UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter ended September 30, 2001
 
OR

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

For the transition period from                   to                  
 
Commission File Number 0-4281

ALLIANCE GAMING CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

The number of shares of Common Stock, $0.10 par value, outstanding as of November 6, 2001, according to the records of the registrant’s registrar and transfer agent was 21,979,280.

TABLE OF CONTENTS

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

ALLIANCE GAMING CORPORATION
FORM 10-Q
 
For the Quarter Ended September 30, 2001
 
 
I N D E X

PART I.      FINANCIAL INFORMATION		Page
Item 1.	Unaudited Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2001 and September 30, 2001	3
	Unaudited Condensed Consolidated Statements of Operations for the three months ended September 30, 2000 and 2001	4
	Unaudited Condensed Consolidated Statements of Stockholders’ Deficiency for the three months ended September 30, 2001	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2000 and 2001	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
PART II.      OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 6.	Exhibits and Reports on Form 8-K	25
SIGNATURES		26

2

PART 1
 
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In 000’s, except share data)

				June 30,			Sept. 30,
				2001			2001
ASSETS
Current assets:
	Cash and cash equivalents			$	54,845		$	57,539
	Accounts and notes receivable, net of allowance for doubtful accounts of $15,991 and $15,058				79,369			74,006
	Inventories, net of reserves of $7,128 and $6,673				35,082			41,428
	Other current assets				10,814			9,244
		Total current assets			180,110			182,217
Long-term notes receivable, net of allowance for doubtful accounts of $10 and $22					1,433			1,649
Leased equipment, net of accumulated depreciation of $14,986 and $15,419					22,677			21,191
Property, plant and equipment, net of accumulated depreciation of $74,245 and $78,842					88,412			91,401
Excess of costs over net assets of acquired businesses, net of accumulated amortization of $7,433 and $7,562					49,514			50,420
Intangible assets, net of accumulated amortization of $20,693 and $22,053					22,212			22,232
Deferred tax assets, net of valuation allowance of $66,829 and $64,229					11,944			12,063
Other assets, net of reserves of $1,826 and $1,826					3,895			3,801
			Total assets	$	380,197		$	384,974
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current liabilities:
	Accounts payable			$	19,531		$	15,919
	Accrued liabilities				46,978			42,824
	Current maturities of long-term debt				932			1,439
		Total current liabilities			67,441			60,182
Long-term debt, net					339,168			338,598
Other liabilities					11,493			11,621
			Total liabilities		418,102			410,401
Minority interest					1,300			1,343
Commitments and contingencies
Stockholders’ deficiency:
	Special Stock, 10,000,000 shares authorized: Series E, $100 liquidation value; 120 shares issued and outstanding				12			12
	Common Stock, $.10 par value; 50,000,000 shares authorized; 21,776,000 and 22,137,000 shares issued and outstanding				2,178			2,214
	Treasury stock at cost, 256,000 shares				(501	)		(501	)
	Additional paid-in capital				147,828			148,958
	Accumulated other comprehensive losses				(27,919	)		(24,078	)
	Accumulated deficit				(160,803	)		(153,375	)
			Total stockholders’ deficiency		(39,205	)		(26,770	)
			Total liabilities and stockholders’ deficiency	$	380,197		$	384,974

See notes to unaudited condensed consolidated financial statements.

3

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

		Three Months Ended September 30,
		2000			2001
Revenues:
	Gaming equipment and systems	$	33,661		$	45,161
	Wall machines and amusement games		14,860			12,661
	Route operations		52,903			53,800
	Casino operations		17,882			18,179
			119,306			129,801
Costs and expenses:
	Cost of gaming equipment and systems		15,368			19,551
	Cost of wall machines and amusement games		8,295			7,505
	Cost of route operations		42,616			42,578
	Cost of casino operations		7,481			8,335
	Selling, general and administrative		22,725			25,555
	Research and development		3,183			3,692
	Depreciation and amortization		6,507			7,724
			106,175			114,940
Operating income			13,131			14,861
Other income (expense):
	Interest income		155			395
	Interest expense		(9,039	)		(7,647	)
	Minority interest		(543	)		(463	)
	Other, net		121			420
Income before income taxes			3,825			7,566
Income tax provision			(460	)		(138	)
Net income		$	3,365		$	7,428
Basic earnings per share		$	0.17		$	0.34
Diluted earnings per share		$	0.16		$	0.32
Weighted average common shares outstanding			20,504			21,825
Weighted average common and common share equivalents outstanding			20,958			23,247

See notes to unaudited condensed consolidated financial statements.

4

ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
 
(In 000’s)

																			Total
													Accumulated						Stock-
		Common Stock									Additional		Other						holders'
						Series E		Treasury			Paid-in		Comprehensive			Accum.			Equity
		Shares		Dollars		Special Stock		Stock			Capital		Loss			Deficit			(Deficiency)
Balances at June 30, 2001			21,776	$	2,178	$	12	$	(501	)	$	147,828	$	(27,919	)	$	(160,803	)	$	(39,205	)
Net income			—		—		—		—			—		—			7,428			7,428
Foreign currency translation adjustment			—		—		—		—			—		3,841			—			3,841
	Total comprehensive income																			11,269
Shares issued upon exercise of options and warrants			361		36		—		—			1,130		—			—			1,166
Balances at September 30, 2001			22,137	$	2,214	$	12	$	(501	)	$	148,958	$	(24,078	)	$	(153,375	)	$	(26,770	)

See notes to unaudited condensed consolidated financial statements.

5

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

					Three Months Ended September 30,
					2000			2001
Cash flows from operating activities:
	Net income				$	3,365		$	7,428
		Adjustments to reconcile net income to net cash provided by (used in) operating activities:
				Depreciation and amortization		6,507			7,724
				Amortization of debt discount		13			20
				(Gain) loss on sale of assets		(137	)		25
				Provision for losses on doubtful receivables		1,234			379
				Other		150			552
		Net change in operating assets and liabilities:
				Accounts and notes receivable		11,941			6,091
				Inventories		(4,248	)		(6,608	)
				Other current assets		351			1,602
				Accounts payable		3,260			(3,657	)
				Accrued liabilities		(938	)		(4,473	)
				Net cash provided by (used in) operating activities		21,498			9,083
Cash flows from investing activities:
		Additions to property, plant and equipment				(2,119	)		(3,450	)
		Additions to participation gaming devices				(2,968	)		(2,887	)
		Additions to other long term assets				(231	)		(1,305	)
		Proceeds from disposal of property and equipment and other assets				—			16
				Net cash used in investing activities		(5,318	)		(7,626	)
Cash flows from financing activities:
		Reduction of long-term debt				(1,444	)		(123	)
		Net increase (decrease) in revolving credit facility				(5,096	)		—
		Proceeds from exercise of stock options and warrants				—			1,166
				Net cash provided by (used in) financing activities		(6,540	)		1,043
Effect of exchange rate changes on cash						(405	)		194
Cash and cash equivalents:
				Increase for period		9,235			2,694
			Balance, beginning of period			32,044			54,845
			Balance, end of period		$	41,279		$	57,539

See notes to unaudited condensed consolidated financial statements

6

ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Three Months Ended September 30, 2000 and 2001

1.	BASIS OF PRESENTATION
	The accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to present fairly the financial position, results of operations and cash flows of Alliance Gaming Corporation (“Alliance” or the “Company”) for the respective periods presented. The results of operations for an interim period are not necessarily indicative of the results, which may be expected for any other interim period, or for the year as a whole. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes in the Company’s annual report on Form 10-K for the year ended June 30, 2001. All intercompany accounts and transactions have been eliminated in consolidation.
	The accompanying condensed consolidated financial statements at June 30, 2001, was derived from audited consolidated financial statements, but does not include all disclosures required under generally accepted accounting principles. Certain reclassifications have been made to conform to the current year presentation.
2.	INVENTORIES
	Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. Cost elements included for work-in-process and finished goods include raw materials, freight, direct labor and manufacturing overhead.
	Inventories, net of reserves, consist of the following (in 000’s):

		June 30,		Sept. 30,
		2001		2001
Raw materials		$	15,222	$	15,842
Work-in-process			1,774		3,155
Finished goods			18,086		22,431
	Total inventories	$	35,082	$	41,428

3.	DEBT
	Long-term debt consists of the following (in 000s):

		June 30,		Sept. 30,
		2001		2001
10% Senior Subordinated Notes due 2007, net of unamortized discount of $495 and $475		$	149,505	$	149,525
Term loan facility			190,000		190,000
Other, secured by related equipment			595		512
			340,100		340,037
Less current maturities			932		1,439
	Long-term debt, less current maturities	$	339,168	$	338,598

On June 22, 2001, the Company completed a senior bank debt refinancing transaction (the “Refinancing”) whereby the Company entered into a $190 million term loan facility and a $25 million revolving credit facility (which can be increased by $15 million at the Company’s discretion until December 31, 2002). Proceeds from the new term loan were used to repay the existing bank term loans and credit facility, totaling $166.0 million, repay certain gaming equipment operating leases totaling $13.0 million, and to pay transaction fees and expenses. The term loan has an interest rate of LIBOR plus 3.75% (or 6.8% as of September 30, 2001), has a

7

ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Three Months Ended September 30, 2000 and 2001

1% per year mandatory principal amortization, and a 5.5 year maturity. The revolving credit facility commitment decreases ratably over its 5 year commitment. As of September 30, 2001, there were no borrowings outstanding on the revolving credit facility.

The bank facility is collateralized by substantially all domestic property and is guaranteed by each domestic subsidiary of the U.S. Borrower and German Subsidiaries (both as defined), other than the entity which holds the Company’s interest in its Louisiana and Mississippi operations, and is secured by both a U.S. and German Pledge Agreement (both as defined). The bank facility contains a number of maintenance covenants and it and the indenture have other significant covenants that, among other things, restrict the ability of the Company and certain of its subsidiaries to dispose of assets, incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, enter into certain acquisitions, repurchase equity interests or subordinated indebtedness, issue or sell equity interests of the Company’s subsidiaries, engage in mergers or acquisitions, or engage in certain transactions with subsidiaries and affiliates, and that otherwise restrict corporate activities. As of September 30, 2001 the Company is in compliance with these covenants.

The Senior Subordinated Notes bear interest at 10%, are due in 2007, and are general unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Debt (as defined) of the Company, including indebtedness under the bank facility. The Senior Subordinated Notes are fully and unconditionally guaranteed on a joint and several, senior subordinated basis by all existing and future domestic Restricted Subsidiaries of the Company, subject to certain exceptions including the partially-owned entities through which its Mississippi casino and Louisiana route operations are conducted. The Subsidiary Guarantees are general unsecured obligations of the Guarantors, ranking subordinate in right of payment to all Senior Debt of the Guarantors. The Company will be able to designate other current or future subsidiaries as Unrestricted Subsidiaries under certain circumstances. Unrestricted Subsidiaries will not be required to issue a Subsidiary Guarantee and will not be subject to many of the restrictive covenants set forth in the Indenture pursuant to which the Senior Subordinated Notes were issued. The Indenture for the Company’s Senior Subordinated Notes contains various covenants, including limitations on incurrence of additional indebtedness, on restricted payments and on dividend and payment restrictions on subsidiaries. The Senior Subordinated Notes may not be redeemed for the first five years. Upon the occurrence of a Change of Control (as defined), the holders of the Senior Subordinated Notes will have the right to require the Company to purchase their notes at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of purchase. The Company is in compliance with the operational covenants contained in the indenture for the Senior Subordinated Notes.

4.  INCOME TAXES

The Company’s effective tax rate for the three months ended September 30, 2000, and 2001, differ from the statutory rate of 35% primarily because no Federal income tax expense has been recorded for the taxable income produced by the Companies’ domestic subsidiaries as such earnings were offset against net operating loss carryforwards.

5.  NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 141, “Business Combinations” (FASB No. 141) and No. 142, “Goodwill and Other Intangible Assets” (FASB No. 142).

FASB No. 141 establishes accounting and reporting standards for business combinations and the related issues of allocations of purchase price to assets and liabilities acquired. The Company does not expect that the

8

ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Three Months Ended September 30, 2000 and 2001

implementation of FASB No. 141 to have a material impact on the financial condition or results of operations of the Company.

FASB No. 142 revises the existing accounting standards for both goodwill and intangible assets. The Company adopted the provisions of FASB No. 142 effective July 1, 2001, pursuant to the early adoption rules. Accordingly, the Company has six months from the adoption date to perform certain impairment tests for the goodwill recorded for each of its reporting units, and has until June 30, 2002 to measure an impairment loss, if any. Pursuant to the transition rules, any impairment charge recognized as a result of the initial assessment would be recognized as a change in accounting principle. The Company will continue to perform tests of potential impairment of goodwill on an annual basis. The Company does not currently believe that the initial impairment test will result in an impairment charge, although there can be no assurance that such a charge will not result from the analysis yet to be performed. As a result of the cessation of goodwill amortization as of July 1, 2001 amortization expense decrease by $0.3 million for the quarter ended September 30, 2001.

6.  EARNINGS PER SHARE

The computation of Basic and Diluted EPS is as follows (in 000’s except per share amounts):

		Three months ended
		September 30,
		2000		2001
Income applicable to common shares		$	3,365	$	7,428
Wt. average common shares outstanding			20,504		21,825
	Effect of dilutive stock options outstanding		4		1,421
	Effect of dilutive Series E Special Stock		450		1
Wt. average common and potential shares outstanding			20,958		23,247
Basic earnings per share		$	0.17	$	0.34
Diluted earnings per share		$	0.16	$	0.32

Stock options and warrants outstanding that were potentially convertible into approximately 1.5 million common shares as of September 30, 2001, were not included in the computation of Diluted EPS because either (i) the exercise price was greater than the average market price of the common shares during the period or (ii) the contingent issue price was greater that the market price of the common shares at the end of the period.

7.  SEGMENT AND GEOGRAPHICAL INFORMATION

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

9

ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Three Months Ended September 30, 2000 and 2001

     The tables below present information as to the Company’s revenues, operating income, identifiable assets, capital expenditures and depreciation and amortization by segment (in 000’s):

		Three Months Ended September 30,
		2000			2001
Revenues:
	Gaming equipment and systems	$	33,661		$	45,161
	Wall machines and amusement games		14,860			12,661
	Route operations		52,903			53,800
	Casino operations		17,882			18,179
Total revenues		$	119,306		$	129,801
Intersegment revenues:
	Gaming equipment and systems	$	2,433		$	3,534
	Wall machines and amusement games		13			—
	Route operations		—			—
	Casino operations		—			—
Total intersegment revenues		$	2,446		$	3,534
Operating income (loss):
	Gaming equipment and systems	$	5,673		$	9,930
	Wall machines and amusement games		534			(1,358	)
	Route operations		3,743			3,120
	Casino operations		6,155			5,867
	Corporate and unusual items		(2,974	)		(2,698	)
Total operating income		$	13,131		$	14,861

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

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

		Three Months Ended September 30,
		2000		2001
Revenues:
	United States	$	100,536	$	112,728
	Germany		16,710		14,496
	Other foreign		2,060		2,577
Total revenues		$	119,306	$	129,801
Operating income (loss):
	United States	$	12,003	$	15,289
	Germany		380		(1,226	)
	Other foreign		748		798
Total operating income		$	13,131	$	14,861

10

ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Three Months Ended September 30, 2000 and 2001

8.  SUPPLEMENTAL CASH FLOW INFORMATION

The following supplemental information is related to the unaudited condensed consolidated statements of cash flows (in 000’s).

	Three months ended September 30,
	2000		2001
Non-cash transactions:
Reclassify other assets to property, plant and equipment	$	2,332	$	1,154
Translation rate adjustment		3,880		(3,648	)

9.  COMPREHENSIVE INCOME (LOSS)

As of July 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (“SFAS 130”), which requires the changes in the Company’s cumulative translation adjustment account (which is a component of stockholders’ deficiency) to be included as a component of other comprehensive income (loss).

During the three months ended September 30, 2000, and 2001, total comprehensive income (loss) amounted to $(0.9) million and $11.3 million respectively, which includes currency translation adjustments of $(4.3) million and $3.8 million respectively.

10.  SUBSEQUENT EVENTS

On October 29, 2001, the Company announced the acquisition of Casino Market Place Development Corporation, a leading supplier of player marketing, bonusing and promotions software. The purchase was accounted for pursuant to the provisions of FAS 141.

11.  UNAUDITED CONSOLIDATING FINANCIAL STATEMENTS

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

11

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

														Alliance
														Gaming
					Parent and			Non-						Corporation
					Guaranteeing			Guaranteeing			Elimina-			and
					Subsidiaries			Subsidiaries			tions			Subsidiaries
ASSETS
Current assets:
		Cash and cash equivalents			$	41,502		$	13,343		$	—		$	54,845
		Accounts and notes receivable, net				58,769			37,769			(17,169	)		79,369
		Inventories, net				24,555			10,527			—			35,082
		Other current assets				8,178			2,636			—			10,814
				Total current assets		133,004			64,275			(17,169	)		180,110
Long-term notes receivable, net						53,162			433			(52,162	)		1,433
Leased equipment, net						16,374			6,303			—			22,677
Property, plant and equipment, net						54,399			34,013			—			88,412
Excess of costs over net assets of acquired businesses, net						35,547			13,967			—			49,514
Intangible assets, net						22,096			116			—			22,212
Investments in subsidiaries						84,228			—			(84,228	)		—
Deferred tax assets, net						10,137			1,807			—			11,944
Other assets, net						10,167			(6,638	)		366			3,895
					$	419,114		$	114,276		$	(153,193	)	$	380,197
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
Current liabilities:
	Accounts payable				$	17,118		$	2,413		$	—		$	19,531
	Accrued liabilities					37,648			9,999			(669	)		46,978
	Current maturities of long-term debt					488			16,955			(16,511	)		932
				Total current liabilities		55,254			29,367			(17,180	)		67,441
Long term debt						391,032			132			(51,996	)		339,168
Other liabilities						10,733			760			—			11,493
				Total liabilities		457,019			30,259			(69,176	)		418,102
Minority interest						1,300			—			—			1,300
Commitments and contingencies
Stockholders’ equity (deficiency):
		Series E Special Stock				12			—			—			12
		Common Stock				2,178			17,832			(17,832	)		2,178
		Treasury stock				(501	)		—			—			(501	)
		Additional paid-in capital				147,828			7,862			(7,862	)		147,828
		Accumulated other comprehensive loss				(27,919	)		(27,939	)		27,939			(27,919	)
		Retained earnings (accumulated deficit)				(160,803	)		86,262			(86,262	)		(160,803	)
			Total stockholders’ equity (deficiency)			(39,205	)		84,017			(84,017	)		(39,205	)
					$	419,114		$	114,276		$	(153,193	)	$	380,197

See accompanying unaudited note.

12

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

													Alliance
													Gaming
				Parent and			Non-						Corporation
				Guaranteeing			Guaranteeing			Adjust-			and
				Subsidiaries			Subsidiaries			ments			Subsidiaries
ASSETS
Current assets:
	Cash and cash equivalents			$	41,580		$	15,959		$	—		$	57,539
	Accounts and notes receivable, net				54,803			35,236			(16,033	)		74,006
	Inventories, net				29,413			12,015			—			41,428
	Other current assets				7,830			1,414			—			9,244
			Total current assets		133,626			64,624			(16,033	)		182,217
Long-term notes receivable, net					54,875			373			(53,599	)		1,649
Leased equipment, net					14,405			6,786			—			21,191
Property, plant and equipment, net					57,391			34,010			—			91,401
Excess of costs over net assets of acquired businesses, net					35,547			14,873			—			50,420
Intangible assets, net					22,128			104			—			22,232
Investment in subsidiaries					89,391			—			(89,391	)		—
Other assets, net					17,585			(2,081	)		360			15,864
				$	424,948		$	118,689		$	(158,663	)	$	384,974
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
Current liabilities:
	Accounts payable			$	14,122		$	1,797		$	—		$	15,919
	Accrued liabilities				32,475			11,595			(1,246	)		42,824
	Current maturities of long-term debt				963			15,280			(14,804	)		1,439
		Total current liabilities			47,560			28,672			(16,050	)		60,182
Long term debt					392,010			21			(53,433	)		338,598
Other liabilities					10,805			816			—			11,621
		Total liabilities			450,375			29,509			(69,483	)		410,401
Minority interest					1,343			—			—			1,343
Commitments and contingencies
Stockholders’ equity (deficiency):
	Series E Special Stock				12			—			—			12
	Common Stock				2,214			17,832			(17,832	)		2,214
	Treasury stock				(501	)		—			—			(501	)
	Additional paid-in capital				148,958			7,862			(7,862	)		148,958
	Accumulated other comprehensive income				(24,078	)		(24,098	)		24,098			(24,078	)
	Retained earnings (accumulated deficit)				(153,375	)		87,584			(87,584	)		(153,375	)
		Total stockholders’ equity (deficiency)			(26,770	)		89,180			(89,180	)		(26,770	)
				$	424,948		$	118,689		$	(158,663	)	$	384,974

See accompanying unaudited note.

13

ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
CONSOLIDATING STATEMENTS OF OPERATIONS
 
Three Months Ended September 30, 2000
(In 000’s)

											Alliance
											Gaming
		Parent and			Non-						Corporation
		Guaranteeing			Guaranteeing			Adjust-			and
		Subsidiaries			Subsidiaries			ments			Subsidiaries
Revenues:
	Gaming equipment and systems	$	32,102		$	3,911		$	(2,352	)	$	33,661
	Wall machines and amusement games		—			14,860			—			14,860
	Route operations		48,553			4,350			—			52,903
	Casino operations		4,405			13,477			—			17,882
			85,060			36,598			(2,352	)		119,306
Costs and expenses:
	Cost of gaming equipment and systems		15,312			2,408			(2,352	)		15,368
	Cost of wall machines and amusement games		—			8,295			—			8,295
	Cost of route operations		39,829			2,787			—			42,616
	Cost of casino operations		2,343			5,138			—			7,481
	Selling, general and administrative		14,445			8,280			—			22,725
	Research and development		2,580			603			—			3,183
	Depreciation and amortization		4,554			1,953			—			6,507
			79,063			29,464			(2,352	)		106,175
Operating income			5,997			7,134			—			13,131
Earnings in consolidated subsidiaries			3,926			—			(3,926	)		—
Other income (expense):
	Interest income		154			77			(76	)		155
	Interest expense		(8,599	)		(516	)		76			(9,039	)
	Rainbow royalty		1,703			(1,703	)		—			—
	Minority interest		(543	)		—			—			(543	)
	Other, net		482			(361	)		—			121
Income before income taxes			3,120			4,631			(3,926	)		3,825
Income tax benefit (provision)			245			(705	)		—			(460	)
Net income		$	3,365		$	3,926		$	(3,926	)	$	3,365

See accompanying unaudited note.

14

ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
CONSOLIDATING STATEMENTS OF OPERATIONS
 
Three Months Ended September 30, 2001
(In 000’s)

											Alliance
											Gaming
		Parent and			Non-						Corporation
		Guaranteeing			Guaranteeing			Adjust-			and
		Subsidiaries			Subsidiaries			ments			Subsidiaries
Revenues:
	Gaming equipment and systems	$	43,671		$	4,412		$	(2,922	)	$	45,161
	Wall machines and amusement games		—			12,661			—			12,661
	Route operations		50,271			3,529			—			53,800
	Casino operations		4,977			13,202			—			18,179
			98,919			33,804			(2,922	)		129,801
Costs and expenses:
	Cost of gaming equipment and systems		19,723			2,750			(2,922	)		19,551
	Cost of wall machines and amusement games		—			7,505			—			7,505
	Cost of route operations		40,291			2,287			—			42,578
	Cost of casino operations		2,770			5,565			—			8,335
	Selling, general and administrative		16,952			8,603			—			25,555
	Research and development		3,070			622			—			3,692
	Depreciation and amortization		6,040			1,684			—			7,724
			88,846			29,016			(2,922	)		114,940
Operating income			10,073			4,788			—			14,861
Earnings in consolidated subsidiaries			2,233			—			(2,233	)		—
Other income (expense):
	Interest income		516			217			(338	)		395
	Interest expense		(7,627	)		(358	)		338			(7,647	)
	Rainbow royalty		1,646			(1,646	)		—			—
	Minority interest		(463	)		—			—			(463	)
	Other, net		997			(577	)		—			420
Income before income taxes			7,375			2,424			(2,233	)		7,566
Income tax benefit (provision)			53			(191	)		—			(138	)
Net income		$	7,428		$	2,233		$	(2,233	)	$	7,428

See accompanying unaudited note.

15

ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
CONSOLIDATING STATEMENTS OF CASH FLOWS
 
Three Months Ended September 30, 2000
(In 000’s)

												Alliance
												Gaming
			Parent and			Non-						Corporation
			Guaranteeing			Guaranteeing			Adjust-			and
			Subsidiaries			Subsidiaries			ments			Subsidiaries
Net cash provided by (used in) operating activities			$	15,330		$	6,895		$	(727	)	$	21,498
Cash flows from investing activities:
	Additions to property and equipment			(1,599	)		(520	)		—			(2,119	)
	Additions to participation gaming devices			(2,968	)		—			—			(2,968	)
	Proceeds from disposal of property and equipment and other assets			—			—			—			—
	Additions to other long term assets			(228	)		(3	)		—			(231	)
		Net cash used in investing activities		(4,795	)		(523	)		—			(5,318	)
Cash flows from financing activities:
	Reduction of long-term debt			(1,330	)		(841	)		727			(1,444	)
	Net decrease in revolving credit facility			(3,002	)		(2,094	)		—			(5,096	)
	Dividends received (paid)			915			(915	)		—			—
		Net cash provided by (used in) financing activities		(3,417	)		(3,850	)		727			(6,540	)
Effect of exchange rate changes on cash				(4	)		(401	)		—			(405	)
Cash and cash equivalents:
	Increase for period			7,114			2,121			—			9,235
	Balance, beginning of period			19,528			12,516			—			32,044
	Balance, end of period		$	26,642		$	14,637		$	—		$	41,279

See accompanying unaudited note.

16

ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 2001
(In 000’s)

												Alliance
												Gaming
			Parent and			Non-						Corporation
			Guaranteeing			Guaranteeing			Adjust-			and
			Subsidiaries			Subsidiaries			ments			Subsidiaries
Net cash provided by (used in) operating activities			$	5,343		$	6,633		$	(2,893	)	$	9,083
Cash flows from investing activities:
	Additions to property and equipment			(3,158	)		(292	)		—			(3,450	)
	Additions to participation gaming devices			(2,887	)		—			—			(2,887	)
	Proceeds from disposal of property and equipment and other assets			12			4			—			16
	Additions to other long term assets			(1,305	)		—			—			(1,305	)
		Net cash used in investing activities		(7,338	)		(288	)		—			(7,626	)
Cash flows from financing activities:
	Reduction of long-term debt			(4	)		(3,012	)		2,893			(123	)
	Net decrease in revolving credit facility			—			—			—			—
	Proceeds from exercise of stock options			1,166			—			—			1,166
	Dividends received (paid)			911			(911	)		—			—
		Net cash provided by (used in) financing activities		2,073			(3,923	)		2,893			1,043
Effect of exchange rate changes on cash				—			194			—			194
Cash and cash equivalents:
	Increase for period			78			2,616			—			2,694
	Balance, beginning of period			41,502			13,343			—			54,845
	Balance, end of period		$	41,580		$	15,959		$	—		$	57,539

See accompanying unaudited note.

17

ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Debt and Revolving Credit Facility

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

								Alliance
								Gaming
	Parent and		Non-					Corporation
	Guaranteeing		Guaranteeing		Elimina-			and
	Subsidiaries		Subsidiaries		tions			Subsidiaries
10% Senior Subordinated Notes due 2007, net of unamortized discount	$	149,505	$	—	$	—		$	149,505
Term loan facilities		190,000		—		—			190,000
Revolving Credit Facility		—		—		—			—
Intercompany notes payable		161,996		16,511		(178,507	)		—
Other		20		575		—			595
		501,521		17,086		(178,507	)		340,100
Less current maturities		489		16,954		(16,511	)		932
Long-term debt, less current maturities	$	501,032	$	132	$	(161,996	)	$	339,168

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

								Alliance
								Gaming
	Parent and		Non-					Corporation
	Guaranteeing		Guaranteeing		Adjust-			and
	Subsidiaries		Subsidiaries		ments			Subsidiaries
10% Senior Subordinated Notes due 2007, net of unamortized discount	$	149,525	$	—	$	—		$	149,525
Term loan facilities		190,000		—		—			190,000
Revolving Credit Facility		—		—		—			—
Intercompany notes payable		165,933		14,804		(180,737	)		—
Other		15		497		—			512
		505,473		15,301		(180,737	)		340,037
Less current maturities		963		15,280		(14,804	)		1,439
Long-term debt, less current maturities	$	504,510	$	21	$	(165,933	)	$	338,598

18

ALLIANCE GAMING CORPORATION
FORM 10-Q
 
For the Quarter Ended September 30, 2001

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

Liquidity and Capital Resources

As of September 30, 2001, the Company had $57.5 million in cash and cash equivalents, and $25.0 million in unborrowed availability on its revolving credit facility. In addition the Company had net working capital of approximately $122.0 million, an increase of approximately $9.4 million from June 30, 2001, which is explained in the working capital section below. Consolidated cash and cash equivalents at September 30, 2001 includes approximately $23.4 million of cash which is utilized in Casino and Route Operations which is held in vaults, cages or change banks. The Company maintains restricted cash accounts to ensure availability of funds to pay progressive jackpot liabilities, which totaled approximately $5.4 million at September 30, 2001.

Management believes that cash flows from operating activities, cash and cash equivalents held and the up to $40.0 million revolving credit facility commitment will provide the Company with sufficient capital resources and liquidity. At September 30, 2001, the Company had no material commitments for capital expenditures.

Working Capital

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

	June 30,		Sept 30,
	2001		2001		Change
Cash, cash equivalents, and short term investments	$	54,845	$	57,539	$	2,694
Accounts and notes receivable, net		79,369		74,006		(5,363	)
Inventories, net		35,082		41,428		6,346
Other current assets		10,814		9,244		(1,570	)
Total current assets		180,110		182,217		2,107
Accounts payable		19,531		15,919		(3,612	)
Accrued liabilities		46,978		42,824		(4,154	)
Current maturities of long-term debt		932		1,439		507
Total current liabilities		67,441		60,182		(7,259	)
Net working capital	$	112,669	$	122,035	$	9,366

The primary fluctuations contributing to the increase in working capital were: (i) a decrease in accounts payable resulting from timing of payments, (ii) a decrease in accrued liabilities resulting from timing of payments relating to the refinancing, (iii) a net decrease in accounts receivable resulting from cash collections (iv) the impact of foreign exchange fluctuations between the dollar and the deutschemark on all working capital categories, and (v) the corresponding impact of the above listed items on cash and cash equivalents.

19

ALLIANCE GAMING CORPORATION
FORM 10-Q
 
For the Quarter Ended September 30, 2001

Cash Flows

During the three months ended September 30, 2001, cash provided from operating activities totaled $9.1 million, a decrease of $12.4 million compared to the cash flows from operations in the prior year quarter. This change is a result of an increase in inventories and reductions in accrued liabilities and accounts payable, partially offset by a net decrease in accounts receivable.

During the three months ended September 30, 2001, the Company used $7.6 million of cash in investing activities resulting primarily from capital expenditures totaling $3.4 million, cost incurred to produce participation games totaling $2.9 million, payments for gaming rights for route locations totaling $0.7 million, and payments made to acquire other long term assets totaling $0.6 million.

During the three months ended September 30, 2001, financing activities included $1.2 million of cash provided from stock option and warrants exercises, offset by principal payments on other long term debt totaling $0.1 million.

Customer Financing

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

Euro Currency Conversion

The Company’s Bally Wulff subsidiary uses the German deutschemark as its functional currency. The new Euro currency will replace the deutschemark as well as most other European currencies after a phase in period, which began January 1, 1999. As most of Bally Wulff’s transactions are within Germany, the switch to the Euro is not expected to have a material impact on revenues, expenses or income. Regulations regarding the transition to the Euro currency are not yet finalized in the area of wall machines. It is currently believed that conversion kits will be allowed for games in the wall machine that currently accepts only deutschemark. The Company also intends to pre-sell Euro denominated wall machines, which will be available for shipment and installation in the days immediately after the first of the calendar year.

20

ALLIANCE GAMING CORPORATION
FORM 10-Q
 
For the Quarter Ended September 30, 2001

Results of Operations:

General

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

	Three Months Ending September 30,
	2000			2001
EBITDA by Business Unit:
Bally Gaming and Systems	$	7,668		$	11,884
Wall Machines and Amusement Games		1,907			(89	)
Route Operations		5,930			6,640
Casino Operations		6,703			6,326
Corporate Administrative Expenses		(2,570	)		(2,176	)
EBITDA	$	19,638		$	22,585
Operating Income (Loss):
Bally Gaming and Systems	$	5,673		$	9,930
Wall Machines and Amusement Games		534			(1,358	)
Route Operations		3,743			3,120
Casino Operations		6,155			5,867
Corporate Administrative Expenses		(2,974	)		(2,698	)
Total Operating Income	$	13,131		$	14,861

The Company believes that the analysis of EBITDA is a useful tool; however, this information should not be construed as an alternative to net income or any other GAAP measure of performance as an indicator of the Company’s performance or GAAP-defined cash flows generated by operating, investing and financing activities as an indicator of cash flows or a measure of liquidity. EBITDA may not be comparable to similarly titled measures reported by other companies.

Three Months Ended September 30, 2000 and 2001

Bally Gaming and Systems

For the quarter ended September 30, 2001, the Bally Gaming and Systems business unit reported revenues of $45.2 million, an increase of 34% compared to revenues of $33.7 million in the prior year quarter. Gaming Products sales totaled $20.9 million, an increase of 22% compared to $17.1 million in the prior year quarter. New unit sales totaled 2,500 units, a 19% increase compared to 2,100 in the prior year quarter. The average new unit selling price increased 1% from the prior year quarter to $6,200. By market segment, unit sales for the current year consisted of approximately 620 units to the Nevada and Atlantic City markets, 500 units to international markets, 90 units in California and 1,290 units to other Native American, riverboats and other domestic markets. Bally Systems reported revenues of $12.9 million, an increase of 34% compared to $9.6 million in the prior year quarter. Bally Systems reported shipments of 9,200 game monitoring units, a 52% increase compared to 6,000 units in the prior year quarter. The Bally Systems revenue growth was primarily a result of continued strength in new system installations and higher levels of recurring hardware and software support revenues resulting from the larger base of installed

21

ALLIANCE GAMING CORPORATION
FORM 10-Q
 
For the Quarter Ended September 30, 2001

systems. Gaming Operations reported revenues of $11.4 million, an increase of 64% compared to $7.0 million in the prior year quarter. The increased revenues were driven by an increase in the installed base of recurring revenue units, which total approximately 3,460 units as of September 30, 2001, compared to approximately 2,700 units at September 30, 2000, and an increase in the revenue per unit as a result of a 103% increase in the base of higher revenue wide-area progressive games deployed.

For the quarter ended September 30, 2001, the overall gross margin percentage for Bally Gaming and Systems improved to 57% compared to 54% in the prior year quarter. The improvement was due to improved margin contribution for gaming machines sales as a result of the improved fixed cost absorption rate resulting from the increased volume of new unit sales.

The Bally Gaming and Systems business unit reported operating income of $9.9 million, compared to an operating income of $5.7 million in the prior year quarter. The increase in operating income resulted primarily from increases in revenues and improved margins, as well as the reduced overhead cost structure. Research and development costs totaled $3.1 million, an increase of 19% compared to the prior year quarter.

Wall Machines and Amusement Games

For the quarter ended September 30, 2001, Wall Machines and Amusement Games reported revenues of $12.7 million, an decrease of 15% compared to revenues of $14.9 million in the prior year quarter. The decrease in revenues resulted primarily from a 14% decrease in the number of new wall machine units sold, a 9% decrease in the selling price of new wall machines, and offset by a 43% increase in the number of leased wall machines. There have been several recent regulatory changes, which had a significant impact on the wall machine market. First, in order to assist arcade operators with the transition to the Euro currency, the normal 48 month life for a wall machine was allowed to be extended for the period from October 1, 2001 to February 2002. Secondly, the regulations regarding play parameters have been amended to increase the speed of play of wall machines by 25%. Both of these regulatory changes caused customers to delay new unit purchases, which the Company expects will lead to increased unit placements in both the December 2001 and March 2002 quarters.

The Wall Machines and Amusement Games business unit continued its leasing program whereby new wall machines and certain amusement games are leased to customers pursuant to operating leases which provide a stream of revenues and cash flows over the term of the leases which range from six months to three and one half years. As of September 30, 2001, a total of 6,480 machines were deployed in the leasing program compared to 5,150 at September 30, 2000, an increase of 26%.

For the quarter ended September 30, 2001, gross profit margin decreased to 41% from 44% in the prior year quarter. The gross margin decrease resulted primarily from a decrease in the number of units sold which impacted the fixed cost absorption rate, as well as a decline in the average new unit selling price. Wall Machines and Amusement Games reported an operating loss of $(1.4) million, compared to operating income of $0.5 million in the prior year quarter.

Route Operations

For the quarter ended September 30, 2001, the Route Operations business unit reported total revenues of approximately $53.8 million, an increase of 2% compared to revenues of $52.9 million in the prior year quarter. Revenues from the Nevada route operations increased to approximately $50.3 million or 4% over the prior year quarter. This improvement was attributable to an increase in the average net win per gaming machine per day of 1% to $66.30 from $65.40 in the

22

ALLIANCE GAMING CORPORATION
FORM 10-Q
 
For the Quarter Ended September 30, 2001

prior year quarter and a 2% increase in the weighted average number of gaming machines during the current quarter to 8,170 units as compared to 7,980 units in the prior year quarter. Gamblers’ Bonus, a cardless players club and player tracking system continued to have a favorable impact on the net win per day. As of September 30, 2001, the Gamblers’ Bonus product was installed in over 3,964 gaming machines at approximately 384 locations statewide or 48% of the installed base of gaming machines. Revenues from route operations in Louisiana totaled $3.5 million, a decrease of 19% compared to the prior year quarter. This decrease was primarily the result of a decline in the net win per gaming machine per day of 16% to $59.70 from $70.70 in the prior year quarter and slightly lower average number of gaming units deployed. The Fair Grounds facility at which we operate gaming devices was closed for three days following the events of September 11, 2001, and then reopened with play levels below historical levels. Additionally, these declines are reflective of the competitive market resulting from the significant increase in the number of truck stop casinos in the metro New Orleans area.

For the quarter ended September 30, 2001, cost of revenues for Route Operations totaled as a percentage of revenues, decreased to 79% from 81% in the prior year quarter. This improvement is the result of reduced game rental costs, which resulted from the payoff of high cost game leases in June 2001.

For the quarter ended September 30, 2001, the Route Operations business unit reported operating income of $3.1 million, a decrease of 17% compared to operating income of $3.7 million in the prior year quarter. The decrease in operating income resulted from the lower results from the route in Louisiana and slight margin compression in Southern Nevada, primarily from higher marketing and promotion costs.

Casino Operations

For the quarter ended September 30, 2001, the Casino Operations business unit reported revenues of $18.2 million, an increase of 2% compared to revenues of $17.9 million in the prior year quarter. This improvement is due to a 13% increase in revenues at the Rail City Casino and a 2% decrease in revenues at the Rainbow Casino. The decline in revenue at the Rainbow Casino was attributable to a 5% decrease in the average number of gaming machines, and offset by a 2% increase in the net win per day to $145. Since the September 11th, weekday play has been below historical norms. The revenue improvement at the Rail City Casino was attributable to an increase in the average gaming machine net win per day of 7% to $85 from $80 in the prior year quarter and a 7% increase in the average number of gaming machines.

For the quarter ended September 30, 2001, the cost of revenues for Casino Operations as a percentage of revenues, improved to 46% compared to 42% for the prior year quarter. This improvement was a result of the increase in revenues, which were achieved without incremental increases in certain operating costs. Cost of casino revenues include, gaming taxes, rental costs and direct labor including payroll taxes and benefits.

Net Interest Expense and Income Taxes

Interest expense (net of interest income) for the quarter ended September 30, 2001, totaled $7.3 million, and compared to the net interest expense of $8.9 million in the prior year quarter. The decrease is a result of a lower average debt balance outstanding and lower interest rates on the bank credit facility.

The Company recorded an income tax provision of $0.1 million in the quarter ended September 30, 2001, compared to a provision of $0.5 million in the prior year quarter. The current year quarter tax provision represents primarily estimated state income and franchise taxes.

23

ALLIANCE GAMING CORPORATION
FORM 10-Q
 
For the Quarter Ended September 30, 2001

* * * * *

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

24

ALLIANCE GAMING CORPORATION
FORM 10-Q
 
For the Quarter Ended September 30, 2001

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

PART II

Item 1.    Legal Proceedings

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

Item 6.    Exhibits and Reports on Form 8-K

                 a.       Exhibits

                 b.       Reports on Form 8-K

                            No reports on Form 8-K were filed during the quarter ended September 30, 2001.

25

ALLIANCE GAMING CORPORATION
FORM 10-Q
 
For the Quarter Ended September 30, 2001

SIGNATURES

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

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

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

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