<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, 2002

              [ ] 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. [X]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes   No X
                                      --    --



<PAGE>

The aggregate market value of the Registrant's outstanding Common Stock held by
non-affiliates of the Registrant on June 28, 2002, the last business day of the
Registrant's most recently completed second fiscal quarter, was $16,175,411.
There were 6,459,718 shares of Common Stock outstanding as of March 20, 2003.

<PAGE>

                          INTERLOTT TECHNOLOGIES, INC.
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

ITEM

NUMBER                                                                                                             PAGE
------                                                                                                             ----
<S>                                                                                                                <C>
PART I
   1.      Business................................................................................................  1
   2.      Properties.............................................................................................. 15
   3.      Legal Proceedings....................................................................................... 15
   4.      Submission of Matters to a Vote of Security Holders..................................................... 15

PART II

   5.      Market for the Registrant's Common Stock and Related Stockholder Matters................................ 16
   6.      Selected Financial Data................................................................................. 16
   7.      Management's Discussion and Analysis of Financial Condition and Results of
           Operations.............................................................................................. 17
   7(A).   Quantitative and Qualitative Disclosures About Market Risk.............................................. 28
   8.      Financial Statements and Supplementary Data............................................................. 29
   9.      Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.................... 48

PART III

   10.     Directors and Executive Officers of the Registrant...................................................... 49
   11.     Executive Compensation.................................................................................. 51
   12.     Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters......................................................................... 55
   13.     Certain Relationships and Related Transactions.......................................................... 56
   14.     Controls and Procedures................................................................................. 56


PART IV

   15.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................ 57

           SIGNATURES and CERTIFICATIONS........................................................................... 58
           FINANCIAL STATEMENT SCHEDULE............................................................................S-1
           INDEX OF EXHIBITS.......................................................................................E-1
</TABLE>

<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.

         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, 2002, the Company had sold or leased over 30,000
ITVMs through agreements with 29 different state lotteries and the District of
Columbia and 14 international jurisdictions, or their licensees or contractors.

         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
technology on the market. Although PCDM revenues in 2002 represented less than
1% of total revenues, the Company continues to believe that PCDMs may be a
source of future sales growth.

         The Company has entered into an Agreement and Plan of Merger dated as
of March 17, 2003 with GTECH Holdings Corporation and a subsidiary of GTECH,
pursuant to which the Company will merge into the subsidiary and become a
wholly-owned subsidiary of GTECH. Upon the merger, each share of the Company's
Common Stock will be changed into the right to receive $9.00 in cash, GTECH
common stock or a combination of the two, with 51.5% of the aggregate merger
consideration to be paid in GTECH common stock and the balance in cash.

                                       1

<PAGE>

         Consummation of the merger is subject to satisfaction of various
conditions, including the approval of the Company's stockholders, the making of
various regulatory filings, the absence of any injunction or certain litigation
challenging the merger, the receipt of tax and other legal opinions, the
accuracy of the parties' representations and warranties and performance of their
agreements, and the receipt of consents to the merger from customers
representing 85% of the Company's projected business for 2003 and certain other
parties to material contacts. GTECH may terminate the merger agreement if its
stock price declines by 18% unless the Company elects to convert the merger
consideration into all cash.

         The Company has agreed not to solicit a competing offer, but may
terminate the merger agreement to accept an unsolicited superior proposal. If it
does so, the Company will be required to pay GTECH a termination fee of $2.75
million and reimburse GTECH's expenses up to $750,000.

         In connection with the Merger Agreement, GTECH also entered into a
Stockholder Voting and Option Agreement and a Noncompetition Agreement with L.
Rogers Wells, Jr. Under the Voting and Option Agreement, Mr. Wells agreed to
vote in favor of the merger and granted GTECH the option to purchase his Company
Common Stock at $9.00 if the Merger Agreement terminates for specified reasons.
The Voting and Option Agreement terminates if the Company terminates the Merger
Agreement to accept a superior proposal. If GTECH exercises the option, it is
required to make a cash tender offer for the remaining Common Stock of the
Company at $9.00 per share.

         Pursuant to the Noncompetition Agreement, Mr. Wells has agreed not to
engage in the lottery business for five years after consummation of the merger.
As compensation for this agreement, GTECH will pay him $250,000 per year during
that five-year period.

         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,
led the team that 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

                                       2

<PAGE>

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.

         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.

         The Company's Instant Ticket Management System ("ITMS") also known as
GameGuard, addresses the specific needs of convenience store and grocery
check-out lanes. The GameGuard may be installed in a variety of configurations,
including on the counter or under-the-counter. This technology reduces ticket
shrinkage and increases sales volume of instant tickets and also may be tied
into the Point of Service register.

         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


                                       3
<PAGE>

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.

         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.


                                       4
<PAGE>

         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.

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 an ITVM's "uptime,"
which in turn reduces ticket sales. The Company believes that its ITVMs, based
on actual field performance and product testing, are the most reliable and
technologically superior in


                                       5
<PAGE>

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
International Game Technologies, 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.

         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

                                       6
<PAGE>

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 42.2%, 42.9% and 36.0% in 2000, 2001 and 2002, respectively.

         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


                                       7
<PAGE>

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 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, 2002, 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 11,484 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


                                       8
<PAGE>

lottery. See "Marketing and Sales - ITVMs" above. During 2002, the Company's
contract with the Illinois Lottery for the sale of ITVMs accounted for 21 % of
the Company's revenues, a sales and lease contract with the New York Lottery
accounted for 18% of the Company's revenues and a contract with the California
Lottery accounted for 17% of the Company revenues.

         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, 2002, the Company had sold 935
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."

         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.


                                       9
<PAGE>

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 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 $640,151, $347,596 and
$529,585 for 2000, 2001 and 2002, respectively.


                                       10
<PAGE>

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.

PATENTS, TRADEMARKS AND COPYRIGHTS

         The Company currently has twenty-three U.S. and foreign patents and
thirty pending patent applications relating to its ITVMs and lottery related
technology 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 basic burster technology, which is the key
component of many of the Company's ITVMs. The patent expires December 31, 2007.
Improvements to the burster technology owned by the Company are the subject of
U.S. Patent No. 5,836,498, which expires April 10, 2016. That version of 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 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 patent properties 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. 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 owns six design patents including U.S. Design Patent
No. 376,621 for the Company's double-game countertop ITVM, which expires
December 17, 2010 and U.S. Design Patent No. 369,622 directed to a ticket
dispensing machine and expires May 7, 2010.


                                       11
<PAGE>

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. Design Patent
Nos. 448,957; 448,956; and 441,227, each entitled "Countertop Lottery Ticket
Dispenser." Each of these design patents is directed to various configurations
for countertop lottery ticket dispensers. The Company believes that each of
these design 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 also has a number of pending patent applications that are
directed to various features of countertop ticket dispensers, self-serve lottery
ticket vending machines, lottery ticket separation mechanisms and lottery games.
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, techniques for administering a
lottery game and adapting known games to a lottery environment are also included
in these pending applications.

         The Company has obtained or filed for federal registration in the
United States of the following trademarks: INTERLOTT, CHECKWRITER, MVP MODULAR
VENDING PLATFORM and INSTANT SUCCESS. The Company does not deem the trademarks
to be critical to the future of its business.

         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 are 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


                                       12
<PAGE>

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.

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

                                       13
<PAGE>

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 the Act, the Company has
registered voluntarily 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 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, 2002 was
approximately $6,818,795, 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, 2002. At December 31, 2001, the
comparable backlog was approximately $4,881,900. It is anticipated that
substantially all of the Company's backlog at December 31, 2002 will be shipped
on or before December 31, 2003.

         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 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.


                                       14
<PAGE>

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, 2002, the Company had 231 full-time employees, of which 81
were manufacturing employees, 9 were engineering employees, 100 were service
employees, 28 were clerical and administrative employees, 7 were sales 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.

ITEM 3.  LEGAL PROCEEDINGS

         On November 1, 2002, the Company filed a Complaint against Pollard
Banknote Limited (and related parties) for patent infringement by Pollard in
connection with its marketing of Instant Ticket Vending Machines that are
alleged to infringe Interlott's patented burster technology. Interlott
Technologies, Inc. v. Pollard Banknote Limited, et al., United States District
Court for the Northern District of Ohio. An Answer and Counterclaim was filed by
Pollard on November 25, 2002, in which Pollard denied liability for infringement
and asserted that Interlott's burster patent (No. 4,982,337) is invalid or
unforceable. Document production is in its early stages and no depositions have
yet been taken. It is not possible to predict a likely outcome at this time.

         The Company is involved from time to time in litigation in the ordinary
course of its business. The Company does not believe that, other than described
above, there is any currently pending or threatened litigation against the
Company that, individually or in the aggregate, is likely to have a material
adverse effect on its business, financial condition or results of operations.

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, 2002.


                                       15
<PAGE>

                                     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
<TABLE>
<CAPTION>

                                                                              High                  Low
                                                                              ----                  ---
<S>                                                                           <C>                   <C>
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

2002:
         First Quarter                                                        $5.75                 $4.45
         Second Quarter                                                        6.95                  5.40
         Third Quarter                                                         7.25                  5.20
         Fourth Quarter                                                        6.10                  5.15
</TABLE>

         At March 4, 2003 there were approximately 50 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.

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, 2002 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>

---------------------------------------------------------------------------------------
                                                    Year Ended December 31,
---------------------------------------------------------------------------------------
                                        2002      2001      2000      1999      1998
---------------------------------------------------------------------------------------
                                            (in thousands, except per share data)
---------------------------------------------------------------------------------------
<S>                                     <C>       <C>       <C>       <C>       <C>
Revenues
  Machine sales                         $27,209   $19,359   $21,959   $ 3,312   $ 8,230
  Machine leases                         18,698    18,337    17,966    16,902    14,165
  Other                                   6,097     5,021     2,664     2,120     2,079
Net revenues                             52,003    42,716    42,589    22,334    24,474
Net income                                3,091     1,949     3,610     2,070     1,622
Net income per share(1)                    0.48      0.30      0.56      0.32      0.25
Depreciation and amortization             7,247     7,315     6,622     5,548     4,585
</TABLE>


                                       16
<PAGE>
<TABLE>
<S>                                      <C>       <C>       <C>       <C>       <C>
Leased ITVMs, less
accumulated depreciation                 13,277    17,883    21,573    21,549    17,106
Total assets                             51,722    54,917    40,004    36,204    28,774
Total debt                               21,335    29,743    16,000    16,292    11,645
---------------------------------------------------------------------------------------
Redeemable preferred stock                 --        --        --     $ 1,335   $ 1,335
---------------------------------------------------------------------------------------
</TABLE>

1Reflects the weighted average number of shares outstanding for the respective
  periods, taking into account a 2-for-1 split of the Company's 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 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.


                                       17
<PAGE>

         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.

2002 AS COMPARED TO 2001

         Total revenues increased by 22% or $9,287,350 from $42,715,686 in 2001
to $52,003,036 in 2002, primarily due to a $7,850,185 increase in machine sales
to several state lotteries. Other revenues increased $1,076,015 from $5,020,599
in 2001 to $6,096,614 in 2002 primarily as a result of the full year effect of
the addition of maintenance contracts for the New York and Virginia lotteries
which were acquired from On-Point on June 1, 2001. Revenues from leases
increased by 2%, from $18,336,526 in 2001 to $18,697,676 in 2002. The total
number of ITVMs and PCDMs under lease decreased in 2002. Lease revenues were 43%
and 36% of total revenues for 2001 and 2002, respectively. Revenues from sales
of ITVMs and PCDMs were 45% and 52% of total revenues in 2001 and 2002,
respectively.

         Cost of revenues for machine sales increased 26% from $14,251,360 in
2001 to $17,914,274 in 2002. This increase was due to an increase in the number
of machines sold in 2002. Excluding depreciation, cost of revenues for leased
ITVMs and PCDMs increased 20% from $10,248,771 in 2001 to $12,329,067 in 2002.
The dollar increase in cost of lease revenues was the result of a full year of
higher personnel and subcontractor costs related to a large number of machines
acquired from On-Point on June 1, 2001, to deployment costs for new leased
machines deployed during 2002 and to removal costs for machines being returned.
As a result of these factors, gross margin as a percent of revenues increased 2%
from 28% in 2001 to 30% in 2002.

         Depreciation of ITVMs and PCDMs decreased 5% from $6,394,051 in 2001 to
$6,079,605 in 2002. The decrease was due primarily to the full twelve months'
effect in 2002 of the removal of equipment from the field in July 2001 due to
the expiration of a lease contract.

         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. 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. 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.


                                       18
<PAGE>

         Goodwill amortization from June 2001, when the assets of On-Point were
acquired, through December 31, 2001, was approximately $166,600. Amortization
for 2002 would have been $244,081.

         Selling, general and administrative expenses increased 15% from
$5,915,233 in 2001 to $6,784,042 in 2002. 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
decreased from 14% in 2001 to 13% in 2002.

         Research and development costs increased by 52% from $347,596 in 2001
to $529,585 in 2002 as the Company completed the development phase of its
GameGuard countertop units and improved dispensing mechanisms. 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 increased by 54% from $4,892,644 in 2001 to $7,510,263
in 2002. This increase resulted primarily from the higher sales volume and
higher margins for machines sold. As a percentage of revenues, operating income
increased from 11% in 2001 to 14% in 2002.

         Interest expense increased by 4% from $2,049,605 in 2001 to $2,138,409
in 2002. The increase reflected the full year cost of additional borrowings to
finance the acquisition of the lottery assets of On-Point on June 1, 2001.

         Pre-tax income increased 75% from $2,884,335 in 2001 to $5,035,979 in
2002.

         The effective income tax rate increased from 32.4% in 2001 to 38.6% in
2002. This difference 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 increased by
59% from $1,949,306 in 2001 to $3,090,645 in 2002.

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


                                       19
<PAGE>

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 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.


                                       20
<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.

LIQUIDITY AND CAPITAL RESOURCES

         Net cash provided by operating activities increased 56% from $8,842,961
in 2001 to $13,751,187 in 2002. This increase in net cash was partially due to a
decrease in inventory as a result of returned ITVMs being refurbished and sold,
as well as an increase in the principal portion of sale-type leases received.
Also, deferred taxes increased as the result of additional sales-type leases in
2002. Net cash used in investing activities decreased 75% from $21,663,552 in
2001 to $5,491,632 in 2002. The 2001 investing activity included $13,486,146 for
the acquisition of On-Point Technologies. Financing activities in 2002 used net
cash of $8,377,395 as compared to $13,311,278 of net cash provided by financing
activities in 2001. This was due principally to the payoff of the $5 million
subordinated note and additional payments made from operating cash flow to
reduce the credit line.

         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, 2002, the Company had a total of 11,484 ITVMs and
PCDMs under operating and sales type leases. The Company's current backlog of
$6.8 million includes machines to be sold to the New York lottery of $3.4
million and machines to be sold to the California lottery in the amount of $2.2
million. There are no leased machines in the backlog at this time.

         Inventories decreased by $2.2 million from $10.6 million in 2001 to
$8.4 million in 2002 primarily due to the sale of $1.7 million of inventory
returned in 2001 from expired leases that was refurbished and resold in 2002.

         Goodwill in the amount of $4,572,655 and acquired leases in the amount
of $2,925,355 at December 31, 2002 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, 2001 and 2002 by
$7,322,359 and $6,253,474, 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


                                       21
<PAGE>

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 2.00% (3.4% at March 1, 2003). 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 Company was in full compliance with the requirements of the
covenants as of December 31, 2002.

         The mezzanine financing consisted of a $5 million term note due June
30, 2003, which was subordinate to the credit facility. This note bore interest
at a fixed rate of 9% per annum and required the Company to 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 31, 2003 and June 30, 2003. The
note could be prepaid whenever availability on the credit facility exceeded $2
million and the Company was in compliance with all loan covenants. These
requirements were met, and the note was paid off in its entirety on August 13,
2002.

         At March 5, 2003, the Company had $9,803,834 available under its credit
facility. 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 $5 million at July 3, 2001 which expires on May 31,
2004 and an interest rate swap agreement with a total notional principal amount
of $10 million at November 7, 2002 which also 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 ($453,484) at December 31, 2002.
The estimated fair value is based upon appropriate market information and
projected interest rate changes obtained from a reputable institution. The
estimated amount of deferred loss on the hedge to be reclassified to earnings in
2003 is $320,000.

         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 1, 2002, $487,327 was paid on these notes leaving a balance of $24,124 at
December 31, 2002. That amount will be paid in full on April 1, 2003. See Note 6
of Notes to Financial Statements.


                                       22
<PAGE>

         The Company's capital expenditures totaled $8,177,406 and $5,491,632
for 2001 and 2002, respectively. These amounts included $7,979,117 and
$5,481,016 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, 2002 other than for the manufacture of ITVMs and
PCDMs for future sale or lease.

         At December 31, 2002, the Company had estimated tax net operating loss
carryforwards of approximately $374,800 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 an ownership change in 1992. The
net operating loss carryforward reduced taxable income by $161,559 for a net
federal tax benefit of $54,930 in 2002.

CRITICAL ACCOUNTING POLICIES

         Our accounting policies affecting our financial condition and results
of operation are more fully described in Note (1) to our financial statements.
Certain of the Company's accounting policies require the application of judgment
by management in selecting appropriate assumptions for calculating financial
estimates which inherently contain some degree of uncertainty. Management bases
its estimates on historical experience and various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the reported carrying value of assets and
liabilities and the reported amounts of revenues and expenses that may not be
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

         Revenue Recognition

         The Company derives revenues from delivery of products and services in
the form of sales, sales type leases, operating leases, maintenance fees and
extended warranties. All products and services are delivered under the terms of
a contract and revenues are recognized when title to the product passes to the
customer or when products and services are delivered to the customer in
accordance with the terms of the contract.

         Goodwill and Other Intangibles

         The Company records all assets and liabilities acquired in purchase
acquisitions, including goodwill and other intangibles, at fair value as
required by SFAS 141. Goodwill and indefinite-lived assets are no longer
amortized but are subject, at a minimum, to annual tests for impairment. Other
intangible assets are amortized over their estimated useful lives using
straight-line methods and are subject to impairment if events or circumstances
indicate a possible inability to realize the carrying amount. The initial
goodwill and other intangibles recorded and subsequent impairment analysis
requires management to make subjective judgments concerning estimates of how the
acquired asset will perform in the future using a discounted cash flow analysis.
Events and factors that may significantly affect the estimates include, among
others, competitive forces, customer behaviors and attrition, changes in revenue
growth trends, cost structures and technology.


                                       23
<PAGE>

         Property and Equipment - Leased Machines

         Property and equipment - leased machines are stated at cost.
Depreciation of property and equipment is calculated on the straight-line method
over the estimated five-year useful life of the machines after a reduction
reflecting the Company's estimate of the machines' residual value of 15%.
Although most lottery contracts have varying terms, the typical term with
extensions is approximately five years. In the event that the contract term is
less than five years, the leased machines are returned to inventory at net book
value which becomes the basis for refurbished or certified new equipment which
can be resold or leased to another lottery. In the event that the contract
extends beyond a five-year term, the machines are fully depreciated to a net
book value of zero.

         Allowance for Inventory Obsolescence

         The allowance for inventory obsolescence is established to provide for
probable losses inherent in maintaining an inventory of various generations of
technologically advanced machines and parts. Due to our very successful
rehabilitated and recertified new equipment programs which offer extremely
competitive pricing alternatives and in light of the fact that there is a
significant base of installed machines that need service parts, it is uncommon
that an inventory item reaches a stage of total obsolescence. In the event that
it becomes readily apparent that a machine or certain machine components have
little or no chance of being sold to any existing or potential customers, an
impairment reduction is recorded in the allowance.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Some of the statements in this report are forward-looking statements.
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
numerous risks, uncertainties and assumptions, many of which are beyond our
control. These risks, uncertainties and assumptions include the risk factors
discussed below. 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 forward-looking statements may be incorrect, and actual
results could be very different from and worse than our expectations as
expressed in those statements.

         Any forward-looking statements in this report are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Act of 1995.


                                       24
<PAGE>

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 AND
PCDMS.

         Our ability to generate additional revenues and earnings will depend
upon the continuation of existing leases of ITVMs and PCDMs, the distribution of
ITVMs and PCDMs in additional states and international jurisdictions, the
approval of lotteries in remaining states and international jurisdictions and
increased future orders of ITVMs and PCDMs. As of December 31, 2002, 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. We have marketed
PCDMs since 1995 and, as of December 31, 2002, we had sold or leased 935 PCDMs.
However, the popularity of instant lottery games, the use of prepaid telephone
calling cards and the related demand for our products may not continue. Although
the total dollar amount of instant ticket sales continues to increase, the rate
of increase has declined.

         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
2002, contracts with the Illinois, New York and California lotteries accounted
for 21%, 18% and 17% of our total revenues, respectively. 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.


                                       25
<PAGE>

         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-two other patents and thirty 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 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


                                       26
<PAGE>

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 March 15, 2003, L. Roger Wells, Jr. beneficially owned 54.8% of
the Company's outstanding common stock. As a result, Mr. Wells can control the
election of directors and the outcome of certain corporate actions requiring
stockholder approval.

         OUR ITVM LEASE CONTRACTS MAY RESULT IN LOSSES.

         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 a 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 machines.

         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 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


                                       27
<PAGE>

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.

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 $5 million at July 3, 2001 which expires on May 31,
2004 and an interest rate swap agreement with a total notional principal amount
of $10 million at November 7, 2002 which also 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 ($453,484) at December 31, 2002.
The estimated fair value is based upon appropriate market information and
projected interest rate changes obtained from a reputable institution.


                                       28
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Interlott Technologies, Inc.:


We have audited the accompanying balance sheets of Interlott Technologies, Inc.
as of December 31, 2002 and 2001, 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, 2002 and 2001, and the results of its operations and its cash
flows for the three years ended December 31, 2002, 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, 2002. 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.

As discussed in Note (1) to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" on January 1, 2002.

/s/ Grant Thornton LLP

Cincinnati, Ohio
February 17, 2003, except for Note 18 as to which the date is March 17, 2003.



                                       29
<PAGE>

                          INTERLOTT TECHNOLOGIES, INC.

                                  Balance Sheet

                           December 31, 2002 and 2001
<TABLE>
<CAPTION>

                                                                     2002              2001
                                                                  ------------      ----------
<S>                                                               <C>                  <C>
ASSETS
Current assets:
    Cash                                                          $    419,492         537,332
    Accounts receivable, less allowance for doubtful accounts
      of $53,332 in 2002 and $203,101 in 2001                        6,646,988       7,125,250
    Investment in sales type leases, current portion                 2,588,005       2,299,706
    Inventories                                                      8,440,471      10,628,290
    Prepaid & refundable taxes                                         562,598         404,220
    Note receivable from stockholder                                      --              --
    Deferred tax asset                                                 508,600         182,350
    Prepaid expenses                                                   639,307         274,033
----------------------------------------------------------------------------------------------
             Total current assets                                   19,805,461      21,451,181
----------------------------------------------------------------------------------------------
Property and equipment:
    Leased machines                                                 35,113,524      33,759,213
    Machinery and equipment                                            784,219         777,687
    Building and leasehold improvements                                688,234         689,409
    Furniture and fixtures                                             182,717         179,182
----------------------------------------------------------------------------------------------
                                                                    36,768,694      35,405,491
    Less accumulated depreciation and amortization                 (22,963,442)    (16,784,029)
----------------------------------------------------------------------------------------------
             Net property and equipment                             13,805,252      18,621,462
----------------------------------------------------------------------------------------------
Other assets                                                           238,176         578,386
Goodwill net of accumulated amortization of $166,581 in 2001         4,572,655       4,572,655
Value of leases acquired net of accumulated amortization
    of $1,355,650 in 2002 and $499,450 in 2001                       2,925,355       3,781,555
Investment in sales type leases, less current portion               10,154,855       5,618,510
Product development rights, net of accumulated amortization  of
    $880,000 in 2002 and $806,661 in 2001                              220,000         293,339
----------------------------------------------------------------------------------------------
                                                                  $ 51,721,754      54,917,088
----------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to financial statements.


                                       30
<PAGE>


                          INTERLOTT TECHNOLOGIES, INC.

                            Balance Sheet, Continued

                           December 31, 2002 and 2001
<CAPTION>
<TABLE>
                                                                                      2002            2001
                                                                                --------------- ---------------
<S>                                                                             <C>            <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Notes payable to financial institutions                                        $ 21,310,417      24,255,659
    Notes payable - related parties                                                      24,124         487,327
    Accounts payable                                                                  2,663,405       2,249,874
    Accounts payable - related parties                                                  380,855         317,505
    Accrued expenses                                                                  1,680,134       1,463,175
---------------------------------------------------------------------------------------------------------------
             Total current liabilities                                               26,058,935      28,773,540
---------------------------------------------------------------------------------------------------------------
Subordinated term note                                                                     --         5,000,000
Deferred tax liability                                                                2,009,600         568,950
---------------------------------------------------------------------------------------------------------------
             Total liabilities                                                       28,068,535      34,342,490
---------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities
---------------------------------------------------------------------------------------------------------------
Interest rate swap agreements                                                           453,484         580,174
---------------------------------------------------------------------------------------------------------------
Notes payable - related parties                                                            --            24,124
---------------------------------------------------------------------------------------------------------------
Stockholders' equity:
    Common stock, $.01 par value; 20,000,000 shares authorized, 6,455,826 shares
       issued and outstanding in 2002
       and 6,441,498 shares issued and outstanding in 2001                               64,558          32,140
    Additional paid-in capital                                                       10,568,907      10,482,853
    Treasury stock                                                                      (63,298)           --
    Accumulated comprehensive income (loss)                                            (299,299)       (382,915)
    Retained earnings                                                                12,928,867       9,838,222
---------------------------------------------------------------------------------------------------------------
             Total stockholders' equity                                              23,199,735      19,970,300
                                                                                --------------- ---------------
                                                                                   $ 51,721,754      54,917,088
---------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to financial statements.


                                       31
<PAGE>

                          INTERLOTT TECHNOLOGIES, INC.

                               Statement of Income

                  Years Ended December 31, 2002, 2001 and 2000
<TABLE>
<CAPTION>


                                                      2002            2001            2000
                                                   ------------    ------------    ------------
<S>                                                <C>               <C>             <C>
Revenues:
    Machine sales                                  $ 27,208,746      19,358,561      21,958,631
    Machine leases                                   18,697,676      18,336,526      17,966,445
    Other                                             6,096,614       5,020,599       2,664,014
                                                   ------------    ------------    ------------
                                                     52,003,036      42,715,686      42,589,090
Cost of revenues:
    Machine sales and other                          17,914,274      14,251,360      15,850,677
    Machine leases                                   18,408,672      16,642,822      13,252,049
                                                   ------------    ------------    ------------
                                                     36,322,946      30,894,182      29,102,726
                                                   ------------    ------------    ------------
             Gross margin                            15,680,090      11,821,504      13,486,364
Operating expenses:
    Selling, general and administrative expenses      6,784,042       5,915,233       5,421,062
    Research and development costs                      529,585         347,596         640,150
    Amortization of goodwill and leases                 856,200         666,031            --
                                                   ------------    ------------    ------------
                                                      8,169,827       6,928,860       6,061,212
                                                   ------------    ------------    ------------
             Operating income                         7,510,263       4,892,644       7,425,152
Other income (expense)
    Interest expense                                 (2,138,409)     (2,049,605)     (1,580,969)
    Other                                              (335,875)         41,296         (57,385)
                                                   ------------    ------------    ------------
                                                     (2,474,284)     (2,008,309)     (1,638,354)
Income before income taxes                            5,035,979       2,884,335       5,786,798
Income tax provision                                  1,945,334         935,029       2,176,599
                                                   ------------    ------------    ------------
             Net income                            $  3,090,645       1,949,306       3,610,199
                                                   ============    ============    ============
Basic net income per share                         $       0.48            0.30            0.56
                                                   ============    ============    ============
Diluted net income per share                       $       0.46            0.30            0.56
                                                   ============    ============    ============
</TABLE>

See accompanying notes to financial statements.



                                       32
<PAGE>

                          INTERLOTT TECHNOLOGIES, INC.

                        Statement of Stockholders' Equity

                  Years ended December 31, 2000, 2001 and 2002
<CAPTION>
<TABLE>
                                                                        ComCommonsive              Additional
                                                                --------------------------------    Paid-in          Retained
                                                                   Income           Stock           Capital          Earnings
                                                                -------------   --------------  ----------------  ----------------
<S>                                                             <C>               <C>           <C>                <C>
Balances at December 31, 1999                                              -         $ 32,100      $ 10,376,017      $  4,278,717
Shares issued for exercise of options                                      -               35            51,062                 -
Shares issued in connection with Employee Stock Purchase Plan              -               14               (14)                -
Stock Split                                                                            32,149           (32,149)

Net income                                                                 -                -                 -         3,610,199
----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2000                                              -           64,298        10,394,916         7,888,916
Cumulative effect of transition adjustment                                 -                -                 -                 -
Shares issued for exercise of options                                      -               10             4,490                 -
Shares issued in connection with Employee Stock Purchase Plan              -              106            51,173                 -
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)               -                 -                 -
----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2001                                              -           64,414        10,450,579         9,838,222
Cumulative effect of transition adjustment                                 -                -                 -                 -
Shares issued for exercise of options                                      -              108            58,179                 -
Shares issued in connection with Employee Stock Purchase Plan              -              141            60,149                 -
Shares redeemed in connection with Stock Buyback Program                                 (105)                -
Comprehensive income (loss):
      Net income                                                   3,090,645                -                 -         3,090,645
      Other comprehensive gain related to swap agreements             83,616
        (net of tax of $43,074)                                                             -                 -                 -
----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income                                        $4,808,592
Balances at December 31, 2002                                              -         $ 64,558      $ 10,568,907      $ 12,928,867
                                                                                                    ===========      ============

                                                                   Accumulated
                                                                   Comprehensive        Treasury
                                                                   Income (Loss)          shares              Total
                                                                  ----------------    ---------------    -----------------
<S>                                                                <C>                 <C>              <C>
Balances at December 31, 1999                                                   -                            $ 14,686,834
Shares issued for exercise of options                                           -                                  51,097
Shares issued in connection with Employee Stock Purchase Plan                   -                                       -
Stock Split                                                                     -
                                                                       -----------
Net income                                                                      -                               3,610,199
--------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2000                                                   -                              18,348,130
Cumulative effect of transition adjustment                                (67,940)                                (67,940)
Shares issued for exercise of options                                           -                                   4,500
Shares issued in connection with Employee Stock Purchase Plan                   -                                  51,279
Comprehensive income (loss):
      Net income                                                                -                               1,949,306
      Other comprehensive loss related to swap agreements
        (net of tax of $162,260)                                         (314,975)                               (314,975)
--------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2001                                            (382,915)                             19,970,300
Cumulative effect of transition adjustment                                      -                                       -
Shares issued for exercise of options                                           -                                  58,287
Shares issued in connection with Employee Stock Purchase Plan                   -                                  60,290
Shares redeemed in connection with Stock Buyback Program                                     (63,298)             (63,403)
Comprehensive income (loss):                                                                                            -
      Net income                                                                -                               3,090,645
      Other comprehensive gain related to swap agreements                  83,616                                  83,616
        (net of tax of $43,074)                                                 -                                       -
--------------------------------------------------------------------------------------------------------------------------
Total comprehensive income
Balances at December 31, 2002                                          $ (299,299)         $ (63,298)        $ 23,199,735
                                                                       ===========         ==========        ============
</TABLE>



See accompanying notes to financial statements.


                                       33
<PAGE>





                          INTERLOTT TECHNOLOGIES, INC.

                             Statement of Cash Flows

                  Years ended December 31, 2002, 2001 and 2000
<TABLE>
<CAPTION>
                                                                                           2002            2001            2000
                                                                                      ------------    ------------    ------------
<S>                                                                                   <C>                <C>             <C>
Cash flows from operating activities:
    Net income                                                                        $  3,090,645       1,949,306       3,610,199
    Adjustments to reconcile net income to net cash
      provided by operating activities:
        Net book value of equipment disposals                                                 --              --            86,499
        Depreciation and amortization                                                    7,247,227       7,315,089       6,622,439
        Principal portion of sales type leases received                                  2,557,262       1,551,262       1,441,971
        Increase (decrease) in deferred income tax liability                             1,397,576        (229,991)        194,400
        Gain on sale of equipment under sales type lease                                (3,436,490)       (916,039)       (301,019)
        Decrease (increase) in accounts receivable                                         478,262      (1,785,465)       (710,448)
        Decrease in inventories - net of leased equipment returned                       2,232,557       1,118,671         651,645
        (Increase) decrease in prepaid expenses and other asset                            (25,064)        312,870            (565)
        (Increase) decrease in deferred tax asset                                         (326,250)         48,750            --
        Increase in accounts payable                                                       413,531         206,138         261,853
        Increase in accounts payable - related parties                                      63,350         137,214             822
        Increase (decrease) in accrued expenses                                            216,959        (460,624)        565,546
        (Decrease) in income taxes payable                                                (158,378)       (404,220)       (867,681)
----------------------------------------------------------------------------------------------------------------------------------
              Net cash provided by operating activities                                 13,751,187       8,842,961      11,555,661
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
    Cost of leased machines                                                             (5,481,016)     (7,979,117)     (9,580,471)
    Acquisition of business                                                                   --       (13,486,146)           --
    Purchases of property and equipment                                                    (10,616)       (198,289)       (717,027)
----------------------------------------------------------------------------------------------------------------------------------
              Net cash used in investing activities                                     (5,491,632)    (21,663,552)    (10,297,498)
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
    (Increase) in notes receivable from shareholder                                           --              --          (280,000)
    (Decrease) increase in notes payable                                                (2,945,242)     14,158,048        (907,417)
    Repayment of subordinated term note                                                 (5,000,000)           --              --
    Proceeds from exercise of stock options                                                 58,287           4,500          51,096
    Proceeds from Employee Stock Purchase Plan                                              60,290          51,279            --
    Payments for Treasury Stock repurchased                                                (63,403)           --              --
    Repayment of long-term debt                                                            (27,227)       (902,549)       (207,698)
    Payments of notes payable - related parties                                           (460,100)           --              --
----------------------------------------------------------------------------------------------------------------------------------
              Net cash (used in) provided by financing activities                       (8,377,395)     13,311,278      (1,344,019)
----------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash                                                               (117,840)        490,687         (85,856)
Cash at beginning of year                                                                  537,332          46,645         132,501
----------------------------------------------------------------------------------------------------------------------------------
Cash at end of year                                                                   $    419,492         537,332          46,645
----------------------------------------------------------------------------------------------------------------------------------

Supplemental disclosures of cash flow information:
    Net book value of leased equipment returned from the field                        $     44,738       2,404,876       1,357,572
    Interest paid                                                                     $  2,264,269       2,021,966       1,578,357
    Notes payable to stockholders issued in exchange for redeemable preferred stock   $       --              --         1,335,000
    Income taxes paid                                                                 $  1,290,347         646,336       1,847,415
    Interest swap liability                                                           $     83,616         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>



                                       34
<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)    REVENUE RECOGNITION

              The Company derives revenues from delivery of products and
              services in the form of sales, sales type leases, operating
              leases, maintenance fees and extended warranties. All products and
              services are delivered under the terms of a contract and revenues
              are recognized when title to the product passes to the customer or
              when products and services are delivered to the customer in
              accordance with the terms of the contract.

       (C)    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 1e).

              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 the losses become known and estimable.

       (D)    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.


                                       35
<PAGE>

       (E)    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.

       (F)    PRODUCT DEVELOPMENT RIGHTS

              Product development rights represent the exclusive rights to
              certain patents and other related manufacturing technologies to
              manufacture and assemble the Company's instant ticket vending
              machines (ITVMs). 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.

       (G)    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.

       (H)    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, 2002 and 2001 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.

       (I)    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


                                       36
<PAGE>

              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 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.

       (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 $752,043 and $518,642, respectively, of
               outstanding checks at December 31, 2002 and 2001.

       (N)    INTANGIBLE ASSETS

              Amortization of goodwill was 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


                                       37
<PAGE>

              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. Because the Company is a
              single reporting unit, market capitalization is considered an
              indicator of potential impairment.

              The Company adopted SFAS No. 142 on January 1, 2002, as required.
              There was no amortization of goodwill in 2000 or 2002. Had
              amortization of goodwill not been taken during 2001, the Company's
              net income and earnings per share would have been increased to the
              pro forma amount presented below:

                                                            2001

       Net income                      As reported       $1,949,306
                                        Pro forma         2,059,249
       Basic earnings per share        As reported              .30
                                        Pro forma               .32
       Diluted earnings per share      As reported              .30
                                        Pro forma               .31




       (O)    RECLASSIFICATION

              Common stock and additional paid-in capital have been adjusted to
              report the stock split made in 2000.

(2)    INVESTMENT IN SALES TYPE LEASES

       The Company leases ITVMs to several state lotteries under sales type
       leases. The components of the net investment in sales type leases at
       December 31, 2002 and 2001 were as follows:
<TABLE>
<CAPTION>
                                                           2002          2001
<S>                                                     <C>             <C>
Minimum lease payments receivable                       $15,649,566   $ 9,082,572
Less unearned revenue on lease payments receivable        2,906,706     1,164,356
                                                        -----------   -----------
                                                         12,742,860     7,918,216
Less current portion                                      2,588,005     2,299,706
                                                        -----------   -----------
Investment in sales type leases, less current portion   $10,154,855   $ 5,618,510
                                                        ===========   ===========
</TABLE>





                                       38
<PAGE>

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

       Years ending December 31,
       -------------------------
       2003                                      $ 4,210,275
       2004                                        3,663,375
       2005                                        3,019,494
       2006                                        2,769,256
       2007                                        1,974,242
       2008                                           12,924
                                               ---------------
                                                 $15,649,566

(3)    INVENTORIES

       Inventories at December 31, 2002 and 2001 consisted of the following:

                                        2002          2001

       Finished goods               $ 1,721,996   $ 2,255,882
       Work in process                  396,719       531,355
       Raw materials and supplies     6,321,756     7,841,053
                                    -----------   -----------
                                    $ 8,440,471   $10,628,290
                                    ===========   ===========

(4)    LEASED MACHINES

       At December 31, 2002 and 2001, 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, 2002 and 2001 were as follows:

                                          2002          2001

       Leased machines                 $35,113,524   $33,759,213
       Less accumulated depreciation    21,836,911    15,876,044
                                       -----------   -----------
                                       $13,276,613   $17,883,169
                                       ===========   ===========

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

       Years ending December 31,
       -------------------------
               2003                     $11,500,139
               2004                       4,957,683
               2005                         484,035
               2006                         394,200
               2007                         197,100
                                        -----------
                                        $17,533,157
                                        ===========


                                       39
<PAGE>

(5)     NOTES PAYABLE TO FINANCIAL INSTITUTIONS

       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. At December 31, 2002, the Company was in
       full compliance with the requirements of the covenants.

       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 2.0% (3.4% at December 31, 2002).
       The $5 million term note was paid off on August 13, 2002.

       At December 31, 2002, the Company had borrowings of $21,310,417
       outstanding with additional borrowings of $8,689,583 available under the
       revolving credit facility. The credit facility expires on May 31, 2004.

(6)    NOTES PAYABLE - RELATED PARTIES

       The Company had the following notes payable to related parties at
       December 31, 2002 and 2001:
<TABLE>
<S>                                                                                <C>        <C>
                                                                                     2002       2001
       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                                          $ 22,776   $482,876
</TABLE>

                                       40
<PAGE>
<TABLE>
<S>                                                                                <C>        <C>
       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, 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                                                      1,348     28,575
                                                                                   --------   --------
                                                                                     24,124    511,451
       Less current portion                                                          24,124    487,327
                                                                                   --------   --------
                                                                                   $   --     $ 24,124
                                                                                   ========   ========
</TABLE>


 (7)   ADDITIONAL FINANCIAL INSTRUMENT

       The Company entered into an interest rate swap agreement with a total
       notional principal amount of $5 million at July 3, 2001 which expires on
       May 31, 2004 and an interest rate swap agreement with a total notional
       principal amount of $10 million at November 7, 2002 which also 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 ($453,484) at December 31, 2002. The estimated fair value
       is based upon appropriate market information and projected interest rate
       changes obtained from a reputable institution. The estimated amount of
       deferred loss on the hedge to be reclassified to earnings in 2003 is
       $320,000.

(8)    INCOME TAXES

       Income tax expense is summarized as follows:

                                 YEAR ENDED DECEMBER 31,
                           ------------------------------------
                               2002         2001         2000
       Current:
         Federal           $  651,622   $  851,391   $1,629,300
         State and local      234,264      264,899      352,899
       Deferred:
         Federal            1,059,448      181,261      194,400
                           ----------   ----------   ----------
                           $1,945,334   $  935,029   $2,176,599
                           ==========   ==========   ==========

       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:


                                       41
<PAGE>
<Table>
<Caption>
                                                              2002          2001           2000
<S>                                                       <C>           <C>           <C>
       Federal income tax expense at
        the statutory rate                                $ 1,712,233   $   980,674    $ 1,967,500
       Officers life insurance                                  8,000         8,000          8,000
       Amortization of product development rights                --        (199,654)        25,000
          State and local taxes, net of federal benefit       145,244       174,833        232,900
       Other                                                   79,857       (28,824)       (56,801)
                                                          -----------   -----------    -----------
                                                          $ 1,945,334   $   935,029    $ 2,176,599
                                                          ===========   ===========    ===========
</Table>

       The tax effects of temporary differences that give rise to significant
       portions of the deferred tax assets and deferred tax liabilities at
       December 31, 2002 and 2001 are presented below:
<Table>
<Caption>
                                                             2002           2001
<S>                                                    <C>            <C>
       Deferred tax assets:
         Bad debt allowance                             $    18,100    $    69,000
         Investment in sales type leases                    333,000        601,800
         Net operating loss carryforwards                   127,400        182,300
         Inventory valuation reserve                        286,100        156,000
         Change in accounting for patent amortization          --          184,100
         Interest rate swap agreement                       154,200        197,300
         Accrued expenses                                    82,900         75,400
                                                        -----------    -----------
            Total gross deferred tax assets             $ 1,001,700    $ 1,465,900
                                                        ===========    ===========
       Deferred tax liabilities:
         Property and equipment, principally due to
           differences in depreciation                  $ 2,405,000    $ 1,754,800
        Involuntary conversion of assets                     97,700         97,700
                                                        -----------    -----------
            Total gross deferred tax liabilities          2,502,700      1,852,500
                                                        -----------    -----------
            Net deferred tax liabilities                $(1,501,000)   $  (386,600)
                                                        ===========    ===========
</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, 2002, the Company had net operating loss carryforwards
       for federal income tax purposes of approximately $374,800 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.


                                       42
<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,
       2002, 2001 and 2000 and the changes therein for the years then ended is
       presented below:
<CAPTION>
<TABLE>
                                                  2002                          2001                         2000
                                       ---------------------------   ---------------------------  ----------------------------
                                                       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         791,300             $4.37     502,800            $3.92     513,100            $3.91
Granted                                  267,000              5.40     290,850             5.25       -                -
Exercised                                 11,750              3.06       1,000             3.25       7,000             5.02
Forfeited                                  2,150              3.83       1,350             3.53       3,300             3.22
                                       -----------   -------------   ----------   --------------  ------------  --------------
Outstanding at end of year             1,044,400              4.68     791,300             4.37     502,800             3.92
Options exercisable at year-end          629,525              4.30     476,525             4.24     434,850             4.27
                                       -----------   -------------   ----------   --------------  ------------  --------------
Weighted-average fair value of
     options granted during the
     year                                                    $2.86                        $4.31                       N/A
</TABLE>

       Had compensation cost for options 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:


                                       43
<PAGE>
<TABLE>
<CAPTION>
                                                               2002             2001              2000
<S>                                                          <C>              <C>               <C>
       Net income                            As reported     $3,090,645       $1,949,306        $3,610,199
                                             Pro forma        2,741,573        1,691,799         3,593,958
       Basic earnings per share              As reported           .48               .30               .56
                                             Pro forma             .42               .26               .56
       Diluted earnings per share            As reported           .46               .30               .56
                                             Pro forma             .41               .26               .55
</TABLE>

       The fair value of options granted during 2002 and 2001 was 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 36% and 76%, respectively, based on the calculated
       volatility of the Company's stock; risk-free rates of return of 3.46% and
       4.81%, respectively; and expected lives of 10 years. No options were
       granted in 2000.

       Information about stock options outstanding at December 31, 2002 is as
       follows:
<CAPTION>
<TABLE>

                                      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
---------------------    --------------  --------------  ---------------  --------------  -------------
<S>                         <C>                <C>             <C>           <C>              <C>
$2.41 - 4.32                   406,450            4.40            $3.60         378,575          $3.68
$5.07 - 5.75                   637,950            7.68             5.36         250,950           5.37
                         --------------  --------------  ---------------  --------------  -------------
                            1,044,400             6.41            $4.68         629,525          $4.35
                         ==============  ==============  ===============  ==============  =============
</TABLE>


(10)   EARNINGS PER SHARE
<CAPTION>
<TABLE>
                                                                         Net                                     Per
                                                                       Earnings            Shares               Share
2000                                                                 (Numerator)        (Denominator)          Amount
                                                                    ---------------   ------------------   ---------------
<S>                                                              <C>                       <C>                     <C>
       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                0.56
</TABLE>

                                       44
<PAGE>
<Table>
<S>                                                              <C>                       <C>                     <C>
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
2002
       Basic earnings per share:
          Net earnings available to common stockholders                  3,090,645         6,455,930                0.48
       Diluted earnings per share:
          Effect of dilutive stock options                                                   232,959
          Earnings available to common stockholders
             and assumed conversions                             $       3,090,645         6,688,889               $0.46
</TABLE>

       Options to purchase 0, 394,800 and 243,950 shares of common stock were
       outstanding in 2002, 2001 and 2000, 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 $44,738 in 2002 and $2,404,876 in
       2001 were returned to the Company's inventories upon lease expirations.
       The Company refurbished many of these returned machines and also used
       parts from others in the manufacturing of certified new machines, a large
       portion of which were sold or deployed in 2002 under new leases.

(12)   RELATED PARTY TRANSACTIONS

       Accounts payable - related parties of $380,855 and $317,505 at December
       31, 2002 and 2001, 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, 2002, 2001 and
       2000, 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


                                       45
<PAGE>

       to cost of revenues of approximately $5,120,953, $5,240,275 and
       $6,205,187 for the years ended December 31, 2002, 2001 and 2000,
       respectively.

       Interest expense arising from notes payable-related parties amounted to
       $0, $0 and $4,510 for the years ended December 31, 2002, 2001 and 2000,
       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, 2002, 2001 and 2000, a single
       customer generated 16%, 17% and 19%, respectively, of the machine lease
       revenues. In addition, single state contracts generated 32%, 59% and 76%
       of the machine sales revenues for the years ended December 31, 2002, 2001
       and 2000, 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 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

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

       December 31,

         2003                                           $382,682
         2004                                            341,749
         2005                                             75,558
                                                        --------
                                                        $799,989
                                                        ========

(15)   COMMITMENTS AND CONTINGENT LIABILITIES

       As of December 31, 2002, the Company had outstanding approximately
       $3,734,000 in purchase commitments for raw materials which are used in
       the manufacturing of ITVMs. Management intends to utilize these
       commitments as machines are produced.


                                       46
<PAGE>

(16)   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 2002 and 2001 were $68,319 and $51,109,
       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. 50,000 shares of
       common stock of the Company are reserved for issuance under this plan.

(17)   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, the Company 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.

       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 the Company and On-Point entered
       into a separate agreement to market a patented design for an on-line
       activated instant lottery ticket.

       The acquisition was 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
                                                            ===========

       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.


                                       47
<PAGE>

<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>


(18)   SUBSEQUENT EVENTS

       On March 17, 2003, the Company entered into an agreement to be acquired
       by GTECH Holdings Corporation (NYSE: GTK). The agreement calls for each
       share of the Company's common stock to be changed into the right to
       receive $9.00 in cash, GTECH common stock or a combination of the two,
       with 51.5% of the aggregate merger consideration to be paid in GTECH
       common stock and the balance in cash. Including estimated assumed debt of
       approximately $21 million, the transaction would have a total value of
       approximately $85 million. The transaction, which is subject to the
       approval of the Company's shareholders, regulatory approvals and certain
       other closing conditions, is expected to be completed by late July 2003.
       Approval of GTECH shareholders is not required.

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

         None


                                       48
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

         The directors and executive officers of the Company (at March 20, 2003)
are as follows:
<TABLE>
<CAPTION>
Name                       Age              Title
----                       ---              -----
<S>                        <C>              <C>
L. Rogers Wells            65               Chairman of the Board and Director

Gary S. Bell               52               Director

Kazmier J. Kasper          56               Director

H. Jean McEntire           57               Director

David F. Nichols           41               President, Chief Executive Officer and Director

Edmund F. Turek            76               Director

John J. Wingfield          56               Director

Thomas W. Stokes           39               Chief Operating Officer

Dennis W. Blazer           55               Chief Financial Officer
</TABLE>

         Mr. Wells is Chairman of the Board and served as Chief Executive
Officer of the Company until 1999. He has been the principal stockholder of the
Company since 1992. Mr. Wells served as a director of the Company from 1992, and
as Chairman of the Board and Chief Executive Officer of the Company from 1993,
until his resignation from these positions in October 1994. He was re-elected to
these positions in February 1995. In addition, Mr. Wells owns American
Materials, Incorporated, which assembles and distributes automobile and truck
components and serves as a regional warehousing and distribution center for
various businesses. Mr. Wells also owns International Investments, Inc., which
invests in and provides financing to various businesses. From 1987 through 1991,
Mr. Wells served as Secretary of Finance and Administration for the Commonwealth
of Kentucky and from 1989 through 1991 served as Secretary to the Governor's
Executive Cabinet. During his tenure as Secretary of Finance and Administration,
Mr. Wells served as Chairman of various finance and development authorities,
including the Kentucky Rural Economic Development Authority, the Kentucky
Infrastructure Authority and the Kentucky Housing Corporation.

         Mr. Bell has been Secretary and Treasurer of the Company since 1993. He
is President of International Investments, Inc., an investment company owned by
Mr. L. Rogers Wells, Jr., and previously served as Chief Financial Officer of
that company from 1995 until 1997 and during 1993 and 1994. He has been an
independent business and financial consultant since 1994


                                       49
<PAGE>

and holds various business interests in a number of small, closely-held
partnerships and corporations. Mr. Bell was a commercial loan officer for
Peoples Bank & Trust Company, Greensburg, Kentucky from 1997 to 1999. From 1982
until 1993, he served in various positions with The New Farmers National Bank of
Glasgow and its holding company, Commonwealth Bancorp, including Executive Vice
President and Chief Credit Officer of The New Farmers National Bank of Glasgow
from 1986 until 1993. Mr. Bell also served as Chief Credit Officer of Bowling
Green Bank & Trust Company, N.A., another subsidiary of Commonwealth Bancorp,
from 1991 until 1993. Mr. Bell has been a director of the Company since 1993.

         Mr. Kasper has been President and owner of Algonquin Industries, Inc.
and Hi-Tech Metals, Inc. in Bellingham, Massachusetts since 1974. These two
companies manufacture machine parts for the computer, optic, robotic, gaming,
environmental, biomedical and electromechanical industries. Mr. Kasper has been
a director of the Company since 1993.

         Ms. McEntire has been a director of the Company since 1993. She was a
consultant to the Company for special projects related to marketing from 1997 to
1998 and was the Company's Vice President - Marketing from 1993 to 1997 and its
Director of Retailer Relations from 1992 until 1993. In these capacities, she
was primarily responsible for marketing to the lotteries and vendor support
services for the Company. Ms. McEntire served from 1983 to 1987 as Regional
Manager and then as Regional Coordinator of the Ohio Lottery Commission. From
1987 to 1989 she was Account Manager for British American Banknote, a Canadian
manufacturer of instant lottery tickets. In 1989, she served as a consultant for
the Ohio Department of Rehabilitation and Corrections, Bureau of Community
Services. Ms. McEntire returned to the Ohio Lottery in 1990 as Deputy Director
of Sales. From 1998 until August 2002 she served as Project Coordinator for the
Coalition of Neighborhoods, a charitable agency that services and coordinates
neighborhood activities. Since August 2002, Mrs. McEntire has been the Regional
Director of the Ohio Civil Rights Commission.

         Mr. Nichols has been President of the Company since 1997 and Chief
Executive Officer since 1999. Mr. Nichols served as Senior Vice President of
Sales and Marketing of the Company from 1994 to 1997 and as Vice President --
Operations of the Company from 1993 until 1994. From 1991 to 1992, he was
Executive Director of the Board of Tax Appeals of the Commonwealth of Kentucky.
From 1990 to 1991, Mr. Nichols was Principal Assistant to the Secretary of
Finance and Administration for the Commonwealth of Kentucky, and from 1989 to
1990 he was Principal Assistant to the Kentucky Office for Social Security.
During 1988, Mr. Nichols was Deputy Director of the Kentucky Democratic Party.
Mr. Nichols has been a director of the Company since 1997.

         Mr. Turek was Vice Chairman of the Board of Directors of the Company
from 1997 until 1999 and has been a director of the Company since 1990. Mr.
Turek served as Chairman of the Board, President and Chief Executive Officer of
the Company from 1990 to 1992 and continued to serve as President of the Company
until 1997, when he was appointed Vice Chairman. Mr. Turek began to develop the
Company's instant ticket vending machine in 1987 and has guided product
development through several models for instant ticket, telephone and smart card
dispensing. Mr. Turek was Vice President of Peripheral Products in the computer
division of SCI Systems, Inc. from 1984 to 1989 where he developed business
opportunities in the commercial market for the design and manufacture of
computer products. Prior to that time Mr. Turek held


                                       50
<PAGE>

management, product development and operations positions with various companies
in the computer and aerospace industries.

         Mr. Wingfield has been Vice President of A.G. Edwards & Sons, Inc., a
stock brokerage firm, since 1995. Mr. Wingfield is Manager of A.G. Edwards'
Louisville office and its satellite office in New Albany, Indiana. He was First
Vice President of Stifel, Nicolaus & Company Incorporated, a stock brokerage
firm, from 1985 until 1995 and has been a registered stock broker since 1973.
Mr. Wingfield has been a director of the Company since 1994.

         Mr. Stokes has been Chief Operating Officer since 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.

         Mr. Blazer has been Chief Financial Officer of the Company since 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.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 and the related
regulations of the Securities and Exchange Commission require that the Company's
executive officers and directors, as well as any persons who beneficially own
more than 10% of the Company's Common Stock, file reports of their ownership of
the Company's Common Stock with the SEC and the American Stock Exchange. These
persons are required to furnish the Company with copies of all Section 16(a)
reports they file. Based on its review of reports and written representations
received by it, the Company believes that all Section 16(a) filing requirements
were complied with on a timely basis for 2002. An error in Mr. Wells' Form 5 for
fiscal year 2001, relating to shares transferred as part of a settlement, was
subsequently corrected.

ITEM 11.          EXECUTIVE COMPENSATION

SUMMARY OF COMPENSATION

         The following table sets forth, for the years indicated, compensation
paid by the Company for services in all capacities to Mr. Wells, the Company's
Chairman of the Board; to Mr. Nichols, the Company's Chief Executive Officer;
and to the Company's two other executive officers. These persons are sometimes
referred to as the "named executive officers."



                                       51
<PAGE>

                                    SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                                               LONG-TERM
                                                                                               ---------
                                                                                              COMPENSATION
                                                                                              ------------
                                                          ANNUAL COMPENSATION                    AWARDS
                                                          -------------------                    ------
                                                                                                SECURITIES
                                                                                                UNDERLYING
NAME AND PRINCIPAL POSITION             YEAR            SALARY($)       BONUS($)                OPTIONS(#)
---------------------------             ----            ---------       --------                ----------
<S>                                     <C>             <C>            <C>                   <C>
L. Rogers Wells, Jr.                    2002            $350,000            $-0-                  134,000
Chairman of the Board                   2001            $350,000            $-0-                   25,000
                                        2000            $350,000            $-0-                      -0-

David F. Nichols                        2002            $226,317        $139,400                   25,000
President; Chief                        2001            $220,000        $ 49,531                  212,500
Executive Officer                       2000            $120,000        $100,000                      -0-

Dennis W. Blazer                        2002            $102,019        $ 27,500                   17,000
Chief Financial Officer                 2001            $ 99,000        $ 16,500                    8,500
                                        2000            $ 96,577        $ 22,000                      -0-

Thomas W. Stokes                        2002            $118,518        $ 31,500                   20,000
Chief Operating Officer                 2001            $ 88,077        $ 18,000                   10,000
                                        2000            $ 85,500        $ 25,000                      -0-
</TABLE>


STOCK OPTIONS

         The following table presents information on option grants made during
2002 to the named executive officers.
<TABLE>
<CAPTION>

                        OPTION GRANTS IN LAST FISCAL YEAR

                              Individual Grants(1)

                         Number of
                         Securities     % of Total
                         Underlying      Options                                        Potential Realizable Value at
                          Options       Granted to      Exercise                           Assumed Annual Rates of
                          Granted      Employees in   or Base Price                      Stock Price Appreciation for
Name                        (#)        Fiscal Year       ($/Sh)      Expiration Date             Option Term
-------------------------------------------------------------------------------------------------------------------------
                                                                                            5% ($)           10% ($)
-------------------------------------------------------------------------------------------------------------------------
<S>                      <C>          <C>                 <C>            <C>              <C>             <C>
L. Rogers Wells, Jr.     134,000      60.36               5.40           3/5/12            1,178,668       1,876,832

David F. Nichols          25,000      11.26               5.40           3/5/12              219,901         350,155

Dennis W. Blazer          17,000       7.66               5.40           3/5/12              149,533         238,106

Thomas W. Stokes          20,000       9.00               5.40           3/5/12              175,921         280,124
</TABLE>

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


                                       52
<PAGE>

(1)      All options become exercisable at the rate of 25% of the shares per
         year beginning on the first anniversary of the date of grant. Each
         option becomes exercisable in full (i) if the beneficial ownership of
         Common Stock of L. Rogers Wells falls below 50.1% and a third party
         (other than Mr. Wells, the Company or an employee benefit plan of the
         Company) becomes the beneficial owner of 30% or more of the Company's
         Common Stock without the approval of the Board of Directors; (ii) in
         the event of certain situations involving the merger, consolidation or
         liquidation of the Company or the sale or other disposition of all or
         substantially all of its assets; or (iii) if during any fiscal year,
         the individuals making up the Board of Directors at the beginning of
         such year cease to constitute a majority of the Board of Directors.

         The table below sets forth information regarding the number and value
of the unexercised stock options held by the named executive officers at
December 31, 2002. No options were exercised by the named executive officers
during 2002.

<Table>
<Caption>
                                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                                           AND FY-END OPTION VALUES

                                                                                                       Value of
                                                                                                     Unexercised
                                                                         Number of Securities        In-the-Money
                                                  Value Realized ($)    Underlying Unexercised    Options at FY-End
                                                                        Options at FY-End (#)           ($)(1)
                                                  (Market Price on
                            Shares Acquired on      Exercise Less            Exercisable/            Exercisable/
          Name                 Exercise (#)        Exercise Price)          Unexercisable           Unexercisable
-------------------------- --------------------- --------------------- ------------------------- ---------------------
<S>                         <C>                    <C>               <C>                        <C>
L. Rogers Wells, Jr.                -                     --           177,000/149,000           268,701/61,509

David F. Nichols                    -                     --           212,750/118,750           253,201/85,859

Dennis W. Blazer                    -                     -            17,000/22,500              28,101/12,254

Thomas W. Stokes                    -                     -              21,500/26,750            43,085/15,351
</TABLE>

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

(1)      This value is computed by subtracting the option exercise price from
         the market price of the Common Stock on December 31, 2002 and
         multiplying that figure by the total number of unexercised options.

EMPLOYMENT AGREEMENT

         Effective January 1, 2001, the Company entered into an employment
agreement with Mr. Nichols for an initial five-year term. Beginning on the
fourth anniversary of the agreement and on each subsequent anniversary, the term
of the agreement will be extended for an additional year if neither party gives
written notice to the contrary. The agreement provides for a minimum annual base
salary of $220,000, for cost-of-living increases and for annual


                                       53
<PAGE>

consideration for performance increases. Under the agreement, Mr. Nichols is
entitled to a bonus of 2 1/2% of the Company's net after tax income plus 5% of
any year-over-year after tax net income growth. If the Company terminates the
agreement for any reason other than "cause" (as defined in the agreement),
disability or death, it will pay Mr. Nichols the greater of (1) two times the
sum of his then-current base salary plus the amount of his immediately preceding
bonus or (2) his then-current base salary plus immediately preceding bonus for
each year remaining in the then-current term of the agreement. The Company also
will provide Mr. Nichols with continued health and life insurance benefits
through the end of the then-current term of the agreement and will pay him the
value of any forfeited or lost pension, profit sharing and similar benefits
which would have accrued and vested had he remained employed until that time.
Similar benefits are payable if Mr. Nichols resigns within 90 days after a
change of control of the Company (as defined in the agreement) or if his
employment is actually or constructively terminated within two years after a
change of control; in such an event, Mr. Nichols also is entitled to a gross-up
for any taxes imposed as a result of the "excess parachute payments" provisions
of the Internal Revenue Code.

DIRECTOR COMPENSATION

         Directors who are not employees of the Company receive a fee of $1,000
for each meeting of the Board of Directors or Board committee attended in person
or by telephone. Directors who are employees of the Company receive no
directors' fees. The Company paid a total of $11,000 in directors' fees in 2002.

         Each non-employee member of the Board of Directors -- Gary S. Bell,
Kazmier J. Kasper, H. Jean McEntire, Edmund F. Turek and John J. Wingfield -
receives an annual grant of options to purchase shares of Common Stock. The
option grants for 2002 were made on March 6, 2002. Each non-employee director
received an option for 9,000 shares of Common Stock. The exercise price of each
option is equal to the fair market value of the Common Stock on the date of
grant. The options vest at the rate of 25% per year beginning one year after the
date of grant and expire ten years from the date of grant.

         Edmund F. Turek, the Company's founder, retired as an employee in 1999.
Mr. Turek now has a consulting arrangement with the Company pursuant to which he
was paid $120,000 during 2002.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         A principal function of the Company's Compensation Committee is to
establish the compensation of the executive officers of the Company. The
Chairman of the Committee, Gary S. Bell, served during 2002 as Secretary and
Treasurer of the Company (in a non-employee capacity) and also served as
President of International Investments, Inc. International Investments is owned
by L. Rogers Wells, Jr., the Company's Chairman of the Board. Additionally, the
Company had an arrangement with International Investments under which it paid
International Investments $3,000 per month (for a total of $36,000 in 2002) for
consulting services provided to the Company by Mr. Bell. This arrangement was
terminated as of December 31, 2002.


                                       54
<PAGE>

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

         The following table sets forth information, as of March 15, 2003,
regarding the beneficial ownership of the Company's Common Stock by (a) each
person who is known by the Company to own more than 5% of the Common Stock, (b)
each director and person named in the Summary Compensation Table individually
and (c) all directors and executive officers as a group.
<TABLE>
<CAPTION>
                                                                           SHARES            PERCENT
                                                                        BENEFICIALLY        OF CLASS
    Name of Beneficial Owner                                             OWNED (1)            OWNED
    -------------------------                                            ---------            -----
<S>                                                                 <C>                  <C>
    Lloyd I. Miller III                                                  664,800(2)             10.3%
    L. Rogers Wells, Jr.                                               3,652,300(3)             54.8%
    Edmund F. Turek                                                      334,500(4)              5.1%
    Gary S. Bell                                                          32,500                    *
    Dennis W. Blazer                                                      25,969                    *
    Kazmier J. Kasper                                                     36,500                    *
    H. Jean McEntire                                                      21,750                    *
    David F. Nichols                                                     233,136                 3.5%
    Thomas W. Stokes                                                      28,112                    *
    John J. Wingfield                                                     39,500                    *
    All directors and executive officers as a group (9 persons)        4,404,267                62.0%
</TABLE>

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

*      Less than one percent.

(1)    Except as noted below, the named persons have sole voting and investment
       power with regard to all shares shown as beneficially owned by them.
       Includes the following numbers of shares which may be acquired upon
       exercise of stock options which were exercisable on, or became
       exercisable within 60 days after, March 15, 2003: Mr. Wells, 210,500
       shares; Mr. Turek, 54,500 shares; Mr. Bell, 32,500 shares; Mr. Blazer,
       21,250 shares; Mr. Kasper, 32,500 shares; Ms. McEntire, 21,750 shares;
       Mr. Nichols, 229,000 shares; Mr. Stokes, 26,250 shares; Mr. Wingfield,
       32,500 shares; and all directors and executive officers as a group,
       648,750 shares.

(2)    Mr. Miller reports having sole voting and dispositive power over 417,800
       shares and shared voting and dispositive power over 247,000 shares. Mr.
       Miller's address is 4550 Gordon Drive, Naples, Florida 34102.

(3)    Mr. Wells' address is 7697 Innovation Way, Mason, Ohio 45040.

(4)    Includes 65,000 shares owned by Mr. Turek's wife. Mr. Turek's address is
       7697 Innovation Way, Mason, Ohio 45040.



                                       55
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

         The Company has three compensation plans under which shares of its
common stock may be issued: the 1994 Stock Incentive Plan; the 1994 Directors
Stock Incentive Plan, under which options were granted to the Company's
nonemployee directors prior to 2000; and the Employee Stock Purchase Plan. Each
of these plans has been approved by stockholders. The Company has no equity
compensation plans or arrangements that have not been approved by stockholders.

         The following table provides information concerning the Company's
equity compensation plans as of December 31, 2002. Additional shares authorized
for issuance under the 1994 Stock Incentive Plan as amended and restated
effective January 15, 2003, and stock options granted on that date, are not
included.

<TABLE>
<CAPTION>
Plan category                Number of securities      Weighted-average           Number of securities
                             to be issued upon         exercise price of          remaining available
                             exercise of               outstanding options,       for future issuance
                             outstanding options,      warrants and rights        under equity
                             warrants and rights                                  compensation plans
                                                                                  (excluding
                                                                                  securities reflected
                                                                                  in column (a))
<S>                                <C>                         <C>                       <C>
Equity compensation
plans approved by                  1,070,511                   $4.68                     201,594
security holders

Equity compensation
plans not approved by                 --                        --                         ---
security holders

Total                              1,070,511                   $4.68                     201,594
</TABLE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Algonquin Industries, Inc. and Hi-Tech Metals, Inc., of each of which
Kazmier J. Kasper, a director of the Company, is President and owner, sell the
Company some of the components of the burster mechanisms and other dispensing
mechanisms used in the Company's machines. During 2002, the Company paid an
aggregate of $5,120,953 to Algonquin Industries and Hi-Tech Metals for these
mechanisms. The Company currently plans to continue purchasing all of these
mechanisms from Algonquin Industries and Hi-Tech Metals. The Company believes
that the purchases are on terms no less favorable than would be obtainable from
unaffiliated third parties.

ITEM 14. CONTROLS AND PROCEDURES

         As of December 31, 2002, an evaluation was performed under the
supervision and with the participation of the Company's management, including
the Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of the Company's disclosure controls and procedures.
Based on that evaluation, the Company's management,


                                       56
<PAGE>

including the CEO and CFO, concluded that the Company's disclosure controls and
procedures were effective as of December 31, 2002. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to December 31, 2002.

                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

       (a)    Documents Filed as Part of This Report.

              1.     Financial Statements

                     Independent Auditors' Report of Grant Thornton LLP

                     Balance Sheets at December 31, 2001 and 2002

                     Statements of Income for each of the years in the
                     three-year period ended December 31, 2002

                     Statements of Stockholders' Equity for each of the years in
                     the three-year period ended December 31, 2002

                     Statements of Cash Flows for each of the years in the
                     three-year period ended December 31, 2002

                     Notes to Financial Statements

              2.     Financial Statement Schedules

                     The following financial statement schedule is set forth 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.



                                       57
<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, 2003.

                                          INTERLOTT TECHNOLOGIES, INC.

                                          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, 2003.
<TABLE>
<CAPTION>

Signature                                                    Title
---------                                                    -----
<S>                                                        <C>
/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
</TABLE>

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


                                       58
<PAGE>

                                 CERTIFICATIONS

I, David F. Nichols, certify that:

       1. I have reviewed this annual report on Form 10-K of Interlott
Technologies, Inc.;

       2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

       3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

       4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

       a)     designed such disclosure controls and procedures to ensure that
              material information relating to the registrant, including its
              consolidated subsidiaries, is made known to us by others within
              those entities, particularly during the period in which this
              annual report is being prepared;

       b)     evaluated the effectiveness of the registrant's disclosure
              controls and procedures as of a date within 90 days prior to the
              filing date of this annual report (the "Evaluation Date"); and

       c)     presented in this annual report our conclusions about the
              effectiveness of the disclosure controls and procedures based on
              our evaluation as of the Evaluation Date;

       5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

       a)     all significant deficiencies in the design or operation of
              internal controls which could adversely affect the registrant's
              ability to record, process, summarize and report financial data
              and have identified for the registrant's auditors any material
              weaknesses in internal controls; and

       b)     any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal controls; and

       6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  March 28, 2003


 /s/ David F. Nichols
------------------------------------
Chief Executive Officer



                                       59
<PAGE>

I, Dennis W. Blazer, certify that:

       1. I have reviewed this annual report on Form 10-K of Interlott
Technologies, Inc.;

       2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

       3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

       4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

       a)     designed such disclosure controls and procedures to ensure that
              material information relating to the registrant, including its
              consolidated subsidiaries, is made known to us by others within
              those entities, particularly during the period in which this
              annual report is being prepared;

       b)     evaluated the effectiveness of the registrant's disclosure
              controls and procedures as of a date within 90 days prior to the
              filing date of this annual report (the "Evaluation Date"); and

       c)     presented in this annual report our conclusions about the
              effectiveness of the disclosure controls and procedures based on
              our evaluation as of the Evaluation Date;

       5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

       a)     all significant deficiencies in the design or operation of
              internal controls which could adversely affect the registrant's
              ability to record, process, summarize and report financial data
              and have identified for the registrant's auditors any material
              weaknesses in internal controls; and

       b)     any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal controls; and

       6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  March 28, 2003

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


                                       60
<PAGE>


                          FINANCIAL STATEMENT SCHEDULE

                          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
------------------------------------------------------------------------------------------------------------------
<C>                         <C>                <C>                   <C>                 <C>              <C>
Allowance for
doubtful
accounts

2000                        $158,793           $  90,000             $ 0                 $   2,921        $245,872
------------------------------------------------------------------------------------------------------------------
2001                         245,872             180,000               0                   222,771         203,101
------------------------------------------------------------------------------------------------------------------
2002                         203,101             244,742               0                   394,511          53,332
------------------------------------------------------------------------------------------------------------------



Inventory valuation
reserve

2000                      $1,000,286            $401,292             $ 0                  $920,494        $481,084
------------------------------------------------------------------------------------------------------------------
2001                         481,084             465,110               0                                   724,915
                                                                                           221,279
------------------------------------------------------------------------------------------------------------------
2002                         724,915             540,882               0                   158,132       1,107,665
------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      S-1

<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
       -----------      -----------

            2.1         Agreement and Plan of Merger dated as of March 17, 2003
                        by and among GTECH Holdings Corporation, Bengal
                        Acquisition Co. and Interlott Technologies, Inc.
                        (Current Report on Form 8-K dated March 17, 2003).

            2.2         Stockholder Voting and Option Agreement dated as of
                        March 17, 2003 among GTECH Holdings Corporation, Bengal
                        Acquisition Co. and L. Rogers Wells, Jr. (Current Report
                        on Form 8-K dated March 17, 2003).

            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         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).

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

            4.3         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).

            4.4         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).

            4.5         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).

            4.6         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).


                                      E-1
<PAGE>

            4.7         Fourth Amendment dated October 3, 2001 to Credit
                        Agreement between the Company and Fifth Third Bank
                        (Annual Report on Form 10-K for the year ended December
                        31, 2001).

            4.8         Fifth Amendment dated March 21, 2002 to Credit Agreement
                        between the Company and Fifth Third Bank (Annual Report
                        on Form 10-K for the year ended December 31, 2001).

            4.9         Sixth Amendment dated October 23, 2002 to Credit
                        Agreement between the Company and Fifth Third Bank
                        (Quarterly Report on Form 10-Q for the quarter ended
                        September 30, 2002).

            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).

            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, as amended and
                                    restated (Proxy Statement for 2001 Annual
                                    Meeting of Stockholders).

                        (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-- filed herewith.

            24.1        Powers of Attorney-- filed herewith.

            99.1        Certification under Section 906 of the Sarbanes-Oxley
                        Act of 2002 - furnished herewith.


                                      E-2