<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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

                        COMMISSION FILE NUMBER 001-12986

                          INTERLOTT TECHNOLOGIES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

       DELAWARE                                           31-1297916
(State of incorporation)                                 (IRS Employer
                                                      Identification Number)

                     7697 INNOVATION WAY, MASON, OHIO 45040
          (Address of principal executive offices, including zip code)

                                 (513) 701-7000
              (Registrant's telephone number, including area code)

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

TITLE OF EACH CLASS                   NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.01 Par Value                  American Stock Exchange

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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 the 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. [ ]


<PAGE>

The aggregate market value of the Registrant's outstanding Common Stock held by
non-affiliates of the Registrant on March 20, 2002 was $14,622,192. There were
6,449,379 shares of Common Stock outstanding as of March 20, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of
Stockholders to be held on May 2, 2002 are incorporated by reference in Part III
hereof.



                                       2
<PAGE>




                          INTERLOTT TECHNOLOGIES, INC.
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

ITEM
NUMBER                                                                                                              PAGE
------                                                                                                              ----
<S>                                                                                                             <C>
PART I.............................................................................................................   4
   1.      Business................................................................................................   4
   2.      Properties..............................................................................................  17
   3.      Legal Proceedings.......................................................................................  18
   4.      Submission of Matters to a Vote of Security Holders.....................................................  19

PART II............................................................................................................  19
   5.      Market for the Registrant's Common Stock and Related Stockholder Matters................................  19
   6.      Selected Financial Data.................................................................................  20
   7.      Management's Discussion and Analysis of Financial Condition and Results of
           Operations..............................................................................................  20
   7(A).   Quantitative and Qualitative Disclosures About Market Risk..............................................  31
   8.      Financial Statements and Supplementary Data.............................................................  31
   9.      Changes In and Disagreements With Accountants on Accounting and Financial Disclosure....................  52

PART III...........................................................................................................  52
   10.     Directors and Executive Officers of the Registrant......................................................  53
   11.     Executive Compensation..................................................................................
   12.     Security Ownership of Certain Beneficial Owners and Management..........................................
   13.     Certain Relationships and Related Transactions..........................................................

PART IV............................................................................................................  53
   14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................  53

           SIGNATURES..............................................................................................  55
           INDEX OF FINANCIAL STATEMENT SCHEDULES.................................................................. S-1
           INDEX OF EXHIBITS....................................................................................... E-1
</TABLE>


                                       3
<PAGE>


                                     PART I

ITEM 1. BUSINESS

         Interlott Technologies, Inc. (the "Company" or "Interlott") is engaged
primarily in the design, manufacture, sale, lease and service of instant-winner
lottery ticket vending machines ("ITVMs"). ITVMs are used by public lotteries
operated by states and international public entities to dispense instant winner
lottery tickets primarily in retail locations such as supermarkets and
convenience stores. An instant lottery commonly is played by players scratching
off a latex coating from a pre-printed ticket or tearing pull-tabs from a
pre-printed ticket to determine the outcome of the game. The Company's ITVMs
dispense instant lottery tickets directly to players, thereby permitting the
retailer or agent to sell tickets without disrupting the normal duties of its
employees.

         On June 1, 2001, the Company completed the acquisition of the lottery
assets of On-Point Technology Systems, Inc. of San Marcos, California. The
assets acquired included patents, technology, accounts receivable of $1.0
million, $3.4 million of inventory, service contracts and lease contracts for
the New York, Illinois, Virginia and Missouri state lotteries. The purchase
price included approximately $13 million paid at closing, deferred payments of
$9 million payable, subject to adjustment, over 5 years, and an earn-out of up
to $6 million based upon certain future revenues. In addition, at the closing
Interlott and On-Point entered into a separate agreement to market a patented
design for an on-line activated instant lottery ticket.

         The Company's ITVMs dispense scratch-off instant lottery tickets using
a dispensing process that incorporates the Company's patented "burster
technology." The Company believes that this burster technology is superior to
any other ITVM scratch-off dispensing technology on the market and considers it
to be a key to its marketing efforts and the ITVM procurement decisions of the
various lotteries. The Company is unaware of any competitor that incorporates a
substantially equivalent or superior scratch-off dispensing mechanism in its
ITVMs. To dispense pull-tab instant lottery tickets, the Company has developed
an ITVM that incorporates a patented dispensing technology which is different
than the burster technology but that is also believed by the Company to be
superior to any other currently available pull-tab dispensing technology. ITVMs
that dispense pull-tab tickets are sometimes referred to herein as "pull tab
vending machines" or "PTVMs." The term "ITVM" includes both scratch-off vending
machines and PTVMs unless the context indicates otherwise.

         As of December 31, 2001, the Company had sold or leased over 27,000
ITVMs through agreements with 29 different state lotteries and the District of
Columbia and 14 international jurisdictions, or their licensees or contractors.
The Company was awarded five of the five contracts that were awarded to the
industry in 2001.

         Taking advantage of its expertise in dispensing technology, the Company
introduced a prepaid phone card dispensing machine ("PCDM") in 1995 that enables
providers of long distance telephone service to dispense prepaid telephone
calling cards in retail locations without the assistance of an employee of the
retailer. The dispensing process used in the Company's PCDM incorporates the
same patented technology used in the Company's PTVM, and the Company believes
that this dispensing technology is superior to any other PCDM dispensing


                                       4
<PAGE>

technology on the market. Although PCDM revenues in 2001 represented less than
1% of total revenues, the Company continues to believe that PCDMs may be a
source of future sales growth.

         Interlott is a Delaware corporation. The Company's Common Stock trades
on the American Stock Exchange under the symbol "ILI."

PRODUCTS

         The ITVM

         In 1987, Edmund F. Turek, a director of and consultant to the Company,
developed the technology for what the Company believes was the first automated
ITVM. The burster dispensing technology is a key component of the Company's ITVM
for scratch-off instant lottery tickets and is protected by a patent that the
Company acquired from Mr. Turek's family-owned corporation. See "Patents,
Trademarks and Copyrights" below.

         The Company's ITVMs automatically dispense instant lottery tickets upon
payment from the user. The burster technology in the Company's ITVMs
automatically separates one scratch-off instant ticket from another along the
perforations between tickets to help prevent tearing of the tickets or scarring
of the latex on the tickets. This technology also enables the Company's ITVMs to
dispense and account for virtually any known type of scratch-off instant lottery
ticket, allowing the use of a wide range of sizes, shapes, paper stocks or
perforations, without the intervention of a lottery retailer or agent. This
feature allows a lottery to purchase virtually all types of scratch-off instant
tickets from its instant ticket manufacturer without having to request from the
manufacturer major alterations in the ticket perforations. For example, the
Company's ITVM can dispense recyclable scratch-off tickets without tearing or
scarring the tickets. This feature also is particularly beneficial to
international lottery jurisdictions that may use non-standard sizes, shapes and
paper stocks. In addition, the ITVM for scratch-off tickets is faster than
manual sales of scratch-off tickets as the ITVM's entire dispensing process is
completed in less than 1.5 seconds once the ticket selector button has been
pushed.

         The Company's ITVMs for scratch-off tickets have a record of
reliability. The Company believes that the mean time between failure of its
ITVMs is approximately 3.75 years and that the mean time to repair is
approximately 15 minutes.

         Since the introduction of the Company's modular Expandable Dispensing
System (EDS) in 2000, the Company's ITVM for scratch-off tickets has had the
capacity to dispense tickets from one to 24 different bins. Because each bin can
dispense tickets of different sizes, paper stocks and price levels, lotteries
can sell scratch-off tickets for up to 24 different instant-winner games with a
single ITVM. The ITVM can accommodate up to 24,000 tickets in the 24-game unit
and can dispense all tickets in the bin without manual intervention. When all of
the tickets in a bin have been dispensed, tickets can be easily reloaded by an
employee of the retailer or agent. The ability of the Company's ITVM to dispense
every ticket in each bin not only facilitates the ticket reloading process but
also enhances the accuracy of the inventory and accounting functions.


                                       5
<PAGE>

         All of the Company's ITVMs accept bills in $1, $2, $5, $10 and $20
denominations and, in some applications, accept international currency. The size
of the Company's ITVM for scratch-off tickets varies from 69 inches tall, 28
inches wide and 33.5 inches deep for a 24-game unit to 19.75 inches tall, 15.5
inches wide and 20.5 inches deep for a countertop unit.

         All models are anchored to the floor or counter. The ITVMs typically
are custom designed to meet any color and other appearance specifications
requested by a lottery. All models are Underwriters Laboratory ("UL((R))")
listed and Federal Communications Commission ("FCC") approved, which ensures
that the ITVM has passed nationally recognized safety standards and stringent
requirements designed to preclude machine damage and personal injury due to
non-approved components, devices, installation or application.

         Each ITVM is standardized with an information display that provides the
player with easy-to-read instructions on how to use the machine and gives the
lottery retailer or agent the ability to read sales reports without printing the
report. The ITVM can be ordered with a "BETA BRITE((R))" multi-color LED sign
mounted on the top of the ITVM which is intended to increase attention to the
machine and thereby increase ticket sales. The BETA BRITE((R)) sign is
programmed at the Company's manufacturing facility and can display any message
the lottery may desire. The BETA BRITE((R)) also may be programmed by the
retailer or agent or can be programmed from the lottery headquarters by
utilizing the Company's optional modem communications system.

         For security and durability purposes, each of the Company's ITVM
cabinets is manufactured with 16 gauge and 11 gauge steel. The surface of the
ITVM is coated with durable and fade resistant paints. The display windows are
fabricated from a flame resistant, high impact polycarbonate sheet material.
This material is shatter resistant and, to date to the knowledge of the Company,
none of the Company's installed ITVMs has had a polycarbonate window broken or
shattered. Additionally, to the knowledge of the Company, the cabinets have not
had any fading, marring, scratching, chipping or rusting. All of the Company's
ITVMs are manufactured with high security locks which are coded to prevent
unauthorized duplication, and each ITVM is keyed separately, except for ITVMs
deployed in Maryland where the Lottery desired a master key system. For further
security, each of the Company's bill acceptor units must be accessed with a key
unique to the particular acceptor unit.

         All of the Company's ITVMs for scratch-off tickets utilize copyrighted
software that can supply up to 12 different reports for accounting and inventory
purposes. These reports can provide to the lottery and its retailers or agents a
complete summary of daily sales, weekly sales, total sales, sales by game,
current status of the machine, inventory of the product currently in the ITVM,
the last three transactions of the ITVM and other types of information. The
software system allows for a simple diagnostic test to identify any malfunction
of the ITVM. The diagnostic mode communicates various information such as ticket
size setting, status of electronics, status of each game and other information
concerning the system software. The Company's ITVM software system may be
programmed to the detail specifications of the specific lottery.

         To dispense pull-tab instant lottery tickets, the Company's PTVM uses
the same technology, design and specifications as are incorporated in the
Company's PCDM, described below.


                                       6
<PAGE>

         The PCDM

         Like the Company's ITVM for scratch-off tickets, the key component of
the Company's PCDM is the dispensing technology. The Company has the exclusive
right to the use of this patented dispensing technology, which it acquired from
a company owned by Kazmier J. Kasper, a director of the Company.

         Similar to the Company's ITVM for scratch-off tickets, the Company's
PCDM automatically dispenses prepaid telephone calling cards upon payment from
the user. The dispensing technology in the Company's PCDM automatically pulls
one prepaid telephone calling card from the bottom of the stack of cards without
the jamming that is associated with other dispensing processes. The Company's
dispensing technology also enables the Company's PCDM to dispense and account
for virtually any known thickness of calling card without the intervention of
the retailer. In addition, the PCDM is faster than manual sales of prepaid
telephone calling cards as the PCDM's entire dispensing process is completed in
less than three seconds once the selector button has been pushed.

         The Company's PCDMs have the capacity to dispense cards from two to six
different bins. The PCDM can accommodate up to 3,600 cards in the six-bin unit
and can dispense all prepaid telephone calling cards in the bin without manual
intervention. When all of the cards in a bin have been dispensed, cards easily
can be reloaded by an employee of the retailer. The ability of the Company's
PCDM to dispense every card in each bin not only facilitates the card reloading
process but also enhances the accuracy of the inventory and accounting
functions.

         All of the Company's PCDMs accept bills in $1, $2, $5, $10 and $20
denominations and, in some applications, accept international currency. The size
of the Company's PCDMs varies from 66 inches tall, 26 inches wide and 19 inches
deep for a six-bin dispenser unit to 22 inches tall, 14 inches wide and 10
inches deep for a countertop unit. All models are anchored to the floor or
counter, except that the two bin model may be mounted on an optional pedestal.
All models are UL((R)) listed and FCC approved. Each PCDM is standardized with
an information display that provides the user with easy-to-read instructions on
how to use the machine and gives the retailer the ability to read sales reports
without printing the report.

         For security and durability purposes, each of the Company's PCDM
cabinets is manufactured with 16 gauge and 11 gauge steel. The surface of the
PCDM is coated with durable and fade resistant paints. The display windows are
fabricated from a flame resistant, high impact polycarbonate sheet material. To
the knowledge of the Company, the cabinets have not had any fading, marring,
scratching, chipping or rusting. All of the Company's PCDMs are manufactured
with high security locks that are coded to prevent unauthorized duplication, and
each PCDM is keyed separately. For further security, each of the Company's bill
acceptor units must be accessed with a key unique to the particular acceptor
unit.

         All of the Company's PCDMs utilize copyrighted software that can supply
up to twelve different reports for accounting and inventory purposes. These
reports can provide retailers a complete summary of daily sales, weekly sales,
total sales, sales by bin, current status of the machine, inventory of the
product currently in the PCDM, the last three transactions of the PCDM and other
types of information. The software system allows for a simple diagnostic test to
identify any malfunction of the PCDM.


                                       7
<PAGE>

MARKETING AND SALES

         ITVMs

         The Company markets its ITVMs to both domestic and international
lotteries and their licensees or prime contractors. The Company attends lottery
and gaming trade shows, maintains personal contact with lottery officials
through its sales force and advertises in trade publications to increase its
presence in the lottery industry.

         The focus of the Company's marketing strategy is on the superior
performance and reliability of its ITVMs, as well as continued competitive
pricing. Information developed through actual field use and product field tests
demonstrates that a significant factor in increasing instant ticket sales is the
reliability of the ITVM. Increased maintenance visits impair the ITVM "uptime,"
which in turn reduce ticket sales. The Company believes that its ITVMs, based on
actual field performance and product testing, are the most reliable and
technologically superior in the industry. The Company's ITVMs require preventive
maintenance only twice a year. The ITVM "downtime" resulting from this
semi-annual preventive maintenance averages approximately 20 minutes.

         To further increase the likelihood of receiving ITVM orders from
lotteries, the Company offers flexible financing alternatives to the lotteries.
The Company believes that many state lotteries, due to budget considerations,
cannot afford the high capital costs required to purchase ITVMs. However, if the
Company can provide attractive variations of its standard and percentage lease
financing options for the lotteries, the lotteries can more affordably deploy
ITVMs.

         The Company is expanding its marketing presence with the retail grocers
associations, convenience store operators associations, retail stores at both
the corporate and store levels, and other types of corporate or association
member entities to familiarize these groups with the Company's ITVM. These
retailers are the lotteries' distribution system for all scratch-off and
PULL-tab lottery tickets. While the lotteries must abide by the established
procurement laws of their respective jurisdictions in selecting an ITVM
manufacturer, in many lottery jurisdictions retailer advisory boards provide
input to the lotteries on various issues affecting the lottery. The Company
believes that retailers' opinions are a significant factor in a customer's
decision regarding which manufacturer's ITVM to deploy in its instant ticket
distribution system.

         On occasion, the Company participates in cooperative supply
arrangements with other lottery suppliers. These arrangements allow lotteries to
reduce their operating costs and provide a more efficient means for contracting
products and services. The Company's ITVMs are deployed in Pennsylvania and West
Virginia pursuant to cooperative supply arrangements between the Company and
Automated Wagering, Inc., which is the primary contractor for the Pennsylvania
and West Virginia Lotteries. ITVMs are deployed in Georgia pursuant to a
cooperative supply arrangement with Scientific Games, Inc. and in California and
New Jersey pursuant to maintenance or purchase agreements between the Company
and GTECH Corporation, which is the on-line supplier to both Lotteries. The
Company is responsible for installing, servicing and maintaining the ITVMs in
Georgia but is not required to provide preventive maintenance or servicing for
the ITVMs supplied for use in Pennsylvania, West Virginia, California and New
Jersey.

                                       8
<PAGE>

         PCDMs

         The Company has been marketing its PCDMs since late 1995 and to date
has employed a marketing strategy that is similar to the strategy that it has
used successfully to market its ITVMs. The focus of the Company's marketing
strategy is on the superior performance and reliability of its PCDMs as well as
on competitive pricing. The Company markets its PCDMs to both domestic and
international providers of long distance telephone service. The Company attends
telecommunications trade shows, maintains personal contact with
telecommunications companies through its sales force and advertises in trade
publications to increase its presence in the telecommunications industry.

         The Company is expanding its marketing presence with the retail grocers
associations, convenience store operators associations, retail stores at both
the corporate and store levels, and other types of corporate or association
member entities to familiarize these groups with the Company's PCDM. These
retailers are the distribution system for prepaid telephone calling cards. To
further increase the likelihood of receiving PCDM orders from sellers of prepaid
telephone calling cards, the Company is offering additional and more flexible
financing alternatives; however, almost all the PCDMs in the field today have
been sold rather than leased.

CONTRACTS

         ITVMs

         The Company's lottery contracts typically are entered into following a
competitive bidding process. Once a lottery has determined to utilize ITVMs in
its distribution network, the lottery usually will request proposals from ITVM
providers. Lotteries within the United States typically follow a procedure
whereby the lottery issues a Request for Proposal ("RFP") to determine the
contract award for installation of ITVMs. The RFP generally seeks information
concerning each company's products, cost of the products or services to be
provided, quality of management, experience in the industry and other factors
that the lottery may deem material to a contract award. The RFP also may specify
product criteria and other qualifications or conditions that must be satisfied,
such as UL((R)) listing and FCC approval of the ITVM and in-state or minority
supplier requirements. Generally, a committee of key lottery staff members
evaluates the proposals based on an established point system, and the contract
is awarded to the company with the most points.

         The nature of the RFP process varies from jurisdiction to jurisdiction.
The length of time that a lottery might take to award a contract can be
difficult to predict, and delays in the contract award process are frequent.
Additionally, the point system or the weighting of the various points varies
from jurisdiction to jurisdiction, which often makes it difficult for the
bidding companies to determine the relative importance of the various factors to
be considered by the evaluation committee. In certain cases the contract award
is challenged by the losing bidder, which can result in protracted legal
proceedings for all parties.

         The Company offers lotteries a choice of three types of contracts: (i)
Standard Lease Agreements, (ii) Sales Agreements, and (iii) Percentage Lease
Agreements. ITVM lease revenues as a percentage of the Company's total revenues
were 75.7%, 42.2% and 42.9% in 1999, 2000 and 2001, respectively.


                                       9
<PAGE>

         The Standard Lease Agreements provide that the lottery will pay a fixed
monthly price per machine for a specific period of time. These agreements
typically specify a number of years for the initial contract term with
additional option periods at the election of the lottery. The lottery may award
a separate service contract for the maintenance of the machines, incorporate the
cost of service into the established monthly lease price or perform machine
service itself. Similar arrangements are available for replacement parts for the
ITVMs.

         As noted above, the lease payments provided for in the typical Standard
Lease Agreement are fixed in most cases during the term of the agreement, and
these agreements typically permit the lottery to order additional ITVMs at any
time during the lease term. If the lottery orders a significant number of ITVMs
near the end of the lease term, the Company would have to incur significant
manufacturing costs but may receive lease payments for only a relatively short
period of time through the remainder of the lease term. However, the Company
believes that it is more likely that the lottery would elect to extend the lease
term rather than return the ITVMs after only a short period of use.
Additionally, the Company is unable to pass along to the lottery any increases
in its manufacturing and service costs during the term of the typical Standard
Lease Agreement. In the case of a Standard Lease Agreement which provides for a
short initial term (such as one year) with an option for the lottery to extend
the lease term for additional one-year periods, if the lottery does not extend
the initial lease term, the Company might incur a loss on the manufacture of the
ITVMs leased to the lottery under the initial lease agreement.

         Sales Agreements typically provide that the lottery will buy a certain
number of ITVMs over a specific period of time. Under the Sales Agreement, the
lottery generally pays for the ITVMs when delivered and has complete ownership
of the ITVMs. The lottery usually will contract with the vendor to maintain and
service the ITVMs, although some lotteries provide the maintenance and service
with their own service staffs. The lottery generally will enter into a parts
replacement contract with the vendor for replacement parts.

         Percentage Lease Agreements provide that the lottery will pay a
percentage of sales for tickets sold through our ITVMS. This amount will vary
depending upon the location of the machine, the number of games available and
the general trends in instant lottery sales.

         All types of ITVM contracts typically contain stringent installation,
performance and maintenance requirements. Failure to perform the contract
requirements may result in significant liquidated damages or contract
termination. To date, the Company has not had to pay any liquidated damages or
had any contract terminated by any lottery.

         The Company's lottery contracts also typically require the Company to
indemnify the lottery, its officers and retailers for any liabilities arising
from the operation of the ITVMs or any services provided by the Company. The
Company maintains liability insurance, fidelity insurance and performance and
litigation bonds to protect itself and the lottery from potential liability. No
such indemnification or insurance claims have ever been asserted against the
Company.

         The Company's contracts generally have an initial term of one to five
years with options to extend the duration of the contracts for periods between
one and five years. The option extensions generally are under the same terms and
conditions as the original contract. The

                                       10
<PAGE>

Company's contracts with lotteries, like most other types of state contracts,
typically permit a lottery to terminate the contract upon 30 days written notice
for any reason. Upon termination of a lease contract, the lottery would return
the leased equipment to the Company. To date, no lottery has terminated its
contract with the Company.

         Twenty seven states and the District of Columbia currently utilize
ITVMs in some manner as part of their instant ticket distribution system. As of
December 31, 2001, Company ITVMs were deployed in all of these states and the
District of Columbia as well as in 14 international jurisdictions. The Company
currently has 11,086 ITVMs under lease with 18 states and the District of
Columbia. These leases expire on various dates through 2005. In certain cases,
the Company's contracts are with third parties who are the primary contractors
to the lottery. See "Marketing and Sales - ITVMs" above. During 2001, the
Company's contract with the Massachusetts Lottery for the sale of ITVMs
accounted for 27% of the Company's revenues and a lease contract with Ohio
accounted for 9%.

         PCDMs

         Unlike the competitive bidding process applicable to the lotteries'
awards of ITVM contracts, purchasers of PCDMs typically do not issue RFPs or
otherwise mandate a competitive bidding process. Information regarding the
Company and its PCDM, and information regarding a telephone company's product
needs and criteria and other qualifications or conditions that must be
satisfied, typically is exchanged on a less formal basis in sales presentations
and subsequent meetings between representatives of the Company and
representatives of the telephone company.

         Most PCDMs to date have been acquired through purchase orders rather
than contracts and are sold rather than leased. Like contracts with the
lotteries, the purchase orders may contain stringent installation, performance
and service requirements. As of December 31, 2001, the Company had sold 931
PCDMs.

MANUFACTURING PROCESS

         The manufacturing process consists of purchasing component parts,
assembling the ITVMs and PCDMs and then testing the final products. Generally,
the Company's machines use components which are built to Company specifications
and are available from multiple sources. The Company has a primary vendor and
secondary suppliers for most of its components and typically has been able to
obtain adequate supplies of required components on a timely basis.. However,
certain important components, such as components of the Company's ITVM burster,
PTVM dispensing mechanism and PCDM dispensing mechanism currently are purchased
from a single source. Because other suppliers exist that can duplicate these
components should the Company elect or be forced to use a different supplier,
the Company does not believe that a change in suppliers would result in the
termination of a production contract. However, the Company could experience a
delay of 30 to 60 days in production which could adversely affect the Company's
ability to make timely deliveries of machines and to obtain new contracts. The
single-source supplier of certain components of the Company's burster mechanism,
PTVM dispensing mechanism and PCDM dispensing mechanism is Algonquin Industries,
Inc. Kazmier J. Kasper, a director of the Company, is the President and owner of
Algonquin Industries. See "Item 13. Certain Relationships and Related
Transactions. "


                                       11
<PAGE>

         The Company assembles the components utilizing a core group of
manufacturing employees and, on an as-needed basis, contracting with employment
agencies for appropriately trained manufacturing labor. The use of temporary,
contract manufacturing labor gives the Company the flexibility to meet the
production schedules required by large orders.

         The Company's manufacturing facility has the capacity to produce
approximately 300 machines per week.

RESEARCH AND PRODUCT DEVELOPMENT

         The Company continually seeks to enhance its existing product lines and
to develop new products and has developed many of the technological advancements
used in the ITVM industry. The Company was the first to obtain UL((R)) listing
and FCC approval. The Company also was the first to (i) manufacture and deliver
ITVMs under a lease contract agreement, (ii) offer a "random play" push button
selector option through which the ITVM rather than the player randomly selects
the game to be played and (iii) receive patent protection for the technology
used in its ITVM burster dispensing mechanism.

         The Company currently employs several engineers and technicians for
research and development. To reduce costs, the Company subcontracts the majority
of its research and development projects to independent contractors. The
Company's copyrighted software is upgraded continually to meet the different
demands of the various lotteries. In many instances, after an ITVM feature has
been developed for a specific lottery, it is incorporated into the product line
as a standard feature of the machine.

         The Company's ITVMs may be purchased with optional modem communication
software which allows lotteries to gather sales data from each ITVM on an
hourly, daily, weekly or monthly basis, depending on the needs of the customer.
This data includes the daily or weekly sales totals and breakdown of these
totals by game, including the total tickets sold. The Company has developed
software that enables a modem equipped ITVM to communicate to the host system
automatically if the ITVM malfunctions, thus greatly enhancing the Company's
ability to provide prompt service, or if a ticket bin is empty, which allows the
lottery to call the retailer or agent and inform them of the situation.
Additionally, by utilizing this system with the optional BETA BRITE((R)) message
display, the lottery can change the message display on any or all of its ITVMs.

         The Company has incorporated its patented pull-tab lottery ticket
dispensing mechanism into a combination ITVM which also contains the Company's
patented burster mechanism. The pull-tab dispensing mechanism also has been
incorporated into the Company's PCDMs, and the Company believes that the ability
of the mechanism to dispense a variety of thicknesses of prepaid telephone
calling cards significantly differentiates the Company's PCDMs from those of its
competitors.

         In 1998, the Company introduced its Modular Vending Platform ("MVP") to
address the specific needs of convenience store and grocery check-out lanes. The
MVP may be installed in a variety of configurations including under-the-counter.
This technology reduces ticket shrinkage and increases sales volume of instant
tickets and may also be tied into the Point of Service register.


                                       12
<PAGE>

         In 2000, the Company introduced its modular Expandable Dispensing
System (EDS). These ITVMs have the unique ability to increase the number of
dispensing units in an existing machine. The EDS series is field expandable up
to 24 games and incorporates all the same features and benefits as previous
models. The expansion is accomplished on-site and in a manner of minutes and
gives the lotteries the ability to add one or more dispensing units to the
machine, without affecting the overall operation or appearance. These ITVMs are
the most modern and technologically advanced ITVMs in the industry.

         Research and development expenditures were $581,885, $640,151 and
$347,596 for 1999, 2000 and 2001, respectively.

CUSTOMER SERVICE AND PRODUCT REPAIR

         Typically, the Company or its subcontractors install and service the
machines purchased or leased by the Company's customers. The Company maintains a
toll-free telephone line for service calls. If the service dispatcher cannot
resolve the problem over the telephone, he or she will immediately dispatch one
of the Company's service technicians to the machine's location. The modular
design and manufacturing standards of the Company's machines enable the Company
to conduct any necessary repairs and maintenance quickly and efficiently. The
Company estimates that the mean time for all repairs is less than 15 minutes
after the service technician arrives at the machine's location.

         The Company generally grants a 360-day repair or replacement warranty
covering all parts and components of its machines. However, the warranty period
may vary depending on the bid specifications. In certain circumstances, the
Company may warrant the product for the complete life of the contract. In these
instances, the contract generally will be a lease with the Company retaining
ownership of the machine. Provisions for estimated warranty costs are recorded
at the time of sale and are periodically adjusted to reflect actual experience.

PATENTS, TRADEMARKS AND COPYRIGHTS

         The Company currently has twenty-five U.S. and foreign patents and
twenty-six pending patent applications relating to its ITVMs and has filed a
disclosure document with the United States Patent and Trademark Office ("PTO").

         The Company owns by assignment U.S. Patent No. 4,982,337 entitled
"System for Distributing Lottery Tickets." The assignment is recorded at the
PTO. This patent is for the Company's burster technology, which is the key
component of the Company's ITVM. The patent expires December 31, 2007.
Improvements to the burster technology developed by the Company are the subject
of U.S. Patent No. 5,836,498, which expires April 10, 2016. The improved burster
provides for an increased range of operation for reliable and effective
separation of the adjacent tickets along the lines of weakness. Additional
patent applications are pending on these and other improvements to the burster
technology.

         The Company has developed a new system designed specifically for retail
vending of lottery tickets and other items at the point of sale. The system
utilizes the Company's burster technology and includes other modular and
distributed components that can be adapted for use at


                                       13
<PAGE>

the point of sale. The Company owns U.S. Patent Nos. 5,943,241; 6,038,492;
6,351,688 and 6,356,794 and has corresponding foreign pending applications on
this technology.

         The Company owns U.S. Patent No. 5,330,185 for the "Method and
Apparatus for Random Play of Lottery Games," which expires March 30, 2013; U.S.
Patent No. 5,472,247 for a "Multi-Point High Security Locking Mechanism for
Lottery Machines," which expires July 18, 2014; and U.S. Design Patent No.
376,621 for the Company's double-game countertop ITVM, which expires December
17, 2010. The Company believes that each of these patents is important but not
essential to the Company's business.

         The Company has an Information Disclosure Document on file with the PTO
for the purpose of identifying technology relating to its "Software Release
Control and Data Security for ITVMs." The technology allows secure remote
transmission of software updates and operations data between the ITVM and the
Company or the respective lottery. The invention also includes a key management
system to control the keys used to encrypt data sent to and decrypt the data
received at the ITVM.

         The Company is the exclusive licensee of the dispensing technology used
in PTVMs and PCDMs pursuant to an agreement with Algonquin Industries. Algonquin
Industries has been granted ten U.S. patents and has corresponding foreign
patents/applications for the licensed technology. Under the terms of the license
agreement, the Company is the sole entity entitled to use this technology on its
ITVMs. See "Item 13. Certain Relationships and Related Transactions."

         The Company owns by assignment twelve pending patent applications,
including nine U.S. and three foreign applications, as well as five issued U.S.
patents, all of which were acquired in 2001 from On-Point. The issued U.S.
patents include U.S. Design Patent Nos. 448,957; 448,956; and 441,227, each
entitled "Countertop Lottery Ticket Dispenser." Each of these design patents is
important but not essential to the Company's business and is directed to various
configurations for countertop lottery ticket dispensers. Additionally, U.S.
Design Patent No. 428,060 is owned by the Company on a front panel for a ticket
dispensing machine.

         The Company also owns U.S. Patent No. 5,772,510, which expires October
26, 2015 on a system and associated method for completing lottery tickets prior
to being dispensed from a lottery ticket terminal.

         The Company also has a number of pending patent applications which were
acquired from On-Point and are directed to various features of countertop ticket
dispensers, self-serve lottery ticket vending machines, and lottery ticket
separation mechanisms. The variety of technologies encompassed by these pending
applications includes lottery ticket dispensers in which a single rotary
separator serves multiple ticket channels and the separator mechanism itself.
Additionally, specific configurations of countertop ticket dispensers are
included in these pending applications.

         The Company has obtained federal registration in the United States of
the following trademarks: INTERLOTT, INTERLOTT and design, and INSTANT SUCCESS.
The Company does not deem the trademarks to be critical to the future of its
business.


                                       14
<PAGE>

         The Company requires all of its employees and subcontractors to execute
confidentiality and proprietary rights agreements, which prohibit disclosure of
the trade secrets of the Company and provides that all inventions or discoveries
during the term of their employment or contract for service will be assigned to
the Company.

COMPETITION

         Competition in the markets for the Company's ITVM and PCDM is based on
a number of factors, including technological features, product quality and
reliability, price, compatibility, ease of installation and use, marketing and
distribution capabilities, product delivery time, and service and support. The
Company is aware of three manufacturers of ITVMs and four manufacturers of PCDMs
in the United States, and competition among these manufacturers is intense. Of
the three ITVM competitors, the Company has the largest share of the ITVM market
in the United States. The Company is not aware of any published data regarding
market shares in the PCDM industry, but the Company does not believe that it has
the largest market share in the PCDM industry.

         Additional domestic and international manufacturers, some of which have
substantially greater resources and experience than the Company, may elect to
enter the ITVM and PCDM markets. The instant ticket market also faces
competition from other types of lottery and gaming products, including
particularly on-line lottery products. The long distance telephone market
similarly may face competition from other types of communications products,
including facsimile, e-mail and other on-line products.

         The Company believes that its patented dispensing technologies make its
ITVM and PCDM dispensing mechanisms technologically superior to the dispensing
mechanisms of its competitors and that this is a significant competitive
advantage for the Company. The Company also believes that its products have
earned a strong reputation for their performance, reliability and cost
effectiveness. To remain competitive, the Company believes that it will need to
continue to incorporate new technological developments into its existing
products and to develop new products, as well as to maintain a competitive price
for its products. These efforts, together with the Company's continuing sales
and marketing efforts, will be critical to the Company's future success.
Although the Company believes that its current successes, coupled with its
history of continued product enhancement and cost reduction, will enable it to
compete favorably with its competitors, there can be no assurance that the
Company will be able to maintain or improve its competitive position in the ITVM
and PCDM markets.

         On June 1, 2001 the Company completed the acquisition of the lottery
assets of On-Point Technology Systems, Inc., including patents, technology,
inventory and contracts with four state and two international lotteries.


                                       15
<PAGE>

GOVERNMENT REGULATION

         ITVMs

         Lotteries are not permitted in the various states and jurisdictions of
the United States unless expressly authorized by legislation. Similarly, the
commencement of ITVM sales and leasing in a jurisdiction requires authorizing
legislation and implementing regulations.

         Currently, 38 states and the District of Columbia have enacted
legislation to allow for the operation of a lottery, and 27 of these
jurisdictions currently utilize ITVMs in some manner as part of their instant
ticket distribution process. The operation of the lotteries in each of these
jurisdictions is strictly regulated. The formal rules and regulations governing
lotteries vary from jurisdiction to jurisdiction but typically authorize the
lottery, create the governing authority, dictate the price structure, establish
allocation of revenues, determine the type of games permitted, detail
appropriate marketing structures, specify procedures for selecting vendors and
define the qualifications of lottery personnel. Although the Company currently
believes that it is unlikely that states which have enacted legislation that
expressly authorizes the use of ITVMs will adopt legislation in the foreseeable
future that prohibits the use of ITVMs, there can be no assurance that this will
not occur.

         To ensure the integrity of the lottery, state laws provide for
extensive background investigations of each of the lottery's vendors and their
affiliates, subcontractors, officers, directors, employees and principal
stockholders. These regulations generally require detailed continuing
disclosure. If the lottery deems a person unsuitable, the lottery may require
the termination of the person's relationship with the Company. The failure of a
person associated with the Company to obtain or retain approval in any
jurisdiction could have a material adverse effect on the Company. Generally,
regulatory authorities have broad discretion when granting such approvals. The
Company has never been disqualified from a lottery contract as a result of a
failure to obtain any such approvals.

         The Federal Gambling Devices Act of 1962 (the "Act") makes it unlawful,
with certain exceptions, for a person or entity to transport any gambling
devices across interstate lines unless that person or entity has first
registered with the United States Department of Justice. Although the Company
believes that it is not required to register under such Act, the Company has
voluntarily registered under the Act and intends to renew its registration
annually. The Act also imposes various record keeping and equipment
identification requirements. Violation of the Act may result in seizure or
forfeiture of equipment, as well as other penalties.

         The Company retains governmental affairs representatives in various
jurisdictions of the United States to monitor legislation, advise the Company on
contract proposals, and assist with other issues that may affect the Company.
The Company believes it has complied with all applicable state regulatory
provisions relating to disclosure of its activities and those of its advisors.

         International jurisdictions that operate lotteries also impose strict
regulations. International regulations may vary from those in the United States.
Additionally, international regulations frequently impose restrictions on
international corporations doing business within the


                                       16
<PAGE>

specific jurisdiction. As a result, the Company may contract with local
representation or align itself with a local partner when pursuing international
contracts.

         PCDMs

         The Company is not aware of any federal, state or local regulations
that apply to the manufacture, lease or sale of PCDMs.

BACKLOG

         The Company's backlog of ITVMs as of December 31, 2001 was
approximately $4,881,900, which was equal to the total base lease payments or
sales value for ITVMs that were committed for production but had not been
shipped to various lotteries as of December 31, 2001. At December 31, 2000, the
comparable backlog was approximately $17,637,660. Approximately 56% of the
backlog at December 31, 2001 related to a contract awarded by a state lottery
earlier in the month. It is anticipated that substantially all of the Company's
backlog at December 31, 2001 will be shipped on or before December 31, 2002. The
Company had a backlog of PCDMs committed for production at December 31, 2001 of
$642,000.

         The Company has various lease or sales agreements that permit the
lotteries, at their sole option, to lease or purchase additional ITVMs. However,
the Company does not include these additional ITVMs in backlog ITVMs that may be
sold or leased under existing contracts unless the Company has received a firm
order for the ITVMs. Due to the relatively large size of individual orders, the
small number of customers and the long sales cycle of the lottery industry,
management considers backlog to be an indicator of current activity and not
necessarily predictive of future orders.

EMPLOYEES

         The Company utilizes a work force of full-time employees supported from
time to time by temporary or contract manufacturing and engineering personnel.
As of December 31, 2001, the Company had 245 full-time employees, of which 74
were manufacturing employees, 8 were engineering employees, 142 were service
employees, 15 were clerical and administrative employees and 6 were executives
or senior managers. Two of the executives and senior managers were devoted to
sales and four were devoted to management and administration. No Company
employees are represented by any union, and the Company believes that its
relations with its employees are good.

ITEM 2. PROPERTIES

         The Company's manufacturing, sales, distribution and executive offices
are located in approximately 52,500 square feet of leased space in Mason, Ohio.
The facility is comprised of 15,000 square feet of office space and 37,500
square feet of manufacturing and storage space. The Company believes that this
facility is suitable for and adequate to support its operations for the
foreseeable future. The lease for this facility expires on March 31, 2005.


                                       17
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

         On May 8, 2001, the Company filed an action in the Court of Common
Pleas in Hamilton County, Ohio styled Interlott Technologies, Inc. vs. Apple
Valley Compact Vending, Inc. and Mary Jo Burghardt and Stanley Burghardt
(collectively the "Defendants"), Case No. A0102900, for breach of contract and
declaratory judgment on the rights and obligations of Interlott and Defendants
under agreements relating to the subcontracting of installation and maintenance
services in the state of Washington.

         On July 26, 2001, the Defendants filed a counter suit in King County,
Washington, Case No. 01-2-21258, alleging various claims against the Company,
arising out of their subcontract agreement, including among others, deprivation
of constitutional rights, tortious conduct, breach of contract, and violation of
federal employment statutes. The action was removed to the United States
District Court for the Western District of Washington at Seattle and the Company
has moved to dismiss the case based on the pendency of the earlier filed Ohio
action involving the same claims.

         On October 18, 2001, the Defendants Mary Jo and Stanley Burghardt and
Apple Valley Compact Vending, Inc. filed Chapter 7 bankruptcy petitions in
United States bankruptcy court in Washington State. As a result, the various
actions described above were stayed and the Bankruptcy Trustee is considering
whether he will proceed with any of the actions as an asset of Defendants'
bankruptcies. At this point, it is not possible to predict a probable outcome or
range of recovery, if any.

         On May 31, 2001, the Company received notice of filing of a complaint
in the United States District Court, Western District of Washington at Seattle
styled Paul Doyon and Albert Delara, on their behalf, and on the behalf of all
members of the similarly situated class of Persons, v. Interlott Technologies,
Inc., Case No. C01-0988C. This action was filed by a former Interlott field
service representative on behalf of himself and others similarly situated,
asserting an entitlement to overtime pay relating to hours worked while in the
employment of the Company. The action has been conditionally certified as a
representative action and notice has been sent to current and former field
service representatives of the Company. To date, only a very limited number of
individuals have elected to join in the action. At this point, it is not
possible to predict a probable outcome or range of recovery, if any.

         The Company is involved from time to time in litigation in the ordinary
course of its business. The Company does not believe that the above described
cases or any other currently pending or threatened litigation against the
Company, individually or in the aggregate, is likely to have a material adverse
effect on its business or financial condition. Although as of this date the
Company does not believe it is likely, an adverse determination in either of the
above cases could have a material effect on operating results in a given year or
quarter.



                                       18
<PAGE>


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

         No matters were submitted by the Company to a vote of its stockholders
during the fourth quarter ended December 31, 2001.

                                     PART II

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

         The Company's common stock is traded on the American Stock Exchange
under the symbol "ILI." The table below shows the high and low closing sale
prices per share for the common stock as reported by the American Stock Exchange
for the periods indicated. All prices are adjusted to reflect a 2-for-1 split of
the common stock on December 20, 2000.

                                       High                 Low
                                       ----                 ---

2000:
         First Quarter                $3.06               $2.38
         Second Quarter                3.19                2.63
         Third Quarter                 7.69                3.13
         Fourth Quarter                8.63                4.22

2001:
         First Quarter                $6.38               $3.82
         Second Quarter                5.24                4.00
         Third Quarter                 6.40                4.50
         Fourth Quarter                4.90                4.02


         At March 15, 2002 there were approximately 48 stockholders of record
and an unknown number of beneficial owners holding stock in nominee or "street"
name. The Company has paid no cash dividends on its common stock and currently
intends to retain all future earnings for use in the development of its
business.


                                       19
<PAGE>

ITEM 6.           SELECTED FINANCIAL DATA

         The following table presents selected financial data derived from the
Company's audited financial statements for each year in the five-year period
ended December 31, 2001 and should be read in conjunction with the Company's
Financial Statements and with Management's Discussion and Analysis of Financial
Condition and Results of Operations set forth below.
<TABLE>
<CAPTION>

                                                SELECTED FINANCIAL DATA

                                                          Year Ended
       ---------------------------------------------------------------------------------------------------------------------------
                                             Dec. 31             Dec. 31             Dec. 31            Dec. 31          Dec. 31
                                              2001                2000                 1999                1998            1997
       ---------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                  <C>                  <C>                <C>             <C>
       Revenues
         Machine sales                     $19,358,561          21,958,631           3,311,874          8,229,950       4,567,441
         Machine leases                     18,336,526          17,966,445          16,901,911         14,165,379      12,874,450
         Other                               5,020,599           2,664,014           2,120,245          2,078,644       1,669,160
       Net revenues                         42,715,686          42,589,090          22,334,030         24,473,973      19,111,051
       Net income                            1,949,306           3,610,199           2,070,298          1,622,313       1,451,654
       Net income per share(1)                    0.30                0.56                0.32               0.25            0.23
       Depreciation and amortization         7,315,089           6,622,439           5,547,909          4,585,325       4,143,408
       Leased ITVM's, less
       accumulated depreciation             17,883,169          21,572,590          21,549,400         17,105,891      14,740,462
       Total assets                         54,917,088          40,003,767          36,203,867         28,774,249      24,612,884
       Total debt                           29,742,986          16,000,160          16,291,727         11,645,374       9,458,004
       ---------------------------------------------------------------------------------------------------------------------------
       Redeemable preferred stock           $        -                   -           1,335,000          1,335,000       1,335,000

</TABLE>

       ----------
       (1) Reflects the weighted average number of shares outstanding for the
       respective periods, taking into account a 2-for-1 split of common stock
       effected in December 2000.

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

OVERVIEW

         The Company's revenue base consists of (1) payments from instant ticket
vending machine ("ITVM") and phone card dispensing machine ("PCDM") operating
leases, (2) payments from ITVM sales-type leases which are accounted for in the
same manner as a direct sale but have the on-going cash flow characteristics of
operating leases, (3) sales of ITVMs and PCDMs, and (4) to a lesser extent,
sales of parts for ITVMs and PCDMs and service agreements. Leases provide the
Company with a consistent revenue stream, opportunities to generate income on
financing, and the potential to deploy a greater number of ITVMs within a
lottery's budget due to the lower initial cash outlay required by the lottery.
Leasing ITVMs also gives a lottery

                                       20
<PAGE>

the flexibility to enhance its ITVMs in the future with new technology from the
Company. On the other hand, leasing ITVMs requires the Company to invest capital
or otherwise finance the manufacture of ITVMs, whereas sales of ITVMs result in
the receipt of payment in full upon delivery of the ITVMs. When the Company
sells ITVMs, the Company generally is able to manufacture and deliver the ITVMs
and receive full payment for them before it must pay for the materials used to
manufacture the ITVMs. Nevertheless, the Company believes that the advantages of
leasing ITVMs, as described above, justify the initial capital investment or
financing costs required to manufacture ITVMs for lease.

         Some of the benefits of leasing described above apply to PCDMs; however
due to the typically smaller size of a PCDM customer order, a great majority of
the PCDMs deployed to date have been sold rather than leased.

         The Company historically has experienced fluctuations in its financial
results due to the unpredictable nature, timing and results of the lotteries'
contract bid and award process. The Company's revenues and capital expenditures
can vary significantly from period to period because the Company's sales cycle
may be relatively long and because the amount and timing of revenues and capital
expenditures depend on factors such as the size and timing of awarded contracts
and changes in customer budgets and demands. Operating results may be affected
by the lead-time sometimes required for business opportunities to result in
signed lease or sales agreements, working capital requirements associated with
manufacturing ITVMs pursuant to new orders and the extended time that may elapse
between the award of a contract and the receipt of revenues from the sale or
lease of ITVMs.

         On June 1, 2001 the Company completed the acquisition of the lottery
assets of On-Point Technology Systems, Inc., including patents, technology,
accounts receivable of $1.0 million, $3.4 million of inventory, service
contracts and lease contracts with four state and two international lotteries.
On-Point's lottery related revenues during 2000 were $10.2 million. The purchase
price included approximately $13 million paid at the closing; deferred payments
of $9 million payable, subject to adjustment, over five years; and an earn-out
of up to $6 million based on certain future revenues.

2001 as Compared to 2000

                  Total revenues increased by $126,596, from $42,589,090 in 2000
to $42,715,686 in 2001, due to a $2,356,585 increase in other revenues and a
$370,081 increase in lease revenues offset by a $2,600,070 decrease in machine
sales. Other revenues increased by 88% from $2,664,014 in 2000 to $5,020,599 in
2001, primarily as a result of the addition of maintenance contracts for the New
York and Virginia lotteries which were acquired from On-Point. Revenues from
leases increased by 2%, from $17,966,445 in 2000 to $18,336,526 in 2001,
primarily due to the addition of a lease of machines to the Illinois lottery
which was also acquired as part of the purchase of On-Point. This increase was
partially offset by the expiration of a lease contract with the Florida lottery
which expired on July 1, 2001. The total number of ITVMs and PCDMs under lease
decreased in 2001. Lease revenues were 42% and 43% of total revenues for 2000
and 2001, respectively. Machine sales in 2000 included a record purchase of
ITVMs for one state lottery that was produced and shipped over the first three
quarters of the year. In 2001, a large sale was completed during the first two
quarters while smaller orders were produced during the third and fourth quarter
resulting in lower total sales for 2001. Revenues


                                       21
<PAGE>

from sales of ITVMs and PCDMs were 52% and 45% of total revenues in 2000 and
2001, respectively.

         Cost of revenues for machine sales and other decreased 10% from
$15,850,677 in 2000 to $14,251,360 in 2001. This decrease reflected a 9%
decrease in the number of machines sold in 2001 and slightly lower machine
costs. Excluding depreciation, cost of revenues for leased ITVMs and PCDMs
increased 49% from $6,798,596 in 2000 to $10,133,473 in 2001. The dollar
increase in cost of lease revenues was the result of higher personnel and
subcontractor costs related to a large number of machines acquired from On-Point
and to new leased machines deployed during 2001.

         Depreciation of ITVMs and PCDMs increased less than 1% from $6,366,899
in 2000 to $6,394,051 in 2001. The increase was due to newer units being
deployed that have more dispensing capacity and cost more.

         On July 20, 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. At this time, the Company believes
that no impairment exists. The Company considers cash flow losses as an
indicator of potential impairment. When undiscounted cash flows are less than
the carrying value, an impairment loss will be recognized.

         The Company adopted SFAS No. 142 on January 1, 2002, as required. Any
effect will be the difference in no longer amortizing goodwill and any
impairment that is determined. Goodwill amortization from June 2001, when the
assets of On-Point were acquired, through December 31, 2001, was approximately
$166,600.

         Selling, general and administrative expenses increased 9% from
$5,421,062 in 2000 to $5,915,233 in 2001. The increase resulted primarily from
higher salary and wage expenses and an increase in legal and professional fees.
As a percentage of revenues, selling, general and administrative expenses
increased from 13% in 2000 to 14% in 2001.

         Research and development costs decreased by 46% from $640,150 in 2000
to $347,596 in 2001 as the Company completed the development phase of its
Expandable Dispensing System (EDS) in 2000 for deployment in 2001. The Company
generally contracts out its research and development efforts. This allows the
Company to focus its expenditures on the technical expertise necessary to
accomplish a specific project.

         Operating income decreased by 34% from $7,425,152 in 2000 to $4,892,644
in 2001. This decrease resulted primarily from the higher cost of revenues for
leased machines discussed above and from the amortization of goodwill and leases
relating to the On-Point acquisition. As a percentage of revenues, operating
income decreased from 17% in 2000 to 12% in 2001.


                                       22
<PAGE>

         Interest expense increased by 30% from $1,580,969 in 2000 to $2,049,605
in 2001. The increase reflected the cost of additional borrowings to finance the
acquisition of the lottery assets of On-Point on June 1, 2001.

         Pre-tax income decreased 50% from $5,786,798 in 2000 to $2,884,335 in
2001.

         The effective income tax rate decreased from 37.6% in 2000 to 32.4% in
2001. This decrease was due primarily to a change in the tax accounting method
for patents which reduced income tax expense by $199,654 in 2001.

         As a result of the above factors, the Company's net income decreased by
46% from $3,610,199 in 2000 to $1,949,306 in 2001.

2000 as Compared to 1999

         Total revenues increased by $20,255,060 from $22,334,030 in 1999 to
$42,589,090 in 2000, or 91%, due to an $18,646,757 increase in machine sales, a
$1,064,534 increase in lease revenues and a $543,769 increase in other revenues.
Revenues from leases increased by 6% from $16,901,911 in 1999 to $17,966,445 in
2000, resulting from the continuation of leases in thirteen states and the
renewal of three leases in other states that had reached the conclusion of their
original terms. The total number of ITVMs and PCDMs under lease increased in
2000 as a result of deployment of new units, partially offset by the retirement
of older units. Lease revenues were 76% and 42% of total revenues for 1999 and
2000, respectively. The dollar increase in lease revenues reflected the
cumulative effect of continuing revenues from machines under lease which were
deployed prior to 2000 and the incremental revenue of new machines leased or
deployed in 2000. Revenues from sales increased by 563% from $3,311,874 in 1999
to $21,958,631 in 2000, primarily due to new sales and sales type leases to
three state lotteries. A single state contract accounted for approximately 89.6%
of this increase. Revenues from sales of ITVMs and PCDMs were 15% and 52% of
total revenues in 1999 and 2000, respectively. Other revenues increased by 26%
from $2,120,245 in 1999 to $2,664,014 in 2000, as machines deployed prior to
2000 generated service revenue for the entire year.

         Cost of revenues for machine sales and other increased 981% from
$1,466,153 in 1999 to $15,850,677 in 2000. This increase reflected the 1,201%
increase in number of machines sold in 2000. Excluding depreciation, cost of
revenues for leased ITVMs and PCDMs decreased 6% from $7,243,770 in 1999 to
$6,798,596 in 2000. The dollar increase in cost of lease revenues was the result
of higher personnel and subcontractor costs related to the larger number of
machines deployed during 2000.

         Depreciation of ITVMs and PCDMs increased by 19% from $5,337,018 in
1999 to $6,366,899 in 2000. The increase was greater than the related 11%
increase in number of leased ITVMs and PCDMs, as newer units have more
dispensing capacity and cost more.

         Selling, general and administrative expenses increased 29% from
$4,202,825 in 1999 to $5,421,062 in 2000. The increase resulted primarily from
higher salary and wage expenses and an increase in legal and professional fees
relating to potential acquisitions as well as new and


                                       23
<PAGE>

existing lottery contract negotiations. As a percentage of revenues, however,
selling, general and administrative expenses decreased from 19% in 1999 to 13%
in 2000.

         Research and development costs increased by 10% from $581,885 in 1999
to $640,150 in 2000. The Company maintained its philosophy of using contractors
as the primary source of research and development efforts, allowing the Company
to focus its expenditures on the technical expertise necessary to accomplish the
specific project.

         Operating income increased by 112% from $3,502,379 in 1999 to
$7,425,152 in 2000. This increase resulted primarily from the increase in the
number of machines sold in 2000 as compared to 1999. As a percentage of
revenues, operating income increased from 16% in 1999 to 17% in 2000.

         Interest expense increased by 43% from $1,102,478 in 1999 to $1,580,969
in 2000. The increase reflected the cost of additional borrowings to finance
leased equipment built and deployed in 2000, and higher interest rates in 2000.

         Other income in 1999 of $598,832 consisted of a one time non-recurring
credit of $625,000 from settlement of litigation with a competitor offset by
$26,168 in other non-related expenses.

         Income before income taxes and extraordinary item increased 93% from
$2,998,733 in 1999 to $5,786,798 in 2000.

         The effective income tax rate increased from 37.0% in 1999 to 37.6% in
2000. This increase was due primarily to income being taxed at higher marginal
brackets on state and local returns.

         As a result of the above factors, the Company's net income before
extraordinary items increased by 91% from $1,892,139 in 1999 to $3,610,199 in
2000.

         The extraordinary item in 1999 of $178,159, net of tax, related to a
gain on the involuntary conversion of assets lost in a tornado which were
covered by insurance at replacement cost.

Liquidity and Capital Resources

         Net cash provided by operating activities decreased 24% from
$11,555,661 in 2000 to $8,842,961 in 2001. Net cash used in investing activities
increased 110% from $10,297,498 in 2000 to $21,663,552 in 2001. Financing
activities in 2001 provided net cash of $13,311,278 as compared to $1,334,019 of
net cash used in financing activities in 2000. This was due to additional
borrowings of $14,158,048, primarily to finance the acquisition of On-Point,
partially offset by repayment of long-term-debt of $902,549.

         The Company's decision to lease a significant portion of its ITVMs
generally offers the Company better gross margins than direct sales agreements.
However, leasing inherently requires more capital and a longer-term payout than
sales. As of December 31, 2001, the Company had a total of 11,086 ITVMs and
PCDMs under operating and sales type leases. The Company's current backlog of
$4.9 million includes machines to be sold to the California lottery


                                       24
<PAGE>

in the amount of $2.7 million and machines to be leased to the Illinois lottery
of $2.1 million. Additionally, a recent contract award from the Oregon lottery,
for the purchase of up to 500 machines, will generate additional cash.

         Inventories increased by $4,708,258 from $5,920,032 in 2000 to
$10,628,290 in 2001 primarily due to $3.4 million of inventory acquired from
On-Point and the return to inventory of $2.4 million in leased equipment from
expired leases which was reclassified from property and equipment - leased
machines. These increases were offset by decreases in other inventory items of
$1.1 million.

         Accounts receivable increased by $3,109,316 from $4,015,934 in 2000 to
$7,125,250 in 2001. This increase was due to a large sale in December of $1.3
million to one state lottery and the addition of lease and maintenance contract
billings from Illinois, Missouri, Virginia and New York which were acquired from
On-Point.

         Goodwill in the amount of $4,572,655 and acquired leases in the amount
of $3,781,555 at December 31, 2001 resulted from the On-Point acquisition.

         The Company's revolving credit facility is classified as a current
liability due to the revolver clause of the agreement. As a result, current
liabilities exceeded current assets as of December 31, 2000 and 2001 by
$6,868,537 and $7,322,359, respectively.

         Prior to the closing of the acquisition of the lottery assets of
On-Point, to finance the cash payment paid at closing, the Company increased its
existing credit facility with its bank from $25 million to $30 million, and also
completed a mezzanine financing of junior debt in the principal amount of $5
million with the bank. The credit facility is a three year credit line, which
expires on May 31, 2004, secured by a lien on all of the assets of the Company.
The interest rate on the credit facility is based on the prime rate or LIBOR,
adjusted up or down depending on the Company's funded debt to EBITDA ratio. The
current rate is LIBOR plus 2.75% (4.62% at March 1, 2002). The terms of the
credit facility require the Company to maintain a cash balance at all times
equal to .875% of the total amount of the facility. Additionally, the Company
must comply with certain loan covenants which include, among other things, a
minimum ratio of funded debt to EBITDA and a minimum tangible net worth
requirement. The wording of the covenant concerning minimum tangible net worth
as that phrase was defined by the credit agreement on December 31, 2001 did not
exclude the comprehensive income or loss treatment of interest rate swap
agreements and as a result, the Company was not in compliance. However, the bank
has revised the wording of the credit agreement to clarify the covenant and the
Company is in full compliance with the requirements of the amended and restated
covenant, including as of December 31, 2001.

         The mezzanine financing consists of a $5 million term note due June 30,
2003, which is subordinate to the credit facility. This note bears interest at a
fixed rate of 9% per annum and the Company must pay a success fee equal to 1% of
the unpaid principal balance of the note outstanding on the last day of the
fiscal quarter for each of the four (4) fiscal quarters ending on September 30,
2001, December 31, 2001, March 31, 2002, and June 30, 2002; and equal to 1.5% of
the unpaid principal balance of the note outstanding on the last day of the
fiscal quarter for each of the four (4) fiscal quarters ending on September 30,
2002, December 31, 2002, March


                                       25
<PAGE>

31, 2003 and June 30, 2003. The note may be prepaid whenever availability on the
credit facility exceeds $2 million and the Company is in compliance with all
loan covenants. The Company intends to pay down all or part of this note prior
to the maturity date using funds generated from operations. In the event that
the Company secures a large lease contract requiring a significant capital
investment, the redemption of this debt may be delayed.

         At March 1, 2001, the Company had $6,394,512 available under its credit
facility and $5 million remaining outstanding under the $5 million term note.
The Company believes that the amount available on its credit facility, together
with cash flows from operations, will be sufficient to meet its currently
foreseeable short and long-term needs for liquidity.

          The Company entered into an interest rate swap agreement with a total
notional principal amount of $10 million at December 31, 1999 which expires on
November 7, 2002 and an interest rate swap agreement with a total notional
principal amount of $5 million at July 3, 2001 which expires on May 31, 2004.
The objective of these agreements is to convert a portion of the Company's
floating rate revolving credit facility to a fixed rate. The estimated fair
value of the interest rate swap agreements was approximately ($580,174) at
December 31, 2001. The estimated fair value is based upon appropriate market
information and projected interest rate changes obtained from a reputable
institution.

         At December 31, 2000, the Company was indebted to one stockholder in
the amount of $79,000. Additionally in 2000, four stockholders elected to
convert their shares of redeemable preferred stock to notes payable in the
amount of $1,335,000. The notes held by these five stockholders require, among
other things, that 25% of the net income of the Company for the fiscal year be
paid toward the aggregate principal amount owed on the notes on the first
business day of the fourth month following the fiscal year end. Consequently, on
April 2, 2001, $902,549 was paid on these notes leaving a balance of $511,451 at
December 31, 2001. The amount due in respect to 2001 net income is $487,327,
which will be paid on April 1, 2002. See Note 6 of Notes to Financial
Statements.

         The Company's capital expenditures totaled $10,297,498 and $8,177,406
for 2000 and 2001, respectively. These amounts included $9,580,471 and
$7,979,117 for the manufacture of machines leased during the respective periods.
Other expenditures represented machinery and equipment costs for expanded plant
and office capacity.

         The Company had no material commitments for additional capital
expenditures as of December 31, 2001 other than for the manufacture of ITVMs and
PCDMs for future sale or lease.

         At December 31, 2001, the Company had estimated tax net operating loss
carryforwards of approximately $536,324 which are available to offset future
federal taxable income, if any, through 2009. The use of these carryforwards is
subject to certain annual limitations due to ownership changes in 1992. The net
operating loss carryforward reduced taxable income by $161,559 for a net federal
tax benefit of $54,930 in 2001.

Special Note Regarding Forward-looking Statements

         The words "expect", "anticipate", "intend", "plan", "believe", "seek",
"estimate" and similar expressions used in this report are intended to identify
forward-looking statements,


                                       26
<PAGE>

although this report also contains other forward-looking statements. Any
forward-looking statements in this report are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Act of 1995. Investors are
cautioned that actual results may differ substantially from the Company's
forward-looking statements. Forward-looking statements involve risks and
uncertainties including, but not limited to, continued acceptance of the
Company's products and services in the marketplace, competitive factors, new
products and technological changes, dependence upon third party vendors, a
limited number of customers, political and other uncertainties related to
customer purchases and other risks detailed in the Company's periodic filings
with the Securities and Exchange Commission.

THE FOLLOWING RISK FACTORS APPLY TO INTERLOTT AND ITS BUSINESS:

         WE MAY EXPERIENCE FLUCTUATIONS IN OUR FINANCIAL RESULTS AND, AS A
RESULT, OUR STOCK PRICE.

         In the past, we have experienced significant fluctuations in our
financial results. Our revenues, capital expenditures and operating results can
vary significantly due to:

         -        relatively long sales cycles;

         -        the unpredictable timing and amount of contracts awarded by
                  state lotteries and telephone companies;

         -        the extended time between the award of a contract and the
                  receipt of revenues from the sale or lease of ITVMs and PCDMs;

         -        changes in customer budgets; and

         -        working capital required to manufacture ITVMs and PCDMs
                  pursuant to new orders.

         These factors may make it difficult to forecast revenues and
expenditures over extended periods. Consequently, our operating results for any
period could be below the expectations of securities analysts and investors.
This in turn could lead to sudden and sometimes dramatic declines in the market
price of our stock.

         OUR GROWTH WILL DEPEND UPON CONTINUED MARKET ACCEPTANCE OF ITVMS.

         Our ability to generate additional revenues and earnings will depend
upon the continuation of existing leases of ITVMs, the distribution of ITVMs in
additional states and international jurisdictions, the approval of lotteries in
remaining states and international jurisdictions and increased future orders of
ITVMs. As of December 31, 2001, 27 states and the District of Columbia used
ITVMs as part of their instant ticket distribution system. We had leased or sold
ITVMs in all of those states, the District of Columbia and in 14 international
jurisdictions. However, the popularity of instant lottery games and the demand
for ITVMs may not continue and, as a result, we may not be able to successfully
market and sell these products. Although the total dollar amount of instant
ticket sales continues to increase, the rate of increase has declined. It is
important but not critical that we develop relationships with additional
lotteries and that additional states authorize instant lotteries.



                                       27
<PAGE>

         SIGNIFICANT PORTIONS OF OUR ANNUAL REVENUE FREQUENTLY ARE DERIVED FROM
A LIMITED NUMBER OF CONTRACTS, WHICH VARY IN SIZE AND BY CUSTOMER FROM YEAR TO
YEAR.

         We have traditionally derived a significant portion of our annual
revenues from a limited number of state lottery authorities or their
representatives for the lease, sale or service of ITVMs. In particular, during
2001, a contract with Massachusetts accounted for 27% of our total revenues.
Additionally, a contract with the Ohio Lottery accounted for 17% of our lease
revenues and 9% of our total revenue in 2001. This can cause our revenues and
earnings to fluctuate between quarters based on the timing of orders and
realization of revenues from these orders. Further, none of our large customers
has any obligation to lease or purchase additional machines from us. A loss of
any of these large contracts could have a material adverse effect on our
business, financial condition and results of operations.

         WE MAY NOT BE SUCCESSFUL IN PROTECTING OUR PROPRIETARY RIGHTS OR
AVOIDING CLAIMS THAT WE INFRINGE THE PROPRIETARY RIGHTS OF OTHERS.

         We principally rely upon patent, copyright, trademark and trade secret
laws, license agreements and employee nondisclosure agreements to protect our
proprietary rights and technology. These laws and contractual provisions provide
only limited protection. Our success depends largely on our burster technology
that is protected by a patent that expires on December 31, 2007. Additionally,
we have twenty-four other patents and twenty-six pending patent applications
with the United States Patent and Trademark Office and foreign patent offices.
We also have an exclusive license agreement with Algonquin Industries, Inc. for
use of their patented pull-tab instant ticket dispensing mechanism in our PTVM
and PCDM. We cannot be certain that we and Algonquin have taken adequate steps
to prevent misappropriation of the technology that we use or that competitors
will not independently develop technologies that are substantially equivalent or
superior to our technology. Moreover, we could incur substantial costs and
diversion of management resources in the defense of any claims relating to the
proprietary rights of others, which could have a material adverse effect on our
business, financial condition and results of operations.

         WE MAY NOT BE ABLE TO ADAPT TO CHANGES IN TECHNOLOGY, PRODUCTS AND
INDUSTRY STANDARDS.

         The instant ticket market, the ITVM market, the prepaid telephone
calling card market and the PCDM market are characterized by rapidly changing
technology and evolving industry practices. Competitors may introduce other
types of lottery, gaming and prepaid telephone calling card products. To be
successful, we must:

         -        use leading technologies effectively;

         -        continue developing our technical expertise;

         -        enhance our existing products and services; and

         -        develop new products and services.

         If we fail to do any of these things, our customers may choose to
purchase products and services from our competitors. Our inability to anticipate
changes in technology and industry


                                       28
<PAGE>

practices and to develop and introduce new products and services in a timely
manner would likely result in a material adverse effect on our business,
financial condition and results of operation.

         THE STATE LOTTERIES CAN CANCEL THEIR CONTRACTS WITH US FOR ANY REASON
AND CAN ASSESS SIGNIFICANT DAMAGES AGAINST US IF WE DO NOT SATISFACTORILY
PERFORM THE CONTRACTS.

         Our contracts with lotteries, like most other types of state contracts,
typically permit a lottery to terminate the contract upon 30 days written notice
for any reason. We may not be able to re-lease or sell any ITVMs that are
returned to us by a lottery following the cancellation or expiration of a lease.
These lottery contracts also impose demanding installation, performance and
maintenance requirements. Our failure to perform the contract requirements could
result in significant liquidated damages or contract termination. Our lottery
contracts typically require us to indemnify the lottery, its officers and
retailers for any liabilities arising from the operation of the ITVMs or any
services that we provide. These provisions present an ongoing risk of
significant damage assessments or contract terminations, which could have a
material adverse effect on our business, financial condition and results of
operation.

         A SINGLE STOCKHOLDER CONTROLS A MAJORITY OF OUR STOCK AND CAN EXERT
SIGNIFICANT INFLUENCE OVER OUR CORPORATE MATTERS.

                  As of December 31, 2001, Mr. L. Roger Wells,  Jr.
beneficially owned 53.1% of the outstanding common stock. As a result, Mr. Wells
can control the election of directors and the outcome of certain corporate
actions requiring stockholder approval. This concentration of ownership in a
single stockholder also can delay or prevent a change of control.

         OUR ITVM LEASE CONTRACTS MAY RESULT IN LOSSES.

                  Our ITVM lease revenues as a percentage of our total revenues
were 75.7% in 1999, 42.2% in 2000 and 42.9% in 2001. Our standard lease
agreements provide for fixed lease payments during the term of the agreement and
some permit the lottery to order additional ITVMs at any time during the lease
term. If one of these lotteries were to order a large number of ITVMs near the
end of the lease term, we would incur significant manufacturing costs but might
receive lease payments for only a relatively short period of time through the
remainder of the lease term. Additionally, we are unable to pass along to the
lottery any increases in manufacturing and service costs during the term of the
lease agreement. Our standard lease agreements provide for a short initial term,
such as one year, with an option for the lottery to extend the lease term for
additional one-year periods. If the lottery does not extend the initial lease
term, we might incur a loss on the manufacture of the ITVMs if we are unable to
re-lease or sell the ITVM.

         THE ITVM AND PCDM MARKETS ARE VERY COMPETITIVE.

                  We may not be able to compete successfully against current or
future competitors, some of whom may have greater resources and experience than
us. The instant ticket market also may face competition from other types of
lottery and gaming products, particularly on-line lottery products. The long
distance telephone market similarly may face competition from other types of
communications products, including facsimile, e-mail and other on-line products.
If the
                                       29
<PAGE>

ability to provide ITVMs and PCDMs internationally becomes a competitive
advantage in the instant ticket lottery and prepaid calling card industries, we
will have to expand our presence internationally or risk a disadvantage relative
to our competitors. Increased competition could cause us to increase our selling
and marketing expenses and research and development costs. We may not be able to
offset the effects of any such increased costs through an increase in the number
of lottery contracts and higher revenue from sales and leases of ITVMs and
PCDMs, and we may not have the resources to compete successfully. These
developments could have a material adverse effect on our business, financial
condition and results of operation.

         BECAUSE WE DEPEND UPON SINGLE OR LIMITED SOURCE SUPPLIERS, WE COULD
TEMPORARILY LOSE OUR SUPPLY OF SOME CRITICAL PARTS OR EXPERIENCE SIGNIFICANT
PRICE INCREASES.

                  We currently purchase certain important parts, such as
components of our ITVM burster, PTVM dispensing mechanism and PCDM dispensing
mechanism, from a single source. The purchase of these components from outside
suppliers on a sole source basis subjects us to certain risks, including the
continued availability of suppliers, price increases and potential quality
assurance problems. Because other suppliers exist that can duplicate these
components should we elect or be forced to use a different supplier, we do not
believe that a change in suppliers would result in the termination of a
production contract. However, we could experience a delay of 30 to 60 days in
the production of ITVMs and PCDMs should we elect or be forced to use other
suppliers. Any delay of 30 to 60 days could have a material adverse effect on
our business, financial condition and results of operation.

         OUR INDUSTRY IS SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION WHICH
COULD NEGATIVELY AFFECT US.

         State and local governments strictly regulate the operation of
lotteries and the sales and leasing of ITVMs. Further, international
jurisdictions that operate lotteries impose strict regulations which may vary
from those in the United States. Any adverse change in the lottery laws of any
jurisdiction in which we sell and lease ITVMs could impose burdensome
requirements or requirements that we may be unable to satisfy. Our failure to
comply with changing lottery-related laws and regulations could have a material
adverse effect on our business, financial condition and results of operation.

         In addition, state laws provide for background investigations on each
of the lottery's vendors and their affiliates, subcontractors, officers,
directors, employees and principal stockholders. The failure of any of these
parties associated with us to obtain or retain approval in any jurisdiction
could have a material adverse effect on our business, financial condition and
results of operation.

         OUR FORWARD LOOKING STATEMENTS MAY BE INCORRECT.

         Some of the statements in this report are forward looking statements
about what may happen in the future. They include statements regarding our
current beliefs, plans, expectations and assumptions about matters such as our
expected financial position and operating results, our business strategy and our
financing plans. These statements can sometimes be identified by our use of
forward looking words such as "anticipate," "believe," "estimate," "expect,"
"intend," "plan," "seek," "should" and similar expressions. Our forward looking
statements are subject to


                                       30
<PAGE>

numerous risks, uncertainties and assumptions, many of which are beyond our
control. These risks, uncertainties and assumptions include the risk factors
discussed above. We cannot guarantee that our forward looking statements will
turn out to be correct or that our beliefs, plans, expectations and assumptions
will not change. Our actual results could be very different from and worse than
our expectations as expressed in our forward looking statements.

ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company entered into an interest rate swap agreement with a total
notional principal amount of $10,000,000 at December 31, 1999 which expires on
November 7, 2002 and an interest rate swap agreement with a total notional
principal amount of $5,000,000 at July 3, 2001 which expires on May 31, 2004.
The objective of these agreements is to convert a portion of the Company's
floating rate revolving credit facility to a fixed rate. The estimated fair
value of the interest rate swap agreements was approximately ($580,174) at
December 31, 2001. The estimated fair value is based upon appropriate market
information and projected interest rate changes obtained from a reputable
institution.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                                       31
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
Interlott Technologies, Inc.


We have audited the accompanying balance sheets of Interlott Technologies, Inc.
as of December 31, 2001 and 2000, and the related statements of income,
stockholders' equity, and cash flows for the three years then ended. 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 of America. Those standards require that we plan and
perform the audits 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 Interlott Technologies, Inc. as
of December 31, 2001 and 2000, and the results of its operations and its cash
flows for the three years ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

We have also audited Schedule II for each of the three years in the period
ended December 31, 2001. In our opinion, this schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information therein.

/s/ Grant Thornton LLP

Cincinnati, Ohio
February 11, 2002


                                       32
<PAGE>

                          INTERLOTT TECHNOLOGIES, INC.

                                  Balance Sheet

                           December 31, 2001 and 2000
<TABLE>
<CAPTION>

                                                                                                   2001               2000
                                                                                           -----------------    ----------------
<S>                                                                                             <C>                      <C>
ASSETS
Current assets:
    Cash                                                                                        $   537,332              46,645
    Accounts receivable, less allowance for doubtful accounts
      of $203,101 in 2001 and $245,872 in 2000                                                    7,125,250           4,015,934
    Investment in sales type leases, current portion                                              2,299,706           1,649,654
    Inventories                                                                                  10,628,290           5,920,032
    Prepaid & refundable taxes                                                                      404,220             940,000
    Note receivable from stockholder                                                                      -             280,000
    Deferred tax asset                                                                              182,350             231,100
    Prepaid expenses                                                                                274,033             196,084
--------------------------------------------------------------------------------------------------------------------------------
             Total current assets                                                                21,451,181          13,279,449
--------------------------------------------------------------------------------------------------------------------------------
Property and equipment:
    Leased machines                                                                              33,759,213          38,037,036
    Machinery and equipment                                                                         777,687             797,117
    Building and leasehold improvements                                                             689,409             704,174
    Furniture and fixtures                                                                          179,182              89,381
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                 35,405,491          39,627,708
    Less accumulated depreciation and amortization                                              (16,784,029)        (17,252,787)
--------------------------------------------------------------------------------------------------------------------------------
             Net property and equipment                                                          18,621,462          22,374,921
--------------------------------------------------------------------------------------------------------------------------------
Other assets                                                                                        578,386                 -
Goodwill net of accumulated amortization of $166,581 in 2001                                      4,572,655                 -
Value of leases acquired net of accumulated amortization of $499,450 in 2001                      3,781,555                 -
Investment in sales type leases, less current portion                                             5,618,510           3,982,726
Product development rights, net of accumulated amortization  of
    $806,661 in 2001 and $733,333 in 2000                                                           293,339             366,671
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                $54,917,088          40,003,767
--------------------------------------------------------------------------------------------------------------------------------
</Table>

See accompanying notes to financial statements.



                                      33
<PAGE>


                          INTERLOTT TECHNOLOGIES, INC.

                            Balance Sheet, Continued

                           December 31, 2001 and 2000
<TABLE>
<CAPTION>

                                                                                  2001               2000
                                                                             ---------------    ---------------
<S>                                                                             <C>                 <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Notes payable to financial institutions                                     $24,255,659         15,097,611
    Notes payable - related parties                                                 487,327            902,549
    Accounts payable                                                              2,249,874          2,043,736
    Accounts payable - related parties                                              317,505            180,291
    Accrued expenses                                                              1,463,175          1,923,799
---------------------------------------------------------------------------------------------------------------
             Total current liabilities                                           28,773,540         20,147,986
---------------------------------------------------------------------------------------------------------------
Subordinated term note                                                            5,000,000                -
Deferred tax liability                                                              568,950            996,200
---------------------------------------------------------------------------------------------------------------
             Total liabilities                                                   34,342,490         21,144,186
---------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities
---------------------------------------------------------------------------------------------------------------
Interest rate swap agreements                                                       580,174                -
---------------------------------------------------------------------------------------------------------------
Notes payable - related parties                                                      24,124            511,451
---------------------------------------------------------------------------------------------------------------
Stockholders' equity:
    Common stock, $.01 par value; 20,000,000 shares authorized, 6,441,498
       shares issued and outstanding in 2001 and 6,429,910 shares issued
       and outstanding in 2000                                                       32,140             32,135
    Additional paid-in capital                                                   10,482,853         10,427,079
    Accumulated comprehensive income (loss)                                        (382,915)               -
    Retained earnings                                                             9,838,222          7,888,916
---------------------------------------------------------------------------------------------------------------
             Total stockholders' equity                                          19,970,300         18,348,130
                                                                             ---------------    ---------------
                                                                                $54,917,088         40,003,767
---------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to financial statements.



                                       34
<PAGE>


                          INTERLOTT TECHNOLOGIES, INC.

                               Statement of Income

                  Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>

                                                                         2001               2000               1999
                                                                    ---------------    ---------------    ---------------
<S>                                                                    <C>                 <C>                 <C>
Revenues:
    Machine sales                                                      $19,358,561         21,958,631          3,311,874
    Machine leases                                                      18,336,526         17,966,445         16,901,911
    Other                                                                5,020,599          2,664,014          2,120,245
                                                                    ---------------    ---------------    ---------------
                                                                        42,715,686         42,589,090         22,334,030
Cost of revenues:
    Machine sales and other                                             14,251,360         15,850,677          1,466,153
    Machine leases                                                      16,642,822         13,252,049         12,580,788
                                                                    ---------------    ---------------    ---------------
                                                                        30,894,182         29,102,726         14,046,941
                                                                    ---------------    ---------------    ---------------
             Gross margin                                               11,821,504         13,486,364          8,287,089
Operating expenses:
    Selling, general and administrative expenses                         5,915,233          5,421,062          4,202,825
    Research and development costs                                         347,596            640,150            581,885
    Amortization of goodwill and leases                                    666,031                -                  -
                                                                    ---------------    ---------------    ---------------
                                                                         6,928,860          6,061,212          4,784,710
                                                                    ---------------    ---------------    ---------------
             Operating income                                            4,892,644          7,425,152          3,502,379
Other income (expense)
    Interest expense                                                    (2,049,605)        (1,580,969)        (1,102,478)
    Other                                                                   41,296            (57,385)           598,832
                                                                    ---------------    ---------------    ---------------
                                                                        (2,008,309)        (1,638,354)          (503,646)

Income before income taxes and extraordinary item                        2,884,335          5,786,798          2,998,733
Income tax provision                                                       935,029          2,176,599          1,106,594
                                                                    ---------------    ---------------    ---------------
Income before extraordinary item                                         1,949,306          3,610,199          1,892,139
                                                                    ---------------    ---------------    ---------------
Extraordinary item (less applicable income taxes of
    $109,195)                                                                  -                  -              178,159
                                                                    ---------------    ---------------    ---------------
             Net income                                                 $1,949,306          3,610,199          2,070,298
                                                                    ===============    ===============    ===============

Basic income per share before extraordinary item                              0.30               0.56               0.29
                                                                    ===============    ===============    ===============
Diluted income per share before extraordinary item                            0.30               0.56               0.29
                                                                    ===============    ===============
Basic and diluted extraordinary item per share                                 -                  -                 0.03
                                                                    ===============    ===============    ===============
Basic net income per share                                                    0.30               0.56               0.32
                                                                    ===============    ===============    ===============
Diluted net income per share                                                  0.30               0.56               0.32
                                                                    ===============    ===============    ===============
</TABLE>

See accompanying notes to financial statements.


                                       35
<PAGE>


                          INTERLOTT TECHNOLOGIES, INC.

                        Statement of Stockholders' Equity

                  Years ended December 31, 1999, 2000 and 2001
<TABLE>
<CAPTION>
                                                                                               Common Stock
                                                                   Comprehensive   --------------------------------
                                                                      Income            Shares            Amount
                                                                   -------------   --------------    --------------
<S>                                                             <C>                <C>                <C>
Balances at December 31, 1998                                            -             6,420,000          $ 32,100
Net income                                                               -               -                 -
---------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1999                                            -             6,420,000            32,100
Shares issued for exercise of options                                    -                 7,000                35
Shares issued in connection with Employee Stock Purchase Plan            -                 2,910               -
Net income                                                               -                   -                 -
---------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2000                                            -             6,429,910            32,135
Cumulative effect of transition adjustment                               -                   -                 -
Shares issued for exercise of options                                    -                 1,000                 5
Shares issued in connection with Employee Stock Purchase Plan            -                10,588               -
Comprehensive income (loss):
      Net income                                                   1,949,306                 -                 -
      Other comprehensive loss related to swap agreements
        (net of tax of $162,260)                                    (314,975)                -                 -
---------------------------------------------------------------------------------------------------------------------
Total comprehensive income                                       $ 1,634,331
Balances at December 31, 2001                                            -             6,441,498          $ 32,140
                                                                                   =============          ========

                                                       Additional                               Accumulated
                                                        Paid-in             Retained          Comprehensive
                                                        Capital             Earnings           Income (Loss)            Total
                                                    ----------------    -----------------     ---------------      ---------------
<S>                                                <C>                   <C>                 <C>                   <C>
Balances at December 31, 1998                          $ 10,376,017          $ 2,208,419                  -          $ 12,616,536
Net income                                                 -                   2,070,298                  -             2,070,298
----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1999                            10,376,017            4,278,717                  -            14,686,834
Shares issued for exercise of options                        51,062                  -                    -                51,097
Shares issued in connection with Employee
Stock Purchase Plan                                             -                    -                    -                   -
Net income                                                      -              3,610,199                  -             3,610,199
----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2000                            10,427,079            7,888,916                  -            18,348,130
Cumulative effect of transition adjustment                      -                    -                (67,940)            (67,940)
Shares issued for exercise of options                         4,495                  -                    -                 4,500
Shares issued in connection with Employee Stock
  Purchase Plan                                              51,279                  -                    -                51,279
Comprehensive income (loss):
      Net income                                                -              1,949,306                  -             1,949,306
      Other comprehensive loss related to
        swap agreements (net of tax of $162,260)                -                    -               (314,975)           (314,975)
----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
Balances at December 31, 2001                          $ 10,482,853          $ 9,838,222            $(382,915)       $ 19,970,300
                                                       ============          ===========            ========= =      ============
</TABLE>


See accompanying notes to financial statements.




                                       36
<PAGE>


                          INTERLOTT TECHNOLOGIES, INC.

                             Statement of Cash Flows

                  Years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                          2001             2000            1999
                                                                                    ----------------   --------------  ------------
<S>                                                                                      <C>             <C>             <C>
Cash flows from operating activities:
    Net income                                                                           $1,949,306      3,610,199       2,070,298
    Adjustments to reconcile net income to net cash
      provided by operating activities:
        Net book value of equipment disposals                                                   -           86,499         113,563
        Depreciation and amortization                                                     7,315,089      6,622,439       5,547,909
        Principal portion of sales type leases received                                   1,551,262      1,441,971         909,184
        (Decrease) increase in deferred income tax liability                               (229,991)       194,400         448,800
        Gain on sale of equipment under sales type lease                                   (916,039)      (301,019)       (331,170)
        (Increase) in accounts receivable                                                (1,785,465)      (710,448)       (488,897)
        Decrease (increase) in inventories - net of leased equipment returned             1,118,671        651,645        (828,568)
        (Increase) in prepaid expenses and other asset                                      312,870           (565)       (185,733)
        Decrease in deferred tax asset                                                       48,750            -               -
        Increase in accounts payable                                                        206,138        261,853         302,052
        (Decrease) increase in accounts payable - related parties                           137,214            822         (36,265)
        (Decrease) increase in accrued expenses                                            (460,624)       565,546         246,837
        (Decrease) in income taxes payable                                                 (404,220)      (867,681)       (248,458)
-------------------------------------------------------------------------------------------------------------------   -------------
              Net cash provided by operating activities                                   8,842,961     11,555,661       7,519,552
-------------------------------------------------------------------------------------------------------------------   -------------

Cash flows from investing activities:
    Cost of leased machines                                                              (7,979,117)    (9,580,471)    (11,985,736)
    Acquisition of business                                                             (13,486,146)           -               -
    Purchases of property and equipment                                                    (198,289)      (717,027)        (77,672)
-------------------------------------------------------------------------------------------------------------------   -------------
              Net cash used in investing activities                                     (21,663,552)   (10,297,498)    (12,063,408)
-------------------------------------------------------------------------------------------------------------------   -------------

Cash flows from financing activities:
    (Increase) in notes receivable from shareholder                                             -         (280,000)            -
    Increase (decrease) in notes payable                                                 14,158,048       (907,417)      4,838,655
    Proceeds from exercise of stock options                                                   4,500         51,096             -
    Proceeds from Employee Stock Purchase Plan                                               51,279            -               -
    Repayment of long-term debt                                                            (902,549)      (207,698)       (192,302)
              Net cash (used in) provided by financing activities                        13,311,278     (1,344,019)      4,646,353
-------------------------------------------------------------------------------------------------------------------   -------------

Increase (decrease) in cash                                                                 490,687        (85,856)        102,497
Cash at beginning of year                                                                    46,645        132,501          30,004
-------------------------------------------------------------------------------------------------------------------   -------------
Cash at end of year                                                                     $   537,332         46,645         132,501
-------------------------------------------------------------------------------------------------------------------   -------------

Supplemental disclosures of cash flow information:
    Net book value of leased equipment returned from the field                          $ 2,404,876      1,357,572       1,255,578
    Interest paid                                                                       $ 2,021,966      1,578,357       1,216,285
    Notes payable to stockholders issued in exchange for redeemable preferred stock     $       -        1,335,000             -
    Income taxes paid                                                                   $   646,336      1,847,415       1,104,789
    Interest swap liability                                                             $   580,174            -               -

Business combination accounted for as a purchase
  Accounts receivable                                                                   $  1,043,852            -               -
  Inventory                                                                             $  3,422,053            -               -
  Lease acquisition costs                                                               $  4,281,005            -               -
  Goodwill                                                                              $  4,739,236            -               -
                                                                                         -----------      ---------      ----------
                                                                                         $13,486,146            -               -
</TABLE>
See accompanying notes to financial statements.


                                       37
<PAGE>
                         NOTES TO FINANCIAL STATEMENTS


(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       (A)    BUSINESS DESCRIPTION

              Interlott Technologies, Inc. (the Company), a Delaware
              corporation, designs, manufactures, leases, sells and services
              vending machines for use in connection with public lotteries
              operated by states and foreign public entities, as well as for use
              by providers of prepaid telephone cards.

       (B)    OPERATING AND SALES TYPE LEASES

              Depending on the specific terms contained in the lease agreement,
              the lease is either classified as an operating lease or
              capitalized as a sales type lease, in accordance with Statement of
              Financial Accounting Standards (SFAS) No. 13, Accounting for
              Leases, as amended.

              The net investment in operating leases consists of leased
              machines, which are carried at cost, less the amount depreciated
              to date. Operating lease revenue consists of the contractual lease
              payments and is recognized ratably over the lease term. Expenses
              are principally depreciation of the leased machines (see Note 1d).

              The net investment in sales type leases consists of the present
              value of the future minimum lease payments. Sales type lease
              revenues consists of the profits earned on the sale of the leased
              machines and interest earned on the present value of the lease
              payments. Interest revenue is recognized as a constant percentage
              return on the net investment.

              Any future losses related to lease cancellations would be recorded
              in the period such losses become known and estimable.

       (C)    INVENTORIES

              Inventories consist of parts and supplies, and vending machines
              assembled or in the process of assembly. Inventories are stated at
              the lower of cost or market, with cost determined using standard
              costing, which approximates the first-in, first-out method.





                                       38
<PAGE>


       (D)    PROPERTY AND EQUIPMENT

              Property and equipment are stated at cost. Depreciation of
              property and equipment is calculated on the straight-line method
              over the estimated useful lives of the assets, to the Company's
              estimate of the assets' residual values, as follows:

                  Leased machines                    5 years
                  Machinery and equipment           10 years
                  Furniture and fixtures             5 years

              Leasehold improvements are amortized on the straight-line method
              over the lease term. Amortization of assets held under leasehold
              improvements is included with depreciation expense.

       (E)    PRODUCT DEVELOPMENT RIGHTS

              Product development rights represent the exclusive rights to
              certain patents and other related manufacturing technologies to
              manufacture and assemble the instant ticket vending machines. The
              asset is amortized on the straight-line method over fifteen years,
              which represents the lower of the remaining life of the patents or
              the estimated remaining life of the technology currently in use.

       (F)    INCOME TAXES

              The Company accounts for income taxes using the asset and
              liability method. In accordance with this method, deferred tax
              assets and liabilities are recognized for the future tax
              consequences attributable to differences between the financial
              statement carrying amounts of existing assets and liabilities and
              their respective tax bases and operating loss and tax credit
              carryforwards. Deferred tax assets and liabilities are measured
              using the enacted tax rates expected to apply to taxable income in
              the years in which those temporary differences are expected to be
              recovered or settled.

       (G)    DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

              SFAS No. 107, Disclosure About Fair Value of Financial
              Instruments, defines the fair value of a financial instrument as
              the amount at which the instrument could be exchanged in a current
              transaction between willing parties. The carrying amounts as of
              December 31, 2001 and 2000 of cash, accounts receivable, accounts
              payable, accounts payable - related parties, accrued expenses and
              income taxes payable approximate fair value due to the short
              maturity of these investments. The carrying amount of notes
              payable approximate fair value, as such borrowings bear interest
              at the Company's current rates for such types of instruments.

       (H)    STOCK INCENTIVE PLANS

              On January 1, 1996, the Company adopted SFAS No. 123, Accounting
              for Stock-Based Compensation, which permits entities to recognize
              compensation expense over the vesting period of the fair value of
              all stock-based awards on the date of grant. Alternatively, SFAS
              No. 123 allows entities to continue to apply the provisions of APB
              Opinion No. 25 and provide pro forma net income and pro forma
              earnings per share disclosures for employee stock option grants as
              if the fair-value-based method defined in SFAS No. 123 had been


                                       39
<PAGE>

              applied. The Company has elected to continue to apply the
              provisions of APB Opinion No. 25 and provide the pro forma
              disclosures of SFAS No. 123.

       (I)    WARRANTY COSTS

              Provision for estimated warranty costs on machines sold is
              recorded at the time of sale and periodically adjusted to reflect
              actual experience.

       (J)    RESEARCH AND DEVELOPMENT COSTS

              Research and development costs are charged to expense in the year
              incurred.

       (K)    EARNINGS PER SHARE

              Basic earnings per share is based upon the weighted average number
              of common shares outstanding. Diluted earnings per share is based
              upon the weighted average number of common shares outstanding,
              including the effects of all dilutive potential common shares
              outstanding.

       (L)    USE OF ESTIMATES

              Management of the Company has made a number of estimates and
              assumptions relating to the reporting of assets and liabilities
              and the disclosure of contingent liabilities to prepare these
              financial statements in conformity with generally accepted
              accounting principles. Actual results could differ from those
              estimates.

       (M)    ACCOUNTS PAYABLE

              Accounts payable included $518,642 and $540,908, respectively, of
              outstanding checks at December 31, 2001 and 2000.

       (N)    INTANGIBLE ASSETS

              Amortization of goodwill is calculated on the straight line method
              based on a 20 year life.

              On July 20, 2001, the Financial Accounting Standards Board (FASB)
              issued SFAS No. 141, Business Combinations and SFAS No. 142,
              Goodwill and Other Intangible Assets. SFAS No. 141 requires that
              the purchase method of accounting be used for all business
              combinations initiated after September 30, 2001. The Company
              adopted SFAS No. 141 on July 1, 2001. The change had no material
              effect on the Company's financial position or results of
              operations.

              SFAS No. 142 requires that goodwill and intangible assets with
              indefinite useful lives no longer be amortized, but instead tested
              for impairment at least annually in accordance with the provisions
              of SFAS No. 142. SFAS No. 142 also requires that intangible assets
              with definite useful lives be amortized over their respective
              estimated useful lives to their estimated residual values, and
              reviewed for impairment in accordance with SFAS No. 121,
              Accounting for the Impairment of Long Lived Assets and for
              Long-Lived Assets to Be Disposed Of. At this time, the Company
              believes that no impairment exists. The Company considers cash
              flow losses as an indicator of potential impairment. When
              undiscounted cash flows are less than the carrying value, an
              impairment loss will be recognized.


                                       40
<PAGE>

              The Company adopted SFAS No. 142 on January 1, 2002, as required.
              Any effect will be the difference in no longer amortizing goodwill
              and any impairment that is determined. Goodwill amortization,
              which began in June 2001, was approximately $166,600.

       (2)    INVESTMENT IN SALES TYPE LEASES

              The Company leases instant ticket vending machines (ITVMs) to
              several state lotteries under sales type leases. The components of
              the net investment in sales type leases at December 31, 2001 and
              2000 were as follows:
<TABLE>
<CAPTION>

                                                                                      2001                2000
<S>                                                                             <C>                  <C>
       Minimum lease payments receivable                                        $9,082,572           $6,767,616
       Less unearned revenue on lease payments receivable                        1,164,356            1,135,236
                                                                                 ---------            ---------
                                                                                 7,918,216            5,632,380
       Less current portion                                                      2,299,706            1,649,654
                                                                                 ---------            ---------
       Investment in sales type leases, less current portion                    $5,618,510           $3,982,726
                                                                                 =========            =========
</TABLE>




                                       41
<PAGE>


       Future minimum lease payments to be received by the Company under these
       sales type leases are as follows:

       Years ending December 31,
       -------------------------

             2002         $3,018,388
             2003          1,823,700
             2004          1,775,250
             2005          1,131,369
             2006            872,643
             2007            461,222
                          ----------
                          $9,082,572
                          ==========

(3)    INVENTORIES

       Inventories at December 31, 2001 and 2000 consisted of the following:

                                                  2001                2000

       Finished goods                       $2,255,882          $1,375,188
       Work in process                         531,355             449,471
       Raw materials and supplies            7,841,053           4,095,373
                                             ---------           ---------

                                           $10,628,290          $5,920,032
                                            ==========           =========

(4)    LEASED MACHINES

       At December 31, 2001 and 2000, the Company leased ITVMs to various state
       lotteries under operating leases. The leases generally provide for the
       lotteries to make monthly or quarterly payments for rentals of the ITVMs
       over various lease terms. The components of the net investment in
       operating leases, which include estimated residual values, at December
       31, 2001 and 2000 were as follows:

                                                       2001                2000

       Leased machines                          $33,759,213         $38,037,036
       Less accumulated depreciation             15,876,044          16,464,446
                                                 ----------          ----------

                                                $17,883,169         $21,572,590
                                                 ==========          ==========

       Future minimum lease payments to be received by the Company under
       operating leases are as follows:

       December 31,
       ------------

             2002                                $15,071,043
             2003                                  8,102,200
             2004                                  4,463,843
             2005                                    161,535
                                                 -----------
                                                $27,798,621
                                                ===========

(5)    NOTES PAYABLE TO FINANCIAL INSTITUTIONS


                                       42
<PAGE>

       In January, 2001 the Company entered into a $25 million three year
       revolving credit facility with a bank. Initial proceeds from the note
       were used to retire the Company's prior revolving credit facility. In
       conjunction with the establishment of the facility, the Company opened a
       lockbox and controlled disbursement account under which all lockbox
       receipts are recorded as payments against the facility and presented
       checks are recorded as draws on the facility. Borrowings under the credit
       facility are collateralized by all assets of the Company and an
       assignment of proceeds from lease agreements. The terms of the credit
       facility require the Company to maintain a cash balance at all times
       equal to .875% of the total amount of the facility. Additionally, the
       Company must comply with certain loan covenants which include, among
       other things, a minimum ratio of funded debt to EBITDA and a minimum
       tangible net worth requirement. The wording of the covenant concerning
       minimum tangible net worth as that phrase was defined by the credit
       agreement on December 31, 2001 did not exclude the comprehensive income
       or loss treatment of interest rate swap agreements and as a result, the
       Company was not in compliance. However, the bank has revised the wording
       of the credit agreement to clarify the covenant and the Company is in
       full compliance with the requirements of the amended and restated
       covenant, including as of December 31, 2001.

       In June 2001, in connection with the acquisition of the lottery assets of
       On-Point Technology Systems, Inc. the Company increased the credit
       facility from $25 million to $30 million, and completed a mezzanine
       financing of junior debt in the form of a term note due June 30, 2003 in
       the principal amount of $5 million with the same bank. The rate of
       interest on the credit facility is based on the prime rate or LIBOR rate
       adjusted up or down depending on the Company's funded debt to EBITDA
       ratio. The current rate is LIBOR plus 2% (4.8% at December 31, 2001). The
       term note bears interest at the rate of 9%.

       At December 31, 2001, the Company had borrowings of $24,255,659
       outstanding with additional borrowings of $5,744,341 available under the
       revolving credit facility and $5 million outstanding under the term note.

(6)    NOTES PAYABLE - RELATED PARTIES

       The Company had the following notes payable to related parties at
       December 31, 2001 and 2000:
<TABLE>
<CAPTION>

                                                                                      2001                2000
<S>                                                                                   <C>                 <C>
       Notes payable to former preferred stockholders, in the principal amount
       of $1,335,000 due in annual installments limited in the aggregate with
       the stockholder note identified in the immediately following paragraph to
       twenty-five percent (25%) of the net profits, if any, of the Company from
       its business operations as reported in the Company's annual financial
       statements. The notes were issued in exchange for shares of redeemable
       preferred stock. Payments began April 2, 2001. The notes do not provide
       for any interest and are unsecured.                                         $ 482,876          $1,335,000


       Note payable to a stockholder, in the original amount of $79,000, due and
       limited in the aggregate with the preferred stockholder notes identified
       in the preceding paragraph to twenty-five percent (25%) of the net
       profits of the Company,
</TABLE>



                                       43
<PAGE>

<TABLE>
<CAPTION>

<S>                                                                                   <C>                 <C>

       if any, from its business operations as reported in the Company's annual
       financial statements. Payments began April 2, 2001. The note does not
       provide for any interest and is unsecured.                                   28,575              79,000
                                                                                  --------         -----------
                                                                                   511,451           1,414,000
       Less current portion                                                        487,327             902,549
                                                                                   -------         -----------
                                                                                 $  24,124          $  511,451
                                                                                  ========          ==========
</TABLE>




                                       44
<PAGE>


(7)    ADDITIONAL FINANCIAL INSTRUMENT

       The Company entered into an interest rate swap agreement with a total
       notional principal amount of $10 million at December 31, 1999 which
       expires on November 7, 2002 and an interest rate swap agreement with a
       total notional principal amount of $5 million at July 3, 2001 which
       expires on May 31, 2004. The objective of these agreements is to convert
       a portion of the Company's floating rate revolving credit facility to a
       fixed rate. The estimated fair value of the interest rate swap agreements
       was approximately ($580,174) at December 31, 2001. The estimated fair
       value is based upon appropriate market information and projected interest
       rate changes obtained from a reputable institution.

(8)    INCOME TAXES

       Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                              ------------------------------------------------
                                                                2001               2000                1999
<S>                                                            <C>              <C>                <C>
       Current:
         Federal                                               $851,391         $1,629,300         $   612,400
         State and local                                        264,899            352,899             154,600

       Deferred:
         Federal                                                181,261            194,400             448,800
                                                                --------        ----------          ----------
                                                               $935,029         $2,176,599          $1,215,800
                                                                =======          =========           =========
</TABLE>

       A reconciliation of income tax expense in relation to the amounts
       computed by application of the U.S. federal income tax rate of 34%
       to pretax income follows:
<TABLE>
<CAPTION>

                                                                   2001               2000                1999
<S>                                                            <C>              <C>                 <C>
       Federal income tax expense at the statutory rate        $980,674         $1,967,500          $1,117,300
       Officers life insurance                                    8,000              8,000               8,000
       Amortization of product development rights              (199,654)            25,000              25,000
       State and local taxes, net of federal benefit            174,833            232,900             102,000
       Other                                                    (28,824)           (56,801)            (36,511)
                                                               ---------        ----------          -----------
                                                               $935,029         $2,176,599          $1,215,789
                                                               ========         ==========          ==========
</TABLE>





                                       45
<PAGE>


       The tax effects of temporary differences that give rise to significant
       portions of the deferred tax assets and deferred tax liabilities at
       December 31, 2001 and 2000 are presented below:
<TABLE>
<CAPTION>
                                                                                      2001                2000

<S>                                                                             <C>                 <C>
       Deferred tax assets:
         Bad debt allowance                                                   $     69,000          $   83,600
         Investment in sales type leases                                           601,800             249,600
         Net operating loss carryforwards                                          182,300             237,200
         Inventory valuation reserve                                               156,000              73,100
         Change in accounting for patent amortization                              184,100              -
         Interest rate swap agreement                                              197,300              -
         Accrued expenses                                                           75,400              75,400
                                                                              ------------          ----------
            Total gross deferred tax assets                                   $  1,465,900          $  717,900
                                                                              ============          ==========

       Deferred tax liabilities:
         Property and equipment, principally due to
           differences in depreciation                                        $  1,754,800          $1,385,300
        Involuntary conversion of assets                                            97,700              97,700
                                                                              ------------          ----------
            Total gross deferred tax liabilities                                 1,852,500           1,483,000
                                                                              ------------          ----------
            Net deferred tax liabilities                                      $   (386,600)         $ (765,100)
                                                                              ============          ==========

</Table>

       In assessing the realizability of deferred tax assets, management
       considers whether it is more likely than not that some portion or all of
       the deferred tax assets will not be realized. The ultimate realization of
       deferred tax assets is dependent upon the generation of future taxable
       income during the periods in which those temporary differences become
       deductible. Management considers the scheduled reversal of deferred tax
       liabilities, projected future income and tax planning strategies in
       making this assessment.

       At December 31, 2001, the Company had net operating loss carryforwards
       for federal income tax purposes of approximately $536,300 which are
       available to offset future federal taxable income, if any, through 2009.
       However, due to an ownership change on September 25, 1992, utilization of
       these carryforwards is subject to certain annual limitations.



                                       46
<PAGE>


(9)    STOCK INCENTIVE PLANS

       The Company's 1994 Stock Incentive Plan was amended and restated
       effective December 29, 2000. The Company also has a 1994 Directors Stock
       Incentive Plan under which options were granted prior to the amendment of
       the 1994 Stock Incentive Plan. Stock options are granted with an exercise
       price equal to the stock's fair market value at the date of grant.
       Options vest at the rate of 25% per year beginning one year from the date
       of grant, subject to the recipient's continued employment or service to
       the Company, and must be exercised within 10 years after that date.

       As permitted by SFAS No. 123, the Company applies the intrinsic value
       method prescribed by APB Opinion No. 25 and related interpretations in
       accounting for its stock option plans. Accordingly, no compensation cost
       has been recognized in the accompanying statements of income.

       A summary of the status of the Company's stock options as of December 31,
       2001, 2000, and 1999 and the changes therein for the years then ended is
       presented below:
<TABLE>
<CAPTION>

                                                 2001                         2000                          1999
                                       --------------------------  ----------------------------  ----------------------------
                                                     WEIGHTED                      WEIGHTED                      WEIGHTED
                                                      AVERAGE                       AVERAGE                       AVERAGE
                                                     EXERCISE                      EXERCISE                      EXERCISE
                                        SHARES         PRICE         SHARES          PRICE         SHARES          PRICE
                                       ----------  --------------  -----------   --------------  ------------  --------------
<S>                                      <C>               <C>       <C>                <C>        <C>                <C>
Outstanding at beginning of year         502,800           $3.92     513,100            $3.91      424,350            $4.33
Granted                                  290,850            5.25       -                  -        115,500             2.59
Exercised                                  1,000            3.25       7,000             5.02        -                  -
Forfeited                                  1,350            3.53       3,300             3.22       26,750             4.58
                                       ----------  --------------  -----------   --------------  ------------  --------------
Outstanding at end of year               791,300            4.37     502,800             3.92      513,100             3.91
Options exercisable at year-end          476,525            4.24     434,850             4.27      304,162             4.48
                                       ----------  --------------  -----------   --------------  ------------  --------------
Weighted-average fair value of
     options granted during the
     year                                                  $5.25                       N/A                            $2.59
</TABLE>

       Had compensation cost for options granted during 2001 and 2000 been
       determined consistent with the fair value methodology of SFAS No. 123,
       the Company's net income and earnings per share would have been reduced
       to the pro forma amounts presented below:
<TABLE>
<CAPTION>
                                                                                       2001               1999
<S>                                                 <C>                         <C>               <C>
       Net income                                     As reported                $1,949,306         $ 2,070,298
                                                      Pro forma                   1,691,799           2,054,057
       Basic and diluted earnings per share           As reported                      .30                  .51
                                                      Pro forma                        .26                  .47
                                                                                       ===                  ===
</TABLE>

       The full impact of calculating compensation cost for stock options under
       SFAS No. 123 is not reflected in the pro forma net income amounts
       presented above because compensation cost is recognized over the options'
       vesting period of four years and compensation cost for options granted
       prior to January 1, 1995 is not considered.


                                       47
<PAGE>

       The fair value of options granted during 2001 and 1999 for purposes of
       the accompanying pro forma disclosures is estimated on the grant date
       using the Black-Scholes option-pricing model with the following
       weighted-average assumptions: no dividends paid, as it has been the
       Company's policy not to declare or pay dividends and the Company does not
       anticipate paying dividends in the foreseeable future; expected
       volatility of 76% and 43%, respectively, based on the calculated
       volatility of the Company's stock; risk-free rates of return of 4.81% and
       4.83%, respectively; and expected lives of 10 years.

       Information about stock options outstanding at December 31, 2001 is as
       follows:
<TABLE>
<CAPTION>

                                      Options Outstanding                     Options Exercisable
                         -----------------------------------------------  -----------------------------
                                           Weighted-
                                            Average        Weighted-                       Weighted-
                                           Remaining        Average                         Average
      Range of              Number        Contractual       Exercise         Number         Exercise
  Exercise Prices         Outstanding        Life            Price         Exercisable       Price
---------------------    --------------  --------------  ---------------  --------------  -------------
<C>                         <C>                <C>             <C>           <C>              <C>
$2.41 - 4.32                   419,200            5.46            $3.59         346,525          $3.76
$5.07 - 5.75                   372,100            7.61             5.33         130,000           5.49
                         --------------  --------------  ---------------  --------------  -------------
                              791,300             6.47            $4.37         476,525          $4.24
                         ==============  ==============  ===============  ==============  =============
</TABLE>

(10)   EARNINGS PER SHARE
<TABLE>
<CAPTION>
                                                                         Net                                     Per
                                                                       Earnings            Shares               Share
1999                                                                 (Numerator)        (Denominator)          Amount
                                                                    ---------------   ------------------   ---------------
<S>                                                              <C>                       <C>                     <C>
       Basic earnings per share:
          Net earnings available to common stockholders          $       2,070,298         6,420,000               $0.32

       Diluted earnings per share:
          Effect of dilutive stock options                                                     1,806
          Earnings available to common stockholders
             and assumed conversions                                     2,070,298         6,421,806                0.32
2000

       Basic earnings per share:
          Net earnings available to common stockholders                  3,610,199         6,422,914                0.56

       Diluted earnings per share:
          Effect of dilutive stock options                                                    71,592
          Earnings available to common stockholders
             and assumed conversions                                     3,610,199         6,494,506                 .56
2001

       Basic earnings per share:
          Net earnings available to common stockholders                  1,949,306         6,436,801                0.30

       Diluted earnings per share:
          Effect of dilutive stock options                                                   119,484
          Earnings available to common stockholders
             and assumed conversions                                    $1,949,306         6,556,285               $0.30
</TABLE>


                                       48
<PAGE>

       Options to purchase 394,800, 243,950 and 446,050 shares of common stock
       were outstanding in 2001, 2000 and 1999, respectively, but were not
       included in the computation of diluted earnings per share because the
       options' exercise prices were greater than the average market price of
       the common shares.

(11)   NONCASH INVESTING ACTIVITIES

       Leased machines with net book values of $2,404,876 in 2001 and $742,114
       in 2000 were returned to the Company's inventories upon lease
       expirations. The Company used parts from these returned machines in the
       manufacturing of certified new machines, a portion of which were deployed
       in 2001 under new leases.

(12)   RELATED PARTY TRANSACTIONS

       Accounts payable - related parties of $317,505 and $180,291 at December
       31, 2001 and 2000, respectively, represent management fees and expenses
       payable to a company owned 100% by the majority stockholder as well as
       parts expenses payable to an entity which is owned by a director.

       Amounts expensed related to the company owned by the majority stockholder
       were $36,000 for each of the years ended December 31, 2001, 2000 and
       1999, respectively.

       The entity owned by a director supplies the Company with certain parts
       for its dispensing mechanisms. In addition, on January 13, 1994, the
       Company entered into a manufacturing and license agreement with this
       entity pursuant to which the Company purchased an exclusive license to
       make, use and sell pull-tab lottery ticket dispensing mechanisms produced
       by this entity. The Company had purchases from this entity which were
       charged to cost of revenues of approximately $5,240,275, $6,205,187 and
       $4,116,674 for the years ended December 31, 2001, 2000 and 1999,
       respectively.

       Note receivable - stockholder represented an advance to a director. The
       note bore interest at the prime rate of interest and was repaid in April
       2001 from the proceeds of a note held by the director in his capacity as
       a former preferred stockholder.

       Interest expense arising from notes payable-related parties amounted to
       $0, $4,510 and $20,275 for the years ended December 31, 2001, 2000 and
       1999, respectively.

(13)   CUSTOMER AND SUPPLIER CONCENTRATIONS

       A significant portion of the Company's revenues are derived from a
       limited number of state lottery authorities or their representatives. In
       each of the years ended December 31, 2001, 2000 and 1999, a single
       customer generated 17%, 19% and 24%, respectively, of the machine lease
       revenues. In addition, single state contracts generated 59%, 76% and 38%
       of the machine sales revenues for the years ended December 31, 2001, 2000
       and 1999, respectively. Future revenue from machine sales and leases is
       dependent upon winning awards in a competitive bidding process.

       The Company currently purchases certain components used in its vending
       machines, including components used in its burster mechanism, from single
       suppliers. The purchase of components from outside suppliers on a sole
       source basis subjects the Company to certain risks, including the
       continued availability of suppliers, price increases and potential
       quality assurance problems. Because other suppliers exist that can
       duplicate these components should the Company elect or be forced to use a
       different supplier, the Company does not believe that a change in
       suppliers would


                                       49
<PAGE>

       result in the termination of a production contract. However, the Company
       could experience a delay of 30 to 60 days in production, which could
       adversely affect the Company's ability to make timely deliveries of
       vending machines and to obtain new contracts.

(14)   LEASE COMMITMENTS

       The Company leases its office and manufacturing facility under a
       noncancelable operating lease. The current lease, which was entered into
       on April 1, 2000, expires on March 31, 2005, and requires lease payments
       of $25,186 per month. Total rent expense under this lease approximated
       $302,200 and $274,902, for the years ended December 31, 2001 and 2000,
       respectively, and $179,000 for the various facility leases in 1999.

(15)   COMMITMENTS AND CONTINGENT LIABILITIES

       As of December 31, 2001, the Company had outstanding approximately
       $2,350,000 in purchase commitments for raw materials which are used in
       the manufacturing of instant ticket vending machines. Management intends
       to utilize these commitments as machines are produced.

(16)   OTHER INCOME AND EXTRAORDINARY ITEM

       Other income in 1999 of $598,832 consisted of a one time non-recurring
       credit of $625,000 from the settlement of litigation with a competitor,
       offset by $26,168 in other non-related expenses.

       On April 9, 1999, a tornado destroyed the Corporate office and a
       warehouse facility. The excess of the insurance proceeds over the net
       book value of the assets lost resulted in an after tax gain of $178,159
       on the involuntary conversion of these assets.

(17) EMPLOYEE BENEFIT PLANS

       In 1999, the Company established a savings plan intended to qualify under
       sections 401(a) and 401(k) of the Internal Revenue Code. The plan covers
       substantially all employees of the Company. Under this plan, the
       Company's expenses in 2001 and 2000 were $51,109 and $53,283,
       respectively, which represented one half of the employees' contributions
       not exceeding 4% of gross pay.

       The Company has an Employee Stock Purchase Plan under section 423 of the
       Internal Revenue Code. The Plan provides substantially all employees of
       the Company with an opportunity to purchase, through payroll deductions,
       shares of the Company's common stock. The purchase price per share is the
       lower of 85% of the closing market price of the common stock on the first
       day of the calendar quarter or 85% of the closing market price of the
       common stock on the last day of the calendar quarter. 25,000 shares of
       common stock of the Company are reserved for issuance under this plan.

(18) ACQUISITION

       On June 1, 2001, the Company completed the acquisition of the lottery
       assets of On-Point Technology Systems, Inc. of San Marcos, California.
       Through the purchase, Interlott acquired all of the lottery assets of
       On-Point, including patents, technology, accounts receivable, inventory,
       service contracts, and lease contracts for the New York, Illinois,
       Virginia and Missouri state lotteries.


                                       50
<PAGE>

       The sale of the lottery assets to Interlott was approved by the
       stockholders of On-Point on May 18, 2001. The purchase price included
       approximately $13 million paid at closing, deferred payments of $9
       million payable, subject to adjustment, over 5 years, and an earn-out of
       up to $6 million based upon certain future revenues. In addition, at the
       closing Interlott and On-Point entered into a separate agreement to
       market a patented design for an on-line activated instant lottery ticket.

       The acquisition has been accounted for as a purchase. The total costs of
       the acquisition were allocated to tangible and intangible assets acquired
       based upon their respective fair values. The allocation of the purchase
       price and goodwill are summarized as follows:

       Accounts Receivable                                   $1,043,852
       Inventory                                              3,422,053
       Lease acquisition costs                                4,281,005
       Goodwill                                               4,739,236
                                                             ----------
                                                            $13,486,146

       Goodwill is being amortized on a straight-line basis over 20 years.

       The following table provides certain information, on a pro forma
       (unaudited) basis, concerning the impact of the acquisition on results of
       operations had the transaction been completed on January 1, 2000.
<TABLE>
<CAPTION>
                                                                              12/31/2001                          12/31/2000
                                                                              ----------                          ----------
<S>                                                                          <C>                                 <C>

       Revenues
        As reported                                                          $42,715,686                         $42,589,090
        Pro forma                                                             45,659,686                          52,882,080

       Income before extraordinary items
        As reported                                                           $1,949,306                          $3,610,199
        Pro forma                                                              2,347,206                             747,443

       Net income
        As reported                                                           $1,949,306                          $3,610,199
        Pro forma                                                              2,347,206                             747,443

       Basic and diluted earnings per share
         As reported                                                              $0.30                              $0.56
          Pro forma                                                               $0.36                              $0.12
</TABLE>


                                       51






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

        None

                                    PART III

         Except as set forth below, the information required by this Part is
incorporated by reference from the definitive Proxy Statement, filed or to be
filed with Securities and Exchange Commission, for the Company's 2002 Annual
Meeting of Stockholders.


                                       52
<PAGE>



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The executive officers of the Company (at March 30, 2002) are as
follows:

Name              Age       Title
----              ---       -----

L. Rogers Wells   64        Chairman of the Board

David F. Nichols  40        President and Chief Executive Officer

Thomas W. Stokes  38        Chief Operating Officer

Dennis W. Blazer  54        Chief Financial Officer

Information about Messrs. Wells and Nichols is incorporated by reference from
the Company's definitive Proxy Statement for the 2001 Annual Meeting.

         Thomas W. Stokes has been Chief Operating Officer since March 2000.
Prior to that, Mr. Stokes had served as the Company's Vice President of
Operations since 1997, as Director of Operations from 1996 to 1997 and as
Purchasing Manager from 1993 to 1995. From 1988 to 1992, he served as unit
controller for a food management company.

         Dennis W. Blazer has been Chief Financial Officer of the Company since
July 1998. From 1973 to 1998, he served in various capacities for The Plastic
Moldings Corporation, most recently as Vice President of Finance and
Administration. Mr. Blazer previously served as an auditor and tax consultant
with Ernst & Ernst, certified public accountants. Mr. Blazer is a certified
public accountant.

The executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors.

                                     PART IV

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

(a)      Documents Filed as Part of This Report.

         1.       Financial Statements

                  Report of Independent Certified Public Accountants

                  Balance Sheets at December 31, 2000 and 2001

                  Statements of Income for each of the years in the three-year
                  period ended December 31, 2001


                                       53
<PAGE>

                  Statements of Stockholders' Equity for each of the years in
                  the three-year period ended December 31, 2001

                  Statements of Cash Flows for each of the years in the
                  three-year period ended December 31, 2001

                  Notes to Financial Statements

         2.       Financial Statement Schedules

                  The following financial statement schedule is set forth
                  beginning on page S-1 of this report:

                           Schedule II - Valuation and Qualifying Accounts

                  All other schedules have been omitted because they are not
                  required or are inapplicable or because the information
                  required is included in the financial statements or notes
                  thereto.

         3.       Exhibits

                  See Index of Exhibits (page E-1) for a list of the exhibits
                  filed with and incorporated by reference in this report.

         (b)      Reports on Form 8-K.  None.




                                       54
<PAGE>


                                   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, on March 28, 2002.

                           INTERLOTT TECHNOLOGIES, INC.

                           (REGISTRANT)

                           By:  /s/ L. Rogers Wells, Jr.
                              --------------------------------------------
                                 L. Rogers Wells, Jr.
                                 Chairman of the Board

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 28, 2002.

        Signature                            Title

/s/ L. Rogers Wells, Jr.                Chairman of the Board
---------------------------------
L. Rogers Wells, Jr.

/s/ David F. Nichols                    President, Chief Executive Officer
---------------------------------       and Director
David F. Nichols

/s/ Gary S. Bell*                       Secretary, Treasurer and Director
---------------------------------
Gary S. Bell

 /s/ Kazmier J. Kasper*                 Director
---------------------------------
Kazmier J. Kasper

/s/ H. Jean McEntire*                   Director
---------------------------------
H. Jean McEntire

/s/ Edmund F. Turek                     Director
---------------------------------
Edmund F. Turek

/s/ John J. Wingfield*                  Director
---------------------------------
John J. Wingfield

/s/ Dennis W. Blazer                    Chief Financial and Accounting Officer
---------------------------------
Dennis W. Blazer

*By:     /s/ L. Rogers Wells, Jr.
         ---------------------------
         L. Rogers Wells, Jr.
         as attorney-in-fact



                                       55
<PAGE>



                     INDEX OF FINANCIAL STATEMENT SCHEDULES

                                                                          Page
                                                                          ----

Schedule II - Valuation and Qualifying Accounts ..........................S-2


                                       S-1

<PAGE>


                          INTERLOTT TECHNOLOGIES, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>

COLUMN A                    COLUMN B                     COLUMN C                     COLUMN D          COLUMN E
----------------------- ----------------- --------------------------------------- ----------------- ------------------
                                                        ADDITIONS
DESCRIPTION                BALANCE AT         CHARGED TO          CHARGED TO         DEDUCTIONS        BALANCE AT
                           BEGINNING          COSTS AND             OTHER                                  END
                           OF PERIOD           EXPENSES            ACCOUNTS                             OF PERIOD
----------------------- ----------------- ------------------- ------------------- ----------------- ------------------
<S>                       <C>                   <C>                   <C>           <C>                  <C>

Allowance for
doubtful accounts

1999                      $ 153,501             $96,000               $0            $90,708              $158,793
2000                        158,793              90,000                0              2,921               245,872
2001                        245,872             180,000                0            222,771               203,101


Inventory valuation
reserve

1999                        $1,208,110         $305,000               $0            $512,824           $1,000,286
2000                         1,000,286          401,292                0             920,494              481,084
2001                           481,084          465,110                0             221,279              724,915
</TABLE>


                                      S-2


<PAGE>



                          INTERLOTT TECHNOLOGIES, INC.

                                INDEX OF EXHIBITS

         The following exhibits are filed with or incorporated by reference in
this report. Where the exhibit is incorporated by reference from a previously
filed document, that document is identified in parenthesis. Unless otherwise
indicated, each document incorporated by reference was filed by the Company.

EXHIBIT NO.                       DESCRIPTION
-----------                       -----------

3.1         Certificate of Incorporation of the Company, as amended, including
            Certificate of Designation of Series A Preferred Stock (Registration
            Statement on Form S-1, No. 33-75142).

3.2         Bylaws of the Company (Registration Statement on Form S-1, No.
            33-75142).

4.1         Form of promissory note of the Company issued as of April 17, 2000
            to former holders of redeemable preferred stock (contained in
            Exhibit 3.1).

4.2         Promissory Note of the Company dated September 22, 1990 to Mr.
            Thomas Goila (Registration Statement on Form S-1, No. 33-75142).

4.3(a)      Credit Agreement dated January 25, 2001 between the Company and
            Fifth Third Bank (Annual Report on Form 10-K for the year ended
            December 31, 2000).

4.3(b)      Security Agreement dated January 25, 2001 between the Company and
            Fifth Third Bank. (contained in Exhibit 4.3(a))

4.3(c)      Mortgage of Intellectual Property dated January 25, 2001 between the
            Company and Fifth Third Bank (Annual Report on Form 10-K for the
            year ended December 31, 2000).

4.3(d)      Third Amendment dated May 31, 2001 to Credit Agreement between the
            Company and Fifth Third Bank (Quarterly Report on Form 10-Q for the
            quarter ended June 30, 2001).

4.3(e)      Amended and Restated Revolving Note dated June 1, 2001 from the
            Company to Fifth Third Bank (Quarterly Report on Form 10-Q for the
            quarter ended June 30, 2001).


                                      E-1

<PAGE>

4.3(f)      Credit Agreement ($5,000,000 Subordinate Debt) dated as of May 31,
            2001 between the Company and Fifth Third Bank (Quarterly Report on
            Form 10-Q for the quarter ended June 30, 2001).

4.3(g)      Standby and Subordination Agreement dated as of May 31, 2001 between
            the Company and Fifth Third Bank (Quarterly Report on Form 10-Q for
            the quarter ended June 30, 2001).

4.3(h)      Security Agreement dated as of May 31, 2001 between the Company and
            Fifth Third Bank (Quarterly Report on Form 10-Q for the quarter
            ended June 30, 2001).

4.3(i)      Fourth Amendment dated October 3, 2001 to Credit Agreement between
            the Company and Fifth Third Bank

4.3(j)      First Amendment dated October 3, 2001 to Credit Agreement
            ($5,000,000 Subordinate Debt) between the Company and Fifth Third
            Bank

4.3(k)      Second Amendment dated January 21, 2002 to Credit Agreement
            ($5,000,000 Subordinate Debt) between the Company and Fifth Third
            Bank, including First Amended and Restated Term Note

4.3(l)      Fifth Amendment dated March 21, 2002 to Credit Agreement between the
            Company and Fifth Third Bank

4.3(m)      Third Amendment dated March 21, 2002 to Credit Agreement ($5,000,000
            Subordinate Debt) between the Company and Fifth Third Bank


10.1        Assignment of United States Letters Patent from BLM Resources, Inc.
            to the Company with respect to United States Patent No. 4,982,337,
            "System for Distributing Lottery Tickets" (Registration Statement on
            Form S-1, No. 33-75142).

10.2        Pull-Tab Manufacturing and License Agreement between Algonquin
            Industries, Inc., Kazmier Kasper and the Company dated as of January
            13, 1994 (Registration Statement on Form S-1, No. 33-75142).



                                      E-2
<PAGE>


10.3        Asset Purchase Agreement dated February 23, 2001 between the Company
            and On-Point Technology Systems, Inc. (the Current Report on Form
            8-K of On-Point Technology Systems, Inc. dated February 23, 2001 and
            filed March 9, 2001).

10.4        Management Compensatory Plans

            (a)         1994 Stock Incentive Plan (Registration Statement on
                        Form S-1, No. 33-75142).

            (b)         1994 Directors Stock Incentive Plan (Registration
                        Statement on Form S-1, No. 33-75142).

            (c)         Employment Agreement dated as of January 1, 2001 between
                        the Company and David F. Nichols (Annual Report on Form
                        10-K for the year ended December 31, 2000).

23.1        Consent of Grant Thornton LLP.

24.1        Powers of Attorney.

                                      E-3