive internal and third party testing. We also perform market tests of our products with the cooperation of casino operators to assess reliability and
player appeal. We offer a number of cabinet designs including standard uprights, dramatic tower units, bar-top cabinets, and our new Jumbo design and DualVision
two-player cabinet.

Our
ALPHA Elite cabinet series features interchangeable video and mechanical-reel configurations and is recognized for its modularity, meaning that gaming operators can easily
convert one game into another without having to invest in a whole new device. In addition to easily changing the cabinet from one game to another, the modularity of our ALPHA Elite
cabinet series allows gaming operators to convert cabinets from video to mechanical-reel games and easily replace top boxes, button decks, and other key parts, protecting gaming operators'
previously invested capital. Also, the modularity of our ALPHA Elite cabinet series, combined with the use of common parts, makes maintenance easier for our customers, providing
labor-saving benefits to gaming operators, while enabling a quicker manufacturing turnaround.

Our
CineVision cabinet series features a wide-screen display that enables unique, on-screen progressive features and bonus events. Enhancing this immersive
interaction for players is a dynamic surround-sound audio system and an advanced ergonomic design including padded armrests that creates a unique zone of comfort and privacy for players.

Our
CineReels CineVision cabinet design enables us to offer the industry's first seven-reel mechanical gaming device and another industry first, "micro-stepping" technology,
that provides "all-stop" player control. This technology allows the player to immediately stop all of the reels at once by tapping the "spin" button, thus enabling players to establish
their own rhythm of game play rather than have the game dictate the pace of play.

Our
DualVision multi-player video cabinet, designed for 'couples' play, offers a high-definition experience for two players at a time. Padded armrests, cupholders, and an
advanced ergonomic design create a 'Comfort Zone' for increased time on device. This cabinet is designed especially for Bally's two-player games, such as Two for the Money.
The 'Privacy Zone' eliminates distractions and immerses both players in their own private gaming environment. It also facilitates grouping in five-game pods. Stereo speakers located above
the display produce a cinematic surround-sound audio effect.

Each
gaming device contains an operating system referred to as a game platform. The game platform manages the software needed to run the device. Game platforms and the related computer systems are
constantly updated and revised to keep pace with the ever-increasing complexity of modern game play requirements. The change in game play requirements is driven by, among other things,
changes in consumer demand, capacity, security and regulation. The Linux-based ALPHA OS is the platform for our entire video and mechanical reel gaming device product.

The
ALPHA OS platform is designed to separate the gaming operating system from the game layer, which reduces the time required for game development. ALPHA OS is also designed to incorporate bonusing,
free spin, scatter, and other advanced game features, while providing internal and third-party developers with a secure, easy-to-use programming environment that incorporates
an advanced set of development tools. Moreover, ALPHA OS is designed to support networked and server-based systems gaming initiatives, including download of game results and game content and
configuration management. Additionally, our layered architecture and modular design allows for adaptability and simplified requirement changes. ALPHA OS is designed to support Gaming Standard
Association ("GSA") standards and is compatible with most common accounting, ticketing and bonusing systems.

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ALPHA
OS also supports various game bonusing, multi- denomination, multi-game and multi-pay table game configurations and can operate with stand alone, local and
wide-area progressive products.

Our
sales are not limited to our gaming devices. Customers that purchase or rent our gaming devices typically purchase replacement parts, upgrades, game conversion kits and other products from us to
keep the devices in good working order and to enhance the underlying performance of the devices. Certain equipment within gaming devices such as video monitors, bill validators, logic boards and
printers are typically replaced, whether as a result of part failures or new technology offerings by our suppliers. These sales may also include game conversion kits that provide our customers the
opportunity to offer a new theme or variant on the existing product without the necessity of purchasing an entirely new gaming device.

We
generally offer a 90-day parts and labor warranty for new gaming devices. We provide several after-sale services to our customers including customer education programs, a
24-hour customer service telephone hotline, a web site for technical support, field service support programs and spare parts programs. Our historical warranty expense as a percentage of
revenues has been less than 1%. From time to time, we also sell used gaming devices, including products made by us as well as those produced by our competitors. Generally, we acquire used devices as
trade-ins toward the purchase of new gaming devices. While a small secondary market exists in the United States, used devices are typically resold in international markets where new device
purchases often prove to be too costly. Where appropriate, we incur costs to recondition used devices for resale or we may elect to destroy the devices. We also occasionally sell used equipment in
lots on an "as is" basis to used device brokers and customers.

Bally Gaming Equipment and SystemsGaming Operations

We offer our customers a wide range of rental options through our Gaming Operations division. Specifically, these arrangements are available under
four business models: linked progressive systems, rental and daily fee games, video lottery systems and centrally determined systems. Operating gaming devices under a rental arrangement often requires
us to invest capital in manufacturing the gaming device and related equipment, purchasing signs and seating and, in certain cases, acquiring certain intellectual property rights.

Linked Progressive Systems:We offer our customers gaming devices featuring a common jackpot or prize award that can be linked (within a casino, in a
local-area network, or among multiple casinos within a market or jurisdiction) in a wide-area network. Progressive gaming devices are typically offered to customers under a
daily fee arrangement that is based on a percentage of the money wagered on the participating gaming devices. In many cases, we use a portion of these revenues to fund the ultimate payment of the
jackpot awards. We market our linked progressive systems under such titles as Million Degrees, Quarter Million$ and Millionaire Sevens. As of June 30,
2009, we had a total of 947 units deployed on our wide-area progressive networks and 63 units deployed on our local-area progressive networks.

Rental and Daily-Fee Games:We offer a variety of non-linked games and content on a rental basis for either a fixed daily fee or a fee
based on the percentage of the net win generated by the gaming device. This category includes both gaming devices in which we retain ownership and charge a daily fee for the use of the gaming device
and gaming devices the casino purchases which are classified as games sales revenue. Gaming devices in which we retain ownership and charge a daily fee includes rental and maintenance of the gaming
device and licensing of the game content. For gaming devices the casino purchases, we provide the game content under a usage-fee arrangement which results in a lower daily-fee
than leasing the entire gaming device. We market our rental and daily-fee games under such titles as Fireball, 55555 Jackpot, Reel Money, Hot Shot
Progressive, Quick Hit Platinum, Golden Monkey, Reel Winners, Hee Haw® and Monte Carlo. As of June 30, 2009, we had
a total installed base of rental and daily fee games of 11,592 units.

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Video Lottery Systems:We offer both video and mechanical reel devices that can operate as stand-alone devices or can interact with, or be monitored by, central
computers maintained by governmental agencies. The financial model for this market requires us to build, deploy and maintain the devices as well as provide the related equipment in return for a share
of the net win generated by the device.

Through
a competitive bidding process, we and, prior to our acquisition thereof in March 2004, Sierra Design Group ("SDG") were each awarded approximately 25% of the initial New York State Lottery
("NYSL") terminals to be installed at horseracing facilities throughout the state. As of June 30, 2009, we earned recurring revenue from our installed base of 6,679 video lottery
devices operated by NYSL. We also earn recurring revenues from 1,473 video lottery devices deployed at horseracing facilities under agreements with the Delaware State Lottery Commission.

Centrally Determined Systems:We offer video and mechanical reel devices that connect to a central server which determines the outcome of the game. These systems
primarily operate in Native American casinos in Washington, Florida and Alabama as well as in Mexico. In certain of these jurisdictions, our customers purchase our gaming devices, in which case the
purchases are classified as game sales revenues. In other jurisdictions, our customers rent the gaming device, in which case the rental payments are classified as gaming operations revenues. In each
case, for the use of our central determination software we receive either a fixed daily fee or a percentage of the net win generated by
the devices connected to the system. As of June 30, 2009, the total installed base of gaming devices connected to our centrally determined systems totaled 48,924.

In
December 2005, we began selling centrally determined gaming devices in Mexico. In the Mexican market, we sell gaming devices for an upfront fee, in which the purchases are classified as game sales
revenues, and derive a daily fee equal to a percentage of the net win for providing a system network, gaming content, and monitoring, maintenance and consulting. As of June 30, 2009, 11,436 of
the total installed base of gaming devices connected to our centrally determined systems were deployed in Mexico. Included in the total installed base of centrally determined games in Mexico are 7,311
iVIEW units installed in non-Bally games in which we charge a system connection fee. The centrally determined games count includes the iVIEW units in Mexico.

Bally Gaming Equipment and SystemsSystems

We design, program, license and support casino enterprise systems for a wide range of customers of varying size and complexity under our Systems
division. We believe we are the only provider in the industry that offers a selection of technology platform options to our customers. Our products, which support GSA protocols, operate on platforms
such as Windows®, AS/400 (iSeries®), Linux and UNIX, which allows our customers to choose a technology solution that meets their existing or future infrastructure requirements.

Our
systems typically provide casino operators features such as active, real-time monitoring tools for gaming devices, tools to collect and manage customer data, security to protect
against theft and data loss, and marketing programs to enhance the gaming experience. Our casino enterprise product functionality has evolved from basic automation of manual activities to highly
integrated mission critical applications as a result of the convergence of gaming content and system applications into a single gaming-floor network. We market a number of server-based systems and
technologies that are designed for and take advantage of high-speed Ethernet gaming-floor network environments.

The
following are the primary systems we license to our customers:



5

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We
market our system product solutions under the broad categories of Bally CMS® (Casino Management Systems), Bally SMS® (Slot Management Systems) and Bally TMS
(Table Management Systems).

Casino Operations

The Rainbow Casino, located in Vicksburg, Mississippi, began operations in July 1994. It is one of five casinos operating in the Vicksburg,
Mississippi market during the period with the fifth casino opening in late October 2008. The facility includes a 33,000 square-foot casino with an average of 799 gaming devices and 8 table
games, a large buffet-style restaurant, and a 20,000 square-foot conference center. The casino also includes the 89-room Rainbow Hotel, which is owned and operated by a third
party. Rainbow is marketed as a "locals" casino and draws mid-level gaming customers principally from within a 75-mile radius of Vicksburg. Our promotions are focused primarily
on direct mail and special promotional events. The Vicksburg casino market generated approximately $284.6 million in gaming revenue for the year ended June 30, 2009.

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We
are the general partner of Rainbow Casino Vicksburg Partnership, L.P. ("RCVP"), the limited partnership that operates Rainbow. The limited partner of RCVP is entitled to receive 10% of the
net available cash flows of RCVP after debt service and other items, as defined in the limited partnership agreement, which increases to 20% of the net available cash flows based on the incremental
amount of
revenues in excess of $35.0 million, payable quarterly through December 31, 2010. We consolidate RCVP and record an adjustment to reflect the portion of earnings of RCVP attributable to
minority shareholders.

The
operation of casinos is a highly competitive business. Gaming of all types is available throughout Mississippi in numerous locations as well as in surrounding markets. The principal competitive
factors in the industry include the structure, age and location of the facility, the nature, variety and quality of the amenities and customer services offered, and the continuous development,
implementation and success of a variety of marketing programs. Our Rainbow Casino faces intense direct competition from other gaming facilities servicing the Vicksburg market, and, to a lesser degree,
indirect competition from those servicing the Gulf Coast region. A new casino project adjacent to the Rainbow Casino opened in late October 2008 and a nearby competitor property recently expanded its
casino and added 500 slot machines and the market's largest live poker room.

Product Development

We believe providing gaming devices, content and systems with high entertainment value and key operational advantages coupled with a high level of
customer service is important to gaining market share. Our global product development for new and emerging technologies, including many Server-based systems solutions, is primarily led through the
Bally Innovation Lab. This lab focuses on emerging and paradigm-shifting technologies through research and development of new gaming technologies, features, and products and was designed to accelerate
the commercial deployment of the most cutting-edge gaming devices, content and systems technologies. Our product development process for our gaming devices and content includes both
hardware and software.

Major
areas of hardware development include cabinet style, technical capability, interfaces, peripheral devices, and coin and currency handling. Hardware development efforts are focused on player
appeal, product reliability and ease of maintenance. Development cycles for hardware can range from a few days for simple enhancements to more than a year for new electronics or new mechanical
packages.

The
software development process for new game content, which includes graphics development, is continuous and requires a significant commitment of human resources. Creativity in software development
is an important element in the market success and player appeal of our gaming devices. Innovations in our development process and game design are generated internally, by customers and by third
parties, many of whom have entered into strategic relationships with us.

Product
development for casino enterprise systems also includes hardware and software. The major areas of hardware development include controller circuit board design and programming, as well as user
interface devices such as card readers, keypads and displays. Software development includes
extensive application development, including elements such as databases, interfaces and protocols used in emerging technologies, including many server-based systems solutions, communication, security
and automated backup and failure procedures. We have developed a modular and extendible hardware and software architecture which focuses development on achieving greater functionality, product
reliability, ease of maintenance for the casino operator, and ease of use for the player. In addition, the architecture allows customers to upgrade existing components or add new components with less
impact as compared to a complete replacement. Development cycles for hardware can vary between a few months for minor revisions to more than a year for major design changes. Software development
results in periodic product releases that include new features that extend or enhance the casino enterprise systems. Less significant revisions such as periodic maintenance releases are also deployed
to enable casino operators to correct problems or improve the usability of the system.

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Our
total expenditures for research and development were $77.3 million, $60.8 million and $51.9 million during the years ended June 30, 2009, 2008 and 2007, respectively.
The increase in research and development expenditures over this three year period reflects our corporate focus on our technology assets, the expansion of technical resources through purchases of core
technology assets, and the competitive landscape that requires continuous development of future generations of gaming products and systems.

Sales and Marketing

We have a direct sales force consisting of approximately 55 employees located in multiple offices, primarily in North America. We also, to a lesser
extent, utilize an independent distributor network to distribute our products. The agreements we have with distributors generally specify minimum purchases and also provide that we may terminate the
relationship if certain performance standards are not met.

The
sale of gaming devices takes place throughout our fiscal year and can range from proposals for a small quantity of units to several thousand units. We conduct one-on-one
meetings with our customers to demonstrate our products at their locations, host customers to private demonstrations in our offices or at offsite venues, and participate in a number of trade shows
domestically and internationally each year. In certain cases, we participate in responding to competitive requests for proposals from private and public entities seeking to purchase gaming equipment.

For
casino enterprise system sales, we offer our customers the option of signing separate hardware and software maintenance agreements at the time of sale. These agreements are typically for
one-year terms and automatically renew unless otherwise canceled in writing by either party. After an initial warranty period, typically 90 days, the customer is invoiced monthly
for hardware and software maintenance fees that provide for, among other things, repair or replacement of malfunctioning hardware and software, software version upgrades, and on-call
support for software.

The
sale of enterprise systems is often a long process, at times extending beyond one year. Typically, a potential systems customer will participate in a formal evaluation and selection of a system
vendor. The level of sales available to us at any point in time can vary materially due to a number of factors, including the capital budgets of our customers, availability of new product modules,
timing associated with regulatory approvals, and the success and features contained in the products sold by our competitors. The price paid for a full system can vary materially from customer to
customer depending on a number of factors, including but not limited to, the size of the gaming operation and the number of functions contained in the system specified.

Product Markets

We believe that the total installed base of gaming devices in the United States is between 925,000 and 975,000 units. This total includes
land-based, riverboat, Native American casinos and video lottery markets. New sales opportunities for gaming devices in the United States and Canada are primarily driven by replacement of
existing units, new casino openings or expansions and the legalization of gaming in new markets. The gaming industry also continues to expand in international markets. Europe, Latin America, South
America, Mexico and the Pacific Rim are currently our primary international markets. We regularly evaluate expanding our business into additional international markets.

We
distribute our gaming devices through direct sales efforts and through a small number of distribution arrangements. Our international business is conducted primarily from offices in Amsterdam,
Netherlands for customers in Europe; Puerto Rico for customers in the Caribbean/Latin America; Buenos Aires, Argentina for customers in South America; Mexico City for customers in Mexico; and Macau,
China for customers in the Pacific Rim.

8

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The primary markets for casino enterprise systems are the United States and, to a lesser extent, Canada, South America, Europe, the Pacific Rim and the Caribbean/Latin America, though additional
international markets are beginning to emerge. The market for our casino enterprise systems includes new casino openings, expansions, upgrades of existing facilities and the competitive replacement of
other systems. We also generate new system sales through the introduction of new hardware and software products. In many cases, domestic regulations require the implementation of a system as part of
their operational requirements while international markets have only recently begun the full implementation of such systems. We believe, as international markets begin to mature and become more
competitive, the use of systems will become more common.

Competition and Product Demand

The demand for gaming devices, content and systems varies depending on the level of new construction and renovation of casinos as well as market
conditions that might generate the need for new and replacement equipment and product innovation. For the year ended June 30, 2009, our 10 largest customers, including corporate customers with
multiple casino properties, accounted for approximately 24% of gaming device sales.

The
demand for casino enterprise systems is driven by regulatory requirements in each applicable jurisdiction and by casino operators' competitive need to properly track device and player activity and
to establish and compile individual device and player profitability and other demographic information. These features enable casinos to develop or enhance marketing strategies. As more and more
casinos move to high-speed networked floors, we expect the demand for new systems technologies will increase as casinos replace older systems with new server based systems solutions.
Revenues for casino enterprise systems are derived from selling products to new or existing customers. For the year ended June 30, 2009, the 10 largest casino enterprise system customers, which
include certain multi-site casino operators that have corporate agreements, accounted for
approximately 35% of game monitoring unit sales revenues, with the largest single customer accounting for 6% of these revenues.

We
compete with a number of domestic and international businesses in the various geographic markets where we sell our products. Our ability to compete effectively is based on a number of factors
including, but not limited to, our product quality, product depth, pricing, financing terms, regulatory approvals, the successful development and protection of intellectual property, as well as the
success of our distribution, sales and service levels.

International
Game Technology ("IGT") is the market leader in the North American gaming device market. Some of our other competitors currently include Aristocrat Leisure Limited ("Aristocrat"),
Atronic International, GTECH Holdings Corporation ("GTECH"), Konami Co. Ltd. ("Konami") and WMS Industries, Inc. ("WMS"). These competitors also compete in the international
markets we serve, along with well established foreign companies such as Ainsworth Game Technology Ltd, Aruze Gaming America, Inc., Unidesa Gaming and Systems, Novomatic AG, and
Recreativos Franco S.A.

The
competition for casino enterprise systems is also significant. Product feature and functionality, accuracy, reliability, service level and pricing are all among the key factors in determining a
provider's success in selling its system. Our principal competition in casino management systems currently consists of, among others, IGT, Aristocrat, Konami and several smaller competitive providers
in the international market. Competition is keen in this market due to the number of providers and the limited number of casinos and jurisdictions in which they operate.

9

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Global Headquarters, Technology Campuses, Manufacturing and Assembly Operations

Global Headquarters

Our global headquarters is located in Las Vegas, Nevada at 6601 South Bermuda Road. Our 150,000 square foot facility is used for corporate
administrative functions as well as to accommodate the design, assembly and distribution of gaming equipment and casino management systems' hardware and to meet product design demands and varying
levels of volume requirements.

Las Vegas and Reno Technology Campus

In fiscal 2009, we leased an additional 36,000 of office space next door to our global headquarters facility in Las Vegas to create a Technology
Campus for our game development, advanced development, and project management teams. In addition, we consolidated multiple facilities in Reno, Nevada and leased additional space for a combined total
of approximately 119,000 square feet to provide a more cohesive and larger campus-style environment to accommodate the growth of our game development, system development, product management, and
administrative functions in northern Nevada. We plan to eliminate approximately 30,000 square feet of leased space during early fiscal 2010 during the transition.

Innovation Lab

Our global Innovation Lab is located in Pleasanton, California, a major suburb of San Francisco. This allows us to draw from the significant
high-tech talent that resides in the Silicon Valley. In our Innovation Lab, a team of employees focus on researching and developing new gaming technologies, products, and the rapidly
growing area of server-based systems gaming. The Innovation Lab capitalizes on our research and development talent across the globe and is dedicated to developing, testing, and deploying the newest
technology.

Manufacturing and Assembly

Our assembly operations for the ALPHA OS platform have common hardware components that provide greater flexibility in our assembly operations where
each product
family can be produced by an expanded set of assembly lines with fewer internal product differences and more streamlined testing.

We
generally buy raw material inventory to build our gaming devices when we receive firm orders from our customers. To the extent possible, we also forecast the demand for our products to develop more
efficient supply chains with our vendors. We create specifications and design nearly all of the major assemblies that are incorporated into our gaming devices.

We
believe our primary offices and related facilities in Las Vegas, as well as process improvement initiatives implemented during the last few fiscal years, will enable us to increase production
without adding significant floor space.

Patent, Copyright and Trade Secret Protection

We have been a long-standing participant in the development of intellectual property in our industry. While we do not believe that any
single patent or series of patents or other intellectual property is crucial to our business, we use a combination of patents, copyrights, trade secrets, trademarks and proprietary information to
maintain and enhance our competitive position, protect our products, and defend against litigious competitors. We have been granted over 300 patents related to slot machines and systems, most of which
are unexpired, and have over 600 patent applications pending in the United States as well as in many foreign countries. The expiration dates of these patents vary and are based on their filing and
issuances dates. We intend to continue to actively file for patent protection, where such filings are commercially reasonable, within and outside the United States. We also seek protection for a

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large
number of our products by registering hundreds of trademarks and copyrights in the United States and various foreign countries. Under permission or license agreements with third parties, we also
sell products covered by independently filed copyrights and trademarks. Typically, these contracts require us to pay royalties to the licensing party. Royalty expenses are included in cost of gaming
and systems in our consolidated financial statements included in this report.

Employees and Labor Relations

As of June 30, 2009, we and our subsidiaries employed approximately 2,907 individuals worldwide, including approximately 317 employees at
Rainbow. None of our employees are covered by collective bargaining agreements. We believe we have satisfactory relationships with our employees.

Gaming Regulations and Licensing

The manufacture and distribution of gaming devices, systems and the operation of gaming facilities are subject to extensive federal, state, local,
and foreign regulation. These laws, rules, and regulations generally concern the responsibility, financial stability and character of the Company and our officers, directors, major stockholders and
key personnel. Many jurisdictions require gaming devices, systems and other products we manufacture to be tested and approved before being distributed. We have obtained all licenses necessary to
manufacture, distribute and, where permitted, operate gaming devices in the jurisdictions in which we do business. We manufacture our products in the state of Nevada and own a casino in Mississippi.

Nevada

Our business is subject to the Nevada Gaming Control Act and the regulations promulgated thereunder (the "Nevada Act") and various local ordinances
and regulations. We are subject to the licensing and regulatory control of the Nevada State Gaming Control Board (the "Nevada Board"), the Nevada Gaming Commission (the "Nevada Commission"), and
various county and city regulatory agencies, all of which are collectively referred to as the "Nevada Gaming Authorities."

Nevada
gaming law is based on policies concerning (i) the prevention of unsavory and unsuitable persons from having any involvement with gaming; (ii) the establishment and maintenance of
responsible accounting practices; (iii) the maintenance of effective control 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. A change in, or non-compliance with, such laws,
regulations, and procedures could have an adverse effect on our business.

Each
of our subsidiaries that manufactures, distributes, or operates gaming devices in Nevada, or the entities that own such subsidiaries (collectively, the "licensed subsidiaries"), are licensed or
found suitable (which is comparable to licensing) by the Nevada Gaming Authorities. The licenses require periodic renewals and payments of fees and taxes and are not transferable. We are registered
with the Nevada Commission as a publicly traded corporation and have been found suitable to own the licensed subsidiaries.

Only
licensed manufacturers and distributors may manufacture or distribute gaming devices and cashless wagering systems in Nevada. All gaming devices manufactured for use or play in Nevada or for
distribution out of Nevada must be approved by the Nevada Commission before they are distributed or exposed for play. Before associated equipment (as defined in the Nevada Act) can be distributed in
Nevada, it must be administratively approved by Nevada Board chairman.

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The
Nevada Gaming Authorities may require any individual who has a material relationship or involvement with us or our licensed subsidiaries, including officers, directors, and key employees, to be
found suitable or licensed. The Nevada Gaming Authorities may deny an application for licensing or finding of suitability for any cause they deem reasonable.

The
Nevada Gaming Authorities may require us to sever all relationships with anyone who is found unsuitable or who refuses to file appropriate applications.

We
and our licensed subsidiaries are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities, and similar
financing transactions must be reported to and in some cases approved by the Nevada Commission.

If
the Nevada Commission determined that we had violated the Nevada Act, our licenses could be limited, conditioned, suspended, or revoked. In addition, we could be subject to substantial fines for
each separate violation. Any such disciplinary action could, and revocation of any gaming license would, materially adversely affect our operations.

The
Nevada Gaming Authorities may require the holder of any of our equity or debt securities to file applications, be investigated, and be found suitable by the Nevada Commission. The applicant must
pay all costs of investigation.

The
Nevada Act requires any person who acquires more than 5 percent of any class of our voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that
beneficial owners of more than 10 percent of any class 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 written notice requiring such filing, in which case the applicant must pay all costs of investigation. Under certain circumstances, an "institutional investor," as defined in the Nevada
Act, that acquires more than 10 percent but not more than 15 percent of a class of our voting securities may apply to the Nevada Commission for a waiver of finding of suitability if the
institutional investor holds the securities for investment purposes only, as defined in the Nevada Act. Any person who fails to apply for a finding of suitability or a license within thirty days after
being ordered to do so by the Nevada Commission or the chairman of the Nevada Board may be found unsuitable. The same result would occur to a record owner if the record owner, after request, fails to
identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of our voting securities 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 or our subsidiaries, we (i) pay that person any dividend or interest; (ii) allow the exercise of any voting right; (iii) pay remuneration to that person; or
(iv) fail to pursue all lawful efforts to require such unsuitable person to relinquish the voting securities, including, if necessary, the immediate purchase of the securities for cash at fair
market value.

In
January 2009, the Nevada Commission granted us prior approval to make public offerings of our securities for a period of two years, subject to certain conditions ("Shelf Approval"). The Shelf
Approval is not a finding, recommendation, or approval by the Nevada Commission as to the accuracy or inaccuracy of the prospectus or the investment merits of the securities offered. Any contrary
representation is unlawful.

Changes
in control of us through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct whereby a person or entity acquires control, may not
occur without prior Nevada Commission approval. The Nevada Commission has regulations to ameliorate the potentially adverse affects of corporate acquisitions opposed by management, repurchases of
voting securities, and corporate defense tactics affecting Nevada gaming licensees. Approvals are required from the Nevada Commission before a registered corporation can make

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exceptional
repurchases of voting securities 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 our stockholders for the purpose of acquiring control of us.

License
fees and taxes are payable to the State of Nevada and to the counties and municipalities in which the licensees operate.

We
are required to deposit with the Nevada Board and thereafter maintain a revolving fund to pay the expenses of investigation by the Nevada Board of our participation in certain gaming activities
outside Nevada. We are also required to comply with certain reporting requirements and are subject to disciplinary action if we violate any gaming laws of the foreign jurisdiction pertaining to the
foreign gaming operation, fail to conduct the foreign gaming operations to the standards required of Nevada gaming operations, engage in activities that are harmful to Nevada or its ability to collect
gaming taxes and fees, or employ a person in the foreign operations who has been denied a license or finding of suitability in Nevada.

Mississippi

Our gaming casino operations and distribution operations in Mississippi are subject to the Mississippi Gaming Control Act (the "Mississippi Act") and
the regulations promulgated thereunder. We are subject to the licensing and regulatory control of the Mississippi Gaming Commission (the "Mississippi Commission").

Mississippi
gaming law is based on policies concerning: (i) the prevention of unsavory or unsuitable persons from having any involvement with gaming; (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 safeguarding of assets and revenues, providing for reliable record keeping and requiring the filing of periodic reports with the Mississippi Commission;
(iv) the prevention of cheating and fraudulent practices; (v) providing a source of state and local revenues through taxation and licensing fees; and (vi) ensuring that gaming
licensees, to the extent practicable, employ Mississippi residents. A change in such laws or regulations could have an adverse effect on our Mississippi gaming-related operations.

The
Mississippi Act provides for legalized dockside gaming in fourteen eligible counties. Currently, gaming is permissible in nine of the fourteen eligible counties in the state, and gaming operations
have commenced in seven counties. Gaming vessels must be located on the Mississippi River or on navigable waters in eligible counties along the Mississippi River, or in the waters of the State of
Mississippi lying south of the state in eligible counties along the Mississippi Gulf Coast. Licensees in the three counties along the Gulf Coast may also establish land-based casino
operations generally in areas no more than 800 feet from the mean high water line. The Mississippi Act permits the operation of substantially all traditional casino games and gaming devices on a
24-hour basis and does not restrict the percentage of space that may be utilized for gaming. We, RCVP, Bally Gaming, Inc. ("BGI"), and our and their respective affiliates are
subject to the licensing and regulatory control of the Mississippi Commission. We are registered under the Mississippi Act as a publicly traded corporation (a "Registered Corporation") and holding
company of RCVP and BGI. As a Registered Corporation, we are required periodically to submit detailed financial and operating reports to the Mississippi Commission and furnish any other information
the Mississippi Commission may require. If we are unable to continue to satisfy the registration requirements of the Mississippi Act, we and our affiliates cannot own or operate gaming facilities or
continue to act as a manufacturer and distributor in Mississippi. No person may become a stockholder of, or receive any percentage of profits from, a licensed subsidiary of a Registered Corporation or
a holding company without first obtaining approvals from the Mississippi

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Commission.
We and our affiliates have obtained the necessary licenses and approvals from the Mississippi Commission. RCVP must maintain a gaming license to operate a casino in Mississippi and BGI
must maintain a manufacturer and distributor license to manufacture and distribute gaming products and a wide-area progressive operator license to operate its progressive system in
Mississippi.

There
are no limitations on the number of gaming, manufacturer and distributor and wide-area progressive operator licenses that may be issued in Mississippi. Such licenses are not
transferable, are issued for a three-year period and must be renewed or continued thereafter. Certain of our officers and employees and the officers, directors, and certain key employees
of our licensed subsidiaries must be found suitable, licensed or otherwise approved by the Mississippi Commission. In addition, any person having a material relationship or involvement with us may be
required to be found suitable. The Mississippi Commission may deny an application for a finding of suitability for any cause it deems reasonable. Changes in certain licensed positions must be reported
to and approved by the Mississippi Commission. The Mississippi Commission may require us and our registered or licensed subsidiaries to suspend or dismiss officers, directors and other key employees
or sever relationships with other persons who refuse to file appropriate applications or whom the authorities find unsuitable to act in such capacities. Determinations of suitability or questions
pertaining to licensing are not subject to judicial review in Mississippi.

The
Mississippi Commission has the power to investigate any of our record or beneficial stockholders. The Mississippi Act requires any person who acquires more than 5% of any class of voting
securities of a Registered Corporation, as reported to the SEC, to report the acquisition to the Mississippi Commission, and such person may be required to be found suitable. Also, any person who
becomes a beneficial owner of more than 10% of any class of voting securities of a Registered Corporation, as reported to the SEC, must apply for a finding of suitability by the Mississippi
Commission. The
Mississippi Commission generally requires a finding of suitability of any beneficial owner of more than 5% of any class of voting securities of a Registered Corporation. If a stockholder who must be
found suitable is a corporation, partnership, or trust, it must submit detailed business and financial information including a list of beneficial owners. The Mississippi Commission has adopted a
regulation which provides that an "institutional investor," that acquires not more than 15% of a Registered Corporation's voting securities may apply for a waiver of such finding of suitability if the
voting securities are held for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes only unless the voting securities were acquired
and are held in the ordinary course of business and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Registered
Corporation, any change in the corporate charter, bylaws, management, policies or operations of the Registered Corporation of its affiliates, or any other action which the Mississippi Commission finds
to be inconsistent with holding the Registered Corporation's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for
investment purposes include: (i) voting on all matters voted on by the 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 management, policies or operations; and (iii) such other activities as the Mississippi Commission may determine to be consistent
with such investment intent.

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 Mississippi Commission may be found unsuitable, as may be a
record owner if the record owner, after request, fails to identify the beneficial owner. Any person found unsuitable and who holds, directly or indirectly, any beneficial ownership of such securities
beyond such time as the Mississippi Commission prescribes may be guilty of a misdemeanor. We may be subject to disciplinary action if, after receiving notice that a person is unsuitable to be a
stockholder or to have any other relationship with us or our Mississippi gaming subsidiaries, we: (i) pay the unsuitable person any dividend or other distribution on that person's voting
securities; (ii) recognize the exercise, directly

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or
indirectly, of any voting rights conferred by securities held by the unsuitable person; (iii) pay the unsuitable person any remuneration in any form for services rendered or otherwise,
except in certain limited and specific circumstances; or (iv) fail to pursue all lawful efforts to require the unsuitable person to divest himself of the securities, including, if necessary,
the immediate purchase of the securities for cash at a fair market value.

We
may be required to disclose to the Mississippi Commission, on request, the identities of the holders of any of our debt or other securities, who may be required to file an application, be
investigated, and be found suitable to own our debt security if the Mississippi Commission has reason to believe that the ownership would be inconsistent with the declared policies of the state of
Mississippi. The Mississippi Commission may require individual holders of debt securities to be investigated and found suitable for any reason, including but not limited to a default or where the
holder exercises a material influence over the gaming operations of the entity in question. If the Mississippi Commission determines that a person is unsuitable to own our debt security, then we may
be sanctioned if without the prior approval of the Mississippi Commission we: (i) pay to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognize any
voting right by the unsuitable person in connection with those securities; (iii) pay the unsuitable person remuneration in any form; or (iv) make any payment to the
unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction.

RCVP
and BGI must maintain in Mississippi a current ledger with respect to the ownership of their equity securities, and we must maintain a current list of stockholders in the principal office of
RCVP, which must reflect the record ownership of each outstanding share of any class of our equity securities. Such records must be available for inspection by the Mississippi Commission 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 Mississippi Commission. A failure to make
such disclosure may be grounds for finding the record holder unsuitable. The Mississippi Commission has the power to impose additional restrictions on the holders of our securities at any time.

Substantially
all material loans, leases, sales of securities and similar financing transactions by a Registered Corporation or a licensed gaming subsidiary must be reported to or approved by the
Mississippi Commission. A Registered Corporation may not make a public offering of its securities without the prior approval of the Mississippi Commission if any part of the proceeds of the offering
is to be used to finance the construction, acquisition or operation of gaming facilities in Mississippi or to retire or extend obligations incurred for one or more such purposes.

Under
the Mississippi regulations, a Mississippi gaming subsidiary may not guarantee a security issued by an affiliated company pursuant to a public offering, or pledge its assets to secure payment or
performance of the obligations evidenced by the security issued by the affiliated company, without the prior approval of the Mississippi Commission. A pledge of the stock of a Mississippi gaming
subsidiary and the foreclosure of such a pledge are ineffective without the prior approval of the Mississippi Commission. Moreover, restrictions on the transfer of an equity security issued by a
Mississippi gaming subsidiary and agreements not to encumber such securities are ineffective without the prior approval of the Mississippi Commission. We have obtained approvals from the Mississippi
Commission for such guarantees, pledges and restrictions in connection with offerings of securities, subject to certain restrictions. Moreover, the regulations of the Mississippi Commission require us
to file a loan report within 30 days following certain financing transactions. If the Mississippi Commission were to deem it appropriate such a transaction could be rescinded.

Changes
in control of Bally through merger, consolidation, acquisition of assets, management or consulting agreements, or acts or conduct by a person by which he obtains control, may not occur without
the prior approval of the Mississippi Commission. Entities seeking to acquire control of a Registered Corporation and controlling stockholders, officers, directors, and other persons having a

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material
relationship or involvement with the entity must be approved by the Mississippi Commission prior to assuming control of the Registered Corporation.

The
Mississippi legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and other corporate defense tactics that affect corporate gaming
licensees and Registered Corporations may be injurious to stable and productive corporate gaming.

Approvals
are, in certain circumstances, required from the Mississippi Commission before a Registered Corporation may make exceptional repurchases of voting securities (such as repurchases that treat
holders differently) in excess of the current market price and before a corporate acquisition opposed by management may be consummated. Mississippi's gaming regulations also require prior approval by
the Mississippi Commission of a plan of recapitalization proposed by a Registered Corporation's board of directors in response to a tender offer made directly to the stockholders for the purpose of
acquiring control of the Registered Corporation.

Neither
we nor any of our subsidiaries may engage in gaming activities in Mississippi while also conducting gaming operations outside of Mississippi without approval of, or a waiver of such approval
by, the Mississippi Commission. We previously have obtained, or otherwise qualified for, a waiver of foreign gaming approval from the Mississippi Commission for operations in other jurisdictions in
which we conduct gaming operations and will be required to obtain approval or a waiver of such approval from the Mississippi Commission prior to engaging in any additional future gaming operations
outside of Mississippi; provided, however, that such a waiver shall be automatically granted under the Mississippi Commission's regulations in connection with foreign gaming activities (except for
internet gaming activities) conducted (i) within the 50 states or any territory of the United States, (ii) on board any cruise ship embarking from a port located therein and
(iii) in any other foreign jurisdiction in which a casino operator's license or its equivalent is not required in order to legally conduct gaming operations.

If
the Mississippi Commission were to determine that we, or any of our licensed gaming subsidiaries, violated a gaming law or regulation, the Mississippi Commission could limit, condition, suspend, or
revoke our approvals and the license of the subsidiary could subject us to substantial fines. Because of such a violation, the Mississippi Commission could seek to appoint a supervisor to operate our
casino facilities. Limitation, conditioning, suspension or revocation of any gaming license or approval or the appointment of a supervisor could materially adversely affect us.

License
fees and taxes, computed in various ways depending on the type of gaming involved, are payable to the State of Mississippi and to the counties and cities in which a licensed gaming
subsidiary's operations are conducted. Depending on the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly, or annually and are based on (i) a percentage
of the gross gaming revenues received by the casino operation; (ii) the number of gaming devices operated by the casino; or (iii) the number of table games operated by the casino. The
license fee payable to the State of Mississippi is based upon "gaming revenues" (generally defined as gross revenues less payouts to customers as winnings), and the maximum rate is 8% of gaming
revenues. The gross revenue fee imposed by the City of Vicksburg, Mississippi, where RCVP's casino operations are located, equals approximately 4% of gaming revenues.

The
sale of alcoholic beverages by Rainbow Casino is subject to the licensing, control and regulation by both the City of Vicksburg and the Alcoholic Beverage Control Division (the "ABC") of the
Mississippi State Tax Commission. Rainbow Casino has been designated as a special resort area, which allows us to serve alcoholic beverages on a 24-hour basis. The ABC has the full power
to limit, condition, suspend or revoke any license for the serving of alcoholic beverages or to place such a licensee on probation, with or without conditions. Any such disciplinary action could (and
revocation would) have a material adverse effect on our operations. Certain officers and managers of Rainbow Casino must be

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investigated
by the ABC in connection with its liquor permits, and changes in certain positions must be approved by the ABC.

Native America

Gaming operations on Native American lands are governed by tribal land federal law and tribal-state compacts. The Federal Indian Gaming Regulatory
Act of 1988 (the "Act") created a framework for the various responsibilities of the tribal, state, and federal authorities over tribal gaming operations. The Act is subject to interpretation and
enforcement by the National Indian Gaming Commission, which has the authority to issue regulations and to otherwise regulate tribal gaming activities. Most tribes, in the exercise of their
sovereignty, have also established tribal gaming commissions or agencies that regulate gaming operations on their tribal lands. Compacts between tribes and states also may impose conditions and
requirements on tribal gaming operations. We are required to comply with all such sources of law, which may impose different requirements with respect to licensing, product approvals, and operations.

ITEM 1A.    RISK FACTORS

Our business and investing in our common stock involves risk. Prospective investors in our common stock should carefully consider, among other
things, the following factors and other information contained in this Annual Report on Form 10-K, including our financial statements and the notes to those statements, prior to
making an investment decision. We have identified the following important factors that could cause actual results to differ materially from those projected in any forward looking statements we may
make from time to time.

Our success in the gaming industry depends in large part on our ability to develop innovative products and systems. If we fail to keep pace with
rapid innovations in new technologies or product design and deployment, or if we are unable to quickly adapt our development and manufacturing processes to release innovative products or systems, our
business could be negatively impacted.

Our success is heavily dependent on our ability to develop and sell new products and systems that are attractive not only to our customers, namely
casino operators and other gaming enterprises, but also to their customers, the end players. Furthermore, if our gaming devices deployed in gaming operations do not meet or sustain revenue and
profitability expectations they may be replaced by our competitor's devices. Therefore, our future success depends upon our ability to continue to design and market technologically sophisticated
products that meet our customer's needs regarding, among other things, ease of use and adaptability, but also that are unique and entertaining such that they achieve high levels of player appeal and
sustainability. If our competitors develop new game content and technologically innovative products and systems and we fail to keep pace, our business could be adversely affected.

The
demands of our customers and the preferences of the end players are continuously changing. As a result, there is constant pressure to develop and market new game content and technologically
innovative products. As our revenues are heavily dependent on the earning power and life span of our games and because newer game themes tend to have a shorter life span than more traditional game
themes, we face increased pressure to design and deploy new and successful game themes to maintain our revenue stream and remain competitive. While we feel we have been successful at developing new
and innovative products, our ability to do so could be adversely affected by:



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Our
newer products are generally more technologically sophisticated than those we have produced in the past and we must continually refine our production capabilities to meet the needs of our product
innovation. If we cannot adapt our manufacturing infrastructure to meet the needs of our product innovations, or if we are unable to make upgrades to our production capacity in a timely manner, our
business could be negatively impacted.

The gaming industry is intensely competitive. We face competition from a number of companies, some of whom have greater resources, and if we are
unable to compete effectively, our business could be negatively impacted.

Bally Gaming and Systems

Competition among gaming machine manufacturers is intense and is primarily based on the amount of profit our products generate for our customers in
relation to our competitors' products. Additionally, we compete on the basis of price and financing terms made available to customers, the appeal of game content and features to the end player, and
the features and functionality of our hardware and software products. There are a number of established, well-financed companies producing gaming devices, game content and systems that
compete with our products. Certain of these competitors may have access to greater capital resources than we do, and as a result, may be better positioned to compete in the marketplace.

The
market is crowded, with IGT, WMS, Aristocrat and Konami comprising the primary competition. Pricing, accuracy, reliability, product features and functions are among the factors affecting a
provider's success in selling its system.

Competition
in the gaming industry is intense due to the number of providers, as well as the limited number of casino operators and jurisdictions in which they operate. As a result of consolidation
among the casino operators and the recent cutbacks in spending by casino operators due to the downturn in the economy, the level of competition among providers has increased significantly as the
number of potential customers has decreased.

Casino Operations

Principal competitive factors in the casino industry are the stature, age and location of the facility; the nature, variety and quality of the
amenities and customer services offered; and the continuous development, implementation and success of a variety of marketing programs. Our Rainbow Casino in Vicksburg, Mississippi, faces intense
direct competition from other gaming facilities serving the Vicksburg market and, to a lesser degree, indirect competition from those serving the Gulf Coast Region. New casinos or expansion projects
may be constructed in the Vicksburg market in the future which will result in increased competition. As the overall size of the potential customer base for the Vicksburg market is limited, we also
face competition from casinos in nearby locations. These properties may further dilute the market from which we and the other Vicksburg casinos draw most of our patrons. Some of these sites may also
be closer to larger population centers and, if developed, may enjoy a competitive advantage over our casino.

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Consumer spending on leisure activities is affected by changes in the economy and consumer tastes, as well as other factors that are difficult to
predict and beyond our control. Decreases in consumer spending adversely affecting the casino industry could harm our business.

The demand for entertainment and leisure activities tends to be highly sensitive to consumers' disposable incomes, and thus can be affected by
changes in the economy and consumer tastes, both of which are difficult to predict and beyond our control. Unfavorable changes in general economic conditions including recession, economic slowdown, or
higher fuel or other transportation costs, may reduce disposable income of casino patrons or result in fewer patrons visiting casinos. As a result, we cannot ensure that demand for our products or
services will remain constant. Continued adverse developments affecting economies throughout the world, including a general tightening of the availability of credit, increasing interest rates,
increasing energy costs, acts of war or terrorism, natural disasters, declining consumer confidence or additional significant declines in the stock market, as well as concerns regarding epidemics and
the spread of contagious diseases, could lead to a further reduction in discretionary spending on leisure activities such as gambling. Any significant or prolonged decrease in consumer spending on
leisure activities could greatly affect the casino industry, causing some or all of our customers to decrease spending or ultimately declare bankruptcy, each of which would adversely affect our
business.

To the extent there is a change in ownership of any of our customers or there is consolidation within the casino industry, our business could be
negatively impacted.

We are heavily dependent on the casino industry. Demand for our products is primarily driven by the replacement of existing products as well as the
expansion of existing casinos and the opening of new properties in existing and new jurisdictions. Because a significant portion of our sales come from repeat customers, to the extent the industry
consolidates or one of our customers is sold to or merges with another entity that utilizes the products and services of one of our competitors or that reduces spending on our products or causes
downward pricing pressures, our business could be negatively impacted. Business combinations of this nature could lead to a cancellation of orders, slow the replacement cycle or negatively impact
pricing and purchasing decisions. Also, to the extent some or all of this consolidation is undone resulting in a greater number of smaller, independently run operations that are not as well funded,
the replacement cycle could be further slowed and future orders could be reduced. Events within the industry leading or contributing to a decline in demand for our product could adversely affect our
business.

Our failure to maintain controls and processes related to billing and collecting accounts receivable or the deterioration of the financial condition
of our customers could negatively impact our business.

We have offered extended payment terms to certain customers. As a result, the collection of accounts receivable has become a matter of greater
significance. While we believe the increased level of these specific receivables has allowed us to grow our business, it has also required direct, additional focus of and involvement by management.
Further, and especially due to the current downturn in the economy, some of our customers may not pay accounts receivable when due, whether as a result of financial difficulties, bankruptcy or
otherwise, resulting in increased write-offs for us.

Unfavorable political developments, weak foreign economies and other foreign risks may negatively impact our financial condition and results of
operations.

Our business is dependent on international markets for a portion of our revenues. As of June 30, 2009, Bally Gaming and Systems had
approximately $55.0 million of net receivables, or 30% of our total net receivables, from customers in foreign countries. We expect that receivables with respect to foreign

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sales
will continue to account for a portion of our total revenues. As a result, our business in these markets is subject to a variety of risks, including:



There
can be no assurances that any of these international developments, or others, would not adversely affect our financial condition and results of operations.

We may not be able to attract or retain the management or employees necessary to remain competitive in our industry.

The competition for qualified personnel in the gaming industry is intense. Our future success depends on the retention and continued contributions of
our key management, finance, marketing, development and staff personnel, many of whom would be difficult or impossible to replace. Our success is also tied to our ability to recruit additional key
personnel in the future. We may not be able to retain our current personnel or recruit any additional key personnel required. The loss of services of any of our personnel or our inability to recruit
additional necessary key personnel could have a material adverse effect on our business, financial condition, results of operations and prospects.

The gaming industry is heavily regulated and changes in regulation by gaming authorities may adversely impact our ability to operate in our existing
markets or expand our business.

The manufacture and distribution of gaming devices, development of systems and the conduct of gaming operations are subject to extensive federal,
state, local and foreign regulation by various gaming authorities. Our ability to continue to operate in certain jurisdictions or our ability to expand into new jurisdictions could be adversely
affected by:



20

---





Public
opinion can also exert a significant influence over the regulation of the gaming industry. A negative shift in the public's perception of gaming, whether in individual jurisdictions or on a
more general level, could affect future legislation. Among other things, such a shift could cause jurisdictions considering the legalization of gaming to abandon such a proposal, thereby limiting the
number of new jurisdictions into which we could expand. Negative public perception could also lead to the implementation of new restrictions in jurisdictions in which we currently operate, thereby
adversely affecting our operations.

Although
the laws, rules and regulations of the various jurisdictions in which we operate vary in their technical requirements, virtually all jurisdictions, including those into which we may expand in
the future, require licenses, permits, qualification documentation, including evidence of integrity and financial stability, and other forms of approval to engage in gaming operations or the
manufacture and distribution of gaming devices. Our officers, directors, major stockholders and key personnel are also subject to significant regulatory scrutiny. In the event that gaming or
governmental authorities determine that any person is unsuitable to act in such capacity with respect to Bally, we could be required to terminate our relationship with such person. To our knowledge,
we and our key personnel have obtained, or applied for, all government licenses, registrations, findings of suitability, permits and approvals necessary to conduct our activities in the various
jurisdictions that we operate. However, there can be no assurance those licenses, registrations, findings of suitability, permits or approvals will be renewed in the future, or that new forms of
approval necessary to operate in emerging or existing markets will be granted.

Our intellectual property protections may be insufficient to properly safeguard our technology.

The gaming industry is constantly employing new technologies in both new and existing markets. We rely on a combination of patent and other technical
security measures to protect our products, and continue to apply for patents protecting such technologies. Notwithstanding these safeguards, our competitors may still be able to obtain our technology
or imitate our products. Furthermore, others may independently develop products similar or superior to ours.

We may be subject to claims of intellectual property infringement or invalidity. Expenses incurred with respect to monitoring, protecting and
defending our intellectual property rights could adversely affect our business.

Competitors and other third parties may infringe on our intellectual property rights, or may allege that we have infringed on their rights.
Monitoring infringement and misappropriation of intellectual property can be difficult and expensive, and we may not be able to detect infringement or misappropriation of our proprietary rights. We
may also incur significant litigation expenses protecting our intellectual property or defending our use of intellectual property, reducing our ability to fund product initiatives. These expenses
could have an adverse effect on our future cash flows and results of operations. We are currently subject to litigation regarding patent infringement which, if resolved adversely to us, could have a
material impact on our business. If we are found to infringe on the rights of others we could be required to discontinue offering certain products or systems, to pay damages, or purchase a license to
use the intellectual property in question from its owner. Litigation can also distract management from the day-to-day operations of the business. There can be no assurances
that

21

---



certain
of our products, including those with currently pending patent applications, will not be determined to have infringed upon an existing third party patent.

The intellectual property rights of others may prevent us from developing new products or entering new markets.

The gaming industry is characterized by the rapid development of new technologies, which requires us to continuously introduce new products using
these technologies and innovations, as well as to expand into new markets that may be created. Therefore, our success depends in part on our ability to continually adapt our products and systems to
incorporate new technologies and to expand into markets that may be created by new technologies. However, to the extent technologies are protected by the intellectual property rights of others,
including our competitors, we may be prevented from introducing products based on these technologies or expanding into markets created by these technologies. If the intellectual property rights of
others prevent us from taking advantage of innovative technologies, our financial condition, operating results or prospects may be harmed.

Our gaming operations, particularly our wide area progressive networks and centrally determined systems, may experience losses due to technical
difficulties or fraudulent activities.

Our success depends on our ability to avoid, detect, replicate and correct software and hardware errors and fraudulent manipulation of our products
and systems. To the extent any of our gaming devices or software experience errors or fraudulent manipulation, our customers may replace our products and services with those of our competitors. In
addition, the occurrence of errors in, or fraudulent manipulation of, our gaming devices or software may give rise to claims for lost revenues and related litigation by our customers and may subject
us to investigation or other action by gaming regulatory authorities, including suspension or revocation of our gaming licenses or disciplinary action. Additionally, in the event of such issues with
our gaming devices or software, substantial engineering and marketing resources may be diverted from other areas to rectify the problem.

Our bank loan agreement imposes significant restrictions. Failure to comply with these restrictions could result in the acceleration of a substantial
portion of our debt, which we may not be able to repay or refinance.

Our bank loan agreement contains a number of covenants that, among other things, restrict our ability and certain of our subsidiaries
to:



In
addition, our bank loan agreement requires us to maintain compliance with certain financial ratios. Our ability to comply with such financial ratios, meet our debt service obligations or reduce our
total debt is dependent upon our future performance, which may be affected by events beyond our control. There can be no assurance that we will be able to comply with such restrictions and
limitations, or that they will not adversely affect our ability to finance our future operations or capital needs, or engage in other business activities that would otherwise be in our interest.

22

---



A
breach of any of our covenants or our inability to comply with the required financial ratios under the bank loan agreement or under any replacement loan agreement could result in a default under
such loan agreement. In the event of any such default, the lenders could elect to declare all borrowings outstanding under such loan agreement, together with any accrued interest and other fees, to be
due and payable, as well as require us to apply all available cash to repay the amounts. If we were unable to repay the indebtedness upon its acceleration, the lenders could proceed against the
underlying collateral. There can be no assurance that our assets would be sufficient to repay the amount in full, that we would be able to borrow sufficient funds to refinance the indebtedness or that
we would be able to obtain a waiver to cure the default.

Current borrowings, as well as potential future financings, may substantially increase our current indebtedness.

No assurance can be given that we will be able to generate the cash flows necessary to permit us to meet our fixed charges and payment obligations
with respect to our debt. We
could be required to incur additional indebtedness to meet these fixed charges and payment obligations. Should we incur additional debt, among other things, such increased indebtedness
could:



Any
inability to service our fixed charges and payment obligations, or the incurrence of additional debt, would have an adverse effect on our cash flows, results of operations and business generally.

An inability to maintain sufficient liquidity could negatively affect expected levels of operations and new product development.

Future revenue may not be sufficient to meet operating, product development and other cash flow requirements. Sufficient funds to service our debt
and maintain new product development efforts and expected levels of operations may not be available, and additional capital, if and when needed by us, may not be available on terms acceptable to us.
If we cannot obtain sufficient capital on acceptable terms when needed, we may not be able to carry out our planned product development efforts and level of operations, which could harm our business.

Our financial results vary from quarter to quarter, which could negatively impact our business.

Various factors affect our quarterly operating results, some of which are not within our control. These factors include, among
others:



23

---





These
and other factors are likely to cause our financial results to fluctuate from quarter to quarter. Based on the foregoing, we believe that quarter-to-quarter comparisons
of our results of operations may not be meaningful. In addition, such fluctuations could cause us to be unable to comply with the financial ratios in our bank loan agreement.

The provisions in our restated articles of incorporation and Nevada law could discourage or prevent a potential takeover of our Company that might
otherwise result in our stockholders receiving a premium over the market price for our common stock.

Our restated articles of incorporation permit our Board of Directors to issue special shares from time to time, with such rights and preferences as
they consider appropriate. Our Board of Directors could authorize the issuance of special shares with terms and conditions and under circumstances that could have an effect of discouraging a takeover
or other transaction.

As
a Nevada corporation, we are also subject to certain provisions of the Nevada General Corporation Law that have anti-takeover effects and may inhibit a non-negotiated merger
or other business combination. These provisions are intended to encourage any person interested in acquiring us to negotiate with, and to obtain the approval of, our Board of Directors in connection
with such a transaction. However, certain of these provisions may discourage a future acquisition of Bally, including an acquisition in which the stockholders might otherwise receive a premium for
their shares. As a result, stockholders who might desire to participate in such a transaction may not have the opportunity to do so.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

The following sets forth information regarding our leased and owned properties, organized according to the segment that utilizes the facilities. Each
of the properties is fully utilized unless otherwise noted with an asterisk (*). We believe our facilities are suitable for our needs and we have no future expansion plans that would make these
properties inadequate. See Note 8 to the consolidated financial statements,Leases, for information as to our lease commitments with respect to
the leased properties.

Bally Gaming Equipment and Systems

Global Headquarters and Manufacturing and Assembly Facility

We maintain our global headquarters and our primary manufacturing and assembly facilities in Las Vegas, Nevada in a facility with
approximately 150,000 square feet that we own. The facility is used for corporate administrative functions as well as to accommodate the design, assembly and distribution of gaming equipment and
casino management systems' hardware and to meet product design demands and varying levels of volume requirements. We also lease an additional 210,000 square feet of office and warehouse space in the
general area of our main facility. In November 2009, we expect to reduce this additional space by approximately 80,000 square feet in an effort to consolidate our warehouse space.

Las Vegas and Reno Technology Campus

In addition to the Las Vegas facilities described above, in fiscal 2009 we began leasing an additional 36,000 square feet of office space next
to our global headquarters to create a Las Vegas Technology Campus for our Games Development, Advanced Development and Project Management teams. We

24

---



have
also consolidated multiple facilities and leased additional space in Reno, Nevada for a combined total of approximately 119,000 square feet to provide a more cohesive and larger campus-style
environment to accommodate the growth of our Games Development, Systems Development, Sales,
Product Management, and Administrative functions in northern Nevada. We plan to eliminate approximately 30,000 square feet of leased space during early fiscal 2010 during the transition.

Innovation Lab

Bally's Global Innovation Lab is located in Pleasanton, California, a major suburb of San Francisco. We lease a facility with approximately
6,250 square feet that allows the Company to draw from the significant high-tech talent that resides in the Silicon Valley.

Other Leased Facilities

IndiaWe lease approximately 85,000 square feet of office and research and development space in Bangalore and Chennai.

NetherlandsWe lease approximately 16,000 square feet of sales, service and warehouse space in Amsterdam and Diemen.

ChinaWe lease approximately 25,000 square feet of sales, service, office, marketing and warehouse space in Macau.

South AmericaWe lease approximately 21,000 square feet of office and warehouse space in Buenos Aires, Argentina and Montevideo, Uruguay.

In
addition to the facilities described above, we maintain leased space in major gaming jurisdictions worldwide including approximately 113,000 square feet of office, sales and service, research and
development and warehouse space throughout the United States, and approximately 20,000 square feet of office, sales and service, research and development and warehouse space in Europe, South Africa
and Mexico. These facilities are located in the cities listed below. Each property is fully utilized unless otherwise noted with an asterisk (*).

United States

Europe, South Africa and MexicoHuntington Beach, California

Nice, FranceMurrietta, California

Chestergates, United KingdomDenver, Colorado

Kyalami, Midrand, South AfricaDover, Delaware

Mexico City, MexicoMiramar, FloridaKennesaw, GeorgiaNaperville, IllinoisTinley Park, IllinoisBiloxi, MississippiEgg Harbor, New JerseyChester, New YorkOklahoma City, OklahomaFife, WashingtonKirkland, Washington*San Juan, Puerto Rico


25

---



Rainbow Casino

Our dockside riverboat casino is located in Vicksburg, Mississippi where we own a 33,000 square foot casino, 20,000 square foot entertainment
facility and approximately 48,000 square foot restaurant and administrative offices.

ITEM 3.    LEGAL PROCEEDINGS

Bally has been named in and has brought lawsuits in the normal course of business. We do not expect the outcome of these suits to have a material
adverse effect on our financial position or results of operations. A description of certain of these matters is contained in Note 13 to the consolidated financial statements, Commitments and Contingencies, and is incorporated herein by reference.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

26

---





PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "BYI". The following table sets forth the high and low
closing bid price of our common stock as reported by the NYSE for the periods indicated.

Price Range of
Common StockHigh

LowFiscal Year Ended June 30, 20091st Quarter

$
35.47

$
25.772nd Quarter


30.91


13.333rd Quarter


27.30


13.474th Quarter


30.48


18.93Fiscal Year Ended June 30, 20081st Quarter

$
35.59

$
24.372nd Quarter


51.98


36.153rd Quarter


49.67


32.094th Quarter


45.01


30.23


As
of August 14, 2009, we had approximately 6,100 holders of record of our common stock and the closing price on the NYSE was $38.23.

Dividend Policy

We have never declared or paid cash dividends on our common stock. Our bank loan agreement materially limits our ability to pay dividends on our
common stock, as discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 7 to the consolidated financial statements, Long-term Debt and Capital
Leases. We intend to follow a policy of retaining earnings to finance the growth of our business and do not
anticipate paying any cash dividends in the foreseeable future. The declaration and payment of future dividends on our common stock will be at the sole discretion of our Board of Directors and
will depend on our profitability, the terms of our bank credit agreement and our financial condition, capital requirements, statutory and contractual restrictions, future prospects and other factors
the Board of Directors deem relevant.

Share Repurchases

On January 28, 1999, our Board of Directors approved a share repurchase plan under which, subject to price and market conditions, purchases of
shares can be made from time to time in the open market or in privately negotiated transactions using available cash. On December 5, 2007, our Board of Directors amended the repurchase plan
authorizing the repurchase of up to $10 million of our common stock. On February 5, 2008, our Board of Directors amended the repurchase plan authorizing the repurchase up to
$20 million of our common stock. On February 14, 2008, our Board of Directors increased the amount of common stock authorized to be repurchased to $75 million. On
August 12, 2008, the Company's Board of Directors reset the existing share repurchase plan to purchase up to $100 million of common stock. The 149,253 shares of our common stock
repurchased from our Chief Technology Officer in November 2007 discussed in Note 9 to the consolidated financial statements,Related Party
Transactionswere repurchased independent of the repurchase plan. Our quarterly share repurchases

27

---



under
this plan, excluding treasury shares acquired in non-cash transactions related to forfeited stock awards and shares exchanged for options exercised, were as follows:

Period

Total Number
of Shares
(or Units)
Purchased

Average Price
Paid Per Share
(Per Unit)

Total Number of Shares
(or Units) Purchased
as Part of Publicly
Announced
Plans or Programs

Maximum Number
(or Approximate Dollar Value)
of Shares (or Units)
That May Be Purchased
Under the Plans or ProgramsApril 1 - April 30, 2009




$





$
69,067,337May 1 - May 31, 2009


50,000

$
26.51


50,000

$
67,741,632June 1 - June 30, 2009


216,000

$
27.86


216,000

$
61,724,603Total


266,000

$
27.60


266,000


Equity Compensation Plans

The following table sets forth information as of June 30, 2009 with respect to our equity compensation plans that provide for the issuance of
options to purchase our common stock:

Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights(1)

Weighted average
exercise price of
outstanding options,
warrants and rights(1)

Number of
securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in the first column)Plan CategoryEquity compensation plans approved by security holders


7,200,916

$
18.01


1,097,564Equity compensation plans not approved by security holders(2)


325,000


16.41


Total


7,525,916

$
17.94


1,097,564


---

28

---



Stock Performance Graph

The following graph compares the cumulative 5 year total return provided to shareholders on Bally Technologies Inc.'s common stock
relative to the cumulative total returns of the S&P 500 index, the Russell 2000 index and a customized peer group of four companies that includes: IGT, Progressive Gaming International Corp.,
Shuffle Master Inc and WMS. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock, in each index and in the peer group on June 30, 2004 and
its relative performance is tracked through June 30, 2009.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURNAmong Bally Technologies Inc., The S&P 500 Index,  The Russell 2000 Index And A Peer Group

GRAPHIC

*Comparison of 60 Month Cumulative Return:

6/04

6/05

6/06

6/07

6/08

6/09Bally Technologies Inc.


100.00


81.70


95.98


153.96


196.97


174.36S&P 500


100.00


106.32


115.50


139.28


121.01


89.29Russell 2000


100.00


109.45


125.40


146.01


122.36


91.76Peer Group


100.00


79.98


102.79


106.80


70.23


51.05


The
stock price performance included in this graph is not necessarily indicative of future stock price performance.

29

---



ITEM 6.    SELECTED FINANCIAL DATA

The following selected statement of operations data for fiscal 2009, 2008 and 2007, and selected balance sheet data for fiscal 2009 and 2008 has been
derived from the consolidated financial statements, which appear elsewhere in this Annual Report on Form 10-K. The Selected Financial Data should be read in conjunction
with:



Year Ended June 30,2009

2008

2007

2006

2005(in 000s, except per share amounts)Statement of Operations Data:Revenues

$
883,429

$
899,691

$
682,318

$
541,647

$
474,783Operating income (loss)(1)


214,736


199,193


67,003


(43,498
)

(4,451
)Income (loss) from continuing operations before income taxes and minority interest


196,717


178,616


38,106


(67,300
)

(19,370
)Income tax (expense) benefit


(68,481
)

(66,793
)

(10,975
)

24,012


5,192Minority interest


(1,927
)

(4,616
)

(4,803
)

(3,907
)

(3,731
)Income (loss) from continuing operations


126,309


107,207


22,328


(47,195
)

(17,909
)Income (loss) from discontinued operations(2)











1,124


(4,654
)Net income (loss)

$
126,309

$
107,207

$
22,328

$
(46,071
)
$
(22,563
)Basic earnings (loss) per share:Continuing operations

$
2.32

$
1.97

$
0.42

$
(0.90
)
$
(0.35
)Discontinued operations











0.02


(0.09
)Total

$
2.32

$
1.97

$
0.42

$
(0.88
)
$
(0.44
)Diluted earnings (loss) per share:Continuing operations

$
2.22

$
1.85

$
0.40

$
(0.90
)
$
(0.35
)Discontinued operations











0.02


(0.09
)Total

$
2.22

$
1.85

$
0.40

$
(0.88
)
$
(0.44
)Statement of Cash Flows Data:Operating activities

$
165,176

$
68,092

$
25,446

$
9,483

$
13,933Investing activities


(35,722
)

(26,365
)

(27,045
)

(17,671
)

(26,944
)Financing activities


(131,355
)

(17,158
)

25,840


(8,586
)

(108,053
)Effect of exchange rate changes on cash


(71
)

1,159


176


29


(24
)Increase (decrease) in cash and cash equivalents

$
(1,972
)
$
25,728

$
24,417

$
(16,745
)
$
(121,088
)


30

---





As of June 30,2009

2008

2007

2006

2005(in 000s)Balance Sheet Data:Cash and cash equivalents

$
64,598

$
66,570

$
40,842

$
16,425

$
33,170Total current assets


423,639


547,687


421,883


329,354


271,711Total current liabilities


178,050


294,398


256,938


198,837


146,547Net working capital


245,589


253,289


164,945


130,517


125,164Total assets


880,882


995,124


824,895


687,881


654,934Total long term debt and capital leases, including current maturities


209,087


304,504


333,854


328,346


335,117Total stockholders' equity


436,306


323,325


199,454


144,078


176,023


---

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

We are a diversified, worldwide gaming company that designs, manufactures, distributes and operates gaming devices and computerized monitoring and
accounting systems for gaming devices. In addition to selling our gaming devices, we also offer our customers a wide range of rental options. Our primary technologies include gaming devices for
land-based, riverboat and Native American casinos, video lottery and central determination markets and specialized system-based hardware and software products. Our specialized system-based
hardware and software products provide casinos with a wide range of marketing, data management, accounting, security and other software applications and tools to more effectively manage their
operations. We also own and operate the Rainbow Casino, a dockside riverboat casino in Vicksburg, Mississippi.

31

---



We
derive our revenues from the following four sources:



Gaming Equipment



Sale of gaming devices and related equipment, parts and conversion kits;

Gaming Operations



Operation of linked progressive systems, video lottery and centrally determined systems and the rental of gaming devices and content;

Systems



Sale of computerized monitoring systems and related recurring hardware and software maintenance revenue; and

Casino Operations



Operation of the Rainbow Casino.


We
report our revenue and income in two reportable segments: the Bally Gaming Equipment and Systems segment, which includes our Gaming Equipment, Gaming Operations and Systems divisions, and our
Casino Operations segment. Our total revenues were $883.4 million, $899.7 million and $682.3 million for the years ended June 30, 2009, 2008 and 2007, respectively. Revenue
from our Bally Gaming Equipment and Systems segment represented approximately 95%, 95% and 93% of our total revenues for the years ended June 30, 2009, 2008 and 2007, respectively.

We
review certain financial measures in assessing our financial condition and operating performance not only in connection with creating our forecasts and in making comparisons to financial results
from prior periods, but also in making comparisons to our competitors' financial results. We focus on fluctuations in revenue, cost and gross margin and also pay close attention to improvements in
consolidated operating income, net income, diluted earnings per share, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, including asset charges and share-based
compensation), cash flows from operations and free cash flow (cash flows from operating activities less capital expenditures) as they are key indicators of our success in growing our business. We also
measure changes in selling, general and administrative expenses as a percent of revenue, which indicate management's ability to control costs, as well as changes in research and development as a
percent of revenue, which demonstrate investment in our technology assets. The measures listed above are not a comprehensive list of all factors considered by us in assessing our financial condition
and operating performance, and we may consider other individual measures as required by trends and discrete events arising in a specific period, but they are the key indicators that we generally weigh
most heavily from period to period.

We
are currently operating in a challenging economic environment and the combination of economic uncertainty, lower demand for replacement products and reduced opportunities from new or expanded
markets has negatively impacted our consolidated results. The replacement cycle for gaming machines in North America continues to be sluggish, but we are cautiously optimistic that gaming operators'
replacement game buying demand will begin to improve in calendar 2010. During the years ended June 30, 2009, 2008 and 2007, we sold 16,848, 21,263 and 17,737 new gaming devices in the United
States and Canada, respectively. The adverse affects of this sluggish demand is partially offset by our continued expansion into international markets during the period. International revenues were
$141.9 million, $134.5 million and $80.0 million for the years ended June 30, 2009, 2008 and 2007, respectively.

There
have been several recent developments fueled by the economic situation which we believe will benefit us in the long term. Domestically, we are focused on the new opportunities including the
potential expansion of gaming in Ohio, Illinois, Kansas, Iowa, Maryland, and Massachusetts. The breadth and timing of such opportunities remains uncertain due to the political process in these
jurisdictions as well as the difficult credit environment facing our customers and the risk of continued economic uncertainty. We are also engaged in expanding our position in Mexico as it moves to
Class III gaming, as well as opportunities in the Italian and Australian markets. Further, as we continue to grow and become a strong player in Asia, opportunities will arise in that region
which should allow us to expand internationally.

32

---



Despite the challenging economic conditions, we have experienced continued strength in Gaming Operations and Systems revenues during the period. Gaming Operations revenues were $275.0 million,
$236.0 million and $176.4 million during the years ended June 30, 2009, 2008 and 2007, respectively. Revenues were significantly higher than in the prior periods due primarily to
the continued performance of existing and new premium game units and expansion in our centrally determined business. Gaming operations margins improved due to better management of our capital, more
strategic placements and supply chain efficiencies. In addition, we experienced significant growth in the installed base of our centrally determined systems which increased by approximately 4,700
units over June 30, 2008 due primarily to increased placements, especially in the Class II and centrally determined markets. We have just released, or will soon release, some new
products including our new spinning-wheel game, Cash Wheel, Transparent Reels, our all new Digital Tower Series platform, which includes 55555 Jackpot, and
Fireball, and our Jumbo and DualVision cabinets. We continue to focus our efforts on the introduction of new and innovative games and cabinets both for our video and stepper
platforms.

Systems
revenues were $211.8 million, $206.3 million and $134.1 million for the years ended June 30, 2009, 2008 and 2007, respectively. Maintenance revenue increased 22%
and 49%, respectively, in the year ended June 30, 2009, when compared to the same periods in the prior two years as a result of an increased install base of customers on our systems. For
systems, the new SDS® Version 11, which runs on both Unix and Windows off the same code base, our iVIEW Display Manager, and our Power Bonusing products are generating
positive interest. Over the last few years, we have continued our focus on the basics of enterprise software development, delivery, customer support and services discipline, on improving core
products, providing good upgrade possibilities for our customers, and increasing customer satisfaction levels through better service and support which are all serving us well in these difficult
economic times.

Net
cash provided by operating activities was $165.2 million, $68.1 million and $25.4 million during the years ended June 30, 2009, 2008 and 2007, respectively. Cash flow
from operations increased 143% for the year ended June 30, 2009, when compared to the same period last year reflecting improved operating results and cash flow management. Since June 30,
2008, we have also reduced our debt by $95.4 million including paying down the revolving line of credit to zero.

Revenues
from the Rainbow Casino decreased in the year ended June 30, 2009 to $39.6 million from $47.3 million and $47.7 million in the years ended June 30, 2008 and
2007, respectively. This decrease reflects the impact of competition from a new casino that opened in late October 2008, other nearby expansions and the current challenging economic environment.

Management
continuously monitors and reviews its operating expenses and selling, general and administrative expenses in comparison to revenues. Selling, general and administrative expenses were 25.5%
of revenues and declined as a percentage of revenue during the year ended June 30, 2009, when compared to 26.6% and 30.4% during the same periods in the prior two years, respectively.

33

---



Results of Operations

Our results of operations are summarized below:

Overall Consolidated Operating Results
Year Ended June 30,2009

% Rev

2008

% Rev

2007

% Rev(dollars in millions)Revenues

$
883.4


100
%
$
899.7


100
%
$
682.3


100
%Selling, general and administrative


225.4


26
%

239.3


27
%

207.1


30
%Research and development costs


77.3


9
%

60.8


7
%

51.9


8
%Depreciation and amortization


22.2


3
%

18.9


2
%

22.4


3
%Operating income


214.7


24
%

199.2


22
%

67.0


10
%Net income

$
126.3


14
%
$
107.2


12
%
$
22.3


3
%


Bally Gaming Equipment and Systems

We are one of the leading providers of technology to the gaming industry. The Bally Gaming and Systems segment consists of three primary
sub-groups: Gaming Equipment, which includes the sale of gaming devices and related equipment, parts and conversion kits; Gaming Operations, which includes the operation of
wide-area progressive, video lottery and centrally determined systems and the rental of gaming devices and content; and Systems, which includes the sale and support of computerized
monitoring systems and related recurring hardware and software maintenance revenue.

34

---



The
summary financial results and operating statistics for Bally Gaming Equipment and Systems are as follows:

Year Ended June 30,2009

% Rev

2008

% Rev

2007

% Rev(dollars in millions)RevenuesGaming Equipment

$
357.0


42
%
$
410.1


48
%
$
324.1


51
%Gaming Operations


275.0


33
%

236.0


28
%

176.4


28
%Systems


211.8


25
%

206.3


24
%

134.1


21
%Total revenues

$
843.8


100
%
$
852.4


100
%
$
634.6


100
%Gross MarginGaming Equipment(1)

$
166.8


47
%
$
182.8


45
%
$
117.8


36
%Gaming Operations


194.9


71
%

155.6


66
%

104.6


59
%Systems(1)


155.0


73
%

151.3


73
%

96.4


72
%Total gross margin

$
516.7


61
%
$
489.7


57
%
$
318.8


50
%Selling, general and administrative


193.8


23
%

198.6


23
%

169.0


27
%Research and development costs


77.3


9
%

60.8


7
%

51.9


8
%Depreciation and amortization


18.6


2
%

14.8


2
%

18.1


3
%Operating income

$
227.0


27
%
$
215.5


25
%
$
79.8


13
%


---

Year Ended June 30,2009

2008

2007Operating Statistics:New gaming devices


22,108


26,397


21,372Original Equipment Manufacturer ("OEM") units


505





1,605New unit Average Selling Price ("ASP")

$
14,259

$
13,294

$
12,617End of period installed base:Gaming monitoring units installed base


362,000


312,000


295,000Systems managed cashless games


310,000


277,000


243,000Wide-area progressive


947


1,040


896Local-area progressive


63


249


447Total linked progressive systems


1,010


1,289


1,343Rental and daily-fee games


11,592


13,938


7,126Video lottery systems


8,152


8,008


7,791Centrally determined systems


48,924


44,229
(1)

34,799


---

35

---



Fiscal 2009 vs. Fiscal 2008

Total revenues for our Bally Gaming Equipment and Systems segment decreased $8.6 million, or 1%, in fiscal 2009, when compared to fiscal 2008,
as a result of the following:

Gaming Equipment Revenue.Gaming Equipment revenue decreased by $53.1 million, or 13%, to approximately $357.0 million
primarily as a result of a 16% decrease in new gaming device sales to 22,108 units in fiscal 2009, when compared to 26,397 units sold in fiscal 2008. The decrease in new gaming device sales was offset
by a 7% increase in the ASP, excluding OEM units, of new gaming devices as the result of a reduction in discounts and trade-ins with customers. In addition, used game revenue decreased
$7.8 million, or 54%, and sales of parts decreased $10.4 million, or 35%, during fiscal 2009, when compared to fiscal 2008.

Gaming Equipment Gross Margin.Gaming Equipment gross margin increased to 47% in fiscal 2009 from 45% in fiscal 2008, primarily as a result of the increased ASP
due primarily to the reduction in discounts and trade-ins with customers. In addition, during fiscal 2009 there were $4.3 million in gaming equipment inventory write-downs as
compared to $9.5 million in fiscal 2008. The decrease in inventory write-downs was a result of improved systems and material planning efforts and a concentrated effort to convert or rework
slower moving inventory during the current fiscal year.

Gaming Operations Revenue.Gaming Operations revenue increased $39.0 million, or 17%, to approximately $275.0 million in
fiscal 2009, when compared to fiscal 2008, primarily as a result of an increase in the installed base of centrally determined systems and the impact from the introduction of certain premium daily flat
fee titles.

Our
installed base of devices connected to our centrally determined systems (Class II, Video Lottery and iVIEW network) increased 11% from 44,229 units as of June 30, 2008 to
48,924 units as of June 30, 2009 due primarily to units added in Mexico, Alabama and Washington.

Gaming Operations Gross Margin.Gross margin increased to 71% in fiscal 2009 from 66% in fiscal 2008, primarily as a result of a significant increases in license,
rental and participation revenue which had little associated variable costs. Cost of gaming operations was comparable period over period at $80.0 million and $80.4 million in fiscal 2009
and 2008, respectively. Depreciation expense, included in cost of gaming operations, increased $7.1 million in fiscal 2009, when compared to fiscal 2008, due to the increase in gaming
operations units installed in customer locations under rental and participation arrangements. The increase in depreciation expense was offset by decreases of $6.6 million in expenditures for
parts, signs and meters and royalty expense during the same period.

Systems Revenue.Systems revenue increased by $5.5 million, or 3%, to approximately $211.8 million in fiscal 2009, when
compared to fiscal 2008, due primarily to an increase in maintenance revenue during
the same period. Systems maintenance revenue was $51.2 million, representing an increase of $9.4 million, or 22%, in fiscal 2009 when compared to $41.8 million in fiscal 2008.

Systems Gross Margin.Systems gross margin was 73% in both fiscal 2009 and fiscal 2008.

Selling, General and Administrative Expenses.Selling, general and administrative expenses decreased $4.8 million, or 2%, in
fiscal 2009, when compared to fiscal 2008. Legal fees decreased $2.6 million during fiscal 2009, when compared to fiscal 2008, due to a reduction in activity while certain cases remain on
appeal. In addition, temporary labor and related outside services expense decreased $5.1 million during the same period. Insurance expense decreased $3.0 million during the current
period due to a reimbursement from claims for the 2005 U.S. Gulf Coast hurricanes which destroyed or temporarily shut down certain gaming operations in the region when our rental and daily fee games
were destroyed in third party locations. Bad debt expense also decreased $5.3 million during fiscal 2009, when compared to fiscal 2008, due to a reduction in net write-offs during
the period and an overall

36

---



decrease
in accounts receivable. Bad debt as a percentage of revenue continues to remain under 1%. These decreases were offset by an increase in salaries and related expenses in fiscal 2009, when
compared to fiscal 2008, due primarily to increases in staffing to meet growing demands of the business including expansion in international markets and a $3.0 million increase in share-based
compensation expense during the period.

Research and Development Costs.Research and development costs increased $16.5 million, or 27%, in fiscal 2009, when compared
to fiscal 2008, as a result of the increase in projects coupled with an increase in staffing, primarily in our India Development Centers. We remain focused on our technology assets due to the
competitive landscape that requires a continual investment in future generations of gaming products and systems.

Depreciation and Amortization Expense.Depreciation and amortization expense increased $3.8 million, or 26%, in fiscal 2009,
when compared to fiscal 2008, primarily as a result of additions to property and equipment and intangible assets during the current period.

Fiscal 2008 vs. Fiscal 2007

Total revenues for our Bally Gaming Equipment and Systems segment increased $217.8 million, or 34%, in fiscal 2008, when compared to fiscal
2007, as a result of the following:

Gaming Equipment Revenue.Gaming Equipment revenue increased by $86.0 million, or 27%, to approximately $410.1 million
primarily as a result of a 24% increase in new gaming devices sold to 26,397 units in fiscal 2008 when compared to 21,372 units in fiscal 2007 and a 5% increase in the ASP of new gaming devices,
excluding OEM sales, as a result of product mix and price increases taking effect in the period.

Gaming Equipment Gross Margin.Gaming Equipment gross margin increased to 45% in fiscal 2008 from 36% in the same period last year, primarily as a result of the
decrease in lower margin OEM sales and the increase in ASP, discussed above, and improved purchasing and manufacturing efficiencies due to increased volumes which allows for competitive bidding from
suppliers and lower manufacturing costs due to the standardization of game platforms.

Gaming Operations Revenue.Gaming Operations revenue increased $59.6 million, or 34%, to approximately $236.0 million
primarily as a result of an increase in participation, rental and license revenue primarily from the following:



Gaming Operations Gross Margin.Gross margin increased to 66% in fiscal 2008 from 59% in fiscal 2007, primarily as a result of the significant gains in both rental
and participation revenue which has little associated variable costs and a reduction in royalty expense related to the removal of third party

37

---



games.
Revenue and gross margin from Gaming Operations in fiscal 2007 included daily fees that related to certain contracts which were being deferred due to new contractual commitments made to the
customers. The margin on the deferred daily fees are higher than average as they are generated from transactions which require a relatively low depreciable infrastructure. Approximately
$12.5 million in net daily fees generated during fiscal 2008 were deferred pending delivery of the commitments. Deferral of the daily fees associated with the contracts continued until the
commitments were delivered beginning in the second quarter of fiscal 2009.

Systems Revenue.Systems revenue increased $72.2 million, or 54%, to approximately $206.3 million primarily as a result
of continued acceptance of our products, including our iVIEW player-communication devices and Bally Power Bonusing software, and an increase in the number of go-lives during the period.
Systems maintenance revenue was $41.8 million, representing an increase of $7.5 million, or 22%, in fiscal 2008 when compared to $34.3 million in the prior year.

Systems Gross Margin.Systems gross margin increased to 73% in fiscal 2008 from 72% in fiscal 2007, primarily as a result of an increase in maintenance revenue
during the period.

Selling, General and Administrative Expenses.Selling, general and administrative expenses increased $29.6 million, or 18%, in
fiscal 2008, when compared to fiscal 2007. This increase is attributable to an increase in salaries and related expenses as well as an increase in bad debt expenses in fiscal 2008 when compared to
fiscal 2007. Salaries and related expenses increased $22.7 million, or 18%, in fiscal 2008, when compared to the same period last year, due primarily to increases in staffing to meet growing
demands of the business brought about by the 34% increase in Gaming and Systems revenue coupled with an increase in commissions and bonuses of $2.5 million related to the increase in revenue
and improvements in our operating results. In addition, bad debt expense increased $3.5 million during fiscal 2008, when compared to the same period last year, due to the increase in revenue.
Bad debt expense as a percentage of revenue remained under 1% in both periods.

Research and Development Costs.Research and development costs increased $8.9 million, or 17%, in fiscal 2008, when compared to
the same period last year, as a result of our increased focus on technology assets and the competitive landscape that requires a continual investment in future generations of gaming products and
systems.

Depreciation and Amortization Expense.Depreciation and amortization expense decreased $3.3 million, or 18%, in fiscal 2008,
when compared to the same period last year, primarily as a result of certain assets becoming fully depreciated during the last fiscal year.

Casino Operations

Our Rainbow Casino is one of five casinos currently operating in the Vicksburg, Mississippi market. Our casino draws customers primarily from within
a 75-mile radius surrounding Vicksburg which

38

---



includes
Jackson, Mississippi. The summary of our financial results and operating statistics for our Casino Operations is as follows:

Year Ended June 30,2009

% Rev

2008

% Rev

2007

% Rev(dollars in millions)Revenue

$
39.6


100
%
$
47.3


100
%
$
47.7


100
%Selling, general and administrative


7.9


20
%

8.2


17
%

8.8


18
%Depreciation and amortization


3.3


8
%

2.8


6
%

2.9


6
%Operating income

$
11.7


30
%
$
17.5


37
%
$
17.9


38
%Operating statistics:Average number of gaming devices


799





824





843Average number of table games


8





10





10


Fiscal 2009 vs. Fiscal 2008

Casino Operations.Revenue decreased by $7.7 million, or 16%, in fiscal 2009 when compared to fiscal 2008 due primarily to a slowdown in the economy coupled
with increased competition from the opening of a new casino adjacent to our property in the second quarter of fiscal 2009, the recent expansion of a nearby casino and an increase in promotional offers
from other competitors in the Vicksburg market. The Mississippi River counties reported an 8% decline in gaming revenues during fiscal 2009, when compared to fiscal 2008. In addition, there was a 3%
reduction in the average number of gaming devices at our property and a 20% reduction in the average number of table games in fiscal 2009 when compared to fiscal 2008. The reduction in gaming devices
was primarily due to the removal of certain unprofitable games. The reduction in table games had a minimal effect on revenue because they were seldom opened due to lack of demand.

Selling, General and Administrative Expenses.Selling, general and administrative expenses decreased by $0.3 million, or 4%, in fiscal 2009, when compared
to fiscal 2008, due primarily to a 3% decrease in salaries and related expenses during the current period. In addition, there was a 13% decrease in advertising and promotional expenditures during the
current period due to a reduction in television advertising at higher rates per advertisement, offset by an increase in billboard and newspaper advertising at lower rates per advertisement.

Depreciation and Amortization Expense.Depreciation and amortization expense increased $0.5 million in fiscal 2009, when compared to fiscal 2008, as a
result of equipment and leasehold additions during the period.

Fiscal 2008 vs. Fiscal 2007

Casino Operations.Revenue decreased by $0.4 million from $47.7 million in fiscal 2007 to $47.3 million in fiscal 2008. Food and beverage
revenue increased due to the new restaurant which opened in June 2007 which was offset by a decrease in slot revenue. Slot revenue decreased due to a reduction in the number of gaming devices during
the year and increased competition in the fourth quarter of fiscal 2008 from the completion of a competitor's expansion project which added 500 slots and the market's largest live poker room at a
nearby property.

Selling, General and Administrative Expenses.Selling, general and administrative expenses decreased by $0.6 million from $8.8 million in fiscal 2007
to $8.2 million in fiscal 2008 primarily as a result of continued improvements in cost reductions and decreases in advertising and promotional expenditures.

39

---



Depreciation and Amortization Expense.Depreciation and amortization expense decreased $0.1 million in fiscal 2008 when compared to fiscal 2007 resulting
from a decrease in the number of slot machines deployed and reduced capital expenditures.

Parent Company

The summary financial results of Bally Technologies, Inc., our parent entity, are set forth below. These results also include certain other
income and expenses that are otherwise not allocated to a specific business segment.

Year Ended June 30,2009

2008

2007General and administrative

$
23.7

$
32.5

$
29.3Depreciation and amortization


0.3


1.3


1.4Operating loss

$
24.0

$
33.8

$
30.7Other income (expense):Interest income


3.4


3.8


3.0Interest expense


(19.1
)

(26.9
)

(33.5
)Other, net


(2.3
)

2.5


1.6Total other expense

$
(18.0
)
$
(20.6
)
$
(28.9
)Income tax benefit (expense)

$
(68.5
)
$
(66.8
)
$
(11.0
)Minority interest

$
(1.9
)
$
(4.6
)
$
(4.8
)


Fiscal 2009 vs. Fiscal 2008

General and Administrative Expenses.General and administrative expenses decreased $8.8 million, or 27%, in fiscal 2009, when compared to fiscal 2008.
During fiscal 2009, payroll and related expenses decreased $4.3 million, primarily due to a reduction in management's performance-based incentive plan for fiscal 2009, accounting and
professional fees decreased $2.1 million due primarily to a reduction in outside tax services and a reduction in audit fees, and legal fees decreased $4.9 million due to a reduction in
activity while certain cases remain on appeal. In fiscal 2008, we recognized $2.6 million in miscellaneous income as a result of a gain related to the MindPlay settlement discussed in
Note 9 to the consolidated financial statements, Related Party Transactions, which was offset against general and administrative expenses.

Depreciation and amortization.Depreciation and amortization expense decreased $1.0 million in fiscal 2009, when compared to fiscal 2008, due to a reduction
in certain intangible assets during the period.

Other Income (Expense).Other expense decreased $2.6 million, or 13%, in fiscal 2009, when compared to fiscal 2008. Other expense decreased
primarily due to the write-off of previously capitalized debt issuance costs of $0.8 million upon the financing of our new term loan and revolving credit facility and an increase in
losses incurred on foreign currency transactions as a result of the strengthening U.S. dollar. Interest expense decreased $7.8 million primarily due to the reduction in both the principal
balance and the interest rate on the term loan, which decreased from 7.37% at June 30, 2008 to 3.97% at June 30, 2009, as discussed below underFinancial
Condition and LiquidityWorking Capital.

Income Tax Expense.The effective income tax rate for fiscal 2009 was 34.8% compared to 37.4% in fiscal 2008. The effective income tax rate for fiscal 2009
reflected the retroactive reinstatement of a research and development tax credit of approximately $3.1 million and the fiscal 2008 effective tax rate only reflected a half year benefit from the
research and development tax credit. The Internal Revenue Service ("IRS") commenced examination of our United States federal income tax returns for 2003 through 2005 in the fourth quarter of 2006. In
January 2009, the IRS completed its field examination

40

---



of
the open tax years and issued a Revenue Agent's Report and we paid $3.4 million in tax and $1.2 million in interest to the IRS to settle certain agreed adjustments.

Minority Interest.Minority interest expense decreased $2.7 million fiscal 2009, when compared to fiscal 2008, due primarily to a reduction in earnings from
Rainbow Casino and certain variable interest entities during the period.

Fiscal 2008 vs. Fiscal 2007

General and Administrative Expenses.General and administrative expenses increased
$3.2 million, or 11%, in fiscal 2008, when compared to fiscal 2007, primarily as a result of an increase in payroll and related expenses of $2.7 million, or 20%, in fiscal 2008, when
compared to the prior year. The increase in payroll and related expenses was primarily due to increases in accruals related to our management's performance-based incentive plan of $4.3 million
in fiscal 2008, when compared to the same period last year, due to improvements in revenue, operations and financial results, and a decrease of $1.7 million in share-based compensation expense
during the same period. Due to delayed filings with the SEC early in the fiscal year, there was also an increase in accounting fees of $3.4 million, or 47%. In addition to our quarterly filings
for fiscal 2008, we filed our fiscal 2007 third quarter Form 10-Q and fiscal 2007 10-K on November 2, 2007 and our Form 10-K/A and Proxy on
January 14, 2008. These additional expenses were offset by a gain of $2.7 million related to the MindPlay settlement discussed in Note 9 to the consolidated financial
statements,Related Party Transactions.

Other Income (Expense).Other expense decreased $8.3 million, or 28%, in fiscal 2008, when compared to the same period last year, primarily as a result of a
decrease in interest expense due to lower rates and a reduction in the amount of debt outstanding. In addition, in fiscal 2007, we executed amendments to
the bank loan agreement governing our then existing revolving credit facility and our term loan and paid combined administrative fees of $2.2 million which was recorded as interest expense
during fiscal 2007.

Income Tax Benefit (Expense).The effective income tax rate for fiscal 2008 was 37.4% compared to 28.8% for fiscal 2007. The effective tax rate for
fiscal 2007 reflected the retroactive reinstatement of the research and development tax credit of approximately $1.1 million. Additionally, the effective tax rate for fiscal 2008 only reflects
a half year benefit from the research and development tax credit as a result of the credit lapsing in December 2007. During fiscal 2008 we implemented Financial Accounting Standards Board ("FASB")
Interpretation ("FIN") 48,Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109.

Minority Interest.Minority interest in fiscal 2008, when compared to fiscal 2007, decreased due primarily to a reduction in earnings from Rainbow Casino and
certain variable interest entities during the period.

41

---



Financial Condition and Liquidity

Working Capital

Increase
(decrease)June 30,
2009

June 30,
2008Amount

%(in 000s)Cash and cash equivalents

$
64,598

$
66,570

$
(1,972
)

(3
)%Total long-term debt and capital leases

$
209,087

$
304,504

$
(95,417
)

(31
)%Total current assets

$
423,639

$
547,687

$
(124,048
)

(23
)%Total current liabilities


178,050


294,398


(116,348
)

(40
)%Net working capital

$
245,589

$
253,289

$
(7,700
)

(3
)%


As
of June 30, 2009 and June 30, 2008, we had $64.6 million and $66.6 million, respectively, in consolidated cash and cash equivalents which included approximately
$3.1 million and $3.5 million, respectively, of cash utilized in our Casino Operations segment that is held in vaults, cages or change banks. Pursuant to various state gaming
regulations, certain cash accounts are maintained to ensure availability of funds to pay wide-area progressive jackpot awards in installments rather than in one lump-sum. At
June 30, 2009 and June 30, 2008, these accounts had an aggregate value of approximately $9.1 million and $13.1 million, respectively, which are classified as
restricted cash in our consolidated balance sheets. In addition, we purchase U.S. Treasury Strip Securities for the benefit of jackpot winners who elect to receive winnings in annual or weekly
installment payments. These securities are included in restricted long-term investments in the accompanying consolidated balance sheets, and totaled $12.1 million and
$10.5 million as of June 30, 2009 and June 30, 2008, respectively.

Our
net working capital decreased $7.7 million in fiscal 2009, when compared to fiscal 2008, and was primarily affected by the following components:



On
September 29, 2008, we entered into a new $225.0 million term loan and a new $75.0 million revolving credit facility (collectively, the "Credit Facility"). We also have the
option to request an increase in the size of the term loan and/or revolving Credit Facility by up to $50.0 million in the aggregate provided that certain conditions are met. The proceeds from
the Credit Facility and cash on hand of $14.6 million were used to repay existing bank term loans totaling $289.6 million. The

42

---



Company
also used cash-on-hand to pay for transaction fees and expenses totaling $10.7 million which are being amortized over the term of the Credit Facility.

As
of June 30, 2009, there was approximately $75.0 million of undrawn availability under the revolving credit facility. Availability under the revolving credit facility is reduced to the
extent of outstanding letters of credit.

The
interest rate on the Credit Facility is subject to a leverage based pricing grid. If our leverage ratio, as defined under the Credit Facility, is greater than 1.5, the interest rate will be LIBOR
plus a margin of 3.25%; if the leverage ratio is between 1.0 and 1.5, the interest rate will be LIBOR plus a margin of 3.00%; and if the leverage ratio is below 1.0, the interest rate will be LIBOR
plus a margin of 2.75%. In December 2008, we entered into a floating-to-fixed interest rate swap to fix the floating LIBOR based debt under the term loan to fixed rate debt at
an interest rate of 1.89% plus an applicable margin (2.75%, as of June 30, 2009). The interest rate on the revolving credit facility was 3.07% at June 30, 2009.

The
term loan requires quarterly principal reductions of $6.25 million during the first year, $8.75 million during the second year and $11.25 million during each of the third and
fourth years, with a balloon payment due in September 2012. The Credit Facility matures in September 2012. The Credit Facility is collateralized by substantially all of our domestic property and is
guaranteed by each of our domestic subsidiaries, other than the entity that holds our interest in the Rainbow Casino, and is secured by a pledge agreement.

The
Credit Facility contains a number of covenants that, among other things, restrict our ability and certain of our subsidiaries to dispose of assets, incur additional indebtedness or issue preferred
stock, pay dividends or make other distributions, enter into certain acquisitions, repurchase equity interests or subordinated indebtedness, issue or sell equity interests of our subsidiaries, engage
in mergers or acquisitions or certain transactions with subsidiaries and affiliates, and that otherwise restrict corporate activities.

The
financial covenants under the Credit Facility consist of a leverage ratio and a fixed charges coverage ratio. The leverage ratio is computed as total debt outstanding at the end of the quarter
divided by the trailing twelve months Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA"), excluding certain cash and non-cash charges. The fixed charges coverage ratio is computed as EBITDA, adjusted for both the trailing twelve months capital expenditures and cash
taxes paid, divided by the trailing twelve months interest charges plus all payments of principal made during the previous twelve months. We were in compliance with all of the covenants under the
Credit Facility as of June 30, 2009.

Management
believes that cash flows from current operating activities will provide us with sufficient capital resources and liquidity to operate our business for at least the next 12 months.

At
June 30, 2009, we had no material commitments for capital expenditures.

Cash Flow Summary

Cash flows from operating activities are derived primarily from our two business segments, the Bally Gaming Equipment and Systems segment and the
Rainbow Casino operating segment. The Bally Gaming Equipment and Systems segment consists of three primary cash flow sources: Gaming Equipment, which includes the sale of gaming devices and related
equipment, parts and conversion kits; Gaming Operations, which includes the operation of linked progressive systems, video lottery and centrally determined systems and the rental of gaming devices and
content; and Systems, which includes the sale and support of computerized monitoring systems and related recurring hardware and software maintenance revenue. Cash flows from Casino Operations are
derived from the operation of the Rainbow Casino. We utilize our cash to acquire materials for the manufacture of goods for resale, to

43

---



pay
payroll, interest, taxes and selling, general and administrative expenses and to fund research and development activities.

Our
primary sources of liquidity include existing cash and cash equivalents, cash flows from operating activities and the availability of funds under our revolving credit facility. Cash flow from
operating activities is net income adjusted for certain non-cash items and changes in operating assets and liabilities.

Cash
flows provided by operating activities were $165.2 million in fiscal 2009 as compared to $68.1 million in fiscal 2008, a $97.1 million, or 143%, improvement primarily due to
a $19.1 million increase in net income, a $28.0 million increase in deferred income tax expense and the positive impact from a $33.1 million net increase in changes in operating
assets and liabilities during the same period.
The net increase in changes in operating assets and liabilities included a reduction in accounts and notes receivable and inventory due to increased collections on accounts receivable and improvements
in inventory management, respectively, which was offset by a reduction in accounts payable, accrued liabilities and net deferrals of revenue and related costs during the same period, discussed above
underFinancial Condition and LiquidityWorking Capital.

Cash
utilized for investing activities is primarily for additions to property, plant and equipment for purchases of furniture, fixtures, office and gaming equipment, improvements in leaseholds and the
manufacture of goods for lease or rental, as well as investments in technology assets. During fiscal 2009, we made capital expenditures of $34.4 million. In addition, we purchased
$5.4 million in certain long-term and intangible assets including digital signage technology. The technology is for networked or standalone digital displays that work with our iVIEW
display manager, allowing casinos to show messages on the main screen of electronic casino games, on top of games, in overhead displays and in picture-in-picture scenarios.

Cash
utilized for financing activities is primarily for the payment of capitalized debt financing fees and principal payments on our debt, as well as for the purchase of shares of our common stock. On
September 29, 2008, we entered into the Credit Facility. The proceeds from the Credit Facility and cash-on-hand of $14.6 million were used to repay existing bank
term loans totaling $289.6 million. We used cash-on-hand to pay for transaction fees and expenses totaling $10.7 million which are being amortized over the term
of the Credit Facility. We made payments of $50.0 million on our revolving credit facility and $28.0 million on our notes payable and capital lease obligations during fiscal 2009. We
also purchased 1,557,216 shares of our common stock for $38.3 million under our share repurchase plan and paid employee payroll taxes of $1.4 million with the swap of 48,237 shares of
common stock during the same period.

Cash
provided by financing activities is primarily from borrowings under our revolving credit facility and proceeds from the exercise of stock options and purchases of stock by employees under our
Employee Stock Purchase Plan ("ESPP"). During fiscal 2009, employees exercised options for 584,226 shares of common stock for $9.6 million and purchased 88,774 shares of common stock for
$1.7 million under our ESPP.

44

---



Contractual Commitments

We are committed to make future payments pursuant to various contracts and agreements. A summary of those contractual obligations existing as of
June 30, 2009, grouped according to the periods in which such payments are due, is as follows:

Payments Due By PeriodLess than
1 year

1-3 years

3-5 years

More than
5 years

Total(in 000s)Debt:Term loan(1)

$
32,500

$
87,500

$
86,250

$


$
206,250Subordinated debt(2)


2,800











2,800Other debt


37











37Estimated interest payments(3)


7,488


14,642


6,478





28,60842,825


102,142


92,728





237,695Other commitments:Operating leases(4)


6,310


6,970


3,242


2,231


18,753Purchase commitments(5)


17,650











17,650Jackpot liabilities(6)


12,266











12,266Employment agreements(7)


1,083


499








1,582Total commitments

$
80,134

$
109,611

$
95,970

$
2,231

$
287,946


---

45

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As
of June 30, 2009, we had a liability for unrecognized tax benefits of $19.0 million. We cannot make a reasonable estimate of the period of cash settlement for the liability for
unrecognized tax benefits. See Note 12 to the consolidated financial statements,Income Taxes, for a further discussion on our income tax
positions.

Off Balance Sheet Arrangements

We are party to financial instruments with off-balance sheet risk, such as performance bonds and other guarantees not reflected in our
balance sheet that arise in the normal course of business. However, such off balance sheet arrangements are not reasonably likely to have a material effect on our financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or resources.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Our
accounting policies are more fully described in Note 1 to the consolidated financial statements,Description of Business and Summary of Significant Accounting
Principles. Some of our accounting policies require us to make difficult, complex and subjective judgments, often as a result of the need to make estimates of matters that are
inherently uncertain. We considered the following critical accounting policies to be the most important to understanding and evaluating our financial results and require the most subjective and
complex judgments made by management. We have discussed the development, selection and disclosure of our critical accounting policies and estimates with the Audit Committee of our Board of Directors.
There can be no assurance that actual results will not differ from our estimates.

Revenue recognition

Our Gaming Equipment and Systems revenues are recognized in accordance with the provisions of the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") No. 97-2Software Revenue Recognition, as amended. Revenues are recognized when all of the
following have been satisfied:



We
generally offer credit terms of 120 days or less or we may grant extended credit terms under arrangements secured by the related equipment with interest recognized at market rates. We
perform a review of contracts with extended payment terms in excess of six months to determine if there is sufficient history to conclude that we have a history of collecting under the original
payment terms. We have concluded that sufficient history exists to determine collectability is probable for contracts with extended payment terms of 24 months or less. Accordingly, revenue is
recorded in accordance with the terms of sale for contracts with payment terms of 24 months or less, or as cash is received for contracts with payment terms in excess of 24 months. Games
placed with customers on a trial basis are not recognized as revenue until the trial period ends, or the customer accepts the games and collectability is probable.

The
majority of our software arrangements are time-based licenses, generally for twelve month periods, and are bundled with software maintenance and product support fees. We also license
our software on a perpetual basis. Software maintenance provides customers with rights to unspecified software product upgrades, maintenance and patches released during the term of the support period.
The majority of our

46

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customers
purchase both software and hardware maintenance and product support when they purchase software. In addition, substantially all customers renew these maintenance agreements annually.

We
sell or license our products and services individually or under arrangements in which there are multiple elements such as a combination of gaming devices, computerized monitoring equipment,
software license fees, maintenance and product support fees and consulting services. We utilize vendor-specific objective evidence ("VSOE"), which consists of the price charged when that element is
sold separately, to determine the fair value of each element under an arrangement. VSOE of fair value for our software maintenance and product support fees sold with perpetual licenses are measured by
the renewal rate offered to the customer, which demonstrates a consistent relationship of pricing software maintenance and product support fees as a percentage of the software license fee.

We
are unable to establish VSOE of fair value for software maintenance and product support fees on our time-based license arrangements as the software maintenance and product support
contractual term in these arrangements are generally the same duration as the license term. Accordingly, software license fees and products and services in multiple element arrangements bundled with
time-based license arrangements are recognized ratably over the term of the arrangement.

For
arrangements in which we have VSOE of fair value for all undelivered elements but not of a delivered element, we use the residual method to record revenue. Under the residual method, the fair
value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered element and is recognized as revenue. In arrangements in which we do not
have VSOE of fair value of all undelivered elements, revenue is deferred until all elements are delivered, or until VSOE of fair value has been established for any remaining undelivered element. In
the event the only undelivered element is maintenance and product support for which VSOE of fair value does not exist, the entire arrangement fee is recognized ratably over the performance period.

Our
Gaming Operations division earns recurring revenue that consists of the operation of linked progressive systems and from gaming devices, content and the related systems placed in casinos on a
daily-fee or rental basis. Revenue from these sources is recognized based on the contractual terms of the arrangement and is generally based on a share of money wagered, a share of the net
winnings, or on a fixed daily rental rate basis.

Gaming
revenues in our Casino Operations are recognized as the net win from gaming machine operations, which is the difference between currency deposited into the devices and the payouts made to the
players, less any coupons or other promotional allowances, if applicable.

The
subjective and complex judgments for revenue recognition typically involve whether collectability is probable, whether fees under an arrangement are fixed or determinable and the identification of
specific deliverables under multiple element arrangements. In addition, multiple elements arrangements must be analyzed to determine the relative fair value of each element, the amount of revenue to
be recognized and the period and conditions under which deferred revenue should be recognized. The ability to establish VSOE of fair value for our products and services also requires judgment by
management.

Inventories

Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market value. Cost elements
included in work-in-process and finished goods include raw materials, direct labor and manufacturing overhead. We regularly review inventory quantities and update estimates for
the net realizable value of inventories due to the subjectivity involved in projecting sales volumes, used game sales values, refurbishment costs, and product demand. This process includes examining
the carrying values of new and used gaming devices, parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the
factors involved in this

47

---



analysis
include the overall levels of our inventories, the current and projected sales levels for such products, the projected markets for such products, the costs required to sell the products,
including refurbishment costs and importation costs for international shipments, and the overall projected demand for products once the next generation of products are scheduled for release.

As
a result of our ongoing analysis of inventory, we recognized inventory write-downs totaling $4.5 million, $9.2 and $10.5 million during the years ended June 30, 2009, 2008 and
2007, respectively. Additional valuation charges could occur in the future as a result of changes in the factors listed above.

Leased gaming equipment

Leased gaming equipment is stated at cost and depreciated over estimated useful lives ranging from two to three and one-half years. The
estimation of useful lives for our leased gaming equipment requires judgment and is based on the period of time over which we believe the assets will remain deployed. Given changes in technology,
customer preferences and product demand, we review and evaluate the recoverability of our investment in such assets on a quarterly basis, as well as the estimated useful lives used to depreciate these
assets.

There
is the potential for acceleration of future depreciation, or asset impairments, if certain factors were determined to have an adverse impact on our ability to realize our full investment in such
assets.

Impairment of long-lived assets and goodwill

We review long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-lived assets are measured by a comparison of the carrying amount of the asset to future, net cash flows expected to be generated by the asset,
undiscounted and without interest. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair
value of the assets.

We
review goodwill for impairment annually at the beginning of our fourth fiscal quarter, or whenever events or circumstances indicate the carrying value may not be recoverable or warrant a revision
to the estimated remaining useful life. We perform the impairment analysis of goodwill at a reporting unit level by comparing the fair value of a reporting unit with its carrying value, including
goodwill. If the fair value is less than the carrying value, the impairment to be recognized is measured by the amount by which the carrying amount of the goodwill exceeds the fair value of the
reporting unit goodwill.

We
are required to make significant judgments and estimates regarding future cash flows, the determination of fair values and the identification of reporting units utilized in determining the fair
value and recoverability of long-lived assets and goodwill. We believe our estimates are reasonable; however, if our estimates materially differ or factors utilized in developing our
estimates change, different assumptions could materially affect our assessment of the fair value and recoverability of long-lived assets and goodwill.

During
the years ended June 30, 2009, 2008 and 2007, no impairment charges related to long-lived assets and goodwill were recorded.

Share-based compensation

We account for share-based compensation based on the calculated fair value of the award measured on the grant date which is recognized, net of
estimated forfeitures, as expense over the employee's requisite service period which is generally the vesting period of the equity grant.

Determining
the appropriate fair value model and calculating the fair value of share-based awards requires the input of highly subjective assumptions including the expected option term and the
expected

48

---



volatility
of our common stock over the option's expected term. We believe that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating
the fair values of stock options granted; however, if actual results differ significantly from these estimates, share-based compensation expense could be materially impacted.

In
addition, we are required to estimate the expected forfeiture rate, and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our
estimate, the share-based compensation expense could be significantly different from what we have recorded. As a result, if factors change and we use different assumptions, our stock-based
compensation expense could be materially different in the future.

Pre-tax
share-based compensation expense was $16.4 million, $13.0 million and $15.1 million during the years ended June 30, 2009, 2008 and 2007 respectively. As
of June 30, 2009, there was $11.3 million of total unrecognized compensation expense related to the unvested portion of stock options which will be recognized over the subsequent
1.67 years. In addition, as of June 30, 2009, there was $7.2 million of total unrecognized compensation expense related to the unvested portion of restricted stock and Restricted
Stock Units ("RSUs") which will be recognized over the subsequent 1.86 years.

Income taxes

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the period that includes the enactment date. Taxes on income of our foreign subsidiaries are provided at the tax rates applicable to the tax jurisdictions in which they
are located.

Since
July 1, 2007, we adopted FIN 48,Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109,which creates a single model to address uncertainty in income tax positions which prescribed the minimum recognition threshold a tax position is required to meet before being recognized in the
financial statements. Under FIN 48, we may recognize a tax benefit from an uncertain
position only if it is more likely than not that the position will be sustained upon examination by taxing authorities based on the technical merits of the issue. The amount recognized in the
financial statements is the largest benefit that we believe has greater than a 50% likelihood of being realized upon settlement.

We
are required to make significant judgments when evaluating our uncertain tax positions and the related tax benefits. We believe our assumptions are reasonable; however, there is no guarantee that
the final outcome of the related matters will not differ from the amounts reflected in our income tax provisions and accruals. We adjust our liability for uncertain tax positions based on changes in
facts and circumstances such as the closing of a tax audit or changes in estimates. Our income tax provision may be impacted to the extent that the final outcome of these tax positions is different
than the amounts recorded. As of June 30, 2009 and 2008, our liabilities for unrecognized tax benefits totaled $19.0 million and $22.4 million, respectively. Of this amount,
$15.9 million and $18.2 million as of June 30, 2009 and 2008, respectively, if recognized, would impact the effective tax rate.

The
recoverability of certain deferred tax assets is based in part on estimates of future income and the timing of temporary differences, and the failure to fully realize such deferred tax assets
could result in a higher tax provision in future periods. Our net deferred tax assets totaled $51.5 million and $79.6 million at June 30, 2009 and 2008, respectively. Our accrued
income taxes payable totaled $3.0 million at June 30, 2009 and our accrued income taxes receivable totaled $43.8 million and $8.5 million at June 30, 2009 and 2008,
respectively.

49

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Recently adopted accounting pronouncements

For a description of recently adopted accounting pronouncements, see Note 1 to the consolidated financial statements, Summary of Significant Accounting Policies.

Recently issued accounting pronouncements not yet adopted

For a description of recently issued accounting pronouncements not yet adopted, see Note 1 to the consolidated financial statements, Summary of Significant Accounting Policies.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

As of June 30, 2009, we had total debt outstanding of approximately $209.1 million, consisting primarily of $206.3 million
outstanding under our term loan, $2.8 million in related party debt discussed in Note 9 to the consolidated financial statements,Related Party
Transactions, and approximately $35,000 in other debt. During the year, the interest rate for the revolving credit facility was variable, based on LIBOR for six months after
closing of the transaction and thereafter is subject to a leveraged based pricing grid. The interest rate on the term loan is fixed as a result of the floating-to-fixed
interest rate swap entered into in December 2008 and discussed in Note 7 to the consolidated financial statements,Long-Term Debt and Capital
Leases. The related party debt is variable and is based on LIBOR. If the LIBOR rates were to increase or decrease by 100 basis points, with all other factors remaining
constant, earnings would decrease or increase by approximately $28,000 annually, on a pre-tax basis.

Foreign Currency Exchange Rate Risk

Our foreign subsidiaries generally use their domestic currency as their functional currency. A 10% fluctuation in the exchange rates of these
currencies against the U.S. dollar would result in a corresponding change in earnings reported in the consolidated group of approximately $1.2 million.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements, including the notes thereto, and supplementary financial information are listed in Item 15, Exhibits
and Financial Statement Schedules, and are included after the signature page hereto beginning at page F-1.

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

None.

ITEM 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) promulgated under the Exchange Act, our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated
under the Exchange Act, as of the end of the period covered by this report.

Based
on this evaluation our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2009.

It
should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system will be met. In addition,
the

50

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design
of any control system is based in part upon certain assumptions about the likelihood of future events. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, have been detected or that judgments in decision-making are not based on faulty input.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rule 13a-15(f) promulgated under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of an issuer's financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal
control over financial reporting includes policies and procedures that:



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, the application of any evaluation of effectiveness to future periods is
subject to the risk that controls may become inadequate because of changes in conditions, or that compliance with the policies or procedures may deteriorate.

Management
evaluated the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated
Framework. Based on this assessment, management concluded that our internal control over financial reporting was
effective as of June 30, 2009. The attestation report issued by Deloitte & Touche LLP, an independent registered public accounting firm, on the
effectiveness of our internal control over financial reporting is included in their audit opinion included on page F-2 of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting during the Quarter Ended June 30, 2009

There were no changes in our internal control over financial reporting that occurred in the three months ended June 30, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting except for the remediation of the material weakness previously disclosed in the 2008
Form 10-K which was remediated during the quarter ended June 30, 2009.

ITEM 9B.    OTHER INFORMATION

Not applicable.

51

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required under this Item is incorporated herein by reference to our definitive proxy statement to be filed with the SEC no later than
120 days after the close of our fiscal year ended June 30, 2009.

ITEM 11.    EXECUTIVE COMPENSATION

The information required under this Item is incorporated herein by reference to our definitive proxy statement to be filed with the SEC no later than
120 days after the close of our fiscal year ended June 30, 2009.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required under this Item is incorporated herein by reference to our definitive proxy statement to be filed with the SEC no later than
120 days after the close of our fiscal year ended June 30, 2009, except that the information required with respect to our equity compensation plans is set forth under Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities of this Annual Report on Form 10-K, and is incorporated herein by
reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required under this Item is incorporated herein by reference to our definitive proxy statement to be filed with the SEC no later than
120 days after the close of our fiscal year ended June 30, 2009.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required under this item is incorporated herein by reference to our definitive proxy statement to be filed with the SEC no later than
120 days after the close of our fiscal year ended June 30, 2009.

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Documents filed as part of this Annual Report on Form 10-K:

52

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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|3.1   |  | Restated Articles of Incorporation of Alliance Gaming Corporation, as amended, filed on May 7, 2004 as Exhibit 4.6 to the Registration Statement on Form S-8 (File No. 333-115271) of Alliance Gaming
Corporation, and incorporated herein by reference.                                                                                                                                                                                                                     
|3.2   |  | Amendment to Amended and Restated Articles of Incorporation dated March 13, 2006, filed on March 15, 2007 as Exhibit 3.2 to the Annual Report on Form 10-K for the fiscal year ended June 30,
2006, of Bally Technologies, Inc., and incorporated herein by reference.                                                                                                                                                                                                       
|3.3   |  | Alliance Gaming Corporations Certificate of Increase in Number of Authorized Shares of Common Stock dated April 16, 2002, filed on December 21, 2007 as Exhibit 3.1 to the Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 2007, of Bally Technologies, Inc., and incorporated herein by reference.                                                                                                                                                 
|3.4   |  | Bylaws of Alliance Gaming Corporation, filed on December 30, 2005 as Exhibit 3.2 to the Annual Report on Form 10-K for the fiscal year ended June 30, 2005, of Alliance Gaming Corporation, and
incorporated herein by reference.                                                                                                                                                                                                                                            
|10.1  |  | Credit Agreement, dated as of September 26, 2008 among Bally Technologies, Inc., the various lenders named therein, Bank of America, N.A. as Administrative Agent, Swing Line lender and L/C Issuer, Wells
Fargo Bank, N.A., as Syndication Agent and The Bank of Nova Scotia and Wachovia Bank, N.A., as Documentation Agents, filed on October 1, 2008 as Exhibit 10.1 to the Current Report on Form 8-K of Bally Technologies, Inc., and
incorporated herein by reference.
|10.2* |  | Alliance Gaming Corporation 1996 Long Term Incentive Plan, filed on August 21, 1997 with the Registration Statement on Form S-8 (File No. 333-34077) of Alliance Gaming Corporation, and incorporated
herein by reference.                                                                                                                                                                                                                                                   
|10.3* |  | Restricted Stock Agreement by and between Alliance Gaming Corporation and Richard Haddrill, dated as of June 30, 2004, filed on December 30, 2005 as Exhibit 10.5 to the Annual Report on Form 10-K
for the fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and incorporated herein by reference.                                                                                                                                                            
|10.4* |  | Stock Option Agreement by and between Alliance Gaming Corporation and Richard Haddrill, dated as of June 30, 2004, filed on December 30, 2005 as Exhibit 10.6 to the Annual Report on Form 10-K for
the fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and incorporated herein by reference.                                                                                                                                                                
|10.5* |  | Stock Option Agreement by and between Alliance Gaming Corporation and Richard Haddrill, dated as of October 27, 2004, filed on December 30, 2005 as Exhibit 10.7 to the Annual Report on Form 10-K
for the fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and incorporated herein by reference.                                                                                                                                                             
|10.6* |  | Bally Technologies, Inc. Amended and Restated 2001 Long Term Incentive Plan, filed on March 11, 2008 as Exhibit 4.5 to the Registration Statement on Form S-8 (File No. 333-149637) of Bally
Technologies, Inc., and incorporated herein by reference.                                                                                                                                                                                                                       

53

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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|10.7*  |  | Restricted Stock Agreement by and between Alliance Gaming Corporation and Richard Haddrill, dated as of December 22, 2004, filed on December 30, 2005 as Exhibit 10.8 to the Annual Report on Form 10-K
for the fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and incorporated herein by reference.                                                                                   
|10.8*  |  | Bally Technologies, Inc. Employee Stock Purchase Plan, filed on March 11, 2008 as Exhibit 4.8 to the Registration Statement on Form S-8 (File No. 333-149637) of Bally Technologies, Inc.
and incorporated herein by reference.                                                                                                                                                                         
|10.9*  |  | Form of Stock Option Agreement, filed on December 30, 2005 as Exhibit 10.11 to the Annual Report on Form 10-K for the fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and
incorporated herein by reference.                                                                                                                                                                             
|10.10* |  | Form of Director Stock Option Agreement, filed on December 30, 2005 as Exhibit 10.12 to the Annual Report on Form 10-K for the fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and
incorporated herein by reference.                                                                                                                                                                    
|10.11* |  | Form of Director Stock Option Agreement dated June 13, 2005, filed on December 30, 2005 as Exhibit 10.13 to the Annual Report on Form 10-K for the fiscal year ended June 30, 2005 of Alliance
Gaming Corporation, and incorporated herein by reference.                                                                                                                                                
|10.12  |  | Casino Management Agreement, dated as of October 28, 1993, among Rainbow Casino PartnershipVicksburg, L.P., Mississippi Ventures, Inc. and The Rainbow Casino Corporation, filed on December 30,
 2005 as Exhibit 10.14 to the Annual Report on Form 10-K for the fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and incorporated herein by reference.                                
|10.13  |  | Second Amended and Restated Agreement of Limited Partnership, dated as of March 29, 1995, by and between United Gaming Rainbow and The Rainbow Casino Corporation, filed on December 30, 2005 as
Exhibit 10.15 to the Annual Report on Form 10-K for the fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and incorporated herein by reference.                                          
|10.14  |  | Amended and Restated Trademark License Agreement dated July 8, 1992, by and between Bally Gaming International, Inc. and Bally Manufacturing Corporation, filed on July 9, 1992 as Exhibit 10(i)(d)
to the Registration Statement on Form S-1 (File No. 33-48347) of Bally Gaming International, Inc., and incorporated herein by reference.                                                            
|10.15  |  | Second Amendment to Trademark License Agreement and Settlement Agreement, dated March 31, 1995, by and between Bally Entertainment Corporation and Bally Gaming International, Inc. and Bally Gaming, Inc.,
 filed on December 30, 2005 as Exhibit 10.17 to the Annual Report on Form 10-K for the fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and incorporated herein by reference.
|10.16  |  | Third Amendment to Trademark License Agreement and Settlement Agreement dated May 10, 1996, by and between Bally Entertainment Corporation, Alliance Gaming Corporation and BGII Acquisition Corp., filed on
May 29, 1996 as Exhibit 10.17 to Amendment No. 2 to the Registration Statement on Form S-2 (File No. 333-02145) of Alliance Gaming Corporation, and incorporated herein by reference.      
|10.17* |  | Agreement between Alliance Gaming Corporation and David Robbins dated July 1, 2004, filed on July 6, 2004 as Exhibit 10.3 to the Current Report on Form 8-K of Alliance Gaming Corporation, and
incorporated herein by reference.                                                                                                                                                                       

54

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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|10.18   |  | Prepayment Agreement, dated as of June 28, 2005 by and among Alliance Gaming Corporation, Robert Luciano, Jr. and Robert Luciano, Jr. as trustee of the Robert Luciano Family Trust dated February 27,
1995, filed on December 30, 2005 as Exhibit 10.21 to the Annual Report on Form 10-K for the fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and incorporated herein by reference.
|10.19*  |  | Form of Employment Agreement between Alliance Gaming Corporation and Richard Haddrill, dated as of June 30, 2004, filed on July 6, 2004 as Exhibit 10.1 to the Current Report on Form 8-K of Alliance
Gaming Corporation, and incorporated herein by reference.                                                                                                                                         
|10.20*  |  | Form of Amendment dated December 22, 2004, to the Employment Agreement by and between Alliance Gaming Corporation and Richard Haddrill, filed on February 9, 2005 as Exhibit 10.40 to the Quarterly Report
on Form 10-Q for the quarter ended December 31, 2004, and incorporated herein by reference.                                                                                                  
|10.21*  |  | Second Amendment to Employment Agreement by and between Alliance Gaming Corporation and Richard Haddrill, effective as of June 13, 2005, filed on December 30, 2005 as Exhibit 10.24 to the Annual Report
on Form 10-K for the fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and incorporated herein by reference.                                                                    
|10.22*  |  | Form of Third Amendment to Haddrill Employment Agreement dated June 20, 2006, by and between Bally Technologies, Inc. and Richard Haddrill, filed on June 22, 2006 as Exhibit 10.2 to the Current
Report on Form 8-K of Bally Technologies, Inc., and incorporated herein by reference.                                                                                                                 
|10.23*  |  | Form of Fourth Amendment to Haddrill Employment Agreement dated February 13, 2008, by and between Bally Technologies, Inc. and Richard Haddrill, filed on February 14, 2008 as Exhibit 10.1 to the
Current Report on Form 8-K of Bally Technologies, Inc., and incorporated herein by reference.                                                                                                        
|10.24*  |  | Fifth Amendment to Haddrill Employment Agreement dated October 22, 2008, by and between Bally Technologies, Inc. and Richard Haddrill, filed on October 28, 2008 as Exhibit 10.1 to the Current
Report on Form 8-K of Bally Technologies, Inc., and incorporated herein by reference.                                                                                                                   
|10.25*# |  | Employment Agreement dated August 15, 2000 between Alliance Gaming Corporation and Mark Lerner, filed on September 26, 2002.                                                                                                                                                                                                                                                                            
|10.26*  |  | Employment Agreement dated March 2, 2004 between Alliance Gaming Corporation and Robert Luciano, filed on December 30, 2005 as Exhibit 10.29 to the Annual Report on Form 10-K for the fiscal year
ended June 30, 2005 of Alliance Gaming Corporation, and incorporated herein by reference.                                                                                                            
|10.27*  |  | Amendment dated April 13, 2005 to Employment Agreement between Alliance Gaming Corporation and Robert Luciano, filed on December 30, 2005 as Exhibit 10.30 to the Annual Report on Form 10-K for the
fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and incorporated herein by reference.                                                                                              
|10.28*  |  | Second Amendment dated May 16, 2008 to Employment Agreement by and between Bally Technologies, Inc. and Robert Luciano, filed on May 21, 2008 as Exhibit 10.1 to the Current Report on Form 8-K
of Bally Technologies, Inc., and incorporated herein by reference.                                                                                                                                      

55

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|       |  |                                                                                                                                                                                                                                                                                                                 
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|10.29* |  | Executive Employment Agreement dated March 9, 2005 by and between Alliance Gaming Corporation and Ramesh Srinivasan, filed on December 30, 2005 as Exhibit 10.31 to the Annual Report on Form 10-K for
the fiscal year ended June 30, 2005 of Alliance Gaming Corporation, and incorporated herein by reference.
|10.30* |  | Letter Agreement by and between the Company and Robert C. Caller, filed on March 14, 2006 as Exhibit 10.1 to the Current Report on Form 8-K of Bally Technologies, Inc., and incorporated herein
by reference.                                                                                                  
|10.31* |  | Separation Agreement by and between Bally Technologies, Inc. and Robert L. Saxton, dated June 14, 2006, filed on June 15, 2006 as Exhibit 10.1 to the Current Report on Form 8-K of Bally
Technologies, Inc., and incorporated herein by reference.                                                             
|10.32* |  | Letter Agreement dated June 19, 2006, by and between the Company and Michael Gavin Isaacs, filed on June 22, 2006 as Exhibit 10.1 to the Current Report on Form 8-K of Bally Technologies, Inc.,
and incorporated herein by reference.                                                                          
|10.33  |  | Separation Agreement by and between the Company and Mark Lipparelli, dated March 8, 2007, filed on March 27, 2007 as Exhibit 10.1 to the Current Report on Form 8-K of Bally Technologies, Inc.
and incorporated herein by reference.                                                                           
|10.34  |  | Stock Purchase Agreement by and among Robert Luciano and Bally Technologies, Inc. date September 10, 2007.                                                                                                                                                                                                      
|10.35# |  | Separation and Consulting Agreement by and among Robert Luciano and Bally Technologies, Inc. date July 7, 2009.                                                                                                                                                                                                 
|21#    |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                  
|23.1#  |  | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm                                                                                                                                                                                                                                 
|31.1#  |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a).                                                                                                                                                                                                                    
|31.2#  |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a).                                                                                                                                                                                                                    
|32.1#  |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                
|32.2#  |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                

---

56

---





SIGNATURES

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

BALLY TECHNOLOGIES, INC.    DATED: August 20, 2009By

/s/ RICHARD M. HADDRILL Richard M. Haddrill Chief Executive Officer
(Principal Executive Officer)By

/s/ ROBERT C. CALLER Robert C. Caller Executive Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)


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.

Name

Title

Date/s/ RICHARD M. HADDRILL Richard M. Haddrill

Chief Executive Officer (Principal
Executive Officer), and Director

August 20, 2009/s/ ROBERT C. CALLER Robert C. Caller

Executive Vice President, Chief Financial
Officer and Treasurer (Principal
Financial Officer)

August 20, 2009/s/ NEIL P. DAVIDSON Neil P. Davidson

Vice President, Chief Accounting Officer
(Principal Accounting Officer)

August 20, 2009/s/ JACQUES ANDRÉ Jacques André

Director

August 20, 2009/s/ ROBERT L. GUIDO Robert L. Guido

Director

August 20, 2009/s/ DAVID ROBBINS David Robbins

Director and Chairman of the Board

August 20, 2009/s/ KEVIN VERNER Kevin Verner

Director

August 20, 2009


57

---





BALLY TECHNOLOGIES, INC.  INDEX TO FINANCIAL INFORMATION

Page No.Financial Statements and Financial Statement ScheduleReport of independent registered public accounting firm

F-2Consolidated balance sheets at June 30, 2009 and June 30, 2008

F-4Consolidated statements of income for the years ended June 30, 2009, 2008 and 2007Consolidated statements of stockholders' equity for the years ended June 30, 2009, 2008 and 2007

F-6Consolidated statements of cash flows for the years ended June 30, 2009, 2008 and 2007

F-7Notes to consolidated financial statements

F-9Financial statement schedule IIValuation and Qualifying Accounts for the years ended June 30, 2009, 2008 and
2007

F-39


All
other schedules are omitted because the required information is not present in amounts sufficient to require submission of the applicable schedule or because the information required is included
in the Consolidated Financial Statements and Notes thereto.

F-1

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Bally Technologies, Inc.
Las Vegas, Nevada

We
have audited the accompanying consolidated balance sheets of Bally Technologies, Inc. and subsidiaries (the "Company") as of June 30, 2009 and 2008, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2009. Our audits also included the financial statement
Schedule IIValuation and Qualifying Accounts for each of the three years in the period ended June 30, 2009. These financial statements and financial statement schedule are
the responsibility of the Company's management. We have also audited the Company's internal control over financial reporting as of June 30, 2009, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying management's report on internal control over financial reporting. Our responsibility is to express an opinion on these financial statements and an
opinion on the Company's internal control over financial reporting based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit
of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing
similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

F-2

---



In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bally Technologies, Inc. and subsidiaries as of
June 30, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2009, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such 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. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2009, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission.

As
discussed in Note 1, the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48,Accounting for Uncertainty in Income
Taxes,on July 1, 2007.



/s/
DELOITTE & TOUCHE LLP



Las
Vegas, Nevada
August 20, 2009

F-3

---





BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        AS OF JUNE 30, 2009 AND 2008

2009

2008(in 000s, except
share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
64,598

$
66,570Restricted cash


9,076


13,111Accounts and notes receivable, net of allowances for doubtful accounts of $8,939 and $12,055


174,698


215,762Inventories


52,942


94,238Prepaid and refundable income tax


43,756


8,534Deferred income tax assets


36,114


68,816Deferred cost of revenue


21,906


58,983Prepaid assets


7,531


6,968Other current assets


13,018


14,705Total current assets


423,639


547,687Restricted long-term investments


12,097


10,469Long-term receivables


9,826


10,653Property, plant and equipment, net


76,889


71,107Leased gaming equipment, net


95,012


101,280Goodwill


161,960


162,727Intangible assets, net


32,198


36,249Deferred income tax assets


15,373


10,734Long-term deferred cost of revenue


41,615


35,211Other assets, net


12,273


9,007Total assets

$
880,882

$
995,124LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
20,574

$
44,888Accrued liabilities


47,405


63,328Customer deposits


10,375


29,496Jackpot liabilities


12,266


13,614Deferred revenue


49,122


129,909Income tax payable


2,971


Current maturities of long-term debt and capital leases


35,337


13,163Total current liabilities


178,050


294,398Long-term debt and capital leases, net of current maturities


173,750


291,341Long-term deferred revenue


60,464


55,691Other income tax liability


22,072


18,750Other liabilities


7,797


9,837Total liabilities


442,133


670,017Minority interest


2,443


1,782Commitments and contingencies (Note 13)Stockholders' equity:Special stock, 10,000,000 shares authorized: Series E, $100 liquidation value; 115 shares issued and outstanding


12


12Common stock, $.10 par value; 100,000,000 shares authorized; 57,091,000 and 56,318,000 shares issued and 54,312,000 and 55,144,000 outstanding


5,703


5,626Treasury stock at cost, 2,779,000 and 1,174,000 shares


(64,727
)

(25,041
)Additional paid-in capital


330,465


302,146Accumulated other comprehensive income (loss)


(770
)

1,268Retained earnings


165,623


39,314Total stockholders' equity


436,306


323,325Total liabilities and stockholders' equity

$
880,882

$
995,124


See accompanying notes to consolidated financial statements.

F-4

---





BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        FOR THE THREE YEARS ENDED JUNE 30, 2009

2009

2008

2007(in 000s, except per share amounts)Revenues:Gaming equipment and systems

$
568,795

$
616,409

$
458,231Gaming operations


274,965


235,983


176,412Casino operations


39,669


47,299


47,675883,429


899,691


682,318Costs and expenses:Cost of gaming equipment and systems(1)


246,938


282,248


244,040Cost of gaming operations


80,083


80,394


71,838Direct cost of casino operations


16,750


18,847


18,046Selling, general and administrative


225,371


239,271


207,103Research and development


77,277


60,825


51,912Depreciation and amortization


22,274


18,913


22,376668,693


700,498


615,315Operating income


214,736


199,193


67,003Other income (expense):Interest income


3,418


3,844


2,957Interest expense


(19,140
)

(26,895
)

(33,541
)Other, net


(2,297
)

2,474


1,687Income before income taxes and minority interest


196,717


178,616


38,106Income tax expense


(68,481
)

(66,793
)

(10,975
)Minority interest


(1,927
)

(4,616
)

(4,803
)Net income

$
126,309

$
107,207

$
22,328Basic and diluted earnings per share:Basic earnings per share

$
2.32

$
1.97

$
0.42Diluted earnings per share

$
2.22

$
1.85

$
0.40Weighted average shares outstanding:Basic


54,449


54,428


53,190Diluted


57,058


58,157


55,543


---

See
accompanying notes to consolidated financial statements.

F-5

---





BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS  OF STOCKHOLDER'S EQUITY        FOR THE THREE YEARS ENDED JUNE 30, 2009

Common Stock







Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings
(Accumulated
Deficit)Series E
Special
Stock

Treasury
Stock

Additional
Paid-In
Capital

Total
Stockholders'
EquityShares

Dollars(in 000s)Balances at June 30, 2006


52,880

$
5,283

$
12

$
(665
)
$
219,472

$
1,351

$
(81,375
)
$
144,078Net income




















22,328


22,328Foreign currency translation adjustment

















(232
)




(232
)Total comprehensive income






















$
22,096Restricted stock issued


143


14








(14
)







Receipt of stock from exercise of stock options











(1,229
)

1,229








Share-based compensation














15,070








15,070Shares issued upon exercise of stock options


1,589


158








15,369








15,527Tax benefit of employee stock option exercises














2,683








2,683Balances at June 30, 2007


54,612

$
5,455

$
12

$
(1,894
)
$
253,809

$
1,119

$
(59,047
)
$
199,454Net income




















107,207


107,207Foreign currency translation adjustment

















149





149Total comprehensive income






















$
107,356Cumulative effect of adoption of FIN 48




















(8,846
)

(8,846
)Restricted stock issued


200


20








(20
)







Receipt of stock from exercise of stock options and tax liability on restricted stock











(38
)










(38
)Purchase of common stock for treasury











(23,109
)










(23,109
)Share-based compensation














13,017








13,017Shares issued upon exercise of stock options


1,506


151








21,647








21,798Tax benefit of employee stock option exercises














13,693








13,693Balances at June 30, 2008


56,318

$
5,626

$
12

$
(25,041
)
$
302,146

$
1,268

$
39,314

$
323,325Net income




















126,309


126,309Foreign currency translation adjustment

















(2,293
)




(2,293
)Unrealized gain on derivative financial instruments

















255





255Total comprehensive income






















$
124,271Restricted stock issued


100


10








(10
)







Receipt of stock from exercise of stock options and tax liability on restricted stock











(1,411
)










(1,411
)Purchase of common stock for treasury











(38,275
)










(38,275
)Share-based compensation














16,405








16,405Shares issued upon exercise of stock options


584


58








9,570








9,628Shares issued under ESPP plan


89


9








1,666








1,675Tax benefit of employee stock option exercises














688








688Balances at June 30, 2009


57,091

$
5,703

$
12

$
(64,727
)
$
330,465

$
(770
)
$
165,623

$
436,306


See accompanying notes to consolidated financial statements.

F-6

---





BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE THREE YEARS ENDED JUNE 30, 2009

2009

2008

2007(in 000s)Cash flows from operating activities:Net income

$
126,309

$
107,207

$
22,328Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


72,109


61,733


59,528Share-based compensation


16,405


13,017


15,070Deferred debt issuance costs


2,108





Excess tax benefit of stock option exercises


(270
)

(12,341
)

(2,561
)Deferred income tax (benefit) expense


30,080


2,123


(6,816
)Provision for doubtful accounts


(42
)

5,234


1,692Write-off of debt issuance costs


786





Inventory and other asset write-downs


4,536


9,238


10,491Other


2,589


4,408


7,187Change in operating assets and liabilities:Accounts and notes receivable


41,195


(48,836
)

(42,588
)Inventories


5,638


(92,645
)

(92,354
)Prepaid and refundable income tax and income tax payable


(31,098
)

(9,452
)

13,241Other current assets


5,602


(7,494
)

(3,347
)Accounts payable


(26,781
)

722


3,673Accrued liabilities, customer deposits and jackpot liabilities


(38,650
)

9,649


1,772Deferred revenue and deferred cost of revenue


(45,340
)

25,529


38,130Net cash provided by operating activities


165,176


68,092


25,446Cash flows from investing activities:Capital expenditures


(34,385
)

(18,283
)

(20,330
)Investment in core technologies


(3,168
)

(8,526
)

Restricted cash and investments


4,110


4,153


(2,529
)Additions to other long-term assets


(2,279
)

(3,709
)

(4,186
)Net cash used in investing activities


(35,722
)

(26,365
)

(27,045
)Cash flows from financing activities:Proceeds from revolving credit facility


25,000





15,000Payments on revolving credit facility


(75,000
)




(15,000
)Capitalized debt issuance costs


(10,728
)




Pay-off of debt from refinancing


(14,553
)




Reduction of long-term debt and capital leases


(27,961
)

(28,150
)

(14,551
)Proceeds from sale lease-back arrangements








22,303Purchase of treasury stock


(39,686
)

(23,147
)

Excess tax benefit of stock option exercises


270


12,341


2,561Proceeds from exercise of stock options and employee stock purchases


11,303


21,798


15,527Net cash provided by (used in) financing activities


(131,355
)

(17,158
)

25,840Effect of exchange rate changes on cash


(71
)

1,159


176Cash and cash equivalents:Increase (decrease) for year


(1,972
)

25,728


24,417Balance, beginning of year


66,570


40,842


16,425Balance, end of year

$
64,598

$
66,570

$
40,842


See accompanying notes to consolidated financial statements.

F-7

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE THREE YEARS ENDED JUNE 30, 2009

The
following supplemental information is related to the consolidated statements of cash flows:

Year Ended June 30,2009

2008

2007(in 000s)Cash paid for interest

$
23,824

$
27,899

$
33,089Cash paid for income taxes


64,957


66,879


1,188Non-cash investing and financing transactions:Pay-off of debt from refinancing

$
275,000

$


$
Transfer of inventory to leased gaming equipment(1)


43,938


79,140


66,278Reclassify property, plant and equipment to inventory(1)


12,869


9,471


7,280Accrual of core technology investments





5,625


Assets acquired through sale lease-back transaction








11,681Non-cash aspects of sale lease-back transaction








3,333


---

F-8

---





BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Bally Technologies, Inc. ("Bally" or the "Company"), a Nevada corporation, is a diversified, worldwide gaming company that designs, manufactures, distributes and
operates gaming devices and computerized monitoring systems for gaming devices. In addition to selling its gaming devices, the Company also offers its customers a wide range of rental options. The
Company's primary technologies include gaming devices for land-based, riverboat and Native American casinos, video lottery and central determination markets and specialized system-based
hardware and software products. The
Company's specialized system-based hardware and software products provide casinos with a wide range of marketing, data management, accounting, security and other software applications and tools to
more effectively manage their operations. The Company also owns and operates the Rainbow Casino, a dockside riverboat casino in Vicksburg, Mississippi.

Principles of presentation and consolidation

The accompanying consolidated financial statements include the accounts of Bally Technologies, Inc., and its wholly owned and partially owned
subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America.

The
Company is the general partner of Rainbow Casino Vicksburg Partnership ("RCVP"), which operates the Rainbow Casino. The limited partner is entitled to receive 10% of the net available cash flows
of RCVP after debt service and other items, as defined in the limited partnership agreement, which increases to 20% of the net available cash flows based on the incremental amount of annual revenues
in excess of $35.0 million, payable quarterly through December 31, 2010. The Company holds the remaining economic interest in the partnership. The Company consolidates RCVP and records
the portion of the earnings of RCVP attributable to the limited partner as a minority interest.

All
intercompany accounts and transactions have been eliminated in consolidation.

We
have evaluated the financial statements for subsequent events occurring between the end of our most recent fiscal year and August 20, 2009, the date of the filing of this
Form 10-K.

Use of estimates

The preparation of the consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair value of financial instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. The carrying amounts reflected in the accompanying consolidated balance sheets for cash equivalents, accounts and notes receivable, investment to fund
jackpot liabilities, accounts payable, jackpot liabilities and variable rate long-term debt approximate their respective fair values.

On
July 1, 2008, the Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 157,Fair Value
Measurements,for all financial assets and liabilities that are recognized or disclosed at fair value in its consolidated financial statements. SFAS No. 157
establishes a fair value hierarchy that requires an entity to maximize the use of

F-9

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

observable
inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:



The
Company's significant financial assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, consisted of the following types of instruments as of
June 30, 2009 (which is included in other current assets in the consolidated balance sheets):

Fair Value Measurements
Using Input TypeLevel 1

Level 2

Total(in 000s)Assets:Derivative financial instrument asset

$


$
255

$



The
valuation techniques used to measure the fair values of the derivative financial instrument asset above in which the counterparties have high credit ratings, were derived from pricing models, such
as discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data. The Company's discounted cash flow techniques use observable market inputs, such
as LIBOR-based yield curves.

Accounting for Derivative Instruments and Hedging Activity

The Company assesses, both at the inception of each hedge and on an on-going basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in cash flows of the hedged items. Such highly effective derivatives are granted hedge accounting treatment. The derivative financial instrument
meets these requirements and is accounted for as a cash flow hedge.

The
impact of the cash flow hedge on the consolidated financial statements is depicted below:

Amount of Gain
(Loss) Recognized in
OCI on
Derivative (Effective
Portion)



Amount of Gain
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)Location of Gain (Loss)
Reclassified from Accumulated
OCI into Income (Effective
Portion)Cash Flow Hedging Relationship

Year Ended
June 30, 2009

Year Ended
June 30, 2009(in 000s)Interest rate swap agreement

$
(341
)

Interest expense

$
(596
)


F-10

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash and cash equivalents

Cash and cash equivalents consist of highly liquid debt instruments purchased with an original maturity of three months or less at the date of
purchase and are carried at cost, which approximates market value.

Restricted cash

The Company maintains jackpot funds totaling approximately $9.1 million and $13.1 million at June 30, 2009 and 2008,
respectively, to ensure availability of funds to pay wide-area progressive jackpot awards.

Accounts and notes receivable and allowance for doubtful accounts

Accounts and notes receivable are stated at face amounts less an allowance for doubtful accounts. The Company evaluates its receivables and
establishes the allowance for doubtful accounts based on a combination of factors including, but not limited to, historical customer collection experience, economic conditions, and the financial
condition of customers.

The
Company grants customers credit terms for periods of 120 days or less or may grant extended credit terms, with interest at prevailing rates, and are generally collateralized by the related
equipment
sold, although the value of such equipment, if repossessed, may be less than the receivable balance outstanding.

Inventories

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

June 30,2009

2008(in 000s)Raw materials

$
40,662

$
59,423Work-in-process


1,432


709Finished goods


10,848


34,106Total

$
52,942

$
94,238


The
Company regularly reviews inventory quantities and updates estimates for the net realizable value of inventories. This process includes examining the carrying values of new and used gaming
devices, parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the
overall levels of inventories, current and projected sales levels and markets for such products, the costs required to sell the products, including refurbishment costs and importation costs for
international shipments, and the overall projected demand for products once the next generation of products are scheduled for release.

The
Company recorded inventory and other asset write-downs totaling approximately $4.5 million, $9.2 million and $10.5 million during the years ended June 30, 2009, 2008
and 2007, respectively. These charges are classified in cost of gaming equipment and systems in the consolidated statements of operations.

F-11

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Hurricane damage insurance recoveries

During fiscal 2009, the Company negotiated an insurance settlement related to the 2005 U.S. Gulf Coast hurricane damages which destroyed or
temporarily shut down certain gaming operations in the Gulf Coast region. The Company received a final payment of $3.0 million for business interruption, which was included in selling, general
and administrative expenses.

Deferred revenue and deferred cost of revenue

Deferred revenue arises from the timing differences between the shipment or installation of gaming equipment and systems products and the
satisfaction of all revenue recognition criteria consistent with the Company's revenue recognition policy. Deferred cost of revenue consists of the direct costs associated with the manufacture of
gaming equipment and systems products for which revenue has been deferred. Deferred revenue and deferred cost of revenue that are expected to be realized within one year are classified as current
liabilities and current assets, respectively.

Restricted long-term investments

The Company purchases U.S. Treasury Strip Securities for the benefit of jackpot winners who elect to receive annual or weekly installment payments.
These securities are held to maturity and recorded at cost plus interest accretion to date. Such securities are included in restricted long-term investments in the consolidated balance
sheets, and totaled $12.1 million and $10.5 million as of June 30, 2009 and 2008, respectively.

Property, plant and equipment and leased gaming equipment

Property, plant and equipment is stated at cost and depreciated over the estimated useful lives or lease term, if less, using the straight line
method as follows: buildings and improvements, ten to forty years; gaming equipment used in casino operations, four to seven years; furniture, fixtures and equipment, three to seven years; and
leasehold improvements, the shorter of lease term or ten years. Leased gaming equipment is stated at cost and depreciated over the estimated useful lives ranging from two to three and
one-half years. Equipment under capital
leases is recorded at the lower of the present value of the minimum lease payments or the fair value of the assets.

Significant
replacements and improvements are capitalized while other maintenance and repairs are expensed. The cost and accumulated depreciation of assets retired or otherwise disposed of are
eliminated from the accounts and any resulting gain or loss is credited or charged to income.

Depreciation and amortization expense

For the years ended June 30, 2009, 2008 and 2007, depreciation and amortization expense totaled $72.1 million, $61.7 million and
$59.5 million, respectively. Of these amounts, $49.8 million, $42.8 million and $37.2 million of depreciation and amortization expense were included in cost of gaming
operations in the consolidated statements of operations. Depreciation expense from leased gaming equipment under capital leases totaled $2.1 million, $2.8 million and $1.9 million
for the years ended June 30, 2009, 2008 and 2007, respectively.

Impairment of long-lived assets and goodwill

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of long-lived assets are measured by a comparison of the carrying amount of an asset to future net cash flows expected to

F-12

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

be
generated by the asset, undiscounted and without interest. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets.

The
Company reviews goodwill for impairment annually at the beginning of its fourth fiscal quarter, or whenever events or circumstances indicate the carrying value may not be recoverable or warrant a
revision to the estimated remaining useful life. The Company performs the impairment analysis of goodwill at a reporting unit level by comparing the fair value of a reporting unit with its carrying
value, including goodwill. If the fair value is less than the carrying value, the impairment to be recognized is measured by the amount by which the carrying amount of the goodwill exceeds the fair
value of the reporting unit goodwill.

Jackpot liabilities

The Company recognizes jackpot expense and a liability for jackpots incurred but not yet won in each jurisdiction based on the discounted net present
value of the progressive meter liability. Jackpots are payable either in weekly or annual installments, or immediately in the case of instant win progressive jackpots. Winners may elect to receive a
single payment for the present value of a jackpot discounted at applicable interest rates in lieu of annual installments. Interest rates used in the single payment calculation vary by jurisdiction and
are impacted by market forces and other economic conditions.

Revenue recognition

The Company derives revenues from the following sources:



Gaming Equipment



Sale of gaming devices and related equipment, parts and conversion kits;

Gaming Operations



Operation of linked progressive systems, video lottery and centrally determined systems and the rental of gaming devices and content;

Systems



Sale of computerized monitoring systems and related recurring hardware and software maintenance revenue; and

Casino Operations



Operation of the Rainbow Casino.


Gaming
and systems revenue is recognized in accordance with the provisions of American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") No. 97-2, Software Revenue Recognition, as amended. Revenue is recognized when all of the following have been satisfied:



The
Company offers credit terms of 120 days or less or may grant extended credit terms under contracts of sale secured by the related equipment, with interest recognized at market rates. The
Company performs a review of contracts, with extended payment terms in excess of six months, to determine if there is sufficient history to conclude that the Company has a history of collecting under
the original payment terms. The Company has concluded that sufficient history exists to determine collectability is probable for contracts with extended payment term of 24 months or less.
Accordingly, revenue is recorded in accordance with the terms of sale for contracts with payment terms of 24 months or less, or as cash is received for contracts with payment terms in excess of
24 months.

F-13

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Games
placed with customers on a trial basis are not recognized as revenue until the trial period ends, or the customer accepts the games and collectability is probable.

The
majority of the Company's software arrangements are time-based licenses, generally for twelve month periods, and are bundled with software maintenance and product support fees. The
Company also licenses its software on a perpetual basis. Software maintenance provides customers with rights to unspecified software product upgrades, maintenance and patches released during the term
of the support period. The majority of the Company's customers purchase both software and hardware maintenance and product support when they purchase software. In addition, substantially all customers
renew these maintenance agreements annually.

The
Company sells or licenses its products and services individually or under arrangements in which there are multiple elements such as a combination of gaming devices, computerized monitoring
equipment, software license fees, maintenance and product support fees and consulting services. The Company utilizes vendor-specific objective evidence ("VSOE"), which consists of the price charged
when that element is sold separately, to determine the fair value of each element under an arrangement. VSOE of fair value for software maintenance and product support fees sold with perpetual
licenses are measured by the renewal rate offered to the customer, which demonstrates a consistent relationship of pricing software maintenance and product support fees as a percentage of the software
license fee.

The
Company is unable to establish VSOE of fair value for software maintenance and product support fees on its time-based license arrangements as the software maintenance and product
support contractual term in these arrangements are generally the same duration as the license term. Accordingly, software license fees and products and services in multiple element arrangements
bundled with time-based license arrangements are recognized ratably over the term of the arrangement.

The
majority of the Company's software agreements are licensed for a specific period of time, normally twelve months. The software and product support period runs contemporaneously with the license
period. As the Company is unable to establish VSOE for the software maintenance and product support on time-based licenses, revenue is recognized ratably over the initial
maintenance period, which includes the initial warranty period. The potential revenue that would be allocated to the initial warranty period for perpetual licenses is immaterial, and as such the
Company does not separately allocate a portion of the license fee to the warranty period.

For
arrangements in which VSOE of fair value exists for all undelivered elements but not of a delivered element, the Company uses the residual method to record revenue. Under the residual method, the
fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered element and is recognized as revenue. In arrangements in which the
Company does not have VSOE for fair value of all undelivered elements, revenue is deferred until all elements are delivered, or until VSOE of fair value has been established for any remaining
undelivered element. In the event the only undelivered element is maintenance and product support for which VSOE of fair value does not exist, the entire arrangement fee is recognized ratably over the
performance period.

The
gaming operation division earns recurring revenue that consists of the operation of linked progressive systems and from gaming devices, content and the related systems placed in casinos on a daily
fee or rental basis. Revenue from these sources is recognized based on the contractual terms of the arrangement and is generally based on a share of money wagered, a share of the net winnings, or on a
fixed daily rental rate basis. The daily fee entitles the customer to full use of the gaming device and includes rental and maintenance of the gaming device, licensing of the game content and

F-14

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

connection
to our linked progressive system, where applicable. In certain markets, the Company also charges a daily system connection fee for the customer to connect to our central determination
systems and/or back-office system. The Company does not consider these arrangements to have multiple revenue-generating activities as the services offered are a comprehensive solution in
exchange for a daily fee and all of the products and services are delivered contemporaneously.

Gaming
revenues in our casino operations are recognized as the net win from gaming machine and table game operations, which is the difference between currency deposited into the devices or placed at
the table games and the payouts made to the players, less any coupons or other promotional allowances, if applicable.

Advertising costs

The Company expenses advertising costs as incurred, which totaled $8.2 million, $6.6 million and $6.6 million for the years
ended June 30, 2009, 2008 and 2007, respectively.

Warranty expense

Gaming devices are typically sold with a 90-day parts and labor warranty. Warranty expense is calculated using historical experience, and
totaled $3.3 million, $3.1 million and $2.7 million for the years ended June 30, 2009, 2008 and 2007, respectively.

Research and development

Research and development expenses related to our product development are expensed until technological feasibility has been established. The Company
has determined that technological feasibility is not established for its products until completion of the regulatory approval process. As this process is completed shortly before the products are made
available to customers, any development costs incurred after the establishment of technological feasibility are not significant and expensed as incurred.

Income taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that includes the enactment date. Taxes on income of the Company's foreign subsidiaries are provided at the tax rates applicable to the tax
jurisdictions in which they are located.

On
July 1, 2007, the Company adopted FASB Interpretation ("FIN") 48,Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109, which creates a single model to address uncertainty in income tax positions and prescribes the minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods,
disclosure and transition. The Company's adoption of this standard was consistent with FASB Staff Position ("FSP") FIN 48-1,Definition of Settlement in FASB
Interpretation No. 48,that was issued in May 2007 that provides guidance on how to determine whether a tax position is effectively
settled for the purpose of recognizing unrecognized tax benefits.

F-15

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Under FIN 48, the Company recognizes tax benefits from an uncertain position only if it is more likely than not that the position will be sustained upon examination by
taxing authorities based on the technical merits of the issue. The amount recognized is the largest benefit that the Company believes has greater than a 50% likelihood of being realized upon
settlement.

Share-based compensation

The Company accounts for share-based compensation based on the calculated fair value of the award measured on the grant date, which is recognized,
net of estimated forfeitures, as an expense over the employee's requisite service period. The Company classifies share-based compensation expense in the same financial statement line as cash
compensation, including cost of gaming equipment and systems and casino operations, research and development costs, and selling, general and administrative expenses.

The
excess tax benefit from stock option exercises and tax deductions in excess of compensation cost recognized are classified as a financing activity in the statement of cash flows.

Foreign currency translation

The functional currency of the Company's foreign subsidiaries is their local currency. Assets and liabilities of foreign operations are translated
into U.S. dollars at the rate of exchange at the end of the period, and the income and expense accounts are translated at the average rate of exchange for the period. Translation adjustments are
reflected as accumulated other comprehensive income within stockholders' equity. Gains and losses on foreign currency transactions are included in the consolidated statements of operations.

Recently adopted accounting pronouncements

On June 1, 2009, the Company adopted SFAS No. 165,Subsequent Events.SFAS
No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS No. 165 is
effective for interim or annual financial periods ending after June 15, 2009. The adoption of SFAS No. 165 did not have a material impact on the Company's consolidated results of
operations, financial position and cash flows.

On
April 1, 2009, the Company adopted the FASB Staff Positions ("FSP") FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP FAS 157-4 clarifies the objective and method of fair
value measurement even when there has been a significant decrease in market activity for the asset being measured. The adoption of SFAS 157-4
did not have a material impact on the Company's consolidated results of operations, financial position and cash flows.

On
October 1, 2008, the Company adopted SFAS No. 161,Disclosures about Derivative Instruments and Hedging ActivitiesAn Amendment of FASB Statement
No. 133.SFAS No. 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an
entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under SFAS No. 133,Accounting for Derivative
Instruments and Hedging Activities;and (c) derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows.
The adoption of SFAS No. 161 did not have a material impact on the Company's consolidated results of operations, financial position and cash flows.

F-16

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On
October 1, 2008, the Company adopted FSP 140-4 and FIN 46(R)-8,Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities. FSP 140-4 and FIN 46(R)-8 require additional disclosures about an entity's
involvement with variable interest entities and transfers of financial assets. The adoption of FSP 140-4 and FIN 46(R)-8 did not have a material impact on the
Company's consolidated results of operations, financial position and cash flows.

On
July 1, 2008, the Company adopted SFAS No. 157,Fair Value Measurements,for all financial assets and liabilities that are recognized
or disclosed at fair value in its consolidated financial statements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information.

On
October 1, 2008, the Company adopted FSP 157-3,Determining Fair Values of a Financial Asset When the Market for That Asset Is Not
Active.FSP 157-3 clarifies the application of SFAS No. 157 to financial instruments in an inactive market. The adoption of
FSP 157-3 did not have a material impact on the Company's consolidated results of operations, financial position and cash flows.

The
Company has not adopted all the provisions of SFAS No. 157 as the FASB delayed the effective date of the application of SFAS No. 157 to nonfinancial assets and liabilities until
fiscal years beginning after November 15, 2008. The partial adoption of SFAS No. 157 did not have a material impact on the Company's consolidated financial statements. The Company does
not believe this guidance will have a significant impact on its consolidated results of operations, financial position and cash flows.

SFAS
No. 159,The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement
No. 115, became effective for the Company on July 1, 2008 and provides for an irrevocable option to elect fair value for the initial and subsequent measurement
for certain financial assets and liabilities on a contract-by-contract basis with the difference between the carrying value before election of the fair value option and the
fair value recorded upon election as an adjustment to beginning retained earnings. The Company chose not to elect to apply the fair value option to any of its financial instruments.

Recently issued accounting pronouncements not yet adopted

In April 2009, the FASB released FSP 107-1 and Accounting Principles Board ("APB") Opinion No. 28-1, Interim Disclosures about Fair Value of Financial Instruments. This
FSP amends SFAS No. 107,Disclosures about Fair
Values of Financial Instruments, to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. The
FSP also amends APB Opinion No. 28,Interim Financial Reporting, to require those disclosures in all interim financial statements.
FSP 107-1 is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The Company
expects to adopt FSP 107-1 and APB 28-1 beginning in the first quarter of fiscal 2010, but does not believe that this guidance will have a significant impact on
its consolidated results of operations, financial position and cash flows.

In
November 2008, the FASB issued Emerging Issues Task Force ("EITF") Issue No. 08-7,Accounting for Defensive Intangible
Assets. EITF No. 08-7 clarifies the accounting for certain separately identifiable intangible assets which an acquirer does not intend to actively use. EITF
No. 08-7 requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounting which should be amortized to expense over the
period the asset diminishes in value. EITF No. 08-7 is effective for fiscal years beginning after December 15, 2008. Early adoption is prohibited. The

F-17

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Company
expects to adopt EITF No. 08-7 beginning in fiscal 2010, but does not believe this guidance will have a significant impact on its consolidated results of operations,
financial position and cash flows.

In
April 2008, the FASB issued FSP 142-3,Determination of the Useful Life of Intangible Assets, which amends the factors that
should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets.FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. The Company will adopt FSP 142-3 beginning in fiscal 2010. The guidance contained in FSP 142-3 for determining the useful life
of a recognized intangible asset shall be applied prospectively to intangible assets acquired after the effective date. However, the disclosure requirements of FSP 142-3 must be applied
prospectively to all intangible assets recognized in our financial statements as of the effective date. The Company does not believe that the adoption of FSP 142-3 will have a
material effect on its consolidated results of operations, financial position and cash flows.

In
December 2007, the FASB issued SFAS No. 141 (Revised 2007),Business Combinations.In April 2009, the FASB issued
FSP 141(R)-1,Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise From Contingenciesto
further clarify and address application issues raised under SFAS No. 141-R. SFAS No. 141R will significantly change the accounting for business combinations. Under SFAS
No. 141R, an acquiring entity is required to recognize all of the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited
exceptions. SFAS No. 141R also includes a substantial number of new disclosure requirements. SFAS No. 141R applies prospectively to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, and accordingly, the Company will adopt SFAS No. 141R beginning in fiscal 2010.
The Company expects that SFAS No. 141R and FSP 141(R)-1will have an impact on accounting for business combinations once adopted, but the significance of the effect is
dependent upon acquisitions, if any, at that time.

In
December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial StatementsAn Amendment of ARB
No. 51.SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's
equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes
in a parent's ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement
requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on
the deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for
fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, and accordingly, the Company will adopt SFAS No. 160 beginning in fiscal 2010. The
Company is currently in the process of evaluating the impact SFAS No. 160 will have on its consolidated results of operations, financial position and cash flows, but it is not expected to be
material.

F-18

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.     EARNINGS PER SHARE

Basic earnings per share is computed by dividing reported earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per
share reflect the additional dilution from all potentially dilutive securities.

The
following computation of basic and diluted earnings per share applicable to the Company's common stock is as follows:

Year Ended June 30,2009

2008

2007(in 000s, except per share amounts)Net income

$
126,309

$
107,207

$
22,328After tax interest expense on convertible debt


160


301


434Diluted earnings

$
126,469

$
107,508

$
22,762Weighted average common shares outstanding


54,449


54,428


53,190Dilutive effect of:Stock options, Restricted Stock Units ("RSU") and restricted stock


2,423


3,478


1,224Warrants


7


33


517Convertible debt(1)


179


218


612Weighted average dilutive shares outstanding


57,058


58,157


55,543Basic earnings per share

$
2.32

$
1.97

$
0.42Diluted earnings per share

$
2.22

$
1.85

$
0.40


---

Certain
securities were excluded from the diluted per share calculation for certain periods because their inclusion would be anti-dilutive. Such securities consist of the following:

Year Ended June 30,2009

2008

2007(in 000s)Stock options, RSU and restricted stock


1,975


235


1,490Warrants





100


100Total


1,975


335


1,590


F-19

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.     PROPERTY, PLANT AND EQUIPMENT AND LEASED GAMING EQUIPMENT

Property, plant and equipment and leased gaming equipment consist of the following:

June 30,2009

2008(in 000s)Land and land improvements

$
20,154

$
20,051Buildings and leasehold improvements


45,002


44,307Gaming equipment


39,315


31,638Furniture, fixtures and equipment


36,531


34,328Less accumulated depreciation


(64,113
)

(59,217
)Property, plant and equipment, net

$
76,889

$
71,107Leased gaming equipment

$
212,650

$
186,771Leased gaming equipment under capital lease





8,348Less accumulated depreciation


(117,638
)

(93,839
)Leased gaming equipment, net

$
95,012

$
101,280


4.     GOODWILL AND INTANGIBLE ASSETS

Intangible assets consist of the following:

June 30, 2009

June 30, 2008Useful
Life
(Years)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount(dollars in 000s)Computer software


3 - 9

$
27,488

$
(19,083
)
$
8,405

$
25,207

$
(14,506
)
$
10,701License rights


3 - 5


2,117


(1,814
)

303


2,199


(1,630
)

569Trademarks


5


2,203


(1,693
)

510


2,203


(1,792
)

411Core technology


5 - 8


22,763


(6,585
)

16,178


19,595


(2,949
)

16,646Contracts


10


10,043


(5,364
)

4,679


10,043


(4,359
)

5,684Other intangibles


3 - 7


7,627


(5,504
)

2,123


7,676


(5,438
)

2,238Total




$
72,241

$
(40,043
)
$
32,198

$
66,923

$
(30,674
)
$
36,249


Amortization
expense related to intangible assets totaled $9.8 million, $7.4 million and $7.1 million for the years ended June 30, 2009, 2008 and 2007, respectively.
Computer software amortization expense

F-20

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

totaled
$4.1 million, $3.3 million and $3.6 million for the years ended June 30, 2009, 2008 and 2007, respectively. Future amortization of intangible assets is scheduled as
follows:

Year Ended June 30,

(in 000s)2010

$
9,6182011


7,7302012


5,5602013


4,5472014


940Thereafter


3,803Total

$
32,198


All
goodwill is associated with the Gaming Equipment and Systems segment. The changes in the carrying amount of goodwill for the years ended June 30, 2009 and 2008 are as follows:

(in 000s)Balance as of June 30, 2007

$
161,708Foreign currency translation adjustment


1,019Balance as of June 30, 2008


162,727Foreign currency translation adjustment


(767
)Balance as of June 30, 2009

$
161,960


No
impairment charges for goodwill and intangible assets were necessary for the years ended June 30, 2009, 2008 and 2007.

5.     OTHER CURRENT ASSETS

Other current assets consist of the following:

June 30,2009

2008(in 000s)Refundable deposits

$
2,484

$
661Games on trial


2,448


5,705Derivative financial instrument asset


255


Certificates of deposit


143


429Other


7,688


7,910Total other current assets

$
13,018

$
14,705


F-21

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.     ACCRUED LIABILITIES

Accrued liabilities consist of the following:

June 30,2009

2008(in 000s)Payroll and related costs

$
24,162

$
26,062Royalties and direct mail coupons


3,902


5,147Professional and consulting fees


2,825


4,500Regulatory approval costs


1,629


1,487Interest


403


5,086Other


14,484


21,046Total accrued liabilities

$
47,405

$
63,328


7.     LONG-TERM DEBT AND CAPITAL LEASES

Long-term debt consists of the following:

June 30,2009

2008(in 000s)Term loan facility

$
206,250

$
289,553Capital lease obligations





9,262Related party debt (see Note 9)


2,800


5,600Other, generally unsecured


37


89Long-term debt and capital leases


209,087


304,504Less current maturities


(35,337
)

(13,163
)Long-term debt and capital leases, net of current maturities

$
173,750

$
291,341


On
September 29, 2008, the Company entered into a new $225.0 million term loan and a new $75.0 million revolving credit facility (collectively, the "Credit Facility"). The Credit
Facility matures in September 2012. The Company also has the option to request an increase in the size of the term loan and/or revolving credit facility by up to $50.0 million in the
aggregate provided that certain conditions are met. The proceeds from the Credit Facility and cash-on-hand of $14.6 million were used to repay the then existing bank
term loans totaling $289.6 million. The Company also used cash-on-hand to pay for transaction fees and expenses totaling $10.7 million, which are being amortized
to interest expense over the term of the Credit Facility.

As
of June 30, 2009, there was approximately $75.0 million of undrawn availability under the revolving credit facility. Availability under the revolving credit facility is reduced to the
extent of outstanding letters of credit.

The
interest rate on the Credit Facility is subject to a leverage-based pricing grid. If the Company's leverage ratio, as defined under the Credit Facility, is greater than 1.5, the interest rate will
be LIBOR plus a margin of 3.25%; if the leverage ratio is between 1.0 and 1.5, the interest rate will be LIBOR plus a margin of 3.00%; and if the leverage ratio is below 1.0, the interest rate will be
LIBOR plus a margin of 2.75%. In December 2008, the Company entered into a floating-to-fixed interest rate swap, as discussed below, fixing the interest rate of the term
loan at 1.89% plus the applicable margin (2.75%

F-22

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

at
June 30, 2009) for the remaining term. The interest rate on the revolving credit facility was 3.07% at June 30, 2009.

The
term loan requires quarterly principal reductions of $6.25 million during the first year, $8.75 million during the second year and $11.25 million during each of the third and
fourth years, with a balloon payment due in September 2012. The Credit Facility is collateralized by substantially all of the Company's domestic property and is guaranteed by each of the
Company's domestic subsidiaries, other than the entity that holds the Company's interest in its Rainbow Casino, and is secured by a pledge agreement. The Credit Facility contains a number of covenants
that, among other things, restrict the ability of the Company and certain of its subsidiaries to dispose of assets, incur additional indebtedness or issue preferred stock, pay dividends or make other
distributions, enter into certain acquisitions, repurchase equity interests or subordinated indebtedness, issue or sell equity interests of the Company's subsidiaries, engage in mergers or
acquisitions or certain transactions with subsidiaries and affiliates, and that otherwise restrict corporate activities.

The
financial covenants under the Credit Facility consist of a leverage ratio and a fixed charges coverage ratio. The leverage ratio is computed as total debt outstanding at the end of the quarter
divided by the trailing twelve months Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), excluding certain cash and non-cash charges. The fixed charges coverage
ratio is computed as EBITDA, adjusted for both the trailing twelve months capital expenditures and cash taxes paid, divided by the trailing twelve months interest charges plus all payments of
principal made during the previous twelve months.

A
breach of any of the covenants or the inability to comply with the required financial ratios could result in a default under the Credit Facility. In the event of any such default, the lenders could
elect to declare all borrowings outstanding under the Credit Facility, together with any accrued interest and other fees, to be due and payable. If the Company were unable to repay the indebtedness
upon its acceleration, the lenders could proceed against the underlying collateral.

The
Company was in compliance with all of the Credit Facility covenants as of June 30, 2009.

Capital
lease obligations represented amounts owed under sale-lease back transactions related to equipment used in the Company's Gaming Equipment and Systems segment. In April 2009,
the Company paid the remaining lease payments due under each of the capital leases, amounting to approximately $4.5 million, and exercised a fair market value buy-out of the
underlying assets.

Interest Rate Swap Agreement

In December 2008, the Company entered into a floating-to-fixed interest rate swap agreement with a notional value of
$218.8 million and a maturity date of September 26, 2012. This interest rate swap serves to fix the floating LIBOR based debt under the term loan to fixed rate debt at an interest rate
of 1.89% plus the applicable margin to manage the risk exposure to interest rate fluctuations.

The
Company has documented and designated this interest rate swap as a cash flow hedge. Based on the assessment of effectiveness using statistical regression, the Company determined that the interest
rate swap is effective. Effectiveness testing of the hedge relationship and measurement to quantify ineffectiveness is performed each fiscal quarter using the hypothetical derivative method. As the
interest rate swap qualifies as a cash flow hedge, the Company adjusts the cash flow hedge on a quarterly basis to its fair value with a corresponding offset to accumulated Other Comprehensive Income
("OCI"). The interest rate swap has been and is expected to remain highly effective for the life of the hedge. Effective amounts are reclassified to interest expense as the related hedged expense is

F-23

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

incurred.
Any ineffectiveness is reclassified from accumulated other comprehensive income to other income (expense). As of June 30, 2009, the Company had no ineffectiveness on its cash flow
hedge. Amounts related to the swap expected to be reclassified from other comprehensive income to interest expense in the next twelve months total $2.0 million.

Additional
information on the Company's interest rate swap is as follows:

Interest Rate Swaps

Balance Sheet Location

Fair Value
(in 000s)

Location of Offsetting BalanceCash flow hedge$206.3 million LIBOR based debt

Other Current Assets

$
255

Accumulated other comprehensive income (loss)


Principal Repayments

The following annual principal maturities of long-term debt for each of the fiscal years ending subsequent to June 30, 2009, are
as follows:

Year Ended June 30,

(in 000s)2010

$
32,5002011


42,5002012


45,0002013


86,250Total

$
206,250


8.     LEASES

The Company leases certain office space, equipment, warehouse and repair facilities and other property locations under non-cancelable operating leases which are
generally included in selling, general and administrative expenses. Operating rental expense is as follows:

Year Ended June 30,2009

2008

2007(in 000s)Equipment and office space leases

$
6,969

$
6,319

$
5,264Sublease rental income


(201
)

(64
)

(356
)$
6,768

$
6,255

$
4,908


F-24

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A
schedule of future minimum rental payments required under noncancelable operating leases for each of the five fiscal years ending after June 30, 2009, is as follows:

Year Ended June 30,

Operating2010

$
6,3102011


4,0272012


2,9432013


1,6932014


1,548Thereafter


2,232Total minimum payments

$
18,753


9.     RELATED PARTY TRANSACTIONS

In connection with previous acquisitions, the consideration paid included subordinated debt issued to the former principals of each business. Certain of the former principals
are now employees of the Company. The following table presents the outstanding related party debt and interest rates as of June 30, 2009 and 2008:

As of June 30,2009

2008Interest
Rate

Outstanding
Debt

Interest
Rate

Outstanding
Debt(dollars in 000s)SDG


3.12
%
$
2,800


7.24
%
$
5,600Less current maturities





(2,800
)




(2,800
)Related party debt, less current maturities




$





$
2,800


The
notes payable to the former principals of SDG are payable in annual installments plus interest at LIBOR plus 2% through its maturity on December 31, 2009. At the Company's discretion, the
principal and accrued interest thereon can be paid in cash, or can be converted into shares of the Company's common stock using the average stock price for the 20 business days prior to the delivery
of such shares.

During
fiscal 2008, the Company entered into an agreement with the former principals of MindPlay to settle a $3.0 million note payable, $0.5 million of accrued interest and
$1.0 million in certain other related liabilities related to the previous acquisition of MindPlay for $1.8 million. The settlement resulted in a gain of approximately $2.7 million
that is included in selling, general and administrative expense in fiscal 2008.

Related
party interest expense is summarized below:

Year Ended June 30,2009

2008

2007(in 000s)SDG

$
246

$
464

$
668MindPlay





153


230


F-25

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accrued
related party interest totaled $44,000 and $0.2 million as of June 30, 2009 and 2008, respectively.

In
November 2007, the Company repurchased 149,253 shares of common stock for $6.0 million from Mr. Robert Luciano, a former principal of SDG and the Company's former Chief
Technology Officer. The shares are included in treasury stock.

The
Company leases a warehouse and office facility from an entity owned by Mr. Luciano. Rental payments totaled $479,000, $466,000 and $448,000 for the fiscal years ended June 30, 2009,
2008 and 2007, respectively.

10.   SHARE-BASED COMPENSATION

Employee Stock Purchase Plan

In February 2008, the Company's stockholders approved the 2008 Employee Stock Purchase Plan (the "2008 ESPP Plan"). The 2008 ESPP Plan
provides that eligible employees are able to contribute up to 10% of their eligible earnings towards the quarterly purchase of the Company's common stock. The employee's purchase price is equal to 85%
of the fair market value. During the year ended June 30, 2009, employees purchased 88,774 shares of common stock for approximately $1.7 million under the 2008 ESPP Plan. No contributions
were made during the year ended June 30, 2008.

Share-Based Award Plans

In December 2001, the Company's stockholders approved the 2001 Long-Term Incentive Plan, as amended, (the "2001 Plan"). The 2001
Plan provides for the issuance of up to 12,050,000 shares of common stock to Company employees, directors and designated paid consultants of which up to 1,400,000 shares may be granted in the form of
restricted stock or restricted stock units ("RSUs"). Generally, options are granted at the fair value of the Company's common stock at the date of grant and are exercisable over five to ten years.

In
April 1997, the Company's stockholders approved the 1996 Long-Term Incentive Plan (the "1996 Plan"), which provided for the issuance of up to 3,428,000 shares of common stock to
Company employees, directors and designated paid consultants. Generally, options were granted at the fair value of the Company's common stock at the date of grant and are exercisable over five to ten
years. No shares of common stock remain available under the 1996 Plan for the grant of new awards.

In
1992, the Company created the 1991 Long Term Incentive Plan (the "1991 Plan") that, as amended, provided for the issuance of up to 3,428,000 shares of common stock to Company employees and
directors. Generally, options were granted at the fair market value of the Company's common stock at the date of the grant and are exercisable over five to ten years. No shares of common stock remain
available under the 1991 Plan for the grant of new awards.

The
Company issues new shares for shares delivered under the 1991 Plan, the 1996 Plan and the 2001 Plan (collectively, the "Plans").

F-26

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock option activity as of and for the year ended June 30, 2009 is summarized below:

Weighted AverageShares

Exercise
Price

Remaining
Contractual
Term

Aggregate
Intrinsic Value(in 000s)

(per share)

(years)

(in 000s)Balance outstanding as of June 30, 2008


7,087

$
17.61




$
115,883Granted


470


21.86Exercised


(584
)

16.48Forfeited or expired


(70
)

21.87Balance outstanding as of June 30, 2009


6,903

$
17.96


5.50

$
85,222Exercisable as of June 30, 2009


5,410

$
16.70


5.22

$
72,633


Restricted
stock and RSU activity as of and for the year ended June 30, 2009 is summarized below:

Restricted
Stock

Weighted
Average
Grant Date
Fair Value

RSUs

Weighted
Average
Grant Date
Fair Value(in 000s)

(per share)

(in 000s)

(in 000s)Balance outstanding as of June 30, 2008


385

$
26.64


556

$
17.07Granted


100


24.62


67


23.04Released


(175
)

18.79





Forfeited or expired











Balance outstanding as of June 30, 2009


310

$
30.42


623

$
17.71Vested as of June 30, 2009




$



534

$
16.04


The
following is additional information about stock options, restricted stock and RSUs exercised, granted and vested during the periods:

Year Ended June 30,2009

2008

2007(in 000s, except per share amounts)Weighted average grant-date fair value per share:Stock options granted

$
10.62

$
14.58

$
11.15Stock options vested

$
9.23

$
8.93

$
8.10Restricted stock and RSUs vested

$
20.16

$
18.04

$
15.30Total grant-date fair value of stock options vested

$
13,186

$
10,954

$
9,744Total grant-date fair value of restricted stock and RSUs vested

$
3,758

$
3,106

$
3,159Exercises under all share-based payment arrangements:Total intrinsic value

$
7,297

$
38,887

$
15,698Cash received

$
9,628

$
21,798

$
15,527Tax benefit realized

$
688

$
13,693

$
2,683


F-27

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Shares Reserved

The following shares are reserved for stock options issued and available for issue under the Plans and the 2008 ESPP:

(in 000s)Stock options, restricted stock and RSUs issued and currently outstanding


7,526Shares available for future issuance


1,098Warrants


100Total


8,724


Share-Based Compensation

The following table presents share-based compensation expense and related effect of the income tax benefit included in the Company's
consolidated statements of operations:

Year Ended June 30,2009

2008

2007(in 000s)Selling, general and administrative

$
13,523

$
10,903

$
13,261Research and development


2,736


2,032


1,659Cost of gaming equipment and systems and operations


146


82


150Share-based compensation expense before tax

$
16,405

$
13,017

$
15,070Income tax benefit


(5,742
)

(4,556
)

(5,275
)Net share-based compensation expense

$
10,663

$
8,461

$
9,795


Included
in share-based compensation expense in the consolidated statements of operations for the years ended June 30, 2009, 2008 and 2007 is restricted stock amortization of
$4.7 million, $2.8 million and $3.9 million, respectively.

During
the year ended June 30, 2009, the Company modified certain fully vested stock options, previously issued to certain members of the Company's Board of Directors, extending the contractual
term for 2.15 years. The modification resulted in the recognition of additional share-based compensation expense of approximately $400,000 during the fourth quarter, which was equal
to the net increase in the fair value of the modified stock option.

Additionally,
during the year ended June 30, 2009, the Company's Board of Directors approved the accelerated vesting of all unvested stock options previously issued to the Company's former
Chief Technology Officer. This accelerated vesting affected options for approximately 360,000 shares of the Company's common stock and resulted in the acceleration of $1.4 million in
share-based compensation during the fourth quarter.

As
of June 30, 2009, there was $11.3 million of total unrecognized compensation expense related to the unvested portion of stock options which will be recognized over the subsequent
1.67 years. In addition,
as of June 30, 2009, there was $7.2 million of total unrecognized compensation expense related to the unvested portion of restricted stock and RSUs which will be recognized over the
subsequent 1.86 years.

The
Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise
price of the

F-28

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

option,
the expected option term, the expected volatility of the Company's common stock over the option's expected term, the risk-free interest rate over the option's expected term and the
Company's expected annual dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair
values of the Company's stock options granted. Estimates of fair value are not intended to predict actual future events, or the value ultimately realized by the recipients of equity awards.

The
fair value of each option granted during the periods referenced below was estimated on the grant date using the Black-Scholes valuation model with the following assumptions:

Year Ended June 30,2009

2008

2007Weighted Average:Expected option term (in years)


4.53


4.94


6.13Expected volatility


51.07
%

45.42
%

56.28
%Risk-free interest rate


2.63
%

3.03
%

4.75
%Expected annual dividend yield


0
%

0
%

0
%


For
the years ended June 30, 2009, 2008 and 2007, the expected option term was determined using the simplified method for share based payments in accordance with Staff Accounting Bulletin
No. 110. The Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. Certain employees could not exercise options until
November 2007 during the time the Company was delinquent in its SEC filings. In addition, there was a significant change in the contractual term of its stock options grants from ten years to seven
years, and a change in the vesting schedule of stock options from three year to four year periods. Expected volatility is based on historical market factors related to the Company's common stock.
Risk-free interest rate is based on U.S. Treasury rates appropriate for the expected term.

11.   STOCKHOLDERS' EQUITY, OPTIONS, WARRANTS AND RIGHTS

Warrants

The Company previously issued 100,000 stock purchase warrants in connection with a prior acquisition. The strike price of the warrant is $24.69 with
a term of seven years.

Share Repurchase Plan

On January 28, 1999, the Company's Board of Directors approved a share repurchase plan under which, subject to price and market conditions,
purchases of shares can be made from time to time in the open market or in privately negotiated transactions using available cash. On December 5, 2007, the Company's Board of Directors amended
the repurchase plan authorizing the repurchase of up to $10 million of the Company's common stock. On February 5, 2008, the Company's Board of Directors amended the repurchase plan
authorizing the repurchase up to $20 million of the Company's common stock. On February 14, 2008, the Company's Board of Directors increased the amount of common stock authorized to be
repurchased to $75 million. On August 12, 2008, the Company's Board of Directors reset the limit under its existing share repurchase plan to $100 million. As of June 30,
2009, $61.7 million remained available under the plan for repurchase in future periods.

During
the year ended June 30, 2009, the Company repurchased 1,557,216 shares of common stock for $38.3 million under the share repurchase plan. During the year ended June 30,
2008, the Company

F-29

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

repurchased
436,200 shares of common stock for $17.1 million under the share repurchase plan, excluding 149,253 shares repurchased from a related party for $6.0 million as discussed in
Note 9 to the consolidated financial statements,Related Party Transactions. During the year ended June 30, 2007, there were no
repurchases of common stock under the plan.

Special Stock

The Company's Articles of Incorporation authorize the issuance of up to 10,000,000 shares of special stock ("Special Stock"). The Special Stock may
be issued from time to time in one or more series, each having such designations, preferences and relative, participating, optional or other special rights, qualifications, limitations or restrictions
as shall be stated and expressed in the resolution providing for the issuance of Special Stock or any series thereof adopted by the Board of Directors. Special Stock consists of non-voting
stock where no holder of the Special Stock shall be entitled to vote at any meeting of stockholders or otherwise, except as may be specifically provided by law or as approved by the Board of Directors
in certain limited circumstances at the time of the stock issuance.

To
date, there have been four series of Special Stock authorized for issuance: the Initial Series, the Series B, the Series E and the Series F. In June 1996, the Company issued
shares of Series E Special Stock to certain holders of the Company's 71/2% Convertible Subordinated Debentures (which were retired in
1996) who elected to receive such stock in lieu of receiving common stock. The holders of shares of Series E Special Stock have no voting rights except as required by law. A total of 115 shares
of Series E Special Stock remain outstanding. No other shares of Special Stock remain outstanding.

12.   INCOME TAXES

Consolidated income before taxes and minority interest for domestic and foreign operations is as follows:

Year Ended June 30,2009

2008

2007(in 000s)United States

$
181,513

$
186,659

$
34,841Foreign


15,204


(8,043
)

3,265Total

$
196,717

$
178,616

$
38,106


F-30

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The
components of the Company's income tax expense are as follows:

Year Ended June 30,2009

2008

2007(in 000s)Current:Federal

$
29,944

$
61,203

$
12,725State


4,746


8,145


3,202Foreign


3,711


(4,678
)

1,86438,401


64,670


17,791Deferred:Federal


27,664


2,813


(5,172
)State


2,350


(1,230
)

(852
)Foreign


66


540


(792
)30,080


2,123


(6,816
)Income tax expense

$
68,481

$
66,793

$
10,975


A
reconciliation of the Company's income tax provision as computed by applying the U.S. federal statutory tax rate compared to the income tax provision is as follows:

Year Ended June 30,2009

2008

2007U.S. federal statutory income tax rate


35.0
%

35.0
%

35.0
%Partnership income attributable to minority interest


(0.3
)

(0.9
)

(4.4
)State income taxes, net of federal benefit


3.0


2.2


3.3Foreign earnings subject to U.S. tax


2.1


1.4


3.9Change in valuation allowance


(0.1
)

(4.4
)

(2.2
)Net increase in accrual for potential tax contingencies








1.1Tax credits


(5.5
)

(2.0
)

(11.6
)Extraterritorial income deduction





(0.1
)

(0.5
)Domestic production activities deduction


(1.4
)

(0.8
)

(0.2
)Capital loss carryforward





5.0


Other, net


2.0


2.0


4.434.8
%

37.4
%

28.8
%


F-31

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The major components of the deferred tax assets and liabilities are as follows:

June 30,2009

2008(in 000s)Deferred tax assets:Share-based compensation

$
14,732

$
11,352Deferred revenue, net of deferred costs


14,319


32,494Accruals not currently deductible for tax purposes


11,124


20,343Net operating loss carryforwards


4,564


5,006Inventory


4,012


5,823Allowance for doubtful accounts


1,758


2,152Deferred compensation for tax purposes


1,200


1,811Financing lease assets





2,262Intangible assets





504Other


3,101


9,341Total gross deferred tax assets


54,810


91,088Less: Valuation allowance


(2,089
)

(2,376
)Deferred tax assets

$
52,721

$
88,712Deferred tax liabilities:Property and equipment

$
851

$
9,143Intangible assets


383


Deferred lease revenue





19Total gross deferred tax liabilities

$
1,234

$
9,162Net deferred tax assets

$
51,487

$
79,550


The
Company has not provided income taxes on approximately $12.0 million of undistributed earnings as of June 30, 2009 from certain foreign subsidiaries. The Company plans to permanently
invest the earnings in the foreign subsidiaries and therefore has not recorded a deferred tax liability associated with the undistributed earnings.

At
June 30, 2009, the Company had net operating loss carryforwards for U.S. federal income tax purposes of approximately $6.8 million. The net operating loss carryforwards expire
in 2020 through 2022. The entire amount of the net operating loss carryforwards are subject to limitations under Section 382 of the Internal Revenue Code. Section 382 limits the amount
of carryforwards available per year for use against future taxable income. Based on the Company's history of taxable income since the year ended June 30, 2006 and projections of taxable income
in the future, the Company expects to utilize all of its federal net operating loss carryforwards. The Company also has net operating losses in several foreign jurisdictions, mainly the United
Kingdom. Due to a history of net operating losses in these jurisdictions, management has determined that it is more likely than not that these losses will not be realized and therefore has established
a full valuation allowance.

The
Company's subsidiary in India, Bally Technologies India Private Limited, operates under a tax holiday currently set to expire March 2011.

The
Company recorded $0.7 million and $13.7 million as an increase to stockholder's equity for certain tax benefits from employee share-based compensation for the years ended
June 30, 2009 and 2008, respectively.

F-32

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Effective
July 1, 2007, the Company recorded $22.9 million of liabilities for unrecognized tax benefits related to the adoption of FIN 48 of which $8.8 million were
accounted for as an increase to stockholder's equity. This liability was reduced to $19.0 million and $22.4 million at June 30, 2009 and 2008, respectively. Of these amounts,
$15.9 million and $18.2 million, respectively, if recognized, would impact the effective tax rate. The Company recognizes interest and penalties related to unrecognized tax benefits as
tax expense. As of June 30, 2009 and 2008, the Company had accrued interest and penalties of $5.6 million and $2.1 million, respectively. Interest and penalties of
$3.4 million and $0.9 million were accrued during the years ended June 30, 2009 and 2008, respectively.

Changes
to the balance of unrecognized tax benefits are as follows:

June 30,2009

2008(in 000s)Balance, beginning of year

$
22,380

$
22,882Additions based on tax provisions related to current year


1,183


2,040Additions for tax positions of prior years


2,275


1,803Reductions for tax positions of prior years


(3,517
)

(4,399
)Settlements


(3,424
)

(312
)Lapse of statute of limitations





(136
)Foreign currency translation adjustment


152


502Balance, end of year

$
19,049

$
22,380


The
Company files numerous consolidated and separate income tax returns in the United States and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to
United States federal income tax examinations for years before 1995 and is no longer subject to state and local, or foreign income tax examinations for years before 2000.

The
Internal Revenue Service ("IRS") commenced examination of the Company's United States federal income tax returns for 2003 through 2005 in the fourth quarter of 2006. Throughout the examination,
the IRS has proposed, and management has agreed to, certain adjustments related to the open tax years that have been recorded in the income tax provision. In January 2009, the IRS completed its field
examination of the open tax years and issued a Revenue Agent's Report ("RAR"). Also in January 2009, the Company paid $3.4 million in tax and $1.2 million in interest to the IRS to
settle certain agreed adjustments. The Company filed a formal protest regarding certain unagreed adjustments and the case was assigned to the IRS Las Vegas Appeals Office in July 2009. If successful
in defending the Company's position, it would result in a reduction to unrecognized tax benefits and a corresponding reduction of income tax provisions of approximately $4.8 million. If the IRS
were to prevail in full, it would result in additional income tax provisions of approximately $5.4 million, plus interest, for the tax years through 2005. No date has been set for the opening
conference with the IRS Appeals Officer as of the date of this filing.

It
is reasonably possible that within the next twelve months the Company will resolve some of the matters presently under consideration with the IRS which may increase or decrease unrecognized tax
benefits for the open tax years. However, an estimate of such increase or decrease cannot reasonably be made.

F-33

---



BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13.   COMMITMENTS AND CONTINGENCIES

Commitments

The Company is obligated under several agreements to pay certain royalties on the sale or rental of gaming devices. Total royalty expense for the
Company for the years ended June 30, 2009, 2008 and 2007 was $15.6 million, $15.6 million and $18.0 million, respectively, and is included in the cost of gaming equipment
and systems in the accompanying consolidated statements of operations. In addition, the Company has obtained the rights to certain game themes and intellectual property that call for payment of
royalties based on either fixed amounts or variable amounts based on game performance.

The
Company also paid approximately $0.7 million, $1.2 million and $1.1 million in fiscal 2009, 2008 and 2007, respectively, for the use of the Bally trademark. The fee is
variable based upon the number of units produced using the trademark.

Litigation

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, or other sources are recorded when it is
probable that a liability has been incurred and the amount of the liability can be reasonably estimated. The Company has not recorded any loss accruals for these contingencies unless otherwise noted
below.

In
February 2005, the SEC initiated an informal inquiry and requested documents and information regarding matters related to the allegations in a class action suit brought against the Company. In
September 2008, the SEC and the Company reached a settlement in which the Company, without admitting or denying the SEC's findings, agreed to a cease and desist order that mandates compliance with
federal securities laws and regulations related to financial reporting, record keeping, and internal controls. The SEC did not impose any fines, civil penalties, or monetary sanctions on the Company.

On
December 7, 2004, IGT filed a patent infringement lawsuit against the Company in the United States District Court for the District of Nevada. The complaint asserted that the Company's wheel-
based games, such as Monte Carlo, Lucky Wheel and Cash For Life, its games with a reel in the top box, such as Bonus Frenzy, and its
iVIEW products infringed on patents held by IGT, and sought injunctive relief and damages in unspecified amounts. As part of the defense, the Company asserted counterclaims seeking
damages and other relief against IGT, including claims that IGT's patents were invalid, unenforceable and not infringed, as well as several claims that IGT engaged in anti-competitive
conduct in violation of state and federal antitrust laws. In October 2008, the court granted the Company's motions for summary judgment, ruling that IGT's two "wheel" patents and a touch-screen
player-tracking patent were invalid; that even if the patents were valid, the Company's wheel-based games at issue would not infringe; and that certain of its iVIEW products do not infringe the two
asserted player-tracking patents. The court also found issues of material fact regarding IGT's alleged inequitable conduct before the U.S. Patent and Trademark Office and denied IGT's motions
to dismiss those claims, leaving them for trial. However, the court postponed the trial until after IGT has appealed the court's summary judgments on patent infringement and validility. IGT's appeal
is pending.

In
April 2006, IGT filed a patent infringement lawsuit against the Company in the United States District Court for the District of Delaware. The complaint asserted that the Company's Bally Power
Bonusing products infringe patents held by IGT, and sought injunctive relief and damages in unspecified amounts. Of the nine patents and 200 claims originally filed in the case by IGT,
all but three patents and eight claims have been dismissed. On April 28, 2009, the District Court issued an order finding that the Company's Power Promotions, Power Bank, and SDS/CMP Power
Winners

F-34

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

products
do not infringe IGT's patents. The court also found that the Company's ACSC Power Winners and ACSC Power Reward products infringe some patent claims asserted by IGT, but not others. Appeals
by both parties are expected. In the meantime, the Company has undertaken technical changes to ensure non-infringement for the two products partially in question. The Company does not
believe that potential infringement damages, if any, would be material to its financial position as the revenues from these two products to date have not been material.

In
September 2006, the Company filed a patent infringement lawsuit against IGT in the United States District Court for the District of Nevada. The complaint asserted that certain of IGT's bonus wheel
games infringe a patent held by the Company, and sought injunctive relief and damages. IGT filed an answer generally denying the claims and filed a motion for summary judgment which was granted in
September 2008 declaring the wheel patent "obvious" and therefore invalid. The case is now on appeal.

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

14.   SEGMENT AND GEOGRAPHICAL INFORMATION

The Company operates in two business segments: (i) Bally Gaming Equipment and Systems which designs, manufactures, assembles, distributes and operates gaming devices and
licenses computerized monitoring and bonusing systems for gaming devices, and (ii) Casino Operations which owns and operates a casino in Vicksburg, Mississippi.

F-35

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Certain
expenses related to Company-wide initiatives are managed at the corporate level and are not allocated to either operating segment. The accounting policies of these segments are
consistent with the Company's policies for the consolidated financial statements.

Year Ended June 30,2009

2008

2007(in 000s)Revenues:Gaming Equipment and SystemsGaming Equipment

$
357,037

$
410,147

$
324,119Gaming Operations


274,965


235,983


176,412Systems


211,758


206,262


134,112$
843,760

$
852,392

$
634,643Casino Operations


39,669


47,299


47,675Total revenues

$
883,429

$
899,691

$
682,318Gross Margin(1):Gaming Equipment and SystemsGaming Equipment

$
166,825

$
182,843

$
117,755Gaming Operations


194,882


155,589


104,574Systems


155,032


151,318


96,436$
516,739

$
489,750

$
318,765Casino Operations


22,919


28,452


29,629Total gross margin

$
539,658

$
518,202

$
348,394Depreciation and amortization(2):Gaming Equipment and Systems

$
18,683

$
14,767

$
18,072Casino Operations


3,337


2,755


2,917Corporate


254


1,391


1,387Total depreciation and amortization

$
22,274

$
18,913

$
22,376Operating income:Gaming Equipment and Systems

$
227,003

$
215,520

$
79,741Casino Operations


11,718


17,474


17,925Corporate


(23,985
)

(33,801
)

(30,663
)Total operating income

$
214,736

$
199,193

$
67,003Identifiable assets:Gaming Equipment and Systems

$
728,751

$
848,985

$
701,616Casino Operations


52,875


47,296


46,837Corporate


99,256


98,843


76,442Total identifiable assets

$
880,882

$
995,124

$
824,895


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F-36

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The
Company has operations based primarily in the United States as well as significant sales and distribution offices based in Europe, and other foreign locations, including South America. The table
below presents information as to the Company's revenues, operating income and identifiable assets by geographic region which is determined by country of destination:

Year Ended June 30,2009

2008

2007(in 000s)Revenues:United States and Canada

$
741,486

$
765,226

$
602,282International


141,943


134,465


80,036Total revenues

$
883,429

$
899,691

$
682,318Operating income:United States and Canada

$
182,445

$
171,376

$
54,961International


32,291


27,817


12,042Total operating income

$
214,736

$
199,193

$
67,003Identifiable assets:United States and Canada

$
736,634

$
851,019

$
738,821International


144,248


144,105


86,074Total identifiable assets

$
880,882

$
995,124

$
824,895


15.   401(k) PLAN

The Company is the sponsor of the Bally Technologies, Inc. 401(k) Savings Plan (the "401(k) Plan"). The 401(k) Plan was adopted for domestic employees of Bally
Technologies, Inc. and all its domestic subsidiaries. Employees may enroll in the plan after meeting certain age and length of employment criteria, and plan participants may defer up to 25% of
their compensation, up to certain IRS imposed limitations.

The
Company matches 50% of any participant's contributions, up to the first 6% of their compensation (as defined in the plan document). Company matching contributions totaled approximately
$1.9 million, $2.3 million and $1.5 million for the fiscal years ended June 30, 2009, 2008 and 2007, respectively.

For
participants hired through December 31, 2000, employee and employer matching contributions are 100% vested immediately. For employees hired on or after January 1, 2001, vesting of
the employer match is on a 20%, 5-year vesting schedule. Effective October 1, 2005, vesting of employer match is on a 25% 4-year vesting schedule.

F-37

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16.   SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables set forth unaudited quarterly financial information for the years ended June 30, 2008 and 2007.

Fiscal Year 2009 Quarterly ResultsSeptember 30,

December 31,

March 31,

June 30,(in 000s, except per share data)Statement of Operations Data:Revenues

$
237,398

$
233,294

$
207,583

$
205,154Cost of gaming equipment, systems and casino operations


100,507


89,540


78,193


75,531Selling, general and administrative


58,437


59,516


53,126


54,292Research and development costs


19,871


19,331


19,291


18,784Income before income taxes and minority interest


46,974


52,544


46,848


50,351Income tax expense


(17,137
)

(18,670
)

(16,232
)

(16,442
)Net income

$
30,304

$
33,564

$
29,251

$
33,190Basic income per share

$
0.55

$
0.62

$
0.54

$
0.61Diluted income per share

$
0.52

$
0.59

$
0.52

$
0.58


Fiscal Year 2008 Quarterly ResultsSeptember 30,

December 31,

March 31,

June 30,(in 000s, except per share data)Statement of Operations Data:Revenues

$
189,030

$
230,652

$
232,609

$
247,400Cost of gaming equipment, systems and casino operations


77,434


103,615


97,510


102,930Selling, general and administrative


52,271


60,992


60,416


65,592Research and development costs


13,309


14,647


15,103


17,766Income before income taxes and minority interest


35,779


40,675


50,642


51,520Income tax expense


(13,109
)

(15,235
)

(18,939
)

(19,510
)Net income

$
21,282

$
24,416

$
30,249

$
31,260Basic income per share

$
0.39

$
0.45

$
0.55

$
0. 57Diluted income per share

$
0.37

$
0.42

$
0.52

$
0.54


F-38

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BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTSYears ended June 30, 2009, 2008 and 2007

Balance at
Beginning
of Year

Additions

Net
Write-offs/
(Recoveries)

Balance at
End of
Year(in 000s)Allowance for doubtful accounts:Year Ended June 30, 2009

$
12,055

$
(42
)
$
3,074

$
8,939Year Ended June 30, 2008

$
8,481

$
5,234

$
1,660

$
12,055Year Ended June 30, 2007

$
8,073

$
1,692

$
1,284

$
8,481


F-39

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