content: FORM 10-Q
  
                         SECURITIES AND EXCHANGE COMMISSION
  
                               Washington, D.C. 20549
  
           [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
  
                  For the quarterly period ended September 30, 2001
  
                                         OR
  
           [  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
  
           For the transition period from                to
                                          --------------    -------------------
  
                             Commission File No. 0-11551
  
  
                                     eLOT, Inc.
  --------------------------------------------------------------------------------
               (Exact name of registrant as specified in its charter)
  
  
            Virginia                                             86-0449210
  ----------------------------------                       --------------------
    (State or other jurisdiction of                          (I.R.S. Employer
    incorporation or organization)                         Identification No.)
  
  
              101 Merritt 7 Corporate Park, Norwalk, Connecticut 06851
  --------------------------------------------------------------------------------
                 (Address of principal executive offices) (Zip Code)
  
  
                                   (203) 840-8600
  --------------------------------------------------------------------------------
                (Registrant's telephone number, including area code)
  
  
  --------------------------------------------------------------------------------
  
  --------------------------------------------------------------------------------
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
  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
                                         ---     ---
  
  The number of shares outstanding of registrant's Common Stock, $.01 par value
  per share, as of October 31, 2001 was 87,465,425.
  
  
  
  <PAGE>
  
  
                                        INDEX
  
  
  
  eLOT, Inc.
  
                                                                          Page #
  PART I.  FINANCIAL INFORMATION
  
  
  Item 1.  Financial Statements
  
           Consolidated Balance Sheets -
           September 30, 2001 and December 31, 2000.                           1
  
           Consolidated Statements of Operations -
           Three Months and Nine Months Ended September 30, 2001 and 2000.     2
  
           Consolidated Statements of Cash Flows -
           Nine Months Ended September 30, 2001 and 2000.                      3
  
           Notes to Consolidated Financial Statements.                         4
  
  
  Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations                      10
  
  
  PART II. OTHER INFORMATION                                                  14
  
           SIGNATURES                                                         15
  
  
  <PAGE>
  
  
                           PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  
  <TABLE>
  <CAPTION>
                                     eLOT, INC.
                             CONSOLIDATED BALANCE SHEETS
                             (DEBTORS - IN - POSSESSION)
  
  (In thousands, except for share and per share amounts)                September 30,           December 31,
                                                                            2001                    2000
                                                                        ------------            ------------
                                                                         (Unaudited)
  ASSETS
  ------
  CURRENT ASSETS:
  <S>                                                                      <C>                     <C>
     Cash and cash equivalents                                             $ 1,032                 $   5,731
     Accounts receivable                                                       393                       222
     Prepaid expenses and other current assets                                 499                       709
     Net assets of discontinued operations                                   2,725                     8,294
                                                                          --------                 ---------
     Total Current Assets                                                    4,649                    14,956
  
  PROPERTY AND EQUIPMENT, net                                                4,288                     5,143
  INTANGIBLE ASSETS, net                                                     1,189                     4,018
  OTHER ASSETS                                                               1,511                     3,486
                                                                        ----------                ----------
                                                                          $ 11,637                  $ 27,603
                                                                          ========                  ========
  
  LIABILITIES AND STOCKHOLDERS' EQUITY
  ------------------------------------
  CURRENT LIABILITIES:
     Current portion of long-term debt                                  $      196                  $    240
     Accounts payable                                                        2,427                     1,841
     Accrued payroll and related costs                                         402                       838
     Accrued liabilities                                                     2,167                     2,083
                                                                        ----------                ----------
     Total Current Liabilities                                               5,192                     5,002
  
  LONG-TERM DEBT                                                            13,462                    14,243
                                                                      ------------                  --------
      Total Liabilities                                                     18,654                    19,245
                                                                         ---------                  --------
  
  STOCKHOLDERS' EQUITY:
      Preferred Stock                                                          280                       ---
      Common stock:  $.01 par value; 130,000,000 shares
          authorized; 87,465,425 and 69,645,441 issued and
          outstanding                                                          875                       696
      Additional paid-in capital                                            99,131                    91,911
      Accumulated other comprehensive loss                                    (618)                     (613)
      Accumulated deficit                                                 (106,685)                  (83,636)
                                                                         ---------                 ---------
      Total Stockholders' Equity (Deficit)                                  (7,017)                    8,358
                                                                          ---------                ---------
                                                                          $ 11,637                  $ 27,603
                                                                          ========                  ========
  
  </TABLE>
  
  The accompanying notes are an integral part of these consolidated balance
  sheets.
  
  
                                         1
  <PAGE>
  
  
                             eLOT, INC.AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF OPERATIONS
                             (DEBTORS - IN - POSSESSION)
                                     (Unaudited)
  
  
  <TABLE>
  <CAPTION>
                                                                     Three Months Ended               Nine Months Ended
  (In thousands, except for per share amounts)                          September 30,                   September 30,
                                                                  ------------------------          -------------------
                                                                     2001        2000               2001             2000
                                                                     ----        ----               ----             ----
  <S>                                                                  <C>           <C>           <C>              <C>
  REVENUES                                                             $500          $308          $1,441           $558
  
  COSTS AND EXPENSES:
      Prizes, content, advertising and promotion                        373           722             803          2,017
      General and Administrative                                      1,879         2,807           5,966          7,129
      Asset Impairment                                                6,356           128           6,722            128
      Reversal of Stock Compensation Accrual                            ---           ---            (500)           ---
      Depreciation and Amortization                                   1,563           707           4,013          1,394
                                                                      -----        ------           -----         ------
                                                                     10,171         4,364          17,004         10,668
                                                                     ------       -------          ------          -----
  OPERATING LOSS                                                     (9,671)       (4,056)        (15,563)       (10,110)
  
  INTEREST EXPENSE                                                     (395)         (391)         (1,239)        (1,193)
  OTHER INCOME, NET                                                      47           176              11            980
                                                                   --------       -------        --------        -------
  LOSS FROM CONTINUING OPERATIONS
      BEFORE INCOME TAXES                                           (10,019)       (4,271)        (16,791)       (10,323)
  
  INCOME TAXES                                                          ---           ---             ---            ---
                                                                  ---------      --------        --------       --------
  
  LOSS FROM CONTINUING OPERATIONS                                   (10,019)       (4,271)        (16,791)       (10,323)
  
  DISCONTINUED OPERATIONS:
       Income (loss) from discontinued operations                    (1,652)       (2,267)         (2,371)        (6,320)
      Gain (loss) on sale of discontinued operations,
      (net of tax provision of $15,924 for 2000)                        ---           ---          (3,886)           387
                                                                        ---      --------          -------        ------
  
      Loss from discontinued operations                              (1,652)       (2,267)         (6,257)        (5,933)
                                                                     -------        ------         -------       --------
  
  NET LOSS                                                         $(11,671)   $   (6,538)       $(23,048)      $(16,256)
                                                                   ========    ===========       =========      =========
  
  BASIC AND DILUTED LOSS PER SHARE:
      Loss from continuing operations                              $  (0.12)       $(0.07)         $(0.22)        $(0.16)
      Loss from discontinued operations                               (0.02)        (0.03)          (0.03)         (0.10)
      Gain (Loss) on sale of discontinued operation                     ---         (0.00)          (0.05)          0.01
                                                                        ---          -----          ------         -----
      NET LOSS PER SHARE                                           $  (0.14)       $ (0.10)         $(0.30)       $(0.25)
                                                                   ========        =======          ======        ======
  
  
  AVERAGE COMMON SHARES OUTSTANDING:                                 86,191         65,623          77,682        64,682
                                                                     ======        =======          ======        ======
  </TABLE>
  
  The accompanying notes are an integral part of these consolidated statements.
  
  
                                          2
  
  
  <PAGE>
  
  
  
  
                                     eLOT, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DEBTORS - IN - POSSESSION)
                                     (Unaudited)
  
  <TABLE>
  <CAPTION>
  (In thousands)                                                                           Nine Months Ended
                                                                                              September 30,
                                                                               -------------------------------------
                                                                                   2001                     2000
                                                                               -----------               -----------
  
  CASH FLOWS FROM OPERATING ACTIVITIES:
  <S>                                                                         <C>                       <C>
      Loss from continuing operations                                         $  ( 16,791)              $  (10,323)
      Adjustments to reconcile net loss to net
        cash used in operating activities:
        Depreciation and amortization                                               4,013                    1,394
        Accretion on Debentures and Note Payable                                      274                      216
        Asset Impairment                                                            6,722                      128
  
        Reversal of Stock Compensation Accrual                                       (500)                     ---
        Other                                                                         107                      ---
      Changes in working capital items:
          Accounts receivable                                                        (171)                    (310)
          Accounts payable and accruals                                               851                   (3,546)
          Other working capital items, net                                           (212)                  (  193)
                                                                           ---------------           --------------
  
  NET CASH USED BY
     CONTINUING OPERATING ACTIVITIES                                               (5,707)                 (12,634)
  
  Cash flows used by discontinued operating activities                               (292)                  (8,246)
                                                                                  -------               -----------
  
  NET CASH USED BY OPERATING ACTIVITIES                                            (5,999)                 (20,880)
                                                                                ---------                ----------
  
  CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment                                              (215)                  (2,951)
     Proceeds From Sale of CT Business                                                ---                   44,300
     Proceeds From Sale of HC Business                                                ---                    5,000
     Restricted Cash-Proceeds from Sale of CT Business                                ---                   (3,505)
     ESIP participants loan repayments                                                ---                    2,578
     Other, net                                                                       (25)                    (245)
                                                                              ------------             ------------
  NET CASH PROVIDED (USED) BY
      INVESTING ACTIVITIES                                                           (240)                  45,177
                                                                                ----------              -----------
  
  CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayments/Borrowings under revolving credit facility                            ---                  (19,617)
     Repayments of other long-term debt                                               ---                     (455)
     Proceeds from issuance of stock                                                  403                    1,386
     Proceeds from Life Insurance Policies                                          1,137                      ---
                                                                               ----------          ----------------
  NET CASH PROVIDED (USED) BY FINANCING
     ACTIVITIES                                                                     1,540                  (18,686)
                                                                               ----------              ------------
  INC (DEC) IN CASH AND CASH EQUIVALENTS                                           (4,699)                   5,611
  CASH AND CASH EQUIVALENTS - BEGINNING
     OF YEAR                                                                        5,731                    1,060
                                                                               ----------              ------------
  CASH AND CASH EQUIVALENTS - END
    OF PERIOD                                                                   $   1,032                $   6,671
                                                                                =========                ==========
  </TABLE>
  
  The accompanying notes are an integral part of these consolidated statements.
  
                                          3
  
  
  <PAGE>
  
  
  
  
                                     eLOT, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                              (DEBTORS - IN - POSSESSION)
                                     (Unaudited)
  
  NOTE A - NATURE OF THE BUSINESS
  
  eLOT, Inc. (the "Company" or "eLOT") is committed to leading the governmental
  lottery industry into the e-commerce market. The Company has developed,
  installed and operated systems that have processed ten million e-commerce
  lottery ticket sales and transactions. It has operated Internet, Intranet,
  telephone, communications, accounting, banking, database and other applications
  and services that can facilitate the electronic sale of new and existing lottery
  products worldwide. The Company has also developed transitional e-commerce
  solutions for governmental lotteries that leverage the power of the Internet
  while political, legal and social issues surrounding the sales of lottery
  tickets over the Internet are simultaneously addressed.
  
  eLOT is an application service provider of Internet marketing and advertising
  technology for lotteries. The Company's IMARCS (Internet Marketing Analysis
  Research and Communications System) database marketing solution enables
  government lotteries to attract, register and communicate with lottery players
  through advanced Internet technology. In addition, eLOT's subsidiary, eLOTTONET,
  Inc., offers a free daily lottery email notification service (LENS) of state
  lottery results and other information and services via email.
  
  The Company operated a reward-entertainment lottery portal, eLotteryFreeWay,
  which offered lottery and entertainment games (for no consideration) with
  registered players earning ePoints that are redeemable for cash and merchandise
  credit. eLotteryFreeWay's mission was to build an Internet community whose
  members are expected to be highly predisposed to purchase governmental lottery
  tickets over the Internet. Due to financial considerations, this website was
  shut down in July 2001.
  
  In March 2001, the Company acquired certain subsidiaries of Network60 (now
  called DM360), an Internet promotions and permission-based marketing company
  that offers a flexible, cost effective direct marketing medium to traditional
  corporations, advertising agencies, and online companies. DM360's web sites
  include www.easywinnings.com, www.coolwinnings.com, www.radiostakes.com and
  www.prizechest.com.
  
  On July 30, 2001, the Company acquired FreeWorldLottery.com ("FWL"), a free
  lottery sweepstakes website owned by PlasmaNet, Inc.. See Note G.
  
  The condensed interim financial statements included herein have been prepared by
  eLOT, without audit, pursuant to the rules and regulations of the Securities and
  Exchange Commission (SEC) and reflect all adjustments that are of a normal
  recurring nature and that, in the opinion of management, are necessary for a
  fair statement of the results for interim periods. Certain information and
  footnote disclosures have been condensed or omitted pursuant to such rules and
  regulations. Although eLOT believes that the disclosures are adequate to make
  the information presented not misleading, it is suggested that these condensed
  financial statements be read in conjunction with the financial statements and
  the notes thereto included in the Company's latest annual report to
  stockholders.
  
                                          4
  
  
  <PAGE>
  
  
  NOTE B - BASIS OF PRESENTATION
  
  The accompanying consolidated financial statements include the accounts of the
  Company and its subsidiaries. In consolidating the accompanying financial
  statements, all significant intercompany transactions have been eliminated.
  Investments in affiliated companies owned more than 20%, but not in excess of
  50%, are recorded under the equity method.
  
  The preparation of financial statements in conformity with generally accepted
  accounting principles requires management to make estimates and assumptions that
  affect the reported amounts of assets and liabilities, disclosure of contingent
  assets and liabilities at the date of the financial statements and the reported
  amounts of revenues and expenses during the reporting period. Actual results
  could differ from those estimates.
  
  The accompanying unaudited consolidated condensed financial statements have been
  prepared on a going concern basis, which contemplates continuity of operations,
  realization of assets and liquidation of liabilities and commitments in the
  normal course of business and do not reflect any adjustments that might result
  if the Company is unable to continue as a going concern. The filing of the
  voluntary Chapter 11 petitions referred to below, losses from operations and
  negative cash flow from operations raise doubt about the Company's ability to
  continue as a going concern. The appropriateness of using a going concern basis
  is dependent upon, among other things, confirmation of a plan or plans of
  reorganization, future profitable operations and the ability to generate cash
  from operations and financing sources sufficient to meet obligations. As a
  result of the filing of the Chapter 11 cases and related circumstances,
  realization of assets and liquidation of liabilities is subject to significant
  uncertainty. While under the protection of Chapter 11, the Debtors (as defined
  below in Note C) may sell or otherwise dispose of assets, and liquidate or
  settle liabilities for amounts other than those reflected in the consolidated
  condensed financial statements. Further, a plan or plans of reorganization could
  materially change the amounts reported in the accompanying consolidated
  condensed financial statements. The consolidated condensed financial statements
  do not include any adjustments relating to recoverability of the value of
  recorded asset amounts or the amount and classification of liabilities that
  might be necessary as a consequence of a plan of reorganization. The Company
  anticipates significant adjustments to the consolidated condensed financial
  statements as a result of applying the provisions of Statement of Position 90-7
  "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
  during the proceedings. At this time, it is not possible to predict the outcome
  of the Chapter 11 cases or their effect on the Company's business, its financial
  position, results of operations or cash flows. If it is determined that the
  liabilities subject to compromise in the Chapter 11 cases exceed the fair value
  of the assets, unsecured claims may be satisfied at less than 100% of their face
  value and equity interests of the Company's stockholders may have no value. The
  Company believes its existing cash resources in connection with federal and
  state tax refunds and expense reductions should provide the Company with
  adequate liquidity to conduct its business while it prepares a reorganization
  plan. However, the Company's liquidity, capital resources, results of operations
  and ability to continue as a going concern are subject to known and unknown
  risks and uncertainties.
  
  NOTE C - CHAPTER 11 FILING
  
  On October 15, 2001, subsequent to the close of the fiscal quarter ended
  September 30, 2001, the Company and its eLottery, Inc. subsidiary (collectively,
  the "Debtors") filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy
  Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
  Southern District of New York (the "Bankruptcy Court"). The Chapter 11 cases
  Nos. 01-15327 (alg) and 01-15328 (alg) (the "Chapter 11 Cases") have been
  consolidated for the purpose of joint administration. As of October 15, 2001,
  the Debtors are continuing to operate their business as debtors-in-possession
  under Chapter 11 of the Bankruptcy Code and are subject to the jurisdiction of
  the Bankruptcy Court.
  
  
                                          5
  
  
  <PAGE>
  
  As a result of these filings, actions to collect pre-petition indebtedness are
  stayed and other contractual obligations against the Debtors may not be
  enforceable. In addition, under the Bankruptcy Code, the Debtors may assume or
  reject executory contracts, including real estate leases, employment contracts,
  personal property leases, service contracts and other unexpired executory
  pre-petition contracts, subject to Bankruptcy Court approval. Parties affected
  by these rejections may file claims with the Bankruptcy Court in accordance with
  the Bankruptcy Code. The Debtors cannot presently determine or reasonably
  estimate the ultimate liability that may result from the filing of claims for
  all contracts that may be rejected. Substantially all pre-petition liabilities
  are subject to settlement under a plan of reorganization to be voted on by the
  creditors and equity holders and approved by the Bankruptcy Court. Although the
  Debtors expect to file a reorganization plan or plans that provide for emergence
  from bankruptcy sometime during early 2002, there can be no assurance that a
  reorganization plan or plans will be proposed by the Debtors or confirmed by the
  Bankruptcy Court or that any such plan will be consummated.
  
  As provided by the Bankruptcy Code, the Debtors have the exclusive right to
  submit a plan of reorganization for 120 days from the date of the filing of the
  voluntary petitions. Further extension may be sought and may be granted or
  rejected by the Bankruptcy Court. If the Debtors fail to file a plan of
  reorganization during such period or if such plan is not accepted by the
  required number of creditors and equity holders within the required period, any
  party in interest may subsequently file its own plan of reorganization for the
  Debtors. A plan of reorganization must be confirmed by the Bankruptcy Court,
  upon certain findings being made by the Bankruptcy Court which are required by
  the Bankruptcy Code. The Bankruptcy Court may confirm a plan of reorganization
  notwithstanding the non-acceptance of the plan by an impaired class of creditors
  or equity holders if certain requirements of the Bankruptcy Code are met. A plan
  or reorganization also could result in holders of the Company's common stock
  receiving no value for their interest. The Chapter 11 filing, the uncertainty
  regarding the eventual outcome of the reorganization case and the effect of
  other unknown adverse factors could threaten the Company's existence as a going
  concern.
  
  At the first day hearing held on October 15, 2001 before United States
  Bankruptcy Judge Allan L. Gropper, the Bankruptcy Court entered orders granting
  authority to the Debtors to, among other things, pay pre-petition and
  post-petition employee wages, salaries, benefits and other employee obligations,
  and pay certain administrative fees.
  
  Schedules will be filed with the Bankruptcy Court setting forth the assets and
  liabilities of the Debtors as of the filing date as shown by the Company's
  accounting records. Differences between amounts shown by the Company and claims
  filed by creditors will be investigated and, if necessary, unresolved disputes
  will be determined by the Bankruptcy Court. The ultimate settlement terms for
  such liabilities are subject to a plan of reorganization, and accordingly, are
  not presently determinable.
  
  
  NOTE D - DEBT
  
  As a result of the Chapter 11 filing on October 15, 2001 (See Note C), the
  Company's convertible debentures will be classified as "Liabilities Subject to
  Settlement under the Reorganization" in future reporting periods in accordance
  with Statement of Position 90-7 " Financial Reporting by Entities in
  Reorganization under the Bankruptcy Code" (`SOP 90-7'). No principal or interest
  payments will be made without Bankruptcy Court approval until a reorganization
  plan has been approved.
  
  Also in accordance with SOP 90-7, the convertible debentures have not been
  reclassified as current liabilities in the accompanying balance sheet as of
  September 30, 2001 due to the automatic stay provisions of the Chapter 11
  filing.
  
  
                                          6
  
  <PAGE>
  
  NOTE E - EARNINGS PER SHARE
  
  Earnings per share is based on the weighted average number of shares of common
  stock outstanding during the periods. Common stock equivalents and the
  convertible debentures which are antidilutive based upon losses from continuing
  operations have been excluded from the computations in both periods.
  
  A reconciliation of the Company's loss per share calculations for the three and
  nine months ended September 30, 2001 and 2000, respectively, is as follows:
  
  <TABLE>
  <CAPTION>
                                                        Loss from                                Per Share
  (in thousands, except for per share amounts)     Continuing Operations           Shares          Amount
                                                   ---------------------           ------          ------
  
  <S>                                                  <C>                         <C>             <C>
  For the three months ended September 30, 2001:
  Basic and Diluted Loss Per Share:                    $  (10,019)                 86,191          $(0.12)
                                                       ==========                  ======          =======
  
  For the three months ended September 30, 2000:
  Basic and Diluted Loss Per Share:                    $  (4,271)                  65,623          $(0.07)
                                                       =========                   ======          ======
  
  For the nine months ended September 30, 2001:
  Basic and Diluted Loss Per Share:                    $  (16,791)                 77,682         $(0.22)
                                                       ===========                 ======         =======
  
  For the nine months ended September 30, 2000
  Basic and Diluted Loss per Share                     $ (10,323)                  64,682         $(0.16)
                                                       ==========                  ======         =======
  </TABLE>
  
  NOTE F - DISCONTINUED OPERATIONS
  
  On March 29, 1999, the Company announced that it would divest its Computer
  Telephony and Healthcare businesses. By divesting the core Computer Telephony
  and Healthcare businesses, the Company focused its resources on its Internet
  subsidiary, eLottery, Inc. During the fourth quarter of 1999, the Company
  finalized the plan of disposal for these businesses, and accordingly, started
  accounting for the businesses as discontinued operations.
  
  On January 1, 2000, the Company completed the sale of its Computer Telephony
  division to Inter-Tel, Incorporated for $44.3 million in cash plus the
  assumption of certain liabilities. The $44.3 million in gross proceeds included
  $4.0 million that was held in escrow. The Company and Inter-Tel reached a
  settlement agreement regarding indemnity and other claims asserted by Inter-Tel
  in 2000 and the Company received approximately $2.5 million (plus interest) of
  the escrowed proceeds during the fourth quarter of 2000. A portion of the
  proceeds was used to repay all of the Company's outstanding revolving debt
  ($19.6 million) in January 2000.
  
  On July 21, 2000, the Company completed the sale of its Healthcare
  Communications division to Grinnell Corporation for $5.0 million in cash. eLOT
  is also continuing to pursue the sale of all or part of its investment in
  Dialogic Communications Corporation ("DCC"), a private company, based in
  Franklin, Tennessee, that develops and markets interactive call processing
  solutions for business, industry and government. The net investment in DCC as of
  September 30, 2001 is approximately $1.0 million.
  
  The Company recorded an after tax gain of $14.9 million on the sale of the
  computer telephony division in the first quarter of 2000. This was offset by a
  $5 million reserve related to the sale of Healthcare Communication division and
  a $6 million valuation allowance against deferred tax assets. In March 2001, the
  Company recorded an additional $3.9 million valuation reserve against deferred
  tax assets based upon a further review of the realizability of this asset due to
  changes in market conditions.
  
                                          7
  
  
  <PAGE>
  
  <TABLE>
  <CAPTION>
  
  Summarized financial information for the discontinued operations is as follows
  (000):
  
  For the three months ended September 30,                         2001            2000
  ----------------------------------------                      -----------     ----------
  
  <S>                                                           <C>                  <C>
  Revenues                                                      $       0            $ 732
  Loss from Discontinued
     Operations                                                    (1,652)          (2,267)
  Loss on sale of discontinued operations                               0             ---
  
  For the nine months ended September 30,                          2001            2000
  ---------------------------------------                       -----------     ----------
  
  Revenues                                                      $       0          $17,479
  Loss from Discontinued
     Operations                                                    (2,371)          (6,320)
  Gain (Loss) on sale of discontinued operations,
         Net of Taxes                                              (3,886)             387
  
  As of September 30, 2001 and December 31, 2000                 2001              2000
  ----------------------------------------------               ----------       ----------
  
  Current Assets                                                $     ---       $      ---
  Total Assets                                                      5,647           11,745
  Current Liabilities                                               1,293            4,981
  Total Liabilities                                                 1,293            4,981
  Net Assets                                                        4,354            6,764
  </TABLE>
  
  The loss from discontinued operations for the three and nine months ended
  September 30, 2001 is primarily due to the Company's equity share of the loss of
  DCC for the period.
  
  On May 8, 2001, the Company reached a settlement with regard to certain claims
  made by Twelve Oaks Liquidating Trust ("Twelve Oaks") with respect to the
  acquisition in January 2000 by eLOT of 254,686 shares of DCC in exchange for
  254,686 shares of eLOT common stock. A member of eLOT's board of directors is
  the Liquidating Trustee of Twelve Oaks. The settlement agreement calls for the
  Company to put 150,000 shares of DCC common stock in escrow for the benefit of
  Twelve Oaks. The Company shall retain title and voting rights until the escrowed
  shares are transferred pursuant to the settlement agreement. Twelve Oaks shall
  receive a pro-rata share of the proceeds from the sale by the Company of the
  shares of DCC, subject to a minimum of $400,000 and a maximum of $500,000. If
  Twelve Oaks receives less than $400,000 from the full or partial sale of the
  escrowed shares, the Company has agreed to pay Twelve Oaks the difference
  between the proceeds received and $400,000 either in cash or through the sale of
  additional escrowed shares during the escrow period of one year.
  
  NOTE G - ASSET IMPAIRMENT
  
  In the third quarter, the Company re-evaluated certain of its Intangible assets
  in accordance with the provisions of SFAS No. 121, "Accounting for the
  Impairment of Long-Lived Assets for Assets to be Held and Used" Based upon this
  review, the Company recorded an asset impairment charge of $6.4 million in the
  quarter ended September 30, 2001.
  
                                          8
  
  <PAGE>
  
  Approximately $5.8 million of the charge was related to intangibles recorded
  upon the acquisition of unique users related to the Lottery notification
  business, ("Elottonet") from PlasmaNet during 2000. The Internet advertising
  market continues to decline thus reducing the market value of opt-in names in
  the industry and as a result the future cash flows to be generated by these
  unique users was not sufficient to support the previous carrying value.
  
  Approximately $.6 million of this charge is related to the excess of the
  purchase price over the fair value of the assets acquired in connection with the
  acquisition of the Network 60 subsidiaries in March 2000. The future cash flows
  of this business do not support the carrying value of this intangible due to the
  continued decline in the internet advertising industry.
  
  
  NOTE H - ACQUISITION OF FREEWORLDLOTTERY.COM
  
  On July 31, 2001, the Company acquired the FWL website, (which began operations
  on January 23, 2001) from PlasmaNet, Inc. in exchange for newly issued preferred
  stock which is convertible into a maximum number of 22.7 million common shares.
  The conversion of the preferred stock is contingent upon the website achieving
  certain net cash contribution milestones over the 18-month period of the
  agreement. In addition, the Company entered into a management agreement with
  PlasmaNet, Inc. to operate the website. PlasmaNet, Inc. would receive a monthly
  management fee of $75,000 for these management services. For the purposes of
  recording this acquisition, the preferred stock was recorded at its liquidation
  value of $280,000.
  
  On September 15, 2001, the Company announced that as of that date, it had not
  received any of its expected revenues from its FreeWorldLottery ("FWL")
  acquisition and that it may never receive any of the anticipated revenues from
  this business. Management is currently evaluating its legal remedies under both
  the asset purchase and management agreements.
  
  
  
  NOTE I - OTHER MATTERS
  
  For the nine-month periods ended September 30, 2001 and 2000, the Company made
  cash payments of approximately $.6 million and $1.2 million, respectively for
  interest expense on indebtedness. For the nine-month periods ended September 30,
  2001 and 2000 respectively, the company made cash payments for income taxes of
  approximately $11,000 and $264,000. The Company did not make its semi-annual
  interest payment due on September 15, 2001 on the company's convertible
  debentures (See Note D).
  
  In December 2000, the Company accrued stock compensation expense of $650,000
  related to certain management compensation to be paid in stock. A portion of the
  compensation was satisfied by the issuance of stock options issued at fair
  market value in 2001. As a result, $500,000 of this accrual is no longer
  required and was reversed into earnings during the second quarter of 2001.
  
  
                                          9
  
  <PAGE>
  
  Item 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
  The following discussion and analysis explains trends in the Company's financial
  condition as of September 30, 2001 and results of operations for the three and
  nine-month periods ended September 30, 2001 and 2000. It is intended to help
  shareholders and other readers understand the dynamics of the Company's business
  and the key factors underlying its financial results. This discussion should be
  read in conjunction with the consolidated financial statements and notes
  included elsewhere in this Form 10-Q, and with the Company's audited
  consolidated financial statements and notes thereto for the year ended December
  31, 2000 included in Form 10-K. Management believes that certain statements in
  this discussion and analysis constitute forward-looking statements within the
  meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such
  statements are based on current expectations, estimates and projections about
  the industries in which the Company operates, management's beliefs and
  assumptions made by management. Such forward-looking statements involve known
  and unknown risks, uncertainties and other factors that may cause the actual
  results, performance or achievements of the Company, or industry results, to be
  materially different from any future results, performance, or achievements
  expressed or implied by such forward-looking statements. Such risks,
  uncertainties and assumptions include, among others, the following: general
  economic and business conditions: demographic changes; rapid technology
  development and changes; timing of product introductions; the mix of
  products/services; industry capacity and other industry trends; and the ability
  of the Company to attract and retain key employees.
  
  On October 15, 2001, subsequent to the close of the fiscal quarter ended
  September 30, 2001, the Company and its eLottery, Inc. subsidiary (collectively,
  the "Debtors") filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy
  Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
  Southern District of New York (the "Bankruptcy Court"). The Chapter 11 cases
  Nos. 01-15327 (alg) and 01-15328 (alg) (the "Chapter 11 Cases") have been
  consolidated for the purpose of joint administration. As of October 15, 2001,
  the Debtors are continuing to operate their business as debtors-in-possession
  under Chapter 11 of the Bankruptcy Code and are subject to the jurisdiction of
  the Bankruptcy Court.
  
  As a result of these filings, actions to collect pre-petition indebtedness are
  stayed and other contractual obligations against the Debtors may not be
  enforceable. In addition, under the Bankruptcy Code, the Debtors may assume or
  reject executory contracts, including real estate leases, employment contracts,
  personal property leases, service contracts and other unexpired executory
  pre-petition contracts, subject to Bankruptcy Court approval. Parties affected
  by these rejections may file claims with the Bankruptcy Court in accordance with
  the Bankruptcy Code. The Debtors cannot presently determine or reasonably
  estimate the ultimate liability that may result from the filing of claims for
  all contracts that may be rejected. Substantially all pre-petition liabilities
  are subject to settlement under a plan of reorganization to be voted on by the
  creditors and equity holders and approved by the Bankruptcy Court. Although the
  Debtors expect to file a reorganization plan or plans that provide for emergence
  from bankruptcy sometime during early 2002, there can be no assurance that a
  reorganization plan or plans will be proposed by the Debtors or confirmed by the
  Bankruptcy Court or that any such plan will be consummated.
  
  As provided by the Bankruptcy Code, the Debtors have the exclusive right to
  submit a plan of reorganization for 120 days from the date of the filing of the
  voluntary petitions. Further extension may be sought and may be granted or
  rejected by the Bankruptcy Court. If the Debtors fail to file a plan of
  reorganization during such period or if such plan is not accepted by the
  required number of creditors and equity holders within the required period, any
  party in interest may subsequently file its own plan of reorganization for the
  Debtors. A plan of reorganization must be confirmed by the Bankruptcy Court,
  upon certain findings being made by the Bankruptcy Court, that are required by
  the Bankruptcy Code. The Bankruptcy Court may confirm a plan of reorganization
  notwithstanding the non-acceptance of the plan by an impaired class of creditors
  or equity holders if certain requirements of the Bankruptcy Code are met. A plan
  of reorganization also could result in holders of the Company's common stock
  receiving no value for their interest. The Chapter 11 filing, the uncertainty
  regarding the eventual outcome of the reorganization case and the effect of
  other unknown adverse factors could threaten the Company's existence as a going
  concern.
  
  
                                         10
  
  <PAGE>
  
  At the first day hearing held on October 15, 2001 before United States
  Bankruptcy Judge Allan L. Gropper, the Bankruptcy Court entered orders granting
  authority to the Debtors to, among other things, pay pre-petition and
  post-petition employee wages, salaries, benefits and other employee obligations,
  and pay certain administrative fees.
  
  Schedules will be filed with the Bankruptcy Court setting forth the assets and
  liabilities of the Debtors as of the filing date as shown by the Company's
  accounting records. Differences between amounts shown by the Company and claims
  filed by creditors will be investigated and, if necessary, unresolved disputes
  will be determined by the Bankruptcy Court. The ultimate settlement terms for
  such liabilities are subject to a plan of reorganization, and accordingly, are
  not presently determinable.
  
  The accompanying unaudited consolidated condensed financial statements have been
  prepared on a going concern basis, which contemplates continuity of operations,
  realization of assets and liquidation of liabilities and commitments in the
  normal course of business and do not reflect any adjustments that might result
  if the Company is unable to continue as a going concern. The filing of the
  voluntary Chapter 11 petitions referred to below, losses from operations and
  negative cash flow from operations raise doubt about the Company's ability to
  continue as a going concern. The appropriateness of using a going concern basis
  is dependent upon, among other things, confirmation of a plan or plans of
  reorganization, future profitable operations and the ability to generate cash
  from operations and financing sources sufficient to meet obligations. As a
  result of the filing of the Chapter 11 cases and related circumstances,
  realization of assets and liquidation of liabilities is subject to significant
  uncertainty. While under the protection of Chapter 11, the Debtors may sell or
  otherwise dispose of assets, and liquidate or settle liabilities for amounts
  other than those reflected in the consolidated condensed financial statements.
  Further, a plan or plans of reorganization could materially change the amounts
  reported in the accompanying consolidated condensed financial statements. The
  consolidated condensed financial statements do not include any adjustments
  relating to recoverability of the value of recorded asset amounts or the amount
  and classification of liabilities that might be necessary as a consequence of a
  plan of reorganization. The Company anticipates significant adjustments to the
  consolidated condensed financial statements as a result of applying the
  provisions of Statement of Position 90-7 "Financial Reporting by Entities in
  Reorganization Under the Bankruptcy Code" during the proceedings. At this time,
  it is not possible to predict the outcome of the Chapter 11 cases or their
  effect on the Company's business, its financial position, results of operations
  or cash flows. If it is determined that the liabilities subject to compromise in
  the Chapter 11 cases exceed the fair value of the assets, unsecured claims may
  be satisfied at less than 100% of their face value and equity interests of the
  Company's stockholders may have no value. The Company believes its existing cash
  resources plus federal and state tax refunds and expense reductions should
  provide the Company with adequate liquidity to conduct its business while it
  prepares a reorganization plan. However, the Company's liquidity, capital
  resources, results of operations and ability to continue as a going concern are
  subject to known and unknown risks and uncertainties.
  
  
  
  THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 COMPARED WITH THE SAME
  PERIODS LAST YEAR.
  
  RESULTS OF OPERATIONS
  
  REVENUES: Revenues for the three and nine month periods ended September 30, 2001
  were $500,000 and $1,441,000, respectively, as compared to $308,000 and
  $558,000, respectively, in 2000. The increase is attributable to the acquisition
  of the Network 60 promotional web sites, and the launch of the Lottery
  Notification business in the third quarter of 2000, offset by a significant
  decline in advertising rates.
  
  PRIZES, CONTENT, ADVERTISING AND PROMOTION: Prizes, content, advertising and
  promotions for the three and nine month periods ended September 30, 2001 were
  $373,000 and $803,000, respectively, versus $722,000 and $2.0 million,
  respectively, in 2000. The decline is due to expense reductions implemented in
  response to the decline in advertising rates. These expenses include "ePoints"
  earned by registered players on the eLotteryfreeway entertainment site, cost of
  editorial content, advertising expenses and special promotional programs
  designed to acquire new registered players and reward our existing player base.
  
                                         11
  
  <PAGE>
  
  GENERAL & ADMINISTRATIVE: General & Administrative expenses were $1.9 million
  and $6.0 million for the three and nine month periods ended September 30, 2001,
  down from $2.8 million and $7.1 million for the comparable periods in 2000. The
  decrease in General & Administrative expenses is attributable to the continued
  reductions in employee related costs, lobbying costs and other expenses.
  
  STOCK COMPENSATION EXPENSE: In December 2000, the Company recorded stock
  compensation expense of $650,000 related to certain management compensation to
  be paid in stock. A portion of this compensation was satisfied by the issuance
  of stock options issued at fair market value during 2001. As a result, $500,000
  of the accrual is no longer required and was reversed into earnings during the
  second quarter of 2001.
  
  ASSET IMPAIRMENT: During 2001, the Company performed an evaluation of the
  realizability of certain assets and determined that certain intangibles and
  certain prepaid assets were permanently impaired. As a result of this review,
  the Company recorded an asset impairment charge of $366,000 in the first quarter
  and an additional charge of $6.3 million in the third quarter.
  
  DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense for the
  three and nine month periods ended September 30, 2001 was approximately $1.3
  million and $4.0 million, respectively as compared to $707,000 million and $1.4
  million in 2000. The increase is attributable to depreciation expense related to
  capital expenditures incurred throughout 2000 and the amortization of intangible
  assets.
  
  INTEREST EXPENSE: Interest expense for the three and nine-month periods ended
  September 30, 2001 was $395,000 and $1.2 million, respectively, as compared to
  $391,000 and $1.2 million, respectively in 2000.
  
  OTHER INCOME, NET: Other income (expense), net, for the three and nine months
  ended September 30, 2001 was $47,000 and $11,000, respectively, as compared to
  $176,000 and $980,000 for the comparable 2000 period. The change is primarily
  due to lower invested capital and interest rates on the investment of corporate
  funds in the comparable periods.
  
  DISCONTINUED OPERATIONS: There were no revenues from discontinued operations for
  the three and nine-month periods ended September 30, 2001 as compared to
  $732,000 and $17.5 million, respectively for 2000. The decrease in revenue is
  due entirely to the sale of the Computer Telephony business in January 2000 and
  the Healthcare business in July 2000. The loss from discontinued operations for
  the three and nine-month periods ended September 30, 2001 was $1.6 million and
  $2.4 million, respectively, versus $2.3 million and $6.3 million for 2000. The
  2001 loss is attributable to the Company's equity share of the loss of DCC for
  the period offset by a gain on a litigation settlement.
  
  The Company recorded an after-tax loss for the nine months ended September 30,
  2001 of $3.9 million related to the discontinued operations. This represents an
  additional valuation reserve recorded against the deferred tax asset.
  
  LIQUIDITY AND CAPITAL RESOURCES
  
  At September 30, 2001, the Company had approximately $1.0 million of cash and
  cash equivalents. The Company has incurred recurring losses from continuing
  operations during the transition to the Company's new business strategy.
  Revenues from eLOT operations were affected by the decline in Internet
  advertising pricing throughout 2000 and further deterioration in 2001. In
  addition, revenues have been slow to materialize in the lottery business due to
  governmental lotteries migrating much more slowly than expected onto the
  Internet due to legislative, political and social issues.
  
  On September 15, 2001, the Company announced that it did not make the $613,000
  interest payment on its convertible debentures that was due on that date. The
  Company also announced that as of that date, it had not received any of its
  expected revenues from its FreeWorldLottery ("FWL") acquisition and that it may
  never receive any of the anticipated revenues from this business. As a result,
  the Company's liquidity was severely impacted and the Company filed on October
  15, 2001 a voluntary petition for reorganization under Chapter 11 of the U.S.
  Bankruptcy Code. See Chapter 11 filing described above.
  
  
                                         12
  
  <PAGE>
  
  Cash used by continuing operating activities was $5.7 million in the first nine
  months of 2001 versus $12.6 million for 2000. Cash used by discontinued
  operating activities in the first nine months of 2001 was $ 292,000 versus $8.2
  million for the same period in 2000.
  
  Cash provided by divestiture activities was approximately $46.0 million in the
  first nine months of 2000, primarily due to the proceeds received from the sale
  of the Computer Telephony business of $44.3 million, the sale of the Healthcare
  Communications business for $5.0 million and the repayment by certain key
  management of the ESIP loans for $2.6 million, offset partially by the purchase
  of property and equipment. Cash used by investing activities totaled $215,000
  for the first nine months of 2001 representing Capital Expenditures.
  
  During the first nine months of 2001, the Company generated $1.5 million in cash
  from financing activities through loans against executive life insurance
  premiums paid by the company in previous periods and the sale of stock. The
  Company used $18.7 million in cash from financing activities during the first
  nine months of 2000. The primary use of cash in 2000 was the repayment of the
  outstanding balance under the credit facility of $19.6 million and other
  long-term debt of $.5 million, offset partially by proceeds from the exercise of
  stock options.
  
  
  
                                         13
  
  <PAGE>
  
  
                             PART II - OTHER INFORMATION
  
  
  Item 1.           LEGAL PROCEEDINGS
                             Not applicable.
  
  Item 2.           CHANGES IN SECURITIES
                             Not applicable.
  
  Item 3.           DEFAULTS UPON SENIOR SECURITIES
                             Not applicable.
  
  Item 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                             Not applicable.
  
  Item 5.           OTHER INFORMATION
                             Not applicable.
  
  Item 6.           EXHIBITS AND REPORTS ON FORM 8-K
  
                     a)       Exhibits
  
                              11 - Statement Regarding Computation of Per
                              Share Earnings (see Note C of Notes to
                              Consolidated Financial Statements in Part I,
                              Item 1).
  
                     b)       Reports on Form 8-K
                              Current Report on Form 8-K dated Ocober 18, 2001
  
  
                                         14
  
  
  <PAGE>
  
  
                                     SIGNATURES
  
  
  
  Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report for the quarterly period ended June 30,
  2001 on Form 10-Q to be signed on its behalf by the undersigned thereunto duly
  authorized.
  
  
                                      eLOT, Inc.
  
  
  
  Dated:   November 14, 2001          /s/ Edwin J. McGuinn
                                      --------------------------------------------
                                      Edwin J. McGuinn
                                      President and Chief Executive Officer
  
  
  
  Dated:   November 14, 2001          /s/ David J. Parcells
                                      --------------------------------------------
                                      David J. Parcells
                                      Vice President, Finance and
                                      Chief Financial Officer
  
  
  
  
                                         15
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metadata_filer: {"company-data": {"conformed-name": "ELOT INC", "cik": "0000725282", "assigned-sic": "7389", "irs-number": "860449210", "state-of-incorporation": "VA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-11551", "film-number": "1792705"}, "business-address": {"street1": "301 MERRITT 7", "street2": "CORPORATE PARK 1ST FLOOR", "city": "NORWALK", "state": "CT", "zip": "06851", "phone": "2038408600"}, "mail-address": {"street1": "301 MERRITT 7", "street2": "CORPORATE PARK 1ST FLOOR", "city": "NORWALK", "state": "CT", "zip": "06851"}, "former-company": [{"former-conformed-name": "EXECUTONE INFORMATION SYSTEMS INC", "date-changed": "19920703"}, {"former-conformed-name": "VODAVI TECHNOLOGY CORP", "date-changed": "19880802"}]}
text: FORM 10-Q
  
                         SECURITIES AND EXCHANGE COMMISSION
  
                               Washington, D.C. 20549
  
           [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
  
                  For the quarterly period ended September 30, 2001
  
                                         OR
  
           [  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
  
           For the transition period from                to
                                          --------------    -------------------
  
                             Commission File No. 0-11551
  
                                     eLOT, Inc.
  --------------------------------------------------------------------------------
               (Exact name of registrant as specified in its charter)
  
            Virginia                                             86-0449210
  ----------------------------------                       --------------------
    (State or other jurisdiction of                          (I.R.S. Employer
    incorporation or organization)                         Identification No.)
  
              101 Merritt 7 Corporate Park, Norwalk, Connecticut 06851
  --------------------------------------------------------------------------------
                 (Address of principal executive offices) (Zip Code)
  
                                   (203) 840-8600
  --------------------------------------------------------------------------------
                (Registrant's telephone number, including area code)
  
  --------------------------------------------------------------------------------
  
  --------------------------------------------------------------------------------
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
  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
                                         ---     ---
  
  The number of shares outstanding of registrant's Common Stock, $.01 par value
  per share, as of October 31, 2001 was 87,465,425.
  INDEX
  
  eLOT, Inc.
  
                                                                          Page #
  PART I.  FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  
           Consolidated Balance Sheets -
           September 30, 2001 and December 31, 2000.                           1
  
           Consolidated Statements of Operations -
           Three Months and Nine Months Ended September 30, 2001 and 2000.     2
  
           Consolidated Statements of Cash Flows -
           Nine Months Ended September 30, 2001 and 2000.                      3
  
           Notes to Consolidated Financial Statements.                         4
  
  Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations                      10
  
  PART II. OTHER INFORMATION                                                  14
  
           SIGNATURES                                                         15
  PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  eLOT, INC.
                             CONSOLIDATED BALANCE SHEETS
                             (DEBTORS - IN - POSSESSION)
  
  (In thousands, except for share and per share amounts)                September 30,           December 31,
                                                                            2001                    2000
                                                                        ------------            ------------
                                                                         (Unaudited)
  ASSETS
  ------
  CURRENT ASSETS:
  Cash and cash equivalents                                             $ 1,032                 $   5,731
     Accounts receivable                                                       393                       222
     Prepaid expenses and other current assets                                 499                       709
     Net assets of discontinued operations                                   2,725                     8,294
                                                                          --------                 ---------
     Total Current Assets                                                    4,649                    14,956
  
  PROPERTY AND EQUIPMENT, net                                                4,288                     5,143
  INTANGIBLE ASSETS, net                                                     1,189                     4,018
  OTHER ASSETS                                                               1,511                     3,486
                                                                        ----------                ----------
                                                                          $ 11,637                  $ 27,603
                                                                          ========                  ========
  
  LIABILITIES AND STOCKHOLDERS' EQUITY
  ------------------------------------
  CURRENT LIABILITIES:
     Current portion of long-term debt                                  $      196                  $    240
     Accounts payable                                                        2,427                     1,841
     Accrued payroll and related costs                                         402                       838
     Accrued liabilities                                                     2,167                     2,083
                                                                        ----------                ----------
     Total Current Liabilities                                               5,192                     5,002
  
  LONG-TERM DEBT                                                            13,462                    14,243
                                                                      ------------                  --------
      Total Liabilities                                                     18,654                    19,245
                                                                         ---------                  --------
  
  STOCKHOLDERS' EQUITY:
      Preferred Stock                                                          280                       ---
      Common stock:  $.01 par value; 130,000,000 shares
          authorized; 87,465,425 and 69,645,441 issued and
          outstanding                                                          875                       696
      Additional paid-in capital                                            99,131                    91,911
      Accumulated other comprehensive loss                                    (618)                     (613)
      Accumulated deficit                                                 (106,685)                  (83,636)
                                                                         ---------                 ---------
      Total Stockholders' Equity (Deficit)                                  (7,017)                    8,358
                                                                          ---------                ---------
                                                                          $ 11,637                  $ 27,603
                                                                          ========                  ========
  The accompanying notes are an integral part of these consolidated balance
  sheets.
  
                                         1
  eLOT, INC.AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF OPERATIONS
                             (DEBTORS - IN - POSSESSION)
                                     (Unaudited)
  Three Months Ended               Nine Months Ended
  (In thousands, except for per share amounts)                          September 30,                   September 30,
                                                                  ------------------------          -------------------
                                                                     2001        2000               2001             2000
                                                                     ----        ----               ----             ----
  REVENUES                                                             $500          $308          $1,441           $558
  
  COSTS AND EXPENSES:
      Prizes, content, advertising and promotion                        373           722             803          2,017
      General and Administrative                                      1,879         2,807           5,966          7,129
      Asset Impairment                                                6,356           128           6,722            128
      Reversal of Stock Compensation Accrual                            ---           ---            (500)           ---
      Depreciation and Amortization                                   1,563           707           4,013          1,394
                                                                      -----        ------           -----         ------
                                                                     10,171         4,364          17,004         10,668
                                                                     ------       -------          ------          -----
  OPERATING LOSS                                                     (9,671)       (4,056)        (15,563)       (10,110)
  
  INTEREST EXPENSE                                                     (395)         (391)         (1,239)        (1,193)
  OTHER INCOME, NET                                                      47           176              11            980
                                                                   --------       -------        --------        -------
  LOSS FROM CONTINUING OPERATIONS
      BEFORE INCOME TAXES                                           (10,019)       (4,271)        (16,791)       (10,323)
  
  INCOME TAXES                                                          ---           ---             ---            ---
                                                                  ---------      --------        --------       --------
  
  LOSS FROM CONTINUING OPERATIONS                                   (10,019)       (4,271)        (16,791)       (10,323)
  
  DISCONTINUED OPERATIONS:
       Income (loss) from discontinued operations                    (1,652)       (2,267)         (2,371)        (6,320)
      Gain (loss) on sale of discontinued operations,
      (net of tax provision of $15,924 for 2000)                        ---           ---          (3,886)           387
                                                                        ---      --------          -------        ------
  
      Loss from discontinued operations                              (1,652)       (2,267)         (6,257)        (5,933)
                                                                     -------        ------         -------       --------
  
  NET LOSS                                                         $(11,671)   $   (6,538)       $(23,048)      $(16,256)
                                                                   ========    ===========       =========      =========
  
  BASIC AND DILUTED LOSS PER SHARE:
      Loss from continuing operations                              $  (0.12)       $(0.07)         $(0.22)        $(0.16)
      Loss from discontinued operations                               (0.02)        (0.03)          (0.03)         (0.10)
      Gain (Loss) on sale of discontinued operation                     ---         (0.00)          (0.05)          0.01
                                                                        ---          -----          ------         -----
      NET LOSS PER SHARE                                           $  (0.14)       $ (0.10)         $(0.30)       $(0.25)
                                                                   ========        =======          ======        ======
  
  AVERAGE COMMON SHARES OUTSTANDING:                                 86,191         65,623          77,682        64,682
                                                                     ======        =======          ======        ======
  The accompanying notes are an integral part of these consolidated statements.
  
                                          2
  eLOT, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DEBTORS - IN - POSSESSION)
                                     (Unaudited)
  (In thousands)                                                                           Nine Months Ended
                                                                                              September 30,
                                                                               -------------------------------------
                                                                                   2001                     2000
                                                                               -----------               -----------
  
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Loss from continuing operations                                         $  ( 16,791)              $  (10,323)
      Adjustments to reconcile net loss to net
        cash used in operating activities:
        Depreciation and amortization                                               4,013                    1,394
        Accretion on Debentures and Note Payable                                      274                      216
        Asset Impairment                                                            6,722                      128
  
        Reversal of Stock Compensation Accrual                                       (500)                     ---
        Other                                                                         107                      ---
      Changes in working capital items:
          Accounts receivable                                                        (171)                    (310)
          Accounts payable and accruals                                               851                   (3,546)
          Other working capital items, net                                           (212)                  (  193)
                                                                           ---------------           --------------
  
  NET CASH USED BY
     CONTINUING OPERATING ACTIVITIES                                               (5,707)                 (12,634)
  
  Cash flows used by discontinued operating activities                               (292)                  (8,246)
                                                                                  -------               -----------
  
  NET CASH USED BY OPERATING ACTIVITIES                                            (5,999)                 (20,880)
                                                                                ---------                ----------
  
  CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment                                              (215)                  (2,951)
     Proceeds From Sale of CT Business                                                ---                   44,300
     Proceeds From Sale of HC Business                                                ---                    5,000
     Restricted Cash-Proceeds from Sale of CT Business                                ---                   (3,505)
     ESIP participants loan repayments                                                ---                    2,578
     Other, net                                                                       (25)                    (245)
                                                                              ------------             ------------
  NET CASH PROVIDED (USED) BY
      INVESTING ACTIVITIES                                                           (240)                  45,177
                                                                                ----------              -----------
  
  CASH FLOWS FROM FINANCING ACTIVITIES:
     Repayments/Borrowings under revolving credit facility                            ---                  (19,617)
     Repayments of other long-term debt                                               ---                     (455)
     Proceeds from issuance of stock                                                  403                    1,386
     Proceeds from Life Insurance Policies                                          1,137                      ---
                                                                               ----------          ----------------
  NET CASH PROVIDED (USED) BY FINANCING
     ACTIVITIES                                                                     1,540                  (18,686)
                                                                               ----------              ------------
  INC (DEC) IN CASH AND CASH EQUIVALENTS                                           (4,699)                   5,611
  CASH AND CASH EQUIVALENTS - BEGINNING
     OF YEAR                                                                        5,731                    1,060
                                                                               ----------              ------------
  CASH AND CASH EQUIVALENTS - END
    OF PERIOD                                                                   $   1,032                $   6,671
                                                                                =========                ==========
  The accompanying notes are an integral part of these consolidated statements.
  
                                          3
  eLOT, INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                              (DEBTORS - IN - POSSESSION)
                                     (Unaudited)
  
  NOTE A - NATURE OF THE BUSINESS
  
  eLOT, Inc. (the "Company" or "eLOT") is committed to leading the governmental
  lottery industry into the e-commerce market. The Company has developed,
  installed and operated systems that have processed ten million e-commerce
  lottery ticket sales and transactions. It has operated Internet, Intranet,
  telephone, communications, accounting, banking, database and other applications
  and services that can facilitate the electronic sale of new and existing lottery
  products worldwide. The Company has also developed transitional e-commerce
  solutions for governmental lotteries that leverage the power of the Internet
  while political, legal and social issues surrounding the sales of lottery
  tickets over the Internet are simultaneously addressed.
  
  eLOT is an application service provider of Internet marketing and advertising
  technology for lotteries. The Company's IMARCS (Internet Marketing Analysis
  Research and Communications System) database marketing solution enables
  government lotteries to attract, register and communicate with lottery players
  through advanced Internet technology. In addition, eLOT's subsidiary, eLOTTONET,
  Inc., offers a free daily lottery email notification service (LENS) of state
  lottery results and other information and services via email.
  
  The Company operated a reward-entertainment lottery portal, eLotteryFreeWay,
  which offered lottery and entertainment games (for no consideration) with
  registered players earning ePoints that are redeemable for cash and merchandise
  credit. eLotteryFreeWay's mission was to build an Internet community whose
  members are expected to be highly predisposed to purchase governmental lottery
  tickets over the Internet. Due to financial considerations, this website was
  shut down in July 2001.
  
  In March 2001, the Company acquired certain subsidiaries of Network60 (now
  called DM360), an Internet promotions and permission-based marketing company
  that offers a flexible, cost effective direct marketing medium to traditional
  corporations, advertising agencies, and online companies. DM360's web sites
  include www.easywinnings.com, www.coolwinnings.com, www.radiostakes.com and
  www.prizechest.com.
  
  On July 30, 2001, the Company acquired FreeWorldLottery.com ("FWL"), a free
  lottery sweepstakes website owned by PlasmaNet, Inc.. See Note G.
  
  The condensed interim financial statements included herein have been prepared by
  eLOT, without audit, pursuant to the rules and regulations of the Securities and
  Exchange Commission (SEC) and reflect all adjustments that are of a normal
  recurring nature and that, in the opinion of management, are necessary for a
  fair statement of the results for interim periods. Certain information and
  footnote disclosures have been condensed or omitted pursuant to such rules and
  regulations. Although eLOT believes that the disclosures are adequate to make
  the information presented not misleading, it is suggested that these condensed
  financial statements be read in conjunction with the financial statements and
  the notes thereto included in the Company's latest annual report to
  stockholders.
  
                                          4
  NOTE B - BASIS OF PRESENTATION
  
  The accompanying consolidated financial statements include the accounts of the
  Company and its subsidiaries. In consolidating the accompanying financial
  statements, all significant intercompany transactions have been eliminated.
  Investments in affiliated companies owned more than 20%, but not in excess of
  50%, are recorded under the equity method.
  
  The preparation of financial statements in conformity with generally accepted
  accounting principles requires management to make estimates and assumptions that
  affect the reported amounts of assets and liabilities, disclosure of contingent
  assets and liabilities at the date of the financial statements and the reported
  amounts of revenues and expenses during the reporting period. Actual results
  could differ from those estimates.
  
  The accompanying unaudited consolidated condensed financial statements have been
  prepared on a going concern basis, which contemplates continuity of operations,
  realization of assets and liquidation of liabilities and commitments in the
  normal course of business and do not reflect any adjustments that might result
  if the Company is unable to continue as a going concern. The filing of the
  voluntary Chapter 11 petitions referred to below, losses from operations and
  negative cash flow from operations raise doubt about the Company's ability to
  continue as a going concern. The appropriateness of using a going concern basis
  is dependent upon, among other things, confirmation of a plan or plans of
  reorganization, future profitable operations and the ability to generate cash
  from operations and financing sources sufficient to meet obligations. As a
  result of the filing of the Chapter 11 cases and related circumstances,
  realization of assets and liquidation of liabilities is subject to significant
  uncertainty. While under the protection of Chapter 11, the Debtors (as defined
  below in Note C) may sell or otherwise dispose of assets, and liquidate or
  settle liabilities for amounts other than those reflected in the consolidated
  condensed financial statements. Further, a plan or plans of reorganization could
  materially change the amounts reported in the accompanying consolidated
  condensed financial statements. The consolidated condensed financial statements
  do not include any adjustments relating to recoverability of the value of
  recorded asset amounts or the amount and classification of liabilities that
  might be necessary as a consequence of a plan of reorganization. The Company
  anticipates significant adjustments to the consolidated condensed financial
  statements as a result of applying the provisions of Statement of Position 90-7
  "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
  during the proceedings. At this time, it is not possible to predict the outcome
  of the Chapter 11 cases or their effect on the Company's business, its financial
  position, results of operations or cash flows. If it is determined that the
  liabilities subject to compromise in the Chapter 11 cases exceed the fair value
  of the assets, unsecured claims may be satisfied at less than 100% of their face
  value and equity interests of the Company's stockholders may have no value. The
  Company believes its existing cash resources in connection with federal and
  state tax refunds and expense reductions should provide the Company with
  adequate liquidity to conduct its business while it prepares a reorganization
  plan. However, the Company's liquidity, capital resources, results of operations
  and ability to continue as a going concern are subject to known and unknown
  risks and uncertainties.
  
  NOTE C - CHAPTER 11 FILING
  
  On October 15, 2001, subsequent to the close of the fiscal quarter ended
  September 30, 2001, the Company and its eLottery, Inc. subsidiary (collectively,
  the "Debtors") filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy
  Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
  Southern District of New York (the "Bankruptcy Court"). The Chapter 11 cases
  Nos. 01-15327 (alg) and 01-15328 (alg) (the "Chapter 11 Cases") have been
  consolidated for the purpose of joint administration. As of October 15, 2001,
  the Debtors are continuing to operate their business as debtors-in-possession
  under Chapter 11 of the Bankruptcy Code and are subject to the jurisdiction of
  the Bankruptcy Court.
  
                                          5
  As a result of these filings, actions to collect pre-petition indebtedness are
  stayed and other contractual obligations against the Debtors may not be
  enforceable. In addition, under the Bankruptcy Code, the Debtors may assume or
  reject executory contracts, including real estate leases, employment contracts,
  personal property leases, service contracts and other unexpired executory
  pre-petition contracts, subject to Bankruptcy Court approval. Parties affected
  by these rejections may file claims with the Bankruptcy Court in accordance with
  the Bankruptcy Code. The Debtors cannot presently determine or reasonably
  estimate the ultimate liability that may result from the filing of claims for
  all contracts that may be rejected. Substantially all pre-petition liabilities
  are subject to settlement under a plan of reorganization to be voted on by the
  creditors and equity holders and approved by the Bankruptcy Court. Although the
  Debtors expect to file a reorganization plan or plans that provide for emergence
  from bankruptcy sometime during early 2002, there can be no assurance that a
  reorganization plan or plans will be proposed by the Debtors or confirmed by the
  Bankruptcy Court or that any such plan will be consummated.
  
  As provided by the Bankruptcy Code, the Debtors have the exclusive right to
  submit a plan of reorganization for 120 days from the date of the filing of the
  voluntary petitions. Further extension may be sought and may be granted or
  rejected by the Bankruptcy Court. If the Debtors fail to file a plan of
  reorganization during such period or if such plan is not accepted by the
  required number of creditors and equity holders within the required period, any
  party in interest may subsequently file its own plan of reorganization for the
  Debtors. A plan of reorganization must be confirmed by the Bankruptcy Court,
  upon certain findings being made by the Bankruptcy Court which are required by
  the Bankruptcy Code. The Bankruptcy Court may confirm a plan of reorganization
  notwithstanding the non-acceptance of the plan by an impaired class of creditors
  or equity holders if certain requirements of the Bankruptcy Code are met. A plan
  or reorganization also could result in holders of the Company's common stock
  receiving no value for their interest. The Chapter 11 filing, the uncertainty
  regarding the eventual outcome of the reorganization case and the effect of
  other unknown adverse factors could threaten the Company's existence as a going
  concern.
  
  At the first day hearing held on October 15, 2001 before United States
  Bankruptcy Judge Allan L. Gropper, the Bankruptcy Court entered orders granting
  authority to the Debtors to, among other things, pay pre-petition and
  post-petition employee wages, salaries, benefits and other employee obligations,
  and pay certain administrative fees.
  
  Schedules will be filed with the Bankruptcy Court setting forth the assets and
  liabilities of the Debtors as of the filing date as shown by the Company's
  accounting records. Differences between amounts shown by the Company and claims
  filed by creditors will be investigated and, if necessary, unresolved disputes
  will be determined by the Bankruptcy Court. The ultimate settlement terms for
  such liabilities are subject to a plan of reorganization, and accordingly, are
  not presently determinable.
  
  NOTE D - DEBT
  
  As a result of the Chapter 11 filing on October 15, 2001 (See Note C), the
  Company's convertible debentures will be classified as "Liabilities Subject to
  Settlement under the Reorganization" in future reporting periods in accordance
  with Statement of Position 90-7 " Financial Reporting by Entities in
  Reorganization under the Bankruptcy Code" (`SOP 90-7'). No principal or interest
  payments will be made without Bankruptcy Court approval until a reorganization
  plan has been approved.
  
  Also in accordance with SOP 90-7, the convertible debentures have not been
  reclassified as current liabilities in the accompanying balance sheet as of
  September 30, 2001 due to the automatic stay provisions of the Chapter 11
  filing.
  
                                          6
  NOTE E - EARNINGS PER SHARE
  
  Earnings per share is based on the weighted average number of shares of common
  stock outstanding during the periods. Common stock equivalents and the
  convertible debentures which are antidilutive based upon losses from continuing
  operations have been excluded from the computations in both periods.
  
  A reconciliation of the Company's loss per share calculations for the three and
  nine months ended September 30, 2001 and 2000, respectively, is as follows:
  Loss from                                Per Share
  (in thousands, except for per share amounts)     Continuing Operations           Shares          Amount
                                                   ---------------------           ------          ------
  For the three months ended September 30, 2001:
  Basic and Diluted Loss Per Share:                    $  (10,019)                 86,191          $(0.12)
                                                       ==========                  ======          =======
  
  For the three months ended September 30, 2000:
  Basic and Diluted Loss Per Share:                    $  (4,271)                  65,623          $(0.07)
                                                       =========                   ======          ======
  
  For the nine months ended September 30, 2001:
  Basic and Diluted Loss Per Share:                    $  (16,791)                 77,682         $(0.22)
                                                       ===========                 ======         =======
  
  For the nine months ended September 30, 2000
  Basic and Diluted Loss per Share                     $ (10,323)                  64,682         $(0.16)
                                                       ==========                  ======         =======
  NOTE F - DISCONTINUED OPERATIONS
  
  On March 29, 1999, the Company announced that it would divest its Computer
  Telephony and Healthcare businesses. By divesting the core Computer Telephony
  and Healthcare businesses, the Company focused its resources on its Internet
  subsidiary, eLottery, Inc. During the fourth quarter of 1999, the Company
  finalized the plan of disposal for these businesses, and accordingly, started
  accounting for the businesses as discontinued operations.
  
  On January 1, 2000, the Company completed the sale of its Computer Telephony
  division to Inter-Tel, Incorporated for $44.3 million in cash plus the
  assumption of certain liabilities. The $44.3 million in gross proceeds included
  $4.0 million that was held in escrow. The Company and Inter-Tel reached a
  settlement agreement regarding indemnity and other claims asserted by Inter-Tel
  in 2000 and the Company received approximately $2.5 million (plus interest) of
  the escrowed proceeds during the fourth quarter of 2000. A portion of the
  proceeds was used to repay all of the Company's outstanding revolving debt
  ($19.6 million) in January 2000.
  
  On July 21, 2000, the Company completed the sale of its Healthcare
  Communications division to Grinnell Corporation for $5.0 million in cash. eLOT
  is also continuing to pursue the sale of all or part of its investment in
  Dialogic Communications Corporation ("DCC"), a private company, based in
  Franklin, Tennessee, that develops and markets interactive call processing
  solutions for business, industry and government. The net investment in DCC as of
  September 30, 2001 is approximately $1.0 million.
  
  The Company recorded an after tax gain of $14.9 million on the sale of the
  computer telephony division in the first quarter of 2000. This was offset by a
  $5 million reserve related to the sale of Healthcare Communication division and
  a $6 million valuation allowance against deferred tax assets. In March 2001, the
  Company recorded an additional $3.9 million valuation reserve against deferred
  tax assets based upon a further review of the realizability of this asset due to
  changes in market conditions.
  
                                          7
  Summarized financial information for the discontinued operations is as follows
  (000):
  
  For the three months ended September 30,                         2001            2000
  ----------------------------------------                      -----------     ----------
  Revenues                                                      $       0            $ 732
  Loss from Discontinued
     Operations                                                    (1,652)          (2,267)
  Loss on sale of discontinued operations                               0             ---
  
  For the nine months ended September 30,                          2001            2000
  ---------------------------------------                       -----------     ----------
  
  Revenues                                                      $       0          $17,479
  Loss from Discontinued
     Operations                                                    (2,371)          (6,320)
  Gain (Loss) on sale of discontinued operations,
         Net of Taxes                                              (3,886)             387
  
  As of September 30, 2001 and December 31, 2000                 2001              2000
  ----------------------------------------------               ----------       ----------
  
  Current Assets                                                $     ---       $      ---
  Total Assets                                                      5,647           11,745
  Current Liabilities                                               1,293            4,981
  Total Liabilities                                                 1,293            4,981
  Net Assets                                                        4,354            6,764
  The loss from discontinued operations for the three and nine months ended
  September 30, 2001 is primarily due to the Company's equity share of the loss of
  DCC for the period.
  
  On May 8, 2001, the Company reached a settlement with regard to certain claims
  made by Twelve Oaks Liquidating Trust ("Twelve Oaks") with respect to the
  acquisition in January 2000 by eLOT of 254,686 shares of DCC in exchange for
  254,686 shares of eLOT common stock. A member of eLOT's board of directors is
  the Liquidating Trustee of Twelve Oaks. The settlement agreement calls for the
  Company to put 150,000 shares of DCC common stock in escrow for the benefit of
  Twelve Oaks. The Company shall retain title and voting rights until the escrowed
  shares are transferred pursuant to the settlement agreement. Twelve Oaks shall
  receive a pro-rata share of the proceeds from the sale by the Company of the
  shares of DCC, subject to a minimum of $400,000 and a maximum of $500,000. If
  Twelve Oaks receives less than $400,000 from the full or partial sale of the
  escrowed shares, the Company has agreed to pay Twelve Oaks the difference
  between the proceeds received and $400,000 either in cash or through the sale of
  additional escrowed shares during the escrow period of one year.
  
  NOTE G - ASSET IMPAIRMENT
  
  In the third quarter, the Company re-evaluated certain of its Intangible assets
  in accordance with the provisions of SFAS No. 121, "Accounting for the
  Impairment of Long-Lived Assets for Assets to be Held and Used" Based upon this
  review, the Company recorded an asset impairment charge of $6.4 million in the
  quarter ended September 30, 2001.
  
                                          8
  Approximately $5.8 million of the charge was related to intangibles recorded
  upon the acquisition of unique users related to the Lottery notification
  business, ("Elottonet") from PlasmaNet during 2000. The Internet advertising
  market continues to decline thus reducing the market value of opt-in names in
  the industry and as a result the future cash flows to be generated by these
  unique users was not sufficient to support the previous carrying value.
  
  Approximately $.6 million of this charge is related to the excess of the
  purchase price over the fair value of the assets acquired in connection with the
  acquisition of the Network 60 subsidiaries in March 2000. The future cash flows
  of this business do not support the carrying value of this intangible due to the
  continued decline in the internet advertising industry.
  
  NOTE H - ACQUISITION OF FREEWORLDLOTTERY.COM
  
  On July 31, 2001, the Company acquired the FWL website, (which began operations
  on January 23, 2001) from PlasmaNet, Inc. in exchange for newly issued preferred
  stock which is convertible into a maximum number of 22.7 million common shares.
  The conversion of the preferred stock is contingent upon the website achieving
  certain net cash contribution milestones over the 18-month period of the
  agreement. In addition, the Company entered into a management agreement with
  PlasmaNet, Inc. to operate the website. PlasmaNet, Inc. would receive a monthly
  management fee of $75,000 for these management services. For the purposes of
  recording this acquisition, the preferred stock was recorded at its liquidation
  value of $280,000.
  
  On September 15, 2001, the Company announced that as of that date, it had not
  received any of its expected revenues from its FreeWorldLottery ("FWL")
  acquisition and that it may never receive any of the anticipated revenues from
  this business. Management is currently evaluating its legal remedies under both
  the asset purchase and management agreements.
  
  NOTE I - OTHER MATTERS
  
  For the nine-month periods ended September 30, 2001 and 2000, the Company made
  cash payments of approximately $.6 million and $1.2 million, respectively for
  interest expense on indebtedness. For the nine-month periods ended September 30,
  2001 and 2000 respectively, the company made cash payments for income taxes of
  approximately $11,000 and $264,000. The Company did not make its semi-annual
  interest payment due on September 15, 2001 on the company's convertible
  debentures (See Note D).
  
  In December 2000, the Company accrued stock compensation expense of $650,000
  related to certain management compensation to be paid in stock. A portion of the
  compensation was satisfied by the issuance of stock options issued at fair
  market value in 2001. As a result, $500,000 of this accrual is no longer
  required and was reversed into earnings during the second quarter of 2001.
  
                                          9
  Item 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
  The following discussion and analysis explains trends in the Company's financial
  condition as of September 30, 2001 and results of operations for the three and
  nine-month periods ended September 30, 2001 and 2000. It is intended to help
  shareholders and other readers understand the dynamics of the Company's business
  and the key factors underlying its financial results. This discussion should be
  read in conjunction with the consolidated financial statements and notes
  included elsewhere in this Form 10-Q, and with the Company's audited
  consolidated financial statements and notes thereto for the year ended December
  31, 2000 included in Form 10-K. Management believes that certain statements in
  this discussion and analysis constitute forward-looking statements within the
  meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such
  statements are based on current expectations, estimates and projections about
  the industries in which the Company operates, management's beliefs and
  assumptions made by management. Such forward-looking statements involve known
  and unknown risks, uncertainties and other factors that may cause the actual
  results, performance or achievements of the Company, or industry results, to be
  materially different from any future results, performance, or achievements
  expressed or implied by such forward-looking statements. Such risks,
  uncertainties and assumptions include, among others, the following: general
  economic and business conditions: demographic changes; rapid technology
  development and changes; timing of product introductions; the mix of
  products/services; industry capacity and other industry trends; and the ability
  of the Company to attract and retain key employees.
  
  On October 15, 2001, subsequent to the close of the fiscal quarter ended
  September 30, 2001, the Company and its eLottery, Inc. subsidiary (collectively,
  the "Debtors") filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy
  Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
  Southern District of New York (the "Bankruptcy Court"). The Chapter 11 cases
  Nos. 01-15327 (alg) and 01-15328 (alg) (the "Chapter 11 Cases") have been
  consolidated for the purpose of joint administration. As of October 15, 2001,
  the Debtors are continuing to operate their business as debtors-in-possession
  under Chapter 11 of the Bankruptcy Code and are subject to the jurisdiction of
  the Bankruptcy Court.
  
  As a result of these filings, actions to collect pre-petition indebtedness are
  stayed and other contractual obligations against the Debtors may not be
  enforceable. In addition, under the Bankruptcy Code, the Debtors may assume or
  reject executory contracts, including real estate leases, employment contracts,
  personal property leases, service contracts and other unexpired executory
  pre-petition contracts, subject to Bankruptcy Court approval. Parties affected
  by these rejections may file claims with the Bankruptcy Court in accordance with
  the Bankruptcy Code. The Debtors cannot presently determine or reasonably
  estimate the ultimate liability that may result from the filing of claims for
  all contracts that may be rejected. Substantially all pre-petition liabilities
  are subject to settlement under a plan of reorganization to be voted on by the
  creditors and equity holders and approved by the Bankruptcy Court. Although the
  Debtors expect to file a reorganization plan or plans that provide for emergence
  from bankruptcy sometime during early 2002, there can be no assurance that a
  reorganization plan or plans will be proposed by the Debtors or confirmed by the
  Bankruptcy Court or that any such plan will be consummated.
  
  As provided by the Bankruptcy Code, the Debtors have the exclusive right to
  submit a plan of reorganization for 120 days from the date of the filing of the
  voluntary petitions. Further extension may be sought and may be granted or
  rejected by the Bankruptcy Court. If the Debtors fail to file a plan of
  reorganization during such period or if such plan is not accepted by the
  required number of creditors and equity holders within the required period, any
  party in interest may subsequently file its own plan of reorganization for the
  Debtors. A plan of reorganization must be confirmed by the Bankruptcy Court,
  upon certain findings being made by the Bankruptcy Court, that are required by
  the Bankruptcy Code. The Bankruptcy Court may confirm a plan of reorganization
  notwithstanding the non-acceptance of the plan by an impaired class of creditors
  or equity holders if certain requirements of the Bankruptcy Code are met. A plan
  of reorganization also could result in holders of the Company's common stock
  receiving no value for their interest. The Chapter 11 filing, the uncertainty
  regarding the eventual outcome of the reorganization case and the effect of
  other unknown adverse factors could threaten the Company's existence as a going
  concern.
  
                                         10
  At the first day hearing held on October 15, 2001 before United States
  Bankruptcy Judge Allan L. Gropper, the Bankruptcy Court entered orders granting
  authority to the Debtors to, among other things, pay pre-petition and
  post-petition employee wages, salaries, benefits and other employee obligations,
  and pay certain administrative fees.
  
  Schedules will be filed with the Bankruptcy Court setting forth the assets and
  liabilities of the Debtors as of the filing date as shown by the Company's
  accounting records. Differences between amounts shown by the Company and claims
  filed by creditors will be investigated and, if necessary, unresolved disputes
  will be determined by the Bankruptcy Court. The ultimate settlement terms for
  such liabilities are subject to a plan of reorganization, and accordingly, are
  not presently determinable.
  
  The accompanying unaudited consolidated condensed financial statements have been
  prepared on a going concern basis, which contemplates continuity of operations,
  realization of assets and liquidation of liabilities and commitments in the
  normal course of business and do not reflect any adjustments that might result
  if the Company is unable to continue as a going concern. The filing of the
  voluntary Chapter 11 petitions referred to below, losses from operations and
  negative cash flow from operations raise doubt about the Company's ability to
  continue as a going concern. The appropriateness of using a going concern basis
  is dependent upon, among other things, confirmation of a plan or plans of
  reorganization, future profitable operations and the ability to generate cash
  from operations and financing sources sufficient to meet obligations. As a
  result of the filing of the Chapter 11 cases and related circumstances,
  realization of assets and liquidation of liabilities is subject to significant
  uncertainty. While under the protection of Chapter 11, the Debtors may sell or
  otherwise dispose of assets, and liquidate or settle liabilities for amounts
  other than those reflected in the consolidated condensed financial statements.
  Further, a plan or plans of reorganization could materially change the amounts
  reported in the accompanying consolidated condensed financial statements. The
  consolidated condensed financial statements do not include any adjustments
  relating to recoverability of the value of recorded asset amounts or the amount
  and classification of liabilities that might be necessary as a consequence of a
  plan of reorganization. The Company anticipates significant adjustments to the
  consolidated condensed financial statements as a result of applying the
  provisions of Statement of Position 90-7 "Financial Reporting by Entities in
  Reorganization Under the Bankruptcy Code" during the proceedings. At this time,
  it is not possible to predict the outcome of the Chapter 11 cases or their
  effect on the Company's business, its financial position, results of operations
  or cash flows. If it is determined that the liabilities subject to compromise in
  the Chapter 11 cases exceed the fair value of the assets, unsecured claims may
  be satisfied at less than 100% of their face value and equity interests of the
  Company's stockholders may have no value. The Company believes its existing cash
  resources plus federal and state tax refunds and expense reductions should
  provide the Company with adequate liquidity to conduct its business while it
  prepares a reorganization plan. However, the Company's liquidity, capital
  resources, results of operations and ability to continue as a going concern are
  subject to known and unknown risks and uncertainties.
  
  THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 COMPARED WITH THE SAME
  PERIODS LAST YEAR.
  
  RESULTS OF OPERATIONS
  
  REVENUES: Revenues for the three and nine month periods ended September 30, 2001
  were $500,000 and $1,441,000, respectively, as compared to $308,000 and
  $558,000, respectively, in 2000. The increase is attributable to the acquisition
  of the Network 60 promotional web sites, and the launch of the Lottery
  Notification business in the third quarter of 2000, offset by a significant
  decline in advertising rates.
  
  PRIZES, CONTENT, ADVERTISING AND PROMOTION: Prizes, content, advertising and
  promotions for the three and nine month periods ended September 30, 2001 were
  $373,000 and $803,000, respectively, versus $722,000 and $2.0 million,
  respectively, in 2000. The decline is due to expense reductions implemented in
  response to the decline in advertising rates. These expenses include "ePoints"
  earned by registered players on the eLotteryfreeway entertainment site, cost of
  editorial content, advertising expenses and special promotional programs
  designed to acquire new registered players and reward our existing player base.
  
                                         11
  GENERAL & ADMINISTRATIVE: General & Administrative expenses were $1.9 million
  and $6.0 million for the three and nine month periods ended September 30, 2001,
  down from $2.8 million and $7.1 million for the comparable periods in 2000. The
  decrease in General & Administrative expenses is attributable to the continued
  reductions in employee related costs, lobbying costs and other expenses.
  
  STOCK COMPENSATION EXPENSE: In December 2000, the Company recorded stock
  compensation expense of $650,000 related to certain management compensation to
  be paid in stock. A portion of this compensation was satisfied by the issuance
  of stock options issued at fair market value during 2001. As a result, $500,000
  of the accrual is no longer required and was reversed into earnings during the
  second quarter of 2001.
  
  ASSET IMPAIRMENT: During 2001, the Company performed an evaluation of the
  realizability of certain assets and determined that certain intangibles and
  certain prepaid assets were permanently impaired. As a result of this review,
  the Company recorded an asset impairment charge of $366,000 in the first quarter
  and an additional charge of $6.3 million in the third quarter.
  
  DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense for the
  three and nine month periods ended September 30, 2001 was approximately $1.3
  million and $4.0 million, respectively as compared to $707,000 million and $1.4
  million in 2000. The increase is attributable to depreciation expense related to
  capital expenditures incurred throughout 2000 and the amortization of intangible
  assets.
  
  INTEREST EXPENSE: Interest expense for the three and nine-month periods ended
  September 30, 2001 was $395,000 and $1.2 million, respectively, as compared to
  $391,000 and $1.2 million, respectively in 2000.
  
  OTHER INCOME, NET: Other income (expense), net, for the three and nine months
  ended September 30, 2001 was $47,000 and $11,000, respectively, as compared to
  $176,000 and $980,000 for the comparable 2000 period. The change is primarily
  due to lower invested capital and interest rates on the investment of corporate
  funds in the comparable periods.
  
  DISCONTINUED OPERATIONS: There were no revenues from discontinued operations for
  the three and nine-month periods ended September 30, 2001 as compared to
  $732,000 and $17.5 million, respectively for 2000. The decrease in revenue is
  due entirely to the sale of the Computer Telephony business in January 2000 and
  the Healthcare business in July 2000. The loss from discontinued operations for
  the three and nine-month periods ended September 30, 2001 was $1.6 million and
  $2.4 million, respectively, versus $2.3 million and $6.3 million for 2000. The
  2001 loss is attributable to the Company's equity share of the loss of DCC for
  the period offset by a gain on a litigation settlement.
  
  The Company recorded an after-tax loss for the nine months ended September 30,
  2001 of $3.9 million related to the discontinued operations. This represents an
  additional valuation reserve recorded against the deferred tax asset.
  
  LIQUIDITY AND CAPITAL RESOURCES
  
  At September 30, 2001, the Company had approximately $1.0 million of cash and
  cash equivalents. The Company has incurred recurring losses from continuing
  operations during the transition to the Company's new business strategy.
  Revenues from eLOT operations were affected by the decline in Internet
  advertising pricing throughout 2000 and further deterioration in 2001. In
  addition, revenues have been slow to materialize in the lottery business due to
  governmental lotteries migrating much more slowly than expected onto the
  Internet due to legislative, political and social issues.
  
  On September 15, 2001, the Company announced that it did not make the $613,000
  interest payment on its convertible debentures that was due on that date. The
  Company also announced that as of that date, it had not received any of its
  expected revenues from its FreeWorldLottery ("FWL") acquisition and that it may
  never receive any of the anticipated revenues from this business. As a result,
  the Company's liquidity was severely impacted and the Company filed on October
  15, 2001 a voluntary petition for reorganization under Chapter 11 of the U.S.
  Bankruptcy Code. See Chapter 11 filing described above.
  
                                         12
  Cash used by continuing operating activities was $5.7 million in the first nine
  months of 2001 versus $12.6 million for 2000. Cash used by discontinued
  operating activities in the first nine months of 2001 was $ 292,000 versus $8.2
  million for the same period in 2000.
  
  Cash provided by divestiture activities was approximately $46.0 million in the
  first nine months of 2000, primarily due to the proceeds received from the sale
  of the Computer Telephony business of $44.3 million, the sale of the Healthcare
  Communications business for $5.0 million and the repayment by certain key
  management of the ESIP loans for $2.6 million, offset partially by the purchase
  of property and equipment. Cash used by investing activities totaled $215,000
  for the first nine months of 2001 representing Capital Expenditures.
  
  During the first nine months of 2001, the Company generated $1.5 million in cash
  from financing activities through loans against executive life insurance
  premiums paid by the company in previous periods and the sale of stock. The
  Company used $18.7 million in cash from financing activities during the first
  nine months of 2000. The primary use of cash in 2000 was the repayment of the
  outstanding balance under the credit facility of $19.6 million and other
  long-term debt of $.5 million, offset partially by proceeds from the exercise of
  stock options.
  
                                         13
  PART II - OTHER INFORMATION
  
  Item 1.           LEGAL PROCEEDINGS
                             Not applicable.
  
  Item 2.           CHANGES IN SECURITIES
                             Not applicable.
  
  Item 3.           DEFAULTS UPON SENIOR SECURITIES
                             Not applicable.
  
  Item 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                             Not applicable.
  
  Item 5.           OTHER INFORMATION
                             Not applicable.
  
  Item 6.           EXHIBITS AND REPORTS ON FORM 8-K
  
                     a)       Exhibits
  
                              11 - Statement Regarding Computation of Per
                              Share Earnings (see Note C of Notes to
                              Consolidated Financial Statements in Part I,
                              Item 1).
  
                     b)       Reports on Form 8-K
                              Current Report on Form 8-K dated Ocober 18, 2001
  
                                         14
  SIGNATURES
  
  Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report for the quarterly period ended June 30,
  2001 on Form 10-Q to be signed on its behalf by the undersigned thereunto duly
  authorized.
  
                                      eLOT, Inc.
  
  Dated:   November 14, 2001          /s/ Edwin J. McGuinn
                                      --------------------------------------------
                                      Edwin J. McGuinn
                                      President and Chief Executive Officer
  
  Dated:   November 14, 2001          /s/ David J. Parcells
                                      --------------------------------------------
                                      David J. Parcells
                                      Vice President, Finance and
                                      Chief Financial Officer
  
                                         15