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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ------------------
                                  FORM 10-K/A

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

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

             FOR THE TRANSITION PERIOD FROM           TO

                        COMMISSION FILE NUMBER: 0-11551

                                   ELOT, INC.

              (formerly named EXECUTONE Information Systems, Inc.)
             (Exact name of registrant as specified in its charter)

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                     VIRGINIA                                           86-0449210
          (State or other jurisdiction of                            (I.R.S. Employer
          incorporation or organization)                            Identification No.)

           301 MERRITT 7 CORPORATE PARK                                    06851
               NORWALK, CONNECTICUT                                     (Zip Code)
     (Address of principal executive offices)
</TABLE>

       Registrant's telephone number, including area code: (203) 840-8600

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

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                TITLE OF EACH CLASS                      NAME OF EACH EXCHANGE ON WHICH REGISTERED
                -------------------                      -----------------------------------------
<S>                                                 <C>
                        N/A                                                None
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          Securities Registered Pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
         7 1/2% Convertible Subordinated Debentures, Due March 15, 2011

                                (Title of Class)

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

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

     The aggregate market value of the common stock held by non-affiliates of
the registrant (assuming for this purpose that all executive officers and
directors of the registrant are affiliates) as of February 29, 2000 was
$373,892,440, based on the last sale price for the common stock on that date.

     The number of shares outstanding of the registrant's only class of common
stock, $.01 par value per share, as of February 29, 2000, was 63,946,867.

                      DOCUMENTS INCORPORATED BY REFERENCE

           None

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                               TABLE OF CONTENTS

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ITEM                                                                PAGE
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<C>   <S>                                                           <C>
                                 PART I
 1.   Business....................................................    1
 2.   Properties..................................................   14
 3.   Legal Proceedings...........................................   14
 4.   Submission of Matters to a Vote of Security Holders.........   14

                                PART II
 5.   Market for Registrant's Common Equity and Related
        Stockholder Matters.......................................   15
 6.   Selected Financial Data.....................................   16
 7.   Management's Discussion and Analysis of Financial Condition
        and Results of Operations.................................   17
 7A.  Quantitative and Qualitative Disclosures About Market
        Risk......................................................   20
 8.   Financial Statements and Supplementary Data.................   21
 9.   Changes in and Disagreements with Accountants on Accounting
        and Financial Disclosure..................................   37

                                PART III
10.   Directors and Executive Officers of the Registrant..........   37
11.   Executive Compensation......................................   40
12.   Security Ownership of Certain Beneficial Owners and
        Management................................................   46
13.   Certain Relationships and Related Transactions..............   47

                                PART IV
14.   Exhibits, Financial Statement Schedules and Reports on Form
        8-K.......................................................   49
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                                     PART I

ITEM 1. BUSINESS

     eLOT, Inc., formerly named Executone Information Systems, Inc. ("eLOT" or
the "Company") intends to be a web-based retailer of governmental lottery
tickets and is committed to leading the governmental lottery industry into the
e-commerce market. eLOT has developed, installed and operated systems that have
processed ten million e-commerce lottery ticket sales and transactions. It has
operated Internet, Intranet, and telephone communications, accounting, banking,
database and other applications and services that can facilitate the electronic
sale of new and existing lottery products worldwide. The Company has also
developed transitional e-commerce solutions for governmental lotteries, which
leverage the power of the Internet, while political, legal and social issues are
simultaneously addressed. For example through the use of the Company's Internet
Marketing, Analysis, Research, and Communications System (IMARCS), lotteries can
maximize ticket sales and marketing efforts by communicating one-on-one with
current players and attract new players via the Internet.

     eLOT has also launched a reward-entertainment lottery portal,
eLotteryFreeWay, which offers lottery and entertainment games (for no
consideration) with registered players earning "ePoints" that are redeemable for
cash and merchandise. The eLotteryFreeWay is located at
http://www.elotteryfreeway.com. eLottery's corporate web site is on the World
Wide Web at http://www.eLottery.com.

     Capitalized product names used in this report are registered or
unregistered trademarks of the Company or its subsidiaries except where
specifically identified with products of an unaffiliated company.

     eLOT's executive offices are located at 301 Merritt 7 Corporate Park,
Norwalk, Connecticut 06851, telephone 203-840-8600. The common stock of eLOT
(the "Common Stock") is traded on the NASDAQ National Market System under the
symbol "ELOT", and its Convertible Subordinated Debentures due 2011 (the
"Debentures") trade on the NASDAQ system under the symbol "ELOTG".

RECENT DEVELOPMENTS

     On March 6, 2000, eLOT announced that it had entered into a strategic
alliance agreement with Global Technologies Limited ("GTL") to facilitate and
develop e-commerce sales and technologies of lottery and other governmental
authorized gaming related products. GTL is a technology incubator that develops
and manages emerging growth businesses focused on the networking solutions,
telecommunications, gaming and e-commerce opportunities. As the first initiative
of the strategic alliance eLOT and GTL announced an agreement under which eLOT
will be the exclusive web-based retailer for a UK charity lottery. See "Lottery
Distribution Contracts."

     Additional initiatives under the strategic alliance include jointly
marketing the Internet distribution of lottery to additional jurisdictions and
examining the feasibility of using eLOT gaming technology by GTL's affiliate
company, The Network Connection Inc. for use in that Company's cruise ship,
hotel and train market places. The companies will also jointly develop lottery
applications using wireless technology.

     Effective January 1, 2000, eLOT completed the sale of its computer
telephony business to Inter-Tel Incorporated. The computer telephony business
consisted of telephone system sales and services through a national network of
independent distributors and company direct sales employees to the small to
medium-sized business customer and to smaller locations of large commercial and
governmental organizations. The results of the computer telephony business are
accounted for as a discontinued operation in the financial statements for the
year ended December 31, 1999.

     eLOT has announced its intention to sell its healthcare communications
business and its investment in Dialogic Communications Corporation ("DCC").
Discussions with prospective purchasers are continuing for the sale of the
healthcare communications business. The Healthcare Communications Business is
dedicated to developing, manufacturing, selling and servicing communications
solutions for healthcare facilities. The

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results of the healthcare communications business are also accounted for as a
discontinued operation in the financial statements for the year ended December
31, 1999.

     On February 27, 2000, eLOT called for a special meeting of the shareholders
of Dialogic Communications Corporation to remove all members of the Board of
Directors except Stanley J. Kabala, Chairman and President of eLOT, and replace
them with nominees of eLOT. eLOT also announced that it will request the new
Board to immediately consider various alternatives designed to maximize value
for the shareholders of DCC. eLOT owns 2,186,230 shares of stock in Dialogic
Communications Corporation, which eLOT believes represents approximately 51% of
the currently outstanding shares of that corporation. Dialogic Communications
Corporation is a privately held company headquartered in Franklin, Tennessee
that is an established leader in interactive call processing solutions for
business, industry and government. It is the leading provider of voice
recognition units (VRUs and ARUs) to the cable television industry and a
successful provider of emergency notification systems to Public Service
agencies, the military, financial institutions and other customers that have the
need to establish assured contact with large numbers of people in a short period
of time. DCC has been experiencing significant and sustained profitable growth
while investing in a series of products that further advance closed loop
communications.

THE ELOTTERY BUSINESS

  eLottery History

     On December 19, 1995, the Company acquired 100% of the common stock of
eLottery. eLottery's subsidiary, UniStar Entertainment, had an exclusive
five-year contract ending January 2003 to design, develop, finance, and manage
the National Indian Lottery, which was marketed under the brand name U.S.
Lottery, for the Coeur d'Alene Tribe of Idaho ("CDA"). Until December 1998,
UniStar Entertainment provided development and management of the software,
network design and call center applications for the Lottery's operations. In
December 1998, the U.S. District Court for the District of Idaho ruled, in a
case brought by AT&T, that the U.S. Lottery was not authorized by the federal
Indian Gaming Regulatory Act of 1988 ("IGRA") and was governed by state law, and
eLottery and the CDA terminated the U.S. Lottery.

     As a result of the adverse legal decision and upon review of the strategic
alternatives and the significant market opportunity for web-based lottery ticket
sales and related business opportunities, the Company developed a new strategy
to utilize eLottery's technology and experience gained in operation of the U.S.
Lottery to become a web-based retailer of lottery tickets and a provider of
Internet marketing and advertising programs for authorized government lotteries.
In March 1999, the Board of Directors of eLOT announced that it would divest the
company's traditional telephony and healthcare businesses, retain the proceeds
of any sales in the company to help it accelerate the achievement of eLottery's
business plans.

  eLottery Mission and Strategy.

     eLottery, Inc., a wholly-owned subsidiary of eLOT, is pursuing
opportunities to become a web-based retailer of lottery services and to license
its systems and services to state and international lotteries. Lotteries
worldwide generate revenues from ticket sales in excess of $120 billion annually
with retailers receiving commissions on tickets sold. Using its past experience
with the US Lottery and market-tested products, eLottery is committed to leading
the governmental lottery industry into the e-commerce market.

     eLottery has positioned itself to become a leader in the area by addressing
the many complex legal, political and social issues facing governmental
lotteries as they react to the significant market changes signaled by the rapid
growth in Internet sales. eLottery has developed, installed and operated
Internet, Intranet, telephone, communications, accounting, banking, database and
other applications and services to facilitate the electronic sale of new and
existing lottery products worldwide.

     In addition to web-based lottery ticket sales the Company is pursuing
several additional related revenue opportunities. eLottery is targeting Internet
advertising and marketing dollars from governmental lotteries. Lotteries
worldwide spend billions of dollars annually on promotions with almost none of
that being spent on the Internet and through the use of eLottery's IMARCS
system, the Company expects to capture a portion of

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that market. The IMARCS system also allows eLottery to begin building
relationships with the U.S. State lotteries and potential lottery ticket
purchasers. The Company has identified a process which it believes will lead to
states permitting web-based lottery ticket sales. The first phase is a contract
with a state to begin an Internet marketing program to gather data on customers
who both purchase lottery tickets and are Internet users. The next step is to
increase the sales of paper tickets through promotions on the Internet.
Ultimately when approval from the relevant authorities is received the Company
can begin selling lottery tickets on the Internet. eLottery is committed to
leading the governmental lottery industry into the e-commerce market and
conducting Internet advertising and marketing programs with state lotteries now
will position eLottery to sell tickets for the states when permitted.

     eLottery has already begun generating revenues through advertising and
e-commerce transactions on its lottery portal, eLotteryFreeWay. eLotteryFreeWay
offers customers the opportunity to play a variety of games for free and win
cash or discounts on merchandise. There are significant potential benefits
between eLotteryFreeWay and the Company's goal of selling lottery tickets over
the Internet. eLotteryFreeWay is a means through which eLottery is building a
player base with a high propensity to buy lottery tickets on-net.

     Through the IMARCS system and eLotteryFreeWay, eLottery is generating
revenues and building a database of customers that are Internet users and play
the lottery, the exact demographic eLottery will be targeting for the web-based
sale of lottery tickets. At the same time, eLottery is seeking to build a brand
name among consumers as well as within the lottery industry.

  eLottery Products

     eLottery has developed proprietary lottery technologies designed to take
advantage of the impact that eLottery believes recent advances in
telecommunications and computers will have on the nature and delivery of lottery
products and the support systems necessary to administer them. eLottery believes
it is the first to develop and operate secure, integrated Internet, Intranet and
telephone lottery gaming systems. Its Internet and Intranet systems provide for
the electronic sale and support of both periodic and instant draw lottery games
and instant electronic "scratch-off" games. Using eLottery's systems, lotteries
will be able to electronically distribute lottery tickets for both periodic and
instant draw lottery games over the Internet through its web site,
eLotteryFreeWay.com, through an Intranet, through telephone networks, and
through stand-alone custom-designed electronic lottery terminals. eLottery
believes that the electronic distribution of lottery tickets through these
systems will increase sales for lotteries because the systems make the purchase
of tickets easier and use technology to enhance the lottery gaming experience.
Subject to applicable law, the web site can contain links to the sites of
participating lotteries utilizing eLottery technologies to sell their lottery
tickets over the Internet. eLottery also may sell lottery tickets as an agent
for certain lottery operators.

     eLottery believes that its systems provide lotteries with numerous
advantages relative to traditional means of distribution, including player
tracking ability and access to new and more demographically attractive market
segments through sale of tickets over the Internet and entertaining fast-play
instant games. eLottery also provides advanced border control technology and the
ability to control underage play and problem gambling. A web site retailer will
have the ability to remain open 24 hours a day, seven days a week without
incurring additional overhead costs, and will be able to electronically
distribute lottery tickets and games and offer lottery players convenient and
timely product fulfillment. eLottery management believes that the combination of
the advantages of Internet commerce and distribution with eLottery's ability to
customize its systems will result in eLottery becoming an agent and leading
provider of products and services for the lottery industry.

     eLottery has developed its systems to provide secure electronic production,
delivery, validation, billing and accounting for lottery games. The systems are
configurable, which allows the addition, deletion and substitution of games
offered. Tickets may be purchased through the lottery operations center using a
personal computer connected via the Internet, via custom-designed electronic
lottery terminals connected over a LAN or over the telephone.

     Both the Internet and Intranet systems contain significant features and
procedures to prevent abusive play. eLottery believes that the Internet system
contains processes and procedures to protect against play by

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minors and to control problem gaming and that the Intranet system as implemented
will provide protections against such play at least equal to that provided by
existing state-run lottery systems.

     The Company's electronic lottery distribution system is potentially
composed of the following elements that can be used together or on a stand-alone
basis depending upon the specific application:

     - Basic Operation. A customer registers, opens an account, and receives a
       user identification number and password. Registration can be through the
       Internet, by telephone or in person at a lottery retail store. The
       customer deposits funds into the account by debit card, cash or check.
       Once the account is funded, the customer may use the available balance to
       purchase tickets to play the games or other merchandise. Any prizes are
       credited to the account. Customer withdrawals can be requested through
       the Internet, by telephone or in person at a lottery retail store.

     - Card Access. The system can also be accessed using player cards. Player
       cards add several dimensions to the system, particularly from a
       regulatory point of view. Because these cards are issued at controlled
       facilities, access to the system can be equally controlled, enforcing,
       for example, age requirements, residency requirements, use of cash and
       amount of play. In addition, these lottery cards can be sold through the
       lotteries' existing agent distribution channel. Several types of cards
       are available including bearer cards, bonus cards, club cards and prepaid
       lottery cards.

      A bearer card has a unique identity (consisting of an ID and Password
      embedded in the card) representing an account on the system. These cards
      contain no information other than an encrypted ID and PIN number, which
      are associated with accounts. These cards are available throughout the
      hosting facility. Funds can be added to the bearer cards at an "Automated
      Recharge Machine" ("ARM") or at a cashier's station. Cash can be added at
      any denomination at the cashier station, but may be limited to particular
      dollar increments at the ARM. Once a player's card is funded (i.e., the
      associated account has funds deposited), it may be used in a lottery
      gaming station or custom-designed electronic lottery terminal to play
      games.

      A bonus card is initialized with "bonus" dollars. These are dollars that
      can be used to play games but cannot be cashed in. Such cards could be
      used as promotional cards to encourage people to begin playing. They can
      be "recharged" with cash at any ARM or cashier's station. However, the
      bonus dollars would be consumed prior to any cash added to the card and
      the bonus dollars cannot be disbursed.

      A club card would be generally issued by an authorized lottery office or
      authorized agent where player information can be assured adequate
      protection and confidentiality. These cards are protected with personal
      identification numbers or "PINs". Such cards would be used as members of
      the state "Lottery Club" and would entitle them to various monthly
      promotions and other forms of communications about the enhanced lottery
      games. The play activity would be tracked on these club cards and would
      enable the player to qualify for various club awards that may be
      established by the state lotteries.

     - Client Server Architecture. The eLottery system is designed so that
       players can access the system using several different devices connected
       to the centralized server. For example, players can use personal
       computers connected over the Internet; custom-designed electronic lottery
       terminals connected via a LAN or over the Internet, or a voice response
       unit connected by telephone. Administrative terminals can be connected
       via the Internet, thus allowing the operation and administration of the
       eLottery system to be conducted from remote locations.

     - Centralized Accounting Server. A centralized accounting server keeps
       track of all of the transactions on the system. This server accounts for
       and controls transactions with customers including registration,
       deposits, withdrawals, purchases of tickets or other merchandise and the
       awarding of prizes. The centralized accounting server produces a myriad
       of reports to monitor both the player's activities as well as the
       performance of the games according to their individual working papers.

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     - Lottery Server. The lottery server is a centralized network of computers
       controlling the essential operations of the games including the game
       play, issuance of the tickets or generation of a random event,
       determination of a winner and the awarding of the prize.

     - Banking System. This system validates the credit card information
       received from the customer with the national Visanet network. The system
       is currently capable of processing 10,000 transactions per hour in about
       10 seconds each and is expandable to handle a larger volume of
       transactions.

     - Intranet System. The Intranet system is based on the same architecture as
       the Internet system using private connections instead of the Internet.

     - Lottery Stations. Lottery stations can be several different devices. The
       lottery games can be played using personal computers connected either via
       the Internet or direct dial. Games can be played using custom-designed
       electronic lottery terminals or the draw games can be played using a
       telephone. Custom-designed electronic lottery terminals are built using
       standard "off the shelf" hardware components consisting primarily of a
       touch screen monitor and a standard Pentium processor networked to the
       central system.

     - Cashier Terminals. The cashier stations can accept the player deposits.
       The player presents the card, which is swiped reading the card ID and
       password into the system. Funds are received from the player and entered
       by the cashier. The central system then adds the deposit to the balance
       of the account associated with the card. To withdrawal balances from the
       card, the player again, presents the card to the cashier, the cashier
       then swipes the card and the system displays the "card" balance. The
       cashier disburses the requested cash to the player.

     - Automatic Recharge Machines ("ARMs"). Funds can also be added through
       automated recharge machines. The player inserts the card into a reader
       and inserts the amount of money they wish to add into a bill collector.
       The system updates the balances, the ARM prints a receipt and returns the
       card.

     - Agent Cards. The card reader of the ARM will also identify an authorized
       agent's card. This access will permit the agent to obtain information
       about the machine as well as perform the "empty" function. To empty a
       machine, the agent inserts their agent card and the appropriate PIN. The
       agent opens the machine and takes out the bill collection box and inserts
       a new bill collection box. Once this process is completed, the agent
       finishes the empty process and a receipt is printed that should equal the
       balance in the box. The receipt also identifies the ARM from which it was
       taken, the user ID of person emptying the machine as well as the date and
       time of the process.

     Security. eLottery believes the integrity of a lottery is essential to its
successful operation. While operating the US Lottery, eLottery did not encounter
any breaches in security and is unaware of any practical, economically feasible
way to breach the security of its instant lottery tickets that could result in a
material loss to any of its customers, nor is it aware of any breach thereof
that has resulted in any material loss to any of its lottery customers. eLottery
constantly assesses the adequacy of its security systems, incorporating various
improvements, bar coding and additional layers of protection.

     Games. The architecture of both of eLottery's Internet and Intranet systems
allow the addition, deletion and substitution of lottery games offered. The
lottery games have been designed to fall within generally accepted definitions
of a "lottery" game. Lottery games generally fall into two broad
classifications: (i) instant games or "Scratchers" in which the outcome is
predetermined and known instantly and (ii) draw games in which the outcome
depends upon a random event in the future. eLottery currently has four families
of games that are available on both the Internet system and Intranet system: (i)
Bingo; (ii) Lotto; (iii) Classics; and (iv) Draw games.

  eLottery Lottery Distribution Contracts

     On March 6, 2000, eLottery announced it had signed a four-year contract
under which the Company will become the exclusive web-based retailer and
provider of games for a U.K. charity lottery. The U.K. charity lottery is
authorized by the Gaming Board for Great Britain, with GTL Management Ltd.
serving as the
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operating company on behalf of Inter Lotto (UK) Ltd. Through GTL and Inter
Lotto, eLottery has been appointed an exclusive agent to provide for the sale of
lottery products on the Internet on behalf of designated charitable
organizations. The initial lottery product is expected to be Great Britain's
first "Pick 3" game called, "The Daily Number." Proceeds will benefit numerous
charitable causes. eLottery will receive a cash commission for every ticket sold
and Internet sales expected to start in the second quarter of 2000.

     The United Kingdom is a large and important market for lottery sales. U.K.
lotteries currently generate sales of approximately U.S.$12 billion annually.
"Pick 3" has been a highly successful game in the United States, where it is a
$6 billion game annually and garners over 16% of overall conventional lottery
ticket sales. Under terms of the agreement with GTL, eLottery will also develop
and provide additional games for the UK charity lottery, subject to review by
the Gaming Board for Great Britain. eLottery will Internet ticket-enable
multiple high traffic web sites and will also web retail via links from
eLottery's www.uklottery.com, www.ukdailynumber.com and www.eLotteryFreeWay.com
URLs. The Internet lottery will be accessible to England, Scotland and
Wales -- a combined population of approximately 60 million. Sales to residents
of jurisdictions outside of Great Britain will not be permitted.

     On October 25, 1999, eLottery entered into a software licensing and
development agreement and a management agreement with the Jamaica Lottery
Corporation, the government-authorized provider of Jamaican government lottery
products, and eCaribbean.com, Limited, a Jamaican company that has been
designated the exclusive Internet retail agent of the Jamaican Lottery
Corporation. Under the agreement, eLottery has agreed to customize, license and
maintain its proprietary Internet lottery software and systems for use in making
sales of authorized Jamaican government lottery products to eligible Jamaican
citizens and other persons in a manner and under circumstances reasonably
believed to comply with applicable law. The agreement has an initial term of ten
years and provides for compensation to eLottery of a percentage of the net
lottery revenues from sales by eCaribbean.com, Limited, after payment of the
prize pool, required governmental and charitable payments, Internet service
provider fees, and banking fees not charged to customers' accounts. The Jamaica
Lottery Corporation and eLottery currently plan to launch Internet retail sales
of Jamaica Lottery tickets in the first half of 2000.

  Strategic Partnership Agreements

     eLottery has entered into a Strategic Partnership Agreement, dated May 11,
1999, with Autotote Lottery Corporation. Autotote is a primary supplier of
on-line systems to track the distribution and validate the sales of lottery
products. Autotote has contracts to provide on-line services and equipment that
track retail sales of lottery products for the States of Connecticut and Montana
and the countries of Italy, the Dominican Republic and Barbados. In order to
implement e-Commerce sales capability, eLottery and Autotote will jointly
develop a secure interface between their respective systems in order to allow
tickets sold through eLottery's systems to be validated through the Autotote
system. eLottery and Autotote intend to jointly market the eLottery web retail
concept to each jurisdiction with which Autotote has entered into a contract, as
well as other jurisdictions to which the parties may mutually agree. In the
event that eLottery, with the assistance of Autotote, enters into a contract
with any web retailer, Autotote will be entitled to an interface fee to be
negotiated at the time of the execution of the contract. In addition, eLottery
must license to Autotote, or to the jurisdiction as appropriate, its independent
system to support the conduct of instant lottery games to be sold via
e-commerce. The system will be licensed without a fee if eLottery is the web
retailer or for a fee to be negotiated if it is not the web retailer. eLottery
granted Autotote an exclusive license for its system in the jurisdictions with
which Autotote has entered into contracts as well as certain additional states.

     eLottery has also entered into a Joint Venture Agreement, dated July 13,
1999, with International Lottery & Totalizator Systems, Inc. (ILTS). ILTS
provides computerized wagering systems equipment and services to lottery and
racing organizations in 18 countries worldwide. eLottery and ILTS will jointly
market an on net lottery to ILTS' international lottery and pari-mutuel
customers. The companies plan to develop an interface that will allow ILTS'
lottery systems to process eLottery's web-based retailing of lottery tickets.

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  Lottery Advertising and Promotion Applications

     eLottery also has transitional e-commerce solutions for governmental
lotteries that leverage the opportunities presented by the Internet, while
lottery jurisdictions simultaneously are addressing political, legal and social
issues. Its IMARCS (Internet Marketing, Analysis, Research and Communications
System) database marketing solution for governmental lotteries is an Internet
tool that will allow lotteries to maximize sales and marketing efforts by
communicating one-to-one with their current players and will assist in
attracting new players. IMARCS leverages the power of the Internet to deliver
one-to-one marketing messages that maximize sales revenue. In addition to
assisting clients capture Internet data, IMARCS campaigns can be an efficient
and very cost effective way for lotteries to achieve their sales and marketing
goals. IMARCS is an Opt-in/Opt-out database that allows the lotteries to create
campaigns that address: birthday clubs, winner awareness, winning number
notifications, jackpot reminders, community events, game suggestions, co-
promotional events, and many additional VIP member benefits. IMARCS also
provides the functionality to communicate through traditional direct mail as
well as e-mail.

     The IMARCS program also offers Lotteries the capability to capture Internet
based advertising revenue from their current web sites. Official lottery web
sites receive millions of hits per month, yet yield no advertising revenue
because many are unable to accept revenue that falls outside of lottery ticket
sales. The program can capture, collect and bill third party advertising revenue
as a web based advertising agent. The new revenue can then be exchanged for
IMARCS Internet marketing campaigns and subscription services -- generating an
Internet ad revenue stream that funds Internet direct marketing campaigns to
increase ticket sales. eLottery would receive transaction commissions on the
outbound Internet marketing campaigns. This optional IMARCS feature offers
Lotteries full discretionary authority to control who would be allowed to
advertise on their web site. The advertising revenues collected through IMARCS
would assist lotteries with their initial Internet marketing efforts and allow
current advertising budgets to be utilized for other forms of advertising media.

     On November 15, 1999, eLottery announced that it had signed an exclusive
agreement to develop the Internet communications element of a players club
program for the Idaho Lottery. In early 2000, the IMARCS solution was installed
as the foundation for the Idaho Lottery's "Very Important Players" club. The
immediate goal of the program is to attract, register and communicate with Idaho
residents on the Internet. The Players Club will provide information and
services to Idaho Lottery patrons who are "logged-in" to an official Idaho
lottery web site. The initial goal of the Idaho Lottery is to have 25% of its
player base enrolled in the players club.

  Product Development

     eLottery's product development efforts are devoted to continual improvement
in all aspects of the systems. Software developers operating under exclusive and
proprietary development contracts leverage eLottery's ability to produce games,
create database accounting and banking systems, enhance and customize system
features and provide state-of-the-art Internet design and engineering
capability. eLottery believes this an efficient low cost method to gain access
to the best and latest technologies in each of the respective areas. The system
architecture is designed to permit several developers to work independently on
various modules of the system. These games can be modified to separate key
elements to run in a secure client server environment and operate efficiently on
eLottery's electronic lottery distribution systems. This ability to modify the
lottery games allows eLottery to work with all game publishers and modify their
games to operate on the system and significantly add to eLottery's game
portfolio.

  eLottery Sales and Marketing

     eLottery is marketing (i) directly to state agencies and other licensed
entities, (ii) individually through authorized lottery services companies and
(iii) through strategic alliances with other providers of games and gaming
technology. eLottery is establishing itself as a web-based retailer of lottery
tickets and a provider of technology and systems for a commission on ticket
sales. The ultimate success of eLottery's lottery platform depends on its
acceptance by lottery operators and lottery patrons. eLottery believes that,
from the point of

                                        7
<PAGE>   10

view of lottery operators, the attractiveness of its electronic lottery
distribution systems depends on its ability to increase lottery sales, its ease
of upgrade, maintenance and game change and its information management. eLottery
believes that, from the lottery patron's perspective, the attractiveness of a
platform is a function of entertainment value. eLottery's sales and marketing
strategy is to generate product sales by highlighting the advantages presented
by its electronic lottery distribution systems to lottery operators, such as the
potential for increased lottery ticket sales, and by positioning itself as a
partner with lottery operators. eLottery's marketing strategy also targets
lottery players and will focus on developing brand recognition for the
eLotteryFreeWay.com web site, which eLottery believes can be accomplished
partially through the introduction of lottery games that eLottery believes
deliver greater entertainment value than games used in the traditional lottery
industry.

     eLottery intends to position itself as a partner with lottery operators in
establishing the next generation of lottery entertainment. eLottery is working
to develop close relationships with lottery operators, utilizing its marketing
representatives as consultants to lottery operators on methods to increase
lottery ticket sales through the use of eLottery's products. eLottery's
electronic lottery distribution systems have been designed to supplement the
sales and marketing efforts of the operating lotteries enhancing their ability
to attract new players and increase the revenue from their customer base.
Detailed play information is accumulated in the system including lottery games
played, duration of play, time of play, purchase and prize data and a host of
other data elements. When matched with other demographic data, this information
is valuable in designing promotional offers and advertising campaigns.
Specialized e-mail features provide the capability to deliver promotional
programs to specific accounts based upon the results of a contest, completion of
a survey, winning a game of chance or other similar event.

     eLottery intends to build a sales and support organization to handle sales
and after-sales service to its lottery customers, and may enter into
distribution arrangements or other strategic relationships to enter additional
markets.

  eLotteryFreeWay Website

     A reward-entertainment lottery portal, eLotteryFreeWay.com offers lottery
and entertainment games (for no consideration) with registered players earning
"ePoints" that are redeemable for cash and merchandise. eLotteryFreeWay's
mission is to build an Internet community whose members are expected to be
highly predisposed to purchase governmental lottery tickets over the Internet.
Since the site launch on November 9th, 1999, the Company has continually rolled
out new content that delivers a very desirable level of customer retention
("stickiness"). Stickiness is very important in generating advertising revenue.
Advertising revenue potential on the eLotteryFreeWay is determined by the level
of stickiness multiplied by the number of unique visitors.

     The site is not yet being ranked by traditional Internet rating services
such as Media Metrics or Nielsen Net Ratings because the eLotteryFreeWay has not
yet built a large enough customer base or traffic history. The Company expects
over the next several months to build a player base large enough to be ranked by
these services. When that occurs management believes eLotteryFreeWay's
stickiness, currently measured by management at over 3 hours per month per
unique visitor, will rank among the stickiest sites on the Internet.

  Patents, Trademarks, and Copyrights

     Management believes that the success of eLottery will be affected by its
ability to design, develop and market new products and new or enhanced
applications. The patentability of such new products or applications is
evaluated and patent applications are filed where necessary to protect unique
developments. eLottery currently has 8 U.S. patent applications pending as well
as 2 foreign applications.

     eLottery has registered or applied to register its trademarks when it
believes registration to be important to its ongoing business operations. In
addition, eLottery has registered and owns numerous Internet domain names that
it is using or may use in the future in its business. eLottery also generally
claims copyright protection for its software used in connection with its
products and relies upon trade secret, contract and copyright laws to protect
its proprietary rights in its software, designs and documentation.
                                        8
<PAGE>   11

     Certain of the eLottery products incorporate technology and software
licensed by eLottery from independent third parties. Generally, these licenses
have required payment of a license fee for the licensed technology.

  eLottery Competition

     The lottery business is highly competitive, and eLottery faces competition
from a number of domestic and foreign instant ticket manufacturers, on-line
lottery system providers and other competitors.

     In particular, there are currently three primary lottery services
competitors in the United States: GTECH Corporation ("GTECH"), Automated
Wagering International, Inc. ("AWI"), a subsidiary of Powerhouse Technologies,
Inc. ("Powerhouse"), and Scientific Games Holdings Corp. ("Sci-Games"). eLottery
believes that these companies engage in vigorous competition with respect to
existing lottery technologies and services and have experienced a decline in the
growth of existing lottery operations. The objective of eLottery is to provide,
either alone or through partnerships with existing lottery services companies,
Internet retail capabilities and value added lottery systems and services for
the domestic and international markets. It is believed that these products,
systems and services can support new methods and styles of lottery
participation, providing new growth opportunities for established state
lotteries and higher margin returns for the providers of related technologies
and services.

     Internationally, there are many lottery services and product suppliers that
provide competition to eLottery, in addition to the companies listed above.
eLottery believes that it has the ability to provide technologies that support
new methods and styles of lottery participation in foreign countries. In
addition, eLottery believes that applications of its electronic lottery
distribution systems, which are based on the use of standardized components that
support a variety of hardware and software interfaces, can provide
cost-effective solutions to improve lottery operations in remote and developing
nations. eLottery anticipates that a considerable length of time will be needed
to develop an independent market presence in foreign countries other than Canada
and Mexico, and there will be substantially higher costs in pursuing these
markets. Therefore, eLottery anticipates that the marketing of its products and
services internationally will be conducted primarily through joint ventures with
existing providers of lottery services. No assurance can be given that eLottery
will develop such relationships to the point of having a significant impact on
its financial results or operations in the near future.

     Both in the domestic market and internationally, factors that influence the
award of lottery contracts in addition to price are believed to include, among
others, the ability to optimize lottery revenues through game design and
technical capability, quality of the product, dependability, production
capacity, marketing experience, financial condition and reputation of the
bidder, the security and integrity of the bidder's production operations,
products and services and the satisfaction of various other requirements and
qualifications imposed by specific jurisdictions.

     Competitors have typically either manufactured only instant tickets or
provided only certain on-line services to support conventional sales of paper
lottery tickets, including software for the management systems, marketing
assistance and various other specific duties. However, certain competitors have
announced plans to market Internet-based lottery systems and certain
jurisdictions have already undertaken Internet lottery ticket sales.

     eLottery is a relatively recent arrival among the developers of traditional
technology and marketing concepts for lottery operators. In addition, eLottery's
limited experience in the industry is expected to negatively impact eLottery's
competitive position. However, in the delivery of market tested, secure,
integrated telephone, Internet and Intranet technologies that support new forms
of lottery participation and methods of administration, eLottery believes that
its experience level is superior. As the only market tested provider of products
that have the unique capabilities of the electronic lottery distribution
systems, eLottery believes it is the only experienced provider in its particular
market niche. eLottery believes that other lottery services and product
suppliers have for several years made capital investments intended to position
themselves to participate in this market niche. However, none has yet
demonstrated the unique focus or devoted the extensive time and resources
necessary to successfully develop, customize and install an operational
integrated
                                        9
<PAGE>   12

telephone and Internet lottery system similar to that provided by and operated
by eLottery for the U.S. Lottery. In addition, to some extent, the technological
developments inherent in eLottery's electronic lottery distribution systems have
the potential to materially reduce the capital investment required to finance
secure lottery operations, which could affect the perception that the experience
and resources of competing companies are as valuable as they have been in the
past. eLottery believes that prior lottery experience has been a factor in
states' prior decisions in connection with the award of lottery contracts. Thus,
eLottery believes its prior lottery experience will be a factor that limits the
ability of eLottery's competitors to compete with eLottery in the development of
this market niche.

  eLottery Government Regulation and Legislation

     Lotteries are not permitted in various states or jurisdictions of the
United States unless expressly authorized by law. The ongoing operations of
authorized lotteries in the United States typically are extensively regulated.
Applicable legislation varies from jurisdiction to jurisdiction but, in addition
to authorizing the lottery and creating the applicable regulatory authority, the
lottery statutes generally dictate certain broad parameters of lottery
operation, including the percentage of lottery revenues that must be paid out in
prizes. Lottery authorities typically exercise significant control as to the
selection of vendors and award of lottery contracts, ticket prices, types of
games played and marketing strategy, all of which can affect eLottery's
operating results.

     Prior to and after granting a lottery contract, governmental authorities
generally conduct an investigation of the company and its employees pursuant to
which such authorities may require removal of an employee deemed to be
unsuitable. Certain states also require extensive personal and financial
disclosure (including, among other things, submission of fingerprints, personal
financial statements and federal and state income tax returns) and background
checks of control persons and entities beneficially owning a specified
percentage (typically 5% or more) of the company's securities. The failure of
such beneficial owners to submit to such background checks and provide such
disclosure could jeopardize the award of a lottery contract to eLottery or
provide the basis for cancellation of any existing lottery contract.

     The award of lottery contracts and ongoing operations of lotteries in
international jurisdictions also are extensively regulated, although this
regulation usually varies from that prevailing in the United States.
Restrictions are frequently imposed on foreign corporations seeking to do
business in such jurisdictions. Laws and regulations applicable to lotteries in
the United States and foreign jurisdictions are subject to change and the effect
of such changes on eLottery's ongoing and potential operations cannot be
predicted with certainty.

     Currently, there are two bills pending in Congress that may affect Internet
lotteries: Senate Bill S. 692 ES, also known as the Kyl Bill, and H.R. 3125, or
the Goodlatte/McCollum Bill. If passed, the Kyl Bill may limit the purchase of
lottery tickets via an electronic network to terminals in places open to the
general public, which would prohibit the purchase of lottery tickets from a home
computer. This prohibition could have a material adverse effect on our ability
to carry out our current business plan. The Goodlatte/ McCollum Bill in its
current form would permit purchases from a home computer over either a "closed
loop" intrastate computer lottery network or the Internet so long as the
purchaser "receives from the State lottery a user name and password specific to
the individual player for use in betting and wagering in the State lottery or
multi-State lottery." The Goodlatte/McCollum Bill also would allow purchases of
lottery tickets from terminals in places open to the general public. In their
current forms, which are subject to amendment, neither bill, if passed, would
otherwise materially limit the sale of state lottery tickets offered exclusively
to state residents, as envisioned by our business plan.

     The Kyl Bill was referred to the Senate Judiciary Committee on January 27,
2000 and then to the Subcommittee on Crime on February 3, 2000. The Bill awaits
action by the full Senate. The Goodlatte/ McCollum Bill was referred to the
Subcommittee on Crime and hearings were held on March 9, 2000. It is uncertain
whether the Kyl Bill, the Goodlatte/McCollum Bill or any bill dealing with
Internet lotteries will be passed by both houses of Congress and signed into
law. If legislation restricting our ability to carry out our business plan is
enacted into law, it could have a material adverse effect on the operations of
eLOT.

                                       10
<PAGE>   13

  Employees

     As of March 1, 2000, eLottery employed approximately 20 persons, including
general and administrative management and operational employees, none of whom
are represented by unions. eLottery conducts its product development activities
primarily through the use of independent software development contracts to
improve its access to software development talent and keep its fixed overhead to
a minimum.

EXECUTONE HEALTHCARE COMMUNICATIONS

  Executone Healthcare Communication Products

     The Executone Healthcare Communications division of eLOT develops,
manufactures, markets and services a line of specialized internal communications
and information systems that are used primarily in the acute care segment of the
healthcare industry. These internal communications systems are microprocessor-
based patient-to-staff and staff-to-staff communication systems, locator
systems, intercoms, paging and sound equipment, and room status indicators. eLOT
is negotiating the sale of the Healthcare Communications business and it is
presented as a discontinued operation of eLOT in the 1999 financial statements.

     The INFOSTAR/HCP Healthcare Communications Platform is a communications
solution dedicated to a single platform for complete healthcare systems
integration. The HCP platform is the building block allowing for shared
resources resulting in cost efficiencies. It provides a single, digital
communication fabric to facilitate patient-staff and staff-staff communication
throughout a facility. The HCP provides the ability to offer "seamless"
communication among hospital employees, departments and facilities in "real
time", thereby improving operational efficiency throughout a facility. In
addition, the HCP improves efficiency through the integration of Executone
Healthcare's full product line, including LIFESAVER, CARECOM II-E, INFOSTAR/ILS,
TELESEARCH and INFOSTAR/STATLINK.

     The CARE/COM II-E nurse call system brings the benefits of a totally
integrated digital communications system to the healthcare market on the
Company's IDS digital platform. The CARE/COM II-E system provides two-way
patient-to-staff and staff-to-staff voice communication on an automatic
three-level call priority basis. Its two-way voice and tone signaling
capability, emergency signaling and sophisticated features facilitate easy
handling of all calls. A five-line LCD display Nurse Control Station allows
simple call processing and system operation. The system is highly flexible to
meet the individually defined needs of today's hospitals and long-term care
facilities.

     The Company's LIFESAVER nurse call system is a fully software-driven,
digital nurse call system. The LIFESAVER system is a state-of-the-art
communications network that provides routine and emergency signaling, voice
communications and data transmission. The nurse control station offers
menu-driven functions and step-by-step user prompts. The system is highly
flexible, offering many programmable features that allow customization of its
operations to the hospital's needs. With the capability to answer calls right
from the patient's bedside, this system can dramatically increase the efficiency
of the nursing staff, reduce clerical activity and improve the quality of care
delivered to the patient.

     The INFOSTAR/STATLINK product is designed to provide call management and
integration of EXECUTONE nurse call systems to wireless telephones, pager
devices and extension numbers. INFOSTAR/STATLINK has the flexibility to modify
patient call flow based on the specific requirements of the healthcare facility.
Calls can be routed on a 4-level priority basis to any extension, telephone or
site pager configured in the database. The system is a communications solution
that can be integrated with any PBX. Patient priorities and requests can be
managed more efficiently and calls can be completed on a more timely basis with
less strain on the staff and patients.

     INFOSTAR/ILS Locator Systems. The INFOSTAR/ILS locator system is an
infrared based wireless locating system that allows users to find staff,
patients and equipment quickly and easily via LAN-based PC's, display telephones
within the facility, EXECUTONE nurse communication systems, or any other touch
tone telephone inside or outside the healthcare facility. The ILS is an
integrated system using infrared transmitter badges to communicate location data
to sensors installed throughout a facility. Each person or piece of equipment
wears an individually coded badge that transmits infrared signals to sensors
placed throughout the

                                       11
<PAGE>   14

facility. The badges transmit regularly at user-programmed intervals and can be
worn by staff personnel or attached to equipment. The location data is collected
by the sensors and forwarded to a central processing unit that organizes the
data so it can be accessed at one or more display stations. The display of staff
and equipment location information can be in the form of a list or in the form
of a map of the facility using icons. The display can be filtered to show only
particular staff members, groups of personnel, particular pieces of equipment or
groups of equipment. The system can be integrated with either telephone systems,
allowing the activation of features and display of information on the telephone
set, or EXECUTONE nurse call systems, allowing the activation of features and
display of information at the nurse control station and patient stations.

     The INFOSTAR/EPS Events Processing System collects information from the ILS
locator system and generates "alarms" that signal personnel that a user defined
parameter has been exceeded. The system associates the data to logical, workable
and productive real time data for a customer's employees and assets. Specific
applications include: door monitoring, wandering patient alert, staff presence
indicators, badge button press (staff assist or emergency assist), asset
management and equipment tracking. The system is completely programmable,
allowing customers to determine which applications will best fit their needs.

     NETWORK ILS, consisting of two software applications, Patient Suite and
LightBoard, is designed to provide hospital staff with real time information on
the location of groups of assets related to their area of responsibility.
Patient Suite monitors the mobility and status of patients throughout a
healthcare facility. Patient Suite consists of three separate applications:
Patient Track, Patient View, and Patient Report. Specifically designed for
ambulatory and outpatient care facilities, Patient Suite allows the
administrator to schedule, monitor, manage wait time, discharge, and create
reports on each patient within the facility. The LightBoard application presents
a real time display of assets located at a designated set of locations
throughout a facility. Asset groups such as nurses, aides, doctors, patients,
and equipment, can be observed at a glance. Detailed information is provided and
reported in real-time, as these assets or people move from one area to another.
Three types of reports, as well as the ability to print a list of people or
assets at any particular location, are also included.

     The INFOSTAR/INFOSTAT product is a software package intended for use in
emergency departments to provide complete communication of real time events and
data. Used as a daily operational tool, the INFOSTAT system provides emergency
staff with priority data and conditions affecting the department. INFOSTAT means
the end of the archaic "grease board". Using color codes, the system shows which
patients have been "waiting too long" or "who is next". INFOSTAT provides the
speed, flexibility and efficiency that only a computerized system can provide.
At a glance, staff can check the status of treatment rooms, room and bed
assignments, hospital staff assignment and location, and patient status and
location. INFOSTAT can be configured to meet the unique needs of each hospital
and integrates with a facility's existing administrative software such as ADT
systems.

     The REPORTSTAR system is a management reporting package designed to provide
healthcare managers with information generated from data collected by the HCP
Healthcare Platform, LIFESAVER, CARE/COM II-E and INFOSTAR/ILS locator systems.
REPORTSTAR is an Oracle(R)-based program which provides users with 6 different
reports that can be viewed on screen, printed as needed or scheduled to run on
any predetermined schedule. Users can select the details of the desired report
from a simple screen designed with a user-friendly graphical user interface to
make it easy for staff to access. Reports are useful for measuring activity,
quality, efficiency and for supporting a facility's risk management efforts.

  Healthcare Sales and Marketing and Competition

     The Company's healthcare communications distribution network consists of
(1) domestic independent distributors with approximately 70 locations operating
under exclusive and nonexclusive agreements throughout the United States; (2)
approximately 120 direct healthcare sales and service employees in the United
States; (3) 22 independent distributors operating in 18 foreign countries; and
(4) two National Accounts managers who work with national purchasing groups and
healthcare systems to improve penetration into additional facilities.

                                       12
<PAGE>   15

     Distributors of the Company's healthcare communications products are
required to meet established criteria for sales and service to customers on an
ongoing basis.

     No customer of the healthcare business accounts for 10% or more of its
revenue.

     Healthcare backlog consists primarily of products that have been ordered
and that will be shipped or installed within 180 days of the order or systems
the installation of which is not yet required by the customer. Healthcare order
backlog as of December 31, 1999, was $12.8 million, compared to $18.5 million at
December 31, 1998, and Executone Healthcare Communications expects virtually all
of such healthcare backlog to be filled, within the current fiscal year.

     Executone Healthcare Communications' principal competitors are Hill-Rom
Company, DuKane and Rauland-Borg. Executone Healthcare Communications believes
it has a strong competitive position in nurse call and locator products. The
division competes by offering innovative integrated healthcare communications
products and services to its customers. Healthcare Communications also competes
on the basis of the quality of its products, its customer service, nationwide
distribution and installation, and price.

  Healthcare Product Development and Engineering

     As of December 31, 1999, Executone Healthcare Communications employed
approximately ten individuals in healthcare product design and development.
During 1999, the division's healthcare engineering efforts focused on
applications-oriented software products.

  Healthcare Manufacturing and Warranty

     The majority of Executone Healthcare systems are produced in the United
States at eLOT's former facility in Poway, California pursuant to a
manufacturing contract with Inter-Tel which has been assigned to Varian
Corporation, a contract manufacturer, or at domestic subcontractors. The
functions of repair, and certain warehousing and distribution functions for
Executone Healthcare products are also performed at the Company's facility in
Poway pursuant to a warehousing and distribution agreement with Inter-Tel.
Executone Healthcare warrants parts and labor on its systems, typically for one
year, and provides maintenance and service after warranty expiration either on a
contract or time and materials basis.

  Healthcare Trademarks, Patents and Copyrights

     Management believes that the continued success of Executone Healthcare is
dependent upon the ability to design, develop and market new products and new or
enhanced applications. The patentability of such new products or applications is
evaluated and patent applications are filed where necessary to protect unique
developments. Executone Healthcare currently holds 20 utility patents, expiring
at various times between 2010 and 2019, has 9 U.S. patent applications pending,
and 17 patent applications pending in foreign countries.

     Executone Healthcare has registered or applied to register its trademarks
when it believes registration to be important to its ongoing business
operations, generally claims copyright protection for software, circuit designs,
schematics and technical documentation used in connection with its products, and
relies upon trade secret, contract and copyright laws to protect its proprietary
rights in its software, designs and documentation.

     Certain of the Executone Healthcare products incorporate technology and
software licensed from independent third parties. Generally, these licenses
require payment of a royalty for each system sold that incorporates the licensed
technology or require that the Company purchase the product from the licensor.

  Government Regulation of Healthcare Business

     Some of the Executone Healthcare systems are designed to be connected to
the public telecommunications network and as such are required to comply with
certain rules of the FCC pertaining to telecommunications equipment. The Company
has not experienced any material adverse effect on its business or operations as
a result of such regulation and compliance.

                                       13
<PAGE>   16

     To the extent the Company markets its healthcare products internationally,
it is required to comply with applicable foreign law, including certification of
its products by appropriate government regulatory organizations.

  Healthcare Employees

     As of March 1, 2000, Executone Healthcare employed approximately 200
persons. Less than 1% of the employees of Executone Healthcare are represented
by unions, all of which employees are represented by the International
Brotherhood of Electrical Workers. Management believes that the Company's
relations with its employees are good.

ITEM 2. PROPERTIES

     eLOT's principal offices are located in a leased facility in Norwalk,
Connecticut. Total square footage is approximately 2,750 square feet. The
current annual net rent for the Company's leased and subleased facilities as of
December 31, 1999 is approximately $75,000.

     In March, 2000, the Company leased an additional 7,500 square feet in
Norwalk at an additional annual rental of approximately $167,000. The Company
believes its facilities are adequate and generally suitable for its business
requirements at the present time and for the immediate future.

     The Executone Healthcare Communications business subleases a portion
(approximately 28,000 sq ft) of the former Executone headquarters in Milford,
Connecticut from Inter-Tel, which assumed the Milford lease in connection with
its purchase of the computer telephony business. As of December 31, 1999,
Executone Healthcare Communications leased various other office and warehouse
space throughout the United States with an aggregate of approximately 34,000
square feet for its ongoing operations.

ITEM 3. LEGAL PROCEEDINGS

     The Company currently is a named defendant in a number of lawsuits and is a
party to a number of proceedings that have arisen in the normal course of its
business. Those lawsuits and proceedings relate primarily to the collection of
indebtedness owed to the Company, the performance of products sold by the
Company, and various contract disputes. In the opinion of the Company, these
proceedings are not expected to have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company and, to the extent they are not covered by insurance, reserves adequate
to satisfy such liabilities have been established.

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

     The Registrant's Annual Meeting of Shareholders was held on December 14,
1999.

     Proxies were solicited by the Registrant's management pursuant to
Regulation 14 under the Securities Act of 1934; there was no solicitation in
opposition to management's nominees or any proposals listed in the Proxy
Statement dated November 17, 1999, and all such nominees were elected pursuant
to the vote of the shareholders.

     The asset purchase agreement pursuant to which eLOT sold the computer
telephony business to Inter-Tel, described under "Proposal 1" in the Proxy
Statement dated November 17, 1999, which section is incorporated herein by
reference, was approved by a vote of the majority of the Company's outstanding
Common Stock as follows:

<TABLE>
<S>                                <C>
For:                               32,654,710
Against:                              172,412
Abstain:                               83,804
</TABLE>

     The amendment of the company's Articles of Incorporation to change the name
of the company described under "Proposal 2" in the Proxy Statement dated
November 17, 1999, which section is incorporated

                                       14
<PAGE>   17

herein by reference, was approved by a vote of the majority of the Company's
outstanding Common Stock as follows:

<TABLE>
<S>                                <C>
For:                               34,109,849
Against:                              128,131
Abstain:                               66,114
</TABLE>

     The amendment of the company's Articles of Incorporation to increase the
authorized common stock described under "Proposal 3" in the Proxy Statement
dated November 17, 1999, which section is incorporated herein by reference, was
approved by a vote of the majority of the Company's outstanding Common Stock as
follows:

<TABLE>
<S>                                <C>
For:                               30,648,315
Against:                            3,560,928
Abstain:                               94,851
</TABLE>

     The adoption of the Company's 1999 Stock Incentive Plan described under
"Proposal 5" in the Proxy Statement dated November 17, 1999, which section is
incorporated herein by reference, was approved by a vote of the majority of the
Company's outstanding Common Stock as follows:

<TABLE>
<S>                                <C>
For:                               17,773,727
Against:                           14,812,007
Abstain:                              325,192
</TABLE>

     The total number of shares of the Company's Common Stock, $.01 par value,
outstanding as of November 16, 1999, the record date for the Annual Meeting, was
63,004,953, and 59,418,228 shares were represented in person or by proxy at the
Annual Meeting.

                                    PART II

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

     The number of holders of record of the Company's Common Stock as of the
close of business on February 29, 2000 was approximately 1,600. The Common Stock
is traded on the NASDAQ National Market System under the symbol "ELOT". As
reported by NASDAQ on February 29, 2000, the closing sale price of the Common
Stock on the NASDAQ National Market System was $6.00 per share. The following
table reflects in dollars the high and low closing sale prices for eLOT's Common
Stock as reported by the NASDAQ National Market System for the periods
indicated:

<TABLE>
<CAPTION>
FISCAL PERIOD                                                 HIGH      LOW
-------------                                                 ----      ---
<S>                                                           <C>       <C>
1999
First Quarter...............................................  $ 4 1/8   $1 17/32
Second Quarter..............................................   12        3
Third Quarter...............................................    5 15/32  2 15/16
Fourth Quarter..............................................    6 28/32  2 3/16
1998
First Quarter...............................................  $ 2 19/32 $2 1/8
Second Quarter..............................................    2 5/8    1 23/32
Third Quarter...............................................    2 1/32   1 2/32
Fourth Quarter..............................................    2 3/32    11/16
</TABLE>

     It is the present policy of the Board of Directors to retain earnings for
use in the business and the Company has not paid any dividends and does not
anticipate paying any cash dividends on the Common Stock in the foreseeable
future.

                                       15
<PAGE>   18

ITEM 6. SELECTED FINANCIAL DATA

     The following is selected financial data for eLOT for the five years ended
December 31, 1999.

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                           ---------------------------------------------------
                                             1999       1998      1997       1996       1995
                                           --------   --------   -------   --------   --------
                                              (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S>                                        <C>        <C>        <C>       <C>        <C>
Revenues.................................  $     12   $     --   $    --   $     --   $     --
                                           ========   ========   =======   ========   ========
Loss Before Income Taxes From Continuing
  Operations.............................  $(12,022)  $(25,617)  $(3,163)  $ (3,405)  $ (4,739)
                                           ========   ========   =======   ========   ========
Loss From Continuing Operations..........  $(12,022)  $(25,617)  $(3,163)  $ (3,405)  $ (4,739)
Income (Loss) From Discontinued
  Operations, Net of Taxes(1)............   (14,906)   (11,242)    2,942     27,567    (32,195)
Extraordinary Item -- Loss on
  Extinguishment of Debt, Net of
  Taxes(2)...............................        --         --        --       (355)        --
                                           --------   --------   -------   --------   --------
Net Income (Loss)........................  $(26,928)  $(36,859)  $  (221)  $ 23,807   $(36,934)
                                           ========   ========   =======   ========   ========
BASIC EARNINGS (LOSS) PER SHARE:
  Continuing Operations..................  $  (0.21)  $  (0.51)  $ (0.06)  $  (0.06)  $  (0.10)
  Discontinued Operations................     (0.25)     (0.23)     0.06       0.53      (0.69)
  Extraordinary Item.....................        --         --        --      (0.01)        --
                                           --------   --------   -------   --------   --------
  Net Income (Loss)......................  $  (0.46)  $  (0.74)  $    --   $   0.46   $  (0.79)
                                           ========   ========   =======   ========   ========
DILUTED EARNINGS (LOSS) PER SHARE:
  Continuing Operations..................  $  (0.21)  $  (0.51)  $ (0.06)  $  (0.07)  $  (0.10)
  Discontinued Operations................     (0.25)     (0.23)     0.06       0.53      (0.69)
  Extraordinary Item.....................        --         --        --      (0.01)        --
                                           --------   --------   -------   --------   --------
  Net Income (Loss)......................  $  (0.46)  $  (0.74)  $    --   $   0.45   $  (0.79)
                                           ========   ========   =======   ========   ========
Total Assets.............................  $ 62,162   $ 72,136   $98,728   $106,090   $ 98,148
                                           ========   ========   =======   ========   ========
Long-Term Debt...........................  $ 13,660   $ 22,986   $13,821   $ 13,401   $ 29,829
                                           ========   ========   =======   ========   ========
Cash Dividends Declared Per Share(3).....  $     --   $     --   $    --   $     --   $     --
                                           ========   ========   =======   ========   ========
</TABLE>

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

(1) Discontinued operations are presented for the Computer Telephony and
    Healthcare businesses, along with the Company's investment in Dialogic
    Communications Corporation and certain Corporate expenses.

(2) The 1996 extraordinary item relates to the write-off of deferred debt issue
    costs associated with the Company's revolving credit facility repaid in June
    1996.

(3) The Company has not declared or paid any cash dividends on its Common Stock.
    Refer to "Stock Data."

                                       16
<PAGE>   19

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

     The following discussion and analysis explains trends in the Company's
financial condition as of December 31, 1999 and 1998 and results of operations
for each of the most recent three years in the period ended December 31, 1999.
It is intended to help shareholders and other readers understand the dynamics of
the Company's business and the key factors underlying its financial results.
This discussion should be read in conjunction with the consolidated financial
statements and notes included elsewhere in this Form 10-K, and with the
Company's audited consolidated financial statements and notes thereto for the
year ended December 31, 1999. Management believes that certain statements in
this discussion and analysis constitute forward-looking statements within the
meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such
statements are based on current expectations, estimates and projections about
the industries in which the Company operates, management's beliefs and
assumptions made by management. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such risks,
uncertainties and assumptions include, among others, the following: general
economic and business conditions; demographic changes; rapid technology
development and changes; timing of product introductions; the mix of
products/services; industry capacity and other industry trends; and the ability
of the Company to attract and retain key employees.

OVERVIEW

     eLOT, Inc., (formerly Executone Information Systems, Inc.) through its
subsidiary eLottery, Inc., is committed to leading the governmental lottery
industry into the e-commerce market. The Company has developed, installed and
operated systems that have processed ten million e-commerce lottery ticket sales
and transactions. The Company has operated Internet, Intranet, telephone,
communications, accounting, banking, database and other applications and
services that can facilitate the electronic sale of new and existing lottery
products worldwide. The Company has also developed transitional e-commerce
solutions for governmental lotteries, which leverage the power of the Internet.

     eLottery also operates a reward-entertainment lottery portal,
eLotteryFreeWay, which offers lottery and entertainment games (for no
consideration) with registered players earning "e-points" that are redeemable
for cash and merchandise. eLotteryFreeWay's mission is to build an Internet
community whose members are expected to be highly predisposed to purchase
governmental lottery tickets over the Internet.

  Discontinued Operations

     In March 1999, eLOT announced its intention to divest its computer
telephony and healthcare communications divisions in order to focus on the
electronic lottery business conducted by eLottery. eLOT engaged an investment
banker to assist the Company in selling these businesses and in October, 1999
announced the signing of an asset purchase agreement with Inter-Tel to sell the
computer telephony business for $44.3 million in cash. This transaction closed
on January 1, 2000. The Company continues to execute its business plan to
develop the healthcare communications business while, at the same time, pursuing
its sale. The Company also continues to pursue the sale of its investment in
DCC. As a result of the Company finalizing the plan of disposal for these
businesses and investment, the businesses and investment have been reflected in
accompanying consolidated financial statements and discussion and analysis as
discontinued operations.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998

  Results of Operations

     Revenues: During the fourth quarter, the Company's eLottery subsidiary
began generating advertising revenues through its lottery portal web site at
www.eLotteryFreeWay.com launched on November 9, 1999. Revenues were $12,000 for
the year ended December 31, 1999.

                                       17
<PAGE>   20

     Cost of Revenues: Cost of Revenues primarily represents "ePoints" earned by
registered players on the eLotteryFreeWay web site that can be redeemed for cash
or merchandise. Cost of Revenues were $176,000 for the year ended December 31,
1999. Cost of Revenues also includes the cost of editorial content and software.

     Selling, General & Administrative: Selling, General & Administrative
expenses were $4.7 million for the year, up from $1.9 million for 1998. In
addition to Selling, General & Administrative expenses for our eLottery
subsidiary, the results also include eLOT corporate expenses. The increase in
Selling, General & Administrative expenses is attributable to the continued
development of the eLottery business plan including the launching of our
eLotteryFreeWay portal web site. All areas of Selling, General & Administrative
expenses increased including advertising and promotion, personnel costs, legal,
and occupancy costs.

     Depreciation and Amortization: Depreciation and amortization expense for
the year was approximately $1.1 million in both 1999 and 1998.

     Asset Impairment: In response to the legal decision issued December 17,
1998 in AT&T vs. Coeur d'Alene Tribe, eLottery and the CDA terminated operation
of the NIL and the US Lottery telephone and Internet operations managed by
eLottery. As a result, the Company reevaluated certain of its assets in
accordance with the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets." Based upon this review, management determined that both
the intangibles and the advances to the NIL had become impaired as of the date
of this legal decision. As of December 17, 1998, net intangibles and advances to
NIL of $12.9 million and $11.2 million, respectively, were written down to zero,
which represented the estimated fair value of the assets, as no future cash
flows will be generated by the NIL. The Company also recorded an additional
charge of $1.4 million for shutdown costs and the write-off of certain deferred
startup expenses related to the NIL. The total NIL-related write-off included in
the 1998 statement of operations was $25.5 million.

     In 1999, the Company performed an additional review of the realization of
certain computer software and hardware costs and determined that certain
additional assets were impaired due to changes in technology, which has resulted
in such assets no longer being used in the Company's operations. As a result,
the Company recorded an additional charge of $1.5 million in 1999.

     Non-Cash Compensation Charge: A non-cash stock compensation charge was
recorded during 1999 in the amount of $2.6 million related to the issuance of
stock options to certain key executives of eLottery who have been instrumental
in developing the current business model and are key to the future success of
the Company. The exercise price of these options was below the market price at
the date of grant.

     Interest Expense: Interest expense for 1999 was $3.3 million, an increase
of $0.9 million from 1998. The increase is due to higher levels of bank
borrowings in 1999.

     Other Income, Net: Other income, net increased primarily due to a
nonrecurring $1.2 million gain on the receipt of payment from Claricom on a $5.9
million junior subordinated note plus interest, along with the redemption of the
warrants held by the Company, both of which were part of the consideration
received in the 1996 sale of the direct sales organization.

     Gain on Litigation Settlement: The Company recorded a nonrecurring gain in
1998 on a negotiated settlement with a former supplier of videoconferencing
equipment totaling $5.3 million. The gain was recorded in the fourth quarter of
1998.

     Discontinued Operations: Revenues from discontinued operations were $128.6
million in 1999 compared to $133.5 million in 1998. The loss from discontinued
operations was $14.9 million for 1999 versus $11.2 million for 1998. Both
revenues and the net losses for the Computer Telephony and Healthcare businesses
were negatively impacted by the uncertainty in their respective markets
associated with the pending change in ownership of these business units.

     The loss from discontinued operations includes an estimated loss on
disposal of $5.0 million related to the healthcare business. The estimated loss
included the write-off of goodwill of $3.6 million and estimated costs of
disposal of $1.4 million. The Company closed the sale of its Computer Telephony
business on January 1,

                                       18
<PAGE>   21

2000 for $44.3 million in cash. The Company expects to record an aftertax gain
in the range of $14-$16 million on this sale in the first quarter of 2000.

     During 1998, the Company recorded $9.0 million in special charges related
to the discontinued businesses. These charges include $5.3 million relating to
changes the Company made to restructure its business, primarily involving
separation costs related to changes in senior management of these businesses and
a provision for losses to be incurred in subleasing a portion of the
discontinued businesses leased facilities.

     Also included is a $3.7 million charge to settle claims made by Lucent
Technologies (Lucent), which holds the patent rights to certain intellectual
property allegedly used in the Computer telephony business.

  Other Matters

     The Company completed the review of its computer systems and the
implementation of new systems during 1999. As a result, the Company did not
experience any significant adverse impact of the Year 2000 problem internally or
from any of its major suppliers or customers.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

  Results of Operations

     Revenues: The Company had no Revenues or Cost of Revenues in 1998 or 1997.
All expenses related to the operation of the NIL were recorded as advances to
the NIL. See Asset Impairment discussion above.

     Selling, General & Administrative: Selling, General & Administrative
expenses were $1.9 million for 1998, down from $2.3 million for 1997. Selling,
General & Administrative expenses only include eLOT corporate expenses for these
periods since all eLottery expenses were charged to the NIL under the terms of
the NIL Management Agreement.

     Depreciation and Amortization: Depreciation and amortization expense for
1998 was approximately $1.1 million. There was no depreciation and amortization
expense in 1997 as all costs were deferred as part of the NIL.

     Interest Expense: Interest expense for 1998 was $2.4 million, an increase
of $0.4 million from 1997. The increase is due to higher levels of bank
borrowings in 1998.

     Other Income, Net: Other income, net decreased compared to the same periods
in 1997 due to lower interest income on invested cash and lower royalty income.

     Discontinued Operations: Revenues from discontinued operations were $133.5
million in 1998 compared to $156.4 million in 1997. The loss from discontinued
operations was $11.2 million for 1998 versus a profit of $2.9 million in 1997.
The decline in revenue from 1997 to 1998 was due to changing the Company's past
practice of offering distributor-focused sales incentives at the end of each
quarter and lower healthcare sales attributable to discussions in the industry
of the healthcare business being put up for sale.

     During 1998, the Company recorded $9.0 million in special charges related
to the discontinued businesses. These charges include $5.3 million relating to
changes the Company made to restructure its business, primarily involving
separation costs related to changes in senior management of these businesses and
a provision for losses to be incurred in subleasing a portion of the
discontinued businesses leased facilities. Also included is a $3.7 million
charge to settle claims made by Lucent, which holds the patent rights to certain
intellectual property allegedly used in the Computer telephony business.

  Liquidity and Capital Resources

     On August 14, 1998, the Company entered into a credit facility with Fleet
Capital Corporation. The credit facility provided a maximum overall credit line
of $30 million consisting of a revolving line of credit for direct borrowings,
along with standby and trade letters of credit. Direct borrowings and letter of
credit advances were made available pursuant to a formula based on the levels of
eligible accounts receivable and inventories. To minimize interest on the
revolving line of credit, the Company had the option to borrow based

                                       19
<PAGE>   22

upon an adjusted prime borrowing rate or an adjusted LIBOR rate. The credit
facility was secured by substantially all of the Company's assets and had a
five-year term. Upon the sale of the Computer Telephony business on January 1,
2000, the outstanding balance of $19.6 million under this credit facility was
repaid and the facility was terminated. After paying down this facility, the
Company had approximately $19 million in cash and cash equivalents, $4.4 million
of which is restricted in an escrow account. These funds will be released to the
Company in July 2000 and January 2001, subject to potential indemnity claims by
Inter-Tel.

     The Company expects that the net cash available from the sale of the
Computer Telephony business and the planned dispositions of the Healthcare
business and investment in DCC will provide sufficient cash and liquidity to
finance the investment in the eLottery business for an additional 18 to 24
months.

     At December 31, 1999 and 1998, cash and cash equivalents amounted to $1.1
million and $1.5 million, respectively. Cash used by continuing operating
activities was $2.1 million in 1999, $3.4 million less than in 1998. Cash used
by discontinued operating activities in 1999 was $15.1 million versus $14.4
million in 1998.

     Cash provided by investing activities was $6.5 million in 1999, primarily
due to the proceeds received from the Claricom notes of $9.3 million. This was
partially offset by the repayment of $2.2 million in employee stock loans to a
bank, which were guaranteed by the Company in accordance with the terms of the
Executive Stock Incentive Plan. Cash used by investing activities totaled $1.1
million for 1998. This included $5 million in cash proceeds as part of a
negotiated settlement with a former supplier of the Company's videoconferencing
equipment. This was offset by deferred expenses related the operation of the NIL
of $4.4 million (which was later written off as part of the asset impairment)
and capital expenditures of $1.6 million.

     The Company generated $10.3 million in cash from financing activities
during 1999. The primary source of cash was borrowings of $11.0 million, offset
by payments on capital lease obligations and repurchases of stock. During 1998,
the Company generated $8.0 million in its financing activities, primarily from
additional bank borrowings of $8.6 million.

     Total debt at December 31, 1999 was $33.5 million, an increase of $10.0
million from $23.5 million at December 31, 1998. The increase was a result of
$11 million in bank borrowings from the Company's credit facility, and an
increase to the carrying value of the convertible subordinated debentures of
$0.2 million due to accretion. Debt was reduced by the repayment of $1.2 million
in capital lease obligations incurred in connection with equipment and software
acquisitions, along with other debt repayments. Total debt at December 31, 1999
included $19.6 million in revolving debt outstanding which was repaid on January
3, 2000 from the proceeds of the sale of the Computer Telephony business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The information presented in the "Notes to Financial Statements" included
under Item 8 is incorporated by reference.

                                       20
<PAGE>   23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                              ELOT, INC. AND SUBSIDIARIES

                         CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                                             ---------------------------------------------
                                                                 1999             1998            1997
                                                             ------------     ------------     -----------
                                                             (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S>                                                          <C>              <C>              <C>
REVENUES...................................................    $     12         $     --         $    --
COST OF REVENUES...........................................         176               --              --
                                                               --------         --------         -------
  Gross Profit (Loss)......................................        (164)              --              --
                                                               --------         --------         -------
OPERATING EXPENSES:
  Selling, general and administrative......................       4,745            1,946           2,331
  Depreciation and Amortization............................       1,085            1,116              --
  Asset Impairment.........................................       1,461           25,486              --
  Non-Cash Compensation Charge.............................       2,625               --              --
                                                               --------         --------         -------
                                                                  9,916           28,548           2,331
OPERATING LOSS.............................................     (10,080)         (28,548)         (2,331)
INTEREST EXPENSE...........................................      (3,279)          (2,393)         (1,985)
GAIN ON LITIGATION SETTLEMENT..............................          --            5,269              --
OTHER INCOME, NET..........................................       1,337               55           1,153
                                                               --------         --------         -------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES........     (12,022)         (25,617)         (3,163)
INCOME TAXES...............................................          --               --              --
                                                               --------         --------         -------
LOSS FROM CONTINUING OPERATIONS............................     (12,022)         (25,617)         (3,163)
Income (loss) from discontinued operations (net of tax
  benefit of $0, $4,232 and $137 for 1999, 1998 and 1997,
  respectively)............................................     (14,906)         (11,242)          2,942
                                                               --------         --------         -------
NET LOSS...................................................    $(26,928)        $(36,859)        $  (221)
                                                               ========         ========         =======
BASIC AND DILUTED LOSS PER SHARE:
  LOSS FROM CONTINUING OPERATIONS..........................    $  (0.21)        $  (0.51)        $ (0.06)
  DISCONTINUED OPERATIONS..................................       (0.25)           (0.23)           0.06
                                                               --------         --------         -------
  NET LOSS.................................................    $  (0.46)        $  (0.74)        $    --
                                                               ========         ========         =======
AVERAGE COMMON SHARES OUTSTANDING:.........................      58,752           49,755          49,655
                                                               ========         ========         =======
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                       21
<PAGE>   24

                          ELOT, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               DECEMBER 31,     DECEMBER 31,
                                                                   1999             1998
                                                              --------------   --------------
                                                              (IN THOUSANDS, EXCEPT FOR SHARE
                                                                  AND PER SHARE AMOUNTS)
<S>                                                           <C>              <C>
                                           ASSETS

CURRENT ASSETS:
  Cash and cash equivalents.................................     $  1,060         $  1,482
  Accounts receivable.......................................           12               --
  Prepaid expenses and other current assets.................          174              711
  Net assets of discontinued operations.....................       53,402           54,217
                                                                 --------         --------
          Total Current Assets..............................       54,648           56,410
PROPERTY AND EQUIPMENT, net.................................        2,480            4,210
OTHER ASSETS................................................        5,034           11,516
                                                                 --------         --------
                                                                 $ 62,162         $ 72,136
                                                                 ========         ========

                            LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long-term debt.........................     $ 19,818         $    504
  Accounts payable..........................................        5,342            1,148
  Accrued payroll and related costs.........................          772              593
  Accrued liabilities.......................................        3,808            3,141
                                                                 --------         --------
          Total Current Liabilities.........................       29,740            5,386
LONG-TERM DEBT..............................................       13,660           22,986
                                                                 --------         --------
          Total Liabilities.................................       43,400           28,372
                                                                 --------         --------
STOCKHOLDERS' EQUITY:
  Common stock: $.01 par value; 80,000,000 shares
     authorized; 63,010,953 and 49,834,807 issued and
     outstanding............................................          630              498
  Preferred stock: $.01 par value...........................           --            7,300
  Additional paid-in capital................................       81,054           71,624
  Accumulated other comprehensive loss......................         (336)              --
  Accumulated deficit.......................................      (62,586)         (35,658)
                                                                 --------         --------
          Total Stockholders' Equity........................       18,762           43,764
                                                                 --------         --------
                                                                 $ 62,162         $ 72,136
                                                                 ========         ========
</TABLE>

   The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                       22
<PAGE>   25

                          ELOT, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Loss from continuing operations...........................  $(12,022)  $(25,617)  $ (3,163)
  Adjustments to reconcile net loss to net cash provided
     (used) by operating activities:
     Depreciation and amortization..........................     1,085      1,116         --
     Asset impairment and other related charges.............     1,461     25,486         --
     Gain on litigation settlement..........................        --     (5,269)        --
     Stock compensation expense.............................     2,625         --         --
     Gain on Claricom notes/warrants........................    (1,161)        --         --
     Other, net.............................................       371        118        252
  Changes in working capital items:
     Accounts receivable....................................       (12)        --         --
     Accounts payable and accruals..........................     5,040       (398)    (2,992)
     Other working capital items, net.......................       537      5,858       (475)
                                                              --------   --------   --------
NET CASH PROVIDED (USED) BY CONTINUING OPERATING
  ACTIVITIES................................................    (2,076)     1,294     (6,378)
  Cash flows used by discontinued operating activities......   (15,119)   (14,427)    (2,454)
                                                              --------   --------   --------
NET CASH USED BY OPERATING ACTIVITIES.......................   (17,195)   (13,133)    (8,832)
                                                              --------   --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment........................    (1,048)    (1,566)    (3,165)
  Dispositions of business..................................        --      5,000         --
  Deferred NIL expenses.....................................        --     (4,377)    (2,111)
  Proceeds from Claricom note/warrants......................     9,261         --         --
  Payment of ESIP bank loans................................    (2,154)        --         --
  ESIP participants loan settlements........................       925         --         --
  Other, net................................................      (493)      (124)      (789)
                                                              --------   --------   --------
NET CASH PROVIDED (USED) BY INVESTING
  ACTIVITIES................................................     6,491     (1,067)    (6,065)
                                                              --------   --------   --------
  CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings under revolving credit facility................    11,035      8,582         --
  Repayments of other long-term debt........................      (192)      (751)      (444)
  Repurchase of stock.......................................    (1,338)      (148)    (4,896)
  Proceeds from issuance of stock...........................       777        272        268
                                                              --------   --------   --------
NET CASH PROVIDED (USED) BY FINANCING
  ACTIVITIES................................................    10,282      7,955     (5,072)
                                                              --------   --------   --------
DECREASE IN CASH AND CASH EQUIVALENTS.......................      (422)    (6,245)   (19,969)
CASH AND CASH EQUIVALENTS -- BEGINNING OF YEAR..............     1,482      7,727     27,696
                                                              --------   --------   --------
CASH AND CASH EQUIVALENTS -- END OF YEAR....................  $  1,060   $  1,482   $  7,727
                                                              ========   ========   ========
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                       23
<PAGE>   26

                          ELOT, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                    COMMON STOCK        PREFERRED STOCK    ADDITIONAL   ACCUM. OTHER     ACCUM.         TOTAL
                                 -------------------   -----------------    PAID-IN     COMPREHENSIVE   EARNINGS    STOCKHOLDERS'
                                   SHARES     AMOUNT    SHARES    AMOUNT    CAPITAL         LOSS        (DEFICIT)      EQUITY
                                 ----------   ------   --------   ------   ----------   -------------   ---------   -------------
                                                             (IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<S>                              <C>          <C>      <C>        <C>      <C>          <C>             <C>         <C>
Balance at December 31, 1996...  51,173,755    $512     350,000   $7,300    $76,113         $  --       $  1,422      $ 85,347
Proceeds from issuances of
  stock from employee stock
  plans........................     323,490       3                             201                                        204
Warrants exercised for common
  stock........................      50,000       1                              60                                         61
Repurchase and cancellation of
  stock........................  (1,886,886)    (19)                         (4,874)                                    (4,893)
Net loss.......................                                                                             (221)         (221)
                                 ----------    ----    --------   ------    -------         -----       --------      --------
Balance at December 31, 1997...  49,660,359    $497     350,000   $7,300    $71,500            --       $  1,201      $ 80,498
                                 ----------    ----    --------   ------    -------         -----       --------      --------
Proceeds from issuances of
  stock from employee stock
  plans........................     314,448       2                             150                                        152
Amortization of deferred
  compensation.................                                                 121                                        121
Repurchase and cancellation of
  stock........................    (140,000)     (1)                           (147)                                      (148)
Net loss.......................                                                                          (36,859)      (36,859)
                                 ----------    ----    --------   ------    -------         -----       --------      --------
Balance at December 31, 1998...  49,834,807    $498     350,000   $7,300    $71,624            --       $(35,658)     $ 43,764
                                 ----------    ----    --------   ------    -------         -----       --------      --------
Proceeds from issuances of
  stock from employee stock
  plans........................     296,151       3                           3,480                                      3,483
Amortization of deferred
  compensation.................                                                 120                                        120
Repurchase and cancellation of
  stock........................    (420,000)     (4)                         (1,337)                                    (1,341)
Conversion of preferred stock
  to common stock..............  13,299,995     133    (350,000)  (7,300)     7,167
Comprehensive loss
  Net loss.....................                                                                          (26,928)      (26,928)
  Unrealized loss of equity
    security...................                                                              (336)                        (336)
                                 ----------    ----    --------   ------    -------         -----       --------      --------
        Total comprehensive
          loss.................                                                                                        (27,264)
Balance at December 31, 1999...  63,010,953    $630          --   $  --     $81,054          (336)      $(62,586)     $ 18,762
                                 ==========    ====    ========   ======    =======         =====       ========      ========
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                       24
<PAGE>   27

                          ELOT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- NATURE OF THE BUSINESS AND FORMATION OF THE COMPANY

     eLOT, Inc. (the "Company" or "eLOT"), formerly known as Executone
Information Systems, Inc., is committed to leading the governmental lottery
industry into the e-commerce market. The Company has developed, installed and
operated systems that have processed ten million e-commerce lottery ticket sales
and transactions. It has operated Internet, Intranet, telephone, communications,
accounting, banking, database and other applications and services that can
facilitate the electronic sale of new and existing lottery products worldwide.
The Company has also developed transitional e-commerce solutions for
governmental lotteries, which leverage the power of the Internet, while
political, legal and social issues surrounding the sales of lottery tickets over
the Internet are simultaneously addressed.

     A reward-entertainment lottery portal, eLotteryFreeWay offers lottery and
entertainment games (for no consideration) with registered players earning
ePoints that are redeemable for cash and merchandise credit. eLotteryFreeWay's
mission is to build an Internet community whose members are expected to be
highly predisposed to purchase governmental lottery tickets over the Internet.

     On January 1, 2000, the Company changed its name from Executone Information
Systems, Inc. to eLOT, Inc. to recognize the change in the Company's core
business focus to the governmental lottery industry.

     As discussed more thoroughly in Note C, the Company's Computer Telephony
and Healthcare communications businesses, along with certain other assets and
liabilities are presented as discontinued operations in the accompanying
consolidated financial statements.

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. In
consolidating the accompanying financial statements, all significant
intercompany transactions have been eliminated. Investments in affiliated
companies owned more than 20%, but not in excess of 50%, are recorded under the
equity method.

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

     Revenue Recognition. In 1999, the Company generated its revenues through
the sale of advertising on its web site. Advertising revenue is recognized
ratably in the period in which the advertising is displayed.

     Advertising Expense. The Company expenses advertising costs as incurred.
Advertising expense was $312,000, $0 and $0 for the years ended December 31,
1999, 1998, and 1997, respectively.

     Earnings Per Share. Earnings per share is calculated in accordance with the
provisions of SFAS No. 128, "Earnings Per Share." Basic earnings per share is
based upon the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share is based upon the weighted average
number of shares of common stock outstanding plus the dilutive effect of stock
options and warrants outstanding during the period. Stock options and warrants,
the convertible preferred stock and the convertible debentures, which are
antidilutive, have been excluded from the computations.

     Cash Equivalents. Cash equivalents include short-term investments with
original maturities of three months or less.

                                       25
<PAGE>   28
                          ELOT, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Property and Equipment, net. Property and equipment at December 31, 1999
and 1998 consist of the following:

<TABLE>
<CAPTION>
                                                                1999          1998
                                                              ---------     --------
                                                              (AMOUNTS IN THOUSANDS)
<S>                                                           <C>           <C>
Furniture and fixtures......................................   $    40       $   40
Leasehold improvements......................................       115           --
Computer hardware and software..............................     3,376        5,013
                                                               -------       ------
                                                                 3,531        5,053
Accumulated depreciation....................................    (1,051)        (843)
                                                               -------       ------
Property and equipment, net.................................   $ 2,480       $4,210
                                                               =======       ======
</TABLE>

     Depreciation is provided on a straight-line basis over the estimated
economic useful lives of property and equipment which range from three to five
years. Amortization of leasehold improvements is provided over the lease term of
five years. Amortization of computer hardware and software is provided on a
straight-line basis over the estimated useful life of three years.

     Income Taxes. The Company utilizes the liability method of accounting for
income taxes as set forth in SFAS No. 109, "Accounting for Income Taxes". Under
the liability method, deferred taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.

     Software and Web Site Development Costs. The Company accounts for these
costs in accordance with AICPA Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." Accordingly,
the Company expenses costs incurred in the preliminary stage and, thereafter,
capitalizes costs incurred in the developing or obtaining of internal use
software and web site development. Such capitalized costs are included in
property and equipment and are amortized over a period of three years and are
subject to impairment evaluation in accordance with the provisions of SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets."

     Fair Value of Financial Instruments. The fair value of the Company's
Convertible Subordinated Debentures at December 31, 1999 is approximately $12.1
million, based upon market quotes. The carrying value of all other financial
instruments included in the accompanying consolidated financial statements
approximate fair value as of December 31, 1999 based upon current interest
rates.

     Noncash Investing and Financing Activities. The following noncash investing
and financing activities took place during the three years ended December 31,
1999:

<TABLE>
<CAPTION>
                                                               1999     1998    1997
                                                              -------   -----   -----
                                                              (AMOUNTS IN THOUSANDS)
<S>                                                           <C>       <C>     <C>
Conversion of preferred stock to common stock...............  $7,300    $ --    $ --
Common shares exchanged to exercise options and warrants....      24     230     507
</TABLE>

     Refer to the consolidated statements of cash flows for information on
cash-related operating, investing and financing activities.

     Reclassifications. Certain reclassifications have been made to the prior
year amounts to conform to the current year presentation.

                                       26
<PAGE>   29
                          ELOT, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE C -- DISCONTINUED OPERATIONS

     On March 29, 1999, the Company announced that it would divest its Telephony
and Healthcare businesses. By divesting the core Telephony and Healthcare
businesses, the Company plans to focus its resources on its Internet subsidiary,
eLottery, Inc. Accordingly, the Company pursued the sales of these businesses
during the remainder of 1999 while continuing to execute each division's
respective business development plans. During the fourth quarter of 1999, the
Company finalized the plan of disposal for these businesses, and accordingly,
started accounting for the businesses as discontinued operations.

     On January 1, 2000, the Company completed the sale of its computer
telephony division to Inter-Tel, Incorporated for $44.3 million in cash plus the
assumption of certain liabilities. The $44.3 million in proceeds includes $4.4
million being held in escrow. These funds will be released to the Company in
July 2000 and January 2001, subject to potential indemnity claims by Inter-Tel.
A portion of the proceeds was used to repay all of the Company's outstanding
revolving debt ($19.6 million) in January 2000. The sales proceeds are subject
to adjustment to be determined in 2000. The Company expects to record an
aftertax gain from this transaction of between $14 million to $16 million in the
first quarter of 2000.

     eLOT is also continuing to pursue the sale or other disposition of its
healthcare communications business and its investment in Dialogic Communications
Corporation (DCC), a private company, based in Franklin, Tennessee, that
develops and markets interactive call processing solutions for business,
industry and government. In the meantime, both businesses continue to execute
their respective plans for further business development. The Company expects to
complete the sales of these assets in 2000. The loss from discontinued
operations includes an estimated loss on disposal of $5.0 million related to the
Healthcare business.

     Summarized financial information for the discontinued operations is as
follows (000):

<TABLE>
<CAPTION>
                                                       FOR THE YEARS ENDED DECEMBER 31,
                                                       ---------------------------------
                                                         1999        1998        1997
                                                       ---------   ---------   ---------
<S>                                                    <C>         <C>         <C>
Revenues.............................................  $128,591    $133,498    $156,396
Income (Loss) before Income Taxes....................   (14,906)    (15,474)      2,805
Income (Loss) from Discontinued Operations,
  Net of Taxes.......................................   (14,906)    (11,242)      2,942
</TABLE>

<TABLE>
<CAPTION>
                                                              AS OF DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Current Assets..............................................  $57,981    $54,539
Total Assets................................................   92,706     92,386
Current Liabilities.........................................   36,784     35,017
Total Liabilities...........................................   39,304     38,169
Net Assets of Discontinued Operations.......................   53,402     54,217
</TABLE>

     During 1995, the Company acquired 47% of the common stock and certain other
assets of Dialogic Communications Corporation (DCC), a vendor of certain
telephony products, in exchange for 353,118 shares of the Company's common stock
and $100,000 cash. In January 2000, the Company acquired an additional 254,686
shares of DCC in exchange for 254,686 eLOT shares from a entity controlled by a
director of the Company. The Company believes it now has a 51% interest in DCC.
The purpose of the acquisition of these shares was to maximize eLOT's investment
upon sale of its ownership in DCC.

                                       27
<PAGE>   30
                          ELOT, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE D -- DEBT

     The Company's debt is summarized below at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                1999          1998
                                                              ---------     ---------
                                                              (AMOUNTS IN THOUSANDS)
<S>                                                           <C>           <C>
Borrowings Under Revolving Credit Facility(a)...............   $19,617       $ 8,582
Convertible Subordinated Debentures(b)......................    12,995        12,822
Capital Lease Obligations(c)................................       320           433
Other.......................................................       546         1,653
                                                               -------       -------
Total Debt..................................................    33,478        23,490
Less: Current Portion of Long-Term Debt.....................    19,818           504
                                                               -------       -------
Total Long-Term Debt........................................   $13,660       $22,986
                                                               =======       =======
</TABLE>

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

(a)  On August 14, 1998, the Company entered into a revolving credit facility
     (the "Credit Facility") with Fleet Capital Corporation expiring in 2003.
     The Credit Facility provided a maximum overall credit line of $30 million
     consisting of a revolving line of credit for direct borrowings, along with
     standby and trade letters of credit. Direct borrowings and letter of credit
     advances were made available pursuant to a formula based on the levels of
     eligible accounts receivable and inventories. The Credit Facility was fully
     repaid on January 3, 2000 and is no longer available to the Company. The
     average interest rate for the years ended December 31, 1999 and 1998 was
     9.3% and 9.4%, respectively.

(b)  The Company's Convertible Subordinated Debentures (the "Debentures"),
     issued in April 1986, are due March 15, 2011 and bear interest at 7 1/2%,
     payable March 15th and September 15th. The face value of the outstanding
     Debentures at December 31, 1999 was $16.3 million. The face value of the
     Debentures was adjusted to fair value in connection with the Company's 1988
     quasi-reorganization. The Debentures are convertible at the option of the
     holder into Common Stock of the Company at any time on or before March 15,
     2011, unless previously redeemed, at a conversion price of $10.625 per
     share, subject to adjustment in certain events. Subject to certain
     restrictions, the Debentures are redeemable in whole or in part, at the
     option of the Company, at par. The Debentures are also subject to annual
     sinking fund payments of $1.5 million. In January 1992, $15 million
     principal amount of Debentures with a book value of $10.1 million was
     exchanged for 674,865 shares of Convertible Preferred Stock and 2,999,400
     Common Stock Purchase Warrants. Debentures reacquired by the Company in the
     debt-for-equity exchange and in connection with Warrant exercises were
     delivered in lieu of cash in satisfying sinking fund requirements. Thus, no
     cash sinking fund payment will be due on the Debentures until March 2008.

(c)  The Company has entered into capital lease arrangements primarily for
     computer hardware and software with a net book value of approximately $0.4
     million at both December 31, 1999 and 1998. Such leases have been
     capitalized using implicit interest rates which range from 8.4% to 9.5%.

     The following is a schedule of future maturities of long-term debt at
December 31, 1999:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:                          (AMOUNTS IN THOUSANDS)
-------------------------                          ----------------------
<S>                                                <C>
2000.............................................         $19,818
2001.............................................             332
2002.............................................             133
2003.............................................              86
2004.............................................              89
Thereafter.......................................          13,020
                                                          -------
                                                          $33,478
                                                          =======
</TABLE>

                                       28
<PAGE>   31
                          ELOT, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The entire outstanding balance under the credit facility of $19.6 million
at December 31, 1999 was repaid on January 3, 2000.

     For the years ended December 31, 1999, 1998 and 1997, the Company made cash
payments of approximately $2.7 million, $1.7 million and $1.8 million,
respectively, for interest expense on indebtedness.

NOTE E -- INCOME TAXES

     eLOT continuing operations have only generated minimal current revenue and
there are no historical earnings to support the realization of any current or
deferred tax benefits. As a result, no current or deferred tax benefit has been
recorded on the Statements of Operations for income taxes applicable to the net
losses. eLOT does have certain deferred tax assets which represent future tax
deductions, but they can only be utilized if eLOT generates sufficient future
taxable income. As of December 31, 1999, a valuation allowance has been provided
for the entire deferred tax asset included in continuing operations and all but
$22.8 million of deferred tax assets reflected in discontinued operations. The
deferred tax asset reflected in discontinued operations is more likely than not
to be realized through the sale of these assets.

     Deferred tax assets are determined based on the differences between the
financial reporting and tax bases of assets. The significant components of the
Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                 1999         1998
                                                              ----------    ---------
                                                              (AMOUNTS IN THOUSANDS)
<S>                                                           <C>           <C>
Net operating loss carryforward.............................   $ 11,666      $ 7,792
Debenture revaluation.......................................     (1,320)      (1,411)
Start up costs..............................................      1,427        1,997
Property and equipment......................................        226         (445)
Other timing items..........................................     (1,043)        (991)
                                                               --------      -------
Total deferred tax assets...................................     10,956        6,942
Valuation allowance.........................................    (10,956)      (6,942)
                                                               --------      -------
  Deferred tax assets, net..................................   $     --      $    --
                                                               ========      =======
</TABLE>

     The differences between the benefit for income taxes at the US statutory
rate and the Company's effective rate are summarized as follows:

<TABLE>
<CAPTION>
                                                           1999      1998      1997
                                                          -------   -------   -------
                                                            (AMOUNTS IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Federal tax at statutory rate (34%).....................  $(4,087)  $(8,710)  $(1,075)
State income tax, net of federal tax benefit............     (589)   (1,255)     (155)
Tax benefit not recorded................................    3,616     5,148     1,230
Compensation charges....................................      910        --        --
Write off of intangibles................................       --     4,780        --
Other, net..............................................      150        37        --
                                                          -------   -------   -------
                                                          $    --   $    --   $    --
                                                          =======   =======   =======
</TABLE>

     The Company has available federal net operating loss carryforwards (NOLs),
subject to review by the Internal Revenue Service, totaling approximately $113
million at December 31, 1999 of which $83 million relates to discontinued
operations. These net operating losses expire in the years 2000 to 2018. The
Company also has available federal general business tax credit carryforwards of
$4.5 million which expire through 2018 and alternative minimum tax credit
carryforwards of approximately $900,000, which may be carried forward
indefinitely.

                                       29
<PAGE>   32
                          ELOT, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     For the years ended December 31, 1999, 1998 and 1997, the Company made cash
payments of less than $0.1 million, $0.1 million and $0.4 million, respectively,
for income taxes.

NOTE F -- EARNINGS PER SHARE

     A reconciliation of the Company's earnings (loss) per share calculations
from continuing operations for the three years ended December 31, 1999 is as
follows:

<TABLE>
<CAPTION>
                                                        LOSS FROM               PER SHARE
                                                      CONTINUING OPS   SHARES    AMOUNT
                                                      --------------   ------   ---------
                                                           (IN THOUSANDS, EXCEPT FOR
                                                              PER SHARE AMOUNTS)
<S>                                                   <C>              <C>      <C>
For the year ended December 31, 1999:
Basic and Diluted Loss Per Share....................     $(12,022)     58,752    $(0.21)
                                                         ========      ======    ======
For the year ended December 31, 1998:
Basic and Diluted Loss Per Share....................     $(25,617)     49,755    $(0.51)
                                                         ========      ======    ======
For the year ended December 31, 1997:
Basic and Diluted Loss Per Share....................     $ (3,163)     49,655    $(0.06)
                                                         ========      ======    ======
</TABLE>

     The Company's Convertible Subordinated Debentures (see Note D(b)) are
convertible into approximately 1.5 million shares of common stock as of December
31, 1999. The shares issuable upon conversion of the Debentures were not
included in the computation of diluted earnings per share because they would be
antidilutive for each of the periods presented. Options to purchase
approximately 1.8 million, 163,000 and 139,000 shares of common stock as of
December 31, 1999, 1998 and 1997, respectively, were not included in the
computation of diluted earnings per share due to the net losses for those years.
Options to purchase 1.0 million, 1.8 million and 1.2 million shares of common
stock as of December 31, 1999, 1998 and 1997, respectively, were not included in
the computation of diluted earnings per share because the exercise price was
greater than the average market price of the shares of common stock.

     The convertible preferred stock issued in connection with the acquisition
of eLottery was antidilutive, at issuance, and has been excluded from the above
calculations. Effective April 13, 1999, the convertible preferred stock was
converted into common stock. (see Note M).

NOTE G -- COMMITMENTS AND CONTINGENCIES

     Operating Leases. The Company conducts its business operations in leased
premises under a noncancellable operating lease agreement entered into in March
1999 and expiring in March 2004. Rental expense under this operating lease
amounted to $0.2 million for the year ended December 31, 1999. Prior to March
1999, the Company's premises were part of the facilities leased for the Computer
Telephony and Healthcare businesses.

     The following represents the future minimum rental payments due under this
noncancellable operating lease as of December 31, 1999:

<TABLE>
<CAPTION>
            YEARS ENDING DECEMBER 31,               (AMOUNTS IN THOUSANDS)
            -------------------------               ----------------------
<S>                                                 <C>
2000..............................................           $ 75
2001..............................................             78
2002..............................................             79
2003..............................................             82
2004..............................................             20
                                                             ----
                                                             $334
                                                             ====
</TABLE>

                                       30
<PAGE>   33
                          ELOT, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Litigation: The Company currently is named as a defendant in a number of
lawsuits and is a party to a number of proceedings that have arisen in the
normal course of its business. Those lawsuits and proceedings relate primarily
to the collection of indebtedness owed to the Company and various contract
disputes. In the opinion of the Company, these proceedings are not expected to
have a material adverse effect on the consolidated financial position, results
of operations or liquidity of the Company.

NOTE H -- OTHER ASSETS

     Other assets consist of the following as of December 31, 1999 and 1998,
respectively:

<TABLE>
<CAPTION>
                                                               1999     1998
                                                              ------   -------
                                                                  (AMOUNTS
                                                               IN THOUSANDS)
<S>                                                           <C>      <C>
ESIP Receivable.............................................  $2,983   $ 1,754
Notes/Warrants from Claricom................................      --     8,100
Investment in Virtgame(a)...................................     364       700
Prepaid Executive Life Insurance and Other..................   1,687       962
                                                              ------   -------
                                                              $5,034   $11,516
                                                              ======   =======
</TABLE>

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

(a)  The investment in Virtgame has been written down to the market value of
     this investment at December 31, 1999. Such amount is reflected in
     Accumulated Other Comprehensive Loss in the accompanying consolidated
     financial statements. The Company has also announced its intent to purchase
     the remaining outstanding shares of Virtgame (see Note Q).

NOTE I -- STOCK OPTIONS AND WARRANTS

     The Company has established stock option plans under which it is authorized
to grant both incentive stock options and non-qualified stock options to
officers and other key employees. Options are generally granted at a price not
less than the fair market value on the date of the grant and become exercisable
over a four-year period and expire after five to ten years. In December 1999,
options to purchase 1.0 million shares of common stock were issued at a price
less than market value at the date of grant. Accordingly, the Company recorded
$2.6 million in compensation expense. Shares available for granting of future
options under these plans amounted to 10.9 million as of December 31, 1999.

     The Company also had non-plan options outstanding at December 31, 1999, all
of which were exercisable. These options expire at various dates through March
2001.

     A summary of the status of the Company's stock option plans, as well as
non-plan options, as of December 31, 1999, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                         1999                   1998                   1997
                                 --------------------   --------------------   --------------------
                                             WEIGHTED               WEIGHTED               WEIGHTED
                                             AVERAGE                AVERAGE                AVERAGE
                                             EXERCISE               EXERCISE               EXERCISE
                                  SHARES      PRICE      SHARES      PRICE      SHARES      PRICE
                                 ---------   --------   ---------   --------   ---------   --------
<S>                              <C>         <C>        <C>         <C>        <C>         <C>
Outstanding 1/1................  2,255,199    $2.42     1,510,899    $2.89     1,972,485    $2.54
Granted........................  2,314,900    $2.63     1,407,400    $1.90       251,400    $2.32
Exercised......................   (200,512)   $2.66      (138,550)   $2.01      (481,786)   $1.23
Cancelled......................   (138,612)   $3.67      (524,550)   $2.51      (231,200)   $2.71
                                 ---------              ---------              ---------
Outstanding 12/31..............  4,230,975    $2.44     2,255,199    $2.42     1,510,899    $2.89
                                 =========              =========              =========
Options exercisable 12/31......  3,260,975    $2.48       994,025    $3.06     1,017,134    $3.04
                                 =========              =========              =========
</TABLE>

                                       31
<PAGE>   34
                          ELOT, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Information relative to options outstanding at December 31, 1999 is as
follows:

<TABLE>
<CAPTION>
                                           OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
                                   -----------------------------------   ----------------------
                                                  WEIGHTED    WEIGHTED                 WEIGHTED
                                     SHARES       AVERAGE     AVERAGE      SHARES      AVERAGE
                                   OUTSTANDING   REMAINING    EXERCISE   EXERCISABLE   EXERCISE
         EXERCISE PRICES            12/31/99     LIFE (YRS)    PRICE      12/31/99      PRICE
         ---------------           -----------   ----------   --------   -----------   --------
<S>                                <C>           <C>          <C>        <C>           <C>
$1.13-$2.00......................   1,909,600       7.0        $1.39      1,329,600     $1.45
$2.03-$3.00......................     576,875       2.6        $2.37        576,375     $2.37
$3.10-$3.25......................     636,900       1.4        $3.13        636,900     $3.13
$3.87-$6.38......................   1,107,600       5.0        $3.89        718,100     $3.88
                                    ---------                             ---------
$1.13-$6.38......................   4,230,975       5.0        $2.44      3,260,975     $2.48
                                    =========                             =========
</TABLE>

     The fair value of options granted during 1999, 1998 and 1997 was $3.80,
$1.23 and $1.24 per share, respectively. Fair value was estimated using the
Black-Scholes option-pricing model with the following assumptions: expected
volatility ranging from 85% to 150%, a risk-free interest rate ranging from 6.0%
to 6.6%, an expected option life of 5.0 years and no dividend yield. The Company
applies APB Opinion 25 in accounting for its plans. Other than the $2.6 million
recognized for 1.0 million options granted at below market value, no
compensation cost has been recognized for its stock option plans. If
compensation cost had been determined in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation," net income would have been reduced by
$2.6 million, $0.4 million and $0.2 million for 1999, 1998 and 1997,
respectively. The reduction in earnings per share would have been $0.04 in 1999
and immaterial in 1998 and 1997.

     As of December 31, 1999, the Company has warrants outstanding that permit
the holders to purchase a total of 325,000 shares of Common Stock at prices
ranging from $1.25 to $5.31 per share, expiring through May 2004. At December
31, 1999, 250,000 of these warrants were exercisable. Warrants were exercised
for 50,000 shares of Common Stock for the year ended December 31 1997 at an
average price of $1.21. No warrants were exercised during 1999 or 1998.

NOTE J -- STOCK PURCHASE PLAN

     A total of 2,750,000 shares of Common Stock are authorized for issuance
under the Company's employee stock purchase plan (the "Employee Plan"). The
Employee Plan permits eligible employees to purchase up to 1,000 shares of
Common Stock at the lower of 85% of the fair market value of the Common Stock at
the beginning or at the end of each six-month offering period. Pursuant to the
Employee Plan, 30,242, 39,866 and 63,904 shares of common stock were sold to
employees during the three years ended December 31, 1999, 1998 and 1997,
respectively. The weighted average fair value of these purchase rights for 1999,
1998 and 1997 was $1.46, $0.86 and $0.67 per share, respectively. Fair value was
estimated using the Black-Scholes option pricing model with the following
assumptions used for all three years: expected volatility ranging from 85% to
150%, risk-free interest rate of 6.6%, an expected term of six months and no
dividend yield.

     The Company applies APB Opinion 25 in accounting for the Employee Plan and,
accordingly, no compensation cost has been recognized. If compensation cost had
been determined in accordance with SFAS No. 123, the impact on net income and
earnings per share would have been immaterial for 1999, 1998 and 1997.

     In 1994, the Company's shareholders adopted the 1994 Executive Stock
Incentive Plan (the "Executive Plan"), which enabled officers and other key
employees to purchase a total of up to 3,000,000 shares of the Company's Common
Stock. During 1995 and 1994, the Participants purchased 140,000 and 2,745,000
shares of Common Stock, respectively, at fair market value, which were financed
through individual bank borrowings at market interest rates by each Participant
from Bank of America Illinois (the "Bank"), payable over five

                                       32
<PAGE>   35
                          ELOT, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

years. In December 1997, the Company agreed, subject to obtaining the agreement
of the Bank, that it would allow the loans to remain outstanding until December
2001. The Company lends each Participant 85% of the interest due to the Bank
and, beginning in December 1997, the Company also loaned each participant the
15% of the interest that would otherwise have been currently payable. In October
1999, the Company repaid $2.2 million to the Bank, representing the entire
outstanding principal owed by the Plan participants. Such repayment was added to
the balance receivable from participants, which had previously consisted only of
interest paid by the Company on behalf of the participants. As of December 31,
1999 and 1998, the amount receivable from Plan participants was $3.0 million and
$1.7 million, respectively. Shares acquired under the Executive Plan are held by
the Company as security under a loan and pledge agreement. Subsequent to
December 31, 1999, approximately $2.3 million of the amount receivable under the
Plan was repaid to the Company.

     Based upon separation agreements with certain executives effective during
1998, the Company agreed to repurchase 560,000 shares of Common Stock from
Participants in the Executive Plan, of which 140,000 shares were paid for in
1998 and 420,000 shares in 1999.

NOTE K -- 401(k) SAVINGS

     The Company has a 401(k) Savings Plan under which it matches employee
contributions at the discretion of the Company's Board of Directors. The
Company's matching contribution, consisting of shares of its Common Stock
purchased in the open market, is equal to 25% of each employee's contribution,
up to a maximum of $660 per employee. The expense for the matching contribution
for the years ended December 31, 1999, 1998 and 1997 was approximately $13,000,
$10,000 and $7,000, respectively.

NOTE L -- OTHER INCOME, NET

     Other Income, net consists of the following for the three years ended
December 31, 1999:

<TABLE>
<CAPTION>
                                                               1999    1998     1997
                                                              ------   -----   ------
                                                              (AMOUNTS IN THOUSANDS)
<S>                                                           <C>      <C>     <C>
Interest income.............................................  $  120   $ 157   $  741
Gain on Claricom note/warrants..............................   1,161      --       --
Other, net..................................................      56    (102)     412
                                                              ------   -----   ------
                                                              $1,337   $  55   $1,153
                                                              ======   =====   ======
</TABLE>

NOTE M -- PREFERRED STOCK

     The preferred stock consisted of 250,000 shares of Cumulative Convertible
Preferred Stock, Series A (Series A Preferred Stock) and 100,000 shares of
Cumulative Contingently Convertible Preferred Stock, Series B (Series B
Preferred Stock). The Series A Preferred Stock was to earn dividends equal to
18.5% of the consolidated retained earnings of eLottery as of the end of a
fiscal period, less any dividends paid to the holders of the Series A Preferred
Stock prior to such date. Each Series B Preferred Stock had voting rights equal
to one share of common stock and, as originally issued, was to earn dividends
equal to 31.5% of the consolidated retained earnings of eLottery as of the end
of a fiscal period, less any dividends paid to the holders of the Series B
Preferred Stock prior to such date. On April 7, 1999, the Company reached
agreement with the preferred shareholders to accelerate conversion of the Series
A and Series B Preferred Stock, with such shares actually being converted
effective April 13, 1999.

NOTE N -- ASSET IMPAIRMENT

     On December 17, 1998, the United States District Court for the District of
Idaho ruled in the case of AT&T vs. Coeur d'Alene Tribe that the orders
previously issued by the Tribal Court upholding the legality of
                                       33
<PAGE>   36
                          ELOT, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the US Lottery were erroneous. In response to this legal decision, eLottery and
the CDA terminated operation of the NIL and the US Lottery in every state where
it had been offered. As a result, the Company has reevaluated certain of its
assets in accordance with the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets." Based upon such review, management determined
that both the intangibles and the advances to the NIL were impaired as of the
date of this legal decision. As of December 17, 1998, net intangibles and
Advances to NIL of $12.9 million and $11.2 million, respectively, were written
down to zero, which represented the estimated fair value of the assets, as no
future cash flows were to be generated by the NIL. In addition, $0.7 million in
NIL startup costs (primarily post-acquisition building costs) included in other
assets were also impaired. This amount would have been written off as of January
1, 1999 with the adoption of SOP 98-5. However, due to the termination of NIL
operations, management concluded that it should be written off during the fourth
quarter of 1998. Shutdown costs and other adjustments amounted to an additional
$0.7 million, all of which was paid as of December 31, 1999.

     During 1999, the Company performed an additional evaluation of the
realizability of certain fixed assets and determined that certain computer
hardware and software costs were impaired based upon the current changes in
technology which has resulted in such computer hardware and software no longer
being used in the Company's operations. As a result of this review, the Company
recorded an asset impairment charge of $1.5 million in 1999.

NOTE O -- OTHER BUSINESS DISPOSITIONS

     In February 1999, the Company received $9.3 million from Claricom as
payment in full for a $5.9 million junior subordinated note plus interest, along
with the redemption of warrants. The note and warrants were part of the
consideration received when the Company sold its direct sales and service
organization in 1996.

     In June 1996, the Company sold its Videoconferencing division to BT Visual
Images LLC for a $0.2 million note, royalties on videoconferencing revenue
through June 1998 and contingent consideration related to the sale of equipment
inventory. The Company recorded a loss of $3.9 million on the transaction. In
October 1998, the Company received $5 million in cash, as part of a negotiated
legal settlement with its former supplier of videoconferencing equipment,
resulting in a $5.3 million gain in 1998.

NOTE P -- SELECTED QUARTERLY FINANCIAL DATA

     The following is a summary of unaudited selected quarterly financial data
for the years ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED
                                          ---------------------------------------------------
                                          MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                            1999        1999         1999            1999
                                          ---------   --------   -------------   ------------
                                             (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S>                                       <C>         <C>        <C>             <C>
Revenues................................   $    --    $    --       $    --        $     12
Gross Profit (Loss).....................        --         --            --            (164)
Loss Before Income Taxes from Continuing
  Operations............................      (662)    (2,204)       (2,394)         (6,762)
Loss From Continuing Operations.........      (662)    (2,204)       (2,394)         (6,762)
Discontinued Operations.................    (2,369)    (2,063)         (775)         (9,699)
Net Loss................................    (3,031)    (4,267)       (3,169)        (16,461)
Loss Per Share:
  Continuing Operations.................     (0.01)     (0.04)        (0.04)          (0.11)
  Discontinued Operations...............     (0.05)     (0.03)        (0.01)          (0.15)
</TABLE>

                                       34
<PAGE>   37
                          ELOT, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED
                                          ---------------------------------------------------
                                          MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                            1998        1998         1998            1998
                                          ---------   --------   -------------   ------------
                                             (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S>                                       <C>         <C>        <C>             <C>
Revenues................................   $    --    $    --       $    --        $     --
Gross Profit............................        --         --            --              --
Loss Before Income Taxes From Continuing
  Operations............................    (1,080)    (1,118)       (1,603)        (21,816)
Income (Loss) From Continuing
  Operations............................    (1,080)    (1,118)       (1,603)        (21,816)
Discontinued Operations.................    (1,398)      (605)         (546)         (8,693)
Net Loss................................    (2,478)    (1,723)       (2,149)        (30,509)
Loss Per Share:
  Continuing Operations.................     (0.02)     (0.02)        (0.03)          (0.44)
  Discontinued Operations...............     (0.03)     (0.01)        (0.01)          (0.17)
</TABLE>

     The three months ended December 31, 1999 and 1998 include the write-off of
$1.5 million and $25.5 million, respectively, in assets related to certain
computer hardware and software that is no longer being used and termination of
the NIL, respectively (See Note N). The fourth quarter of 1998 also includes a
nonrecurring $5.3 million gain on a negotiated settlement with a former supplier
of videoconferencing equipment (see Note O).

NOTE Q -- SUBSEQUENT EVENT (UNAUDITED)

     On February 25, 2000, the Company announced that it has entered into a
Letter of Intent to purchase Virtgame.com Corp. (VGTI), a leading provider of
Internet enabling technology to the lottery and gaming industries. Under terms
of the proposed agreement, the Company may issue up to 3.4 million shares for
all the outstanding shares of VGTI. The agreement is subject to certain
conditions, including the discontinuation of operations of VGTI's Constellation
virtual casino, completion of due diligence, signing a definitive agreement and
VGTI shareholder approval.

     On March 6, 2000, the Company announced that it has entered into a
strategic alliance with Global Technologies Limited ("GTL") to facilitate and
develop e-commerce sales and technologies of lottery and other governmental
authorized gaming related products. In connection therewith, the Company agreed
to issue a warrant to GTL to purchase 1,000,000 shares of the Company's stock at
$6.00 per share.

                                       35
<PAGE>   38

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
eLOT, Inc.:

     We have audited the accompanying consolidated balance sheets of eLOT, Inc.
(a Virginia corporation, formerly Executone Information Systems, Inc.) and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of eLOT, Inc. and subsidiaries
as of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.

                                            ARTHUR ANDERSEN LLP

Stamford, Connecticut
February 4, 2000

                                       36
<PAGE>   39

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

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

DIRECTORS

     The following persons are currently serving as directors of the Company.
Certain information regarding each director is set forth below, including each
individual's principal occupation and business experience during the last five
years, directorships in other public companies, and the year in which the
individual was elected a director of the Company or one of its predecessor
companies.

<TABLE>
<CAPTION>
                                                                                       DIRECTOR
NAME                       AGE                  PRINCIPAL OCCUPATION                    SINCE
----                       ---                  --------------------                   --------
<S>                        <C>   <C>                                                   <C>
Stanley J. Kabala          56    President, Chief Executive Officer and Chairman of      1998
                                 the Company since June 1998. Prior thereto, Mr.
                                 Kabala was President and Chief Executive Officer of
                                 Rogers Cantel Mobile Communications, the largest
                                 wireless telephone company in Canada, and Chief
                                 Operating Officer of its parent Rogers
                                 Communications, Inc., from 1996 through 1997.
                                 During 1995, he was President and Chief Executive
                                 Officer of Unitel Communications, Inc., Canada's
                                 largest alternative long distance provider. From
                                 1968 through 1994, Mr. Kabala held various
                                 positions at AT&T Corporation.

Richard J. Fernandes       41    Founder and Chief Executive Officer since 1999 of       2000
                                 Webloyalty.com. From 1989 until 1998, Mr. Fernandes
                                 served in several executive positions at CUC
                                 International, Inc., including President of its
                                 subsidiary Plextel Telecommunications, a
                                 database-driven classified business, from 1996 to
                                 1998, and Executive Vice President, Interactive
                                 Services and Senior Vice President, Interactive
                                 Services from 1993 to 1996.

Philip Gunn                48    Co-founder and President of Growth Capital              1999
                                 Partners, LLC, a professional merchant banking and
                                 venture capital investment firm. Before
                                 establishing Growth Capital Partners in 1982, Mr.
                                 Gunn was a Vice President in the Manufacturers
                                 Hanover Merchant Banking Group with overall
                                 responsibility for merger and acquisition advisory
                                 services. During the past twenty years, he has been
                                 active in structuring, negotiating, and financing
                                 corporate acquisitions, management buyouts and
                                 venture capital investments. Mr. Gunn is also a
                                 director of FragranceNet.com.
</TABLE>

                                       37
<PAGE>   40

<TABLE>
<CAPTION>
                                                                                       DIRECTOR
NAME                       AGE                  PRINCIPAL OCCUPATION                    SINCE
----                       ---                  --------------------                   --------
<S>                        <C>   <C>                                                   <C>
John P. Hectus             55    Retired. Mr. Hectus was President, AT&T Canada          1998
                                 Enterprises from March 1999 to December 1999; Vice
                                 President, Finance and Chief Financial Officer,
                                 AT&T Canada Enterprises, from June 1998 to March
                                 31, 1999; Senior Vice President and Chief Financial
                                 Officer, AT&T Canada, Inc. from February 1996
                                 through May 1998; and Vice President and Chief
                                 Financial Officer, AT&T Caribbean & Latin America
                                 from January 1995 through January 1996. Prior
                                 thereto, he held various executive positions within
                                 AT&T Corporation.

Jerry M. Seslowe           54    Managing Director of Resource Holdings Ltd., an         1996
                                 investment and financial consulting firm, since
                                 1983. Prior to 1983, Mr. Seslowe was a partner at
                                 KPMG Peat Marwick, a provider of investment and
                                 financial services. Mr. Seslowe has served as a
                                 director of Executone since February 1996 and prior
                                 to Executone's acquisition of eLottery was a
                                 director of eLottery. Mr. Seslowe is a certified
                                 public accountant and an attorney.
</TABLE>

BOARD AND COMMITTEE ACTIVITIES

     During 1999, the Board of Directors met on nine occasions. All directors
attended more than 75% of the total number of meetings of the Board and of all
committees of which they were members during 1999. The Board has two standing
committees, an Audit Committee and a Compensation Committee.

     The function of the Audit Committee is to recommend the selection of
auditors and to review the audit report and the adequacy of internal controls.
The Audit Committee met four times during 1999. The members of the Audit
Committee during 1999 were Stanley M. Blau (until his resignation from the Board
on September 30, 1999), Philip Gunn (following Mr. Blau's resignation) and John
Hectus.

     The Compensation Committee recommends to the full Board the compensation
arrangements, stock option grants and other benefits for executive management of
Executone as well as the incentive plans to be adopted by Executone. The
Compensation Committee met once during 1999. The members of the Compensation
Committee during 1999 and until the date of the meeting were Jerry Seslowe and
Louis Adler. The members of the Compensation Committee are currently John Hectus
and Jerry Seslowe.

EXECUTIVE OFFICERS

     The executive officers of eLOT are as follows:

<TABLE>
<CAPTION>
NAME                                    AGE           POSITION WITH COMPANY
----                                    ---           ---------------------
<S>                                     <C>   <C>
Stanley J. Kabala.....................  56    Chairman of the Board, President and
                                              Chief Executive Officer
Edward W. Stone, Jr. .................  46    Senior Vice President and Chief
                                              Financial Officer
Michael W. Yacenda....................  48    Executive Vice President and
                                              President, eLottery, Inc.
Robert C. Daum........................  47    Executive Vice President, Development
                                              and Finance
Barbara C. Anderson...................  48    Senior Vice President, Law and
                                                Administration and Secretary
</TABLE>

                                       38
<PAGE>   41

     Stanley J. Kabala was elected Chairman of the Board, President and Chief
Executive Officer of eLOT in June 1998. Prior to that, he was President and
Chief Executive Officer of Rogers Cantel Mobile Communications, the largest
wireless telephone company in Canada, and Chief Operating Officer of its parent
Rogers Communications, Inc., from 1996 to 1997. During 1995, Mr. Kabala was
President and Chief Executive Officer of Unitel Communications, Inc., Canada's
largest alternative long distance provider. From 1968 through 1994, Mr. Kabala
held various positions at AT&T Corporation, most recently Vice President --
Customer Service for the Business Communications Services Division and Vice
President -- AT&T 800 and Business Applications Services.

     Edward W. (Ted) Stone, Jr. has served as Senior Vice President and Chief
Financial Officer of eLOT since October 1998. Prior to that time, he served as
Vice President, Finance for the Thomson Corporation Publishing International
group of The Thomson Corporation, a leading publisher of specialized
information, from 1995 to 1998. From 1993 to 1995, Mr. Stone was Vice President
and Chief Financial Officer of Krueger International, Inc., a leading
manufacturer of institutional and commercial furniture. From 1988 to 1993, he
was Controller and then Vice President, Finance for the Searle Pharmaceuticals
subsidiary of The Monsanto Company and General Manager of Searle's Animal Health
division. Earlier in his career, Mr. Stone was Chief Financial Officer for two
entrepreneurial specialty chemical companies and a Division Controller for
Pfizer, Inc. Mr. Stone holds an A. B. degree in Engineering Sciences from
Dartmouth College and an MBA from the Amos Tuck School of Business
Administration at Dartmouth.

     Michael W. Yacenda has served as Executive Vice President of eLOT since
January 1990, and as President of eLottery and UniStar Entertainment since 1996.
Prior to that time, he was Vice President, Finance and Chief Financial Officer
of the Company from July 1988 to January 1990. He served as a Vice President of
ISOETEC from 1983 to 1988. From 1974 to 1983, Mr. Yacenda was employed by Arthur
Andersen & Co., a public accounting firm. Mr. Yacenda is a certified public
accountant.

     Robert C. Daum has been Executive Vice President, Development and Finance,
since February 2000. From 1978 to 1999, Mr. Daum was employed in the investment
banking industry, focussed on corporate finance, mergers and acquisitions and
capital markets. Between 1994 and 1999 he was a Managing Director with Warburg
Dillon Read and a predecessor, UBS Securities. Prior to 1994, Mr. Daum was
employed by Prudential Securities, Merrill Lynch & Co., and Dillon Read and Co.,
Inc. He holds a B.A. from Colgate University and an M.B.A. from Harvard
University.

     Barbara C. Anderson has been Senior Vice President, Law and Administration,
and Secretary of eLOT since January 1, 2000, and was Vice President, Law and
Administration and Secretary since October 1998. Prior to that time, she was
Vice President, General Counsel and Secretary since 1990. From 1985 to 1989, she
was Corporate Counsel of United States Surgical Corporation, a manufacturer of
medical devices.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, file with the Securities
and Exchange Commission initial reports of ownership and reports of change in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than 10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms that they file.

     To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, and written representations that no other
reports were required, during the fiscal year ended December 31, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.

                                       39
<PAGE>   42

ITEM 11. EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

     Each director of eLOT was granted upon his election or reelection to the
Board on December 14, 1999, and any new director will be granted upon his or her
initial election to the Board, an option to purchase 100,000 shares of eLOT's
common stock, at the market price on the date of election, under the terms of
eLOT's 1999 Stock Incentive Plan approved by the shareholders on December 14,
1999. Each director elected at the 1999 Annual Meeting was granted an option to
purchase 100,000 eLOT shares at the market price at December 14, 1999 of $3.875
per share, and Mr. Fernandes was granted an option to purchase 100,000 shares at
$7.375 per share, the market price on March 3, 2000, when he was elected to the
Board. In addition, during 2000, each director will be paid a fee of $500 per
Board or Committee meeting attended and reimbursement of expenses incurred in
attending Board and Committee meetings.

     As of December 14, 1999, when the new Stock Incentive Plan was adopted,
127,800 shares had been issued to upon exercise of options granted under the
terms of the prior plan (the 1990 Directors' Stock Option Plan), and options to
purchase 115,100 shares of common stock were outstanding under the terms of that
plan. An aggregate of up to 250,000 shares were issuable under the prior plan.
During 1999, Ms. Malinda Mitchell, who did not stand for reelection in 1999,
received options to purchase 6,800 shares upon her initial election to the
Board, and Mr. Philip Gunn received options to purchase 4,500 shares under this
plan upon his initial election to the Board. No other grants were made to
directors under the prior Plan in 1999.

     Prior to the 1999 Annual Meeting, the Company's director compensation
program provided that each director who did not receive other direct
compensation from eLOT also received upon his or her initial election to the
Board a warrant to purchase 25,000 shares of eLOT common stock at the market
price at the date of grant. Each warrant has a term of five years. Under this
program, the following warrants were granted to current directors upon their
initial election to the Board:

<TABLE>
<CAPTION>
                                                                          WARRANT PRICE
NAME                                                 DATE OF GRANT          PER SHARE
----                                                 -------------        -------------
<S>                                                <C>                    <C>
Philip Gunn......................................  May 21, 1999               $5.31
John P. Hectus...................................  November 18, 1998          $1.25
Jerry M. Seslowe.................................  February 1, 1996           $2.63
</TABLE>

                                       40
<PAGE>   43

SUMMARY COMPENSATION TABLE

     The following table sets forth the compensation by the Company of the Chief
Executive Officer and the four most highly compensated other executive officers
of the Company in 1999, for services in all capacities to the Company and its
subsidiaries during the three fiscal years ended December 31,1999.

<TABLE>
<CAPTION>
                                          ANNUAL COMPENSATION
                                ---------------------------------------   LONG-TERM   COMPENSATION
                                                           OTHER ANNUAL   AWARDS OF    ALL OTHER
NAME AND                               SALARY     BONUS    COMPENSATION   OPTIONS/    COMPENSATION
PRINCIPAL POSITION              YEAR     ($)       ($)         ($)         SARS(#)       ($)(1)
------------------              ----   -------   -------   ------------   ---------   ------------
<S>                             <C>    <C>       <C>       <C>            <C>         <C>
Stanley J. Kabala(2)..........  1999   300,000   633,833         -0-       100,000       6,493
  Chairman of the Board,        1998   144,231   151,562      91,936       400,000       6,072
  President and Chief             --        --        --          --            --          --
  Executive Officer
Michael W. Yacenda............  1999   262,400       -0-         -0-       500,000       6,708
  Executive Vice President      1998   262,203       -0-         -0-           -0-       6,072
  President, eLottery, Inc.     1997   256,000       -0-         -0-           -0-       5,997
Edward W. Stone, Jr. .........  1999   215,000       -0-         -0-           -0-       1,035
  Senior Vice President,        1998    32,250       -0-         -0-           -0-         129
  Chief Financial Officer         --        --        --          --            --          --
James E. Cooke III............  1999   215,000       -0-      15,542           -0-       2,322
  Vice President, Sales,        1998   163,942    19,250      18,475       100,000       3,510
  Telephony Division            1997   125,000    11,750      17,664           -0-       2,560
Robert W. Hopwood.............  1999   150,000    26,250         -0-       250,000       1,603
  Vice President, Operations,   1998   139,460    16,000         -0-           -0-       1,902
  eLottery, Inc.                1997   130,000    10,000         -0-           -0-       2,707
</TABLE>

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

(1) "All Other Compensation" includes for each individual a matching
    contribution by the Company under the Company's 401(k) plan in the amount of
    $660 each for each year. This column also includes premiums paid by the
    Company for long-term disability and life insurance for the following
    individuals in the following amounts in 1999: Mr. Kabala, $5,833; Mr.
    Yacenda, $     ; Mr. Stone, $375; Mr. Cooke, $1,662 and Mr. Hopwood, $     ;
    in the following amounts in 1998: Mr. Kabala, $5,412; Mr. Yacenda, $5,412;
    Mr. Stone, $129; Mr. Cooke, $2,850, and Mr. Hopwood, $1,242; and in the
    following amounts in 1997: Mr. Yacenda, $5,337; Mr. Cooke, $2,560; and Mr.
    Hopwood, $2,047.

(2) Mr. Kabala was elected Chairman, President and Chief Executive Officer
    effective June 28, 1998. See the discussion of his employment agreement
    below. The amounts shown as bonuses for 1998 and 1999 represent the stock
    granted pursuant to his employment agreement described below.

EMPLOYMENT AGREEMENTS

     In June 1998, the Company entered into an employment agreement with Stanley
J. Kabala, its Chairman of the Board, President and Chief Executive Officer, for
an initial term of one year. The employment agreement provides for a minimum
base salary of $300,000 per year, eligibility for a incentive bonus of 150,000
shares of Common Stock upon achievement of objective performance goals set by
the Board of Directors, a signing bonus of 200,000 restricted shares of Common
Stock vesting ratably over 12 months and an initial stock option covering
200,000 shares of Common Stock vesting ratably over 12 months. The agreement
further provides that in the event of the termination of Mr. Kabala's employment
by the Company without cause or his voluntary termination of employment upon
certain events, including diminution of his responsibilities or a change of
control, the Company will pay Mr. Kabala his base salary for the remainder of
the initial term, a prorated bonus and continuation of medical insurance
coverage, and his restricted stock and stock options will vest immediately. In
August 1999, the Board of Directors approved the extension of Mr. Kabala's
employment on a month-to-month basis, to continue at least until the earlier of
the closings of the sales of the computer telephony and healthcare
communications businesses or March 31, 2000, at the

                                       41
<PAGE>   44

same salary. The Board also granted 50,000 shares to Mr. Kabala as further
compensation for his services during the prior year, and approved a contingent
grant of 25,000 additional shares and an option to purchase 100,000 shares at
$4.125 per share, contingent upon his employment throughout the sales of the
telephone and healthcare businesses to buyers other than a management group in
which he participates.

     As part of the transformation of the Company from a telecommunications and
healthcare communications company into an e-commerce company, the Board has
accepted the suggestion of current Chairman and Chief Executive Officer Stan
Kabala to undertake a search for a new President and Chief Executive Officer. In
1999, the Company engaged the firm of Spencer Stuart to conduct the search for
an individual with the suitable mix of consumer marketing and related experience
to implement eLOT's business plan.

OPTION GRANTS IN LAST FISCAL YEAR

     The following table sets forth individual grants of stock options and stock
appreciation rights made during 1999 to each of the executive officers named in
the Summary Compensation Table above. There were no grants of stock appreciation
rights (SARs) to any officers in 1999.

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                          POTENTIAL
                               INDIVIDUAL GRANTS                                      REALIZABLE VALUE
                          ---------------------------                                 AT ASSUMED ANNUAL
                          NUMBER OF      % OF TOTAL                                    RATES OF STOCK
                          SECURITIES      OPTIONS                                    PRICE APPRECIATION
                          UNDERLYING     GRANTED TO     EXERCISE OR                    FOR OPTION TERM
                           OPTIONS       EMPLOYEES      BASE PRICE    EXPIRATION   -----------------------
NAME                      GRANTED(#)   IN FISCAL YEAR     ($/SH)         DATE        5%($)        10%($)
----                      ----------   --------------   -----------   ----------   ---------     ---------
<S>                       <C>          <C>              <C>           <C>          <C>           <C>
Stanley J. Kabala.......   100,000           4.5%          3.875       12/14/04      107,059       236,573
Michael W. Yacenda......   500,000          22.6%           1.25       12/14/09    3,803,964     6,427,385
Edward W. Stone, Jr. ...       -0-           -0-              --             --           --            --
James E. Cooke III......       -0-           -0-              --             --           --            --
Robert W. Hopwood.......   250,000          11.3%           1.25       12/14/09    1,901,982     3,213,693
</TABLE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

     The following table sets forth each exercise of stock options made during
the year ended December 31, 1999 by the current Chief Executive Officer, and the
four most highly compensated other executive officers and the fiscal year-end
value of unexercised options held by those individuals as of December 31, 1999.
There were no exercises or holdings of stock appreciation rights by any officers
during 1999, and there are no outstanding stock appreciation rights.

<TABLE>
<CAPTION>
                                                                  NUMBER OF             VALUE OF UNEXERCISED
                               SHARES                        UNEXERCISED OPTIONS       IN-THE-MONEY OPTIONS AT
                            ACQUIRED ON       VALUE         AT FISCAL YEAR-END(#)       FISCAL YEAR-END($)(1)
NAME                        EXERCISE (#)   REALIZED ($)   EXERCISABLE/UNEXERCISABLE   EXERCISABLE/UNEXERCISABLE
----                        ------------   ------------   -------------------------   -------------------------
<S>                         <C>            <C>            <C>                         <C>
Stanley J. Kabala.........       --             --                   300,000/0
Michael W. Yacenda........       --             --             210,000/290,000
Edward W. Stone, Jr. .....       --             --                   250,000/0
James E. Cooke III........       --             --                    85,000/0
Robert W. Hopwood.........       --             --                    250,000/
</TABLE>

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

(1) Based upon the last sale price on December 31, 1999 of $5.438 per share of
    Common Stock.

                                       42
<PAGE>   45

                         COMPENSATION COMMITTEE REPORT
                           ON EXECUTIVE COMPENSATION

     It is the responsibility of the Compensation Committee of the Board of
Directors to administer the Company's incentive plans, review the performance of
management and approve the compensation of the Chief Executive Officer and other
executive officers of the Company.

     The Compensation Committee believes that the Company's success depends on
the coordinated efforts of individual employees working as a team toward defined
common goals. The objectives of the Company's compensation program are to align
executive compensation with business objectives, to reward individual and team
performance furthering the business objectives, and to attract, retain and
reward employees who will contribute to the long-term success of the Company
with competitive salary and incentive plans.

     Specifically, executive compensation decisions are based on the following
factors:

          1. The total direct compensation package for the Company's executives
     is made up of three elements: base salary, a short-term incentive program
     in the form of a performance-based bonus, and a long-term incentive program
     in the form of stock options and other inducements to own the Company's
     stock.

          2. The Committee believes that the total compensation of all
     executives should have a large incentive element that is dependent upon
     overall Company performance measured against objectives established at the
     beginning of the fiscal year. Bonus and stock opportunities represent a
     significant portion of the total compensation package, in an attempt to
     further the Company's goal of linking compensation more closely to the
     Company's performance. The percentage of direct compensation that is
     dependent upon the Company's attainment of its objectives also generally
     increases as the responsibility of the officer in question for the overall
     corporate performance increases.

          3. Total compensation levels, i.e., base salary, bonus potential, and
     number of stock options, are established by individual levels of
     responsibility and reference to competitive compensation levels for
     executives performing similar functions and having equivalent levels of
     responsibility. However, whether actual bonuses are paid to each executive
     depends upon the achievement of Company profitability goals.

          4. Merit increases in base salary for executives other Mr. Kabala were
     reviewed on an individual basis by Mr. Kabala and increases were dependent
     upon a favorable evaluation by Mr. Kabala of individual executive
     performance relative to individual goals, the functioning of the
     executive's team within the corporate structure, success in furthering the
     corporate strategy and goals, and individual management skills. Based upon
     his evaluation, Mr. Kabala recommended base salary increases to the
     Committee for its approval.

          5. In addition to base salary and merit increases, the Compensation
     Committee considers cash incentive bonuses or stock awards for its
     executive officers, including the Chief Executive Officer, both
     prospectively based upon the attainment of specific performance goals, and
     retrospectively based upon the Committee's discretionary judgment as to the
     performance during the year of the Company and its executive officers or
     other considerations deemed appropriate at the time. There was no general
     bonus or incentive plan in effect for executive officers during 1999. In
     1999, the Committee approved no bonus payments to Mr. Kabala or any of the
     four other highest paid executive officers for 1999, except a stock award
     of 50,000 shares of Common Stock to Mr. Kabala in connection with his
     individual performance through June 1999 and the extension of his
     employment through the sale of the telephony and healthcare businesses, and
     a cash bonus paid to one of the four other highest paid executive officers
     based on his individual performance.

          The Committee reserves the right to make discretionary bonus awards in
     appropriate circumstances where an executive might merit a bonus based on
     other considerations.

          6. In June 1998, the Company entered into an employment agreement with
     Stanley J. Kabala, its Chairman of the Board, President and Chief Executive
     Officer, as described above under "Executive Compensation."
                                       43
<PAGE>   46

          In August 1999, the Committee and the Board approved the
     month-to-month extension of Mr. Kabala's employment through the sale of the
     Company's telephony healthcare businesses and the DCC investment or March
     31, 2000, at the same salary and granted Mr. Kabala (i) a bonus stock award
     of 50,000 shares and (ii) the opportunity for Mr. Kabala to earn an
     additional stock bonus of 25,000 shares of Common Stock and an option to
     purchase 100,000 shares at $4.125 per share upon the closing of the sale of
     the telephony and healthcare businesses and the DCC investment.

          7. All executives, including the Chief Executive Officer, are eligible
     for stock option grants under the employee stock option plans applicable to
     employees generally, as approved by the Compensation Committee. The number
     of options granted to any individual depends on individual performance,
     salary level and competitive data. In addition, in determining the number
     of stock options granted to each senior executive, the Compensation
     Committee reviews the unvested options of each executive to determine the
     future benefits potentially available to the executive. The number of
     options granted will depend in part on the total number of unvested options
     deemed necessary to create a long-term incentive on the part of the
     executive to remain with the Company in order to realize future benefits.

          In 1999, the Committee approved stock option grants for two of the
     four other highest paid executive officers named in the table, Mr. Yacenda
     and Mr. Hopwood, based upon their assuming the positions of President and
     Vice President, Operations, respectively, of eLottery, Inc. and its
     eLotteryFreeWay operations. The Board of Directors and the Compensation
     Committee believes that the option grants were necessary to retain the
     executives and for the successful development and operation of the
     eLotteryFreeWay and implementation of eLottery's new business plan. The
     options are subject to a vesting schedule over three years in order to
     encourage the executives to continue their employment with the Company.

          In conclusion, the Compensation Committee believes that the base
     salary, bonus and stock options of the Company's Chief Executive Officer
     and other executives are appropriate in light of competitive pay practices
     and the Company's performance against short and long-term performance
     goals.

                                            JOHN P. HECTUS
                                            JERRY M. SESLOWE

PERFORMANCE GRAPH

     The graph below compares, for the last five fiscal years, the yearly
percentage change in cumulative total returns (assuming reinvestment of
dividends and interest) of (i) the Company's Common Stock, (ii) the Company's
Debentures, (iii) the NASDAQ Stock Market and (iv) a peer group index
constructed by the Company (the "Peer Group").

     In future years, the Peer Group will be reconfigured to be composed of
companies in the businesses in which eLottery and eLOT are engaged after the
sale of the computer telephony and healthcare communications businesses.

     The current Peer Group for the telephony and healthcare businesses consists
of the following companies:

<TABLE>
<S>                                         <C>
Aspect Telecommunications Corp.             Inter-Tel, Incorporated.
Centigram Communications Corp.              Microlog Corporation
Comdial Corporation                         Mitel Corporation
Davox Corporation                           Norstan, Inc.
Electronic Information Systems, Inc.        Syntellect, Inc.
InterVoice, Inc.                            Teknekron Communications Systems,
                                              Inc.(TCSI)
</TABLE>

     The Peer Group includes companies that, until the sale of the computer
telephony business to Inter-Tel, competed with the Company in the general voice
communications equipment area as well as those active in several more
specialized areas, such as ACD (automatic call distribution), voice mail,
interactive voice
                                       44
<PAGE>   47

response systems, and predictive dialing systems, as well as additional general
voice communications companies. The Company believes that the mix of the
companies in the Peer Group accurately reflected the mix of businesses in which
the Company was engaged until the sale to Inter-Tel and the planned sale of the
healthcare communications business.

     The returns of each Peer Group issuer have been weighted in the graph below
to reflect that issuer's stock market capitalization at the beginning of each
calendar year.

COMPARISON OF FIVE-YEAR CUMULATIVE RETURN

                        AMONG ELOT, INCLUDING THE COMMON
                  STOCK ("ELOT") AND THE DEBENTURES ("ELOTG"),
                    THE NASDAQ (US) INDEX AND THE COMPANY'S
                                   PEER GROUP

                              [PERFORMANCE GRAPH]

                   WEIGHTED AVERAGE CUMULATIVE TOTAL RETURNS

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                       1994         1995         1996         1997         1998         1999
----------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>          <C>          <C>          <C>          <C>
 ELOT                                  $100         $ 71         $ 73         $ 67         $ 54         $167
 NASDAQ                                $100         $141         $174         $213         $300         $556
 PEER GROUP                            $100         $166         $200         $197         $180         $301
 ELOTG                                 $100         $116         $129         $144         $126         $147
</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The members of the Compensation Committee are Jerry Seslowe and John
Hectus.

     No member of the Committee is a former or current officer or employee of
the Company or any subsidiary.

     No executive officer of the Company served as a director or a member of the
Compensation Committee or of the equivalent body of any entity, any one of whose
executive officers serve on the Compensation Committee or the Board of Directors
of the Company.

                                       45
<PAGE>   48

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table lists any person (including any "group" as that term is
used in Section 13(d)(3) of the Exchange Act) who, to the knowledge of the
Company, was the beneficial owner as of February 29, 2000, of more than 5% of
the outstanding voting shares of the Company. Unless otherwise noted, the owner
has sole voting and dispositive power with respect to the securities.

<TABLE>
<CAPTION>
                             NAME AND ADDRESS OF          AMOUNT AND NATURE OF
TITLE OF CLASS                 BENEFICIAL OWNER           BENEFICIAL OWNERSHIP      PERCENT OF CLASS(1)
--------------               -------------------          --------------------      -------------------
<S>                       <C>                             <C>                       <C>
Common Stock              Heartland Advisors, Inc.              6,684,400                 10.45%
                          790 North Milwaukee Street
                          Milwaukee, WI 53202
</TABLE>

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

(1) With respect to the Common Stock, percentages shown are based upon
    63,996,177 shares of Common Stock actually outstanding as of March 31, 2000.
    In cases where the beneficial ownership of the individual or group includes
    options, warrants or convertible securities, the percentage is based on
    63,996,177 shares outstanding, plus the number of shares issuable upon
    exercise or conversion of any such options, warrants or convertible
    securities held by the individual or group. The percentage does not reflect
    or assume the exercise or conversion of any options, warrants or convertible
    securities not owned by the individual or group in question.

     The following table sets forth as of March 31, 2000, the beneficial
ownership of the Company's voting shares by all current directors and nominees
of the Company, the Chief Executive Officer, the four next most highly
compensated executive officers in 1999, and all current directors and executive
officers of the Company as a group. Unless otherwise indicated, each person
listed below has sole voting and investment power over all shares beneficially
owned by him.

<TABLE>
<CAPTION>
                                                    AMOUNT AND NATURE OF
TITLE OF CLASS       NAME OF BENEFICIAL OWNER       BENEFICIAL OWNERSHIP   PERCENTAGE OF CLASS(1)
--------------       ------------------------       --------------------   ----------------------
<S>             <C>                                 <C>                    <C>
Common Stock    James E. Cooke                             226,971(2)            *
                Richard J. Fernandes                        50,000(3)            *
                Philip D. Gunn                             294,500(4)            *
                John P. Hectus                             139,700(5)            *
                Robert W. Hopwood                          189,823(6)            *
                Stanley J. Kabala                          587,206(7)            *
                Jerry M. Seslowe                           652,315(8)            *
                Edward R. Stone, Jr.                       250,161(9)            *
                Michael W. Yacenda                         720,358(10)             1.68%
                All Current Directors and Officers
                  as a Group (9 Persons)                 3,409,681(11)              6.8%
</TABLE>

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

  *  Less than 1% of the class.

 (1) Information is provided as reported to the Company as of March 31, 2000 for
     all owners except James E. Cooke, as to whom the information is provided as
     of December 31, 1999 when he ceased to be an officer of the Company in
     connection with the sale of the computer telephony business. With respect
     to the Common Stock, percentages shown are based upon 63,996,177 shares of
     Common Stock actually outstanding as of March 31, 2000. In cases where the
     beneficial ownership of the individual or group includes options, warrants
     or convertible securities, the percentage is based on 63,996,177 shares
     actually outstanding, plus the number of shares issuable upon exercise or
     conversion of any such options, warrants or convertible securities held by
     the individual or group. The percentage does not reflect or assume the
     exercise or conversion of any options, warrants or convertible securities
     not owned by the individual or group in question.

 (2) Includes 85,000 shares issuable upon exercise of options that were
     exercisable as of January 1, 2000.

                                       46
<PAGE>   49

 (3) Includes 50,000 shares issuable upon exercise of options that are
     exercisable within 60 days of March 31, 2000; does not include 50,000
     shares subject to options that are not exercisable within 60 days of March
     31, 2000.

 (4) Includes 269,500 shares subject to options and 25,000 shares subject to
     warrants that are exercisable within 60 days of March 31, 2000. Also
     includes 254,686 shares of Common Stock owned by Twelve Oaks Liquidating
     Trust, of which Mr. Gunn is a liquidating trustee and in which he holds a
     greater than 10% ownership interest.

 (5) Includes 114,700 shares issuable upon exercise of options and 25,000 shares
     issuable upon exercise of warrants that are exercisable within 60 days of
     March 31, 2000.

 (6) Includes 125,825 shares issuable upon exercise of options that are
     exercisable within 60 days of March 31, 2000; does not include 124,175
     shares subject to options that are not exercisable within 60 days of March
     31, 2000.

 (7) Includes 300,000 shares issuable upon exercise of options that are
     exercisable within 60 days of March 31, 2000.

 (8) Includes 153,600 shares subject to options and 25,000 shares subject to
     warrants that are exercisable within 60 days of March 31, 2000. Also
     includes 25,467 shares of Common Stock owned and 125,000 shares of Common
     Stock subject to exercisable options and warrants held by Resource Holdings
     Associates, of which Mr. Seslowe is a managing director and in which he
     holds a greater than 10% ownership interest.

 (9) Includes 250,000 shares subject to options that are exercisable within 60
     days of March 31, 2000.

(10) Includes 377,475 shares subject to options exercisable within 60 days of
     March 31, 2000, and 3,576 shares issuable upon conversion of the Company's
     Debentures, of which Mr. Yacenda beneficially owns $38,000 in principal
     amount or less than 1% of the outstanding principal amount. Does not
     include 372,525 shares subject to options not exercisable within 60 days of
     March 31, 2000.

(11) Includes 2,186,942 shares issuable upon exercise of options, and 175,000
     shares issuable upon exercise of warrants that are exercisable within 60
     days of March 31, 2000, and 19,671 shares issuable upon conversion of the
     Company's Debentures.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The 1994 Executive Stock Incentive Plan (the "Executive Plan"), approved by
shareholders at the 1994 Annual Meeting, was implemented in October 1994 with 30
employees participating. Under the terms of the Executive Plan, eligible key
employees were granted the right to purchase shares of the Company's Common
Stock at the market price, which was $3.1875 per share at the time of purchase.
Participating employees financed the purchases of these shares through loans by
the Company's bank lender at the prime rate less 1/4%, payable over five years.
The loans were fully-recourse to the participating employees but were guaranteed
by letters of credit from the Company to the lending bank. The Company lent the
employee 85% of the interest due to the bank. The Company held the purchased
Common Stock as security for its guarantees of the repayment of the loans. Sales
of the shares purchased under the Plan were subject to certain restrictions.

     In December 1997, the Compensation Committee of the Board of Directors of
the Company agreed, subject to the Company obtaining the agreement of the
lending bank, that it would allow the participant loans to remain outstanding
until December 2001 instead of requiring repayment in August 1999, and that it
would defer collection from each participant of the 15% of the 1997 interest on
the loans that would otherwise have been currently payable to the Company. The
Committee also decided to waive certain restrictions in the Plan to allow
participants to sell a portion or all of their Plan stock in 1998, subject to
applicable legal requirements and to repayment of the loan with the proceeds of
the shares sold.

     In June 1998, the Board of Directors approved a Transition and Retention
Plan (the "Transition Plan") and offered it to certain participants in the
Executive Plan including all of the executive officers as noted in the table
below. The Transition Plan provides, in exchange for a release of all prior
claims by the participant, defined retention and severance payments, option
grants at current market value and deferral of all loan

                                       47
<PAGE>   50

interest to the participant. A participant in the Transition Plan earned,
through continued employment over a period of three years, a retention payment
of up to 110% of any shortfall of the market value of the Common Stock purchased
with the loan below the loan's outstanding principal and interest. The amount of
this retention payment would have been determined, and the payment become
payable, only if and when the participant's employment with the Company ended
without a prior repayment of the loan. In the event the Company terminates the
participant's employment without cause, or a change of control of the Company
occurs, the retention payment became fully vested and payable immediately. The
Company has the option at any time to repurchase the Purchased Shares from a
Transition Plan participant at the fair market value, in which case the
participant remains liable for any loan balance not repaid from the repurchase
proceeds subject the other terms of the Transition Plan. Under certain
circumstances, such as termination by the Company of the participant's
employment following a change of control or otherwise without cause as defined
in the Transition Plan, the participant is also entitled to continuation of
salary and benefits for nine months.

     The following table contains information about borrowings in excess of
$60,000 by current executive officers and executive officers named in the
Compensation Table that were outstanding during 1999 pursuant to the Executive
Plan and that were or are guaranteed by the Company. The amounts listed below
also include the interest paid by the Company to the bank, reimbursement of
which was owed by the individual to the Company. No director, nominee, or
beneficial owner of more than 5% of any class of voting securities is eligible
for participation in the Executive Plan. All the persons listed below became
fully vested in the retention payment under the Transition Plan as a result of
the sale of the computer telephony business to Inter-Tel on January 1, 2000 and
except as indicated below repaid the loan including accrued interest in full in
2000.

<TABLE>
<CAPTION>
                                                                 HIGHEST AMOUNT
                                                              INDEBTEDNESS BETWEEN        UNPAID
                                                              JANUARY 1, 1998 AND    INDEBTEDNESS AT
                                                                MARCH 31, 2000,      MARCH 31, 2000,
                                                                   INCLUDING            INCLUDING
NAME                                                            ACCRUED INTEREST     ACCRUED INTEREST
----                                                          --------------------   ----------------
<S>                                                           <C>                    <C>
Barbara C. Anderson.........................................       $  257,621            $      0
James E. Cooke III..........................................          435,837                   0
Robert W. Hopwood...........................................          435,216             138,966
Michael W. Yacenda..........................................        1,525,430                   0
</TABLE>

     Certain software development services have been provided to eLottery by
Energenics, whose principal is Robert Hopwood Jr., and by The Winston Group, one
of whose principals was Robert W. Hopwood, Jr., a son of an officer of eLottery,
Inc., Robert W. Hopwood, and by Rosewood Computing, one of whose principals is
Mark Hopwood, another son of Mr. Hopwood. During 1999, eLottery incurred
$335,864, $135,700, and $98,663, respectively, in fees from these firms. The
contracts with these companies were entered into on terms eLottery believes are
as favorable as would have been obtained through arm's-length negotiations with
an independent third party.

     On August 2, 1999, the Board of Directors approved, with Mr. Seslowe
abstaining, the issuance to Resource Holdings Associates, an investment banking
firm in which Mr. Seslowe has more than a 10% interest, of a warrant to purchase
100,000 shares of common stock at a price of $3.00 per share, as compensation
for certain investment banking services provided and to be provided to the
company. Management believes the compensation paid for these services to be as
least at favorable to the company as would have been obtained though
arm's-length negotiations with an independent third party.

     On January 13, 2000, the Company acquired from Twelve Oaks Liquidating
Trust 254,686 shares (or approximately 4%) of the outstanding common stock of
Dialogic Communications Corp. ("DCC"), of which the Company already owned
approximately 47% of the issued and outstanding common stock. The purchase price
for the DCC shares was 254,656 shares of newly issued shares of the Company's
Common Stock. Twelve Oaks Liquidating Trust is a liquidating trust for Twelve
Oaks Capital Limited Partners, of which Philip D. Gunn, a director of the
Company and Interim CEO of eLottery, Inc., was the general partner and held a
greater than 10% interest. Mr. Gunn is also the Liquidating Trustee for the
Trust. The Company believes the acquisition of the DCC shares gave the Company
over 51% of the voting stock of DCC and will make the sale

                                       48
<PAGE>   51

of the DCC investment both easier to accomplish and more profitable to eLOT.
Management believes the purchase price paid for the DCC shares to be as least at
favorable to the Company as would have been obtained though arm's-length
negotiations with a third party not affiliated with the Company.

                                    PART IV

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

     (a)(1), (a)(2) and (d). The financial statements required by this item and
incorporated herein by reference are as follows:

          Report of Independent Public Accountants

          Consolidated Balance Sheets -- December 31, 1999 and 1998

          Consolidated Statements of Operations -- Years ended December 31,
     1999, 1998 and 1997

          Consolidated Statements of Changes in Stockholders' Equity -- Three
     years ended December 31, 1999

          Consolidated Statements of Cash Flows -- Years ended December 31,
     1999, 1998 and 1997

          Notes to Consolidated Financial Statements

     The schedule to consolidated financial statements required by this item and
included in this report is as follows:

          Report of Independent Public Accountants on Schedule

          Schedule II -- Valuation and Qualifying Accounts

     (a)(3) and (c). The exhibits required by this item and included in this
report or incorporated herein by reference are as follows:

<TABLE>
<CAPTION>
      EXHIBIT NO.
      -----------
<C>                      <S>
          2-1            -- Agreement and Plan of Merger by and among EXECUTONE
                            Information Systems, Inc., Executone Newco, Inc., and
                            Unistar Gaming Corp., dated as of December 19, 1995.
                            Incorporated by reference to the Registrant's Current
                            Report on Form 8-K dated January 3, 1996.
          3-1            -- Articles of Incorporation, as amended through December
                            18, 1995. Incorporated by reference to the Registrant's
                            Annual Report on Form 10-K for the year ended December
                            31, 1995, filed on April 15, 1996.
          3-2            -- Articles of Amendment dated and filed December 19, 1995,
                            amending the Company's Articles of Incorporation.
                            Incorporated by reference to the Registrant's Current
                            Report on Form 8-K dated January 3, 1996.
          3-3            -- Articles of Amendment filed January 4, 2000, amending the
                            Company's Articles of Incorporation. Incorporated by
                            reference to the Registrant's Annual Report on Form 10-K
                            for the year ended December 31, 1999, filed on March 30,
                            2000.
          3-4            -- Bylaws, as amended. Incorporated by reference to the
                            Registrant's Registration Statement on Form S-3 (File No.
                            33-62257) filed August 30, 1995.
          4-10           -- Indenture dated March 1, 1986 with United States Trust
                            Company of New York relating to 7 1/2% Convertible
                            Subordinated Debentures of Vodavi Technology Corporation
                            due March 15, 2011. Incorporated by reference to Vodavi
                            Technology Corporation's Registration Statement on Form
                            S-1 (as amended) (Registration No. 33-3827) filed on
                            March 9, 1986 and amended April 1, 1986.
</TABLE>

                                       49
<PAGE>   52

<TABLE>
<CAPTION>
      EXHIBIT NO.
      -----------
<C>                      <S>
          4-11           -- First Supplemental Indenture dated August 4, 1989 with
                            United States Trust Company of New York relating to
                            7 1/2% Convertible Subordinated Debentures due March 15,
                            2011. Incorporated by reference to the Registrant's
                            Annual Report on Form 10-K for the year ended December
                            31, 1989.
          4-12           -- Specimen Certificate representing 7 1/2% Convertible
                            Subordinated Debentures. Incorporated by reference to the
                            Registrant's Annual Report on Form 10-K for the year
                            ended December 31, 1989.
         10-1            -- 1984 Employee Stock Purchase Plan of EXECUTONE
                            Information Systems, Inc. Incorporated by reference to
                            the Registrant's Registration Statement on Form S-8 (File
                            No. 33-23294) declared effective by the Commission on
                            August 23, 1988.
         10-2            -- 1986 Stock Option Plan of EXECUTONE Information Systems,
                            Inc. Incorporated by reference to the Registrant's
                            Registration Statement on Form S-8 (File No. 33-23294)
                            declared effective by the Commission on August 23, 1988.
         10-3            -- 1999 Stock Incentive Plan. Incorporated by reference to
                            the Registrant's definitive Proxy Statement ( Form 14A)
                            filed on November 18, 1999.
         10-6            -- 1990 Directors' Stock Option Plan as amended July 30,
                            1996. Incorporated by reference to the Registrant's
                            Annual Report on Form 10-K for the year ended December
                            31, 1996, filed on March 31, 1997.
         10-7            -- 1994 Executive Stock Incentive Plan. Incorporated by
                            reference to the Registrant's Annual Report on Form 10-K
                            for the year ended December 31, 1994.
         10-8            -- 1998 Transition and Retention Plan. Incorporated by
                            reference to the Registrant's Annual Report on Form 10-K
                            for the year ended December 31, 1998.
         10-20           -- Warrant to Purchase 25,000 shares of Common Stock of the
                            Registrant, in favor of Jerry M. Seslowe, dated February
                            1, 1996. Incorporated by reference to the Registrant's
                            Annual Report on Form 10-K/A for the year ended December
                            31, 1996 filed on April 30, 1997.
         10-21           -- Warrant to Purchase 25,000 shares of Common Stock of the
                            Registrant, in favor of John P Hectus, dated November 18,
                            1998. Incorporated by reference to the Registrant's
                            Annual Report on Form 10-K/A for the year ended December
                            31, 1998.
         10-22           -- Warrant to Purchase 25,000 shares of Common Stock of the
                            Registrant, in favor of Philip D. Gunn, dated May 21,
                            1999. Incorporated by reference to the Registrant's
                            Annual Report on Form 10-K for the year ended December
                            31, 1999, filed on March 30, 2000.
         21              -- Subsidiaries of eLOT, Inc. Incorporated by reference to
                            the Registrant's Annual Report on Form 10-K for the year
                            ended December 31, 1999, filed on March 30, 2000.
         23              -- Consent of Arthur Andersen LLP. Filed herewith.
         27              -- Financial Data Schedule. Previously filed.
</TABLE>

UNDERTAKINGS

     For the purposes of complying with the rules governing Form S-8 under the
Securities Act of 1933, the undersigned registrant hereby undertakes as follows,
which undertaking shall be incorporated by reference into registrant's
Registration Statements on the following Form S-8 filings:

          S-8 Reg. No. 2-91008 filed May 9, 1984 on 1983 Employee Stock Purchase
     Plan (650,000 shares)

          S-8 Reg. No. 33-959 filed October 17, 1985 on 1984 Stock Option Plan
     (390,000 shares)

                                       50
<PAGE>   53

          S-8 Reg. No. 33-6604 filed June 19, 1986 on 1983 Stock Option Plan
     (350,000 shares)

          S-8 Reg. No. 33-16585 filed August 24, 1987 on 1986 and 1983 Stock
     Option Plans (800,000 shares)

          S-8 Reg. No. 33-23294 filed August 23, 1988 on 1986 Stock Option Plan
     (7,000,000 shares) and Employee Stock Purchase Plan (500,000 shares)

          S-8 Reg. No. 33-42561 filed September 4, 1991 on 1984 Employee Stock
     Purchase Plan (350,000 shares) and Directors' Stock Option Plan (100,000
     shares)

          S-8 Reg. No. 33-45015 filed January 2, 1992 on 1984 Employee Stock
     Purchase Plan (400,000 shares)

          S-8 Reg. No. 33-57519 filed January 31, 1995 on 1984 Employee Stock
     Purchase Plan (1,000,000 shares).

          S-8 Reg. No. 333-34346 filed April 7, 2000 on 1999 Stock Incentive
     Plan (13,000,000 shares).

     Insofar as indemnification arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to the court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

REPORTS ON FORM 8-K

     The Registrant filed no reports on Form 8-K during the quarter ended
December 31, 1999.

                                       51
<PAGE>   54

                                   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.

                                            eLOT, Inc.

                                            By:   /s/ BARBARA C. ANDERSON
                                              ----------------------------------
                                                     Barbara C. Anderson,
                                                    Senior Vice President

April 26, 2000
Norwalk, Connecticut

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

<TABLE>
<CAPTION>
                        NAME                                         TITLE                        DATE
                        ----                                         -----                        ----
<C>                                                    <S>                                 <C>

                /s/ STANLEY J. KABALA                  Chairman, President and Chief         April 26, 2000
-----------------------------------------------------    Executive Officer (Principal
                  Stanley J. Kabala                      Executive Officer)

              /s/ EDWARD W. STONE, JR.                 Senior Vice President, Finance,       April 26, 2000
-----------------------------------------------------    and Chief Financial Officer
                Edward W. Stone, Jr.                     (Principal Financial and
                                                         Accounting Officer)

                                                       Director                              April 26, 2000
-----------------------------------------------------
                Richard J. Fernandes

                 /s/ PHILIP D. GUNN                    Director                              April 26, 2000
-----------------------------------------------------
                   Philip D. Gunn

                 /s/ JOHN P. HECTUS                    Director                              April 26, 2000
-----------------------------------------------------
                   John P. Hectus

                /s/ JERRY M. SESLOWE                   Director                              April 26, 2000
-----------------------------------------------------
                  Jerry M. Seslowe
</TABLE>

                                       52
<PAGE>   55

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
eLOT, Inc.:

     We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of eLOT, Inc. and subsidiaries included in
this Form 10-K, and have issued our report thereon dated February 4, 2000. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in Item 14 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

                                            ARTHUR ANDERSEN LLP

Stamford, Connecticut
February 4, 2000

                                       53
<PAGE>   56

                                                                     SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                            ADDITIONS           DEDUCTIONS
                                                    -------------------------   ----------
                                                      CHARGED       CHARGED
                                       BALANCE AT    (CREDITED)    (CREDITED)
                                       BEGINNING    TO COSTS AND    TO OTHER                  BALANCE AT
DESCRIPTION                            OF PERIOD      EXPENSES      ACCOUNTS     PAYMENTS    END OF PERIOD
-----------                            ----------   ------------   ----------   ----------   -------------
                                                             (AMOUNTS IN THOUSANDS)
<S>                                    <C>          <C>            <C>          <C>          <C>
Year Ended December 31, 1999
  Reserve for Discontinued
     Operations......................    $5,424        $1,320          --        $(4,364)       $2,480
Year Ended December 31, 1998
  Reserve for Discontinued
     Operations......................        --         9,028          --         (3,604)        5,424
Year Ended December 31, 1997
  Reserve for Discontinued
     Operations......................        --            --          --             --            --
</TABLE>

                                       54