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 31,1999

              [ ] 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) 792-7000
              (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. [ ]

The aggregate market value of the Registrant's  outstanding Common Stock held by
non-affiliates  of the Registrant on March 23, 2000 was  $7,408,406.  There were
3,210,000 shares of Common Stock outstanding as of March 23, 2000.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Registrant's  Proxy  Statement  for the 2000 Annual  Meeting of
Stockholders to be held on May 4, 2000 are incorporated by reference in Part III
hereof.


<PAGE>

                          INTERLOTT TECHNOLOGIES, INC.
                           Annual Report On Form 10-K
                   For the Fiscal Year Ended December 31, 1999
<TABLE>
<CAPTION>

                                Table of Contents

Item                                                                                                          Page
Number                                                                                                       Number
<S>                                                                                                             <C>
PART I............................................................................................................2

   1.      Business...............................................................................................3

   2.      Properties............................................................................................12

   3.      Legal Proceedings.....................................................................................12

   4.      Submission of Matters to a Vote of Security Holders...................................................13

PART II..........................................................................................................13

   5.      Market for the Registrant's Common Stock and Related Stockholder Matters..............................13

   6.      Selected Financial Data...............................................................................14

   7.      Management's Discussion and Analysis of Financial Condition and Results of Operations.................16

   7(A).   Quantitative and Qualitative Disclosures About Market Risk............................................23

   8.      Financial Statements and Supplementary Data...........................................................24

   9.      Changes In and Disagreements With Accountants on Accounting and Financial Disclosure..................39

PART III.........................................................................................................39

   10.     Directors and Executive Officers of the Registrant....................................................40

   11.     Executive Compensation..................................................................................

   12.     Security Ownership of Certain Beneficial Owners and Management..........................................

   13.     Certain Relationships and Related Transactions..........................................................

PART IV..........................................................................................................40

   14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................40

           SIGNATURES............................................................................................41

           INDEX OF FINANCIAL STATEMENT SCHEDULES...............................................................S-1

           INDEX OF EXHIBITS....................................................................................E-1
</TABLE>

                                     PART I



                                       -2-
<PAGE>

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 without the assistance of an employee of the
lottery  instant ticket  retailer or agent,  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,  1999,  the Company had sold or leased over 20,000 ITVMs
under  agreements with 23 different state lotteries and the District of Columbia
and eight international  jurisdictions,  or their licensees or contractors.  The
Company was awarded six of the six  contracts  that were awarded to the industry
in 1999.

     The Company  continually  seeks to enhance its existing  product  lines and
develop new  products.  In 1998,  the  Company  introduced  its Modular  Vending
Platform  ("MVP") to increase  over-the-counter  instant ticket sales and reduce
ticket   shrinkage.   Also  in  1998,   the  Company   introduced  its  Advanced
Communication  Software,  which significantly increases and enhances the flow of
information between the ITVMs in the field and the lotteries.

     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 1999  represented less than
1% of total  revenues,  it  continues  to be a potential  source of future sales
growth.

     Interlott  is a Delaware  corporation.  The Company  completed  its initial
public offering of Common Stock in April 1994. The Company's Common Stock trades
on the American Stock Exchange under the symbol "ILI."


Products

         The ITVM

     In 1987,  Edmund F. Turek,  a director of and  consultant  to the  Company,
developed the technology for what the Company believes to be 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

                                       -3-
<PAGE>

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  lotteries to purchase  virtually any known type of  scratch-off
instant ticket from their 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.  The Company believes that lotteries will  increasingly
require the use of  recyclable  tickets in their  ITVMs.  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.
Based on an analysis of actual field service data  regarding  the  dispensing of
approximately  55 million  scratch-off  instant  tickets by the Company's  ITVMs
during a 48-week  period,  the  Company  determined  that the Mean Time  Between
Failure  of these  ITVMs is  approximately  3.78 years and that the Mean Time to
Repair is approximately 15 minutes.

     The  Company's  ITVM for  scratch-off  tickets has the capacity to dispense
tickets from one to 16 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 16 different instant-winner games with a single ITVM. The ITVM
can  accommodate  up to 16,000  tickets in the 16-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 24 inches deep for a 16-game  unit to 19.75  inches  tall,  15.5
inches wide and 20.5 inches deep for a countertop unit.

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

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

     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 11 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


                                       -4-
<PAGE>

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. The Company's PCDM is described in detail 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.

     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 nine 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

                                       -5-
<PAGE>

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

     To further increase the likelihood of receiving ITVM orders from lotteries,
the Company has offered additional and more 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 Georgia and West
Virginia  pursuant to cooperative  supply  arrangements  between the Company and
Scientific Games,  Inc., which is a primary  contractor for the Georgia and West
Virginia  Lotteries,  and are  deployed  in New  Jersey  pursuant  to a purchase
agreement  between  the  Company  and GTECH  Corporation,  which is the  on-line
supplier to the New Jersey  Lottery.  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 West
Virginia 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 of two  employees  and
advertises   in  trade   publications   to   increase   its   presence   in  the
telecommunications industry.

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

Contracts

     ITVMs

     General.  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

                                       -6-
<PAGE>

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, an evaluation committee comprised of
key lottery staff members  appraises 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  and
unpredictable.  Additionally,  the point  system or the  weighing 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 67.3%, 57.9% and 75.7% in 1997, 1998 and 1999, 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 themselves. Similar arrangements are available for replacement parts for
the ITVMs.

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

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

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

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


                                       -7-
<PAGE>

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.

     30 states and the District of Columbia utilize ITVMs in some manner as part
of their instant  ticket  distribution  system.  The  Company's  ITVMs have been
deployed  in 23 of these  states and the  District  of Columbia as well as eight
international  jurisdictions.  As of December 31, 1999,  the Company had sold or
leased over 20,000 ITVMs and  currently has 9,232 under lease with 17 states and
the District of Columbia.  These leases expire on various dates through 2003. In
certain  cases,  the  Company's  contracts  are with third  parties  who are the
primary contractors to the lottery. See "Marketing and Sales - ITVMs" above.


     During 1999, the Company's contract with the Ohio Lottery accounted for 18%
of the  Company's  revenues,  and  contracts  with New York,  Texas and  Florida
accounted for 13%,11% and 10% of the Company's revenues, respectively.

     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.  The  Company  also has  several  lease  agreements  for PCDMs.  Like
contracts  with  the  lotteries,  the  purchase  orders  may  contain  stringent
installation, performance and service requirements. As of December 31, 1999, the
Company had sold 756 PCDMs and had 95 PCDMs under lease.

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 has the capacity to produce  approximately 300
machines per week.

                                       -8-
<PAGE>

Research And New Product Development

     The Company 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.

     The  Company  has  developed  the MVP to  address  the  specific  needs  of
convenience  store and grocery  check-out  lanes.  The MVP may be installed in a
variety  of  configurations  including  under-the-counter.  This new  technology
reduces ticket  shrinkage and increases  sales volume of instant tickets and may
also be tied into the Point of Service register.

     In an effort to expand its product lines into new markets,  the Company has
developed a device which dispenses stored value "smart cards." This product will
be marketed in the future to the financial  services industry to the extent that
consumer use of smart cards develops in the future.

     Research and development expenditures were $545,039,  $618,819 and $581,885
for 1997, 1998 and 1999, respectively.

Customer Service and Product Repair

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

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


                                       -9-
<PAGE>

Patents, Trademarks and Copyrights

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

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

     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 has a pending U.S.  patent  application  on this  technology  as well as
corresponding foreign pending patent applications.

     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 for a "Multi-Point High Security Locking Mechanism for Lottery  Machines,"
which  expires  July 18,  2014;  and U.S.  Design  Patent  No.  376,621  for the
Company's  double-game  countertop  ITVM,  which expires  December 17, 2010. The
Company  believes  that each of these  patents is important but not essential to
the Company's business.

     The Company has an Information Disclosure Document on file with the PTO for
the purpose of identifying  technology relating to its "Software Release Control
and Data Security for ITVMs." The technology allows secure remote  transmissions
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
its  PTVMs  and  PCDMs  pursuant  to an  agreement  with  Algonquin  Industries.
Algonquin  Industries has been granted six U.S. Patents,  and one is pending 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 has obtained  federal  registration in the United States of the
following trademarks:  INTERLOTT, INTERLOTT and design, and INSTANT SUCCESS. The
Company  does  not deem the  trademarks  to be  critical  to the  future  of its
business.

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

Competition

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

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

                                      -10-
<PAGE>

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

     On January 10, 2000, the Company's  main  competitor,  On-Point  Technology
Systems,  Inc.,  entered  into an  agreement  to be acquired  by GTECH  Holdings
Corporation,  a major supplier of on-line lottery  terminals to many of the same
lotteries served by the Company. Shortly after the merger announcement, On-Point
filed an 8-K report with the Securities and Exchange Commission  announcing that
its previously  issued  financial  statements for 1997, 1998 and 1999 were being
restated and should no longer be relied upon. By press  release  dated  February
29, 2000,  On-Point  disclosed  that GTECH had informed it that "in light of the
restatement, no assurance can be given that the merger will be consumated, if at
all, on the terms set forth in the definitive merger agreement."


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,  37 states and the District of Columbia have enacted legislation
to allow for the operation of a lottery,  and 31 of these jurisdictions  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  authorize the use of
ITVMs will adopt legislation in the foreseeable future that prohibits the use of
ITVMs, there can be no assurance that this will not occur.

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

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

     The  Company may retain  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.

                                      -11-
<PAGE>

     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 committed for production as of December 31,
1999 was  approximately  $24,365,000,  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, 1999. At December 31, 1998,
the comparable  backlog was approximately  $5,640,000.  Approximately 69% of the
backlog at December  31, 1999 related to a contract  awarded by a state  lottery
earlier in the month. It is anticipated that  substantially all of the Company's
backlog at December 31, 1999 will be shipped on or before December 31, 2000. The
Company had no backlog of PCDMs committed for production at December 31, 1999 or
1998.

     The Company has entered into various lease or sales  agreements that permit
the lotteries, at their sole option, to lease or purchase additional ITVMs as of
December 31, 1999. However,  the Company does not include these additional ITVMs
in backlog ITVMs that may be sold or leased under existing  contracts unless the
Company has  received a firm order for the ITVMs.  Due to the  relatively  large
size of  individual  orders,  the small number of  customers  and the long sales
cycle of the lottery industry,  management  considers backlog to be an indicator
of current activity and not necessarily predictive of future orders.

Employees

     The Company  utilizes a work force of full-time  employees  supported  from
time to time by temporary or contract  manufacturing and engineering  personnel.
As of December 31, 1999,  the Company had 190 full-time  employees,  of which 71
were manufacturing employees,  eight were engineering employees, 93 were service
employees,  eight  were  clerical  and  administrative  employees  and  10  were
executives or senior  managers.  Two of the executives and senior  managers were
devoted to sales and eight 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,  distribution and executive offices are in the
process of relocating to approximately  52,500 square feet of newly leased space
in Mason,  Ohio. This facility houses the Company's  executive,  administrative,
sales,  engineering  production and service personnel and 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

     The Company is involved  from time to time in  litigation  in the  ordinary
course of its business. The Company does not believe that 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.


                                      -12-
<PAGE>

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

     No matters  were  submitted  by the  Company to a vote of its  stockholders
during the fourth quarter ended December 31, 1999.

                                     PART II

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

     The Company's  common stock has been traded on the American  Stock Exchange
under the  symbol  "ILI"  since  the  Company's  initial  public  offering.  The
following  tables  show the high and low  closing  sale prices per share for the
common  stock  as  reported  by the  American  Stock  Exchange  for the  periods
indicated:

1998:                                              High                Low
                                                  -----               -----
         First Quarter                            $9.75               $7.75
         Second Quarter                           14.00                9.63
         Third Quarter                            10.75                7.88
         Fourth Quarter                            8.13                6.50

1999:
         First Quarter                             7.00                6.00
         Second Quarter                            6.25                5.63
         Third Quarter                             6.38                5.50
         Fourth Quarter                            5.75                4.00


     At March 17, 2000 there were approximately 63 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.


























                                      -13-
<PAGE>






ITEM 6.           SELECTED FINANCIAL DATA

     The  following  table  presents  selected  financial  data derived from the
Company's  audited  financial  statements for each year in the five-year  period
ended  December 31, 1999 and should be read in  conjunction  with the  Company's
Financial Statements and with Management's  Discussion and Analysis of Financial
Condition and Results of Operations set forth below.

<TABLE>
<CAPTION>

                                                     SELECTED FINANCIAL DATA

                                                            Year Ended
 ---------------------------------------------------------------------------------------------------------------------------------
                                                Dec. 31            Dec. 31            Dec. 31            Dec. 31          Dec. 31
                                                  1995                1996               1997               1998             1999
 ---------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                  <C>               <C>              <C>             <C>
 Revenues
   Machine sales                             $  9,746,339        $ 5,596,698        $ 4,567,441        $ 8,229,950    $ 3,311,874
   Machine leases                               9,132,132         11,766,623         12,874,450         14,165,379     16,901,911
   Other                                          435,137          1,235,368          1,669,160          2,078,644      2,120,245
 Net revenues                                  19,313,608         18,598,689         19,111,051         24,473,973     22,334,030
 Net income                                     1,987,219          1,320,597          1,451,654          1,622,313      2,070,298
 Net income per share                                0.62               0.41               0.45               0.51           0.65
 Depreciation and amortization                  2,982,547          3,902,387          4,143,408          4,585,325      5,547,909
 Leased ITVM's, less
 accumulated depreciation                      10,779,929         10,940,398         14,740,462         17,105,891     21,549,400
 Total assets                                  20,483,686         20,992,733         24,612,884         28,774,249     36,203,867
 Total debt                                     9,040,784          7,715,140          9,458,004         11,645,374     16,291,727
 ---------------------------------------------------------------------------------------------------------------------------------
 Redeemable preferred stock                     1,335,000          1,335,000          1,335,000          1,335,000      1,335,000
 ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>














                                      -14-
<PAGE>

RESULTS OF OPERATIONS

The  table  below  presents  selected  financial  information  derived  from the
Company's  statements  of income  expressed as a percentage  of revenues for the
years indicated
<TABLE>
<CAPTION>

                                                Year Ended
                                      Dec. 31     Dec. 31      Dec. 31
                                       1997         1998        1999
<S>                                     <C>          <C>        <C>
Revenues
Machine sales                           24.0%        33.6%       14.8%
Machine leases                          67.3         57.9        75.7
Other                                    8.7          8.5         9.5
 Total revenues                        100.0        100.0       100.0
Cost of revenues
 excluding depreciation                 41.7         48.4        39.0
Depreciation                            20.6         17.5        23.9
Gross margin                            37.7         34.1        37.1
Selling, general and
 administrative expenses                18.3         16.5        18.8
Research and
 development costs                       2.9          2.5         2.6
Operating income                        16.5         15.1        15.7
Interest expenses                        3.7          4.0         4.9
Income before income
 taxes                                  12.8         11.1        14.7
Income taxes                             5.2          4.5         5.4
Net income                               7.6%         6.6%        9.3%
</TABLE>



SUMMARY OF QUARTERLY DATA

Quarterly  financial  data for the years ended  December 31, 1998 and 1999 shown
here in thousands, except for per share data.
<TABLE>
<CAPTION>

1998                                   First       Second       Third       Fourth
<S>                                     <C>           <C>        <C>         <C>
Net sales                             $5,884        7,323       5,714        5,554
Gross profit                           1,718        2,492       1,874        2,270
Net earnings                             291          630         225          476
Basic earnings per share                0.09         0.19        0.07         0.15
Diluted earnings per share              0.09         0.19        0.07         0.15

1999                                   First       Second       Third       Fourth

Net sales                             $4,960        5,138       4,995        7,240
Gross profit                           1,761        1,687       1,525        3,314
Net earnings                             654           76         182        1,158
Basic earnings per share                0.20         0.02        0.06         0.36
Diluted earnings per share              0.20         0.02        0.06         0.36
</TABLE>



                                      -15-


<PAGE>

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" Leases (2) sales
of ITVMs and  PCDMs,  (3) and to a lesser  extent,  sales of parts for ITVMs and
PCDMs and service agreements. The Company emphasizes leasing rather than selling
ITVMs to lotteries when  possible.  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 the
lotteries  the  flexibility  to  enhance  their  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.

     For similar  reasons,  the Company  emphasizes  leasing rather than selling
PCDMs to  providers  of prepaid  telephone  cards.  As with  ITVMs,  the Company
believes  that the benefits to the Company of leasing  PCDMs warrant the initial
capital investment required to manufacture PCDMs. However, the 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 its  dependence  upon a small  number  of major  customers,  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  amount  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,   increased
competition  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.

1998 as Compared to 1999

     Total revenues  decreased by $2,139,943 from  $24,473,973 to $22,334,030 in
1999,  or 9%, due  primarily  to a  $4,918,076  decrease in machine  sales and a
$2,736,532 increase in lease revenues accompanied by a $41,601 increase in other
revenues.  Revenues  from leases  increased by 19% from  $14,165,379  in 1998 to
$16,901,911 in 1999,  resulting from a new lease in one state,  the continuation
of leases in seven  states and the renewal of eight  leases in other states that
had  reached  the  conclusion  of their  original  terms.  Revenues  from  sales
decreased by 60% from $8,229,950 in 1998 to $3,311,874 in 1999, as a result of a
decrease  in ITVMs and PCDMs sold in 1999 over 1998.  The total  number of ITVMs
and PCDMs under lease  increased in 1999 as a result of deployment of new units,
partially  offset by the retirement of older units.  Lease revenues were 58% and
76% of total  revenues for 1998 and 1999,  respectively.  Revenues from sales of
ITVMs  and  PCDMs  were  34%  and  15% of  total  revenues  in  1998  and  1999,
respectively.  The increase in lease  revenues  and  decrease in sales  revenues
reflects the cumulative effect of continuing  revenues from machines under lease
which were deployed  prior to 1999 and the  incremental  revenue of new machines
leased or deployed in 1999.  Other revenues  increased by 10% from $2,078,644 in
1998 to $2,120,245 in 1999, as machines deployed prior to 1999 generated service
revenue for the entire year.


                                      -16-
<PAGE>
     Cost of revenues for machine sales and other  decreased 75% from $5,809,057
in 1998 to  $1,466,153 in 1999.  This decrease  reflects the 79% decrease in the
number of machines  sold in 1999.  Cost of revenues  for leased ITVMs and PCDMs,
excluding  depreciation,  increased 20% from $6,020,437 in 1998 to $7,243,770 in
1999. The increase in cost of lease revenues was the result of higher  personnel
and subcontractor costs related to the larger number of machines deployed during
1999.

         Depreciation  of ITVMs and PCDMs  increased by 24% from  $4,290,128  in
1998 to  $5,337,018  in 1999.  The  increase  was  greater  than the related 16%
increase in number of leased ITVMs and PCDMs,  as newer units have more capacity
and cost more.

         Selling,   general  and  administrative   expenses  increased  4%  from
$4,048,751 in 1998 to $4,202,825 in 1999.  Selling,  general and  administrative
expenses,  as a percentage of revenues,  increased  slightly from 17% in 1998 to
19% in 1999, in part because revenues in 1999 were lower.

         Research and development costs decreased by 6% from $618,819 in 1998 to
$581,885 in 1999. The Company  maintains its philosophy of using  contractors as
the primary source of research and development efforts,  allowing the Company to
focus its  expenditures on the technical  expertise  necessary to accomplish the
specific project.

         Operating  income decreased by 5% from $3,686,781 in 1998 to $3,502,379
in 1999.  This decrease  resulted  primarily  from the decrease in the number of
machines  sold in  1999 as  compared  to  1998.  As a  percentage  of  revenues,
operating income increased from 15% in 1998 to 16% in 1999.

         Interest  expense  increased by 14% from $967,768 in 1998 to $1,102,478
in 1999.  The increase  reflects the cost of  additional  borrowings  to finance
leased equipment built and deployed in 1999, and higher interest rates.

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

         Income before income taxes and  extraordinary  item  increased 10% from
$2,719,013 in 1998 to $2,998,733 in 1999.

         Income taxes  increased by 1% from  $1,096,700 in 1998 to $1,106,594 in
1999 as a result of the increase in income before taxes.

         As a result of the above  factors,  the  Company's  net  income  before
extraordinary  items  increased by 17% from  $1,622,313 in 1998 to $1,892,139 in
1999.

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


1997 as Compared to 1998

         Total revenues  increased by $5,362,922 from $19,111,051 to $24,473,973
in 1998, or 28%, due  primarily to a $3,662,509  increase in machine sales and a
$1,290,929  increase in lease  revenues  accompanied  by a $409,484  increase in
other revenues.  Revenues from leases  increased by 10% from $12,874,450 in 1997
to $14,165,379 in 1998, resulting from the continuation of leases in nine states
and the renewal of seven leases in other states that had reached the  conclusion
of their original terms. Other revenues increased by 25% from $1,669,160 in 1997
to $2,078,644  in 1998, as machines  deployed  prior to 1998  generated  service
revenue  for the entire  year and  service for ITVMs in one state was taken over
from a  sub-contractor.  Revenues from sales increased by 80% from $4,567,441 in
1997 to  $8,229,950  in 1998, as a result of an increase in ITVMs and PCDMs sold
in 1998 over 1997.  The units sold in 1998  included a greater  number of higher
priced  machines  than 1997.  The total  number of ITVMs and PCDMs  under  lease
increased in 1998 as a result of  deployment of new units,  partially  offset by
the retirement of older units. Lease revenues were 67% and 58% of total revenues
for 1997 and 1998, respectively. Revenues from sales of ITVMs and PCDMs were 24%
and 34% of total revenues in 1997 and 1998, respectively.  The increase in lease
revenues  reflects the  cumulative  effect of continuing  revenues from machines
under lease which were deployed prior to 1998 and the incremental revenue of new
machines leased or deployed in 1998.

                                      -17-
<PAGE>
         Cost of  revenues  for  machine  sales  and  other  increased  33% from
$4,378,669  in 1997 to  $5,809,057  in  1998.  This  increase  reflects  the 47%
increase in number of machines sold,  offset by lower costs of the units sold in
1998.  Cost of  revenues  for leased  ITVMs and PCDMs,  excluding  depreciation,
increased 67% from  $3,584,017  in 1997 to  $6,020,437 in 1998.  The increase in
cost of leased  revenues was the result of higher  personnel  and  subcontractor
costs related to the larger number of machines deployed during 1998.

         Depreciation of ITVMs and PCDMs increased by 9% from $3,924,244 in 1997
to  $4,290,128  in 1998.  The  increase  was lower than the related  increase in
number of ITVMs and PCDMs,  as certain units had been fully  depreciated  by the
end of 1997.

         Selling,   general  and  administrative  expenses  increased  16%  from
$3,492,020 in 1997 to $4,048,751 in 1998. As a percentage of revenues,  selling,
general and  administrative  expenses decreased slightly from 18% in 1997 to 17%
in 1998.

         Research and  development  costs increased by 14% from $545,039 in 1997
to $618,819 in 1998.  This  increase  results from  continuing  development  and
refinement  of  existing  products  to meet  the  variety  of the  needs  of the
customers for our dispensing technologies.  The Company maintains its philosophy
of using contractors as the primary source of research and development  efforts,
allowing  the  Company  to focus its  expenditures  on the  technical  expertise
necessary to accomplish the specific project.

         Operating income increased by 16% from $3,187,062 in 1997 to $3,686,781
in 1998. This increase resulted from the continuing  benefit of revenues derived
from machines deployed in prior periods, including machines which had been fully
depreciated, combined with ongoing machine sales and leases.

         Interest expense  increased by 30% from $747,008 in 1997 to $967,795 in
1998. The increase reflects the cost of additional  borrowings to finance leased
equipment built and deployed in 1998,  partially  offset by lower interest rates
resulting from utilization of the LIBOR option in our loan agreement.

         Income taxes  increased by 11% from  $988,400 in 1997 to  $1,096,673 in
1998 as a result of an increase in income before taxes of 11%.

         As a result of the above factors, the Company's net income increased by
12% from $1,451,654 in 1997 to $1,622,313 in 1998.


Liquidity and Capital Resources

     Net cash provided by operating  activities  increased 1% from $7,435,079 in
1998 to $7,519,552 in 1999. Net cash used in investing  activities increased 24%
from  $9,735,516 in 1998 to  $12,063,408 in 1999. Net cash provided by financing
activities increased by 112% from $2,187,370 in 1998 to $4,646,353 in 1999.

     The Company's  liquidity and capital  resources  continue to be impacted by
its  decision to use  leasing as a means to market its ITVMs and PCDMs.  Leasing
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, 1999, the Company had a total of 9,356 ITVMs and PCDMs
under operating and sales type leases.

         At December 31, 1998 and 1999, the Company had working capital deficits
of  $7,466,831  and  $9,440,256   respectively.   These  deficits   reflect  the
classification of the Company's  revolving credit facility as a current debt due
to the revolver clause of the facility.

         At December 31, 1999,  the Company was indebted to Mercantile  Business
Credit, Inc. (MBC) in the aggregate principal amount of $16,005,029  pursuant to
a revolving credit  agreement  entered into as of October 29, 1997. The facility
permits the Company to borrow through October 2000, with two one-year extensions
to October 2002, up to  $25,000,000 at the prime interest rate or the respective
LIBOR rate plus two percent.  Borrowings under this facility are  collateralized
by all of the  assets of the  Company  and  assignment  of  proceeds  from lease
agreements.  At December 31, 1999,  the Company had $8,994,971  available  under
this agreement.


                                      -18-
<PAGE>
         At December 31, 1999, the Company also was indebted to two stockholders
in  the  aggregate   principal  amount  of  $286,698  incurred  to  finance  the
manufacture of ITVMs. See Note 6 of Notes to Financial Statements.

         The Company's capital  expenditures  totaled $9,735,516 and $12,063,408
for  1998  and  1999,   respectively.   These  amounts  include  $9,611,623  and
$11,985,736  for the  manufacture  of  machines  leased  during  the  respective
periods. Other expenditures represent machinery and equipment costs for expanded
office capacity.

         The  Company  had  no  material   commitments  for  additional  capital
expenditures as of December 31, 1999 other than for the manufacture of ITVMs and
PCDMs for future lease.

         At December 31, 1999,  the Company had estimated tax net operating loss
carryforwards  of approximately  $859,400,  which are available to offset future
federal taxable income, if any, through 2009. The use of these  carryforwards is
subject to certain annual limitations due to ownership changes in 1992.


Special Note Regarding Forward-looking Statements

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


The following risk factors apply to Interlott and its business:

         We may  experience  fluctuations  in our  financial  results  and, as a
result, our stock price.

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

     o    our dependence on a small number of major customers;
     o    relatively long sales cycles;
     o    the unpredictable timing and amount of contracts awarded by state
          lotteries  and  telephone  companies;
     o    the  extended  time between the award of a contract and the receipt of
          revenues from the sale or lease of ITVMs and PCDMs;
     o    changes in customer budgets; and
     o    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, 1999, 30 states,
the District of Columbia  and eight  international  jurisdictions  used ITVMs as
part of their instant ticket distribution  system. We leased or sold ITVMs in 23
of those states, the District of Columbia and in eight international


                                      -19-
<PAGE>

jurisdictions.  Similarly,  the use of PCDMs  to  distribute  prepaid  telephone
calling cards has grown  significantly  in the last few years.  We have marketed
PCDMs since 1995,  and as of December 31, 1999, we had sold or leased 851 PCDMs.
However,  the popularity of instant lottery games and prepaid  telephone calling
cards and the demand for ITVMs and PCDMs may not continue  and, as a result,  we
may not be able to successfully market and sell our products. Although the total
dollar  amount of  instant  ticket  sales  continues  to  increase,  the rate of
increase has declined from 23.7% to .4% for the lottery  industry's  fiscal year
ended June 30, 1992 through June 30, 1999. It is important but not critical that
we develop  relationships with additional  lotteries and telephone companies and
that additional states authorize instant lotteries.

         We depend on large contracts from a limited number of ITVM customers.

         We have  traditionally  derived a  significant  portion of our revenues
from a limited number of state lottery authorities or their  representatives for
the lease, sale or service of ITVMs. In particular, during 1999, a contract with
the Ohio Lottery  accounted  for 18% of our total  revenues and 24% of our lease
revenue. Additionally, a contract with the New York Lottery accounted for 38% of
our machine sales revenues and 13% of our total revenue in 1999,  This can cause
our revenues and earnings to fluctuate  between  quarters based on the timing of
orders and realization of revenues from these orders. Further, none of our large
customers has any obligation to lease or purchase additional machines from us. A
loss of any of these large contracts could have a material adverse effect on our
business, financial condition and results of operations.

         We may not be  successful  in  protecting  our  proprietary  rights  or
avoiding claims that we infringe the proprietary rights of others.

         We principally rely upon patent, copyright,  trademark and trade secret
laws,  license agreements and employee  nondisclosure  agreements to protect our
proprietary rights and technology. These laws and contractual provisions provide
only limited  protection.  Our success depends largely on our burster technology
that is protected  by a patent that expires on December 31, 2007.  Additionally,
we have four other patents and one pending  patent  application  with the United
States Patent and Trademark  Office. 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:

     o    use leading technologies effectively;
     o    continue developing our technical expertise;
     o    enhance our existing products and services; and
     o    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

                                      -20-
<PAGE>
contracts  typically  require us to  indemnify  the  lottery,  its  officers and
retailers  for any  liabilities  arising from the  operation of the ITVMs or any
services  that  we  provide.   These  provisions  present  an  ongoing  risk  of
significant  damage  assessments  or contract  terminations,  which could have a
material  adverse  effect on our  business,  financial  condition and results of
operation.

     A single  stockholder  controls  a  majority  of our  stock  and can  exert
significant influence over our corporate matters.

     As of December 31, 1999, Mr. L. Roger Wells, Jr.  beneficially  owned 53.3%
of the outstanding common stock. As a result, Mr. Wells can control the election
of directors and the outcome of certain corporate actions requiring  stockholder
approval. This concentration of ownership in a single stockholder also can delay
or prevent a change of control.

     Our ITVM lease contracts may result in losses.

     Our ITVM lease revenues as a percentage of our total revenues were 67.3% in
1997, 57.9% in 1998 and 75.7% in 1999. Our standard lease agreements provide for
fixed  lease  payments  during  the term of the  agreement  and some  permit the
lottery to order  additional  ITVMs at any time during the lease term. If one of
these  lotteries were to order a large number of ITVMs near the end of the lease
term,  we would incur  significant  manufacturing  costs but might receive lease
payments for only a relatively short period of time through the remainder of the
lease  term.  Additionally,  we are  unable  to pass  along to the  lottery  any
increases  in  manufacturing  and  service  costs  during  the term of the lease
agreement.  Our standard lease agreements provide for a short initial term, such
as one year,  with an  option  for the  lottery  to  extend  the lease  term for
additional  one-year  periods.  If the lottery does not extend the initial lease
term, we might incur a loss on the  manufacture of the ITVMs if we are unable to
re-lease or sell the ITVM.

     The ITVM and PCDM markets are very competitive.

     The ITVM and PCDM  markets  are markets  that have grown  rapidly in recent
years.  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 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.

     We may  not be able  to  retain  our key  executives  and  engineering  and
marketing personnel.

     As a small company with only 190  employees,  our success  depends in large
part on the continued service of our key management,  sales, product development
and operational personnel, including Mr. L. Rogers Wells, Jr., our Chairman, and
David F. Nichols, our President and Chief Executive Officer. We do not currently
have employment  agreements with any of our employees.  Our success also depends


                                      -21-

<PAGE>
on our  ability to attract  and retain  additional  personnel  with a variety of
skills,  especially  engineering and marketing expertise.  Our inability to hire
and retain  qualified  personnel would likely have a material  adverse effect on
our current business,  any new product  development  efforts and future business
prospects.

         The  success  of  our  international  operations  is  subject  to  many
uncertainties.

         In each of 1998 and  1999,  our  sales  and  leases  of ITVMs and PCDMs
outside the United  States  represented  an  immaterial  percentage of our total
revenues.  However, we are increasing our marketing  activities in international
jurisdictions, including expansion into several countries. Our ability to expand
our  business  into  international  markets  may be  adversely  affected  by the
following:

     o    customizing our products for use in international countries;
     o    longer accounts receivable payment cycles;
     o    difficulties in managing international operations;
     o    availability  of  trained  personnel  to  install  and  implement  our
          systems;
     o    exchange rate fluctuations;
     o    political instability;
     o    tariffs and other trade barriers;
     o    potentially adverse tax obligations;
     o    restrictions on the repatriation of earnings;
     o    the burdens of complying with a wide variety of international laws and
          regulations; and
     o    the risk that our  intellectual  property rights will not be protected
          to as great an extent as in the United States.

         These factors could have a material adverse effect on our international
revenues and earnings and our overall financial performance.


         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.

         Future sales of our common stock in the public  market could  adversely
affect our stock price and our ability to raise funds in new stock offerings.

     The  market  price of our common  stock  could drop as a result of sales of
large numbers of shares in the market,  or the perception  that such sales could
occur.  This  is  particularly  true  due  to our  relatively  small  number  of
stockholders  and the  resulting  low trading  volume of our common stock in the
public  market.  All  outstanding  shares of our common  stock either are freely
tradeable  without  restriction  or may be sold in  accordance  with the  volume
limitations of Rule 144 of the Securities Act of 1933.  These factors also could
make it more  difficult  for us to raise funds  through  future  offerings.  Our
principal  stockholder,  Mr. L. Rogers Wells, Jr., owns a majority of our common
stock.


         Our forward looking statements may be incorrect.

         Some of the  statements in this report are forward  looking  statements
about what may happen in the  future.  They  include  statements  regarding  our
current beliefs, plans, expectations and assumptions about matters such as our


                                      -22-
<PAGE>

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  above. We cannot guarantee that our forward looking
statements will turn out to be correct or that our beliefs, plans,  expectations
and assumptions will not change. Our actual results could be very different from
and worse than our expectations as expressed in our forward looking statements.

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

         Not applicable.

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 sheet of Interlott  Technologies,  Inc.
as of December 31, 1999,  and the related  statements  of income,  stockholders'
equity, and cash flows for the year 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  audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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, 1999,  and the results of its  operations and its cash flows for
the  year  then  ended,  in  conformity  with  generally   accepted   accounting
principles.

/s/ Grant Thornton LLP

Cincinnati, Ohio
February 7, 2000



                          Independent Auditors' Report


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

We have audited the balance sheet of Interlott Technologies, Inc. as of December
31, 1998, and the related statements of income,  stockholders'  equity (deficit)
and cash flows for each of the years in the two-year  period ended  December 31,
1998. In connection  with our audits of the financial  statements,  we also have
audited the related financial  statement  schedule as listed in the accompanying
index.  These  financial  statements  and financial  statement  schedule are the
resposibility of the Company's  management.  Our responsibility is to express an
opinion on these financial  statements and financial statement schedule based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Interlott Technologies, Inc. as
of December 31, 1998,  and the results of its  operations and its cash flows for
each of the years in the two-year  period ended December 31, 1998, in conformity
with generally accepted accounting principles.  Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole,  presents  fairly,  in all material  respects,  the
information set forth therein.


/s/ KMPG LLP


Cincinnati, Ohio
February 26, 1999


                                      -23-
<PAGE>


                          INTERLOTT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>

                                 Balance Sheets

                           December 31, 1998 and 1999

                                                                                          1998                1999
                                                                                    -----------------    ----------------
<S>                                                                                          <C>                   <C>
Assets
Current assets:
    Cash                                                                                 $    30,004             132,501
    Accounts receivable, less allowance for doubtful accounts
      of $153,501 in 1998 and $158,793 in 1999                                             2,816,589           3,305,486
    Investment in sales type leases, current portion                                         888,627           1,251,144
    Inventories                                                                            3,129,959           5,214,106
    Prepaid expenses                                                                          82,105             267,838
-------------------------------------------------------------------------------------------------------------------------
             Total current assets                                                          6,947,284          10,171,075
-------------------------------------------------------------------------------------------------------------------------
Property and equipment:
    Leased machines                                                                       29,484,623          35,244,923
    Machinery and equipment                                                                  631,111             610,968
    Building and leasehold improvements                                                      271,433             202,441
    Furniture and fixtures                                                                   130,950              60,237
-------------------------------------------------------------------------------------------------------------------------
                                                                                          30,518,117          36,118,569
    Less accumulated depreciation and amortization                                       (12,970,895)        (14,301,656)
-------------------------------------------------------------------------------------------------------------------------
             Net property and equipment                                                   17,547,222          21,816,913
-------------------------------------------------------------------------------------------------------------------------
Investment in sales type leases, less current portion                                      3,766,408           3,775,876
Product development rights, net of accumulated amortization of
    $586,665 in 1998 and $659,997 in 1999                                                    513,335             440,003
-------------------------------------------------------------------------------------------------------------------------
                                                                                         $28,774,249          36,203,867
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to financial statements.




















                                  -24-

<PAGE>
                          INTERLOTT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>

                            Balance Sheets, Continued

                           December 31, 1998 and 1999


                                                                                  1998               1999
                                                                             ---------------    ---------------
<S>                                                                                  <C>                 <C>
Liabilities and Stockholders' Equity
Current liabilities:
    Notes payable to financial institutions                                     $11,166,374         16,005,029
    Current portion of notes payable - related parties                              192,302            286,698
    Accounts payable                                                              1,479,831          1,781,884
    Accounts payable - related parties                                              215,734            179,469
    Accrued expenses                                                              1,111,416          1,358,253
    Income taxes payable                                                            248,458                -
---------------------------------------------------------------------------------------------------------------
             Total current liabilities                                           14,414,115         19,611,333
---------------------------------------------------------------------------------------------------------------
Notes payable - related parties, excluding current portion                          286,698                -
Deferred income taxes                                                               121,900            570,700
---------------------------------------------------------------------------------------------------------------
             Total liabilities                                                   14,822,713         20,182,033
---------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities
---------------------------------------------------------------------------------------------------------------
Series  A  redeemable  preferred  stock,  $.01  par  value;   20,000,000  shares
    authorized, 1,335,000 shares issued and
    outstanding                                                                   1,335,000          1,335,000
---------------------------------------------------------------------------------------------------------------
Stockholders' equity:
    Common stock, $.01 par value; 20,000,000 shares authorized,
       3,210,000 shares issued and outstanding in 1998 and 1999                      32,100             32,100
    Additional paid-in capital                                                   10,376,017         10,376,017
    Retained earnings                                                             2,208,419          4,278,717
---------------------------------------------------------------------------------------------------------------
             Total stockholders' equity                                          12,616,536         14,686,834
                                                                                 ----------         ----------
                                                                                $28,774,249         36,203,867
---------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to financial statements.










                                      -25-
<PAGE>
                          INTERLOTT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>

                              Statements of Income

                  Years Ended December 31, 1997, 1998 and 1999



                                                                         1997               1998               1999
                                                                    ---------------    ---------------    ---------------
<S>                                                                        <C>                 <C>                <C>
Revenues:
    Machine sales                                                      $ 4,567,441          8,229,950          3,311,874
    Machine leases                                                      12,874,450         14,165,379         16,901,911
    Other                                                                1,669,160          2,078,644          2,120,245
-------------------------------------------------------------------------------------------------------------------------
                                                                        19,111,051         24,473,973         22,334,030
-------------------------------------------------------------------------------------------------------------------------
Cost of revenues:
    Machine sales and other                                              4,378,669          5,809,057          1,466,153
    Machine leases                                                       7,508,261         10,310,565         12,580,788
-------------------------------------------------------------------------------------------------------------------------
                                                                        11,886,930         16,119,622         14,046,941
-------------------------------------------------------------------------------------------------------------------------
             Gross margin                                                7,224,121          8,354,351          8,287,089
-------------------------------------------------------------------------------------------------------------------------
Operating expenses:
    Selling, general and administrative expenses                         3,492,020          4,048,751          4,202,825
    Research and development costs                                         545,039            618,819            581,885
-------------------------------------------------------------------------------------------------------------------------
                                                                         4,037,059          4,667,570          4,784,710
-------------------------------------------------------------------------------------------------------------------------
             Operating income                                            3,187,062          3,686,781          3,502,379
-------------------------------------------------------------------------------------------------------------------------
Other income (expense)
    Interest expense                                                      (747,008)          (967,768)        (1,102,478)
    Other                                                                      -                  -              598,832
-------------------------------------------------------------------------------------------------------------------------
                                                                          (747,008)          (967,768)          (503,646)
-------------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item                        2,440,054          2,719,013          2,998,733
-------------------------------------------------------------------------------------------------------------------------
Income tax provision                                                       988,400          1,096,700          1,106,594
-------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item                                         1,451,654          1,622,313          1,892,139
-------------------------------------------------------------------------------------------------------------------------
Extraordinary item (less applicable income taxes of
    $109,195)                                                                  -                  -              178,159
-------------------------------------------------------------------------------------------------------------------------
             Net income                                                $ 1,451,654          1,622,313          2,070,298
-------------------------------------------------------------------------------------------------------------------------

Basic income per share before extraordinary item                             $0.45               0.51               0.59
-------------------------------------------------------------------------------------------------------------------------
Diluted income per share before extraordinary item                           $0.45               0.50               0.59
-------------------------------------------------------------------------------------------------------------------------
Basic and diluted extraordinary item per share                               $  -                  -                 0.06
-------------------------------------------------------------------------------------------------------------------------
Basic net income per share                                                   $0.45               0.51               0.65
-------------------------------------------------------------------------------------------------------------------------
Diluted net income per share                                                 $0.45               0.50               0.65
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.





                                      -26-

<PAGE>


                          INTERLOTT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>

                       Statements of Stockholders' Equity

                  Years ended December 31, 1997, 1998 and 1999


                                                Common Stock               Additional
                                         -------------------------          Paid-in              Retained
                                           Shares         Amount            Capital              Earnings              Total
                                         ----------      ---------         -----------          -----------         ------------
<S>                                          <C>             <C>                 <C>                 <C>                 <C>
Balances at December 31, 1996             3,210,000        $32,100         $10,376,017           $ (865,548)         $ 9,542,569
Net income                                  -              -                 -                    1,451,654            1,451,654
--------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997             3,210,000         32,100          10,376,017              586,106           10,994,223
Net income                                  -              -                 -                    1,622,313            1,622,313
--------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998             3,210,000         32,100          10,376,017            2,208,419           12,616,536
Net income                                  -              -                 -                    2,070,298            2,070,298
--------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1999             3,210,000        $32,100         $10,376,017           $4,278,717          $14,686,834
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to financial statements.


















                                      -27-
<PAGE>
                          INTERLOTT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
                            Statements of Cash Flows
                  Years ended December 31, 1997, 1998 and 1999

                                                                                1997                1998                 1999
                                                                             -----------          ----------           ---------
<S>                                                                             <C>                  <C>                 <C>
Cash flows from operating activities:
    Net income                                                                $1,451,654           1,622,313           2,070,298
    Adjustments to reconcile net income to net cash
       provided by operating activities:
          Net book value of equipment lost in involuntary conversion                 -                   -               113,563
          Depreciation and amortization                                        4,143,408           4,585,325           5,547,909
          Principal portion of sales type leases received                        164,194             557,116             909,184
          Deferred income taxes                                                  203,700             374,200             448,800
          Gain on sale of equipment under sales type lease                      (447,915)         (1,177,773)           (331,170)
          Decrease (increase) in accounts receivable                             298,927             101,503            (488,897)
          Decrease (increase) in inventories                                   1,035,052           1,110,268            (828,568)
          Decrease (increase) in prepaid expenses                                  6,804              32,345            (185,733)
          Increase in accounts payable                                           217,852             337,766             302,052
          Increase (decrease) in accounts payable - related parties               22,431            (113,226)            (36,265)
          Increase (decrease) in accrued expenses                                186,650            (142,766)            246,837
          (Decrease) increase in income taxes payable                             (1,300)            148,008            (248,458)
---------------------------------------------------------------------------------------------------------------------------------
                Net cash provided by operating activities                      7,281,457           7,435,079           7,519,552
---------------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
    Cost of leased machines                                                   (8,710,315)         (9,611,623)        (11,985,736)
    Purchases of property and equipment                                         (359,521)           (123,893)            (77,672)
---------------------------------------------------------------------------------------------------------------------------------
                Net cash used in investing activities                         (9,069,836)         (9,735,516)        (12,063,408)
---------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
    Increase in notes payable                                                  1,747,865           2,188,338           4,838,655
    Repayment of long-term debt                                                   (5,001)               (968)           (192,302)
                                                                               ---------           ---------           ----------
                Net cash provided by financing activities                      1,742,864           2,187,370           4,646,353
---------------------------------------------------------------------------------------------------------------------------------

(Decrease) increase in cash                                                      (45,515)           (113,067)            102,497
Cash at beginning of year                                                        188,586             143,071              30,004
---------------------------------------------------------------------------------------------------------------------------------
Cash at end of year                                                           $  143,071              30,004             132,501
---------------------------------------------------------------------------------------------------------------------------------

Supplemental disclosures of cash flow information:
    Interest paid                                                             $  671,515             902,252           1,216,285
    Income taxes paid                                                         $  631,610             526,807           1,104,789
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.









                                      -28-


<PAGE>


Notes to Financial Statements
Years ended December 31, 1997,  1998, 1999

(1)    Summary of Significant Accounting Policies

       (a)    Business Description

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

       (b)    Operating and Sales Type Leases

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

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

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

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

       (c)    Inventories

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

       (d)    Property and Equipment

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

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

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


                                      -29-

<PAGE>

       (e)    Product Development Rights

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

       (f)    Income Taxes

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

       (g)    Disclosure About Fair Value of Financial Instruments

              SFAS  No.   107,   Disclosure   About  Fair  Value  of   Financial
              Instruments,  defines the fair value of a financial  instrument as
              the amount at which the instrument could be exchanged in a current
              transaction  between willing  parties.  The carrying amounts as of
              December 31, 1999 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 and notes
              payable  -  related  parties   approximate  fair  value,  as  such
              borrowings  bear interest at the Company's  current rates for such
              types of instruments.

       (h)    Stock Incentive Plans

               On January 1, 1996, the Company adopted SFAS No. 123,  Accounting
               for Stock-Based Compensation, which permits entities to recognize
               compensation  expense  over the vesting  period 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.

       (i)    Warranty Costs

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

       (j)    Research and Development Costs

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


                                      -30-

<PAGE>

       (k)    Earnings Per Share

              Effective  December  31, 1997,  the Company  adopted SFAS No. 128,
              Earnings Per Share,  which  simplifies the standards for computing
              earnings per share.  There was no material impact on the Company's
              previously  reported  annual or interim period earnings per share,
              as a result of the  adoption.  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.

(2)    Investment in Sales Type Leases

       The Company  leases 200 instant ticket  vending  machines  (ITVMs) to one
       state lottery under a sales type lease that commenced in May 1997 and 775
       ITVMs to another state lottery under a sales type lease that commenced in
       May 1998.  The  components of the net  investment in sales type leases at
       December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>

                                                                                      1998                1999
<S>                                                                                  <C>                 <C>

       Minimum lease payments receivable                                        $6,134,450          $6,306,800
       Less unearned revenue on lease payments receivable                        1,479,415           1,279,780
                                                                                 ---------           ---------
                                                                                 4,655,035           5,027,020
       Less current portion                                                        888,627           1,251,144
                                                                                 ---------           ---------

       Investment in sales type leases, less current portion                    $3,766,408          $3,775,876
                                                                                 =========           =========
</TABLE>

















                                      -31-
<PAGE>


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

       Years ending December 31,
             2000                                               $1,820,400
             2001                                                1,820,400
             2002                                                1,535,600
             2003                                                  838,650
             2004                                                  291,750
                                                                ----------

                                                                $6,306,800
                                                                 =========

(3)    Inventories

       Inventories at December 31, 1998 and 1999 consist of the following:
<TABLE>
<CAPTION>

                                                                  1998                1999
<S>                                                              <C>                 <C>
       Finished goods                                       $1,528,656          $1,350,719
       Work in process                                         302,766             376,243
       Raw materials and supplies                            1,298,537           3,487,144
                                                             ---------           ---------

                                                            $3,129,959          $5,214,106
                                                             =========           =========
</TABLE>


(4)    Leased Machines

       At December 31, 1998 and 1999,  the Company  leased 7,027 and 8,246 ITVMS
       to 14 and 16 state lotteries,  respectively,  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  includes
       estimated residual values, at December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>


                                                             1998                1999
<S>                                                         <C>                      <C>
       Leased machines                                    $29,484,623         $35,244,923
       Less accumulated depreciation                       12,378,732          13,695,523
                                                           ----------          ----------

                                                          $17,105,891         $21,549,400
                                                           ==========          ==========
</TABLE>


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

       December 31,
             2000                                         $14,171,372
             2001                                           6,584,092
             2002                                           2,781,412
             2003                                             437,500
                                                         ------------

                                                          $23,974,376
                                                           ==========

(5)    Notes Payable to financial institutions

       In October 1997,  the Company  entered into a revolving  credit  facility
       with a financial institution that permitted the Company to borrow through

                                      -32-

<PAGE>
       October  2000 up to  $15,000,000  at the prime  interest  rate  (8.50% at
       December 31,  1999).  Initial  proceeds from the note were used to retire
       the  prior   revolving   credit   facility.   In  conjunction   with  the
       establishment  of  the  facility,   the  Company  opened  a  lockbox  and
       controlled  disbursement  account  with the bank parent of the  financial
       institution.  All lockbox  receipts are recorded as payments  against the
       facility,  and  presented  checks are recorded as draws on the  facility.
       Borrowings under this credit facility are collateralized by all assets of
       the Company and assignment of proceeds from lease agreements.  In October
       1999,   this  facility  was  amended  to  permit   borrowings  of  up  to
       $25,000,000. At December 31, 1998 and 1999, the Company had borrowings of
       $11,166,374 and  $16,005,029  outstanding  with additional  borrowings of
       $3,833,626 and $8,994,971 available under the facility, respectively.

(6)    Notes Payable - Related Parties

          The  Company has the  following  notes  payable to related  parties at
          December 31, 1998 and 1999:

<TABLE>
<CAPTION>

                                                                                      1998                1999
<S>                                                                                    <C>                 <C>
 Note payable to a stockholder,  in the initial  principal amount of
 $400,000,   due  in  annual  installments  limited  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.  Any  required  payment  is due on the  first  business
 day of the fourth  month  following  the close of the fiscal  year.
 The note bears  interest at the prime rate of Chase  Manhattan Bank
 of New York (8.50% at December 31, 1999).  The note is unsecured.                $400,000            $207,698

 Note payable to a stockholder, in the original amount of $79,000, due and
 limited 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.  The payments shall begin on the first business day
 of the  fourth  month  of the  Company's  fiscal  year,  for  income  tax
 purposes, immediately following payment in full of principal and interest
 due by the Company to a stockholder  in the amount of $400,000.  The note
 does not provide for any interest and is unsecured.                                79,000              79,000
                                                                                   -------             -------
                                                                                   479,000             286,698
 Less current portion                                                              192,302             286,698
                                                                                   -------             -------

                                                                                  $286,698           $      -
                                                                                   =======            ========
</TABLE>

















                                      -33-
<PAGE>


(7)    Additional Financial Instrument

       The Company has entered into an interest rate swap agreement with a total
       notional  principal  amount of  $10,000,000  at December 31, 1999,  which
       expires on November 7, 2002. The objective of the agreement 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 agreement
       was approximately $176,000 at December 31, 1999. The estimated fair value
       is based upon appropriate  market information and projected interest rate
       changes obtained from a reputable institution.

(8)    Income Taxes

       Income tax expense is summarized as follows:
<TABLE>
<CAPTION>

                                                            Year ended December 31,
                                                       --------------------------------
                                                   1997               1998                1999
<S>                                               <S>                 <C>                 <C>
       Current:
         Federal                               $557,400        $   566,000         $   612,400
         State and local                        156,000            156,500             154,600

       Deferred:
         Federal                                275,000            374,200             448,800
                                                -------          ---------           ---------

                                               $988,400         $1,096,700          $1,215,800
                                                =======          =========           =========
</TABLE>

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

                                                                   1997               1998                1999
<S>                                                              <C>                 <C>                 <C>
       Federal income tax expense at the statutory rate        $830,000         $  924,400          $1,117,300
       Non-deductible lobbyist expenses                              -                  -                3,200
       Officers life insurance                                       -                  -                8,000
       Amortization of product development rights                25,000             25,000              25,000
       State and local taxes, net of federal benefit            103,000            103,300             102,000
       Other                                                     30,400             44,000             (39,700)
                                                                -------          ---------           ---------

                                                               $988,400         $1,096,700          $1,215,800
                                                                =======          =========           =========
</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, 1998 and 1999 are presented below:
<TABLE>
<CAPTION>

                                                                                      1998                1999
<S>                                                                                  <C>                 <C>
       Deferred tax assets:
         Bad debt allowance                                                      $  52,200         $    54,000
         Warranty costs                                                             10,100               1,200
         Net operating loss carryforwards                                          347,100             292,200
         Inventory valuation reserve                                               317,300             249,600
         Other, net                                                                     -               52,600
                                                                                   -------           ---------

            Total gross deferred tax assets                                       $726,700          $  649,600
                                                                                   =======           =========

       Deferred tax liabilities:
         Property and equipment, principally due to
           differences in depreciation                                            $537,800          $  987,800
         Investment in sales type leases                                           310,800             134,800
         Involuntary conversion of assets                                               -               97,700
                                                                                   -------           ---------
            Total gross deferred tax liabilities                                   848,600           1,220,300
                                                                                   -------           ---------
            Net deferred tax liabilities                                         $(121,900)         $ (570,700)
                                                                                   =======           =========
</TABLE>



                                      -34-
<PAGE>

       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, 1999,  the Company has net operating  loss  carryforwards
       for Federal  income tax  purposes of  approximately  $859,400,  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.

(9)    Redeemable Preferred Stock

       The Company's  preferred stock is  nonparticipating  and has no rights to
       dividends. The holders of the preferred stock are entitled to sell to the
       Company all of their  shares of  preferred  stock at a price of $1.00 per
       share upon (i) the  reporting  by the Company of retained  earnings of at
       least  $1,000,000   determined  in  accordance  with  generally  accepted
       accounting  principles  and (ii) the  payment in full by the Company of a
       promissory  note in the original  amount of $400,000 to a related  party.
       Due  to the  redemption  feature  of the  preferred  stock,  it has  been
       classified  separately from stockholders' equity in the Company's balance
       sheet.

       The Company may, at its discretion, redeem all or part of the outstanding
       preferred stock at any time. The redemption price for the preferred stock
       is $1.00 per share  and payment  may be made in the form of a  promissory
       note.

(10)   Stock Incentive Plans

       The  Company's  1994  Stock  Incentive  Plan  and 1994  Directors'  Stock
       Incentive Plan  (collectively,  the Plans) provide for the issuance of up
       to 260,000  shares of common  stock to  officers  and  employees  of, and
       advisers,  consultants  and other  supporters  of the  Company  and up to
       60,000  shares of common stock to  nonemployee  directors of the Company.
       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.





                                      -35-

<PAGE>
       A  summary  of the  status  of the  Company's  stock  option  plans as of
       December 31, 1997,  1998, and 1999 and the changes  therein for the years
       then ended is presented below:
<TABLE>
<CAPTION>

                                                 1997                         1998                         1999
                                                      Weighted                     Weighted                     Weighted
                                                      Average                       Average                     Average
                                                      Exercise                     Exercise                     Exercise
                                        Shares         Price         Shares          Price        Shares         Price

<S>                                        <C>         <C>            <C>             <C>           <C>             <C>
Outstanding at beginning of year         147,225       $ 9.38        180,875         $ 9.12      212,175          $8.65
Granted                                   37,000         8.00         36,300           6.75       57,750           5.18
Exercised                                  -              -              -              -            -              -
Forfeited                                  3,350        11.50          5,000          11.50       13,375           9.15
Outstanding at end of year               180,875         9.12        212,175           8.65      256,550           7.81
Options exercisable at year-end           79,660         9.77        120,794           9.48      152,081           8.95
Weighted-average fair value of
  options granted during the year                       $ 5.82                       $ 5.16                       $5.18
                                                         =====                        =====                        ====
</TABLE>

       Had compensation cost for options granted during 1997, 1998 and 1999 been
       determined  consistent  with the fair value  methodology of SFAS No. 123,
       the  Company's  net income and earnings per share would have been reduced
       to the pro forma amounts presented below:
<TABLE>
<CAPTION>

                                                                   1997                1998               1999
<S>                                               <C>                <C>                <C>                 <C>
       Net income                               As reported      $1,451,654          $1,622,313         $2,070,298
                                                Pro forma         1,324,003           1,512,186          2,054,057
       Basic and diluted earnings per share     As reported             .45                 .51                .65
                                                Pro forma               .41                 .47                .64
                                                                  =========          ==========          =========
</TABLE>

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

       The fair value of options granted during 1997, 1998 and 1999 for purposes
       of the accompanying pro forma  disclosures is estimated on the grant date
       using  the   Black-Scholes   option-pricing   model  with  the  following
       weighted-average  assumptions:  no  dividends  paid,  as it has  been the
       Company's policy not to declare or pay dividends since its initial public
       offering in 1994 and the Company does not anticipate  paying dividends in
       the  foreseeable  future;  expected  volatility  of  56%,  65%  and  43%,
       respectively,  based on the calculated  volatility of the Company's stock
       since its initial public  offering;  risk-free  rates of return of 5.86%,
       4.93% and 4.83%, respectively; and expected lives of 10 years.






                                      -36-


<PAGE>
       Information  about stock options  outstanding  at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>

                                      Options Outstanding                     Options Exercisable
                         -----------------------------------------------  -----------------------------
                                           Weighted-
                                            Average        Weighted-                       Weighted-
                                           Remaining        Average                         Average
      Range of              Number        Contractual       Exercise         Number         Exercise
  Exercise Prices         Outstanding        Life            Price         Exercisable       Price
---------------------    --------------  --------------  ---------------  --------------  -------------
<S>                            <C>             <C>               <C>            <C>            <C>
$4.81 - 8.63                   215,350            7.47         $ 7.15         112,900        $ 8.15
$10.13 - 11.50                  41,200            4.59          11.43          39,181         11.32
                               -------            ----          -----         -------         -----
                               256,550            7.26         $ 8.65         152,081        $ 9.49
                               =======            ====          =====         =======         =====

</TABLE>

(11)   Earnings Per Share

<TABLE>
<CAPTION>
                                                                         Net                                     Per
                                                                       Earnings            Shares               Share
1997                                                                 (Numerator)        (Denominator)          Amount
                                                                    ---------------   ------------------   ---------------
<S>                                                                        <C>                 <C>                 <C>
       Basic earnings per share:
          Net earnings available to common stockholders                 $1,451,654         3,210,000               $0.45

       Diluted earnings per share:
          Effect of dilutive securities stock options                                          2,661
          Earnings available to common stockholders
             and assumed conversions                                     1,451,654         3,212,661                0.45
1998
       Basic earnings per share:
          Net earnings available to common stockholders                  1,622,313         3,210,000                0.51

       Diluted earnings per share:
          Effect of dilutive securities stock options                                         10,649
          Earnings available to common stockholders
             and assumed conversions                                     1,622,313         3,220,649                0.50
1999
       Basic earnings per share:
          Net earnings available to common stockholders                  2,070,298         3,210,000                0.65

       Diluted earnings per share:
          Effect of dilutive securities stock options                                            903
          Earnings available to common stockholders
             and assumed conversions                                     2,070,298         3,210,903                0.65
</TABLE>

       Options to purchase  129,725,  52,475 and 223,025  shares of common stock
       were  outstanding  in 1997,  1998 and  1999,  respectively,  but were not
       included in the  computation  of diluted  earnings per share  because the
       options'  exercise  prices were greater than the average  market price of
       common shares.


                                      -37-
<PAGE>

(12)   Noncash Investing Activities

       Leased  machines with net book values of $442,897 in 1998 and  $1,255,578
       in  1999,  were  returned  to  the  Company's   inventories   upon  lease
       expirations.  The Company used parts from these returned  machines in the
       manufacturing of certified new machines, a portion of which were deployed
       in the current year under new leases.

(13)   Related Party Transactions

       Accounts  payable - related  parties of $215,734 and $179,469 at December
       31, 1998 and 1999,  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,  1997,  1998 and
       1999, respectively.

       The entity owned by a director  supplies  the Company with certain  parts
       for its  dispensing  mechanisms.  In addition,  on January 13, 1994,  the
       Company  entered into a  manufacturing  and license  agreement  with this
       entity  pursuant to which the Company  purchased an exclusive  license to
       make, use and sell pull-tab lottery ticket dispensing mechanisms produced
       by this  entity.  The Company had  purchases  from this entity which were
       charged to cost of revenues of approximately  $2,996,000,  $3,800,887 and
       $4,116,674  for the  years  ended  December  31,  1997,  1998  and  1999,
       respectively.

       Interest expense arising from notes  payable-related  parties amounted to
       $33,714,  $33,401 and $20,275 for the years ended December 31, 1997, 1998
       and 1999, respectively.

(14)   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. For
       the years ended December 31, 1997, 1998 and 1999, one customer  generated
       29%,  24% and  24%,  respectively,  of the  machine  lease  revenues.  In
       addition,  single  state  contracts  generated  32%,  48%  and 38% of the
       machine sales  revenues for the years ended  December 31, 1997,  1998 and
       1999,  respectively.  Future  revenue  from  machine  sales and leases is
       dependent upon winning awards in a competitive bidding process.

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

(15)   Lease Commitments

       The  Company  leases  its  office  and  manufacturing   facilities  under
       noncancelable  operating leases. The leases expired on December 31, 1999,
       and are now on a month-to-moth  basis requiring lease payments of $14,355
       per month. Total rent expense under these leases  approximated  $141,000,
       $210,000  and $179,000  for the years ended  December 31, 1997,  1998 and
       1999, respectively.



                                      -38-
<PAGE>

       The Company is currently negotiating a lease on a new, 52,500 square foot
       facility in Mason,  Ohio,  which will allow for the  consolidation of all
       operations into one facility.


(16)   Commitments and Contingent Liabilities

       As of  December  31,  1999,  the Company  had  outstanding  approximately
       $11,154,895 in purchase  commitments  for raw materials which are used in
       the manufacturing of instant ticket vending machines.  Management intends
       to utilize these commitments as machines are produced.

(17)   Other Income and Extraordinary Item

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

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



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

     The  information  required by this item has been  reported in the Company's
Current Report on Form 8-K, Date of Report:  October 4, 1999,  filed October 12,
1999.

                                    PART III

         Except as set forth  below,  the  information  required by this Part is
incorporated by reference from the definitive  Proxy  Statement,  filed or to be
filed with  Securities  and Exchange  Commission,  for the Company's 2000 Annual
Meeting of Stockholders.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The  executive  officers  of the  Company  (at March  29,  2000) are as
follows:

Name                       Age            Title

L. Rogers Wells            62             Chairman of the Board

David F. Nichols           38             President and Chief Executive Officer

Thomas W. Stokes           36             Chief Operating Officer

Dennis W. Blazer           52             Chief Financial Officer

Information  about Messrs.  Wells and Nichols is  incorporated by reference from
the Company's definitive Proxy Statement for the 2000 Annual Meeting.

     Thomas W.  Stokes,  age 36, has been Chief  Operating  Officer  since March
2000. Mr. Stokes served as the Company's Vice President of Operations  since May
1997, as Director of Operations  from January 1996 to May 1997 and as Purchasing
Manager from March 1993 to December  1995.  From 1988 to 1992, he served as unit
controller for a food management company.


                                      -39-
<PAGE>

     Dennis W. Blazer,  age 52, has been Chief Financial  Officer of the Company
since  July  1998.  From  December  1973 to July  1998,  he  served  in  various
capacities for The Plastic Moldings Corporation, most recently as Vice President
of Finance and  Administration.  Mr. Blazer  previously served as an auditor and
tax consultant with Ernst & Ernst, certified public accountants. Mr. Blazer is a
certified public accountant.

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


                                     PART IV

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


(a)  Documents Filed as Part of This Report.

         1.   Financial Statements

               Independent Auditors' Report of Grant Thornton LLP

               Independent Auditors' Report of KPMG LLP

               Balance Sheets at December 31, 1998 and 1999

               Statements  of  Income  for each of the  years in the
               three-year period ended December 31, 1999.

               Statements  of  Stockholders'  Equity for each of the
               years in the three-year period ended 31, 1999.

               Statements of Cash Flows for each of the years in the
               three year period ended December 31, 1999.

              Notes to Financial Statements

        2.   Financial Statement Schedules

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

                 Schedule II - Valuation and Qualifying Accounts

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

        3.   Exhibits

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

(b)  Reports on Form 8-K. Current Report on Form 8-K, Date of Report: October 4,
     1999, October 12, 1999 (Items 4 and 7)






                                      -40-
<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 29, 2000.

                                               Interlott Technologies, Inc.
                                               (Registrant)


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


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated on March 29, 2000.
<TABLE>
<CAPTION>

                 Signature                                           Title
<S>                                                                   <C>

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


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


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


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


Kazmier J. Kasper *                                          Director
-----------------------------------------------------
Kazmier J. Kasper


H. Jean Marshall *                                           Director
-----------------------------------------------------
H. Jean Marshall


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




                                      -41-
<PAGE>


                     INDEX OF FINANCIAL STATEMENT SCHEDULES

                                                                          Page

Report of Independent Certified Public Accountants on Schedule ............S-2

Schedule II - Valuation and Qualifying Accounts ...........................S-3











































                                      S-1
<PAGE>

               Report of Independent Certified Public Accountants
                                  on Schedule



Board of Directors and Stockholders
Interlott Technologies, Inc.


     In  connection  with our audit of the  financial  statements  of  Interlott
Technologies,  Inc.  referred to in our report dated February 7, 2000,  which is
included  in the annual  report to security  holders and  included in Part II of
this form,  we have also  audited  Schedule II for the year ended  December  31,
1999. In our opinion,  this schedule presents fairly, in all material  respects,
the information required to be set forth therein.



/s/GRANT THORNTON LLP



Cincinnati, Ohio
February 7, 2000




















                                      S-2


<PAGE>

                          INTERLOTT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>

                 Schedule II - Valuation and Qualifying Accounts




Column A                    Column B                     Column C                     Column D          Column E
----------------------- ----------------- --------------------------------------- ----------------- ------------------

                                                        Additions
Description                Balance at         Charged to          Charged to         Deductions        Balance at
                           Beginning          Costs and             Other                                  End
                           of Period           Expenses            Accounts                             of Period
----------------------- ----------------- ------------------- ------------------- ----------------- ------------------
<S>                           <C>                 <C>                 <C>              <C>                <C>
Allowance for
doubtful accounts

1997                     $  115,425            $ 52,500               $0              $ 74,424         $   93,501
-----------------------------------------------------------------------------------------------------------------
1998                         93,501              60,000                0                     0            153,501
-----------------------------------------------------------------------------------------------------------------
1999                        153,501              96,000                0                90,708            158,793
-----------------------------------------------------------------------------------------------------------------

Inventory
valuation reserve

1997                        275,000                   0                0                     0            275,000
-----------------------------------------------------------------------------------------------------------------
1998                        275,000             933,110                0                     0          1,208,110
-----------------------------------------------------------------------------------------------------------------
1999                     $1,208,110            $305,000               $0              $512,824         $1,000,286
-----------------------------------------------------------------------------------------------------------------
</TABLE>




















                                      S-3
<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.
<TABLE>
<CAPTION>

Exhibit No.                              Description
<S>                                          <C>
3.1                   Certificate of Incorporation of the Company,  as  amended,
                      including Certificate of Designation of Series A Preferred
                      Stock (Exhibit 3.1 to the Company's Registration Statement
                      on Form S-1, No. 33-75142).

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

4.1                   Promissory Note of the Company dated September 22, 1992 to
                      Baumgartner & Brucher  Radiology  Associates,  Inc. Profit
                      Sharing  Plan  for  the  benefit of  Thomas E. Turek, M.D.
                      (Exhibit  4.2  to  the  Company's  Registration  Statement
                      on Form S-1, No. 33-75142).

4.2                   Promissory  Note  of  the Company dated September 22, 1990
                      to  Mr.  Thomas  Goila   (Exhibit  4.3  to  the  Company's
                      Registration Statement on Form S-1, No. 33-75142).

4.3                   Loan Agreement dated  October 29, 1997 between the Company
                      and Mercantile  Business  Credit, Inc. (Exhibit 4.3 to the
                      Company's  Annual  Report on  Form 10-K for the year ended
                      December 31, 1997).

4.3(a)                Revolving  Credit  Note dated  October  29,  1997  between
                      the   Company  and    Mercantile   Business  Credit,  Inc.
                      (Exhibit  4.3(a)  to  the  Company's Annual Report on Form
                      10-K for the year ended December 31, 1997).

4.3(b)                Security  Agreement  dated  October 29, 1997  between  the
                      Company  and  Mercantile  Business  Credit,  Inc. (Exhibit
                      4.3 (b)  to  the  Company's Annual Report on Form 10-K for
                      the year ended December 31, 1997).

4.3(c)                Patent, Trademark  and License  Security  Agreement  dated
                      October  29, 1997   between  the  Company  and  Mercantile
                      Business  Credit,  Inc.  (Exhibit 4.3 (c) to the Company's
                      Annual Report on Form 10-K for the year ended December 31,
                      1997).

4.3(d)                First Amendment to the Loan Agreement  dated  October  29,
                      1998  between  the Company and Mercantile Business Credit,
                      Inc.  (Exhibit 4.3 (d)  to the  Company's Annual Report on
                      Form 10-K for the year ended December 31, 1997).

4.3(e)                Second Amendment to the Loan Agreement dated September 28,
                      1999  between  the Company and Mercantile Business Credit,
                      Inc. -- filed herewith.
</TABLE>


                                      E-1
<PAGE>

<TABLE>
<CAPTION>

<S>                                          <C>
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, "Systems  for  Distributing
                      Lottery   Tickets"   (Exhibit   10.5   to   the  Company's
                      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 dates as of January 13, 1994  (Exhibit 10.6 to the
                      Company's Registration Statement on Form S-1, No.
                      33-75142).


10.3                  Management  Compensatory Plans

                      (a)   1994  Stock   Incentive   Plan  (Exhibit  10.24  to
                            the   Company's   Registration  Statement  on  Form
                            S-1, No. 33-75142).

                      (b)   1994 Directors Stock Incentive  Plan (Exhibit  10.25
                            to  the Company's  Registration  Statement  on  Form
                            S-1, No. 33-75142).

23.1                  Consent of Grant Thornton LLP -- filed herewith.

23.2                  Consent of KPMG LLP -- filed herewith.

25                    Powers of Attorney -- filed herewith.

27                    Financial  Data  Schedule  (for  SEC  use only)  --  filed
                      herewith.
</TABLE>


















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