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, 2000

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the Transition Period From _____ to _____

                        Commission file number 001-12986

                          INTERLOTT TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its charter)

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

                     7697 Innovation Way, Mason, Ohio 45040
          (Address of principal executive offices, including zip code)

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

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

     Title of each class              Name of each exchange on which registered
Common Stock, $.01 Par Value                    American Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None

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

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


<PAGE>

The aggregate market value of the Registrant's  outstanding Common Stock held by
non-affiliates  of the Registrant on March 21, 2001 was  $9,581,640.  There were
6,432,042 shares of Common Stock outstanding as of March 21, 2001.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Registrant's  Proxy  Statement  for the 2001 Annual  Meeting of
Stockholders to be held on May 3, 2001 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, 2000

<TABLE>
<CAPTION>
                                Table of Contents

Item                                                                                                      Page
Number                                                                                                    Number
<S>                                                                                                          <C>
PART I.........................................................................................................4
   1.      Business............................................................................................4
   2.      Properties.........................................................................................13
   3.      Legal Proceedings..................................................................................14
   4.      Submission of Matters to a Vote of Security Holders................................................14
PART II.......................................................................................................14
   5.      Market for the Registrant's Common Stock and Related Stockholder Matters...........................14
   6.      Selected Financial Data............................................................................15
   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...............41
PART III......................................................................................................42
   10.     Directors and Executive Officers of the Registrant.................................................42
   11.     Executive Compensation.............................................................................42
   12.     Security Ownership of Certain Beneficial Owners and Management.....................................42
   13.     Certain Relationships and Related Transactions.....................................................42
PART IV.......................................................................................................42
   14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................................42
           SIGNATURES.........................................................................................44
           INDEX OF FINANCIAL STATEMENT SCHEDULES.............................................................S-1
           INDEX OF EXHIBITS..................................................................................E-1
</TABLE>


<PAGE>


                                     PART I

ITEM 1.           BUSINESS

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

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

         As of  December  31,  2000,  the Company had sold or leased over 23,000
ITVMs through  agreements  with 25 different state lotteries and the District of
Columbia  and  five   international   jurisdictions,   or  their   licensees  or
contractors.  The  Company was awarded  seven of the seven  contracts  that were
awarded to the industry in 2000.

         On February 23, 2001 the Company  entered  into a definitive  agreement
with  On-Point  Technology  Systems,  Inc.  to  acquire  the  lottery  assets of
On-Point,  including  patents,  technology,  inventory and  contracts.  On-Point
designs, manufactures,  sells, leases and services high-security automated point
of sale transaction  vending  terminals for the sale of  instant-winner  lottery
tickets.  Currently  it has  contracts  with four  state  and two  international
lotteries.  Lottery related revenues during 2000 were $10.2 million. The closing
of the acquisition is subject to necessary consents and approvals, including the
approval of the sale by the  shareholders  of On-Point.  Upon the closing of the
acquisition,  the Company and On-Point  will enter into a separate  agreement to
market a patented design for an online activated instant lottery ticket.

         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 2000  represented less than
2% of total  revenues,  the  Company  continues  to believe  that PCDMs may be a
source of future sales growth.

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


Products

         The ITVM

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

                                       4
<PAGE>

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

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

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

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

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

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

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

         All of the Company's ITVMs for scratch-off  tickets utilize copyrighted
software that can supply up to 12 different reports for accounting and inventory
purposes. These reports can provide to the lottery and its retailers or agents a

                                       5
<PAGE>

complete  summary of daily sales,  weekly  sales,  total  sales,  sales by game,
current status of the machine,  inventory of the product  currently in the ITVM,
the last three  transactions  of the ITVM and other  types of  information.  The
software system allows for a simple  diagnostic test to identify any malfunction
of the ITVM. The diagnostic mode communicates various information such as ticket
size setting,  status of electronics,  status of each game and other information
concerning  the system  software.  The  Company's  ITVM  software  system may be
programmed to the detail specifications of the specific lottery.

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

         The PCDM

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

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

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

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

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

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


                                       6
<PAGE>

Marketing and Sales

         ITVMs

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

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

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

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

         On  occasion,   the  Company   participates   in   cooperative   supply
arrangements with other lottery suppliers. These arrangements allow lotteries to
reduce their  operating costs and provide a more efficient means for contracting
products and services. The Company's ITVMs are deployed in Pennsylvania and West
Virginia  pursuant to cooperative  supply  arrangements  between the Company and
Automated  Wagering,  Inc., which is the primary contractor for the Pennsylvania
and West  Virginia  Lotteries.  ITVMs are  deployed  in  Georgia  pursuant  to a
cooperative  supply  arrangement with Scientific  Games,  Inc. and in 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 Pennsylvania, 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 and  advertises  in trade
publications to increase its presence in the telecommunications industry.

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


                                       7
<PAGE>

Contracts

         ITVMs

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

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

         The Company offers lotteries a choice of three types of contracts:  (i)
Standard Lease  Agreements,  (ii) Sales  Agreements,  and (iii) Percentage Lease
Agreements.  ITVM lease revenues as a percentage of the Company's total revenues
were 57.9%, 75.7% and 42.2% in 1998, 1999 and 2000, respectively.

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

         As noted above, the lease payments provided for in the typical Standard
Lease  Agreement are fixed in most cases during the term of the  agreement,  and
these  agreements  typically permit the lottery to order additional ITVMs at any
time during the lease term. If the lottery orders a significant  number of ITVMs
near the end of the lease  term,  the  Company  would 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


                                       8
<PAGE>

requirements   may  result  in  significant   liquidated   damages  or  contract
termination.  To date, the Company has not had to pay any liquidated  damages or
had any contract terminated by any lottery.

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

         The Company's  contracts  generally have an initial term of one to five
years with options to extend the duration of the contracts  for periods  between
one and five years. The option extensions generally are under the same terms and
conditions as the original  contract.  The Company's  contracts with  lotteries,
like  most  other  types of state  contracts,  typically  permit  a  lottery  to
terminate  the  contract  upon 30 days  written  notice  for  any  reason.  Upon
termination of a lease contract,  the lottery would return the leased  equipment
to the  Company.  To date,  no lottery  has  terminated  its  contract  with the
Company.

         Thirty states and the District of Columbia utilize ITVMs in some manner
as part of their instant ticket  distribution  system.  As of December 31, 2000,
Company  ITVMs had been  deployed  in 25 of these  states  and the  District  of
Columbia as well as five international jurisdictions.  The Company currently has
10,427  ITVMs under lease with 19 states and the  District  of  Columbia.  These
leases expire on various dates  through  2005. In certain  cases,  the Company's
contracts are with third parties who are the primary contractors to the lottery.
See "Marketing and Sales - ITVMs" above.

         During 2000,  the  Company's  contract  with the  Pennsylvania  Lottery
accounted for 39.3% of the Company's revenues and a contract with Ohio accounted
for 9.3%.

         PCDMs

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

         Most PCDMs to date have been acquired  through  purchase  orders rather
than  contracts  and are  sold  rather  than  leased.  Like  contracts  with the
lotteries,  the purchase orders may contain stringent installation,  performance
and service  requirements.  As of December  31,  2000,  the Company had sold 829
PCDMs.

Manufacturing Process

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

         The  Company  assembles  the  components  utilizing  a  core  group  of
manufacturing employees and, on an as-needed basis,  contracting with employment

                                       9
<PAGE>

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.

Research And New Product Development

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

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

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

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

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

         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  $618,819,  $581,885 and
$640,151 for 1998, 1999 and 2000, 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.


                                       10
<PAGE>

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

Patents, Trademarks and Copyrights

     The Company  currently  has eight U.S.  and foreign  patents and 13 pending
patent  applications  relating to its ITVMs and has filed a disclosure  document
with the United States Patent and Trademark Office ("PTO").

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

     The Company has  developed a new system  designed  specifically  for retail
vending  of lottery  tickets  and other  items at the point of sale.  The system
utilizes  the  Company's  burster  technology  and  includes  other  modular and
distributed  components  that can be adapted  for use at the point of sale.  The
Company owns U.S.  Patent Nos.  5,943,241  and  6,038,492 and 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.
5,472,247  for a  "Multi-Point  High  Security  Locking  Mechanism  for  Lottery
Machines,"  which expires July 18, 2014; and U.S.  Design Patent No. 376,621 for
the Company's double-game  countertop ITVM, which expires December 17, 2010. The
Company  believes  that each of these  patents is important but not essential to
the Company's business.

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

     The Company is the exclusive licensee of the dispensing  technology used in
PTVMSs and PCDMs pursuant to an agreement with Algonquin  Industries.  Algonquin
Industries has been granted nine U.S. patents 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  five  manufacturers  of  ITVMs  and  approximately  four
manufacturers  of  PCDMs in the  United  States,  and  competition  among  these


                                       11
<PAGE>

manufacturers  is  intense.  Of the five ITVM  competitors,  the Company has the
largest share of the ITVM market in the United States.  The Company is not aware
of any published  data  regarding  market shares in the PCDM  industry,  but the
Company  does  not  believe  that it has the  largest  market  share in the PCDM
industry.

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

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

         On February 23, 2001 the Company  entered  into a definitive  agreement
with  On-Point  Technology  Systems,  Inc.  to  acquire  the  lottery  assets of
On-Point,  including  patents,  technology,  inventory and  contracts.  On-Point
designs, manufactures,  sells, leases and services high-security automated point
of sale transaction  vending  terminals for the sale of  instant-winner  lottery
tickets.  Currently  it has  contracts  with four  state  and two  international
lotteries.  Lottery related revenues during 2000 were $10.2 million. The closing
of the acquisition is subject to necessary consents and approvals, including the
approval of the sale by the shareholders of On-Point.

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  30  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  authorizes the use of ITVMs will adopt legislation in the foreseeable
future that prohibits the use of ITVMs, there can be no assurance that this will
not occur.

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

         The Federal Gambling Devices Act of 1962 (the "Act") makes it unlawful,
with  certain  exceptions,  for a person  or entity to  transport  any  gambling
devices  across  interstate  lines  unless  that  person  or  entity  has  first
registered  with the United States  Department of Justice.  Although the Company

                                       12
<PAGE>

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.

         International  jurisdictions  that operate lotteries also impose strict
regulations. International regulations may vary from those in the United States.
Additionally,   international  regulations  frequently  impose  restrictions  on
international corporations doing business within the specific jurisdiction. As a
result, the Company may contract with local  representation or align itself with
a local partner when pursuing international contracts.

         PCDMs

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

Backlog

         The   Company's   backlog  of  ITVMs  as  of  December   31,  2000  was
approximately  $17,637,660,  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, 2000. At December 31, 1999, the
comparable  backlog  was  approximately  $24,365,000.  Approximately  63% of the
backlog at December  31, 2000 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, 2000 will be shipped on or before December 31, 2001. The
Company had a backlog of PCDMs  committed for production at December 31, 2000 of
$189,750.

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

Employees

         The Company utilizes a work force of full-time employees supported from
time to time by temporary or contract  manufacturing and engineering  personnel.
As of December 31, 2000,  the Company had 184 full-time  employees,  of which 62
were  manufacturing  employees,  8 were engineering  employees,  92 were service
employees, 5 were clerical and administrative employees and 6 were executives or
senior managers. Two of the executives and senior managers were devoted to sales
and four were devoted to management and administration. No Company employees are
represented by any union,  and the Company  believes that its relations with its
employees are good.

ITEM 2.           PROPERTIES

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


                                       13
<PAGE>

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.

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, 2000.

                                     PART II

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

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

                                         High                 Low
1999:

         First Quarter                  $3.50               $3.00
         Second Quarter                  3.13                2.81


         Third Quarter                   3.19                2.75
         Fourth Quarter                  2.88                2.00


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


         At March 19, 2001 there were  approximately  57  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.









                                       14
<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, 2000 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
                                             2000                1999               1998               1997             1996
 -----------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                    <C>               <C>               <C>            <C>
 Revenues
   Machine sales                         $21,958,631        $ 3,311,874        $ 8,229,950        $ 4,567,441    $ 5,596,698
   Machine leases                         17,966,445         16,901,911         14,165,379         12,874,450     11,766,623
   Other                                   2,664,014          2,120,245          2,078,644          1,669,160      1,235,368
 Net revenues                             42,589,090         22,334,030         24,473,973         19,111,051     18,598,689
 Net income                                3,610,199          2,070,298          1,622,313          1,451,654      1,320,597
 Net income per share                           0.56               0.32               0.25               0.23           0.21
 Depreciation and amortization             6,622,439          5,547,909          4,585,325          4,143,408      3,902,387
 Leased ITVM's, less
 accumulated depreciation                 21,572,590         21,549,400         17,105,891         14,740,462     10,940,398
 Total assets                             40,003,767         36,203,867         28,774,249         24,612,884     20,992,733
 Total debt                               16,000,160         16,291,727         11,645,374          9,458,004      7,715,140
 -----------------------------------------------------------------------------------------------------------------------------
 Redeemable preferred stock                      -            1,335,000          1,335,000          1,335,000      1,335,000
 -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

Results of Operations                                                                     Year Ended
                                                                           -------------------------------------
                                                                            Dec. 31    Dec. 31      Dec. 31
                                                                              2000       1999         1998
<S>                                        <C>                                <C>         <C>         <C>
                                         Revenues
The table at right presents              -----------------------------------------------------------------------
selected financial information           Machine sales                        51.6%       14.8%        33.6%
derived from the Company's               Machine leases                       42.2        75.7         57.9
statements of income expressed           Other                                 6.2         9.5          8.5
as a percentage of revenues               Total revenues                     100.0       100.0        100.0
for the years indicated.                 Cost of revenues
                                          excluding depreciation              53.4        39.0         48.4
                                         Depreciation                         14.9        23.9         17.5
                                         Gross margin                         31.7        37.1         34.1
                                         Selling, general and
                                          administrative expenses             12.8        18.8         16.5
                                         Research and
                                          development costs                    1.5         2.6          2.5
                                         Operating income                     17.4        15.7         15.1
                                         Interest expense                      3.8         4.9          4.0
                                         Income before income
                                          taxes                               13.6        14.7         11.1
                                         Income taxes                          5.1         5.4          4.5
                                         Net income                            8.5         9.3          6.6
                                         -----------------------------------------------------------------------
</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,  and (3) to a lesser extent,  sales of parts for ITVMs
and PCDMs and service  agreements.  Leases provide the Company with a consistent
revenue stream, opportunities to generate income on financing, and the potential
to deploy a greater  number of ITVMs within a lottery's  budget due to the lower
initial cash outlay required by the lottery.  Leasing ITVMs also gives a lottery
the  flexibility to enhance its ITVMs in the future with new technology from the
Company. On the other hand, leasing ITVMs requires the Company to invest capital
or otherwise finance the manufacture of ITVMs,  whereas sales of ITVMs result in
the  receipt of payment in full upon  delivery  of the ITVMs.  When the  Company
sells ITVMs, the Company  generally is able to manufacture and deliver the ITVMs
and receive full payment for them before it must pay for the  materials  used to
manufacture the ITVMs. Nevertheless, the Company believes that the advantages of
leasing ITVMs, as described  above,  justify the initial  capital  investment or
financing costs required to manufacture ITVMs for lease.

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

         The Company historically has experienced  fluctuations in its financial
results due to its  dependence  upon a small number of major  customers  and 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.












                                       16
<PAGE>

         On February 23, 2001, the Company entered  into a definitive  agreement
with  On-Point  Technology  Systems,  Inc.  to  acquire  the  lottery  assets of
On-Point,  including  patents,  technology,  inventory and  contracts.  On-Point
designs, manufactures,  sells, leases and services high security automated point
of sale transaction  vending  terminals for the sale of  instant-winner  lottery
tickets.  Currently  it has  contracts  with four  state  and two  international
lotteries. Lottery related revenues during 2000 were $10.2 million. The purchase
price for the lottery  assets  includes $13.5 million to be paid at the closing,
deferred payments of $9 million payable, subject to adjustment, over five years,
and an earn out  amount of up to $6  million  which  amount  is tied to  certain
future revenues. The closing of the acquisition is subject to necessary consents
and  approvals,  including  the  approval  of the  sale by the  shareholders  of
On-Point.  Upon the closing of the  acquisition,  the Company and On-Point  will
enter  into a  separate  agreement  to market a  patented  design  for an online
activated instant lottery ticket.

2000 as Compared to 1999

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

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

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

         Selling,   general  and  administrative  expenses  increased  29%  from
$4,202,825 in 1999 to $5,421,062 in 2000. The increase  resulted  primarily from
higher salary and wage expenses and an increase in legal and  professional  fees
relating to potential  acquisitions as well as new and existing lottery contract
negotiations.  As a  percentage  of  revenues,  however,  selling,  general  and
administrative expenses decreased from 19% in 1999 to 13% in 2000.

         Research and  development  costs increased by 10% from $581,885 in 1999
to $640,150 in 2000. The Company  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  112%  from  $3,502,379  in  1999  to
$7,425,152 in 2000.  This increase  resulted  primarily from the increase in the
number  of  machines  sold in 2000 as  compared  to  1999.  As a  percentage  of
revenues, operating income increased from 16% in 1999 to 17% in 2000.

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

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

                                       17
<PAGE>

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

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

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

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

1999 as Compared to 1998

         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.

         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 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.

                                       18
<PAGE>

         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.


Liquidity and Capital Resources

         Net cash provided by operating activities increased 50% from $7,519,552
in 1999 to $11,555,661 in 2000. Net cash used in investing  activities decreased
15% from  $12,063,408 in 1999 to $10,297,498 in 2000. Net cash provided by (used
in)  financing  activities  decreased by  $5,980,372  from net cash  provided by
financing  activities  of  $4,646,353  in 1999  to net  cash  used in  financing
activities of $1,334,019 in 2000. This was due to an advance to a shareholder of
$280,000,  repayment in 2000 of $207,698 in long-term  debt,  and an decrease in
notes payable of $907,417.

         The Company's  liquidity and capital resources  continue to be impacted
by its decision to lease a significant  portion of 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,  2000,  the Company had a total of 10,427  ITVMs and
PCDMs under operating and sales type leases.

         At December 31, 1999 and 2000, the Company had working capital deficits
of  $9,440,256  and  $6,868,537   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,  2000,  the  Company  was  indebted  to Firstar  Bank
(formerly  Mercantile  Business  Credit) in the  aggregate  principal  amount of
$15,097,611  pursuant to a revolving credit agreement  entered into in 1997. The
facility permited the Company to borrow, through January 2001, up to $25,000,000
at the prime interest rate or at LIBOR plus two percent.  Borrowings  under this
facility were  collateralized by all of the assets of the Company and assignment
of proceeds from lease  agreements.  At December 31, 2000,  the Company had $6.3
million available under this agreement.

         On  January  23,  2001,  the  Company  entered  into a new,  three year
revolving  credit  agreement with Fifth Third Bank of Cincinnati  which replaced
the Firstar credit agreement.  Borrowings under this facility are collateralized
by all of the  assets of the  Company  and  assignment  of  proceeds  from lease
agreements. The facility permits the Company to borrow, through January 2004, up
to  $25,000,000  at the prime  interest rate or at LIBOR plus 1.75  percent.  At
February 28, 2001, the Company had $1.7 million available under this agreement.

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

         The Company's capital  expenditures totaled $10,297,498 and $12,063,408
for  2000  and  1999,   respectively.   These  amounts  included   $9,580,471and
$11,985,736  for the  manufacture  of  machines  leased  during  the  respective
periods.  Other  expenditures  represented  machinery  and  equipment  costs for
expanded plant and office capacity.

         The  Company  had  no  material   commitments  for  additional  capital
expenditures as of December 31, 2000 other than for the manufacture of ITVMs and
PCDMs for  future  sale or lease;  however,  the  potential  acquisition  of the


                                       19
<PAGE>

lottery assets of On-Point Technology Systems,  Inc., as described earlier, will
require  additional  financing in excess of funds  generated by  operations  and
available under the Company's  current line of credit, of at least $13.5 million
to cover the payment due at the closing.  It is anticipated  that the balance of
the  purchase  price will be funded by the cash flow  generated  by the  current
lottery contracts that are being assumed. The Company is currently in discussion
with several financial  institutions,  including Fifth Third Bank of Cincinnati,
and has been assured that  financing on  commercially  reasonable  terms will be
available for this transaction.

         At December 31, 2000,  the Company had estimated tax net operating loss
carryforwards  of  approximately  $697,883  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 the Company's  forward-looking  statements.  Forward-looking
statements  involve  risks and  uncertainties  including,  but not  limited  to,
continued  acceptance of the Company's products and services in the marketplace,
competitive  factors,  new products and technological  changes,  dependence upon
third  party  vendors,  a  limited  number  of  customers,  political  and other
uncertainties  related to customer  purchases  and other  risks  detailed in the
Company's periodic filings with the Securities and Exchange Commission.

The following risk factors apply to Interlott and its business:

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

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

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, 2000, 30 states,
the District of Columbia and 14 international  jurisdictions  used ITVMs as part
of their instant ticket  distribution  system. We had leased or sold ITVMs in 25
of  those   states,   the  District  of  Columbia  and  in  five   international
jurisdictions.  We have marketed  PCDMs since 1995, and as of December 31, 2000,
we had sold or leased 924 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.  It is important but
not  critical  that we  develop  relationships  with  additional  lotteries  and
telephone companies and that additional states authorize instant lotteries.

                                       20
<PAGE>


         Significant  portions of our annual revenue frequently are derived from
a limited  number of contracts,  which vary in size and by customer from year to
year.

         We have  traditionally  derived a  significant  portion  of our  annual
revenues  from  a  limited   number  of  state  lottery   authorities  or  their
representatives  for the lease, sale or service of ITVMs. In particular,  during
2000,  a  contract  with  Automated   Wagering,   Inc.,  the  supplier  for  the
Pennsylvania Lottery, accounted for 39% of our total revenues.  Additionally,  a
contract with the Ohio Lottery accounted for 19% of our lease revenues and 9% of
our total revenue in 2000. 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 have difficulty integrating the operations of On-Point.

         There are risks  associated  with our acquisition of the lottery assets
of On-Point.  Success of the acquisition will depend on our ability to integrate
On-Point's  operations,  technology  and customers  with our own in a timely and
efficient manner. This will require,  among other things, that the relationships
with  On-Point's  key  customers,   state  and  international   lotteries,   are
maintained.  Other risks include the additional  financial resources that may be
needed to fund operations,  the ability of management to manage the expansion of
our customer base, and the different  geographic locations of the operations and
customers of On-Point.  Diversion of management and any difficulties encountered
in the process of integration could cause disruption of our business and harm to
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 seven other patents and 13 pending patent  applications  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.


                                       21
<PAGE>

     The state  lotteries can cancel their  contracts with us for any reason and
can assess significant  damages against us if we do not  satisfactorily  perform
the contracts.

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

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

     As of December 31, 2000, Mr. L. Roger Wells, Jr.  beneficially  owned 53.2%
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 57.9% in
1998, 75.7% in 1999 and 42.2% in 2000. Our standard lease agreements provide for
fixed  lease  payments  during  the term of the  agreement  and some  permit the
lottery to order  additional  ITVMs at any time during the lease term. If one of
these  lotteries were to order a large number of ITVMs near the end of the lease
term,  we would incur  significant  manufacturing  costs but might receive lease
payments for only a relatively short period of time through the remainder of the
lease  term.  Additionally,  we are  unable  to pass  along to the  lottery  any
increases  in  manufacturing  and  service  costs  during  the term of the lease
agreement.  Our standard lease agreements provide for a short initial term, such
as one year,  with an  option  for the  lottery  to  extend  the lease  term for
additional  one-year  periods.  If the lottery does not extend the initial lease
term, we might incur a loss on the  manufacture of the ITVMs if we are unable to
re-lease or sell the ITVM.

     The ITVM and PCDM markets are very competitive.

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


                                       22
<PAGE>

other suppliers exist that can duplicate these components  should we elect or be
forced to use a different supplier, we do not believe that a change in suppliers
would result in the  termination  of a production  contract.  However,  we could
experience a delay of 30 to 60 days in the  production of ITVMs and PCDMs should
we elect or be forced to use other  suppliers.  Any delay of 30 to 60 days could
have a material adverse effect on our business,  financial condition and results
of operation.


         Our  industry is subject to  significant  government  regulation  which
could negatively affect us.

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

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


         Our forward looking statements may be incorrect.

         Some of the  statements in this report are forward  looking  statements
about what may happen in the  future.  They  include  statements  regarding  our
current beliefs,  plans,  expectations and assumptions about matters such as our
expected financial position and operating results, our business strategy and our
financing  plans.  These  statements  can  sometimes be identified by our use of
forward looking words such as  "anticipate,"  "believe,"  "estimate,"  "expect,"
"intend," "plan," "seek," "should" and similar expressions.  Our forward looking
statements are subject to numerous risks, uncertainties and assumptions, many of
which are beyond our control. These risks, uncertainties and assumptions include
the risk factors  discussed  above. We cannot guarantee that our forward looking
statements will turn out to be correct or that our beliefs, plans,  expectations
and assumptions will not change. Our actual results could be very different from
and worse than our expectations as expressed in our forward looking statements.

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

         The Company  entered into an interest rate swap  agreement with a total
notional  principal amount of $10,000,000 at December 31, 1999, which expires on
November 7, 2002.  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  ($102,940) at
December 31, 2000.  The estimated  fair value is based upon  appropriate  market
information  and  projected  interest  rate  changes  obtained  from a reputable
institution.  This agreement inherently carries an element of credit risk if the
counter party is unable to meet its obligation.







                                       23
<PAGE>

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                          Independent Auditors' Report




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


We have audited the accompanying balance sheets of Interlott Technologies,  Inc.
as of  December  31,  2000 and  1999,  and the  related  statements  of  income,
stockholders'  equity,  and cash  flows  for the two  years  then  ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.  The financial  statements of Interlott  Technologies,  Inc. for the
year ended  December 31, 1998 were audited by other  auditors whose report dated
February 26, 1999 expressed an unqualified opinion on those statements.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Interlott Technologies, Inc. as
of December 31, 2000 and 1999,  and the results of its  operations  and its cash
flows for the  years  then  ended,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

/s/ Grant Thornton LLP

Cincinnati, Ohio
February 9, 2001




                                       24
<PAGE>


                          Independent Auditors' Report




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


We have audited the statements of income,  stockholders'  equity, and cash flows
of Interlott Technologies,  Inc. for the year ended December 31, 1998, as listed
in the  accompanying  index.  In  connection  with our audit of these  financial
statements, we have also audited the 1998 financial statement schedule as listed
in  the  accompanying  index.  These  financial  statements  and  the  financial
statement  schedule are the  responsibility  of the  Company's  management.  Our
responsibility  is to express an opinion on these  financial  statements and the
financial statement schedule based on our audit.

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

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

/s/ KPMG LLP

Cincinnati, Ohio
February 26, 1999









                                       25
<PAGE>
                          INTERLOTT TECHNOLOGIES, INC.

<TABLE>
<CAPTION>
                                 Balance Sheets

                           December 31, 2000 and 1999

                                                                                                 2000              1999
                                                                                             -----------      -----------
<S>                                                                                               <C>              <C>
Assets
Current assets:
  Cash                                                                                       $    46,645      $   132,501
  Accounts receivable, less allowance for doubtful accounts
    of $245,872 in 2000 and $158,793 in 1999                                                   4,015,934        3,305,486
  Investment in sales type leases, current portion                                             1,649,654        1,251,144
  Inventories                                                                                  5,920,032        5,214,106
  Prepaid & refundable taxes                                                                     940,000           72,319
  Note receivable from shareholder                                                               280,000              -
  Deferred income taxes                                                                          231,100          357,400
  Prepaid expenses                                                                               196,084          195,519
                                                                                              ----------       ----------
          Total current assets                                                                13,279,449       10,528,475
Property and equipment:
  Leased machines                                                                             38,037,036       35,244,923
  Machinery and equipment                                                                        797,117          610,968
  Building and leasehold improvements                                                            704,174          202,441
  Furniture and fixtures                                                                          89,381           60,237
                                                                                              ----------       ----------
                                                                                              39,627,708       36,118,569
  Less accumulated depreciation and amortization                                             (17,252,787)     (14,301,656)
                                                                                              ----------       ----------
           Net property and equipment                                                         22,374,921       21,816,913
                                                                                              ----------       ----------
Investment in sales type leases, less current portion                                          3,982,726        3,775,876
Product development rights, net of accumulated amortization  of
  $733,333 in 2000 and $659,997 in 1999                                                          366,671          440,003
                                                                                              ----------       ----------
                                                                                             $40,003,767      $36,561,267
                                                                                              ==========       ==========
</TABLE>

See accompanying notes to financial statements.



                                       26
<PAGE>



                          INTERLOTT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>

                            Balance Sheets, Continued

                           December 31, 2000 and 1999


                                                                                   2000                   1999
                                                                                -----------            -----------
<S>                                                                                 <C>                     <C>
Liabilities and Stockholders' Equity
Current liabilities:
  Notes payable to financial institutions                                       $15,097,611            $16,005,029
  Notes payable - related parties                                                   902,549                286,698
  Accounts payable                                                                2,043,736              1,781,884
  Accounts payable - related parties                                                180,291                179,469
  Accrued expenses                                                                1,923,799              1,358,253
                                                                                 ----------             ----------
         Total current liabilities                                               20,147,986             19,611,333
                                                                                 ----------             ----------
Deferred income taxes                                                               996,200                928,100
                                                                                 ----------             ----------
         Total liabilities                                                       21,144,186             20,539,433
                                                                                 ----------             ----------
Commitments and contingent liabilities
  Notes payable - related parties                                                   511,451                    -
  Series A preferred stock, $.01 par value;
    20,000,000 shares authorized, 1,335,000 shares issued and
    outstanding in 1999                                                                   -              1,335,000

Stockholders' equity:
  Common stock, $.01 par value;  20,000,000 shares authorized,  6,429,910 shares
    issued and outstanding in 2000
    and 6,420,000 shares issued and outstanding  in 1999                             32,135                 32,100
  Additional paid-in capital                                                     10,427,079             10,376,017
  Retained earnings                                                               7,888,916              4,278,717
                                                                                 ----------             ----------
         Total stockholders' equity                                              18,348,130             14,686,834
                                                                                 ----------             ----------
                                                                                $40,003,767            $36,561,267
                                                                                 ==========             ==========
</TABLE>

See accompanying notes to financial statements.

                                       27

<PAGE>
                          INTERLOTT TECHNOLOGIES, INC.

<TABLE>
<CAPTION>
                              Statements of Income

                  Years Ended December 31, 2000, 1999 and 1998


                                                                           2000                    1999                    1998
                                                                       -----------              -----------            -----------
<S>                                                                         <C>                     <C>                     <C>
Revenues:
  Machine sales                                                        $21,958,631              $ 3,311,874            $ 8,229,950
  Machine leases                                                        17,966,445               16,901,911             14,165,379
  Other                                                                  2,664,014                2,120,245              2,078,644
                                                                        ----------               ----------             ----------
                                                                        42,589,090               22,334,030             24,473,973
Cost of revenues:
  Machine sales and other                                               15,850,677                1,466,153              5,809,057
  Machine leases                                                        13,252,049               12,580,788             10,310,565
                                                                        ----------               ----------             ----------
                                                                        29,102,726               14,046,941             16,119,622
                                                                        ----------               ----------             ----------
          Gross margin                                                  13,486,364                8,287,089              8,354,351

Operating expenses:
  Selling, general and administrative expenses                           5,421,062                4,202,825              4,048,751
  Research and development costs                                           640,150                  581,885                618,819
                                                                        ----------               ----------             ----------
                                                                         6,061,212                4,784,710              4,667,570
                                                                        ----------               ----------             ----------
         Operating income                                                7,425,152                3,502,379              3,686,781

Other income (expense)
  Interest expense                                                      (1,580,969)              (1,102,478)              (967,768)
  Other                                                                    (57,385)                 598,832                    -
                                                                        ----------               ----------             ----------
                                                                        (1,638,354)                (503,646)              (967,768)

Income before income taxes and extraordinary item                        5,786,798                2,998,733              2,719,013
Income tax provision                                                     2,176,599                1,106,594              1,096,700
                                                                        ----------               ----------             ----------
Income before extraordinary item                                         3,610,199                1,892,139              1,622,313
                                                                        ----------               ----------             ----------
Extraordinary item (less applicable income taxes of
  $109,195)                                                                    -                    178,159                    -
                                                                        ----------               ----------             ----------
          Net Income                                                   $ 3,610,199              $ 2,070,298            $ 1,622,313
                                                                        ==========               ==========             ==========

Basic income per share before extraordinary item                             $0.56                    $0.29                  $0.25
                                                                              ====                     ====                   ====
Diluted income per share before extraordinary item                           $0.56                    $0.29                  $0.25
                                                                              ====                     ====                   ====
Basic and diluted extraordinary item per share                               $ -                      $0.03                  $ -
                                                                              ====                     ====                   ====
Basic net income per share                                                   $0.56                    $0.32                  $0.25
                                                                              ====                     ====                   ====
Diluted net income per share                                                 $0.56                    $0.32                  $0.25
                                                                              ====                     ====                   ====
</TABLE>

See accompanying notes to financial statements.

                                       28

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

                       Statements of Stockholders' Equity

                  Years ended December 31, 1998, 1999 and 2000


                                                        Common Stock         Additional
                                                    --------------------       Paid-in         Retained
                                                     Shares       Amount       Capital         Earnings         Total
                                                    ---------    -------      -----------     ----------     ----------
<S>                                                    <C>          <C>         <C>              <C>            <C>
Balances at December 31, 1997                       6,420,000     $32,100     $10,376,017     $  586,106     $10,994,223
Net income                                                -           -               -        1,622,313       1,622,313
                                                    ---------      ------      ----------      ---------      ----------
Balances at December 31, 1998                       6,420,000      32,100      10,376,017      2,208,419      12,616,536

Net income                                                -           -               -        2,070,298       2,070,298
                                                    ---------      ------      ----------      ---------      ----------
Balances at December 31, 1999                       6,420,000      32,100      10,376,017      4,278,717      14,686,834

Shares issued for exercise of options                   7,000          35          51,062            -            51,097
Shares issued in connection with Employee
  Stock Purchase Plan                                   2,910         -               -              -                -
Net income                                                -           -               -        3,610,199       3,610,199
                                                    ---------      ------      ----------      ---------      ----------
Balances at December 31, 2000                       6,429,910     $32,135     $10,427,079     $7,888,916     $18,348,130
                                                    =========      ======      ==========      =========      ==========
</TABLE>

See accompanying notes to financial statements.


                                       29
<PAGE>

                          INTERLOTT TECHNOLOGIES, INC.
<TABLE>
<CAPTION>

                            Statements of Cash Flows

                  Years ended December 31, 2000, 1999 and 1998

                                                                                      2000           1999              1998
                                                                                  -----------    -----------       -----------
<S>                                                                                    <C>           <C>                <C>
Cash flows from operating activities:
  Net income                                                                      $ 3,610,199    $ 2,070,298        $1,622,313
  Adjustments to reconcile net income to net cash
  provided by operating activities:
     Net book value of equipment disposals                                             86,499        113,563               -
     Depreciation and amortization                                                  6,622,439      5,547,909         4,585,325
     Principal portion of sales type leases received                                1,441,971        909,184           557,116
     Deferred income taxes                                                            194,400        448,800           374,200
     Gain on sale of equipment under sales type lease                                (301,019)      (331,170)       (1,177,773)
     (Increase) decrease in accounts receivable                                      (710,448)      (488,897)          101,503
     Decrease (increase) in inventories - net of leased equipment returned            651,645       (828,568)        1,110,268
     Decrease (increase) in prepaid expenses                                             (565)      (185,733)           32,345
     Increase in accounts payable                                                     261,853        302,052           337,766
     Increase (decrease) in accounts payable - related parties                            822        (36,265)         (113,226)
     Increase (decrease) in accrued expenses                                          565,546        246,837          (142,766)
     (Decrease) increase in income taxes payable                                     (867,681)      (248,458)          148,008
                                                                                   ----------     ----------         ---------
         Net cash provided by operating activities                                 11,555,661      7,519,552         7,435,079

Cash flows from investing activities:
  Cost of leased machines                                                          (9,580,471)   (11,985,736)       (9,611,623)
  Purchases of property and equipment                                                (717,027)       (77,672)         (123,893)
                                                                                   ----------     ----------         ---------
         Net cash used in investing activities                                    (10,297,498)   (12,063,408)       (9,735,516)

Cash flows from financing activities:
  Increase in notes receivable from shareholder                                      (280,000)           -                 -
  (Decrease) increase in notes payable                                               (907,417)     4,838,655         2,188,338
  Proceeds from exercise of stock options                                              51,096            -                 -
  Repayment of long-term debt                                                        (207,698)      (192,302)             (968)
                                                                                   ----------     ----------         ---------
         Net cash (used in) provided by financing activities                       (1,344,019)     4,646,353         2,187,370
                                                                                   ----------     ----------         ---------

(Decrease) increase in cash                                                           (85,856)       102,497          (113,067)
Cash at beginning of year                                                             132,501         30,004           143,071
                                                                                   ----------     ----------         ---------
Cash at end of year                                                               $    46,645    $   132,501        $   30,004
                                                                                   ==========     ==========         =========

Supplemental disclosures of cash flow information:
  Net book value of leased equipment returned from the field                      $ 1,357,572    $ 1,255,578        $  188,732
                                                                                   ==========     ==========         =========
  Interest paid                                                                   $ 1,578,357    $ 1,216,285        $  902,252
                                                                                   ==========     ==========         =========
  Notes payable to shareholders issued in exchange for
    redeemable preferred stock                                                    $ 1,335,000    $       -          $      -
                                                                                   ==========     ==========         =========
  Income taxes paid                                                               $ 1,847,415    $ 1,104,789        $  526,807
                                                                                   ==========     ==========         =========
</TABLE>


See accompanying notes to financial statements.


                                       30
<PAGE>


(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.














                                       31
<PAGE>


       (d)    Property and Equipment

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

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

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

       (e)    Product Development Rights

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

       (f)    Income Taxes

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

       (g)    Disclosure About Fair Value of Financial Instruments

              SFAS  No.   107,   Disclosure   About  Fair  Value  of   Financial
              Instruments,  defines the fair value of a financial  instrument as
              the amount at which the instrument could be exchanged in a current
              transaction  between willing  parties.  The carrying amounts as of
              December 31, 2000 and 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 of the fair value of
               all stock-based awards on the date of grant. Alternatively,  SFAS
               No. 123 allows  entities to continue to apply the  provisions  of
               APB Opinion No. 25 and provide pro forma net income and pro forma

                                       32
<PAGE>
               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.

       (k)    Earnings Per Share

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

       (l)    Use of Estimates

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

       (m)   Accounts payable

             Accounts payable included $540,908 and $554,585,  respectively,  of
             outstanding checks at December 31, 2000 and 1999.

(2)    Investment in Sales Type Leases

       The Company leases instant  ticket  vending  machines  (ITVMs) to several
       state  lotteries  under  sales type  leases.  The  components  of the net
       investment  in sales type  leases at  December  31, 2000 and 1999 were as
       follows:
<TABLE>
<CAPTION>

                                                                        2000            1999
<S>                                                                  <C>             <C>
       Minimum lease payments receivable                          $6,767,616      $6,306,800
       Less unearned revenue on lease payments receivable          1,135,236       1,279,780
                                                                   ---------       ---------
                                                                   5,632,380       5,027,020
       Less current portion                                        1,649,654       1,251,144
                                                                   ---------       ---------

       Investment in sales type leases, less current portion      $3,982,726      $3,775,876
                                                                   =========       =========
</TABLE>



                                       33
<PAGE>



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


       Years ending December 31,
             2001                                                   $2,343,576
             2002                                                    2,058,776
             2003                                                    1,361,826
             2004                                                      814,926
             2005                                                      188,512
                                                                     ---------
                                                                    $6,767,616
                                                                     =========
(3)    Inventories

       Inventories at December 31, 2000 and 1999 consisted of the following:

                                                         2000             1999

       Finished goods                              $1,375,188       $1,350,719
       Work in process                                449,471          376,243
       Raw materials and supplies                   4,095,373        3,487,144
                                                    ---------        ---------

                                                   $5,920,032       $5,214,106
                                                    =========        =========

(4)    Leased Machines

       At December 31, 2000 and 1999,  the Company leased ITVMs to various state
       lotteries under operating  leases.  The leases generally  provide for the
       lotteries to make monthly or quarterly  payments for rentals of the ITVMs
       over  various  lease  terms.  The  components  of the net  investment  in
       operating leases,  which include  estimated  residual values, at December
       31, 2000 and 1999 were as follows:

                                                         2000             1999

       Leased machines                            $38,037,036      $35,244,923
       Less accumulated depreciation               16,464,446       13,695,523
                                                   ----------       ----------

                                                  $21,572,590      $21,549,400
                                                   ==========       ==========

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

       December 31,
             2001                                                  $11,658,954
             2002                                                    6,037,537
             2003                                                    2,576,484
             2004                                                    1,681,800
                                                                   -----------

                                                                   $21,954,775
                                                                    ==========

                                       34
<PAGE>

(5)    Notes Payable to Financial Institutions

       In October 1997, the Company  entered into a three year revolving  credit
       facility  with a  financial  institution  that  permitted  the Company to
       borrow through October 2000 up to $15,000,000 (amended in October 1999 to
       $25,000,000)  at the prime interest rate (9.50% at December 31, 2000). In
       October 2000, and each month  thereafter  through  December 31, 2000, the
       facility was amended to extend the  agreement  for an additional 30 days.
       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.   At  December  31,  2000  and  1999,
       respectively,  the Company had borrowings of $15,097,611  and $16,005,029
       outstanding  with  additional  borrowings  of $9,902,389  and  $8,994,971
       available under the facility.

(6)    Notes Payable - Related Parties

       The  Company  had the  following  notes  payable  to  related  parties at
December 31, 2000 and 1999:
<TABLE>
<CAPTION>

                                                                                            2000                1999
<S>                                                                                        <C>                   <C>
          Notes  payable  to former  preferred  stockholders,  in the  principal
          amount  of  $1,335,000  due  in  annual  installments  limited  in the
          aggregate  with the  stockholder  note  identified in the  immediately
          following  paragraph to twenty-five  percent (25%) of the net profits,
          if any, of the Company from its business operations as reported in the
          Company's  annual  financial  statements.  The  notes  were  issued in
          exchange for shares of redeemable preferred stock. Payments must begin
          April 2,  2001.  The notes do  not  provide for any  interest  and are
          unsecured.                                                                   $1,335,000           $   -


          Note payable to a stockholder,  in the original amount of $79,000, due
          and limited in the  aggregate  with the  preferred  shareholder  notes
          identified in the preceding  paragraph to twenty-five percent (25%) of
          the net profits of the Company,  if any, from its business  operations
          as reported in the Company's  annual  financial  statements.  Payments
          must begin April 2, 2001.  The note does not provide for any  interest
          and is unsecured.                                                                79,000              79,000

          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.
          The note was repaid on April 1, 2000.                                               -               207,698
                                                                                        ---------             -------
                                                                                        1,414,000             286,698
          Less current portion                                                            902,549             286,698
                                                                                        ---------             -------

                                                                                       $  511,451            $    -
                                                                                        =========             =======
</TABLE>


                                       35
<PAGE>


(7)    Additional Financial Instrument

          The Company  entered into an interest rate swap agreement with a total
          notional  principal  amount of  $10,000,000 at December 31, 1999 which
          expires on November 7, 2002.  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 ($102,940) at December 31, 2000.
          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,
                                      ------------------------------------------------
                                           2000               1999                1998
<S>                                     <C>                 <C>                 <C>
       Current:
         Federal                     $1,629,300         $  612,400          $  566,000
         State and local                352,899            154,600             156,500

       Deferred:
         Federal                        194,400            448,800             374,200
                                      ---------          ---------           ---------

                                     $2,176,599         $1,215,800          $1,096,700
                                      =========          =========           =========
</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>

                                                                   2000               1999                1998
<S>                                                              <C>                 <C>                 <C>
       Federal income tax expense at the statutory rate      $1,967,500         $1,117,300          $  924,400
       Non-deductible lobbyist expenses                             -                3,200                 -
       Officers life insurance                                    8,000              8,000                 -
       Amortization of product development rights                25,000             25,000              25,000
       State and local taxes, net of federal benefit            232,900            102,000             103,300
       Other                                                    (56,801)           (39,711)             44,000
                                                              ---------          ---------           ---------

                                                             $2,176,599         $1,215,789          $1,096,700
                                                              =========          =========           =========
</TABLE>



                                       36
<PAGE>


       The tax effects of temporary  differences  that give rise to  significant
       portions of the  deferred  tax assets and  deferred  tax  liabilities  at
       December 31, 2000 and 1999 are presented below:
<TABLE>
<CAPTION>

                                                                       2000                1999
<S>                                                                    <C>                <C>
       Deferred tax assets:
         Bad debt allowance                                      $   83,600          $   54,000
         Warranty costs                                               1,200               1,200
         Investment in sales type leases                            249,600                 -
         Net operating loss carryforwards                           237,200             292,200
         Inventory valuation reserve                                 73,100             249,600
         Other, net                                                  73,200              52,600
                                                                  ---------           ---------

            Total gross deferred tax assets                      $  717,900          $  649,600
                                                                  =========           =========

       Deferred tax liabilities:
         Property and equipment, principally due to
           differences in depreciation                           $1,385,300          $  987,800
         Investment in sales type leases                                 -              134,800
         Involuntary conversion of assets                            97,700              97,700
                                                                  ---------           ---------
            Total gross deferred tax liabilities                  1,483,000           1,220,300
                                                                  ---------           ---------
            Net deferred tax liabilities                        $  (765,100)         $ (570,700)
                                                                 ==========           =========
</TABLE>

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

       At December 31, 2000,  the Company had net operating  loss  carryforwards
       for federal  income tax  purposes  of  approximately  $697,900  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 was  nonparticipating  and had no rights to
       dividends.  The holders of the  preferred  stock were 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.

       All the holders of the preferred stock exercised their put option and all
       of the  outstanding  preferred  stock was  redeemed as of April 17, 2000,
       with payment made in the form of non-interest  bearing  promissory notes.
       Based on a  payment  formula  that  calls  for  payments  limited  in the
       aggregate,  along with payment on the  stockholder  note in the principal
       amount  of  $79,000  identified  in Note 6 above,  to 25% of the  current
       year's net income, principal payments in the aggregate amount of $902,549
       will be due on April 2, 2001.


                                       37
<PAGE>


(10)   Stock Incentive Plans

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

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

       A summary of the status of the Company's stock options as of December 31,
       2000,  1999, and 1998 and the changes therein for the years then ended is
       presented below:
<TABLE>
<CAPTION>
                                                 2000                         1999                          1998
                                       --------------------------  ----------------------------  ----------------------------
                                                     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         513,100        $3.91       424,350          $4.33        361,750           $4.56
Granted                                      -            -         115,500           2.59         72,600            3.38
Exercised                                  7,000         5.02           -              -              -               -
Forfeited                                  3,300         3.22        26,750           4.58         10,000            5.75
                                         -------         ----       -------           ----        -------            ----
Outstanding at end of year               502,800         3.92       513,100           3.91        424,350            4.33
Options exercisable at year-end          434,850         4.27       304,162           4.48        241,588            4.74
                                         -------         ----       -------           ----        -------            ----
Weighted-average fair value of
     options granted during the
     year                                                 N/A                        $2.59                          $2.58

</TABLE>

       Had  compensation  cost for  options  granted  during  1999 and 1998 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>

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

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

       The fair value of options  granted  during 1999 and 1998 for  purposes of
       the  accompanying  pro forma  disclosures  is estimated on the grant date
       using  the   Black-Scholes   option-pricing   model  with  the  following

                                       38
<PAGE>
       weighted-average  assumptions:  no  dividends  paid,  as it has  been the
       Company's policy not to declare or pay dividends and the Company does not
       anticipate   paying  dividends  in  the  foreseeable   future;   expected
       volatility  of  43%  and  65%,  respectively,  based  on  the  calculated
       volatility of the Company's stock; risk-free rates of return of 4.83% and
       4.93%, respectively; and expected lives of 10 years.

       Information  about stock options  outstanding  at December 31, 2000 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>
$2.41 - 4.32                421,400           6.46            $3.58         289,013          $3.89
$5.07 - 5.75                 81,400           3.59             5.63          78,900           5.65
                            -------           ----             ----         -------           ----
                            502,800           5.99            $3.92         434,850          $4.27
                            =======           ====             ====         =======           ====
</TABLE>

(11)   Earnings Per Share
<TABLE>
<CAPTION>

                                                                         Net                                     Per
                                                                       Earnings            Shares               Share
1998                                                                 (Numerator)        (Denominator)          Amount
                                                                    ---------------   ------------------   ---------------
<S>                                                                       <C>                 <C>                <C>
       Basic earnings per share:
          Net earnings available to common stockholders               $1,622,313         6,420,000              $0.25

       Diluted earnings per share:
          Effect of dilutive stock options                                                  21,298
          Earnings available to common stockholders
             and assumed conversions                                   1,622,313         6,441,298               0.25
1999
       Basic earnings per share:
          Net earnings available to common stockholders                2,070,298         6,420,000               0.32

       Diluted earnings per share:
          Effect of dilutive stock options                                                   1,806
          Earnings available to common stockholders
             and assumed conversions                                   2,070,298         6,421,806               0.32
2000
       Basic earnings per share:
          Net earnings available to common stockholders                3,610,199         6,422,914               0.56

       Diluted earnings per share:
          Effect of dilutive stock options                                                  71,592
          Earnings available to common stockholders
             and assumed conversions                                  $3,610,199         6,494,506              $0.56
</TABLE>


                                       39
<PAGE>
       Options to purchase  243,950,  446,050 and 104,950 shares of common stock
       were  outstanding  in 2000,  1999 and  1998,  respectively,  but were not
       included in the  computation  of diluted  earnings per share  because the
       options'  exercise  prices were greater than the average  market price of
       the common shares.

(12)   Noncash Investing Activities

       Leased  machines with net book values of $742,114 in 2000 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 2000 under new leases.

(13)   Related Party Transactions

       Accounts  payable - related  parties of $180,291 and $179,469 at December
       31, 2000 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,  2000,  1999 and
       1998, 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  $6,205,187,  $4,116,674 and
       $3,800,887  for the  years  ended  December  31,  2000,  1999  and  1998,
       respectively.

       Note receivable - shareholder of $280,000 represents an advance to Edmund
       Turek, a director.  The note bears interest at the prime rate of interest
       and  will  be  repaid  from  the  payments to be made on April 2, 2001 on
       the $1,335,000 of stockholder notes.

       Interest expense arising from notes  payable-related  parties amounted to
       $4,510,  $20,275 and $33,401 for the years ended December 31, 2000,  1999
       and 1998, 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, 2000,  1999 and 1998 one customer  generated
       19%,  24% and  24%,  respectively,  of the  machine  lease  revenues.  In
       addition,  single  state  contracts  generated  76%,  38%  and 48% of the
       machine sales  revenues for the years ended  December 31, 2000,  1999 and
       1998  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

                                       40
<PAGE>
       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  facility  under  a
       noncancelable  operating lease. The current lease, which was entered into
       on April 1, 2000,  expires on March 31, 2005, and requires lease payments
       of $25,186 per month.  Total rent expense  under this lease  approximated
       $274,902, for the year ended December 31, 2000, and $179,000 and $141,000
       for the various facility leases in 1999 and 1998, respectively.


(16)   Commitments and Contingent Liabilities

       As of  December  31,  2000,  the Company  had  outstanding  approximately
       $8,600,000 in purchase  commitments  for raw materials  which are used in
       the manufacturing of instant ticket vending machines.  Management intends
       to utilize these commitments as machines are produced.

(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.

(18)     Employee Benefit Plans

       In 1999, the Company established a savings plan intended to qualify under
       sections 401(a) and 401(k) of the Internal  Revenue Code. The plan covers
       substantially  all  employees  of  the  Company.  Under  this  plan,  the
       Company's expenses in 2000 and 1999 were $53,283 and $49,119 respectively
       which represents one half of the employees'  contributions  not exceeding
       4% of gross pay.

       In March  2000,  the  Board of  Directors  of the  Company  approved  the
       Interlott  Technologies,  Inc. Employee Stock Purchase Plan under section
       423 of the Internal  Revenue Code.  The Plan provides  substantially  all
       employees of the Company with an opportunity to purchase, through payroll
       deductions,  shares of the Company's common stock. The purchase price per
       share is  determined  by  whichever  of two  prices is lower:  85% of the
       closing market price of the common stock on the first day of the calendar
       quarter or 85% of the  closing  market  price of the common  stock on the
       last day of the calendar  quarter.  25,000  shares of common stock of the
       Company are reserved for issuance under this plan.


<TABLE>
<CAPTION>

Summary                                  2000                                 First      Second       Third       Fourth
                                         -----------------------------------------------------------------------------------
<S>                                         <C>                                <C>         <C>           <C>        <C>
Quarterly                                Net sales                           $7,657     $13,489      $11,579      $9,864
Financial Data                           Gross profit                         2,626       4,467        3,743       2,650
                                         Net income                             597       1,471        1,090         452
Quarterly financial data                 Basic income per share                0.09        0.23         0.17        0.07
for the years ended December             Diluted income per share              0.09        0.23         0.17        0.07
                                         -----------------------------------------------------------------------------------
31, 2000 and 1999 shown here
(in thousands, except for per            1999                                 First      Second       Third       Fourth
                                         -----------------------------------------------------------------------------------
share data).                             Net sales                           $4,960      $5,138       $4,995      $7,240
                                         Gross profit                         1,761       1,687        1,525       3,314
                                         Net income                             654          76          182       1,158
                                         Basic income per share                0.10        0.01         0.03        0.18
                                         Diluted income per share              0.10        0.01         0.03        0.18
                                         -----------------------------------------------------------------------------------
</TABLE>



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.


                                       41
<PAGE>
                                    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 2001 Annual
Meeting of Stockholders.


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The  executive  officers  of the  Company  (at March  30,  2001) are as
follows:

Name                       Age             Title

L. Rogers Wells            63              Chairman of the Board

David F. Nichols           39              President and Chief Executive Officer

Thomas W. Stokes           37              Chief Operating Officer

Dennis W. Blazer           53              Chief Financial Officer

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

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

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

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

                                     PART IV

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


(a)      Documents Filed as Part of This Report.

     1.   Financial Statements

          Independent Auditors' Report of Grant Thornton LLP

          Independent Auditors' Report of KPMG LLP

          Balance Sheets at December 31, 1999 and 2000

          Statements  of Income for each of the years in the  three-year  period
          ended December 31, 2000.

                                       42
<PAGE>
          Statements  of  Stockholders'  Equity  for  each of the  years  in the
          three-year period ended 31, 2000.

          Statements  of Cash  Flows  for each of the  years  in the  three-year
          period ended December 31, 2000

          Notes to Financial Statements

     2.   Financial Statement Schedules

          The  following   financial  statement  schedule  and  the  independent
          auditors'  reports thereon are set forth beginning on page S-1 of this
          report:

                 Schedule II - Valuation and Qualifying Accounts

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

     3.   Exhibits

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

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
















                                       43
<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 30, 2001.

                                         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 30, 2001.
<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


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


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


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


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


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

</TABLE>

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

                                       44
<PAGE>

                    INDEX OF FINANCIAL STATEMENT SCHEDULES

                                                                          Page


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







































                                      S-1
<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

1998                     $   93,501            $ 60,000               $0             $    0            $  153,501
1999                        153,501              96,000                0               90,708             158,793
2000                        158,793              90,000                0                2,921             245,872


Inventory valuation
reserve

1998                     $  275,000            $933,110               $0             $    0            $1,208,110
1999                      1,208,110             305,000                0              512,824           1,000,286
2000                      1,000,286             401,292                0              920,494             481,084

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                                      S-2
<PAGE>

                          INTERLOTT TECHNOLOGIES, INC.

                                INDEX OF EXHIBITS


         The following  exhibits are filed with or  incorporated by reference in
this report.  Where the exhibit is  incorporated  by reference from a previously
filed document, that document is identified in parenthesis.
<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                   Form of promissory  note of the Company issued as of April 17, 2000 to former
                      holders of redeemable  preferred  stock (contained in Exhibit 3.1)

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

4.3                   Credit  Agreement  dated  January 25, 2001 between the Company and Fifth Third
                      Bank - filed herewith.

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

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

4.3(c)                Mortgage of Intellectual Property  dated January 25, 2001  between the Company
                      and Fifth Third Bank - filed herewith.

10.1                  Assignment of United States Letters  Patent from BLM Resources,  Inc. to the
                      Company  with respect to United  States  Patent No.  4,982,337,  "System for
                      Distributing  Lottery Tickets"  (Exhibit 10.5 to the Company's  Registration
                      Statement on Form S-1, No. 33-75142).
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                                      E-1
<PAGE>

<TABLE>
<CAPTION>

<S>                                                <C>
10.2                  Pull-Tab  Manufacturing and License Agreement between Algonquin  Industries,
                      Inc.,  Kazmier  Kasper and the Company dated 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).

                      (c)      Employment  Agreement  dated as of  January  1,  2001  between  the
                               Company and David F. Nichols - filed herewith.

23.1                  Consent of Grant Thornton LLP - filed herewith.

23.2                  Consent of  KPMG LLP - filed herewith

24                    Powers of Attorney - filed herewith.

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