ELOTTERY, S-1/A, 1999-01-25

ELOTTERY
S-1/A, 1999-01-25
MISCELLANEOUS AMUSEMENT & RECREATION

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As filed with the Securities and Exchange Commission on January 25, 1999

Registration No. 333-63523
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------

AMENDMENT NO. 2

TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------
eLOTTERY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 7999 13-3808625
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code No.) Identification No.)
organization)
</TABLE>

------------
478 Wheelers Farms Road
Milford, CT 06460
203-876-7600
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Michael W. Yacenda

eLottery, Inc.

478 Wheelers Farms Road
Milford, Connecticut 06460
(203) 876-7600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------

<TABLE>
<S> <C> <C>
COPIES OF ALL COMMUNICATIONS TO:
Barbara C. Anderson Thurston R. Moore, Esq. Michael W. Yacenda
EXECUTONE Information Systems, Inc. Hunton & Williams eLottery, Inc.
Riverfront Plaza, East Tower 478 Wheelers Farms Road Milford, Connecticut 06460
478 Wheelers Farms Road 951 East Byrd Street (203) 876-7600
Milford, Connecticut 06460 Richmond, Virginia 23219
(203) 876-7600 (804) 788-8295

</TABLE>
------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
Title of Each Class of Amount To Proposed Maximum Proposed Maximum Amount of
Securities To Be Be Registered Offering Price Per Aggregate Offering Registration
Registered Unit(1) Price(1) Fee(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $ .01 par 9,967,824 $2.33 $23,232,936 $3,908.78
value per share shares
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated solely for the purpose of calculating the registration fee
at the book value of the shares being registered.
(2) Amount is reduced by the amount of the registration fee paid by the
Company on September 16, 1998 and November 16, 1998 in connection with its prior
filings of the Registration Statement on Form S-1.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

<PAGE>

S-1 REGISTRATION STATEMENT
CROSS REFERENCE SHEET

Part I - Information Required in Prospectus Location in Prospectus

<S> <C>
Item 1 Forepart of Registration Facing Page; Outside Front Cover
Statement and Outside Front Page of Prospectus
Cover Page of Prospectus

Item 2 Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Pages of Prospectus Pages of Prospectus

Item 3 Summary Information, Risk Factors "PROSPECTUS SUMMARY;" "RISK FACTORS"
and Ratio of Earnings to Fixed
Charges

Item 4 Use of Proceeds N/A

Item 5 Determination of Offering Price N/A

Item 6 Dilution N/A

Item 7 Selling Security Holders N/A

Item 8 Plan of Distribution "PLAN OF DISTRIBUTION"

Item 9 Description of Securities to be "DESCRIPTION OF eLOTTERY CAPITAL
Registered STOCK--eLottery Preferred
Stock;" "DESCRIPTION OF eLOTTERY
CAPITAL STOCK--eLottery Common
Stock;"

Item 10 Interests of Named Experts and "LEGAL MATTERS"
Counsel

Item 11 Information with Respect to the
Registrant

(a) Description of Business "PROSPECTUS SUMMARY;" MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS;" "BUSINESS"

(b) Description of Property "BUSINESS"

(c) Legal Proceedings "RISK FACTORS--Pending Litigation
that Could Have a Material Adverse
Effect on eLottery and the NIL"

(d) Market Price, Dividends and Inside Front Cover and Outside Back
Related Stockholder Matters Cover Pages of Prospectus;
"SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF eLOTTERY
COMMON STOCK AND eLOTTERY
PREFERRED STOCK;" "DISTRIBUTION
POLICY;" "RISK FACTORS--
Competition;" "RISK
FACTORS--Market Development
Risks;" "RISK FACTORS--No Prior
Market for eLottery Common Stock;"
"RISK FACTORS--Potential
Volatility of eLottery Stock
Price;" "DESCRIPTION OF eLOTTERY
CAPITAL STOCK--eLottery Common
Stock"

(e) Financial Statements FINANCIAL STATEMENTS

(f) Selected Financial Data "SUMMARY
OF FINANCIAL INFORMATION;"
"UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION;" "SELECTED
HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION"

(g) Supplementary Financial N/A
Information

(h) Management's Discussion and "MANAGEMENT'S DISCUSSION AND Analysis
of Financial ANALYSIS OF FINANCIAL CONDITION
Condition and Results AND RESULTS OF OPERATIONS"
of Operations

(i) Changes in and Disagreements N/A
with Accountants

(j) Quantitative and Qualitative N/A
Disclosure About Market Risk

(k) Directors and Executive "MANAGEMENT OF eLOTTERY"
Officers

(l) Executive Compensation "EXECUTIVE COMPENSATION"

(m) Security Ownership of "SECURITY OWNERSHIP OF CERTAIN
Certain BENEFICIAL OWNERS OF eLOTTERY
Beneficial Owners COMMON STOCK AND eLOTTERY
and Management PREFERRED STOCK"

(n) Certain Relationships and "CERTAIN RELATIONSHIPS AND RELATED
Related Transactions TRANSACTIONS"

Item 12 Disclosure of Commission Position "INFORMATION NOT REQUIRED IN
on Indemnification for PROSPECTUS--Undertakings"
Securities Act Liabilities

<PAGE>

Part II - Information Not Required in Prospectus

Item 13 Other Expenses of Issuance and "INFORMATION NOT REQUIRED IN
Distribution PROSPECTUS--Other Expenses of
Issuance and Distribution"

Item 14 Indemnification of Officers and "INFORMATION NOT REQUIRED IN
Directors PROSPECTUS--Indemnification of
Directors and Officers"

Item 15 Recent Sales of Unregistered "INFORMATION NOT REQUIRED IN
Securities PROSPECTUS--Recent Sales of
Unregistered Securities"

Item 16 Exhibits and Financial Statement "INFORMATION NOT REQUIRED IN
Schedules PROSPECTUS--Exhibits and Financial
Statement Schedules"

Item 17 Undertakings "INFORMATION NOT REQUIRED IN
PROSPECTUS--Undertakings"

</TABLE>
<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

Subject to Completion, dated _______________, 1999

PROSPECTUS
9,967,824 Shares

[LOGO]

eLOTTERY, INC.
COMMON STOCK
---------------

EXECUTONE Information Systems, Inc. ("Executone") is distributing at no
cost to you, as a holder of common stock, par value $.01 per share (the
"Executone Common Stock"), of Executone, shares of common stock, par value $0.01
per share ("eLottery Common Stock"), of eLottery, Inc., a wholly-owned
subsidiary of Executone formerly known as Unistar Gaming Corp. ("eLottery"). As
an Executone shareholder, you will receive one share of eLottery Common Stock
for every five (5) shares of Executone Common Stock that you own as of
___________, 1999 (the "Record Date"). Executone will distribute (the
"Distribution") that number of shares of eLottery Common Stock such that, as of
_______, 1999, the date of the Distribution (the "Distribution Date"), the
holders of Executone Common Stock will own 85% of the outstanding shares of
eLottery Common Stock. The holders (the "Executone Preferred Holders") of
Executone Cumulative Convertible Preferred Stock, Series A (the "Executone
Series A Preferred Stock"), and Executone Cumulative Contingently Convertible
Preferred Stock, Series B (the "Executone Series B Preferred Stock" and,
together with the Executone Series A Preferred Stock, the "Executone Preferred
Stock"), have entered into a Share Exchange Agreement, dated August 12, 1998, as
amended, with Executone and eLottery pursuant to which the Executone Preferred
Holders will receive as of the Distribution Date, in exchange for their shares
of Executone Preferred Stock, 15% of the outstanding shares of eLottery Common
Stock and all of the outstanding shares of eLottery's Cumulative Convertible
Preferred Stock, Series A, which may be converted, subject to certain
conditions, into that number of shares of eLottery Common Stock such that, upon
conversion, the Executone Preferred Holders will own 34% of the outstanding
shares of eLottery Common Stock, excluding any additional shares of eLottery
Common Stock issued after the Distribution Date.

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

YOU SHOULD CAREFULLY CONSIDER THE RISKS THAT ARE DISCUSSED UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 8. THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

The Distribution will be a taxable distribution for Federal income tax
purposes. eLottery has filed a Registration Statement with the Securities and
Exchange Commission covering the 9,967,824 shares of eLottery Common Stock.
Prior to the Distribution, the eLottery Common Stock has not been listed on any
stock exchange or the Nasdaq Stock Market. The eLottery Common Stock is
authorized for trading on the [Nasdaq National Market] under the symbol ___.

After the Distribution, and after the completion of its fiscal year,
eLottery intends to send to each of its stockholders an annual report containing
financial statements that have been examined and reported upon by, with an
opinion expressed by, eLottery's independent auditors, Arthur Andersen LLP.

The Date of this Prospectus is ____________, 1999.

<PAGE>

AVAILABLE INFORMATION

Executone is (and, following the completion of the Distribution, eLottery
will be) subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
(and eLottery will file) reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by Executone (and to be filed by
eLottery) may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the following Regional Offices of the Commission: 73 Tremont Street,
Suite 600, Boston, Massachusetts 02108-3912; 7 World Trade Center, Suite 1300,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such information can be obtained
by mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a
World-Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is http://www.sec.gov.
Executone's Common Stock is listed on the Nasdaq National Market. eLottery's
Common Stock will be listed on the [Nasdaq National Market]. Reports and other
information concerning Executone and eLottery can also be inspected at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.

eLottery intends to furnish holders of eLottery Common Stock with annual
reports containing consolidated financial statements prepared in accordance with
United States generally accepted accounting principles and quarterly reports for
the first three quarters of each fiscal year. The annual financial statements
will be audited by an independent public accounting firm.

eLottery has filed with the Commission a Registration Statement on Form
S-1 (together with any amendments hereto, the "Registration Statement") under
the Securities Act of 1933, as amended, with respect to eLottery Common Stock to
be distributed pursuant to the Distribution. This Prospectus does not contain
all of the information in the Registration Statement and the related exhibits
and schedules. Statements in this Prospectus as to the contents of any contract,
agreement or other document are summaries only and are not necessarily complete.
For complete information as to these matters, shareholders should refer to the
applicable exhibit or schedule to the Registration Statement. The Registration
Statement and the related exhibits filed by eLottery with the Commission may be
inspected at the public reference facilities of the Commission listed above.

Following the Distribution, eLottery will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. eLottery also will be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
audited financial statements to its stockholders in connection with its annual
meetings of stockholders.

NO PERSON IS AUTHORIZED BY EXECUTONE OR eLOTTERY TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED.

<PAGE>

TABLE OF CONTENTS

PROSPECTUS SUMMARY.......................1
The Company...........................1
The Distribution......................4
eLottery, Inc. Summary Financial
Information .........................6
RISK FACTORS.............................8
No Prior Market for eLottery
Common Stock .........................8
No Current Source of Revenue..........8
Risk of Delisting from Nasdaq.........8
Risk that eLottery Common Stock May
Become Subject to the Penny Stock
Regulations........................8
Potential Volatility of eLottery
Stock Price....................... 9
Pending Litigation That Could Have
a Material Adverse Effect on
eLottery...........................9
No Arm's-Length Negotiation of
Related Agreements................11
eLottery's History of Losses and
Lack of Assurance of Future
Profitability.....................11
eLottery Has Never Operated as an
Independent Entity ................11
Unavailability of Executone's
Financial and Other Resources .....11
Dependence upon Key Personnel........12
Certain Antitakeover Effects of
Certain Provisions of eLottery's
Certificate of Incorporation
and eLottery's Bylaws............12
Substantial Percentage Ownership of
eLottery By Executone Preferred
Holders...........................12
Competition..........................12
Government Regulation and
Legislation........................12
Market Development Risks.............13
Risks Associated with International
Sales and Operations...............13
Obligations Under the NIL Agreement..13
Concentration in Single Industry.....13
Year 2000 Risks......................13
THE DISTRIBUTION........................14
Purposes of and Reasons for the
Distribution.......................14
Conditions to the Distribution.......14
Manner of Effecting the
Distribution.......................14
Treatment of the Executone
Preferred Stock ...................15
Additional Information...............15
FEDERAL INCOME TAX CONSEQUENCES.........16
Introduction.........................16
Receipt of the Distribution by
Executone Shareholders ............16
Consequences to Holders of Executone
Preferred Stock ...................16
Effect of Transactions on Use of
Net Operating Losses ..............17
DISTRIBUTION POLICY.....................17
CAPITALIZATION..........................17
eLOTTERY, INC. UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL INFORMATION...... 18
eLOTTERY, INC. SELECTED HISTORICAL
CONSOLIDATED FINANCIAL INFORMATION... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.....................23
Introduction and Subsequent Event....23
Years Ended December 31, 1997, 1996
and 1995...........................23
Nine Months Ended September 30,
1998 and 1997 .....................26
Forward-Looking Statements...........28
ARRANGEMENTS BETWEEN EXECUTONE AND
eLOTTERY RELATING TO THE DISTRIBUTION 29
Reorganization Agreement.............29
Services Agreement...................30
Tax Sharing Agreement................30
BUSINESS................................31
The Company..........................31
Industry Background..................33
The eLottery Solution................35
Products.............................36
Competition..........................41
Government Regulation................42
Patents, Trademarks and Copyrights...43
Employees............................43
eLottery Properties..................43
MANAGEMENT OF eLOTTERY..................44
Advisory Board, Directors and
Officers...........................44
Certain Board Committees.............45
Compensation Committee Interlocks
and Insider Participation ....... 46
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS .........................46
EXECUTIVE COMPENSATION..................47
Compensation of Directors............47
Compensation of Executive Officers...47
Option Grants........................48
Employment Agreements and
Transition Retention Plans .......48
The Option Plan......................49
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF eLOTTERY
COMMON STOCK AND eLOTTERY
PREFERRED STOCK....................51
By Management........................51
By Others............................52
DESCRIPTION OF eLOTTERY CAPITAL STOCK...53
eLottery Preferred Stock.............53
eLottery Common Stock................54
Stockholder Rights Plan..............54
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN
PROVISIONS OF THE eLOTTERY
CERTIFICATE, THE eLOTTERY BYLAWS,
THE eLOTTERY RIGHTS PLAN AND THE
GENERAL CORPORATION LAW OF DELAWARE..57
General..............................57
Classified Board of Directors........58
Removal of Directors; Filling
Vacancies .........................58
Special Meetings.....................58
Advance Notice Provisions for
Stockholder Proposals and
Stockholder Nominations of
Directors.........................59
Preferred Stock......................59
Certain Voting Requirements..........60
Stockholder Rights Plan..............60
Delaware General Corporation Law.....60
LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS........... 60
Limitation of Liability of
Directors..........................60
Indemnification of Directors and
Officers......................... 60
PLAN OF DISTRIBUTION....................60
LEGAL MATTERS...........................61
EXPERTS.................................61
INDEX TO FINANCIAL STATEMENTS...........F-1

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements (including the notes thereto) contained
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes (i) 49,839,120 shares of common stock of EXECUTONE
Information Systems, Inc, par value $.01 per share (the "Executone Common
Stock"), are issued and outstanding and (ii) the exchange of all outstanding
shares of Executone Cumulative Convertible Preferred Stock, Series A (the
"Executone Series A Preferred Stock"), and Executone Cumulative Contingently
Convertible Preferred Stock, Series B (the "Executone Series B Preferred Stock"
and, together with the Executone Series A Preferred Stock, the "Executone
Preferred Stock"). Any reference herein to "eLottery, Inc.," "eLottery" or the
"Company" shall be deemed to include business conducted under its former name,
Unistar Gaming Corp.

The Company

eLottery, Inc. ("eLottery" or the "Company"), a development stage company,
provides a wide array of products and services to the domestic and international
lottery markets. The Company develops, provides and maintains Internet,
Intranet, telephone, communications, accounting, banking, database and other
applications and services to facilitate the electronic sale of new and existing
lottery products worldwide. The Company has developed a new generation of
proprietary lottery technologies designed to take advantage of the impact that
the Company believes recent advances in telecommunications and computers will
have on the nature and delivery of lottery products and the support systems
necessary to administer them. eLottery believes it is the first to develop and
operate secure, integrated Internet, Intranet and telephone lottery gaming
systems. The Internet and Intranet systems provide for the electronic sale and
support of both periodic and instant draw lottery games and instant electronic
"scratch-off" games. Using the Company's systems, lotteries will be able to
electronically distribute lottery tickets for both instant and periodic draw
lottery games over the Internet through the Company's website, eLottery.com,
through an Intranet, using telephony and through stand-alone custom-designed
electronic lottery terminals ("ELTs") located in horse racing facilities, bars
and other age-regulated environments. The Company believes that the electronic
distribution of lottery tickets through these systems will increase sales for
lotteries because the systems make the purchase of tickets more easily
accessible and because they make use of technology to enhance and enliven the
lottery gaming experience. The eLottery.com website and the lotteries will be
open 24 hours a day, seven days a week, and will be able to electronically
distribute lottery tickets and games and offer lottery players convenient and
timely product fulfillment, including the ability to pay prize winnings or cash
credits on an overnight delivery option for a fee via check or electronic funds
transfer. The Company believes that its Internet lottery distribution systems
will encourage lottery patrons to play more frequently and will also attract new
lottery customers. In recent years, lottery authorities have recognized that by
offering new games or products, they are often able to generate significant
additional revenues. The Company believes that its systems provide lotteries
with numerous advantages relative to traditional means of distribution including
player tracking ability, sale of tickets over the Internet and entertaining
fast-play instant games. The Company believes that the combination of the
advantages of Internet commerce and the Company's ability to customize its
systems will result in the Company becoming an agent and leading provider of
products and services to the lottery industry.

The worldwide lottery market is large. Lotteries are operated by state and
foreign governmental authorities and their licensees in approximately 200
jurisdictions worldwide. Worldwide lottery ticket sales in 1997 were
approximately $116.6 billion. In the United States, there are currently 38
lotteries offering traditional on-line draw games and 39 lotteries selling
instant tickets. The term "on-line," as used within the lottery industry, does
not mean that the ticket is distributed over the Internet. Rather, it refers to
the use of a network of special purpose lottery terminals connected through
dedicated phone lines to a central lottery computer. In 1997, lottery sales in
the United States were $35.5 billion. Governments have authorized lotteries
primarily as a means of generating non-tax revenues. Lottery revenues are often
a means by which to lower taxes and are frequently set aside for particular
public purposes, such as education, aid to the elderly, conservation,
transportation and economic development. As lottery ticket sales have become a
significant source of funding for such programs, many jurisdictions have come to
rely on the revenues generated by such sales. Over the past three years, lottery
ticket sales have grown at an annual rate of 1.0% worldwide and 2.2% in the
United States. Both rates reflect a slowdown from prior years. The Company
believes this trend increases the propensity of lotteries to seek new products
and services to provide revenue growth similar to rates experienced in the past.

Despite the growth in lottery revenues, the Company believes that many of
the characteristics of the traditional lottery industry have created
inefficiencies for all participants. Currently, lottery tickets are primarily
purchased in convenience stores and through other retail stores. Customers,
therefore, cannot purchase lottery tickets from the convenience of their homes
or offices. The Company believes the ability to play a lottery from home or a
remote location would significantly increase sales. Historically, U.S. state
lotteries have not had a practical means to distribute their tickets
internationally. Now, through the use of the Company's Internet systems,
lotteries could distribute their lottery games to a new and much larger customer
base beyond state and national borders. In addition, instant lottery tickets are
currently sold only in physical paper form and must be manually "scratched-off"
to play the game. The Company believes that electronically delivered lottery
games are a superior product due to their (i) faster play, (ii) lower operating
and product costs resulting from their virtual nature and (iii) greater
entertainment value. Further, detailed information on lottery customers
currently is not tracked by the lotteries. The Company believes that this
information could be valuable to the lotteries and others for marketing
purposes. The methods of lottery ticket distribution essentially have remained
the same since traditional lottery operators have not taken advantage of the
significant advances in technology over the past decade.

eLottery was founded to utilize the recent advances in personal computers
and telecommunications to distribute lottery tickets. The Company believes that
its lottery distribution systems offer significant advantages over the
traditional means of distribution. The Company has spent over $30 million
designing, developing, operating and gaining customer acceptance of its lottery
distribution systems since its formation in 1993. In 1995, the Company signed
its first contract with the Coeur D' Alene Tribe of Idaho (the "CDA" or the
"Tribe") and its National Indian Lottery (the "NIL") to provide them with a
telephone-based lottery (the "NIL Agreement"). In 1996, the Company began the
development of an Internet-based lottery for the NIL and completed a prototype
in March 1997. In July 1997, the NIL began operating its Internet games through
the uslottery.com website. In June 1997, eLottery began development of a
telephone interface to the Internet system and the NIL's Super6 draw lottery
game. In the original telephone-based lottery, it was contemplated that calls
via an "800" number would be processed with interactive voice response equipment
or live agents located on the CDA's reservation in Idaho using automated call
distribution ("ACD") software to process nationwide lottery sales. In January
1998, the NIL began marketing this product using local telephone numbers where
the customer pays the long distance charge. In March 1998, eLottery began
development of its Intranet system and completed a prototype in September 1998.
On December 17, 1998, the District Court for the District of Idaho issued an
opinion and order granting declaratory judgment in the action styled AT&T v.
Coeur D' Alene Tribe, holding that the NIL is not legal under the Indian Gaming
Regulatory Act ("IGRA") and is subject to state law. The CDA position was based
on its view that all NIL gaming activity was occurring on "Indian lands" as
required by IGRA. In so ruling, the District Court overruled the prior decisions
of the Tribal Courts that ruled the NIL was legal under IGRA. In response to
that decision, eLottery and the CDA terminated operation of the NIL.

While the uslottery.com website was in operation, the NIL's lottery
revenues grew rapidly since commencing lottery operation in July 1997. The NIL's
lottery revenues grew to $4.2 million in the quarter ending September 30, 1998
compared to $ 0.6 million the same quarter of the prior year. Net sales for the
first, second, third and fourth quarters of 1998 were $1.3 million, $2.9
million, $3.5 million and $4.2 million, respectively. Approximately 1,000,000
tickets were sold in the month of November 1998, the last full month of
operations. The number of repeat customers indicates that the Company has also
generated significant customer loyalty. Repeat customers accounted for over __%
of net sales in 1998. This loyalty is also reflected in the amount of time
customers spent on the site. The average player spent approximately 7.5 hours
per month while other players averaged in excess of 30 hours per month. Although
the NIL operations have now been terminated, the NIL enabled eLottery to develop
both the business and gaming systems necessary for Internet and telephone
lottery activities. As a result, eLottery is now actively marketing its
technology and systems to state and international lotteries that decide to sell
their tickets over the Internet, by telephone or through networked electronic
lottery terminals.

The Company has developed Year 2000 compliant electronic lottery products
and distribution systems. To its knowledge, none of the current lottery
providers have successfully developed and operated technology similar to that of
the Company's systems. On the contrary, these lottery providers have already
committed significant capital to traditional paper-based lottery distribution
and manufacturing.

eLottery's strategy is to capitalize on its proprietary Internet lottery
distribution systems and become an agent and leading provider of products and
services to the lottery industry. The Company expects to earn revenues primarily
from four recurring sources: (i) agent and sales commission fees; (ii) software
and system licensing fees; (iii) banking or credit card clearing fees; and (iv)
advertising fees. The Company plans to attain this goal through the following
key strategies:

Enter into Agreements With Domestic and International Lotteries. The
Company's strategy is to license its lottery distribution systems to lotteries
worldwide. Since the Company's systems are configurable, it is able to offer
numerous combinations of its products and services to meet the specific
requirements of its customers. Further, the Company's systems will enable
government lotteries to distribute their tickets across national borders,
opening up significant markets that are currently inaccessible. The Company
believes that government lotteries are widely viewed as fair and honest and are
trusted by players. As a result, the Company believes that government lotteries
will be the leaders in Internet lotteries. The Company is currently in various
stages of negotiation with several U.S. and international lotteries to install
and utilize its electronic lottery distribution systems. There can be no
assurance that the Company will enter into any such agreements.

Enter into Strategic Alliances. The Company is actively pursuing strategic
alliances with other companies in the lottery services industry. eLottery
believes that by forming the appropriate strategic relationships, it can
increase the penetration of its products and services. The Company is currently
negotiating the terms of joint venture relationships with two lottery operators
that currently operate lotteries for several states and countries
internationally. If the Company consummates such joint venture relationships,
the Company and such lottery operators could extend the states' and countries'
traditional ticket distribution systems using eLottery's electronic systems.
There can be no assurance that the Company will consummate such joint venture
relationships.

Enhance Sales and Marketing. In order to realize the economic benefits of
its proprietary lottery distribution systems, the Company plans to increase its
sales and marketing efforts. The Company plans to hire additional sales and
marketing professionals to promote eLottery's product line and services to
lottery officials worldwide. The Company regularly engages public affairs and
governmental relations advisors, including lobbyists, in various jurisdictions
to advise legislators and the public in connection with lottery legislation, to
monitor potential lottery legislation and to advise the Company in connection
with the Company's lottery products and systems.

Maintain Technology Focus and Expertise. An interactive commerce platform
is necessary to enhance the eLottery service offering, leverage the unique
characteristics of the Company's products, and support lottery operations. The
Company's development group has expended and will continue to expend substantial
efforts developing, acquiring and implementing technology-driven enhancements to
its systems.

See "RISK FACTORS" beginning on page 8 for a description of factors that
may impact the Company's ability to implement the above strategies.

As a result of their ownership of 15.5% of the Company's common stock
after the Distribution (or 28.6% assuming conversion of only the eLottery
Preferred Stock, as herein defined, owned by management and directors),
management and directors will have significant incentive to maximize stockholder
value. After completion of the Distribution, the Company will have approximately
$5.5 million of cash and no debt other than capital lease obligations, which
management believes will adequately fund eLottery's cash flow requirements
through the end of 1999. While there can be no assurance that the following will
occur, the Company currently intends to seek additional equity investors through
public or private offerings in 1999 to partially fund the construction of ELTs,
to hire additional sales and marketing personnel and for general corporate
purposes. In addition, the Company and Executone have entered into
Reorganization, Services and Tax Sharing Agreements whereby Executone will
provide certain administrative services to the Company for varying periods of
time following the Distribution. Executone will bill the Company for its costs
in connection with providing such services.

<PAGE>

The Distribution

Description of the Each holder of shares of Executone Common Stock
Distribution................ on __________, (the "Record Date") will receive
one (1) share of the common stock of eLottery,
par value $.01 per share (the "eLottery Common
Stock"), for every five (5) shares of Executone
Common Stock owned (the "Distribution").

Distribution Date........... On, or as soon as practicable after, _________,
1999, the date of Distribution (the
"Distribution Date"), _________, as distribution
agent, will commence mailing certificates
representing shares of eLottery Common Stock to
holders of record as of the Record Date.
Executone shareholders will not be required to
make any payment or to take any other action to
receive their eLottery Common Stock. See "THE
DISTRIBUTION--Manner of Effecting the
Distribution."

Number of Shares of eLottery
Common Stock to be
Distributed in the Executone will distribute 9,967,824 shares of
Distribution................ eLottery Common Stock in the Distribution, based
upon 49,839,120 shares of Executone Common Stock
outstanding as of December 31, 1998.

Number of Shares of eLottery
Common Stock to be
Outstanding After the Approximately 11,726,851 shares of eLottery
Distribution................ Common Stock will be issued and outstanding
after the Distribution. In addition to the shares
of eLottery Common Stock to be distributed in the
Distribution, the holders of Executone Preferred
Stock, in exchange for their shares of Executone
Preferred Stock (the "Exchange"), automatically
will receive as of the Distribution Date,
pursuant to the Exchange Agreement (as herein
defined), 15% of the outstanding shares of
eLottery Common Stock and all shares of
eLottery's Cumulative Convertible Preferred
Stock, Series A (the "eLottery Preferred Stock"),
which may be converted, subject to certain
conditions, into that number of shares of
eLottery Common Stock such that, upon conversion,
the Executone Preferred Holders (as herein
defined) will own 34% of the outstanding shares
of eLottery Common Stock, inclusive of the 15% of
the eLottery Common Stock received pursuant to
the Exchange Agreement, but excluding any
additional shares of eLottery Common Stock issued
after the Distribution Date. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."

Purposes of and Reasons for
the Distribution............ The Board of Directors of Executone (the
"Executone Board") concluded that the
Distribution was in the best interests of
Executone shareholders because it would separate
eLottery's assets from Executone's other core
businesses and thereby provide investors a
sharper focus as to the particular merits of
each of those investments and provide greater
recognition of the value of eLottery's assets.
Executone believes that the Distribution is a
strategy superior to a sale of eLottery or its
assets. See "THE DISTRIBUTION--Purposes of and
Reasons for the Distribution."

Relationship with Executone
after the Distribution...... As a result of the Distribution, eLottery will
cease to be a subsidiary of Executone and will
thereafter operate as an independent,
publicly-held company. eLottery and Executone
have entered into certain agreements providing
for (a) the orderly separation of Executone and
eLottery and the making of the Distribution, (b)
the sharing of certain facilities and services,
(c) the settling of certain employee benefits
obligations and (d) the allocation of certain
tax and other liabilities. See "ARRANGEMENTS
BETWEEN EXECUTONE AND eLOTTERY RELATING TO THE
DISTRIBUTION" AND "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."

Risk Factors................ See "RISK FACTORS" beginning on page 8 for a
discussion of factors that could materially
adversely affect the performance of eLottery.

Federal Income Tax The Distribution is expected to be a taxable
Consequences................ event to Executone shareholders. See "FEDERAL
INCOME TAX CONSEQUENCES" beginning on page 16 for
a discussion of the material federal income tax
consequences to holders of Executone Common Stock
who receive shares of eLottery Common Stock in
the Distribution.

[Nasdaq National Market] The eLottery Common Stock is authorized for
Symbol...................... trading on the [Nasdaq National Market] under
the symbol _____.

<PAGE>

eLottery, Inc.
Summary Financial Information

The following summary financial data of eLottery should be read in
conjunction with, and is qualified in its entirety by reference to, the
Financial Statements and the related notes thereto included on pages F-1 to
F-18.

On December 19, 1995, Executone acquired 100% of the common stock of
eLottery for common and preferred stock with a combined value of $12.7 million.
eLottery's wholly-owned subsidiary, UniStar Entertainment, Inc. ("UniStar
Entertainment"), has an exclusive five-year management agreement with the Coeur
d'Alene Tribe of Idaho, which was the primary asset acquired, to provide design,
development, financial and management services to the NIL. See "RISK FACTORS--
Obligations Under the NIL Agreement."

The acquisition was accounted for using the purchase method. Accordingly,
the assets and liabilities acquired were recorded on the balance sheet at their
fair market values, resulting in the recording of an intangible asset of
approximately $15.8 million as of the acquisition date. During the period prior
to its acquisition by Executone, eLottery was in its early development stages.
The expenditures made by the previous owners were primarily expenses relating to
the startup of the business, including legal, lobbying, consulting and other
professional fees, along with payroll, travel and other related expenses. These
expenses were reflected in the pre-acquisition statement of operations.
Subsequent to the acquisition, eLottery's expenditures comprised primarily
development costs for software and hardware, building costs and reimbursable
advances to the NIL (See Notes 1, 3, 4 and 10 on pages F-7, F-8, F-10 and F-13,
and Note 1 on page F-17), all of which were recorded on the balance sheet.
Beginning in 1998, eLottery also began making expenditures for the development
of its business to market the technology implemented in its operation of the US
Lottery. As a result of purchase accounting and the change in the nature of the
business after the acquisition by Executone, financial data for the periods
prior to Executone's purchase of eLottery on December 19, 1995 is not comparable
to periods subsequent to the acquisition.

In response to the legal decision issued December 19, 1998 in Coeur
d'Alene Tribe vs. AT&T (see Notes 9 and 10 in the Notes to Consolidated
Financial Statements as of December 31, 1997 and 1996 and for the three years in
the period ended December 31, 1997 for a description of the litigation),
eLottery and the CDA have terminated operation of the NIL and the US Lottery. As
a result, eLottery has reevaluated certain of its assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets.
Based upon such review, management has determined that both the intangibles and
the advances to the NIL have been impaired as of the date of this legal decision
and will be written down to zero during the fourth quarter of 1998. As of
September 30, 1998, intangibles and advances to NIL were $12,977,582 and
$12,872,544, respectively. eLottery has also determined that NIL startup costs
(primarily post-acquisition building costs) included in other assets is
impaired. These amounts would have been written off as of January 1, 1999 in
accordance with the initial adoption of American Institute of Certified Public
Accountant's Statement of Position 98-5, "Reporting on the Cost of Startup
Activities" (SOP 98-5). However, due to the termination of NIL operations,
management has concluded that these costs should be written off during the
fourth quarter of 1998. NIL startup costs as of September 30, 1998 included in
other assets were approximately $0.7 million. The remaining startup costs were
included in intangibles and are part of the impairment adjustment described
above. The impact of these adjustments had they been recorded as of September
30, 1998 are shown below in the column headed "Pro Forma September 30, 1998."
This column does not represent the September 30, 1998 balance sheet as if the
Distribution occurred at that date.

The capital structure that has existed prior to the Distribution Date when
eLottery's business operated as part of Executone is not relevant because it
does not reflect eLottery's expected future capital structure as a separate,
independent company. Accordingly, per share data has not been presented.

The historical financial information presented may not necessarily be
indicative of the results of operations or financial condition that would have
been obtained if eLottery had been a separate, independent company during the
periods shown. Neither should the information be deemed to be indicative of
eLottery's future performance as an independent company.

<PAGE>

Summary Financial Data
eLottery, Inc. and Subsidiary
(Unaudited)

Post-acquisition Pre-acquisition
-------------------------------- -----------------------
Nine months Year ended Year ended
Pro ended December 31, December 31,
Forma ---------------------- --------------------- --------------------------
Sept. 30 Sept. 30, Sept. 30,
1998 1998 1997 1997 1996 1995 (a) 1994 1993
--------- ---- ---- ----- ---- ----- ---- -----

Summary of
Operations $ - $ - $ - $ - $ - $ - $ - $ -

Revenues
Net Loss (25,144,840) (945,682) (649,369) (810,187) (755,582) (2,607,496)(1,162,560) (359,551)

Balance
Sheet

Total Assets 5,447,507 $31,971,221 $22,233,748 $24,090,424 $18,158,022 $84,303 $ 27,708 $1,876

Long-Term
Debt 345,076 345,076 397,844 433,068 - - - -

Divisional 3,133,702 7,332,866 21,211,646 22,744,494 17,081,807 (48,941) (578,335) (359,551)
Control/Equity
</TABLE>

(a) Executone acquired eLottery on December 19, 1995. Accordingly, the
pre-acquisition balance sheet and income statement data is as of and for the
period ended December 19, 1995.

<PAGE>

eLottery, Inc.
Summary of Pro Forma Financial Data
(Unaudited)

The following unaudited summary pro forma financial data make adjustments
to the historical balance sheet as if the Distribution had occurred on September
30, 1998. See "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION" for a
discussion of the principal adjustments involved in the preparation of the pro
forma financial information. The pro forma financial statements of eLottery may
not reflect the future results of operations or financial condition of eLottery
or the results of operations had eLottery been a separate independent company
during such period. This summary information also includes adjustments related
to the impairment of certain assets related to the NIL, which terminated
operations in December 1998. See "--Summary Financial Information."

Balance Sheet Data September 30,
1998
---------------
Cash................................................ $ 5,500,000
Current Assets...................................... 5,500,000
Total Assets........................................ 10,947,507
Current Liabilities................................. --
Long-term debt ..................................... 345,076
Stockholders' equity................................ 10,602,431
Total Liabilities and Stockholders' Equity.......... 10,947,507

<PAGE>

RISK FACTORS

Readers should be aware of the following risk factors to which eLottery
has been subject in the past, is currently and may in the future be subject, and
that could materially adversely affect the performance of eLottery. eLottery
also cautions readers that, in addition to the historical information included
herein, this Prospectus includes certain forward-looking statements and
information that are based on management's beliefs as well as on assumptions
made by and information currently available to management. When used in this
Prospectus, the words "anticipate," "intend," "plan," "believe," "estimate,"
"future," "expect" and similar expressions are intended to identify
forward-looking statements. Such statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions, including,
but not limited to, the following factors that could cause eLottery's future
results and stockholder values to differ materially from those expressed in any
forward-looking statements made by or on behalf of eLottery.

No Prior Market for eLottery Common Stock

There is no current public market for eLottery Common Stock. Although
eLottery Common Stock has been approved for listing, subject to official notice
of issuance, with the [Nasdaq National Market], there can be no assurance that
an active trading market for eLottery Common Stock will develop or be sustained
following the Distribution nor can there be any assurance as to the prices at
which eLottery Common Stock will trade following the Distribution.

No Current Source of Revenue

On December 17, 1998, the Idaho Federal District Court issued an opinion
and order granting declaratory judgment in favor of AT&T in the action styled
AT&T v. Coeur D' Alene Tribe. In response to that decision, eLottery and the CDA
terminated operation of the NIL and the US Lottery, the trade name under which
the NIL operated, which were the only existing operations of eLottery. eLottery
has yet to enter into any agreements with any state, national or international
lotteries for the use of its lottery systems. Although eLottery believes it is
well positioned in the event that the state, national or international lotteries
decide to sell their tickets over the Internet, Intranet, by telephone or
through networked custom-designed electronic lottery terminals and is currently
in various stages of negotiation with several U.S. and international lotteries
as well as two other lottery operators, there can be no assurance that the
state, national or international lotteries will sell their tickets by these
methods or, if sold by these methods, that such lotteries or lottery operators
will enter into contracts with eLottery to utilize the applications of the
systems or, if entered into, that such contracts will be on terms favorable to
the Company.

Risk of Delisting from Nasdaq

There can be no assurance that the eLottery Common Stock will continue to
be included on the [Nasdaq National Market]. Failure to meet the listing
requirements for the [Nasdaq National Market] or the Nasdaq SmallCap Market
could result in the eLottery Common Stock being delisted from the Nasdaq Stock
Market. If the eLottery Common Stock is delisted from trading on Nasdaq,
trading, if any, would thereafter be conducted in the over-the-counter market in
the so-called "pink sheets" or the "Electronic Bulletin Board" of the National
Association of Securities Dealers, Inc. and consequently, an investor may find
it more difficult to dispose of, or to obtain accurate quotations as to the
price of, eLottery Common Stock.

Risk that eLottery Common Stock May Become Subject to the Penny
Stock Regulations

Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock regulations adopted by the Securities and
Exchange Commission (the "Commission"). A penny stock generally is any equity
security with a price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the Nasdaq system, provided
that current price and volume information with respect to transactions in such
security is provided by the exchange or system). In addition, a security will be
exempt from the penny stock regulations if the issuer of such security has (i)
net tangible assets in excess of $2,000,000, if the issuer has been in
continuous operation for at least three years, or $5,000,000 if the issuer has
been in continuous operation for less than three years; or (ii) average revenue
of at least $6,000,000 for the last three years. The penny stock regulations
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the regulations, to deliver a standardized risk disclosure document
that provides information about penny stocks and the risks in the penny stock
market. The broker-dealer must also provide the customer with current bid and
offer quotations for the penny stock, the compensation of the broker-dealer and
its salesperson in the transaction and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock regulations generally require that prior to a transaction in a
penny stock the broker-dealer make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock regulations. If
eLottery Common Stock becomes subject to the penny stock regulations, investors
in eLottery Common Stock may find it more difficult to sell their securities.

Potential Volatility of eLottery Stock Price

Until the eLottery Common Stock is fully distributed and an orderly market
develops, the prices at which the eLottery Common Stock trades may fluctuate
significantly. In addition, the share prices of publicly-traded companies in the
lottery services business vary greatly as a function of their large capital base
and the importance of major, long-term governmental procurements to the success
of their operations. Prices for eLottery Common Stock will be determined in the
trading markets, to the extent that such markets exist, and may be influenced by
many factors, including the depth and liquidity of the market for eLottery
Common Stock, investor perceptions of eLottery and potential dilution of the
eLottery Common Stock upon conversion of the eLottery Preferred Stock. In
addition, there is no assurance that the combined prices of eLottery Common
Stock and the Executone Common Stock following the Distribution will be equal to
or greater than the trading price of Executone Common Stock prior to the
Distribution.

Because Executone shareholders generally may be obligated to pay Federal
income taxes on the eLottery Common Stock, it is possible that there may be a
larger number of sellers of eLottery Common Stock than buyers following the
Distribution due to the needs of stockholders to generate the cash necessary to
make tax payments. This circumstance could also tend to depress the market price
of eLottery Common Stock. See "FEDERAL INCOME TAX CONSEQUENCES."

Pending Litigation That Could Have a Material Adverse Effect on
eLottery

On October 16, 1995, the CDA filed an action entitled Coeur d'Alene Tribe
v. AT&T Corp. in the Tribal Court, located in Plummer, Idaho (Case No.
C195-097): (i) requesting a ruling that the NIL was legal under IGRA, that IGRA
preempts state laws on the subject of Indian gaming, that Section 1084 was
inapplicable and that therefore the states lacked authority to issue Section
1084 notification letters to any long-distance carrier; and (ii) seeking an
injunction preventing AT&T from refusing to provide telephone service to the
NIL. The CDA position was based on its view that all NIL gaming activity was
occurring on "Indian lands" as required by IGRA. On February 28, 1996, the
Tribal Court ruled: (i) that all requirements of IGRA have been satisfied; (ii)
that Section 1084 is inapplicable and the states lack jurisdiction to interfere
with the NIL; and (iii) that AT&T cannot refuse service to the NIL. This ruling
and a related order dated May 1, 1996 were subsequently appealed to the Tribal
Appellate Court, which on July 2, 1997 affirmed the lower Tribal Court's May 1,
1996 ruling and analysis upholding the CDA's right to conduct the NIL telephone
lottery. On August 22, 1997, AT&T filed a complaint for declaratory judgment
against the CDA in the U. S. District Court for the District of Idaho, to obtain
a federal court ruling on the validity and enforceability of the Tribal Court
ruling. On December 17, 1998, that Court issued an opinion and order denying the
motions and counter-claims of the CDA and granting declaratory judgment in favor
of AT&T upholding the position of AT&T and the amici. The District Court ruled
that not all of the NIL gaming activity was occurring on "Indian lands," that
IGRA did not apply as a result and that IGRA did not preempt the operation of
state laws with respect to the NIL. In so ruling, the District Court overruled
the prior decisions of the Tribal Courts that ruled the NIL was legal under
IGRA. In response to that decision, eLottery and the CDA terminated operations
of the NIL and the US Lottery to every state where it had been offered. The CDA
has filed a notice of appeal of the District Court decision; however, eLottery
will not participate in or fund any appeal of this ruling.

On September 14, 1998, the CDA, eLottery and representatives of the U.S.
Department of Justice had discussions regarding a declaratory judgment to be
sought jointly from the U.S. District Court for the District of Idaho as to
whether the operation of the NIL is legal under 18 U.S.C. ss.ss.1952 and 1955.
eLottery was informed that the Department of Justice views such operation to be
in violation of such statutes. The Department of Justice proposed that the
parties file a joint stipulation of facts and cross-motions for summary judgment
in the declaratory judgment action. On December 17, 1998, the Idaho Federal
District Court issued an opinion and order granting declaratory judgment in
favor of AT&T in the action styled AT&T v. Coeur D' Alene Tribe. In response to
that decision, eLottery and the CDA terminated operation of the NIL and the US
Lottery. In light of the ruling of the U.S. District Court of Idaho, and the
termination of the NIL and the US Lottery, eLottery has requested confirmation
from the Department of Justice that no further action will be taken.

On May 28, 1997, the Attorney General of the State of Missouri brought an
action in the Circuit Court of Jackson County, Missouri, against the CDA and
UniStar Entertainment seeking to enjoin the NIL games offered by the CDA over
the Internet and managed by UniStar Entertainment. The complaint also sought
civil penalties, attorneys' fees and court costs. The complaint alleged that the
NIL violates Missouri anti-gambling laws and that the marketing of the games
violates the Missouri Merchandising Practices Act. UniStar Entertainment and the
CDA removed the case to the U.S. District Court for the Western District of
Missouri, which denied the State's subsequent motion to remand back to the state
court. The court also subsequently granted a motion to dismiss the CDA from this
case based on sovereign immunity. The court preliminarily denied a motion to
dismiss UniStar Entertainment based on sovereign immunity, although the court
indicated it might reconsider that decision. UniStar Entertainment filed a
motion for reconsideration of its motion for dismissal. The State of Missouri
appealed the dismissal of the CDA to the Eighth Circuit Court of Appeals.

On January 28, 1998, the State of Missouri sought to dismiss voluntarily
the existing federal case against UniStar Entertainment and the next day filed a
new action against Executone, UniStar Entertainment and two tribal officials,
with essentially the same allegations, in state court. On February 5, 1998, the
U.S. District Court for the Eastern District of Missouri ruled that this second
case also should be heard in federal court, transferred the second case to the
Western District of Missouri where the original case had been filed, and
dissolved a state court temporary restraining order. A motion to dismiss the
second case based on the sovereign immunity of all the defendants and a motion
to abstain in favor of the jurisdiction of the Coeur d'Alene Tribal Court are
pending. The State of Missouri appealed to the Eighth Circuit the denial of its
motion to remand the case to state court or, in the alternative, to seek a
preliminary injunction.

On January 6, 1999, the Eighth Circuit dismissed Missouri's appeal from
the Eastern District of Missouri. In the same opinion, the Eight Circuit vacated
the decisions from the Western District of Missouri as to the CDA and remanded
that case to the Western District for a hearing on whether the Internet games of
the NIL are gaming activities "on Indian lands." The Eighth Circuit also held
valid Missouri's voluntary dismissal of UniStar Entertainment from the Western
District lawsuit. On January 20, 1999, the CDA filed a motion for
reconsideration and suggestion for rehearing en banc of the portion of the Eight
Circuit's opinion regarding the CDA. In light of the termination of the NIL and
the US Lottery, eLottery anticipates seeking dismissal of the Missouri actions.

On September 15, 1997, the State of Wisconsin, by its Attorney General,
filed an action in the Wisconsin State Circuit Court for Dane County against
Executone, UniStar Entertainment and the CDA, to permanently enjoin the NIL
offered by the CDA on the Internet. The complaint alleged that the offering of
the NIL violates Wisconsin anti-gambling laws and that legality of the NIL had
been misrepresented to Wisconsin residents in violation of state law. In
addition to an injunction, the suit seeks restitution, civil penalties,
attorneys' fees and court costs. Executone, UniStar Entertainment and the CDA
have removed the case to the U.S. District Court in Wisconsin. On February 18,
1998, the District Court dismissed the CDA from the case based on sovereign
immunity and dismissed Executone based on the State's failure to state a claim
against Executone. The State of Wisconsin has appealed the dismissal of the CDA
to the Seventh Circuit Court of Appeals. A motion to dismiss the case against
UniStar Entertainment on the basis of sovereign immunity were denied. UniStar
Entertainment has appealed the denial of its motion to dismiss to the Seventh
Circuit Court of Appeals. In light of the termination of the NIL and the US
Lottery, eLottery anticipates seeking dismissal of this action.

No Arm's-Length Negotiation of Related Agreements

eLottery and Executone have entered into a number of agreements for the
purpose of effecting the Distribution and defining the ongoing relationship
between them. These agreements consist of the Reorganization Agreement, Master
Services Agreement and Tax Sharing Agreement described under "ARRANGEMENTS
BETWEEN EXECUTONE AND eLOTTERY RELATING TO THE DISTRIBUTION" as well as
compensation arrangements described under "EXECUTIVE COMPENSATION." These
agreements have been developed by Executone in connection with its strategy to
cause eLottery Common Stock to be distributed to Executone shareholders in the
Distribution. Accordingly, none of the agreements are the result of arm's-length
negotiation between independent parties. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."

eLottery's History of Losses and Lack of Assurance of Future
Profitability

eLottery has generated no revenues through September 30, 1998. eLottery is
in the development stage and its activities to date have been primarily related
to organization of the Company and development of the business and lottery
systems necessary to further its business plan. There is no assurance that
enough future revenues will be generated by, or that alternative sources of
funding will be available to, eLottery to support the furtherance of its
business plan or to meet its operating expenses.

eLottery Has Never Operated as an Independent Entity

eLottery has never operated as a separate, independent entity, and has
never operated as a public company. Management's ability to operate eLottery as
a public company on a stand-alone basis, including eLottery's ability to obtain
additional financing, will impact the performance of eLottery and ultimately the
return on each stockholder's investment in eLottery.

Unavailability of Executone's Financial and Other Resources

Prior to the Distribution, Executone has provided all of eLottery's
financial support. Executone has agreed to continue to provide financial support
to eLottery until the Distribution Date, which support will not exceed an
average sum of $1.5 million per quarter in accordance with the terms of the
Share Exchange Agreement, dated August 12, 1998, as amended on December 22, 1998
(as so amended, the "Exchange Agreement"), between Executone and eLottery and
Watertone Holdings L.P., Cooper Life Sciences, Inc., John C. Shaw, Richard
Bartlett, Jerry M. Seslowe, 10-26 S. William Street Associates, Louis K. Adler
and Resource Holdings Ltd., the holders of the Executone Preferred Stock (the
"Executone Preferred Holders"). Executone will also provide to eLottery, at the
closing date of the Exchange (the "Exchange Closing Date"), in accordance with
the terms of the Exchange Agreement, $3.0 million in cash, plus an additional
amount in cash based upon when the Distribution is to be consummated as follows:

Distribution Consummated Cash Payable by
By: Executone

March 31, 1999............ $2.5 million
April 30, 1999............ $2.0 million
May 31, 1999.............. $1.5 million
June 30, 1999............. $1.0 million

If the Distribution is consummated after June 30, 1999, then the additional
amount of cash shall be $500,000. At the Exchange Closing Date, Executone also
will assume responsibility for, and pay when due, expenses incurred by eLottery
but not yet paid, provided, however, that the maximum of such expenses shall not
exceed $500,000. Following the Distribution Date, however, eLottery will no
longer be a wholly-owned subsidiary of Executone and, other than as herein
provided, will no longer be able to rely on Executone for financial support.
eLottery also will not be able to benefit from its relationship with Executone
to obtain credit for the purpose of supporting its operations.

Dependence upon Key Personnel

eLottery is dependent upon the ability and experience of its executive
officers. Although eLottery currently has employment contracts with three of its
executive officers, it does not maintain key man life insurance on the lives of
such executive officers. The loss of the services of any or all of its executive
officers or eLottery's inability in the future to attract and retain management
and other key personnel could have a material adverse effect on eLottery.

Certain Antitakeover Effects of Certain Provisions of eLottery's
Certificate of Incorporation and eLottery's Bylaws

Certain provisions of eLottery's Amended and Restated Certificate of
Incorporation (the "eLottery Certificate") and eLottery's Bylaws (the "eLottery
Bylaws") may have the effect of making more difficult an acquisition of control
of eLottery in a transaction not approved by the Board of Directors of eLottery
(the "eLottery Board"). See "CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS
OF THE eLOTTERY CERTIFICATE , THE eLOTTERY BYLAWS, THE eLOTTERY RIGHTS PLAN AND
THE GENERAL CORPORATION LAW OF DELAWARE." The eLottery Certificate would, in
some circumstances, eliminate certain liabilities of eLottery directors in
connection with the performance of their duties. See "LIABILITY AND
INDEMNIFICATION OF DIRECTORS AND OFFICERS."

Substantial Percentage Ownership of eLottery By Executone
Preferred Holders

The Executone Preferred Holders have entered into the Exchange Agreement
with Executone and eLottery, pursuant to which, on the Distribution Date, all of
the outstanding shares of Executone Preferred Stock will be converted
automatically into (i) shares of eLottery Common Stock, which shares, as of the
Distribution Date, will represent 15% of the outstanding shares of eLottery
Common Stock (the "Original Issuance"); and (ii) all shares of eLottery
Preferred Stock. No fractional shares of eLottery Common Stock or eLottery
Preferred Stock shall be issued. Upon the achievement by the Company of certain
net income and revenue levels, the Executone Preferred Holders will be entitled
to convert the eLottery Preferred Stock into that number of shares of eLottery
Common Stock (the "Underlying Shares") such that, when added to the Original
Issuance, the Executone Preferred Holders will own 34% of the eLottery Common
Stock, including only the Original Issuance and the Underlying Shares. See
"DESCRIPTION OF eLOTTERY CAPITAL STOCK--eLottery Preferred Stock." Thus,
depending upon whether the Executone Preferred Holders convert their eLottery
Preferred Stock, Executone Preferred Holders could own a substantial percentage
of eLottery.

Competition

The development, licensing and management of gaming technology and the
provision of gaming entertainment are highly competitive. The gaming market is
served by state and nationally sponsored lotteries and by many domestic and
foreign gaming companies, including several large land-based casino companies. A
number of large, mature lottery services companies serve both the domestic and
international markets. All these competitors have substantially more capital,
and therefore broader based resources to apply to technology and marketing than
eLottery. eLottery also competes with other forms of leisure and entertainment
activities for the public's disposable income.

Government Regulation and Legislation

The lottery market is highly regulated and the competition to secure new
contracts is often intense. Awards of government contracts to companies in the
industry may be challenged by competitors. Further, investigations of various
types, including grand jury investigations, conducted by governmental
authorities into possible improprieties and wrongdoing in connection with
efforts to obtain or the awarding of lottery contracts and related matters may
also result. Such incidents could have a material adverse effect on eLottery's
ability to carry out its business plan.

The Company anticipates that legislation regarding Internet gaming will be
introduced in the current Congressional session. Whether any such legislation
would address state sponsored lotteries and the form and extent of any such
regulations are unknown. In the event that one or more bills did address state
sponsored lotteries and were enacted, such legislation could have a material
adverse effect on eLottery.

Market Development Risks

There are market risks associated with the development of eLottery's
business. eLottery's existing products have not been subjected to extensive
market exposure. All of eLottery's products currently in development are also
products that employ new technologies and may not find sufficient customer or
consumer support to become economically viable.

Risks Associated with International Sales and Operations

Although eLottery has not to date sold its products internationally, part
of its current strategy is to license its lottery distribution systems to
lotteries worldwide. Entry into the international market would subject eLottery
to certain risks. The risks associated with international sales include, but are
not limited to, the length of time required to establish a foreign market
presence, costs of localizing products for foreign countries, trade laws and
business practices favoring local competition, dependence on local vendors,
compliance with multiple, conflicting and changing government laws and
regulations, longer sales and payment cycles, import and export restrictions and
tariffs, difficulties in staffing and managing foreign operations, greater
difficulty or delay in accounts receivable collection, foreign currency exchange
rate fluctuations, in some countries, a lesser degree of intellectual property
protection, multiple and conflicting tax laws and regulations and political and
economic instability. The occurrence of any of these factors could have a
material adverse effect on eLottery's business, financial condition and results
of operations.

Obligations Under the NIL Agreement

As a result of the termination of the operations of the NIL and the US
Lottery in response to the order granting declaratory judgment in favor of AT&T
in the action styled AT&T v. Coeur D'Alene Tribe, the Company is in negotiations
with the CDA to terminate the NIL Agreement. In the event that the Company and
the CDA are unable to reach an agreement with respect to the termination of the
NIL Agreement, the Company, under the terms of the NIL Agreement, may be
required to supply financial and administrative resources to the NIL. Such
obligations of the Company could reduce the amount of time and resources that
the Company may designate to its business plan, which could result in a material
adverse effect on the Company's business, financial conditions and results of
operations.

Concentration in Single Industry

eLottery's current operating strategy is to focus on lottery technologies
and services. Although eLottery will seek to develop other lines of business
from the existing lottery business, eLottery is subject to risks associated with
concentrating on a single industry. Therefore, the adverse effect on eLottery's
operating revenue resulting from an economic downturn in the lottery industry
would be more pronounced than if eLottery had diversified its line of business.

Year 2000 Risks

Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the year 2000 from the year
1900 (commonly referred to as the "Year 2000 Problem"). eLottery relies on
software and related technologies in the operation of its business. In its
review of its IT infrastructure for Year 2000 compliance, eLottery has completed
a review of its applications software, operating systems software and firmware
used on its hardware and other devices with the suppliers of the systems.
eLottery tested these systems by processing Year 2000 events and transactions.
All systems were found to be Year 2000 compliant. eLottery has also completed a
review of its non-IT systems, primarily those systems related to environment
management and security of its operating computer systems, and determined that
there are no significant Year 2000 issues.

Failure by data suppliers with whom eLottery associates to successfully
address the Year 2000 issue on a timely basis could result in delays in data
becoming available to eLottery for use in its products. eLottery has completed a
review of potential Year 2000 issues with its key data suppliers who have
confirmed that they will be able to process Year 2000 transactions on a timely
basis. There can be no assurance, however, that the computer systems and
operations of eLottery or its data suppliers, vendors or other service providers
will be Year 2000 compliant. In addition, eLottery does not have a contingency
plan in place should an unforeseen failure occur. Given eLottery's heavy
reliance on computer systems, the failure of eLottery or those with whom it has
a business relationship to have Year 2000 compliant systems could have a
material adverse effect on eLottery and its operations. See "Management's
Discussion and Analysis of Financial Condition--Years Ended December 31, 1997,
1996 and 1995--Year 2000 Compliance."

THE DISTRIBUTION

Purposes of and Reasons for the Distribution

The Executone Board concluded that the Distribution was in the best
interests of Executone shareholders because it would separate eLottery's assets
from Executone's other core businesses and thereby provide investors a sharper
focus as to the particular merits of each of those investments and provide
greater recognition of the value of eLottery's assets. Executone believes that
the Distribution is a strategy superior to a sale of eLottery or its assets.

Conditions to the Distribution

The Distribution is subject to a number of conditions contained in the
Reorganization Agreement, including (i) the eLottery Common Stock shall have
been approved for listing on the Nasdaq Stock Market, subject to official notice
of issuance; (ii) the eLottery Board shall have adopted the eLottery Certificate
and eLottery Bylaws and the eLottery Certificate and eLottery Bylaws shall be in
effect; and (iii) the Registration Statement on Form S-1 (together with any
amendments hereto, the "Registration Statement") shall have been declared by the
Commission or become effective under the Securities Act of 1933, as amended (the
"Securities Act"). See "ARRANGEMENTS BETWEEN EXECUTONE AND eLOTTERY RELATING TO
THE DISTRIBUTION--Reorganization Agreement." Any of the conditions to the
Distribution may be waived, at any time prior to the Distribution Date, for any
reason, in the sole discretion of the Executone Board.

Manner of Effecting the Distribution
Beneficial holders of Executone Common Stock or their nominees will
receive shares of eLottery Common Stock based upon the number of shares held by
each shareholder individually on _________, 1999, the Record Date. At the time
of the Distribution, share certificates for eLottery Common Stock will be
delivered to ______________, as Distribution Agent, for mailing. On or as soon
as practicable after the Distribution Date, the Distribution Agent will commence
mailing the share certificates to holders of Executone Common Stock as of the
close of business on that date, on the basis of one share of eLottery Common
Stock for each five (5) shares of Executone Common Stock held on the Record
Date. All such shares of eLottery Common Stock will be validly issued, fully
paid, nonassessable and free of preemptive rights. See "DESCRIPTION OF eLOTTERY
CAPITAL STOCK."

No certificates or scrip representing fractional shares of eLottery Common
Stock will be issued to Executone shareholders as part of the Distribution. The
Distribution Agent will aggregate fractional shares into whole shares and sell
them in the open market at then prevailing prices on behalf of holders who
otherwise would be entitled to receive fractional share interests, and such
persons will receive instead a cash payment in the amount of their pro rata
share of the total sale proceeds. Proceeds from sales of fractional shares will
be paid by the Distribution Agent based upon the average gross selling price per
share of eLottery Common Stock of all such sales. Executone will bear the cost
of commissions incurred in connection with such sales. Such sales are expected
to be made as soon as practicable after the Distribution Date. None of
Executone, eLottery or the Distribution Agent will guarantee any minimum sale
price for the shares of eLottery Common Stock, and no interest will be paid on
the proceeds.

A broker or depository that holds Executone Common Stock for the account
of others and that receives shares of eLottery Common Stock for the account of
more than one beneficial owner should provide copies of this Prospectus to the
beneficial owners.

NO HOLDER OF EXECUTONE COMMON STOCK WILL BE REQUIRED TO PAY ANY CASH OR
OTHER CONSIDERATION FOR THE SHARES OF eLOTTERY COMMON STOCK TO BE RECEIVED IN
THE DISTRIBUTION OR TO SURRENDER OR EXCHANGE SHARES OF EXECUTONE COMMON STOCK OR
TO TAKE ANY OTHER ACTION IN ORDER TO RECEIVE eLOTTERY COMMON STOCK. THE
DISTRIBUTION WILL NOT AFFECT THE NUMBER OF, OR THE RIGHTS ATTACHING TO,
OUTSTANDING SHARES OF EXECUTONE COMMON STOCK. SEE "FEDERAL INCOME TAX
CONSEQUENCES."

Treatment of the Executone Preferred Stock

The Executone Preferred Holders have entered into the Exchange Agreement
with Executone and eLottery, pursuant to which, on the Distribution Date, all of
the outstanding shares of Executone Preferred Stock will be converted
automatically into (i) shares of eLottery Common Stock, which shares, as of the
Distribution Date, will represent 15% of the Original Issuance; and (ii) all
shares of eLottery Preferred Stock. No fractional shares of eLottery Common
Stock or eLottery Preferred Stock shall be issued. Upon the achievement by the
Company of certain net income and revenue levels, the Executone Preferred
Holders will be entitled to convert the eLottery Preferred Stock into the
Underlying Shares such that, when added to the Original Issuance, the Executone
Preferred Holders will own 34% of the eLottery Common Stock, including only the
Original Issuance and the Underlying Shares. See DESCRIPTION OF eLOTTERY CAPITAL
STOCK--eLottery Preferred Stock."

Additional Information

If a Holder wishes to receive additional copies of this Prospectus or
additional information concerning the Distribution, the Holder should contact
___________________ at ______________________, telephone number
_________________.

<PAGE>

FEDERAL INCOME TAX CONSEQUENCES

Introduction

The following summarizes the material federal income tax consequences of
the Distribution to Executone shareholders. This summary is based on current
law, which is subject to change at any time, possibly with retroactive effect.
This summary is not a complete description of all tax consequences of the
Distribution and, in particular, may not address federal income tax consequences
applicable to Executone shareholders subject to special treatment under federal
income tax law. In addition, this summary does not address the tax consequences
of the Distribution under applicable state, local or foreign laws. EACH
EXECUTONE SHAREHOLDER SHOULD CONSULT WITH THE HOLDER'S OWN TAX ADVISOR ABOUT THE
CONSEQUENCES OF THE DISTRIBUTION IN LIGHT OF THE SHAREHOLDER'S PARTICULAR
CIRCUMSTANCES, INCLUDING THE APPLICATION OF ANY STATE, LOCAL OR FOREIGN LAW.

Receipt of the Distribution by Executone Shareholders

The Distribution will be a taxable event to Executone shareholders. For
Federal income tax purposes, the amount of the Distribution received by each
holder of Executone Common Stock will be the fair market value, as of the
Distribution Date, of the eLottery Common Stock distributed to the shareholder.
The amount of the Distribution will be taxable as a dividend to the extent it is
distributed from Executone's "earnings and profits," as computed for federal
income tax purposes. Executone believes that it had no accumulated earnings and
profits at the end of 1998. In that case, the Distribution will be taxable as a
dividend to the extent the Distribution (plus any other distributions made by
Executone to its shareholders in 1999) does not exceed Executone's earnings and
profits for 1999, determined without regard to any deficit in earnings and
profits existing at the end of 1998. To the extent the Distribution is not from
Executone's earnings and profits and is therefore not taxable as a dividend, the
Distribution will reduce (but not below zero) a shareholder's basis in Executone
Common Stock on which the Distribution is made. If the non-dividend portion (if
any) of the Distribution exceeds the basis of such Executone Common Stock, the
excess will be taxable as gain from the sale of the stock.

A shareholder's initial tax basis in eLottery Common Stock received in the
Distribution will be the stock's fair market value as of the Distribution Date.
The holding period for eLottery Common Stock received in the Distribution will
begin on the Distribution Date.

Executone will make a determination of the fair market value of eLottery
Common Stock as of the Distribution Date based on a number of factors, including
the trading price of eLottery Common Stock at or near the Distribution Date. In
early 2000, Executone will report the amount of the Distribution received by
each record holder of Executone Common Stock (other than corporations and other
shareholders exempt from information reporting) to the IRS and to the
shareholder. There can be no assurance that the IRS or the courts will agree
that the amount of the Distribution received by a holder of Executone Common
Stock is the amount determined by Executone.

"Backup" withholding at the rate of 31% will apply to the amount of the
Distribution to a shareholder unless the shareholder furnishes or has furnished
to the Company (or paying agent) its taxpayer identification number, certifies
that such number is correct, and meets certain other conditions or is otherwise
exempt from backup withholding. Backup withholding, if applicable, would be
effected by withholding a portion of the shares of eLottery Common Stock
otherwise distributable to the shareholder and selling the withheld shares to
obtain funds for payment of the withholding tax. Any amounts withheld from a
shareholder under the backup withholding rules will be allowable as a refund or
a credit against such shareholder's United States federal income tax liability.

Consequences to Holders of Executone Preferred Stock

The Exchange will be a taxable transaction. A holder of Executone
Preferred Stock generally will recognize gain or loss equal to the difference
between the holder's federal income tax basis in the Executone Preferred Stock
and the fair market value of the shares of eLottery Common Stock and eLottery
Preferred Stock received in the Exchange. Holders of Executone Preferred Stock
should consult their own tax advisors to determine the tax consequences of the
Exchange to them.

Effect of Transactions on Use of Net Operating Losses

Executone has net operating loss carryovers ("NOLs"), which totaled
approximately $60.5 million at the end of 1997. If there were to be a change in
the ownership of more than 50% in value of the Executone stock over any 36-month
period, subsequent use of the NOLs could be limited under section 382 of the
Internal Revenue Code. The Distribution and related transactions, combined with
changes in ownership of Executone stock within the preceding 36 months, are not
expected to cause an ownership change that would limit Executone's future use of
its NOLs. The Exchange, however, will produce a significant change in ownership
of Executone stock and, therefore, will increase the possibility that subsequent
changes in the ownership of Executone stock could result in a total ownership
change of more than 50%.

eLottery also has NOLs, which totaled approximately $2.3 million at the
end of 1997. The Distribution and related transactions might result in an
ownership change that would limit eLottery's future use of its NOLs. For
financial accounting purposes, eLottery's NOLs are not reflected as a net asset,
because a valuation allowance has been provided for the entire, potential
deferred tax asset relating to the NOLs.

DISTRIBUTION POLICY

eLottery currently intends to retain future earnings for use in its
business and, therefore, does not anticipate paying any dividends in the
foreseeable future. The payment of future dividends, if any, will depend, among
other things, on eLottery's results of operations and financial condition and on
such other factors as the management of eLottery, in its discretion, may
consider relevant.

CAPITALIZATION

The following table sets forth the unaudited historical and pro forma
capitalization of eLottery as of September 30, 1998, assuming the consummation
of the Distribution at that date.

The table should be read in conjunction with eLottery's financial
statements and the notes thereto and the unaudited pro forma consolidated
financial information and notes thereto included elsewhere herein. The unaudited
pro forma information set forth below does not necessarily reflect the
capitalization of eLottery in the future.
<TABLE>
<CAPTION>

September 30, 1998
(Unaudited)
-----------------------------------------
Pro Forma
Historical NIL Impairment Adjustments Pro Forma
------------- -------------- ----------- ----------
<S> <C>
Cash:............................ $--- $ --- $ 5,500,000 $ 5,500,000
Debt:............................ 345,076 --- --- 345,076
Stockholders' Equity:
Investment in eLottery........... 29,844,317 --- (29,844,317) ---
Common Stock of $.01 par value
Authorized 25,000,000 shares;
Issued and Outstanding
11,756,351 shares --- 117,564 117,564
Preferred Stock of $.01 par value
Authorized 1,000,000 shares;
Issued and Outstanding
75,000 shares --- 750 750
Additional Paid-in Capital....... --- 37,194,726 37,194,726
Accumulated Deficit.............. (2,511,451) (24,199,158) --- (26,710,609)
--------------------------------------------------------

Total Stockholders' Equity.. 27,332,866 (24,199,158) 7,468,723 10,602,431
--------------------------------------------------------
Total Capitalization....... $27,677,942 $(24,199,158) $12,968,723 $16,447,507
=========== ============= ============== =============

</TABLE>

<PAGE>

eLOTTERY, INC.
UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION

The following unaudited Pro Forma Consolidated Balance Sheet of eLottery
as of September 30, 1998 has been prepared pursuant to the Reorganization
Agreement (as described under "AGREEMENTS BETWEEN EXECUTONE AND eLOTTERY
RELATING TO THE DISTRIBUTION--Reorganization Agreement") as if the Distribution
had been consummated as of the period indicated. The accounting for this
transfer of assets and liabilities will be reflected at their historical
carrying value. The basis for using such accounting is that the transaction is a
pro rata distribution of eLottery Common Stock to the holders of Executone
Common Stock.

The unaudited Consolidated Pro Forma Balance Sheet has been prepared as if
the transactions had occurred on September 30, 1998. A pro forma income
statement has not been presented, since the transaction would not materially
change the historical cost basis income statement. The pro forma financial
information set forth below is unaudited and not necessarily indicative of the
results that would actually have occurred if the transactions had been
consummated as of September 30,1998 or results that may be obtained in the
future.

The pro forma adjustments, as described in the Notes to Pro Forma
Consolidated Balance Sheet, are based on available information and upon certain
assumptions that management believes are reasonable. The unaudited Pro Forma
Consolidated Financial Information should be read in conjunction with eLottery's
financial statements and the notes thereto. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the other
financial information included elsewhere herein.

These pro forma statements also include adjustments related to the
impairment of certain assets related to the NIL, which terminated operations in
December 1998. See notes 3 and 10 in the Consolidated Financial Statements on
pages F-8 and F-13.

<PAGE>

eLottery, Inc. and Subsidiary
Consolidated Pro Forma Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>

Pro Forma Pro Forma
Sept. 30, NIL Pro Forma Sept. 30,
1998 Impairment(c) Adjustments 1998
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets.................... $ 1,625 $ (1,625) $5,500,000 (a) $5,500,000
Property & Equipment, net......... -
4,022,279 - 4,022,279
Intangible Assets, net............ (12,977,582) -
12,977,582 -
Advances to NIL................... 12,872,544 (12,872,544) -
-
Investment in IGT................. -
700,000 - 700,000
Other Assets...................... (671,963) 725,228
1,397,191 -
------------ ------------- ----------- ------------

TOTAL ASSETS.......... $31,971,221 $(26,523,714) $5,500,000 $10,947,507
============ ============== =========== ============

LIABILITIES AND
DIVISIONAL
CONTROL/STOCKHOLDERS' EQUITY

LIABILITIES
Current Liabilities
Current portion of capital $ 115,248 $ - $ (a)$ -
lease obligations................. (115,248)
Accounts payable and - (1,853,475)(a) -
accrued liabilities............... 1,853,475
------------ -------------- ----------- ------------
1,968,723 - (1,968,723) -

Deferred Income................... (2,324,556) -
2,324,556 -
Capital Lease Obligations......... 345,076 -
- 345,076
----------- -------------- ----------- ------------

TOTAL LIABILITIES...... 4,638,355 (2,324,556) (1,968,723) 345,076
------------ -------------- ----------- ------------

DIVISIONAL CONTROL/STOCKHOLDERS'
EQUITY
Investment in eLottery............ 29,844,317 - (29,844,317)(b) -

Common Stock ..................... - - 117,564 (b) 117,564

Preferred Stock................... - - 750 (b) 750

Additional Paid in Capital........ - 37,194,726(a,b)37,194,726
Accumulated Deficit............... (2,511,451) (24,199,158) - (26,710,609)
---------- ------------ ----------- ------------

TOTAL DIVISIONAL CONTROL/
STOCKHOLDERS' EQUITY....... 27,332,866 (24,199,158) 7,468,723 10,602,431
---------- ------------ ----------- ------------

TOTAL LIABILITIES AND
DIVISIONAL CONTROL/STOCKHOLDERS'
EQUITY $31,971,221 $(26,523,714) $5,500,000 $10,947,507
========== ============ =========== ============

</TABLE>

<PAGE>

eLottery, Inc. and Subsidiary
Notes to Consolidated Pro Forma Balance Sheet
September 30, 1998
(Unaudited)

(a) Pursuant to the terms of the Exchange Agreement, Executone will
provide to eLottery, at the Exchange Closing Date, $3.0 million in cash, plus an
additional amount in cash based upon when the Distribution is to be consummated
as follows:

Distribution Consummated Cash Payable by
By: Executone

March 31, 1999............ $2.5 million
April 30, 1999............ $2.0 million
May 31, 1999.............. $1.5 million
June 30, 1999............. $1.0 million

If the Distribution is consummated after June 30, 1999, then the additional
amount of cash shall be $500,000. At the Exchange Closing Date, Executone also
will assume responsibility for, and pay when due, expenses incurred by eLottery
but not yet paid, provided, however, that the maximum of such expenses shall not
exceed $500,000. The pro forma cash adjustment assumes the Distribution is
consummated prior to March 31, 1999, resulting in $2.5 million in cash provided
by Executone to eLottery as of the Exchange Closing Date.

Executone has also agreed to continue to provide financial support to eLottery
until the Distribution Date, which will not exceed an average sum of $1.5
million per quarter in accordance with the terms of the Exchange Agreement. Such
amounts have not been reflected in the Consolidated Pro Forma Balance Sheet. If
the transaction had been consummated as of September 30, 1998, these expenses
would not have been incurred.

(b) eLottery has historically operated as a division of Executone. As a
result of the transactions, eLottery will be a separate corporate entity. This
entry reflects eLottery's new stockholders' equity accounts.

(c) Represents adjustments related to the impairment of certain assets
related to the NIL, which terminated operations in December 1998.

<PAGE>

eLOTTERY, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following selected financial data of eLottery should be read in
conjunction with, and is qualified in its entirety by reference to, the
Financial Statements and the related notes thereto included on pages F-1 to
F-18.

On December 19, 1995, Executone acquired 100% of the common stock of
eLottery for common and preferred stock with a combined value of $12.7 million.
UniStar Entertainment has an exclusive five-year management agreement with the
CDA, which was the primary asset acquired, to provide design, development,
financial and management services to NIL. See "RISK FACTORS--Obligations Under
The NIL Agreement."

Such acquisition was accounted for using the purchase method. Accordingly,
the assets and liabilities acquired were recorded on the balance sheet at their
fair market values, resulting in the recording of an intangible asset of
approximately $15.8 million as of the acquisition date. During the period prior
to its acquisition by Executone, eLottery was in its early development stages.
The expenditures made by the previous owners were primarily expenses relating to
the startup of the business, including legal, lobbying, consulting and other
professional fees, along with payroll, travel and other related expenses. These
expenses were reflected in the pre-acquisition statement of operations.
Subsequent to the acquisition, eLottery's expenditures comprised primarily
development costs for software and hardware, building costs and reimbursable
advances to the NIL (See Notes 1, 3, 4 and 10 on pages F-7, F-8, F-10 and F-13,
and Note 1 on page F-17), all of which were recorded on the balance sheet.
Beginning in 1998, eLottery also began making expenditures for the development
of its business to market the technology implemented with its uslottery.com
website. As a result of purchase accounting and the change in the nature of the
business after the acquisition by Executone, financial data for the periods
prior to Executone's purchase of eLottery on December 19, 1995 is not comparable
to periods subsequent to the acquisition.

In response to the legal decision issued December 19, 1998 in Coeur
d'Alene Tribe vs. AT&T (see Notes 9 and 10 in the Notes to Consolidated
Financial Statements as of December 31, 1997 and 1996 and for the three years in
the period ended December 31, 1997 for a description of the litigation),
eLottery and the CDA have terminated operation of the NIL and the US Lottery. As
a result, eLottery has reevaluated certain of its assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets.
Based upon such review, management has determined that both the intangibles and
the advances to the NIL have been impaired as of the date of this legal decision
and will be written down to zero during the fourth quarter of 1998. As of
September 30, 1998, intangibles and advances to NIL were $12,977,582 and
$12,872,544, respectively. eLottery has also determined that NIL startup costs
(primarily post-acquisition building costs) included in other assets is
impaired. These amounts would have been written off as of January 1, 1999 in
accordance with the initial adoption of SOP 98-5. However, due to the
termination of NIL operations, management has concluded that these costs should
be written off during the fourth quarter of 1998. NIL startup costs as of
September 30, 1998 included in other assets were approximately $0.7 million. The
remaining startup costs were included in intangibles and are part of the
impairment adjustment described above. The impact of these adjustments had they
been recorded as of September 30, 1998 are shown below in the column headed "Pro
Forma September 30, 1998." This column does not represent the September 30, 1998
balance sheet as if the Distribution occurred at that date.

In addition, the Statement of Cash Flows ended December 31, 1995 is based
upon cash flows during the pre-acquisition period of January 1, 1995 through
December 18, 1995. Other than the acquisition, which was a non-cash transaction,
there was no eLottery activity from December 19, 1995 through December 31, 1995.
The pre-acquisition financial data has not been restated to conform to the
post-acquisition presentation.

Selected Financial Data
eLottery, Inc. and Subsidiary
(A Development Stage Company)
(Unaudited)
<TABLE>
<CAPTION>

Summary of
Operations $ - $ - $ - $ - $ - $ - $ - $ -

Revenues
Net Loss (25,144,840) (945,682) (649,369) (810,187) (755,582) (2,607,496)(1,162,560) (359,551)

Balance
Sheet

Total Assets 5,447,507 $22,233,748 $24,090,424 $18,158,022 $84,303 $ 27,708 $1,876 $31,971,221

Long-Term
Debt 345,076 345,076 397,844 433,068 - - - -

Divisional 3,133,702 7,332,866 21,211,646 22,744,494 17,081,807 (48,941) (578,335) (359,551)
Control/Equity
</TABLE>

(a)Executone acquired eLottery on December 19, 1995. Accordingly, the
pre-acquisition balance sheet and income statement data is as of and for the
period ended December 19, 1995.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis should be read in
conjunction with the financial statements on pages F-1 to F-18 and the
Forward-Looking Statements on page 28. The audited financial statements included
herein may not necessarily be indicative of the results of operations, financial
position and cash flows of eLottery in the future or had it operated as a
separate independent company during the periods presented. The audited financial
statements included herein do not reflect any changes that may occur in the
financing and operations of eLottery as a result of the Distribution. All
references to eLottery throughout this section include eLottery, Inc. and its
wholly-owned subsidiary, UniStar Entertainment, Inc.

Introduction and Subsequent Event

On December 19, 1995, Executone acquired 100% of the common stock of
eLottery for common and preferred stock with a combined value of $12.7 million.
UniStar Entertainment has an exclusive five-year management agreement with the
CDA, which was the primary asset acquired, to provide design, development,
financial and management services to the NIL. The NIL was operational beginning
in January 1998. See "RISK FACTORS--Obligations Under The NIL Agreement."

On December 17, 1998, the United States District Court for the District of
Idaho ruled in the case of Coeur d'Alene Tribe vs. AT&T that the orders
previously issued by the Tribal Court upholding the legality of the US Lottery
were erroneous. In response to that decision, eLottery and the Tribe have
terminated operation of the NIL and the US Lottery. As a result of this
unfavorable legal outcome, eLottery has reevaluated certain of its assets in
accordance with the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets. Based upon such review, management has determined that both
the intangibles and the advances to the NIL have been impaired as of the date of
this legal decision and will be written down to zero during the fourth quarter
of 1998. As of September 30, 1998, intangibles and advances to NIL were
$12,977,582 and $12,872,544, respectively. eLottery has also determined that NIL
startup costs (primarily post-acquisition building costs) included in other
assets are impaired. These amounts would have been written off as of January 1,
1999 in accordance with the initial adoption of SOP 98-5. However, due to the
termination of NIL operations, management has concluded that it should be
written off during the fourth quarter of 1998. NIL startup costs included in
others assets as of September 30, 1998 were approximately $0.7 million.

Although the NIL operations have now been terminated, the NIL enabled
eLottery to develop both the business and gaming systems necessary for Internet
and telephone lottery activities. As a result, eLottery is now actively
marketing its technology and systems to state and international lotteries that
decide to sell their tickets over the Internet, by telephone or through
networked electronic lottery terminals.

For the years ended December 31, 1997, 1996 and 1995, and for the
nine-month periods ended September 30, 1998 and 1997, substantially all of
eLottery's activities were directed toward the development and financing of the
NIL. The discussion which follows is reflective of the status of the NIL during
the periods presented.

Years Ended December 31, 1997, 1996 and 1995

Results of Operations. eLottery did not generate any revenues during 1997,
1996 or 1995 because the NIL was not profitable. Although the NIL became fully
operational in January 1998, it had yet to generate quarterly net profits and
therefore eLottery, which was to receive revenues only from the net profits of
the NIL, generated no revenues through September 30, 1998. With the termination
of the NIL and US Lottery operations, future eLottery revenue is expected to be
generated from the sale or leasing of eLottery's technology and systems.

Operating expenses for 1997 and 1996 were far lower than the 1995 levels.
As previously noted, the 1995 operating expenses include legal, consulting and
other fees and expenses that, in 1997 and 1996, were charged to the NIL and
reflected on the balance sheet as Advances to NIL. These expenditures were to be
reimbursed to eLottery from NIL net profits. Operating expenses for 1997 and
1996 consist primarily of payroll and related costs, recruiting expenses and
other miscellaneous professional fees. The increase in payroll and related costs
is primarily due to increased headcount. Selling, general and administrative
expenses decreased primarily due to a reduction in recruiting charges and other
professional fees. eLottery was allocated $313,044 in overhead costs related to
Executone's administrative costs during the year ended December 31, 1997, which
are included in other selling, general and administrative expenses. Such costs
were not allocated during 1996 or 1995 as they were not material at that stage
of business development. Shared activity expenses were chargeable to the NIL for
future reimbursement to eLottery, in accordance with the NIL Agreement. During
1997, $366,677 of such charges were recorded as Advances to NIL, which were to
be reimbursed to eLottery out of future NIL profits. These expenses were charged
as eLottery expenses during the same period in 1996.

eLottery has not recorded a tax benefit for its losses for the years ended
December 31, 1997, 1996 and 1995. Based upon a lack of historical earnings and
given that eLottery has only generated taxable losses since its inception,
management believes it is more likely than not that eLottery will not be able to
utilize such tax benefits.

Liquidity and Capital Resources. The discussion below details eLottery's
cash flows from operating, investing and financing activities. As previously
noted, most of eLottery's activities were related to the development and
financing of the NIL. Through December 31, 1997, eLottery has not generated cash
from its operating activities. As previously noted, it has not generated any
revenues and has used cash to fund its current expenses and liabilities. The
remainder of eLottery's cash usage relates to the investment activities,
detailed below, which primarily comprise expenditures for eLottery's capital
requirements, along with the operating and capital requirements of the NIL.
Since eLottery has not generated cash to date, its financing activities consist
of funding from Executone.

Year Ended December 31,
-------------------------------
1997 1996
--------------- --------------
eLottery Operating Activities... $ 807,679 $ 1,256,015

eLottery Investing Activities:
Gaming and Business Systems..... 2,326,612 501,098
Distributions to the CDA........ 300,000 325,000
Investment in IGT............... -- 700,000
Pre-Acquisition Liabilities..... 260,245 1,639,330
NIL - Operations................ 1,811,708 342,587
NIL - Building Cost............. 848,928 223,726
Other...........................

47,128 --
--------- ------------
Subtotal............ 5,594,621 3,731,741
--------- ------------

Capital Lease Obligations....... 70,574 --

Cash Distributed by Executone... -- (73,946)

Total Funding from Executone.. $ 6,472,874 $4,913,810
=========== ===========

The previous owners of eLottery, prior to Executone's acquisition on
December 19, 1995, advanced $4.2 million to fund eLottery operating activities
and for capital and other contributions.

Funding of eLottery operations decreased $448,336 in 1997 compared to 1996
primarily due to the 1996 repayment of current liabilities accrued with the
purchase of eLottery at the end of 1995.

The development of the lottery and business software systems for the NIL,
which includes the games themselves, the banking interface, the game reporting
system and the financial accounting systems, resulted in funding of $2.3 million
during 1997. This was an increase of $1.8 million over the 1996 spending level.
No expenditures on these systems were made prior to the acquisition.
Expenditures increased in 1997 as the NIL launched the test-marketing of its
Internet system games in May 1997 and the draw lottery game in January 1998. As
of December 31, 1997, these systems are all assets of eLottery and are
classified in "Other Assets" on the Consolidated Balance Sheets. On January 1,
1998, these expenditures were reclassified to "Property & Equipment" and are
being depreciated over a five-year period.

As part of the NIL Agreement with the CDA, eLottery was required to make a
guaranteed monthly payment of $25,000 to the CDA. This payment was an advance
against future profit distributions and was to be reimbursed when the NIL was
making profit distributions to eLottery. These expenditures are included in
"Advances to NIL" on the Consolidated Balance Sheets.

In February 1997, UniStar Entertainment signed an agreement with
CasinoWorld Holdings, Ltd. ("CWH") under which CWH provides project management
services overseeing the development of the software for the NIL, with UniStar
Entertainment contracting independently for system software development.

In September 1996, UniStar Entertainment entered into a Securities
Purchase Agreement (the "Purchase Agreement") with Virtual Gaming Technologies,
Inc. ("VGTI," and formerly Internet Gaming Technologies, Inc. ("IGT")). Pursuant
to the Purchase Agreement, UniStar Entertainment invested $700,000 in IGT common
stock (the "IGT Investment"). The Purchase Agreement was terminated in March
1997 and, as part of the release, UniStar Entertainment was granted a
200,000-share, five-year option at $3.45 per share, a price 15% more than the
price per share of the IGT Investment. The IGT Investment is being accounted for
under the cost method.

eLottery incurred $611,126 in capital lease obligations during 1997 for
computer hardware as part of the development costs of the gaming and business
systems. During 1997, eLottery paid $70,574 in lease payments.

With the acquisition of eLottery in December 1995, Executone acquired $2.4
million in liabilities related to the NIL, primarily relating to legal and other
professional fees. The payment of these liabilities is considered part of the
NIL funding. In 1997, such payments decreased by $1.4 million compared to 1996.

The funding of NIL operating activities in 1997 increased $1.5 million
over the 1996 level as the launch of the Internet lottery in 1997 and the ramp
up of the telephone lottery increased NIL operating expenses. This was primarily
due to increases in payroll and related costs, advertising and promotional fees,
and professional fees. As these amounts were to be reimbursed to eLottery from
NIL net profits, these expenditures are included in "Advances to NIL" on the
Consolidated Balance Sheets.

The 1997 funding of the building that houses the NIL operations center
increased $625,202 over 1996. The building is owned by the NIL. These
expenditures, considered start-up costs related to the NIL, have been
capitalized and are included in "Other Assets" on the Consolidated Balance
Sheets. See "--New Accounting Pronouncements."

eLottery's financing activities consist solely of funding from Executone.
See "--Nine Months Ended September 30, 1998 and 1997--Liquidity and Capital
Resources" for a discussion of eLottery's cash requirements and availability
subsequent to the Distribution Date.

The National Indian Lottery. The initial goal of the investment in
eLottery was to establish and manage a telephone lottery that could be played by
any individual of majority age, residing in one of the 36 states or the District
of Columbia that currently operates a state-run lottery. In the original
telephone-based lottery, it was contemplated that calls via an "800" number
would be processed with interactive voice response equipment or live agents
located on the CDA's reservation in Idaho using ACD software to process
nationwide lottery sales. The NIL business plan evolved in response to legal
challenges to encompass Internet-based instant lottery games, and as of January
1998, a local, non-toll-free telephone and Internet-accessible weekly draw
lottery. On December 17, 1998, the U. S. District Court for the District of
Idaho issued an opinion and order granting declaratory judgment in favor of AT&T
in the action styled AT&T v. Coeur D' Alene Tribe. In response to that decision,
eLottery and the CDA terminated operation of the NIL and the US Lottery.

Due to advertising, professional fees and other startup costs, the NIL did
not generate a profit prior to termination of operations. As a result, eLottery
did not recognize any revenue under the terms of the NIL Agreement.

New Accounting Pronouncements. In April 1998, the American Institute of
Certified Pubic Accountants issued SOP 98-5. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. In addition, the
pronouncement requires that, effective January 1, 1999, previously capitalized
start-up costs be expensed and classified as a cumulative effect of a change in
accounting principle. eLottery anticipated that approximately $2.0 million in
start-up costs currently classified as other assets and intangible assets would
be written off effective January 1, 1999, in accordance with this new
pronouncement. However, with the termination of NIL operations, these costs will
be written off in the fourth quarter of 1998.

Year 2000 Compliance. eLottery relies on software and related technologies
in the operation of its business. In its review of its IT infrastructure for
Year 2000 compliance, eLottery has completed a review of its applications
software, operating systems software and firmware used on its hardware and other
devices with the suppliers of the systems. eLottery tested these systems by
processing Year 2000 events and transactions. All systems were found to be Year
2000 compliant. eLottery has also completed a review of its non-IT systems,
primarily those systems related to environment management and security of its
operating computer systems, and determined that there are no significant Year
2000 issues.

Failure by data suppliers with whom eLottery associates to successfully
address the Year 2000 issue on a timely basis could result in delays in data
becoming available to eLottery for use in its products. eLottery has completed a
review of potential Year 2000 issues with its key data suppliers who have
confirmed that they will be able to process Year 2000 transactions on a timely
basis. However, there can be no assurance that the systems of other companies on
which eLottery's systems rely will not encounter Year 2000 problems. A failure
by another company to deal successfully with the Year 2000 Problem could have an
adverse effect on eLottery's systems, including its ability to process
transactions on the systems. eLottery does not have a contingency plan in place
should an unforeseen failure occur. Such a plan, if necessary, will be developed
dependent upon the nature and extent of the problem.

Nine Months Ended September 30, 1998 and 1997

Results of Operations. eLottery did not generate any revenues during the
nine-month periods ended September 30, 1998 and 1997 because the NIL did not
generate any net profits. Although the NIL became fully operational in January
1998, it had yet to generate quarterly net profits and therefore eLottery, which
was to receive revenues only from the net profits of the NIL, generated no
revenues through September 30, 1998. With the termination of the NIL and the US
Lottery operations, future eLottery revenue is expected to be generated from the
sale or leasing of eLottery's technology and systems.

Operating expenses for the nine-month period ended September 30, 1998 were
$945,275, an increase of $298,922 over the same period last year. Depreciation
expense increased approximately $600,000 compared to the same period last year.
The system hardware and software assets, along with other gaming equipment,
began their service lives as of the commencement of the term of the NIL
Agreement in January 1998 when the NIL became fully operational. Such assets are
being depreciated over a five-year period. eLottery also incurred approximately
$277,000 in costs during the third quarter of 1998 to develop products for
marketing to state and international lotteries. These increases were partially
offset by shared activity expenses for the nine-month period ended September 30,
1998. Shared activity expenses were chargeable to the NIL for future
reimbursement to eLottery, in accordance with the NIL Agreement. During the
nine-month period ended September 30, 1998, $834,766 of such charges were
recorded as Advances to NIL, compared to $166,366 for the same period in 1997.
These expenses were charged as eLottery expenses during the first six months of
1997.

Liquidity and Capital Resources. The funding of eLottery for the
nine-month periods ended September 30, 1998 and 1997 is summarized as follows:

Nine Months Ended
September 30
1998 1997
----------- -----------
eLottery Operating Activities $(1,315,406) $ 726,587

eLottery Investing Activities:
Gaming and Business Systems 1,519,584 1,301,045
Distributions to the CDA 225,000 225,000
Pre-Acquisition Liabilities 545,618 455,341
NIL - Operations 4,169,521 1,037,477
NIL - Building Cost - 968,874
State Business Development Costs 286,445 -
Other 23,064 23,061
------ ------
Subtotal 6,769,232 4,010,798

Capital Lease Obligations 80,228 41,823

Total Funding from Executone $ 5,534,054 $4,779,208

Funding of eLottery operations during the nine-month period ended
September 30, 1998 primarily reflects the buildup in accounts payable resulting
from the increased funding of NIL operations.

Expenditures to develop the lottery and business systems were comparable
during the nine-month periods ended September 30, 1998 and 1997. The 1998
expenditures were incurred in the development of nine new Internet lottery games
that were launched in April 1998. In 1997, these expenditures were incurred in
developing the software systems for the launch of the Internet lottery.

Payments relating to pre-acquisition liabilities increased by $90,277
during the nine-month period ended September 30, 1998 compared to the same
period last year. This increase is due to the increase in legal fees incurred to
litigate the Missouri and Wisconsin actions brought during 1997, along with the
AT&T litigation.

The funding of NIL operating activities during the nine-month period ended
September 30, 1998 increased by $3.1 million versus the same period last year.
The increase reflects the operational status of both the Internet and draw
lotteries in 1998 and includes payroll and related costs, advertising and
promotional fees, and professional fees. These expenditures are included in
"Advances to NIL" on the Consolidated Balance Sheets. Funding for the NIL
building costs declined $968,874 for the nine-month period ended September 30,
1998 compared to the same period in 1997 as building construction was completed
by the end of 1997. As of September 30, 1998, future expenditures for building
construction are expected to be minimal.

Beginning in 1998, eLottery began to incur costs to explore opportunities
to provide eLottery's systems and services to state lotteries interested in
providing ticket purchases either through the Internet or through terminals at
various remote locations. For the nine-month period ended September 30, 1998,
eLottery incurred $286,445 for the startup of this business. This line of
business is not related to the NIL and such costs are not chargeable to the NIL.
As of September 30, 1998, eLottery had no material commitments for capital
expenditures.

Executone has agreed to continue to provide financial support to eLottery
until the Distribution Date, which support will not exceed an average sum of
$1.5 million per quarter in accordance with the terms of the Exchange Agreement.
Based upon cash consumed over the last 18 months, it is estimated that eLottery
will require approximately $6 million to fund its operations for 1999. To
provide the necessary funding for eLottery to operate until it is generating a
sufficient amount of cash to fund its own operations, Executone will provide to
eLottery, at the Exchange Closing Date, $3.0 million in cash, plus an additional
amount in cash based upon when the Distribution is to be consummated as follows:

<PAGE>

Distribution Consummated Cash Payable by
By: Executone

March 31, 1999............ $2.5 million
April 30, 1999............ $2.0 million
May 31, 1999.............. $1.5 million
June 30, 1999............. $1.0 million

If the Distribution is consummated after June 30, 1999, then the additional
amount of cash shall be $500,000. At the Exchange Closing Date, Executone also
will assume responsibility for, and pay when due, expenses incurred by eLottery
but not yet paid, provided, however, that the maximum of such expenses shall not
exceed $500,000. The $5.5 million in cash that eLottery is anticipated to have
on hand as of the Distribution Date, in addition to the maximum of $500,000 in
liabilities that Executone will pay, is expected to adequately fund eLottery's
cash flow requirements through the end of 1999, at which time it is expected to
be able to fund its operations on a break-even cash basis.

Capital investments required to launch the custom-designed electronic
lottery terminal business, planned to begin in 1999, are expected to be funded
using debt financing. eLottery is currently seeking commitments for such
longer-term financing arrangements.

Forward-Looking Statements

Forward-looking statements regarding eLottery are based on management
assumptions regarding potential player acceptance of eLottery's products,
advertising and marketing costs, the feasibility, timing and effectiveness of
planned marketing and advertising, and estimates of other operating and capital
expenses. If actual events differ materially from eLottery's assumptions,
projections and estimates, eLottery's actual results could vary significantly
from the performance projected in the forward-looking statements. Investors
should also be aware that eLottery has never operated as a separate, independent
entity and, as a result, future performance may be impacted significantly by its
management's ability to operate the business on a stand-alone basis and, if
necessary, obtain additional financing.

30
<PAGE>

ARRANGEMENTS BETWEEN EXECUTONE AND eLOTTERY
RELATING TO THE DISTRIBUTION

For the purpose of structuring the Distribution and certain of the
relationships between Executone and eLottery after the Distribution, Executone
and eLottery have entered into the Reorganization Agreement, a Master Services
Agreement (the "Services Agreement") and a Tax Sharing Agreement (the "Tax
Sharing Agreement" and, together with the Exchange Agreement, the Reorganization
Agreement, the Services Agreement and the Standby Agreement, the "Ancillary
Agreements"). All of the Ancillary Agreements are described below or elsewhere
herein and are included as exhibits to the Registration Statement filed with the
Commission, of which this Prospectus is a part. The following summaries are
qualified in their entirety by reference to the agreements as filed. None of
these agreements are the result of arm's-length negotiation. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."

Reorganization Agreement

The Reorganization Agreement provides for, among other things, the
principal corporate transactions required to effect the Distribution and certain
other matters governing the relationship between Executone and eLottery with
respect to or in consequence of the Distribution, including but not limited to
the following: (i) the Exchange by Executone of shares of eLottery Common Stock
held by Executone for newly-issued shares of eLottery Common Stock and eLottery
Preferred Stock to be transferred to the Executone Preferred Holders pursuant to
the Exchange Agreement; (ii) the transfer by Executone to eLottery of various
assets; (iii) the issuance by eLottery to the common shareholders of Executone
of the eLottery Common Stock pursuant to the Distribution; (iv) the division
between Executone and eLottery of certain liabilities; (v) the elimination of
intercompany accounts; and (vi) the execution of certain other agreements
governing the relationship between Executone and eLottery following the
Distribution. Pursuant to the Reorganization Agreement, Executone will be liable
for: (i) the liabilities of Executone under the Ancillary Agreements to which
Executone is or becomes a party; (ii) the liabilities relating to any of
Executone's businesses accrued or unaccrued, whenever arising; (iii) providing
eLottery with $3.0 million in cash at the Distribution Date, plus an additional
amount in cash based upon when the Distribution is consummated; (iv) the
liabilities relating to any of eLottery's businesses that arise and are accrued
before the Distribution Date; provided, however, that the maximum of such
liabilities shall not exceed $500,000 based on Executone's undertaking to keep
current on expenses incurred by eLottery before the Distribution Date (the
"Executone Liability Limitation"); and (v) all expenses arising in connection
with the Distribution (collectively, the "Executone Liabilities"). eLottery will
be liable for: (i) the liabilities of eLottery under the Ancillary Agreements to
which eLottery is or becomes a party; (ii) the liabilities relating to any of
eLottery's businesses that arise and are accrued after the Distribution Date;
(iii) the liabilities relating to eLottery's businesses over and above the
Executone Liability Limitation; and (iv) liabilities arising out of litigation
to which eLottery or a subsidiary is or becomes a party, including any claims of
patent infringement or contract claims, regardless of the date as of which such
claims arise; provided that all expenses and costs incurred on or prior to the
Distribution Date in connection with currently pending litigation to which
eLottery or a subsidiary is a party shall be Executone Liabilities
(collectively, the "eLottery Liabilities"). See "THE DISTRIBUTION." In addition,
Executone and eLottery have agreed to share the costs associated with the
Transition and Retention Plans described below. See "EXECUTIVE
COMPENSATION--Employment Agreements and Transition Retention Plans."

Conditions. The Reorganization Agreement provides that the Distribution is
subject to a number of conditions, including: (i) the eLottery Common Stock
shall have been approved for listing on the [Nasdaq National Market] subject to
official notice of issuance; (ii) the eLottery Board shall have adopted the
eLottery Certificate and eLottery Bylaws and the eLottery Certificate and
eLottery Bylaws shall be in effect; and (iii) the Registration Statement shall
have been declared by the Commission or become effective under the Securities
Act.

Benefit Plans. The Reorganization Agreement contains a number of
provisions relating to current and former employees. The provisions generally
contemplate that eLottery will assume no obligations or liabilities with respect
to employee plans or benefits prior to the Distribution Date and that after the
Distribution Date, eLottery will be responsible for providing employee benefits
for eLottery personnel. The Reorganization Agreement also contemplates that
eLottery will contract with Executone for executive and administrative services
as described under the Services Agreement described below.

31
<PAGE>

Indemnification. The Reorganization Agreement provides that: (i)
Executone will indemnify eLottery against all costs arising in connection with
the Executone Liabilities; and (ii) eLottery will indemnify Executone against
all costs arising in connection with the eLottery Liabilities.

Services Agreement

The Services Agreement provides for eLottery to continue to receive
certain executive and administrative services of Executone. Such services
include legal services, payroll services, benefits administration, provision of
office space, computer services, accounting and tax services and other
miscellaneous services. Executone will make these services available to eLottery
in substantially the same manner as it makes the same services available for its
own operations in exchange for fees intended to compensate Executone at least
for its costs. These services will be provided for 120 days as specified in the
Services Agreement, unless extended upon mutual written consent of Executone and
eLottery. Executone or eLottery may discontinue one or more of the services upon
the provision of prior written notice as specified in the Services Agreement.

Tax Sharing Agreement

In connection with the Distribution, eLottery and Executone will enter
into a Tax Sharing Agreement that provides, among other things, for the
allocation among the parties thereto of Federal, state, local and foreign income
tax liabilities for all periods through the Distribution Date. Though valid as
between the parties thereto, the Tax Sharing Agreement is not binding on the IRS
and does not affect the joint and several liability of Executone and its
subsidiaries to the IRS for all Federal income taxes owed to the IRS by such
corporations.

32
<PAGE>

BUSINESS

The Company

eLottery, a development stage company, provides a wide array of products
and services to the domestic and international lottery markets. The Company
develops, provides and maintains Internet, Intranet, telephone, communications,
accounting, banking, database and other applications and services to facilitate
the electronic sale of new and existing lottery products worldwide. The Company
has developed a new generation of proprietary lottery technologies designed to
take advantage of the impact that the Company believes recent advances in
telecommunications and computers will have on the nature and delivery of lottery
products and the support systems necessary to administer them. eLottery believes
it is the first to develop and operate secure, integrated Internet, Intranet and
telephone lottery gaming systems. The Internet and Intranet systems provide for
the electronic sale and support of both periodic and instant draw lottery games
and instant electronic "scratch-off" games. Using the Company's systems,
lotteries will be able to electronically distribute lottery tickets for both
instant and periodic draw lottery games over the Internet through the Company's
website, eLottery.com, through an Intranet, using telephony and through ELTs
located in horse racing facilities, bars and other age-regulated environments.
The Company believes that the electronic distribution of lottery tickets through
these systems will increase sales for lotteries because the systems make the
purchase of tickets more easily accessible and because they make use of
technology to enhance and enliven the lottery gaming experience. The
eLottery.com website and the lotteries will be open 24 hours a day, seven days a
week, and will be able to electronically distribute lottery tickets and games
and offer lottery players convenient and timely product fulfillment, including
the ability to pay prize winnings or cash credits on an overnight delivery
option for a fee via check or electronic funds transfer. The Company believes
that its Internet lottery distribution systems will encourage lottery patrons to
play more frequently and will also attract new lottery customers. In recent
years, lottery authorities have recognized that by offering new games or
products, they are often able to generate significant additional revenues. The
Company believes that its systems provide lotteries with numerous advantages
relative to traditional means of distribution including player tracking ability,
sale of tickets over the Internet and entertaining fast-play instant games. The
Company believes that the combination of the advantages of Internet commerce and
the Company's ability to customize its systems will result in the Company
becoming an agent and leading provider of products and services to the lottery
industry.

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games are a superior product due to their (i) faster play, (ii) lower operating
and product costs resulting from their virtual nature and (iii) greater
entertainment value. Further, detailed information on lottery customers
currently is not tracked by the lotteries. The Company believes that this
information could be valuable to the lotteries and others for marketing
purposes. The methods of lottery ticket distribution essentially have remained
the same since traditional lottery operators have not taken advantage of the
significant advances in technology over the past decade.

eLottery was founded to utilize the recent advances in personal computers
and telecommunications to distribute lottery tickets. The Company believes that
its lottery distribution systems offer significant advantages over the
traditional means of distribution. The Company has spent over $30 million
designing, developing, operating and gaining customer acceptance of its lottery
distribution systems since its formation in 1993. In 1995, the Company signed
its first contract with the CDA and its NIL to provide them with a
telephone-based lottery. In 1996, the Company began the development of an
Internet-based lottery for the NIL and completed a prototype in March 1997. In
July 1997, the NIL began operating its Internet games through the uslottery.com
website. In June 1997, eLottery began development of a telephone interface to
the Internet system and the NIL's Super6 draw lottery game. In the original
telephone-based lottery, it was contemplated that calls via an "800" number
would be processed with interactive voice response equipment or live agents
located on the CDA's reservation in Idaho using ACD software to process
nationwide lottery sales. In January 1998, the NIL began marketing this product
using local telephone numbers where the customer pays the long distance charge.
In March 1998, eLottery began development of its Intranet system and completed a
prototype in September 1998. On December 17, 1998, the District Court for the
District of Idaho issued an opinion and order granting declaratory judgment in
the action styled AT&T v. Coeur D' Alene Tribe, holding that the NIL is not
legal under IGRA and is subject to state law. The CDA position was based on its
view that all NIL gaming activity was occurring on "Indian lands" as required by
IGRA. In so ruling, the District Court overruled the prior decisions of the
Tribal Courts that ruled the NIL was legal under IGRA. In response to that
decision, eLottery and the CDA terminated operation of the NIL.

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numerous combinations of its products and services to meet the specific
requirements of its customers. Further, the Company's systems will enable
government lotteries to distribute their tickets across national borders,
opening up significant markets that are currently inaccessible. The Company
believes that government lotteries are widely viewed as fair and honest and are
trusted by players. As a result, the Company believes that government lotteries
will be the leaders in Internet lotteries. The Company is currently in various
stages of negotiation with several U.S. and international lotteries to install
and utilize its electronic lottery distribution systems. There can be no
assurance that the Company will enter into any such agreements.

See "RISK FACTORS" beginning on page 8 for a description of factors that
may impact the Company's ability to implement the above strategies.

As a result of their ownership of 15.5% of the Company's common stock
after the Distribution (or 28.6% assuming conversion of only the eLottery
Preferred Stock owned by management and directors), management and directors
will have significant incentive to maximize stockholder value. After completion
of the Distribution, the Company will have approximately $5.5 million of cash
and no debt other than capital lease obligations, which management believes will
adequately fund eLottery's cash flow requirements through the end of 1999. While
there can be no assurance that the following will occur, the Company currently
intends to seek additional equity investors through public or private offerings
in 1999 to partially fund the construction of ELTs, to hire additional sales and
marketing personnel and for general corporate purposes. In addition, the Company
and Executone have entered into Reorganization, Services and Tax Sharing
Agreements whereby Executone will provide certain administrative services to the
Company for varying periods of time following the Distribution. Executone will
bill the Company for its costs in connection with providing such services.

eLottery's principal executive offices are currently located at
Executone's headquarters at 478 Wheelers Farms Road, Milford, Connecticut
06460 and its telephone number is 203-876-7600.

Industry Background

Growth of the Internet and On-line Commerce

The Internet is an increasingly significant global medium for
communications, content and on-line commerce.

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Growth in Internet usage has been fueled by a number of factors, including the
large and growing installed base of personal computers in the workplace and
home, advances in the performance and speed of personal computers and modems,
improvements in network infrastructure, easier and cheaper access to the
Internet and increased awareness of the Internet among businesses and consumers.

The increasing functionality, accessibility and overall usage of the
Internet and on-line services have made them an attractive commercial medium.
The Internet and other on-line services are evolving into a unique sales and
marketing channel, similar to the evolution of retail stores, mail-order
catalogs and television shopping. On-line retailers can interact directly with
customers by frequently adjusting their featured selections, editorial insights,
shopping interfaces, pricing and visual presentations. The minimal cost to
publish on the Web, the ability to reach and serve a large and global group of
customers electronically from a central location, and the potential for
personalized low-cost customer interaction provide additional economic benefits
for on-line retailers. Unlike traditional retail channels, on-line retailers do
not have the burdensome costs of managing and maintaining a significant retail
store infrastructure or the continuous printing and mailing costs of catalog
marketing. Because of these advantages over traditional retailers, on-line
retailers have the potential to build large, global customer bases quickly and
to achieve superior economic returns over the long term. An increasingly broad
base of products is being sold on-line, including computers, travel services,
brokerage services, automobiles, music and books.

Traditional Lottery Industry

Lotteries are operated by domestic and foreign governmental authorities
and their licensees in approximately 200 jurisdictions throughout the world. In
the United States, there are currently 38 lotteries offering traditional on-line
draw games and 39 lotteries selling instant tickets. Governments authorize
lotteries as a means of generating revenues without the imposition of additional
taxes. Lottery revenues are often used as a means to reduce taxes and are
frequently set aside for particular public purposes, such as education, aid to
the elderly, conservation, transportation and economic development. As lottery
ticket sales have become a significant source of funding for such programs, many
jurisdictions have come to rely on the revenues generated by such sales.

There are many types of government-authorized lotteries in the world. The
Company categorizes traditional (as opposed to video) lottery systems into two
principal groups: "on-line" and "off-line." The term "on-line," as used within
the lottery industry, does not mean that the ticket is distributed over the
Internet. Rather, it refers to the use of a network of special purpose lottery
terminals connected through dedicated phone lines to a central lottery computer.
An on-line lottery system is generally used to conduct games such as lotto,
sports pools, daily numbers and keno in which lottery players make their own
selections. Various games of chance are offered involving the selection of
numbers from a field of possible numbers. A lottery player requests the desired
numbers and purchases the lottery ticket from the clerk-activated terminal
provided by the Company or other lottery vendor to a lottery ticket retailer.
The amount wagered per transaction is determined by individual lottery
authorities and is usually $0.50 to $1.00 per wager. The lottery terminals are
typically located in high-traffic retail outlets, such as news stands,
convenience stores, gas stations, food stores, tobacco shops and liquor stores,
which are selected by the lottery authorities to sell tickets on the lottery
authority's behalf. The data is entered either manually by keyboard or
automatically through a mark sense reader or scanner. The wager information is
then transmitted via communication lines to the central computer system where
the information is verified, recorded and stored. Winners are able to claim
their prizes within minutes of the drawing of the winning number for the game
selected.

Off-line lotteries feature games that are not computerized and typically
feature instant ticket games in which players remove coatings from pre-printed
tickets ("scratchers"), which account for substantially all of the off-line
lottery sales in the United States. Outside of the United States, off-line
lotteries also include traditional on-line games (numbers, lotto, etc.) that are
offered through a manual, off-line system. Players' selections are accumulated
and delivered to a central processing location where the bets are entered into
the computer.

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All of the United States jurisdictions operating traditional lotteries
currently include on-line lottery as part of their operations. Outside the
United States, many countries have government-operated or privately-licensed
lotteries, most of which have historically been off-line. Approximately 85
foreign lottery authorities have implemented on-line lottery systems.

There are several advantages to on-line lotteries as compared to off-line
lotteries. Most importantly, wagers can be accepted and processed by an on-line
lottery system until minutes before a drawing. In cases where a large prize has
attracted substantial wagering interest, the extended sales period increases the
potential for higher lottery revenue. Unlike instant games or scratchers, where
the number of winning tickets and amount of awards must be determined in
advance, on-line lotteries allow for the rollover of lottery jackpots. In
addition, on-line lottery systems provide greater reliability and security than
either off-line numbers games or scratchers, allow a wider variety of games to
be offered, and automate accounting and administrative procedures that are
otherwise performed manually. The Company believes that instant ticket game
revenues have been growing at a faster rate than total domestic U.S. lottery
revenues because of relatively higher payout percentages and the increasing
automation of instant ticket validation and accounting systems. Such games
compete with the lottery games electronically distributed on the Company's
systems.

Typically 50% of the gross revenues of a domestic on-line lottery is
returned to the players in the form of prizes. Approximately 15% is used to fund
the operations of the lottery, including the expenses of the lottery authority,
costs of advertising, payments to point-of-purchase retailers and payments to
vendors. The remaining amount, approximately 35%, is available to the state to
support specific public programs or as a contribution to the state's general
fund.

In the United States, products and services are typically marketed to
lottery authorities through long-term contracts, awarded through a competitive
bidding process pursuant to which the lottery vendor supplies, installs and
operates the lottery system for the state or jurisdiction in return for a
percentage of ticket sales. The vendor generally retains title to the lottery
system. Once a contract is awarded to a lottery vendor, that vendor is typically
the sole provider of on-line lottery services and operations to that
jurisdiction for a specified time period within a defined geographic territory.

The international market, as well as a minority of United States
jurisdictions, is typically characterized by on-line lottery system sales
instead of long-term contracts. In the on-line lottery system, the vendor
develops and installs the on-line lottery system and trains lottery personnel in
the operation of the system for a fixed fee. Other services, such as equipment
maintenance and ticket stock production, may be available under separate
contracts.

The eLottery Solution

eLottery was founded to utilize the recent advances in personal computers
and telecommunications to distribute lottery tickets. The Company believes that
its systems provide lotteries with numerous advantages relative to traditional
means of distribution including player tracking ability, sale of tickets over
the Internet and entertaining fast-play instant games. The Company believes that
the combination of the advantages of on-line commerce and the Company's ability
to customize its systems for various domestic and international lottery
jurisdictions will result in the Company becoming an agent and leading provider
of products and services to the lottery industry worldwide.

eLottery has developed and implemented a secure, integrated Internet,
Intranet, ELT and telephone lottery gaming systems. With the ability to offer
lotteries a full array of electronic distribution systems, management believes
that the Company is well positioned to benefit from the introduction of new
technologies to the lottery industry. Key components of the eLottery solution
include:

Comprehensive Product Offering. The Company has the ability to offer
lotteries a full range of electronic lottery distribution systems to increase
its ticket sales. These systems include Internet, Intranet, telephone and ELT

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based distribution platforms. eLottery believes its complete package of products
will be attractive to lotteries considering implementation of new distribution
technologies to attract existing and new customers.

Lottery Player Convenience. eLottery believes that its electronic systems
will enable lottery players to purchase tickets with more convenience than is
currently available. The eLottery.com website and the lotteries will be open 24
hours a day, seven days a week, and will be able to electronically distribute
lottery tickets and games and offer lottery players convenient and timely
product fulfillment, including the ability to pay prize winnings or cash credits
on an overnight delivery option for a fee via check or electronic funds
transfer. Tickets will be available for purchase from customers' homes or
offices over the Internet, through direct dial-up Intranets, via telephony and
through ELTs.

Fast-Play Instant Games. The Company has developed numerous instant
electronic lottery games that customers can play much like a video lottery
machine. These lottery games, at the discretion of the lottery patron, can be
played at a faster rate than traditional paper manual "scratch-off" games. The
Company believes such lottery games will provide lotteries with increased
revenues when compared to the traditional games.

Player Tracking and Reporting Ability. eLottery's systems provide
lotteries with the ability to track players' lottery gaming patterns. This
information may be valuable to lotteries and others for marketing purposes.
Traditional distribution methods currently do not enable lotteries to collect
this information on its players. The Company's systems also provide a multitude
of real time data. Detailed play information is accumulated in the system
including lottery games played, duration of play, time of play, purchase and
prize data and a host of other data elements.

Lower Operating and Marketing Costs. The Company believes that the
operating and marketing costs for its electronic distribution systems will be
lower than that of conventional paper-based and on-line lottery tickets due to
their virtual nature and the relatively limitless number of potential
pre-determined tickets that can be issued over the Internet, Intranet and ELTs.

Products

eLottery develops, provides and maintains Internet, Intranet, telephone,
communications, accounting, banking, database and other applications and
services for use by the governmental lottery market. eLottery has developed its
systems to provide secure electronic production, delivery, validation, billing
and accounting for lottery games. The systems are configurable, which allows the
addition, deletion and substitution of games offered. Tickets may be purchased
through the lottery operations center using a personal computer connected via
the Internet, via a custom-designed ELT connected over a LAN or over the
telephone.

Both the Internet and Intranet systems contain significant features and
procedures to prevent abusive play. eLottery believes that the Internet system
contains processes and procedures to protect against play by minors and to
control problem gaming and that the Intranet system as implemented will provide
protections against such play at least equal to that provided by existing
state-run lottery systems.

The System. The key functions and components of the Company's
electronic lottery distribution system are as follows:

o Basic Operation. A customer registers, opens an account, and receives a
user identification number and password. Registration can be through
the Internet, by telephone or in person at a lottery retail store.
The customer deposits funds into the account by credit or debit card,
cash or check. Once the account is funded, the customer may use the
available balance to purchase tickets to play the games or other
merchandise. Any prizes are credited to the account. Customer
withdrawals can be requested through the Internet, by telephone or in
person at a lottery retail store.

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o Card Access. The system can also be accessed using player cards.
Player cards add several dimensions to the system, particularly from
a regulatory point of view. Because these cards are issued at
controlled facilities, access to the system can be equally
controlled, enforcing, for example, age requirements, residency
requirements, use of cash and amount of play. In addition, these
lottery cards can be sold through the lotteries' existing agent
distribution channel. Several types of cards are available including
bearer cards, bonus cards, club cards and prepaid lottery cards.

A bearer card has a unique identity (consisting of an ID and Password
embedded in the card) representing an account on the system. These
cards contain no information other than an encrypted ID and PIN number,
which are associated with accounts. These cards are available
throughout the hosting facility. Funds are added to the bearer cards at
an "Automated Recharge Machine" ("ARM") or at a cashier's station. Cash
can be added at any denomination at the cashier station, but is limited
to $1, $5, $10 or $20 increments at the ARM. Once a player's card is
funded (i.e., the associated account has funds deposited), it may be
used in a lottery gaming station or ELT to play games.

A bonus card is initialized with "bonus" dollars. These are dollars
that can be used to play games but cannot be cashed in. Such cards are
used as promotional cards to encourage people to begin playing. They
can be "recharged" with cash at any ARM or cashier's station. However,
the bonus dollars are consumed prior to any cash added to the card and
the bonus dollars cannot be disbursed.

A club card is generally issued by an authorized lottery office or
authorized agent where player information can be assured adequate
protection and confidentiality. These cards are protected with PINs.
Such cards are to be used as members of the state "Lottery Club" and
will entitle them to various monthly promotions and other forms of
communications about the enhanced lottery games. The play activity is
tracked on these club cards and enables the player to qualify for
various club awards that may be established by the state lotteries.

A prepaid lottery card is a card issued in a predetermined
denomination.

o Client Server Architecture. The system is designed so that players can
access the system using several different devices connected to the
centralized server. For example, players can use personal computers
connected over the Internet; ELTs connected via a LAN or over the
Internet, or a voice response unit connected by telephone.
Administrative terminals can be connected via the Internet, thus
allowing the operation and administration of the eLottery system to
be conducted from remote locations.

o Centralized Accounting Server. A centralized accounting server keeps
track of all of the transactions on the system. This server accounts
for and controls transactions with customers including registration,
deposits, withdrawals, purchases of tickets or other merchandise and
the awarding of prizes. The centralized accounting server produces a
myriad of reports to monitor both the player's activities as well as
the performance of the games according to their individual working
papers.

o Lottery Server. The lottery server is a centralized network of
computers controlling the essential operations of the games including
the game play, issuance of the tickets or generation of a random event,
determination of a winner and the awarding of the prize.

o Banking System. This system validates the credit card information
received from the customer with the national Visanet network. The
system is currently capable of processing 10,000 transactions per hour
in about 10 seconds each and is expandable to handle a larger volume of
transactions.

o Intranet System. The Intranet system is based on the same architecture
as the Internet system using private connections instead of the
Internet.

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o Lottery Stations. Lottery stations can be several different devices.
The lottery games can be played using personal computers connected
either via the Internet or direct dial. Games can be played using an
ELT or the draw games can be played using a telephone. The ELT is built
using standard "off the shelf" hardware components consisting primarily
of a touch screen monitor and a standard Pentium processor networked to
the central system.

o Cashiers Terminals. The cashier stations can accept the player
deposits. The player presents the card, which is swiped reading the
card ID and password into the system. Funds are received from the
player and entered by the cashier. The central system then adds the
deposit to the balance of the account associated with the card. To
withdrawal balances from the card, the player again, presents the
card to the cashier, the cashier then swipes the card and the system
displays the "card" balance. The cashier disburses the requested
cash to the player.

o Automatic Recharge Machines ("ARMs"). Funds can also be added through
automated recharge machines. The player inserts the card into a reader
and inserts the amount of money they wish to add into a bill collector.
The system updates the balances, the ARM prints a receipt and returns
the card.

o Agent Cards. The card reader of the ARM will also identify an
authorized agent's card. This access will permit the agent to obtain
information about the machine as well as perform the "empty"
function. To empty a machine, the agent inserts their agent card and
the appropriate PIN. The agent opens the machine and takes out the
bill collection box and inserts a new bill collection box. Once this
process is completed, the agent finishes the empty process and a
receipt is printed that should equal the balance in the box. The
receipt also identifies the ARM from which it was taken, the user ID
of person emptying the machine as well as the date and time of the
process.

The components of the system can be used together or on a stand-alone
basis depending upon the specific application.

Security. The Company recognizes that security and integrity are the
foundation of successful lottery organizations. As the incidence and severity of
publicly-reported cases of physical and computer crime continue, major lotteries
periodically reassess key security questions concerning the vulnerability of
lottery games. Attempts to penetrate security measures may come from various
combinations of customers, retailers, vendors, lottery officials and others. The
Company believes the integrity of a lottery is essential to its successful
operation. The Company is unaware of any practical, economically feasible way to
breach the security of its instant lottery tickets that could result in a
material loss to any of its customers, nor is it aware of any breach thereof
that has resulted in any material loss to any of its lottery customers.

The Company constantly assesses the adequacy of its security systems,
incorporating various improvements, bar coding and additional layers of
protection. The Company believes there must be well-planned security measures in
place at every stage of the lottery operation. Also, computer function
safeguards, including secure ticket data, control number encryption, winner file
data and ticket stock control have been incorporated in the Company's data
processing and the computer operations phase. The Company plans to retain a
major public accounting firm to perform agreed upon procedures for each game
produced before it is sent to the customer.

Lottery Games. The architecture of both of the Company's Internet and
Intranet systems allow the addition, deletion and substitution of lottery games
offered. The lottery games have been designed to fall within generally accepted
definitions of a "lottery" game. While the definition of a "lottery" varies
state by state, such state statutes tend to outline certain common
characteristics for lottery games, including the following:

o The game involves the exchange of consideration, the element of chance
and the awarding of a prize;
o No skill is involved in the game;
o The game is not played against a single machine; and
o The game involves either a centralized drawing or a predetermined
outcome.
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Lottery games generally fall into two broad classifications: (i) instant
games or "Scratchers" in which the outcome is predetermined and known instantly
and (ii) draw games in which the outcome depends upon a random event in the
future. eLottery currently has four families of games that are available on both
the Internet system and Intranet system: (i) Bingo; (ii) Lotto; (iii) Classics;
and (iv) Draw games. Each family of games is described in further detail below.

o Bingo. In Bingo, a player selects 24 numbers out of a total of 75 and
wins if the numbers selected match a pattern randomly drawn by a
computer. eLottery has three lottery games in this category: Bingo,
Super Bingo and Ultra Bingo. These lottery games offer several
features, including the ability for the player to create their own
card, to select the number of balls to be drawn and to select the
dollar amount of the ticket. Bingo Cards also can be saved and
played at a later time.

o Lotto Games. In Lotto games, a player selects from one to ten numbers
from a possible 34 to 100 numbers and drawings range from five to 20
numbers. eLottery offers four lottery games in this category including
Lotto 6/49 instant game, Super Lotto, Super Lotto 100 and Box Lotto
49.

o Classics. The third family of instant games represents variations of
other Scratchers games offered by state lotteries. These games are
produced in "virtual" ticket rolls then "dispensed" electronically to
the player when purchased. eLottery offers two games in this category,
Lucky 21 and the Big Spin.

o Lottery Draw Games. In lottery draw games, players select a pattern of
numbers that are stored in a database until a drawing is conducted.
Once the drawing is conducted, the numbers are matched with the
database to identify the winning patterns and players. eLottery has
developed three variations in this category, including Super6, Pick 3
and Power 6.

Product Development. eLottery's product development efforts are devoted to
continual improvement in all aspects of the systems. Software developers
operating under exclusive and proprietary development contracts supplement the
Company's staff. These developers leverage the Company's ability to produce
games, create database accounting and banking systems, enhance and customize
system features and provide state-of-the-art Internet design and engineering
capability. The Company believes this an efficient low cost method to gain
access to the best and latest technologies in each of the respective areas. The
system architecture is designed to permit several developers to work
independently on various modules of the system. For example, the Company's
electronic lottery distribution systems can accommodate virtually any lottery
game that runs in an electronic environment. These games can be modified to
separate key elements to run in a secure client server environment and operate
efficiently on the Company's electronic lottery distribution systems. This
ability to modify the lottery games allows the Company to work with all game
publishers and modify their games to operate on the system and significantly add
to the Company's game portfolio.

eLottery is also focused on development of new products in the following
areas:

o Browser-Based Lottery Games. These are games that would play within
the players' web browser thereby facilitating the download of the
software.

o Tournaments. eLottery is investigating the development of tournament
games. Players would enter the tournament and pay a membership fee to
play a lottery game of skill and win prizes according to the outcome
of the tournament.

o Traditional Casino Games. eLottery has investigated a suite of casino
games including black jack, video poker, slots, roulette and craps
that can be integrated into its systems. To date, the Company has not
engaged in further development of these games because it has not had
any agreements with entities legally authorized to market such games.

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o ELTs. The ELT prototypes are operational, but additional development
is necessary prior to deployment of the Intranet system to customer
sites. Further development of the Intranet system will involve
customization to a specific customer's specifications and only will
be undertaken at such time as such customer enters into a contract
to purchase or license the Company's Intranet system. eLottery
believes it can complete such customization in less than six months
and for less than $500,000. Although eLottery has done no formal
research regarding the possible acceptance of the Intranet system,
it has presented the Intranet system to several state lotteries.

The Company has spent over $30 million designing, developing, operating
and gaining customer acceptance of its lottery distribution systems since its
foundation in 1993. eLottery has spent $4.3 million on research and product
development to date, primarily related to the development of its systems, and
has plans to spend an additional $1.5 to $2.0 million over the next year.

Sales and Marketing. eLottery is pursuing the sale of its technology and
systems worldwide. eLottery is marketing (i) directly to state agencies and
other licensed entities, (ii) individually through authorized lottery services
companies and (iii) through strategic alliances with other providers of games
and gaming technology. Such marketing includes demonstrations of its electronic
lottery distribution systems and visits to eLottery's premises.

The ultimate success of the Company's lottery platform depends on its
acceptance by lottery operators and lottery patrons. The Company believes that,
from the point of view of lottery operators, the attractiveness of its new
electronic lottery distribution systems depends on its ability to increase
lottery sales, its ease of upgrade, maintenance and game change and its
information management. The Company believes that, from the lottery patron's
perspective, the attractiveness of a platform is a function of entertainment
value. eLottery's sales and marketing strategy is to generate product sales by
highlighting the advantages presented by its electronic lottery distribution
systems to lottery operators, such as the potential for increased lottery ticket
sales, and by positioning itself as a partner with lottery operators. eLottery's
marketing strategy also targets lottery players and will focus on developing
brand recognition for the eLottery.com website, which the Company believes can
be accomplished partially through the development of proprietary lottery games
that the Company believes deliver greater entertainment value than games used in
the traditional lottery industry.

The Company intends to position itself as a partner with lottery operators
in establishing the next generation of lottery entertainment. The Company is
working to develop close relationships with lottery operators, utilizing its
marketing representatives as consultants to lottery operators on methods to
increase lottery ticket sales through the use of eLottery's products. The
Company's electronic lottery distribution systems have been designed to
supplement the sales and marketing efforts of the operating lotteries enhancing
their ability to attract new players and increase the revenue from their
customer base. In particular, the Company's lottery distribution system options
include Demo mode, Bonus dollars, Data collection and Specialized e-mail
features. In Demo mode, lottery patrons are able to learn the games and test
play strategies before committing their own funds. This mode enhances player
entertainment and increases customer satisfaction. Bonus dollars are electronic
credits lottery patrons are able to use to play games, but are not refundable in
cash. This feature was used by the NIL to provide various electronic promotions
designed to both increase play and attract new players. Detailed play
information is accumulated in the system including lottery games played,
duration of play, time of play, purchase and prize data and a host of other data
elements. When matched with other demographic data, this information is valuable
in designing promotional offers and advertising campaigns. Specialized e-mail
features provide the capability to deliver Bonus dollars to specific accounts
based upon the results of a contest, completion of a survey, winning a game of
chance or other similar promotion.

The Company intends to build a sales and support organization to handle
sales and after-sales service to the Company's lottery customers. As of January
15, 1999, the Company had six employees and agents in its sales and support
area, and the Company plans to have approximately 10 by the end of 1999. The
Company intends to sell its products by developing close working relationships

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<PAGE>

with lotteries, using the Company's direct sales representatives as consultants.
Where appropriate, the Company may enter into distribution arrangements or other
strategic relationships to enter additional markets.

eLottery Website. The Company is in the process of completing its own
website. The Company expects the website to include basic information about the
Company and its products, provide a live test site to preview games and obtain
customer feedback and an active game website where all of the games can be
played without charge. The Company believes this site will generate a community
of players interested in electronic lotteries. This player base may be a
valuable resource to provide an initial base of customers to lotteries as they
go on-line for the first time as well as an ongoing source of new customers.

Lottery Market and Targeted Customers. eLottery believes that the lottery
market will continue to grow and is targeting primarily state lotteries and
other licensed domestic entities for the sale of its technology.

o Lottery Market. Worldwide lottery ticket sales in 1997 were
approximately $116.6 billion dollars, approximately $35.5 billion of
which were sold in the United States. Over the past three years,
lottery ticket sales have grown at an annual rate of 1.0% worldwide
and 2.2% in the United States. Both rates reflect a slowdown from
prior years. The Company believes this trend increases the
propensity of lotteries to seek new products and services to provide
revenue growth similar to rates experienced in the past. The games
offered by eLottery generally are analogous to the Instant, Video
Lottery and Keno segments. The table below details lottery revenue
in the United States for 1996 and 1997 by type of game.

Lottery Sales in the United States (in millions)

1996 1997 Annual Growth
Rate
------------ ----------- -----------------
Instants and Pull $ 14,201 $ 14,217 0.1%
Tab Games
Draw Lotteries 17,730 17,744 0.1%
Video Lottery 1,161 1,605 38.2%
Keno and other 1,979 1,920 (3.0)%
============ =========== =================
$ 35,071 $ 35,486 1.2%
============ =========== =================

o State and Other Governmental Lotteries. eLottery believes that its
systems represent the next generation of instant lottery
technology. During the last 30 years, instant lotteries have
evolved from lottery tickets sold by clerks in stores, to being
dispensed through automated ticket machines designed to increase the
accessibility of lottery tickets. eLottery believes its systems
further increase the accessibility of lottery tickets by providing
lottery tickets that are available electronically. These tickets
can be obtained through a custom-designed ELT connected to the
Company's electronic lottery distribution systems either by a LAN or
by telephone lines if the systems are remote. eLottery believes it
is well positioned in the event that the state and international
lotteries decide to sell their tickets over the Internet. eLottery
has made presentations to several states discussing utilization of
its electronic lottery distribution systems, but has not yet entered
into any additional contracts.

o International Sales. Similarly, the Company believes that the
international lottery market represents a significant potential
market for the systems. Lotteries are operated in over 200
jurisdictions throughout the world and in 1997 lottery ticket sales
outside North America were approximately $81.1 billion. While the
traditional draw-type lotteries now predominate overseas, eLottery's
systems could increase availability by distributing tickets across
national borders and thereby open up formerly inaccessible markets.
In addition, because its systems are configurable, they can offer
numerous combinations of products and services to meet varying needs
of international customers. Although eLottery has not yet made any
overseas sales, it plans to increase its international presence by
licensing its lottery distribution systems to lotteries worldwide
primarily through joint ventures with existing lottery service
providers. eLottery intends to support these efforts by enhancing
international sales and marketing efforts and entering into
strategic alliances. See "RISK FACTORS--Risks Associated with
International Sales and Operations."

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<PAGE>

Competition

The lottery business is highly competitive, and eLottery faces competition
from a number of domestic and foreign instant ticket manufacturers, on-line
lottery system providers and other competitors.

In particular, there are currently three primary lottery services
competitors in the United States: GTECH Corporation ("GTECH"), Automated
Wagering International, Inc. ("AWI"), a subsidiary of Powerhouse Technologies,
Inc. ("Powerhouse"), and Scientific Games Holdings Corp. ("Sci-Games"). eLottery
believes that these companies engage in vigorous competition with respect to
existing lottery technologies and services and have experienced a decline in the
growth of existing lottery operations. The objective of eLottery is to provide,
either alone or through partnerships with existing lottery services companies,
value added lottery systems and services for the domestic and international
markets. It is believed that these products, systems and services can support
new methods and styles of lottery participation, providing new growth
opportunities for established state lotteries and higher margin returns for the
providers of related technologies and services.

Internationally, there are many lottery services and product suppliers
that provide competition to eLottery, in addition to the companies listed above.
eLottery believes that it has the ability to provide technologies that support
new methods and styles of lottery participation in foreign countries. In
addition, eLottery believes that applications of its electronic lottery
distribution systems, which are based on the use of standardized components that
support a variety of hardware and software interfaces, can provide
cost-effective solutions to improve lottery operations in remote and developing
nations. eLottery anticipates that a considerable length of time will be needed
to develop an independent market presence in foreign countries other than Canada
and Mexico, and there will be substantially higher costs in pursuing these
markets. Therefore, eLottery anticipates that the marketing of its products and
services internationally will be conducted primarily through joint ventures with
existing providers of lottery services. No assurance can be given that eLottery
will develop such relationships to the point of having a significant impact on
its financial results or operations in the near future.

Both in the domestic market and internationally, factors that influence
the award of lottery contracts in addition to price are believed to include,
among others, the ability to optimize lottery revenues through game design and
technical capability, quality of the product, dependability, production
capacity, marketing experience, financial condition and reputation of the
bidder, the security and integrity of the bidder's production operations,
products and services and the satisfaction of various other requirements and
qualifications imposed by specific jurisdictions.

Management believes that it has no current competitor in the market for
the specific lottery products it has developed. Competitors have typically
either manufactured only instant tickets or provided only certain on-line
services to support conventional sales of paper lottery tickets, including
software for the management systems, marketing assistance and various other
specific duties. However, certain competitors have announced plans to market
Internet-based lottery systems. eLottery has two primary domestic and
international competitors in this regard: Powerhouse, which changed its name
from Video Lottery Technologies, Inc. in 1997, and GTECH.

eLottery is a relatively recent arrival among the developers of technology
and marketing concepts for lottery operators. In addition, eLottery's limited
experience in the industry is expected to negatively impact eLottery's
competitive position. However, in the delivery of market tested, secure,
integrated telephone, Internet and Intranet technologies that support new forms
of lottery participation and methods of administration, eLottery believes that
its experience level is superior. As the only market tested provider of products
that have the unique capabilities of the electronic lottery distribution
systems, eLottery believes it is the only experienced provider in its particular
market niche. eLottery believes that other lottery services and product
suppliers have for several years made capital investments intended to position
themselves to participate in this market niche. However, none has yet
demonstrated the unique focus or devoted the extensive time and resources
necessary to successfully develop, customize and install an operational
integrated telephone and Internet lottery system similar to that provided by
eLottery and once operated by the NIL. In addition, to some extent, the

44
<PAGE>

technological developments inherent in the Company's electronic lottery
distribution systems have the potential to materially reduce the capital
investment required to finance secure lottery operations, which could affect the
perception that the experience and resources of competing companies are as
valuable as they have been in the past. The Company believes that prior lottery
experience has been a factor in states' prior decisions in connection with the
award of lottery contracts. Thus, eLottery believes its prior lottery experience
will be a factor that limits the ability of eLottery's competitors to compete
with eLottery in the development of this market niche. See "RISK
FACTORS--Competition."

Government Regulation

Lotteries are not permitted in various states or jurisdictions of the
United States unless expressly authorized by law. The ongoing operations of
authorized lotteries in the United States typically are extensively regulated.
Applicable legislation varies from jurisdiction to jurisdiction but, in addition
to authorizing the lottery and creating the applicable regulatory authority, the
lottery statutes generally dictate certain broad parameters of lottery
operation, including the percentage of lottery revenues that must be paid out in
prizes. Lottery authorities typically exercise significant control as to the
selection of vendors and award of lottery contracts, ticket prices, types of
games played and marketing strategy, all of which can affect eLottery's
operating results.

Prior to and after granting a lottery contract, governmental authorities
generally conduct an investigation of the company and its employees pursuant to
which such authorities may require removal of an employee deemed to be
unsuitable. Certain states also require extensive personal and financial
disclosure (including, among other things, submission of fingerprints, personal
financial statements and federal and state income tax returns) and background
checks of control persons and entities beneficially owning a specified
percentage (typically 5% or more) of the company's securities. The failure of
such beneficial owners to submit to such background checks and provide such
disclosure could jeopardize the award of a lottery contract to eLottery or
provide the basis for cancellation of any existing lottery contract.

The award of lottery contracts and ongoing operations of lotteries in
international jurisdictions also are extensively regulated, although this
regulation usually varies from that prevailing in the United States.
Restrictions are frequently imposed on foreign corporations seeking to do
business in such jurisdictions. Laws and regulations applicable to lotteries in
the United States and foreign jurisdictions are subject to change and the effect
of such changes on eLottery's ongoing and potential operations cannot be
predicted with certainty. See "RISK FACTORS--Government Regulation and
Legislation" and "--Risks Associated with International Sales and Operations."

Patents, Trademarks and Copyrights

Management believes that the success of eLottery is in part dependent upon
the ability to design, develop and market new products and new or enhanced
applications. The patentability of such new products or applications is
evaluated and patent applications are filed in those jurisdictions where
necessary to protect unique developments. eLottery currently has two U.S. patent
applications pending regarding the connection of key proprietary technology
elements.

eLottery has registered or applied to register its trademarks when it
believes registration to be important to its ongoing business operations.
eLottery also generally claims copyright protection for its software and relies
upon trade secret, contract and copyright laws to protect its proprietary rights
in its software, designs and documentation.

Certain of eLottery's products incorporate technology and software
licensed by eLottery from independent third parties. All material software is
owned by eLottery. Generally, these licenses have required payment of a license
fee for the licensed technology.

Employees

eLottery operates primarily through the use of independent software
development contracts to improve its access to software development talent and
keep its fixed overhead to a minimum. As of September 30, 1998, eLottery

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<PAGE>

employed four general and administrative management employees, not including the
customer service and technical employees employed by the NIL, none of whom are
represented by unions. eLottery believes that relations with its employees are
good.

eLottery Properties

eLottery's headquarters occupy approximately 1,500 square feet of leased
space in Executone's headquarters building at 478 Wheelers Farms Road, Milford,
Connecticut 06460. eLottery's right to occupy this space expires 120 days after
the Distribution Date.

eLottery intends to locate alternative office space for its operation
prior to expiration of this arrangement with Executone. Due to the type and
small amount of space required by eLottery, the management of eLottery does not
anticipate that it will have any difficulty in finding suitable space at a
reasonable cost.

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<PAGE>

MANAGEMENT OF eLOTTERY

Advisory Board, Directors and Officers

In anticipation of the Distribution, Executone has formed a board
consisting of Robert A. Berman, Jerry M. Seslowe, Stanley M. Blau, Alan Kessman,
Stanley J. Kabala and Michael W. Yacenda (the "eLottery Advisory Board"), to
serve as an advisory board to the Executone Board, providing recommendations to
the Executone Board regarding the current and future structure and business
operations of eLottery, including, without limitation: up to two additional
members of the eLottery Advisory Board, executive compensation, banking and
credit matters and general strategic planning.

The directors of eLottery will be divided into three substantially equal
classes and will serve staggered terms of three years each. Each director in
Class I will hold office initially for a term expiring at the first annual
meeting of stockholders of eLottery, each director in Class II will hold office
initially for a term expiring at the second annual meeting of stockholders of
eLottery and each director in Class III will hold office for an initial term
expiring at the third annual meeting of stockholders of eLottery. The following
persons will serve eLottery in the capacities indicated, effective on or before
the date of the Distribution:

Name Age Position Class

Robert A. Berman 38 Director and Chairman of the III
Board
Stanley M. Blau 60 Director II
Alan Kessman 51 Director and Vice Chairman I
Jerry M. Seslowe 52 Director II
Michael W. Yacenda 46 Director, President and III
Treasurer
Philip Gunn 46 Director ____
Charles A. Degliomini 40 Vice President, Sales and
Marketing - Government
Lotteries
Robert W. Hopwood 54 Vice President, Operations
and Customer
Service
Stanley J. Kabala 55 Advisory Board Member

Robert A. Berman has been the Chairman of the Board and Chief Executive
Officer of Hospitality Worldwide Services, Inc., a hospitality maintenance
services company ("Hospitality Worldwide"), since November 1997, and currently
serves as a director of such corporation. Since 1993, Mr. Berman also has served
as a Managing Director of Watertone Holdings L.P., a real estate holding
company, and Watermark Investment Limited, LLC, a venture capital and asset
management firm. From March 1997 to November 1997, Mr. Berman was President of
Hospitality Worldwide. Mr. Berman has an extensive background in the financial
development of a variety of commercial ventures including commercial real estate
and construction.

Stanley M. Blau is a partner of P.S. Capital, LLC, an investment firm
specializing in the New Media, Internet and high tech marketplace. He has been a
director of Executone since 1983 and was formerly Vice Chairman of Executone
from 1988 until 1996. Mr. Blau was also Chief Executive Officer of one of
Executone's predecessor corporations from 1987 until July 1988.

Alan Kessman served as Chairman of the Board and Chief Executive Officer
of Executone from 1988 until June 1998. He currently serves as Chief Executive
Officer and a director of Vion Pharmaceuticals, Inc., a biopharmaceutical
company, and as a director of Castelle Corporation, a networking faxing product
company. Prior to 1988, he served as President and Chief Executive Officer of
ISOETEC Communications, Inc., a telephone and information systems developer and
a predecessor of Executone ("ISOETEC"), since 1983. From 1978 to 1983, Mr.
Kessman served as President of three operating subsidiaries of Rolm Corporation,
which sells telecommunications equipment, and from 1981 to 1983, he served as a
Corporate Vice President of Rolm Corporation, responsible for sales and service
in the eastern United States.

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<PAGE>

Jerry M. Seslowe has been a Managing Director of Resource Holdings Ltd.,
an investment and financial consulting firm ("Resource Holdings"), since
1983. Prior to 1983, Mr. Seslowe was a partner at KPMG Peat Marwick, a
provider of investment and financial services. Mr. Seslowe has served as a
director of Executone since February 1996 and prior to Executone's acquisition
of eLottery was a director of eLottery. Mr. Seslowe is a certified public
accountant and an attorney.

Michael W. Yacenda has served as Executive Vice President of Executone
since January 1990, and additionally as President of eLottery since 1996. Prior
to that time, he was Vice President, Finance and Chief Financial Officer of
Executone from July 1988 to January 1990. He served as a Vice President of
ISOETEC from 1983 to 1988. From 1974 to 1983, Mr. Yacenda was employed by the
public accounting firm, Arthur Andersen & Co. Mr. Yacenda is a certified public
accountant.

Charles A. Degliomini has been Vice President, Sales and Marketing
Government Lotteries of eLottery since September 1, 1998. From 1988 to 1998, he
was President and founder of Atlantic Communications, a New York based corporate
and government affairs management company. From 1985 to 1988, Mr. Degliomini
also served as Chief-of-Staff with the General Services Administration ("GSA"),
the 30,000 employee business arm of the Federal government. Mr. Degliomini has
held positions as Special Assistant to United States Senator Alfonse M. D'Amato;
Director of Communications in New York in 1984 for the Reagan-Bush presidential
campaign; Director of Government Affairs for the Eaton Corporation, a global
manufacturer of engineered industrial products; and Assistant Director of
Communications for Rite-Aide founder, Lewis E. Lehrman.

Robert W. Hopwood has been Vice President of Executone and Vice
President-Operations and Customer Service of UniStar Entertainment since May
1996, and prior thereto served as Vice President, Customer Care of Executone
from January 1990. From 1983 until 1990, Mr. Hopwood was the Director of
Technical Operations of Executone and ISOETEC.

Stanley J. Kabala was elected Chairman of the Board, President and Chief
Executive Office of Executone in June 1998. Prior to that time, he was President
and Chief Executive Officer of Rogers Cantel Mobile Communications, the largest
wireless telephone company in Canada, and Chief Operating Officer of its parent,
Rogers Communications, Inc., from 1996 to 1997. During 1995, Mr. Kabala was
President and Chief Executive Officer of Unitel Communications, Inc., Canada's
largest alternative long distance provider. From 1968 through 1994, Mr. Kabala
held various positions at AT&T Corporation, most recently Vice
President--Customer Service for the Business Communications Services Division
and Vice President--AT&T 800 and Business Applications Services.

Philip Gunn is co-founder and President of Growth Capital Partners, LLC, a
professional merchant banking and venture capital investment firm ("GCP").
Before establishing GCP in 1982, Mr. Gunn was a Vice President in the
Manufacturers Hanover Merchant Banking Group with overall responsibility for
merger and acquisition advisory services. During the past twenty years, he has
been active in structuring, negotiating and financing corporate acquisitions,
management buyouts and venture capital investments.

One additional person will be recommended to the Executone Board by the
eLottery Advisory Board for election to the eLottery Board. Such candidate will
be appointed to the eLottery Board prior to the Distribution Date; provided
that, in the business judgment of the Executone Board, such person is a suitable
candidate. If the Executone Board determines that such person is not so
suitable, the Executone Board will consider other nominees. The additional
director will be in Class ___.

Certain Board Committees

The eLottery Board has two standing committees, an Audit Committee and a
Compensation Committee.

The function of the Audit Committee is to recommend the selection of
auditors and to review the audit report and the adequacy of internal
controls. The members of the Audit Committee will be Mr. Kessman and Mr. Blau.

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<PAGE>

The Compensation Committee recommends to the full eLottery Board the
compensation arrangements, stock option grants and other benefits for executive
management of eLottery as well as the incentive plans to be adopted by eLottery.
The members of the Compensation Committee will be Messrs. Blau and Seslowe.

Compensation Committee Interlocks and Insider Participation

Mr. Seslowe, a member of the Compensation Committee, is a Managing
Director of and owns more than 10% of Resource Holdings, a former stockholder of
eLottery. eLottery has entered into a financial advisory agreement with Resource
Holdings pursuant to which Resource Holdings will receive (i) a $5,000 per month
retainer for the period beginning July 1, 1998 through December 31, 1999, (ii)
25,000 options to acquire eLottery Common Stock priced in the same manner as the
options granted to non-employee directors and (iii) travel and other expenses
authorized by eLottery. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Executone Preferred Holders have entered into the Exchange Agreement
with Executone and eLottery pursuant to which, on the Distribution Date, all of
the outstanding shares of Executone Preferred Stock will be converted
automatically into: (i) shares of eLottery Common Stock which shares, as of the
Distribution Date, will represent 15% of the Original Issuance; and (ii) all
shares of eLottery Preferred Stock. No fractional shares of eLottery Common
Stock or eLottery Preferred Stock shall be issued. Upon the occurrence of
certain events, the Executone Preferred Holders will be entitled to convert the
eLottery Preferred Stock into the Underlying Shares such that, when added to the
Original Issuance, the Executone Preferred Holders will own 34% of the eLottery
Common Stock, including only the Original Issuance and the Underlying Shares.
Thus, depending whether the Executone Preferred Holders convert their eLottery
Preferred Stock, Executone Preferred Holders could own a substantial percentage
of eLottery. In addition, pursuant to the Exchange Agreement, two of the
Executone Preferred Holders will receive a total of $129,556.32 as of the
Distribution Date, in settlement of all claims arising on and prior to the
Distribution Date.

Executone has entered into a retention and incentive program with Messrs.
Yacenda and Hopwood pursuant to which Executone has agreed to extend stock loans
(the "Stock Loans") made under the EXECUTONE 1994 Incentive Stock Plan (the
"Stock Plan"). See "EXECUTIVE COMPENSATION--Employment Agreements and Transition
Retention Plans."

eLottery and Executone have entered into a number of agreements for the
purpose of effecting the Distribution and defining the ongoing relationship
between them. These agreements consist of the Reorganization Agreement, Services
Agreement, Standby Agreement and Tax Sharing Agreement described under
"ARRANGEMENTS BETWEEN EXECUTONE AND eLOTTERY RELATING TO THE DISTRIBUTION" as
well as compensation arrangements described under "EXECUTIVE COMPENSATION."
These agreements have been developed by Executone, as eLottery's sole
stockholder, in connection with its strategy to cause eLottery's stock to be
distributed to Executone shareholders in the Distribution. Accordingly, none of
the agreements are the result of arm's-length negotiation between independent
parties.

Mr. Kessman, Director and Vice Chairman of the Board of eLottery, entered
into a consulting agreement with eLottery, which was terminated as of December
31, 1998, pursuant to which Mr. Kessman received (i) a $5,000 per month retainer
for the period beginning July 1, 1998 through December 31, 1998, (ii) 25,000
options to acquire eLottery Common Stock priced in the same manner as the
options granted to non-employee directors and (iii) travel and other expenses
authorized by eLottery.

eLottery has entered into an agreement with Resource Holdings pursuant to
which Resource Holdings will act as eLottery's financial advisor. Mr. Seslowe, a
Director of eLottery, is a Managing Director of and owns more than 10% of
Resource Holdings. Under this agreement, Resource Holdings will receive (i) a
$5,000 per month retainer for the period beginning July 1, 1998 through December
31, 1999, (ii) 25,000 options to acquire eLottery Common Stock priced in the
same manner as the options granted to non-employee directors and (iii) travel
and other expenses authorized by eLottery.

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<PAGE>

Certain software development services have been provided to eLottery by
The Winston Group, one of whose principals is Robert W. Hopwood, Jr., the son of
an officer of eLottery, Robert W. Hopwood. As of December 31, 1997, eLottery had
incurred $193,000 in fees from this firm. This contract was entered into on
terms eLottery believes are as favorable as would have been obtained through
arm's-length negotiations with an independent third party.

EXECUTIVE COMPENSATION

Compensation of Directors

Non-employee directors of eLottery who are currently on the eLottery
Advisory Board will receive an initial award of 25,000 stock options priced at
$1.28 per share. Other non-employee directors will receive an initial award of
50,000 shares when the director first joins the eLottery Board, which shall be
priced at $1.28 per share if the director joins the Board prior to the
Distribution Date, and at the market price at the time of his or her election to
the Board if the director joins the Board after the Distribution Date. In
addition, each non-employee director will receive annual compensation consisting
of: (i) an award of 5,000 stock options for each year of service on the eLottery
Board, including the first year; and (ii) $2,500 for each Board meeting attended
plus out-of pocket expenses incurred in attending meetings of the eLottery
Board.

Directors who are employees of eLottery will not be paid any additional
remuneration for services as members of the eLottery Board or any committee
thereof.

Compensation of Executive Officers

The following table summarizes compensation paid to all of eLottery's
Executive Officers for services rendered to eLottery.

SUMMARY COMPENSATION TABLE

Long-Term
Compensation
Awards/Securities
Name and Annual Compensation Underlying All Other
Principal Position Year Salary($) Bonus($) Options(#) Compensation($)(3)
------------------ ---- -------- --------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Michael W. Yacenda 1997 $256,000 0 0 $5,997
Executive Vice 1996 256,000 49,900 0 5,935
President and 1995 256,000 0 0 6,353
President, UniStar
Entertainment (1)

Robert W. Hopwood 1997 130,000 10,000 0 2,707
Vice President, 1996 130,000 19,250 0 2,605
Operations and 1995 130,000 0 0 2,529
Customer Service,
eLottery

Charles A. Degliomini 1997 -- -- -- --
Vice President, Sales 1996 -- -- -- --
and 1995 -- -- -- --
Marketing Government
Lotteries, eLottery (2)
</TABLE>

(1) President and Treasurer of eLottery as of the Distribution Date.
(2) Mr. Degliomini was hired during 1998.

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<PAGE>

(3) The amounts in this category include for each individual a matching
contribution by Executone under its 401(k) plan in the amount of $660 each
for each year. This column also includes premiums paid by Executone for
long-term disability and life insurance for Mr. Yacenda ($5,337, $5,275 and
$5,693) and Mr. Hopwood ($2,047, $1,945 and $1,869) in 1997, 1996 and 1995,
respectively.

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<PAGE>

Option Grants

Each of the following option grants relates to grants of options to
acquire shares of eLottery Common Stock as of the Distribution Date.

OPTION GRANTS AS OF THE DISTRIBUTION DATE
<TABLE>
<CAPTION>
Individual Grants
- -----------------------------------------------------------------------
Potential
Percent of Realizable
Total Value
Options at Assumed
Granted to Annuals
Number of Employees Rates of
Securities as of the Stock Price
Underlying Dis- Exercise Appreciation
Option tribution Price Expiration --------------
Name Grants (#) Date ($/Share) Date 5%($) 10%($)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michael A. Yacenda 200,000 (1) 66.7% $ 1.28 (3) $160,997 $407,998
Robert W. Hopwood 50,000 (2) 16.7% 1.28 (3) $ 40,249 $102,000

Charles A. Degliomini 50,000 (2) 16.7% 1.28 (3) $ 40,259 $102,000
</TABLE>

(1) One hundred fifty thousand (150,000) of these options will vest as
follows: (i) one-third of such options will vest on September 1, 1999 and (ii)
8.33% of such options will vest at the end of each calendar quarter after
September 1, 1999. Twenty-five thousand (25,000) of these options will vest if
and only if eLottery attains $5 million in gross revenue during the calendar
year 1999. Twenty-five thousand (25,000) of these option will vest if and only
if eLottery attains $10 million in gross revenue during the calendar year 1999.

(2) One-third of these options will vest on September 1, 1999 and 8.33% of
these options will vest at the end of each calendar quarter after September 1,
1999.

(3) Such options shall expire on the tenth anniversary of the Distribution Date.

Employment Agreements and Transition Retention Plans

Employment Agreements. eLottery has entered into employment agreements
(the "Employment Agreements") with Messrs. Yacenda, Hopwood and Degliomini,
respectively (the "Executives"). The Employment Agreements with Messrs. Yacenda,
Hopwood and Degliomini each have a three-year term. Each of the Employment
Agreements may be renewed for such one-year periods as the parties to each of
the Employment Agreements mutually agree. The Employment Agreements outline each
Executive's compensation, including salary, the grant of options and insurance
benefits. Each Executive agreed in his Employment Agreement not to engage in the
lottery or casino business for the term of his Employment Agreement and for a
period of 18 months thereafter. Finally, upon occurrence of certain events
relating to the terms of each Executive's employment with eLottery, the
Executives will receive liquidated damages in the amount of the Factor (as
hereinafter defined) times the Executive's yearly salary. The "Factor" is 2.99
for the first 12 months of each Employment Agreement, 2.00 for the second 12
months of each Employment Agreement and 1.00 thereafter.

Transition and Retention Plans. In order to facilitate Executone's
business plan in connection with the Distribution, Executone has offered to
Messrs. Yacenda and Hopwood, participants in the Stock Plan, a retention and
incentive program effective as of September 15, 1998 (the "Transition and
Retention Plans"). The Transition and Retention Plans extend the Stock Loans of
Messrs. Yacenda and Hopwood, the aggregate amount of which is $1.8 million,
including $400,000 in interest advanced to Messrs. Yacenda and Hopwood, to the
earlier of March 31, 2001, or the date on which their respective employment with
eLottery terminates. Under the Transition and Retention Plans, Messrs. Yacenda
and Hopwood earn forgiveness of their respective Stock Loans over time. eLottery
has agreed to advance to Messrs. Yacenda and Hopwood the interest on such loans
that accrues after the Distribution Date as it comes due. Executone previously
had agreed to guarantee the Stock Loans. If Messrs. Yacenda or Hopwood resign
while there exists an outstanding balance on their respective Stock Loans, then

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<PAGE>

the resigning employee is liable for that portion of such Stock Loan that has
not been forgiven. If Messrs. Yacenda and Hopwood remain employed with eLottery
and the full benefit under the Transition and Retention Plans vests, then,
pursuant to the Exchange Agreement, eLottery and Executone will share equally in
any liability incurred under the Transition and Retention Plans. If Messrs.
Yacenda or Hopwood resign from eLottery, eLottery will indemnify Executone for
50% of any liability it incurs as a result of such guarantee. If eLottery
terminates the employment of Messrs. Yacenda or Hopwood, eLottery will indemnify
Executone for 100% of any liability it incurs as a result of such guarantee.

The Option Plan

The existing eLottery Board has adopted, and Executone, as the sole
stockholder of eLottery, has approved, the eLottery, Inc. Stock Option Plan (the
"Option Plan") for the purpose of attracting and retaining executive officers
and employees. The Option Plan will be administered by the Compensation
Committee of the eLottery Board (the "Committee").

Officers and other employees of eLottery and "parent" and "subsidiary"
corporations (within the meaning of Code section 424) of eLottery are eligible
to participate in the Option Plan. Under Code section 424, a "parent"
corporation generally is a corporation possessing at least 50 percent of the
total combined voting power of all classes of stock of a company (or of any
other "parent corporation"), and a "subsidiary" corporation generally is a
corporation of which such company (or any other "subsidiary" of such company)
owns at least 50 percent of the total combined voting power of all classes of
stock. The Committee selects the individuals who will participate in the Option
Plan ("Participants").

The Option Plan authorizes the issuance of options to purchase up to
1,000,000 shares of eLottery Common Stock. The Plan provides for the grant of
(i) options intended to qualify as incentive stock options under Section 422 of
the Code ("ISOs"), and (ii) options not intended to so qualify ("nonqualified
options"). Code Section 422 imposes various requirements in order for an option
to qualify as an ISO-e.g., a maximum ten-year term and an option price that is
not less than the fair market value of the underlying shares on the date of
grant. In the case of an ISO granted to a Participant who is a Ten Percent
Stockholder (defined below), the ISO must expire within five years of the date
of grant, and the option price may not be less than 110% of the fair market
value of the underlying shares on the date of grant. A Participant is a Ten
Percent Stockholder if he owns, or is deemed to own, more than ten percent of
the total combined voting power of all classes of stock of eLottery or a parent
or subsidiary of eLottery. A Participant is deemed to own any voting stock owned
(directly or indirectly) by the Participant's spouse, brothers, sisters,
ancestors and lineal descendants. A Participant and such persons are also
considered to own proportionately any voting stock owned (directly or
indirectly) by or for a corporation, partnership, estate or trust of which the
Participant or any such person is a stockholder, partner or beneficiary.

In addition, under Code Section 422, no Participant may receive ISOs
(under all incentive stock option plans of eLottery and its parent or subsidiary
corporations) that are first exercisable in any calendar year for eLottery
Common Stock having an aggregate fair market value (determined as of the date
the ISO is granted) that exceeds $100,000 (the "$100,000 Limit"). To the extent
options first become exercisable by a Participant in any calendar year for a
number of shares of eLottery Common Stock in excess of the $100,000 Limit, they
will be treated as nonqualified options.

The principal difference between options qualifying as ISOs under Code
Section 422 and nonqualified options is that a Participant generally will not
recognize ordinary income at the time an ISO is granted or exercised, but rather
at the time the Participant disposes of shares acquired under the ISO. In
contrast, the exercise of a nonqualified option generally is a taxable event
that requires the Participant to recognize, as ordinary income, the difference
between the shares' fair market value and the option price. The employer will
not be entitled to a federal income tax deduction on account of the grant or the
exercise of an ISO, whereas the employer is entitled to a federal income tax
deduction on account of the exercise of a nonqualified option equal to the
ordinary income recognized by the Participant. The employer may claim a federal
income tax deduction on account of certain dispositions of shares acquired upon
the exercise of an ISO.

The Committee will determine the option exercise period and any conditions
on exercisability of options granted under the Option Plan. The exercise price
will be determined by the Committee at the time of grant, but will not be less

53
<PAGE>

than the fair market value of the eLottery Common Stock on the date of grant if
the option is intended to be an ISO (or less than 110% of such fair market value
in the case of an ISO granted to a Ten Percent Stockholder). No Participant may
be granted, in any calendar year, options for more than 200,000 shares of
eLottery Common Stock.

An option may be exercised for any number of shares of eLottery Common
Stock up to the full number for which the option could be exercised. A
Participant will have no rights as a stockholder with respect to shares of
eLottery Common Stock subject to an option until the option is exercised. Any
shares of eLottery Common Stock subject to options that are forfeited (or expire
without exercise) pursuant to the terms established at the time of grant will
again be available for grant under the Option Plan. Payment of the exercise
price of an option granted under the Option Plan may be made in cash, cash
equivalents acceptable to the Committee or, if permitted by the option
agreement, by surrendering to eLottery shares of eLottery Common Stock having a
fair market value equal to the option exercise price.

No option award may be granted under the Option Plan more than 10 years
after the earlier of the date that the eLottery Board adopted, or the
stockholder of eLottery approved, the Plan. The eLottery Board may amend or
terminate the Option Plan at any time, but an amendment will not become
effective without stockholder approval if the amendment increases the number of
shares that may be issued under the Option Plan (other than equitable
adjustments upon certain corporate transactions), or changes the class of
individuals eligible to become Participants. No amendment will affect a
Participant's outstanding award without the Participant's consent.

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<PAGE>

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF eLOTTERY COMMON STOCK
AND eLOTTERY PREFERRED STOCK

By Management

The following table sets forth the number of shares of eLottery Common
Stock and eLottery Preferred Stock expected to be beneficially owned following
the Offering, directly or indirectly, by each director, each Named Executive
Officer and all directors and executive officers as a group, based upon certain
assumptions. These assumptions are (i) the beneficial ownership by such persons
of Executone Common Stock and Executone Preferred Stock as of December 31, 1998
is the same as such ownership on the Record Date, and (ii) the Executone
Preferred Holders have received 15% of the Original Issuance pursuant to the
Exchange Agreement. A list of the individuals who are expected to be executive
officers of eLottery immediately following the Offering is set forth under
"MANAGEMENT OF eLOTTERY." Except as otherwise indicated, each individual named
is expected to have sole investment and voting power with respect to the
securities shown.

Estimated
Estimated Percentage
Amount and of Estimated Estimated
Nature of Common Amount and Percentage
Common Stock Stock Nature of of
Name of Beneficial Beneficial Preferred Preferred
Beneficial Owner Ownership Ownership Stock Stock
- -------------------- --------------- --------- ---------------- -----------

Robert A. Berman(1) 1,087,202 9.3% 46,355 61.8%
Stanley M. Blau.... 107,638 * - -
Alan Kessman(2).... 347,467 3.0% - -
Jerry M. Seslowe(3) 87,680 * 1,408 1.9%
Michael W. Yacenda. 171,372 1.5% - -
Philip Gunn........ - - - -
Charles A. - - - -
Degliomini.........
Robert W. Hopwood.. 21,743 * - -

All Directors and
Officers as a 1,823,102 15.5% 47,763 63.7%
group..............

* Denotes less than 1% beneficial ownership.
(1)To be owned by Watertone Holdings L.P., of which Watermark Investments
Limited, L.L.C., an entity controlled by Mr. Berman, is the general partner.
Such entities are located at 730 Fifth Avenue, New York, New York 10038.
(2)Includes 37,500 shares held in trust for his children to which Mr. Kessman
disclaims beneficial ownership.
(3) Includes shares owned by Resource Holdings.

<PAGE>

By Others

The following table sets forth each person or entity (other than persons
set forth in the preceding table) that is expected to beneficially own more than
5% of eLottery Common Stock and Preferred Stock outstanding immediately
following the Offering. These figures assume that the beneficial ownership by
such persons of Executone Common Stock and Executone Preferred Stock as of
December 31, 1998 is the same as such ownership on the Record Date;

Estimated Estimated Estimated Estimated
Amount and Percentage Amount and Percentage
Nature of of Nature of of
Name of Beneficial Owner Common Stock Common Preferred Preferred
Beneficial Stock Stock Stock
Ownership Beneficial
Ownership
- -------------------------- --------------- --------- --------------- ---------
<S> <C> <C> <C> <C>
Heartland Advisors, Inc. 1,812,971 15.5% - -
790 North Milwaukee
Street
Milwaukee, WI 53202

Edmund H., Shea, Jr.*.. 649,015 5.5% - -
655 Brea Canyon Road
Walnut Creek, CA 91789

Lawndale Capital 685,120 5.8% - -
Management LLC.........
One Sansome Street,
Suite 3900
San Francisco, CA 94104

Cooper Life Sciences... 554,586 4.7% 23,646 31.5%
160 Broadway
New York, NY 10038
</TABLE>

*Owned by entities controlled by Mr. Shea.

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<PAGE>

DESCRIPTION OF eLOTTERY CAPITAL STOCK

Under the eLottery Certificate, the total number of shares of all classes
of stock that eLottery has authority to issue is 26,000,000, consisting of
1,000,000 shares of eLottery Preferred Stock and 25,000,000 shares of eLottery
Common Stock. An aggregate of up to approximately 9,967,824 shares of eLottery
Common Stock is expected to be distributed in the Distribution, based on the
number of shares of Executone Common Stock outstanding on December 31, 1998. The
actual number of shares sold will depend upon the number of shares of Executone
Common Stock outstanding as of the Record Date.

eLottery Preferred Stock

The eLottery Board is authorized to provide for the issuance of shares of
preferred stock, in one or more series, to establish the number of shares in
each series and to fix the designation, powers, preferences and rights of each
such series and the qualifications, limitations or restrictions thereof. See
"CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE eLOTTERY CERTIFICATE,
THE eLOTTERY BYLAWS, THE eLOTTERY RIGHTS PLAN AND THE GENERAL CORPORATION LAW OF
DELAWARE--Preferred Stock."

As of the Distribution Date, eLottery will have one series of preferred
stock, the eLottery Preferred Stock, issued and outstanding, of which 75,000
shares will be issued and outstanding.

Each share of the eLottery Preferred Stock has voting rights equal to one
share of eLottery Common Stock. Until conversion by the holder or redemption by
eLottery, the eLottery Preferred Stock will earn dividends equal to 50% of the
consolidated Retained Earnings (as defined in the eLottery Certificate) of
eLottery since the date of issuance of the eLottery Preferred Stock, as of the
end of a fiscal period, less any dividends paid to the holders of the eLottery
Preferred Stock prior to such date (the "Preferred Dividends"). All dividends on
eLottery Preferred Stock are payable only (i) when and as declared by the
eLottery Board, (ii) upon conversion or redemption of the eLottery Preferred
Stock or (iii) upon liquidation, and only if at the time of a proposed payment
(A) the cumulative Retained Earnings of eLottery is positive, and (B) the net
income of eLottery in the preceding fiscal year exceeded $1,000,000.

The eLottery Preferred Stock is convertible under certain conditions
described below during the Conversion Period for up to a maximum of the number
of shares of eLottery Common Stock necessary, when added to the eLottery Common
Stock issued to the Executone Preferred Holders in the Original Issuance, to
total 34% of the outstanding eLottery Common Stock including only the Original
Issuance and the Underlying Shares. Based on the number of shares of Executone
Common Stock outstanding as of December 31, 1998, this formula would result in
the eLottery Preferred Stock being convertible into a maximum of 3,375,913
shares of eLottery Common Stock if eLottery meets certain revenue and profit
parameters. The actual number of shares of eLottery Common Stock into which the
eLottery Preferred Stock will be convertible will depend on the number of shares
of Executone Common Stock outstanding on the Record Date. The Conversion Period
is defined as the period commencing on the date of issuance of the eLottery
Preferred Stock and ending on January 20, 2002.

Each share of the eLottery Preferred Stock is convertible, provided
eLottery had net income for the immediately preceding fiscal year of at least
$1,000,000, into the product of the excess of such net income over $1,000,000,
divided by 12 million, times the estimated maximum number of shares of eLottery
Common Stock per share of eLottery Preferred Stock, which is estimated to be
44.95 based on the number of outstanding shares of Executone Common Stock on
December 31, 1998. The eLottery Preferred Stock is also convertible during the
Conversion Period for the estimated maximum of 3,375,913 shares of eLottery
Common Stock (or an estimated 44.95 shares of eLottery Common Stock per share of
eLottery Preferred Stock), at any time the cumulative net revenues of eLottery
exceed $50 million. The eLottery Preferred Stock is also convertible during the
Conversion Period for the same maximum number of shares of eLottery Common Stock
if a controlling interest in eLottery is sold, transferred or assigned to a
third party who is not a wholly-owned subsidiary of eLottery.

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<PAGE>

The eLottery Preferred Stock is redeemable by eLottery for the maximum
number of shares into which it might be converted, or an estimated total of
3,375,913 shares of eLottery Common Stock, at eLottery's option; provided,
however, that such redemption right may not be exercised by eLottery if, on the
date that eLottery elects to exercise its redemption right, the market price of
the eLottery Common Stock is less than $1.00 per share as appropriately adjusted
with respect to any subdivisions, stock dividends or combinations of the
eLottery Common Stock, except with the consent of the holders of two-thirds of
the outstanding shares of eLottery Preferred Stock.

Based on the liquidation value assigned to their previous ownership of
Executone Preferred Stock, the eLottery Preferred Stock is entitled to a
preference on any voluntary or involuntary dissolution, liquidation or winding
up of eLottery, equal to $3,500,000 plus any accrued and unpaid Preferred
Dividends.

While any of the eLottery Preferred Stock is outstanding, at each annual
meeting of the stockholders at which a vacancy exists in the position of Series
A Director (as hereinafter defined ), the holders of a majority of the
outstanding eLottery Preferred Stock, voting as a single class, to the exclusion
of holders of any capital stock of eLottery ranking junior (either as to
dividends, redemption or upon liquidation, dissolution or winding up) to the
eLottery Preferred Stock, shall have the right to nominate one director for
election to the eLottery Board (the "Series A Director"). eLottery shall use its
best efforts to cause each such nominee to be elected as a member of the
eLottery Board. The designee of the holders of the eLottery Preferred Stock on
the eLottery Board may be removed, and may only be removed, with or without
cause, by the holders of a majority of the outstanding shares of eLottery
Preferred Stock, voting as a separate class. Any vacancy in the position of
Series A Director shall be filled by a majority vote of the holders of the
eLottery Preferred Stock voting as a separate class.

eLottery Common Stock

The holders of eLottery Common Stock are entitled to one vote per share on
all matters voted on by the stockholders, including the election of directors,
and, except as otherwise required by law, the holders of such shares exclusively
possess all voting power. The eLottery Certificate does not provide for
cumulative voting in the election of directors. The holders of eLottery Common
Stock are entitled to such dividends as may be declared from time to time by
eLottery Board from funds available therefor, and upon liquidation are entitled
to receive pro rata all assets of eLottery available for distribution to such
holders. No dividends can be paid to the holders of eLottery Common Stock as
long as there are arrearages in Preferred Dividends. All shares of eLottery
Common Stock received in the Distribution will be fully paid and nonassessable
and the holders thereof will not have any preemptive rights. See "CERTAIN
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE eLOTTERY CERTIFICATE, THE
eLOTTERY BYLAWS, THE eLOTTERY RIGHTS PLAN AND THE GENERAL CORPORATION LAW OF
DELAWARE."

Stockholder Rights Plan

On ___________, 1999, the eLottery Board approved a Stockholder Rights
Agreement, dated as of and to be effective on _____________, 1999 (the
"Stockholder Rights Agreement") between eLottery and ________________, as
Stockholder Rights Agent, having the principal terms summarized below. In
accordance with the Stockholder Rights Agreement, the eLottery Board also
declared a dividend distribution of one right (each, a "Stockholder Right") for
each outstanding share of eLottery Common Stock to stockholders at the close of
business on the Distribution Date.

Each Stockholder Right entitles the registered holder to purchase from
eLottery one share of the eLottery Common Stock. Stockholders will receive one
Stockholder Right per share of eLottery Common Stock held of record at the close
of business on the Distribution Date. The exercise price of each Stockholder
Right will be $_____, subject to adjustment (the "Purchase Price").

Stockholder Rights will also attach to shares of Common Stock issued after
the Distribution but prior to the Rights Distribution Date (as hereinafter
defined) unless the eLottery Board determines otherwise at the time of issuance.
The description and terms of the Stockholder Rights are set forth in the
Stockholder Rights Agreement.

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<PAGE>

The Stockholder Rights will be appurtenant to the eLottery Common Stock
and will be evidenced by eLottery Common Stock certificates (the "Stockholder
Rights Certificates"), and no separate certificates evidencing the Stockholder
Rights will be distributed initially. The Stockholder Rights will separate from
the eLottery Common Stock and a distribution of the Stockholder Rights
Certificates will occur (the "Rights Distribution Date") upon the earlier of:
(i) 10 days following a public announcement that a person or group of affiliated
or associated persons (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 25% or more of the outstanding shares
of eLottery Common Stock (the "Stock Acquisition Date"); or (ii) 10 business
days following the commencement of a tender offer or exchange offer that would
result in a person or group beneficially becoming an Acquiring Person. Until the
Rights Distribution Date, (i) the Stockholder Rights will be evidenced by the
Stockholder Rights Certificates and will be transferred with and only with
Stockholder Rights Certificates, (ii) any Stockholder Rights Certificates issued
will contain a notation incorporating the Stockholder Rights Agreement by
reference and (iii) the surrender for transfer of any Stockholder Rights
Certificates outstanding will also constitute the transfer of the Stockholder
Rights associated with the eLottery Common Stock represented by such Stockholder
Rights Certificates.

The Stockholder Rights are not exercisable until the Rights Distribution
Date and will expire at the close of business on ________________, 2000, unless
earlier redeemed or exchanged by eLottery as described below. As soon as
practicable after the Rights Distribution Date, Stockholder Rights Certificates
will be mailed to holders of record of the eLottery Common Stock as of the close
of business on the Rights Distribution Date, and thereafter such separate
Stockholder Rights Certificates alone will represent the Stockholder Rights.

While each Stockholder Right will initially provide for the acquisition of
one share of eLottery Common Stock at the Purchase Price, the Stockholder Rights
Agreement provides that if any person becomes an Acquiring Person, proper
provision shall be made so that each holder of a Stockholder Right (except as
set forth below) will thereafter have the right to receive, upon exercise and
payment of the Purchase Price, eLottery Common Stock (or, in certain
circumstances, cash, property or other securities of eLottery) having a value
equal to twice the amount of the Purchase Price.

In the event that, at any time following the Stock Acquisition Date, (i)
eLottery is acquired in a merger, statutory share exchange or other business
combination in which eLottery is not the surviving corporation, or (ii) 50% or
more of eLottery's assets or earning power is sold or transferred, each holder
of a Stockholder Right (except as set forth below) shall thereafter have the
right to receive, upon exercise and payment of the Purchase Price, common stock
of the acquiring company having a value equal to twice the Purchase Price. The
events set forth in this paragraph and in the immediately preceding paragraph
are referred to as the "Triggering Events."

Upon the occurrence of a Triggering Event that entitles Stockholder Rights
holders to purchase securities or assets of eLottery, Stockholder Rights that
are or were owned by the Acquiring Person, or any affiliate or associate of such
Acquiring Person, on or after such Acquiring Person's Stock Acquisition Date
shall be null and void and shall not thereafter be exercised by any person
(including subsequent transferees). Upon the occurrence of a Triggering Event
that entitles Stockholder Rights holders to purchase common stock of a third
party, or upon the authorization of an Exchange (as hereafter defined),
Stockholder Rights that are or were owned by any Acquiring Person or any
affiliate or associate of any Acquiring Person on or after such Acquiring
Person's Stock Acquisition Date shall be null and void and shall not thereafter
be exercised by any person (including subsequent transferees).

The Purchase Price payable, and the number of shares of eLottery Common
Stock or other securities or property issuable upon exercise of the Stockholder
Rights are subject to adjustment from time to time to prevent dilution.

At any time (including a time after any person becomes an Acquiring
Person), eLottery may exchange all or part of the Stockholder Rights (except as
set forth below) for shares of eLottery Common Stock (an "Exchange") at an
exchange ratio of one share per Stockholder Right, as appropriately adjusted to
reflect any stock split or similar transaction.

At any time until ten days following the Stock Acquisition Date, eLottery
may redeem the Stockholder Rights in whole, but not in part, at a price of $.01

59
<PAGE>

per Stockholder Right (the "Redemption Price"). eLottery may thereafter but
prior to the occurrence of a Triggering Event redeem the Stockholder Rights in
whole, but not in part, at the Redemption Price provided that such redemption is
incidental to a merger or other business combination transaction involving
eLottery that is approved by a majority of the eLottery Board, does not involve
an Acquiring Person, and in which all holders of eLottery Common Stock are
treated alike. After the redemption period has expired, eLottery's right of
redemption may be reinstated if an Acquiring Person reduces his beneficial
ownership to less than 10% of the outstanding shares of eLottery Common Stock in
a transaction or series of transactions not involving eLottery. Immediately upon
the action of the eLottery Board ordering redemption of the Stockholder Rights,
the Stockholder Rights will terminate and the only right of the holders of
Stockholder Rights will be to receive the Redemption Price.

Until a Stockholder Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of eLottery, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Stockholder
Rights will not be taxable to stockholders or to eLottery, stockholders may,
depending upon the circumstances, recognize taxable income in the event that the
Stockholder Rights become exercisable for eLottery Common Stock (or other
consideration) or for common stock of the acquiring company as set forth above.

Other than certain provisions relating to the principal economic terms of
the Stockholder Rights, any of the provisions of the Stockholder Rights
Agreement may be amended by the eLottery Board prior to the Rights Distribution
Date. After the Rights Distribution Date, the provisions of the Stockholder
Rights Agreement may be amended by the eLottery Board in order to cure any
ambiguity, to make certain other changes that do not adversely affect the
interests of holders of Stockholder Rights (excluding the interests of any
Acquiring Person), or to shorten or lengthen any time period under the
Stockholder Rights Agreement; provided, however, no amendment to adjust the time
period governing redemption may be made at such time as the Stockholder Rights
are not redeemable.

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<PAGE>

CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE eLOTTERY
CERTIFICATE, THE eLOTTERY BYLAWS, THE eLOTTERY RIGHTS PLAN
AND THE GENERAL CORPORATION LAW OF DELAWARE

General

The eLottery Certificate and the eLottery Bylaws contain provisions that
will make more difficult the acquisition of control of eLottery by means of a
tender offer, a proxy contest, open market purchases, or otherwise. In addition,
eLottery has adopted the eLottery Rights Plan pursuant to which there will be
outstanding one Right for each share of eLottery Common Stock outstanding on the
Distribution Date, or (unless otherwise specified by the eLottery Board at the
time of any such issuance) each share of eLottery Common Stock issued thereafter
and prior to the date the Rights become exercisable. See "DESCRIPTION OF
eLOTTERY CAPITAL STOCK--Stockholder Rights Plan." The purpose of the eLottery
Rights Plan and the relevant provisions of the eLottery Certificate and the
eLottery Bylaws is to discourage certain types of transactions, described below,
that may involve an actual or threatened change of control of eLottery and to
encourage persons seeking to acquire control of eLottery to consult first with
the eLottery Board to negotiate the terms of any proposed business combination
or offer. The provisions are designed to reduce the vulnerability of eLottery to
an unsolicited proposal for a takeover of eLottery that does not have the effect
of maximizing long-term stockholder value or is otherwise unfair to stockholders
of eLottery, or an unsolicited proposal for the restructuring or sale of all or
part of eLottery that could have such effects.

eLottery believes that stocks issued in initial public offerings are often
volatile and misunderstood by the market until the spun-off company has a chance
to establish its own record and disseminate sufficient financial information to
support proper financial analysis. Management believes that these anti-takeover
provisions have special value during this early period of potential
vulnerability.

Also, although federal securities laws and regulations applicable to
certain business combinations govern the disclosure required to be made to
minority stockholders in order to consummate such a transaction, they do not
assure stockholders that the terms of the business combination (i.e., what
stockholders will receive for their shares of stock) will be fair from a
financial standpoint. Although certain provisions of the federal regulations
applicable to tender offers impose certain procedural requirements for the
conduct of a tender offer those provisions are not intended to, and do not,
maximize stockholder value.

The eLottery Rights Plan and certain provisions of the eLottery
Certificate and the eLottery Bylaws, in the view of Executone and eLottery, will
help ensure that the eLottery Board, if confronted by a surprise proposal from a
third party that has acquired a block of eLottery's stock, will have sufficient
time to review the proposal as well as appropriate alternatives to the proposal
and to act in what it believes to be the best interests of the stockholders. In
addition, certain other provisions of the eLottery Certificate and the eLottery
Bylaws are designed to prevent a purchaser from utilizing "two-tier pricing" and
similar inequitable tactics in the event of an attempt to take over eLottery.

These provisions, individually and collectively, will make more difficult,
and may discourage certain types of potential acquirors from proposing a merger,
tender offer or proxy contest, even if such transaction or occurrence may be
favorable to the interest of the stockholders, and may delay or frustrate the
assumption of control by a holder of a large block of eLottery stock and the
removal of incumbent management, even if such removal might be beneficial to
stockholders. By discouraging takeover attempts, these provisions might have the
incidental effect of inhibiting certain changes in management and the temporary
fluctuations in the market price of the shares that often result from actual or
considered takeover attempts.

Set forth below is a description of certain provisions in the eLottery
Certificate, the eLottery Bylaws and the eLottery Rights Plan. The description
is intended as a summary only and is qualified in its entirety by reference to
the eLottery Certificate, the eLottery Bylaws and the eLottery Rights Plan,
copies of which are available upon request. Capitalized terms used and not
defined herein are defined in the eLottery Certificate, the eLottery Bylaws or
the eLottery Rights Plan.

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<PAGE>

Classified Board of Directors

The eLottery Certificate provides for the eLottery Board to be divided
into three classes serving staggered terms so that directors' initial terms will
expire either at the 1999, 2000 and 2001 annual meeting of stockholders.
Starting with the 1999 annual meeting of stockholders, one class of directors
will be elected each year for a three-year term. See "MANAGEMENT OF
eLOTTERY--Officers and Directors."

The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the eLottery Board in a
relatively short period of time. At least two annual meetings of stockholders,
instead of one, will generally be required to effect a change in a majority of
the eLottery Board.

Executone and eLottery believe that a classified board of directors will
help to ensure the continuity and stability of the eLottery Board and eLottery's
business strategies and policies as determined by the eLottery Board, because
generally a majority of the directors at any given time will have had prior
experience as directors of eLottery. The classified board provision will also
help assure that the eLottery Board, if confronted with an unsolicited proposal
from a third party that has acquired a block of the voting stock of eLottery,
will have sufficient time to review the proposal and appropriate alternatives
and to seek the best available result for all stockholders.

While any of the eLottery Preferred Stock is outstanding, at each annual
meeting of the stockholders at which a vacancy exists in the position of Series
A Director, the holders of a majority of the outstanding eLottery Preferred
Stock, voting as a single class, to the exclusion of holders of any capital
stock of eLottery ranking junior (either as to dividends, redemption or upon
liquidation, dissolution or winding up) to the eLottery Preferred Stock, shall
have the right to nominate the Series A Director. eLottery shall use its best
efforts to cause each such nominee to be elected as a member of the eLottery
Board. The designee of the holders of the eLottery Preferred Stock on the
eLottery Board may be removed, and may only be removed, with or without cause,
by the holders of a majority of the outstanding shares of eLottery Preferred
Stock, voting as a separate class. Any vacancy in the position of Series A
Director shall be filled by a majority vote of the holders of the eLottery
Preferred Stock voting as a separate class.

Removal of Directors; Filling Vacancies

The eLottery Certificate provides that directors may be removed only for
cause and only by the affirmative vote of holders of at least a majority of the
shares entitled to vote at a meeting of stockholders at which a quorum is
present. This provision, when coupled with the provision in the eLottery Bylaws
authorizing only the eLottery Board to fill vacant directorships until the next
annual meeting of stockholders, will preclude stockholders from removing
incumbent directors without cause and filling the vacancies created by such
removal with their own nominees. Additionally, even if a director is removed for
cause, the directors will fill the vacancy.

Special Meetings

The eLottery Bylaws provide that special meetings of stockholders can be
called only by the Chairman, President or a majority of the eLottery Board.
Stockholders are not permitted to call a special meeting or to require that the
eLottery Board call a special meeting of stockholders. Moreover, the business
permitted to be conducted at any special meeting of stockholders is limited to
the business stated in the notice of meeting.

This provision prevents a stockholder from forcing stockholder
consideration of a proposal over the opposition of the eLottery Board by calling
a special meeting of stockholders or calling for a vote on any proposal at a
special meeting other than such proposals stated in the notice of meeting.

This provision prevents a stockholder from forcing stockholder
consideration of a proposal over the opposition of the eLottery Board prior to
the time the eLottery Board believes such consideration to be appropriate.

62
<PAGE>

Advance Notice Provisions for Stockholder Proposals and
Stockholder Nominations of Directors

The eLottery Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the eLottery Board, of
candidates for election as directors ("the Nomination Procedure") and with
regard to certain matters to be brought before an annual meeting of stockholders
of eLottery (the "Business Procedure").

The Nomination Procedure provides that only persons who are nominated by,
or at the direction of, the eLottery Board or by a stockholder who has given
timely written notice to the secretary of eLottery prior to the meeting at which
directors are to be elected, will be eligible for election as directors of
eLottery. The Business Procedure provides that at an annual meeting, and subject
to any other applicable requirements, only such business may be conducted as has
been brought before the meeting by, or at the direction of, the eLottery Board
or by a stockholder who has given timely prior written notice to the secretary
of eLottery of such stockholder's intention to bring such business before the
meeting. Except for the election of directors at a special meeting, to be
timely, notice under both the Nomination Procedure and the Business Procedure
must be received by eLottery not less than 90 days prior to the meeting. In the
case of an election of directors at a special meeting, notice must be received
by the close of business on the seventh day following the date on which notice
of the meeting is first given to stockholders.

Under the Nomination Procedure, notice to eLottery from a stockholder who
proposes to nominate a person at a meeting for election as a director must
contain certain information about the nominee, including age, business and
residence addresses, principal occupation, the class and number of shares of
eLottery stock beneficially owned and such other information as would be
required to be included in a proxy statement soliciting proxies for the election
of the proposed nominee, and certain information about the stockholder proposing
the nominee. If the Chairman or other officer presiding at a meeting determines
that a person was not nominated in accordance with the Nomination Procedure,
such person will not be eligible for election as a director.

Under the Business Procedure, notice relating to the conduct of business
other than the nomination of directors must contain certain information about
such business and about the stockholder who proposes to bring the business
before the meeting, including a brief description of the business the
stockholder proposes to bring before the meeting (including the specific
proposal to be presented) and the reasons for conducting such business at the
meeting, the name and record address of the stockholder, the class and number of
shares of eLottery that are beneficially owned by the stockholder, and any
material interest of the stockholder in such business. If the chairman or other
officer presiding at a meeting determines that a proposal was not properly
brought before the meeting in accordance with the Business Procedure, it will
not be considered at the meeting.

The Nomination Procedure requires advance notice of nominations by
stockholders in order to afford the eLottery Board a meaningful opportunity to
consider the qualifications of the proposed nominees, and to the extent deemed
necessary or desirable by the eLottery Board, to inform stockholders about such
qualifications. The Business Procedure requires advance notice of a proposal in
order to provide a more orderly procedure for conducting annual meetings of
stockholders and, to the extent deemed necessary or desirable by the eLottery
Board, to provide the eLottery Board with a meaningful opportunity to inform
stockholders, prior to the meeting, of the proposal, together with any
recommendation as to the eLottery Board's position or belief as to action to be
taken with respect to the proposal, so as to enable stockholders better to
determine whether they desire to attend the meeting or grant a proxy to the
eLottery Board as to the disposition of the proposal.

Preferred Stock

The eLottery Preferred Stock to be outstanding as of the Distribution Date
is convertible under certain conditions into eLottery Common Stock, potentially
making it more difficult for a potential acquiror to acquire control of
eLottery. See "DESCRIPTION OF eLOTTERY CAPITAL STOCK--eLottery Preferred Stock."

As discussed in "DESCRIPTION OF eLOTTERY CAPITAL STOCK--eLottery Preferred
Stock," the eLottery Certificate authorizes eLottery Board to issue additional
shares of preferred stock, in one or more classes or series. Executone and

63
<PAGE>

eLottery believe that the availability of the preferred stock will provide
eLottery with increased flexibility in structuring possible future financings
and acquisitions, and in meeting other corporate needs that might arise. The
authorized shares of preferred stock, as well as shares of eLottery Common
Stock, will be available for issuance without further action by eLottery's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange on which eLottery securities may be listed, although the
preferred stock could, depending on the terms of such class or series, impede
the completion of a merger, tender offer or other takeover attempt that could be
in the best interests of the stockholders of eLottery.

Certain Voting Requirements

The eLottery Certificate requires the affirmative vote of more than
two-thirds of the outstanding shares of eLottery Common Stock for the approval
of mergers, share exchanges, certain dispositions of assets and other
extraordinary transactions.

Stockholder Rights Plan

For a discussion of the eLottery Rights Plan, see "DESCRIPTION OF eLOTTERY
CAPITAL STOCK--Stockholder Rights Plan."

Delaware General Corporation Law

Section 203 of the Delaware General Corporation Law ("DGCL") regulates
business combinations with interested stockholders. Under Section 203 of the
DGCL, a Delaware corporation is prohibited from entering into a business
combination with the beneficial owner of 15% or more of more of the
corporation's outstanding voting stock (an "interested stockholder"), or its
affiliates, for three years from the date such stockholder became an interested
stockholder unless (i) prior to the date the stockholder became an interested
stockholder, the board of directors of the corporation approved either the
business combination or the transaction that resulted in such person or entity
becoming an interested stockholder, (ii) the interested stockholder acquired at
least 85% of such corporation's outstanding voting stock (excluding shares owned
by persons who are directors, officers and by certain employee stock plans) in
the same transaction in which such stockholder became an interested stockholder
or (iii) on or subsequent to the date of the transaction by which the
stockholder became an interested stockholder, the business combination is
approved by the board of directors and the holders of two-thirds of the
corporation's outstanding voting stock (not including shares owned by the
interested stockholder). In general, a Delaware corporation must specifically
elect, through an amendment to its bylaws or certificate of incorporation, not
to be governed by these provisions. eLottery has not made such an election and,
therefore, is currently subject to these provisions of the DGCL.

LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

Limitation of Liability of Directors

The eLottery Certificate eliminates the liability of directors of eLottery
to eLottery or its stockholders to the extent permitted by Delaware law.

Indemnification of Directors and Officers

The eLottery Certificate requires indemnification of officers and
directors of eLottery to the extent permitted by Delaware law.

PLAN OF DISTRIBUTION

eLottery will distribute to each holder of shares of Executone Common
Stock on the Record Date one share of eLottery Common Stock for every five (5)
shares of Executone Common Stock owned. For a description of the purposes of and
reasons for the Distribution, see "THE DISTRIBUTION--Purposes of and Reasons for
the Distribution." As of the Distribution Date, eLottery will be an

64
<PAGE>

independently-traded public company. Executone will bear the cost of the
expenses of the Distribution in the amount of $____________.

LEGAL MATTERS

The validity of the shares of eLottery Common Stock offered hereby will be
passed upon for eLottery by Hunton & Williams, Richmond, Virginia.

EXPERTS

The audited financial statements included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

<PAGE>

INDEX TO FINANCIAL STATEMENTS

Page
Reference
eLottery, Inc. and Subsidiary
Report of Independent Public Accountants......................... F-2
Consolidated Balance Sheets - December 31, 1997 and 1996......... F-3
Consolidated Statements of Operations -
Years ended December 31, 1997, 1996 and 1995.................. F-4
Consolidated Statements of Cash Flows -
Years ended December 31, 1997, 1996 and 1995.................. F-5
Consolidated Statements of Divisional Control -
Years ended December 31, 1997, 1996 and 1995.................. F-6
Notes to Consolidated Financial Statements....................... F-7

eLottery, Inc. and Subsidiary
Consolidated Balance Sheets - September 30, 1998 and 1997........ F-15
Consolidated Statements of Operations -
Nine months ended September 30, 1998 and 1997................. F-16
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1998 and 1997................. F-17
Notes to Consolidated Financial Statements....................... F-18

All other financial statements and schedules have been omitted since the
required information is not present or not present in amounts sufficient to
require submission of the schedule, or because the information required is
included in the above listed financial statements or the notes thereto.

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of eLottery, Inc.:

We have audited the accompanying consolidated balance sheets of eLottery, Inc.
and Subsidiary (a Delaware corporation in the development stage, formerly known
as Unistar Gaming Corp. (see Note 1)) as of December 31, 1997 and 1996, and the
related consolidated statements of operations, cash flows and divisional control
for each of the three years in the period ended December 31, 1997 and for the
period from inception (July 29, 1993) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of eLottery, Inc. and Subsidiary
as of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997 and
for the period from inception to December 31, 1997, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP
Stamford, Connecticut
August 28, 1998, except with
respect to certain matters
described in Notes 1, 3, 4, 5, 9 and 10, as to
which the date is December 17, 1998

F-2
<PAGE>

eLottery, Inc. and Subsidiary
Consolidated Balance Sheets
(A Development Stage Company)

December 31,
1997 1996
---------- ----------
ASSETS
Current Assets
Notes receivable....................$ - $ 9,000
----------- ------------
Total Current Assets................ - 9,000

Property & Equipment, net................. 24,000 17,000
Intangible Assets, net (Note 10).......... 15,841,000 15,841,000
Advances to NIL (Note 10)................. 2,779,295 667,587
Investment in IGT......................... 700,000 700,000
Other Assets..............................
System Hardware and Software........ 3,413,768 487,130
Other (Note 10)..................... 1,332,361 436,305
------------ -----------
4,746,129 923,435

TOTAL ASSETS................. $24,090,424 $18,158,022
=========== ===========

LIABILITIES AND DIVISIONAL CONTROL

LIABILITIES...............................
Current Liabilities.......................
Current portion of capital
lease obligations $ 107,484 $ -
Accounts payable and accrued
liabilities 805,378 1,076,215

912,862 1,076,215
------------ -----------

Long-Term Capital Lease Obligations....... 433,068 -
------------ -----------
1,345,930 1,076,215

DIVISIONAL CONTROL........................
Investment in eLottery.................... 24,310,263 17,837,389
Deficit Accumulated During the
Development Stage (1,565,769) (755,582)
------------ -----------
22,744,494 17,081,807
------------ -----------

TOTAL LIABILITIES AND
DIVISIONAL CONTROL....... $24,090,424 $18,158,022
=========== ===========

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE>

<TABLE>
<CAPTION>
eLottery, Inc. and Subsidiary
Consolidated Statements of Operations
(A Development Stage Company)

Cumulative
from Inception
Pre-acquisition Post-acquisition (July 29, 1993)
Year-Ended Year-Ended through
December 31, December 31, December 31,
1995 1996 1997 1997
------------- -------- ------ -----------
<S> <C> <C> <C> <C>
Revenues........................$ - $ - $ - $ -

Cost of Revenues................ - - - -
Gross Profit..............$ - $ - $ - $ -

Operating Expenses:
Payroll and related........ 409,043 460,499 629,287 1,840,925
Other selling, general and
administrative 2,036,137 288,331 227,416 3,693,758
Depreciation and
amortization 5,767 2,226 4,100 14,323
Allocation of corporate
expenses - - 313,044 313,044
Expenses charged to NIL.... - - (366,677) (366,677)

Operating Loss.................. (2,450,947) (751,056) (807,170) (5,495,373)

Other Expenses.................. (156,549) (4,526) (3,017) (200,002)

Net Loss........................$(2,607,496) $(755,582) $(810,187) $(5,695,375)
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>

<TABLE>
<CAPTION>
eLottery, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(A Development Stage Company)
Cumulative
from Inception
Pre-acquisition Post-acquisition (July 29, 1993)
Year-Ended Year-Ended through
December 31, December 31, December 31,
1995 1996 1997 1997
------------- -------- ------ -----------
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net Loss.................... $ (2,607,495) $ (755,582) $ (810,187) $ (5,695,375)
Adjustment to reconcile
net loss to net cash used
by operating activities:
Depreciation and
amortization 5,767 2,226 4,100 14,323
Other ................. 13,700 - - 121,507
Changes in working
capital items:
Accounts payable
and accruals (472,799) (503,319) (10,592) (655,667)
Other working capital
items, net (9,750) 660 9,000 (90)
Net Cash Used by Operating
Activities (3,070,577) (1,256,015) (807,679) (6,215,302)

Cash Flows from Investing
Activities:
Capital Expenditures......... - (501,098) (2,326,612) (2,827,710)
Distributions to CDA......... - (325,000) (300,000) (625,000)
Funding of NIL operations.... - (342,587) (1,811,708) (2,154,295)
Funding for NIL building and
pre-acquisition
legal expenses............. - (1,863,056) (1,109,173) (2,972,229)
Investment in IGT............ - (700,000) - (700,000)
Other........................ - - (47,128) 69,432)
Net Cash Used by Investing
Activities - (3,731,741) (5,594,621) (9,348,666)

Cash Flows from Financing
Activities:
Repayment of Capital Lease
Obligations - - (70,574) (70,574)
Funding from Executone..... 3,136,889 4,913,810 6,472,874 15,634,542
Net Cash Provided by Financing
Activities 3,136,889 4,913,810 6,402,300 15,563,968

Net (Decrease) Increase in Cash 66,312 (73,946) - -
Cash, beginning of period 7,634 73,946 - -
Cash, end of period............. $ 73,946 $ - $ - $ -
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>

eLottery, Inc. and Subsidiary
Consolidated Statements of Divisional Control
(A Development Stage Company)

Deficit
Accumulated
During the
Investment Development
in eLottery Stage Total
----------- ------------ -----------
Pre-Acquisition
Balances at Inception
(July 29, 1993) $ - $ - $ -

Funding from Predecessor Owner...... 4,080,665 - 4,080,665
Net Loss............................ - (4,129,606) (4,129,606)
-----------------------------------------
Balances at December 18, 1995.......$ 4,080,665 $(4,129,606) $ (48,941)
=========================================

Post-Acquisition
Balances at December 31, 1995 (*)...$12,711,000 $ - $12,711,000

Funding from Executone.............. 5,126,389 - 5,126,389
Net Loss............................ - (755,582) (755,582)
-----------------------------------------
Balances at December 31, 1996....... 17,837,389 (755,582) 17,081,807

Funding from Executone.............. 6,472,874 - 6,472,874
Net Loss............................ - (810,187) (810,187)
-----------------------------------------
Balances at December 31, 1997.......$24,310,263 $(1,565,769) $22,744,494
=========================================

(*) There was no activity from the acquisition date, December 19, 1995, through
December 31, 1995.

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>

eLottery, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(A Development Stage Company)

Note 1 - The Company

Nature of the Business. On December 19, 1995, EXECUTONE Information Systems,
Inc. ("Executone') acquired 100% of the common stock of Unistar Gaming Corp. for
common and preferred stock with a combined value of $12.7 million. In January
1999, Unistar Gaming Corp. changed its name to eLottery, Inc. ("eLottery"). Any
reference herein to eLottery shall be deemed to include business conducted under
the name Unistar Gaming Corp. eLottery's wholly-owned subsidiary, UniStar
Entertainment, Inc. ("UniStar Entertainment") has an exclusive five-year
management agreement (the "NIL Agreement") with the Coeur d'Alene Tribe of Idaho
(the "CDA" or the "Tribe"), which was the primary asset acquired, to provide
design, development, financial and management services to the National Indian
Lottery (the "NIL"). The NIL was operational beginning in January 1998. However,
in response to an adverse legal opinion on December 17, 1998 (See Notes 9 and
10), eLottery and the CDA terminated the operations of the NIL and the US
Lottery telephone and Internet operations managed by eLottery.

Although the NIL operations have been terminated, its operation enabled eLottery
to design and develop both the business and gaming systems necessary for
telephone and Internet lottery activities. As a result, eLottery is now actively
marketing its technology and systems to state and international lotteries that
decide to sell their tickets over the Internet, by telephone or through
networked electronic lottery terminals.

Since December 19, 1995, eLottery has operated as a division of Executone.

Development Stage Risks. eLottery is in the development stage and its activities
to date have been primarily related to the organization of the company,
developing the business and gaming systems necessary to operating a national
telephone lottery and the uslottery.com Internet site and preparing a marketing
plan for selling its technology to entities licensed to sell lottery tickets.
With the termination of operations of the NIL, eLottery expects to derive its
future revenues from the sale or licensing of the technology it has developed.
eLottery has yet to record any revenue.

Since this is the first venture of its kind, there are currently several legal
challenges in process, along with potential federal legislation addressing
Internet commerce (See Notes 9 and 10). There can be no assurance that any of
the remaining legal challenges will be resolved in eLottery's favor, potentially
resulting in legal liabilities to eLottery. Additionally, changes in federal law
could impact the nature and extent of Internet commerce, which could limit
eLottery's ability to market its technology. Any of these events could have a
material adverse effect on the financial condition or results of operation of
the business. If these issues were not resolved in the manner anticipated by
eLottery, management would have to evaluate the extent of impairment of its
investment in the business and gaming systems

Note 2 - Spin-off of eLottery

On August 12, 1998, the Board of Directors of Executone approved the spin off of
eLottery to the common and preferred shareholders of Executone. The transactions
will occur as follows: (a) Executone will distribute one share of common stock,
par value $0.01 per share ("eLottery Common Stock"), of eLottery, Inc., a
wholly-owned subsidiary of Executone ("eLottery") for every five (5) shares of
Executone Common Stock owned as of the Record Date. Executone will distribute
(the "Distribution") that number of shares of eLottery Common Stock such that,
as of the date of the Distribution (the "Distribution Date"), the holders of
Executone Common Stock will own 85% of the outstanding shares of eLottery Common
Stock. (b) The holders (the "Executone Preferred Holders") of Executone
Cumulative Convertible Preferred Stock, Series A (the "Executone Series A
Preferred Stock"), and Executone Cumulative Contingently Convertible Preferred
Stock, Series B (the "Executone Series B Preferred Stock" and, together with the
Executone Series A Preferred Stock, the "Executone Preferred Stock"), have
entered into a Share Exchange Agreement , dated August 12, 1998, as amended,
with Executone and eLottery pursuant to which the Executone Preferred Holders
will receive as of the Distribution Date, in exchange for their shares of
Executone Preferred Stock, 15% of the outstanding shares of eLottery Common
Stock and all of the outstanding shares of eLottery's Cumulative Convertible
Preferred Stock, Series A, which may be converted, subject to achievement by the
Company of certain net income and revenue levels, into that number of shares of
eLottery Common Stock such that, upon conversion, the Executone Preferred
Holders will own 34% of the outstanding shares of eLottery Common Stock,

F-7
<PAGE>

excluding any additional shares of eLottery Common Stock issued after the
Distribution Date. As a result of these transactions, eLottery will become an
independent, publicly-traded company. The accounting for this transfer of assets
and liabilities will be reflected at their historical carrying value.

Prior to the transactions described above, eLottery has operated as a division
of Executone since it was acquired by Executone on December 19, 1995. During the
period of ownership, Executone has provided all funding for eLottery's
operations. Executone has agreed to continue to provide financial support to
eLottery until the Distribution Date, which support will not exceed an average
sum of $1.5 million per quarter in accordance with the terms of Exchange
Agreement. Executone will also provide to eLottery, pursuant to the terms of the
Exchange Agreement, at the Exchange Closing Date, $3.0 million in cash, plus an
additional amount in cash based upon when the Distribution is to be consummated
as follows:

Distribution Consummated Cash Payable by
By: Executone

March 31, 1999............ $2.5 million
April 30, 1999............ $2.0 million
May 31, 1999.............. $1.5 million
June 30, 1999............. $1.0 million

If the Distribution is consummated after June 30, 1999, then the additional
amount of cash shall be $500,000. At the Exchange Closing Date, Executone also
will assume responsibility for, and pay when due, expenses incurred by eLottery
but not yet paid, provided, however, that the maximum of such expenses shall not
exceed $500,000. The purpose of this contribution from Executone is to provide
eLottery with sufficient funds to continue as a going concern until eLottery
achieves a break-even cash position.

The Consolidated Financial Statements included herein may not necessarily be
indicative of the results of operations, financial position and cash flows of
eLottery in the future or had it operated as a separate independent company
during the periods presented. The Consolidated Financial Statements included
herein do not reflect any changes that may occur in the financing and operations
of eLottery as a result of the spin-off.

Note 3 - Summary of Significant Accounting Policies

Basis of Presentation. The accompanying consolidated financial statements
include the accounts of eLottery and UniStar Entertainment. In consolidating the
accompanying financial statements, all significant intercompany transactions
have been eliminated. eLottery was allocated $313,044 in overhead costs related
to Executone's administrative costs during the year ended December 31, 1997 that
are included in operating expenses in the Consolidated Statements of Operations
(see Note 8). Such costs were not allocated during 1996 or 1995 as they were not
material at that stage of business development. The expenses allocated to
eLottery for these services are not necessarily indicative of the expenses that
would have been incurred if eLottery had been a separate, independent entity and
had otherwise managed these functions. Subsequent to the spinoff, eLottery will
be required to manage these functions and will be responsible for the expenses
associated with the management of a public corporation.

In July 1997, eLottery began charging the NIL for shared activity expenses.
Shared activity expenses represented all expenses incurred by eLottery which
were direct expenses on behalf of the NIL, and consisted primarily of payroll,
fringe benefit and travel-related costs for three employees whose time was
devoted 100% to the NIL. Such charges reduced eLottery operating expenses on the
statement of operations and increased the Advance to NIL on the balance sheet
(See Note 10). These expenses will be eLottery expenses when eLottery becomes a
stand-alone entity.

Use of Estimates. 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.

Pre-acquisition Financial Data. Executone acquired eLottery on December 19,
1995. Such acquisition was accounted for using the purchase method. Accordingly,
the assets and liabilities acquired were recorded on the balance sheet at their
fair market values, resulting in the recording of an intangible asset of
approximately $15.8 million as of the acquisition date. During the period prior
to its acquisition by Executone, eLottery was in its early development stages.

F-8

<PAGE>

The expenditures made by the previous owners were primarily expenses relating to
the startup of the business, including legal, lobbying, consulting and other
professional fees, along with payroll, travel and other related expenses. These
were reflected in the pre-acquisition statement of operations. Subsequent to the
acquisition, eLottery's expenditures comprised primarily development costs for
software and hardware, building costs and reimbursable advances to the NIL, all
of which were recorded on the balance sheet (See Note 10). As a result of
purchase accounting and the change in the nature of the business after the
acquisition by Executone, financial data for the periods prior to Executone's
purchase of eLottery on December 19, 1995 is not comparable to periods
subsequent to the acquisition. See below for a discussion of the accounting
treatment for each category of these costs.

In addition, the Consolidated Statement of Cash Flows for the year ended
December 31, 1995 is based upon cash flows during the pre-acquisition period of
January 1, 1995 through December 18, 1995. Other than the acquisition, which was
a noncash transaction, there was no eLottery activity from December 19, 1995
through December 31, 1995.

The pre-acquisition financial data has not been restated to conform to the
post-acquisition presentation.

Computer Hardware and Software. The costs of developing of the gaming and
business software systems for the operation of the NIL, which includes the games
themselves, the banking interface, the game reporting system and the financial
accounting systems, are all assets of eLottery and are classified in Other
Assets on the Consolidated Balance Sheets (See Note 5). On January 1, 1998,
these expenditures were reclassified to Property & Equipment and are being
depreciated over a five-year period.

Intangible Assets. Intangible assets represent the excess of the purchase price
of eLottery over the fair value of the net liabilities assumed. Intangibles
amortization began January 1, 1998 with the commencement of the NIL Agreement.
The carrying value of intangibles is evaluated periodically in accordance with
the provisions of SFAS No. 121 Accounting for the Impairment of Long-Lived
Assets, by projecting future undiscounted net cash flows of the underlying
business. If the sum of such cash flows is less than the book value of the
long-lived assets, including intangibles, projected future cash flows are
discounted and intangibles are adjusted accordingly. As of December 17, 1998,
eLottery has determined that its intangibles are impaired and will be written
down to zero during the fourth quarter of 1998 (See Note 10).

Advances to NIL. In accordance with the NIL Agreement, eLottery was responsible
for providing operating capital to fund the development of the NIL including,
but not limited to, the construction of the building to house the reservation
operation center, computer and related software costs to build both the
telecommunications and on-line Internet systems, lobbying and legal fees,
advertising and promotional expenses, eLottery shared activity expenses and
other operational costs. The first $8.5 million of such expenditures were not
reimbursable to eLottery. Such costs consisted of eLottery assets, including
computer hardware and software costs, the investment in IGT, NIL startup costs
and amounts expended by eLottery on behalf of the NIL. Any sums advanced above
the $8.5 million requirement were recorded as advances from eLottery were to be
reimbursed to eLottery from NIL net profits. As of December 17, 1998, eLottery
has determined that Advances to NIL are impaired and will be written down to
zero during the fourth quarter of 1998 (See Note 10).

Investment in IGT. eLottery owns 233,333 shares (a 2.2% ownership interest) of
IGT (subsequently renamed Virtual Gaming Technologies and referred to herein as
"IGT"). The investment in IGT is recorded at cost. The fair value of this
investment is in excess of its carrying value as of August 28, 1998 and is
approximately [$1.3 million.]

Divisional Control. Historically, eLottery operated as a division of Executone.
Accordingly, all operating, financing and investing activities of eLottery were
funded through interdivisional transactions with Executone. The accompanying
financial statements reflect this activity in the divisional control account.
There has been no direct interest income or expense allocated to eLottery by
Executone with respect to net liabilities or receivables. Prior to 1996,
eLottery was funded by its previous owners.

Income Taxes. The taxable income of eLottery is included in the consolidated
federal and state income tax returns of Executone. As a result, eLottery did not
record a provision for income taxes in its historical financial statements. Due
to the lack of any historical earnings and given that eLottery has only
generated taxable losses since its inception, the accompanying Consolidated
Statements of Operations reflect no current or deferred tax benefit for these
losses (see Note 7).

F-9

<PAGE>

Earnings Per Share. Earnings per share have been omitted from the Consolidated
Statements of Operations since such information is not meaningful and eLottery
is not an entity with its own capital structure.

Noncash Investing and Financing Activities. The following noncash investing and
financing activities took place during the three years ended December 31, 1997:

1997 1996 1995
----------------------------------
Net assets acquired for Executone
common and preferred stock........$ --- $ --- $12,711,000
Capital leases for equipment
acquisitions...................... 611,126 --- ---

Refer to the Consolidated Statements of Cash Flows for information on
cash-related operating, investing and financing activities.

New Accounting Pronouncements. In April 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities (SOP 98-5). SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. In addition, the
pronouncement requires that, effective January 1, 1999, previously capitalized
start-up costs be expensed and classified as a cumulative effect of a change in
accounting principle. Approximately $2.0 million in such costs, currently
classified as other assets and intangible assets, would have been written off as
of January 1, 1999 in accordance with the initial adoption of SOP 98-5. However,
due to the termination of NIL operations, management has concluded that these
costs will be written off during the fourth quarter of 1998.

Note 4 - Advances to NIL

Certain eLottery expenditures to fund the NIL were reimbursable in accordance
with the NIL Agreement. These expenditures were recorded as Advances to NIL and
included payroll and related costs, lobbying and legal fees, advertising and
promotional expenses, eLottery shared activity expenses and other operational
costs. eLottery shared activity expenses were direct NIL-related expenses
incurred by eLottery which, effective July 1, 1997, were charged to the NIL.
These costs included payroll and related costs for eLottery management
personnel, as well as certain professional and other miscellaneous fees. Prior
to July 1, 1997, such costs were included in eLottery's consolidated financial
results. As of December 17, 1998, eLottery has determined that Advances to NIL
are impaired and will be written down to zero during the fourth quarter of 1998
(See Note 10).

Startup costs relating to the development of additional applications for its
technologies and services were not chargeable to the NIL and are not shared
activity expenses.

Note 5 - Other Assets

Other assets consists of the following for the years ended December 31, 1997 and
1996:

1997 1996
--------- ------------
System Hardware and Software.....$3,413,768 $487,130
NIL Building Costs............... 1,072,654 223,726
Executive Life Insurance
& Other........................ 259,707 212,579
------------ ---------
$4,746,129 $923,435

With the commencement of the NIL Agreement in January 1998, Systems Hardware and
Software expenditures were reclassified to Property and Equipment and are being
depreciated over a five-year period. As of December 17, 1998, eLottery has
determined that the NIL building costs are impaired and will be written down to
zero during the fourth quarter of 1998 (See Note 10).

Note 6 - Capital Lease Obligations

In 1997, eLottery has entered into capital lease arrangements for computer
equipment with a net book value of approximately $540,000 at December 31, 1997.
These leases have been capitalized using implicit interest rates which range
from 8.4% to 9.5%.

F-10
<PAGE>

The future maturities of long-term debt at December 31, 1997 are as follows:
$107,484 in 1998; $117,674 in 1999; $128,831 in 2000; $141,048 in 2001; $45,515
in 2002.

For the year ended December 31, 1997, cash payments for interest expense on
indebtedness were not material.

Note 7 - Income Taxes

Since eLottery has yet to generate any current revenue and has no historical
earnings to support the realization of any current or deferred tax benefits, no
current or deferred tax benefit has been recorded on the Statements of
Operations for income taxes applicable to the net loss. eLottery does have
certain deferred tax assets which represent future tax deductions, but they can
only be utilized if eLottery generates sufficient future taxable income. As of
December 31, 1997, a valuation allowance has been provided for the entire
deferred tax asset.

The components of and changes in the net deferred tax asset are as follows:

Deferred
Dec. 31, (Expense) Dec. 31
1996 Benefit 1997

Net operating losses...............$ 134,848 $ 794,138 $ 928,986
Deferred startup costs............. 2,895,833 324,075 3,219,908
------------ ----------- -----------
3,030,681 1,118,213 4,148,894
Valuation allowance................ (3,030,681) (1,118,213) (4,148,894)
------------ ----------- -----------
Deferred tax asset.................$ - $ - $ -
============ =========== ===========

As of December 31, 1997, eLottery has net operating loss carryforwards (NOLs),
subject to review by the Internal Revenue Service, available to offset future
income for tax return purposes of approximately $2.3 million. The NOLs expire as
follows: $337,000 in 2011; $1,985,000 in 2012.

For the years ended December 31, 1997 and 1996, eLottery's startup costs are
being deferred for tax purposes and will be amortized in the future, as taxable
income is generated. The amounts included in Executone's NOLs primarily
represent the deductibility of software development costs for tax purposes,
which were capitalized for financial reporting purposes.

Note 8 - Related Party Transactions

Certain services are provided to eLottery by Executone including corporate
management, legal, accounting, treasury, payroll, benefit administration,
insurance, usage of computer systems, and office space at Executone's corporate
office. During 1997, based upon a specific review of the corporate expenses
incurred by Executone, $313,044 of such administrative costs were allocated to
eLottery.

Certain software development services have been provided to eLottery by a firm,
one of whose principals is related to an officer of eLottery. As of December 31,
1997, eLottery had incurred $193,000 in fees from this firm.

Subsequent to the Distribution, certain services will be provided to eLottery by
Executone under the terms of the Master Services Agreement. The services will
include legal, payroll and benefit administration, office space at Executone's
corporate office in Milford, CT, computer and various financial, accounting and
tax services. eLottery will compensate Executone for these services at rates
established in the Master Services Agreement, with such rate being equal to
Executone's cost of providing each service, plus allocable overhead. Executone
will provide these services for a period of 120 days after the separation of
eLottery from Executone. Services can be extended beyond 120 days on a monthly
basis by written agreement between the parties.

Note 9 - Commitments and Contingencies

eLottery, in its attempts to fulfill its responsibilities in accordance with the
NIL Agreement, faced certain risks.

F-11

<PAGE>

Indian gaming, that Section 1084 is inapplicable and that therefore the states
lack authority to issue Section 1084 notification letters to any long-distance
carrier; and (ii) seeking an injunction preventing AT&T from refusing to provide
telephone service to the NIL. The CDA position was based on its view that all
NIL gaming activity was occurring on "Indian lands" as required by IGRA. On
February 28, 1996, the Tribal Court ruled: (i) that all requirements of IGRA
have been satisfied; (ii) that Section 1084 is inapplicable and the states lack
jurisdiction to interfere with the NIL; and (iii) that AT&T cannot refuse
service to the NIL. This ruling and a related order dated May 1, 1996 were
subsequently appealed to the Tribal Appellate Court, which on July 2, 1997
affirmed the lower Tribal Court's May 1, 1996 ruling and analysis upholding the
CDA's right to conduct the NIL telephone lottery. On August 22, 1997, AT&T filed
a complaint for declaratory judgment against the CDA in the U. S. District Court
for the District of Idaho, to obtain a federal court ruling on the validity and
enforceability of the Tribal Court ruling. The District Court heard argument on
December 8, 1998 on the cross motions for summary judgment filed by the Tribe
and AT&T and the brief of 19 state attorneys general appearing as amici. On
December 17, 1998, that Court issued an opinion and order denying the motions
and counter-claims of the Tribe and granting declaratory judgment in favor of
AT&T upholding the position of AT&T and the amici and overruling the decisions
of the Tribal Courts. In response to that decision, eLottery and the Tribe
terminated operations of the NIL and the US Lottery to every state where it had
been offered.

On September 14, 1998, the CDA, eLottery and representatives of the U.S.
Department of Justice had discussions regarding a declaratory judgment to be
sought jointly from the U.S. District Court for the District of Idaho as to
whether the operation of the NIL is legal under 18 U.S.C. ss.ss.1952 and 1955.
eLottery is informed that the Department of Justice views such operation to be
in violation of such statutes. The Department of Justice proposed that the
parties file a joint stipulation of facts and cross-motions for summary judgment
in the declaratory judgment action. eLottery has not yet determined whether any
such joint stipulation and action for declaratory judgment is in its best
interests. On December 17, 1998, the Idaho Federal District Court issued an
opinion and order granting declaratory judgment in favor of the action styled
AT&T v. Coeur D' Alene Tribe. In response to that decision, eLottery and the
Tribe terminated operation of the NIL and the US Lottery. In light of the ruling
of the U.S. District Court of Idaho and the termination of the NIL and the US
Lottery, eLottery has requested confirmation from the Department of Justice that
no further action will be taken.

On May 28, 1997, the Attorney General of the State of Missouri brought an action
in the Circuit Court of Jackson County, Missouri, against the CDA and UniStar
Entertainment seeking to enjoin the NIL games offered by the CDA over the
Internet and managed by UniStar Entertainment. The complaint also sought civil
penalties, attorneys fees and court costs. The complaint alleges that the NIL
violates Missouri anti-gambling laws and that the marketing of the games
violates the Missouri Merchandising Practices Act. UniStar Entertainment and the
CDA removed the case to the U.S. District Court for the Western District of
Missouri, which denied the State's subsequent motion to remand back to the state
court. The court also subsequently granted a motion to dismiss the CDA from this
case based on sovereign immunity. The court preliminarily denied a motion to
dismiss UniStar Entertainment based on sovereign immunity, although the court
indicated it might reconsider that decision. UniStar Entertainment filed a
motion for reconsideration of its motion for dismissal. The State of Missouri
has appealed the dismissal of the CDA to the Eighth Circuit Court of Appeals.

On January 28, 1998, the State of Missouri sought to dismiss voluntarily the
existing federal case against UniStar Entertainment and the next day filed a new
action against Executone, UniStar Entertainment and two tribal officials, with
essentially the same allegations, in state court. The State obtained a temporary
restraining order from a state judge against Executone, UniStar Entertainment
and two tribal officials enjoining the marketing of the NIL Internet and
telephone lotteries in the State of Missouri. On February 5, 1998, the U.S.
District Court for the Eastern District of Missouri ruled that this second case
also should be heard in federal court, transferred the second case to the
Western District of Missouri where the original case had been filed, and
dissolved the state court's temporary restraining order. A motion to dismiss the
second case based on the sovereign immunity of all the defendants and a motion
to abstain in favor of the jurisdiction of the Coeur d'Alene Tribal Court are
pending. The State of Missouri has appealed to the Eighth Circuit the denial of
its motion to remand the case to state court or, in the alternative, to seek a
preliminary injunction.

F-12
<PAGE>

Missouri's voluntary dismissal of UniStar Entertainment from the Western
District lawsuit. On January 20, 1999, the CDA filed a motion for
reconsideration and suggestion for rehearing en banc of the portion of the Eight
Circuit's opinion regarding the CDA. In light of the termination of the NIL and
the US Lottery, eLottery anticipates seeking dismissal of the Circuit and
Missouri actions.

On September 15, 1997, the State of Wisconsin, by its Attorney General, filed an
action in the Wisconsin State Circuit Court for Dane County against Executone,
UniStar Entertainment and the CDA, to permanently enjoin the NIL offered by the
CDA on the Internet. The complaint alleges that the offering of the NIL violates
Wisconsin anti-gambling laws and that legality of the NIL has been
misrepresented to Wisconsin residents in violation of state law. In addition to
an injunction, the suit seeks restitution, civil penalties, attorneys' fees and
court costs. Executone, UniStar Entertainment and the CDA have removed the case
to the U.S. District Court in Wisconsin. On February 18, 1998, the District
Court dismissed the CDA from the case based on sovereign immunity and dismissed
Executone based on the State's failure to state a claim against Executone. The
State of Wisconsin has appealed the dismissal of the CDA to the Seventh Circuit
Court of Appeals. A motion to dismiss the case against UniStar Entertainment on
the basis of sovereign immunity were denied. UniStar Entertainment has appealed
the denial of its motion to dismiss to the Seventh Circuit Court of Appeals. In
light of the termination of the NIL and the US Lottery, eLottery anticipates
seeking dismissal of this action.

Note 10 - Subsequent Events - Impairment of Long-lived Assets

On December 17, 1998, the United States District Court for the District of Idaho
ruled in the case of Coeur d'Alene Tribe vs. AT&T that the orders previously
issued by the Tribal Court upholding the legality of the US Lottery were
erroneous (see Note 9 for a description of the litigation). In response to that
decision, eLottery and the Tribe have terminated operation of the NIL and the US
Lottery. As a result of this unfavorable legal outcome, eLottery has reevaluated
certain of its assets in accordance with the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets. Based upon such review,
management has determined that both the intangibles and the advances to the NIL
have been impaired as of the date of this legal decision and will be written
down to zero during the fourth quarter of 1998. As of September 30, 1998,
intangibles and advances to NIL were $12,977,582 and $12,872,544, respectively.
eLottery has also determined that NIL startup costs (primarily post-acquisition
building costs) included in other assets is impaired. These amounts would have
been written off as of January 1, 1999 in accordance with the initial adoption
of SOP 98-5. However, due to the termination of NIL operations, management has
concluded that it should be written off during the fourth quarter of 1998. NIL
startup costs included in other assets as of September 30, 1998 were
approximately $0.7 million.

The remaining assets primarily represent system hardware and software costs. In
the opinion of management, these costs will be recoverable in the future as
eLottery continues to pursue the sale of its technology and systems to state and
international lotteries that decide to sell their tickets over the Internet, by
telephone or through networked electronic lottery terminals.

F-13
<PAGE>

eLottery, Inc. and Subsidiary
Consolidated Balance Sheets
(A Development Stage Company)
(Unaudited)

September 30,
-------------------------------------
Pro Forma
1998
(Note 1) 1998 1997
----------- ---------- -----------
ASSETS
Current Assets
Prepaids and other current
assets $ - $ 1,625 $ -
----------- ----------- -----------

Total Current Assets - 1,625 -
Property & Equipment, net.............. 4,022,279 4,022,279 17,349
Intangible Assets (Note 1)............. - 12,977,582 15,841,000
Advances to NIL (Note 1)............... - 12,872,544 1,930,064
Investment in IGT...................... 700,000 700,000 700,000
Other Assets (Note 1).................. 725,228 1,397,191 3,745,335
----------- ----------- -----------
TOTAL ASSETS $ 5,447,507 $31,971,221 $22,233,748
=========== =========== ===========

LIABILITIES AND DIVISIONAL CONTROL

LIABILITIES
Current Liabilities
Current portion of capital
lease obligations $ 115,248 $ 115,248 $ 92,677
Accounts payable and accrued
liabilities 1,853,475 1,853,475 531,581
1,968,723 1,968,723 624,258

Deferred Income (Note 1)............... - 2,324,556 -
Long-Term Capital Lease Obligations 345,076 345,076 397,844
----------- ----------- -----------
2,313,799 4,638,355 1,022,102

DIVISIONAL CONTROL
Investment in eLottery................. 29,844,317 29,844,317 22,616,597
Deficit Accumulated During the
Development Stage (26,710,609) (2,511,451) (1,404,951)
3,133,708 27,332,866 21,211,646
----------- ----------- -----------

TOTAL LIABILITIES AND
DIVISIONAL CONTROL.....$ 5,447,507 $31,971,221 $22,233,748
=========== =========== ===========

The accompanying notes are an integral part of these consolidated balance
sheets.

F-14
<PAGE>

<TABLE>
<CAPTION>
eLottery, Inc. and Subsidiary
Consolidated Statements of Operations
(A Development Stage Company)
(Unaudited)
Cumulative
from Inception
Nine-Month Periods Ended (July 29, 1993)
September 30, through
1997 1998 September 30,
<S> <C> <C> <C>
1998

Revenues...........................$ - $ - $ -

Cost of Revenues .................. - - -
--------- --------- -----------
Gross Profit................. - - -

Operating Expenses:
Payroll and related............. 472,284 449,099 2,290,024
Other selling, general and
administrative 162,129 661,944 4,355,702
Depreciation and amortization... 3,075 668,998 683,321
Allocation of corporate expenses 175,231 - 313,044
Expenses charged to NIL......... (166,366) (834,766) (1,201,443)
--------- --------- -----------

Operating Loss..................... (646,353) (945,275) (6,440,648)

Other Expenses..................... (3,016) (407) (200,409)
--------- --------- -----------

Net Loss...........................$ (649,369) $ (945,682) $ (6,641,057)
========= ========= ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-15
<PAGE>

<TABLE>
<CAPTION>
eLottery, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(A Development Stage Company)
(Unaudited)

Cumulative
from Inception
Nine-Month Periods Ended (July 29, 1993)
September 30, through
1997 1998 September 30,
<S> <C> <C> <C>
1998

Cash Flows from Operating Activities:
Net Loss ........................ $ (649,369) $ (945,682) $ (6,641,057)
Adjustment to reconcile net
loss to net cash used by
operating activities:
Depreciation and amortization.... 3,075 668,998 683,321
Other ......................... - - 121,507
Changes in working capital items
Accounts payable and accruals (89,293) 1,593,715 938,048
Other working capital items,
net 9,000 (1,625) (1,715)
Net Cash Used by Operating Activities (726,587) 1,315,406 (4,899,896)

Cash Flows from Investing Activities:
Capital Expenditures............. (1,301,045) (1,519,584) (4,347,294)
Distributions to CDA............. (225,000) (225,000) (850,000)
Funding of NIL operations........... (1,037,477) (4,169,521) (6,323,816)
Funding for NIL building and
pre-acquisition legal
expenses....................... (1,424,215) (545,618) (3,517,847)
Investment in IGT................ - - (700,000)
Other............................ (23,061) (309,509) (378,941)
Net Cash Used by Investing Activities (4,010,798) (6,769,232) (16,117,898)

Cash Flows from Financing Activities:
Repayment of Capital Lease
Obligations (41,823) (80,228) (150,802)
Funding from Executone........ 4,779,208 5,534,054 21,168,596
Net Cash Provided by Financing
Activities 4,737,385 5,453,826 21,017,794
Net (Decrease) Increase in Cash..... - - -
Cash, beginning of period - - -
Cash, end of period................. $ - $ - $ -
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-16
<PAGE>

eLottery, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 1998 and 1997
(Unaudited)

Note 1 - The Consolidated Balance Sheets at September 30, 1998 and 1997 and the
Consolidated Statements of Operations and Cash Flows for the nine-month periods
ended September 30, 1998 and 1997 have not been audited, but have been prepared
in conformity with the accounting principles applied in the eLottery, Inc. and
Subsidiary ("eLottery") audited consolidated financial statements as of December
31, 1997 and 1996 and for the three years in the period ended December 31, 1997.
In the opinion of management, this information includes all material adjustments
necessary for a fair presentation. The results for the nine-month periods are
not necessarily indicative of the results expected for the year.

These consolidated financial statements should be read in conjunction with the
audited financial statements and notes as of December 31, 1997 and 1996 and for
the three years in the period ended December 31, 1997.

In response to the legal decision issued December 17, 1998 in Coeur d'Alene
Tribe vs. AT&T (see Notes 9 and 10 in the Notes to Consolidated Financial
Statements as of December 31, 1997 and 1996 and for the three years in the
period ended December 31, 1997 for a description of the litigation), eLottery
and the CDA have terminated operation of the NIL and the US Lottery. As a
result, eLottery has reevaluated certain of its assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets.
Based upon such review, management has determined that both the intangibles and
the advances to the NIL have been impaired as of the date of this legal decision
and will be written down to zero during the fourth quarter of 1998. As of
September 30, 1998, intangibles and advances to NIL were $12,977,582 and
$12,872,544, respectively. eLottery has also determined that NIL startup costs
(primarily post-acquisition building costs) included in other assets is
impaired. These amounts would have been written off as of January 1, 1999 in
accordance with the initial adoption of SOP 98-5. However, due to the
termination of NIL operations, management has concluded that it should be
written off during the fourth quarter of 1998. NIL startup costs as of September
30, 1998 included in other assets were approximately $0.7 million. The impact of
these adjustments, had they been made as of September 30, 1998, has been
presented on the face of the consolidated balance sheet in a column entitled
"Pro Forma 1998."

eLottery is in the development stage and its activities to date have been
primarily related to the organization of the company, developing the business
and gaming systems necessary to operating a national telephone lottery and the
on-line uslottery.com Internet site, and preparing a marketing plan for selling
its technology to entities licensed to sell lottery tickets. With the
termination of operations of the NIL, eLottery expects to derive its future
revenues from the sale or licensing of the technology it has developed. eLottery
has yet to record any revenue. See Note 1 in the audited financial statements
and notes as of December 31, 1997 and 1996 and for the three years in the period
ended December 31, 1997 for a discussion of development stage risks.

Advances to NIL as of September 30, 1998, include approximately $1.5 million of
costs incurred by the NIL, which are not yet funded by eLottery.

Note 2 - eLottery reclassified $4.6 million of assets from Other Assets to
Property & Equipment during the nine-month period ended September 30, 1998 and
commenced depreciating the assets over a five-year period. Property & Equipment
consists of the following at September 30, 1998 and 1997:

1998 1997
--------- --------
Computer Hardware ..............$ 825,461 $ -
Computer Software............... 3,485,416 -
Office Phone System............. 129,068 -
Other........................... 200,334 22,650
------------ ----------
4,640,279 22,650
Less: Accumulated Depreciation.. (618,000) (5,301)
$4,022,279 $ 17,349
========== =========

Depreciation expense for the nine-month period ended September 30, 1998 was
$612,699. Intangibles amortization for the nine-month period ended September 30,
1998 was $50,998.

F-17

<PAGE>

Note 3 - During the three-month period ended June 30, 1998, certain provisions
in the NIL Agreement were clarified based upon the then-operational status of
the NIL. These provisions related to the reclassification of certain costs from
a non-reimbursable asset category to a reimbursable category to eLottery by the
NIL. Accordingly, $5.0 million was reclassified to Advances to NIL representing
additional amounts reimbursable from the NIL, offset by a $2.8 million reduction
in intangibles (reflecting pre-acquisition costs) and $2.2 million in deferred
income (reflecting post-acquisition costs previously expensed by eLottery prior
to 1998).

Note 4 - In order to facilitate Executone's business plan in connection with the
Distribution, Executone has offered to Michael W. Yacenda and Robert Hopwood,
participants in the Stock Plan, a retention and incentive program effective as
of September 15, 1998 (the "Transition and Retention Plans"). The Transition and
Retention Plans extend the Stock Loans of Messrs. Yacenda and Hopwood, the
aggregate amount of which is $1.8 million, including $400,000 in interest
advanced to Messrs. Yacenda and Hopwood, to the earlier of March 31, 2001, or
the date on which their respective employment with eLottery terminates. Under
the Transition and Retention Plans, Messrs. Yacenda and Hopwood earn forgiveness
of their respective Stock Loans over time. eLottery has agreed to advance to
Messrs. Yacenda and Hopwood the interest on such loans that accrues after the
Distribution Date as it comes due. Executone previously had agreed to guarantee
the Stock Loans. If Messrs. Yacenda or Hopwood resign while there exists an
outstanding balance on their respective Stock Loans, then the resigning employee
is liable for that portion of such Stock Loan that has not been forgiven. If
Messrs. Yacenda and Hopwood remain employed with eLottery and the full benefit
under the Transition and Retention Plans vests, then, pursuant to the Exchange
Agreement, eLottery and Executone will share equally in any liability incurred
under the Transition and Retention Plans. If Messrs. Yacenda or Hopwood resign
from eLottery, eLottery will indemnify Executone for 50% of any liability it
incurs as a result of such guarantee. If eLottery terminates the employment of
Messrs. Yacenda or Hopwood, eLottery will indemnify Executone for 100% of any
liability it incurs as a result of such guarantee.

F-18
<PAGE>

No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so, or
to any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company or that information contained herein is correct as of any
time subsequent to the date hereof.

TABLE OF CONTENTS
Page

PROSPECTUS SUMMARY.......................1
RISK FACTORS.............................8
THE DISTRIBUTION........................14
FEDERAL INCOME TAX CONSEQUENCES.........16
DISTRIBUTION POLICY.....................17
CAPITALIZATION..........................17
eLOTTERY, INC. UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL INFORMATION....18
eLOTTERY, INC. SELECTED HISTORICAL
CONSOLIDATED FINANCIAL
INFORMATION........................21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS......................23
ARRANGEMENTS BETWEEN EXECUTONE AND
eLOTTERY RELATING TO THE
DISTRIBUTION.......................29
BUSINESS................................31
MANAGEMENT OF eLOTTERY..................44
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.......................46
EXECUTIVE COMPENSATION..................47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS OF eLOTTERY COMMON STOCK
AND eLOTTERY PREFERRED STOCK......51
DESCRIPTION OF eLOTTERY CAPITAL STOCK...53
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN
PROVISIONS OF THE eLOTTERY
CERTIFICATE, THE eLOTTERY BYLAWS,
THE eLOTTERY RIGHTS PLAN AND THE
GENERAL CORPORATION LAW OF
DELAWARE...........................57
LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS.............60
PLAN OF DISTRIBUTION....................60
LEGAL MATTERS...........................61
EXPERTS.................................61
INDEX TO FINANCIAL STATEMENTS..........F-1

Until __________ __, 199_ (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotment or
subscriptions.

9,967,824 Shares

eLOTTERY, INC.

Common Stock

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

PROSPECTUS
--------------

, 1999

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

Set forth below is an estimate of the approximate amount of the fees and
expenses payable by the Registrant in connection with the issuance and
distribution of the eLottery Common Stock.

Securities and Exchange Commission, registration fee.............. $______
NASD filing fee................................................... ______
[Nasdaq Stock Market] listing fee................................. ______
Printing and mailing.............................................. ______
Accountant's fees and expenses.................................... ______
Counsel fees and expenses......................................... ______
Miscellaneous..................................................... ______
Total......................................................... $______

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation, a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
bylaws, disinterested director vote, stockholder vote, agreement or otherwise.

The Amended and Restated Certificate of Incorporation of the Registrant
(the "Certificate") provides that each person who was or is made a party or is
threatened to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was or has agreed to become a director
or officer of the Registrant or is or was serving or has agreed to serve at the
request of the Registrant as a director, officer, trustee, fiduciary, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, or by reason of any action alleged to have
been taken or omitted in any such capacity, shall be indemnified and held
harmless by the Registrant to the fullest extent authorized by the DGCL against
all costs, expenses (including, but not limited to, attorneys' fees), judgments,
fines, penalties, damages, losses, liabilities and amounts paid in settlement
that are actually and reasonably incurred in defending any such proceeding in
advance of its final disposition, such advances to be paid by the Registrant
within 30 days after the receipt by the Registrant of a written statement or
statements from the claimant requesting such advance or advances from time to
time; provided, however, that it shall be a condition precedent to the advance
payment of such expenses that there shall have been delivered to the Registrant
a written undertaking by or on behalf of such director or officer to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified hereunder or otherwise. No bond or
other security shall be required. The Registrant shall not be obligated to
reimburse the costs of any settlement to which it has not agreed.

No amendment, termination or repeal of such provision or any of the
relevant provisions of the DGCL or any other applicable laws shall in any way
diminish the rights of any director or officer of the Registrant to
indemnification or to the advancement of costs and expenses under such provision
with respect to any proceeding arising out of or relating to any actions,
transactions or facts occurring prior to the final adoption of such amendment,
termination or repeal.
II-1
<PAGE>

If such provision or any portion thereof shall be invalidated on any
ground by any court of competent jurisdiction, the Registrant shall nevertheless
indemnify, and advance costs and expenses to, each director or officer of the
Registrant as to any costs, expenses (including, but not limited to, attorneys'
fees), judgments, fines, penalties, damages, losses, liabilities and amounts
paid in settlement with respect to any proceeding, to the full extent permitted
by any applicable portion of such provision that shall not have been invalidated
and to the fullest extent permitted by law.

If the DGCL is amended after the filing of the Certificate with the
Delaware Secretary of State to further expand the indemnification permitted to
directors and officers of the Registrant, then the Registrant shall indemnify
such persons to the fullest extent permitted by the DGCL, as so amended.

The DGCL permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) payments of unlawful dividends or unlawful stock
repurchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit.

The Certificate also provides that no director of the Registrant shall be
personally liable to the Registrant or its stockholders for any monetary damages
for breaches of fiduciary duty as a director provided that this provision shall
not eliminate or limit the liability of a directors: (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders; (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law; (ii) under Section 174 of the DGCL; or (iv) or any
transaction from which the director derived an improper personal benefit. If the
DGCL is amended after the initial filing of the Certificate to further eliminate
or limit the personal liability of directors, then the liability of a Director
of the Registrant shall be eliminated or limited to the fullest extent permitted
by the DGCL, as so amended. No amendment, termination or repeal of such
provision shall in any way diminish any right or protection of a director of the
Registrant that existed at the time of the final adoption of such amendment,
termination or repeal.

The Reorganization Agreement provides for indemnification by Executone of
the Registrant, its Directors and officers, and by the Registrant of Executone,
its Directors and officers for certain liabilities, including certain
liabilities arising in connection with the Distribution.

Item 15. Recent Sales of Unregistered Securities

On December 19, 1995, Executone acquired 100% of the eLottery Common Stock
with a combined value of for Executone Common Stock and Executone Preferred
Stock with a combined value of $12.7 million. Registrant issued these shares of
eLottery Common Stock in reliance on an exemption from registration under
Section 4(2) of the Securities Act.

On August 12, 1998, Registrant entered into a Share Exchange Agreement
pursuant to which Registrant will issue at the Distribution Date eLottery Common
Stock and eLottery Preferred Stock with a combined value ranging between
approximately $4.0 million and $5.4 million, based on the estimate of the
Executone Board, to holders of Executone Preferred Stock as described in the
Prospectus. Registrant will issue these shares of eLottery Common Stock and
eLottery Preferred Stock in reliance on an exemption from registration under
Section 4(2) of the Securities Act.

II-2
<PAGE>

Item 16. Exhibits and Financial Statement Schedules

(a) Financial Statements. All other schedules are omitted because the
required information is not applicable or the information required has been
disclosed in the financial statements and related notes included in the
Prospectus.

(b) Exhibits

Exhibit No. Description
3.1* Amended and Restated Certificate of Incorporation of the
Registrant
3.2* Bylaws of the Registrant
4.1 Form of Common Stock Certificate
4.2 Form of Stockholder Rights Agreement between Registrant and
_________________ .
5.1 Opinion of Hunton & Williams
8.1 Tax Opinion of Hunton & Williams
10.1* Share Exchange Agreement, dated August 12, 1998, between
Executone, Registrant and Watertone Holdings L.P., Cooper Life
Sciences, Inc., John C. Shaw, Richard Bartlett, Jerry M.
Seslowe, 10-26 S. William Street Associates, Louis K.
Adler and Resource Holdings Ltd.
10.1(a)** Amendment, dated December 22, 1998, to Share Exchange
Agreement dated August 12, 1998, between Executone, Registrant
and Watertone Holdings L.P., Cooper Life Sciences, Inc., John
C. Shaw, Richard Bartlett, Jerry M. Seslowe, 10-26 S. William
Street Associates, Louis K. Adler and Resource Holdings Ltd.
10.2* Form of Reorganization Agreement between Registrant and
Executone
10.3* Form of Master Services Agreement between Registrant and
Executone
10.4* Form of Tax Sharing Agreement between Registrant and
Executone
10.6* eLottery, Inc. Stock Option Plan
10.7* Employment Agreement, dated August 31, 1998, between
Registrant and Michael W. Yacenda
10.8* Employment Agreement, dated August 31, 1998, between
Registrant and Robert W. Hopwood
10.9* Employment Agreement, dated August 31, 1998, between
Registrant and Charles A. Degliomini
10.10* Transition and Retention Plan of Michael W. Yacenda
10.11* Transition and Retention Plan of Robert W. Hopwood
10.12* NIL Agreement, dated January 16, 1995, between UniStar
Entertainment and the National Indian Lottery

10.14 Financial Advisory Agreement, dated _______, between
Registrant and Resource Holdings Ltd.
10.15* Securities Purchase Agreement, dated September 5, 1996,
between UniStar Entertainment, Inc. and Virtual Gaming
Technologies, Inc. (formerly Internet Gaming Technologies,
Inc.).
10.16* Common Stock Purchase Warrant for the purchase of up to
200,000 shares of common stock, $.00001 par value, of Virtual
Gaming Technologies, Inc.
10.17* Agreement, dated February 11, 19997, between UniStar
Entertainment, Inc. and CasinoWorld Holdings, Ltd.
21.1* Subsidiaries of eLottery
23.1* Consent of Hunton & Williams
23.2** Consent of Arthur Andersen LLP
24.1 Power of Attorney (included on signature page)
27.1* Financial Data Schedule for the Six-Month Period Ended June
30, 1998
27.2* Financial Data Schedule for the Year Ended December 31, 1997
99.1* Consent of Robert A. Berman to be named as a Director nominee
99.2* Consent of Stanley M. Blau to be named as a Director
nominee 99.3* Consent of Alan Kessman to be named as a
Director nominee 99.4* Consent of Jerry M. Seslowe to be named
as a Director nominee 99.5* Consent of Michael W. Yacenda to
be named as a Director nominee
99.6** Consent of Philip Gunn to be named as a Director nominee

* Previously Filed
**Filed herewith

II-3
<PAGE>

Item 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 14 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question as to whether such indemnification by it is against public policy
as expressed in the Act, and will be governed by the final adjudication of such
issue.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Milford,
State of Connecticut, on the 25th day of January, 1999.

eLOTTERY, INC.
a Delaware corporation
(Registrant)

By: /s/ Michael W. Yacenda
-------------------------------------------
Michael W. Yacenda
President, Treasurer, Principal Executive
Officer, Principal Financial Officer
and Principal Accounting Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the 25th day
of January, 1999 in the capacities indicated.

Signature Title

/s/ Alan Kessman Director and Vice Chairman
- ------------------------------
Alan Kessman

/s/ Michael W. Yacenda Director, President, Treasurer
- ------------------------------ Principal Executive Officer,
Michael W. Yacenda Principal Financial Officer
and Principal Accounting Officer

II-5

<PAGE>

EXHIBIT INDEX

Exhibit Document Sequentially Numbered Page

3.1* Amended and Restated Certificate of Incorporation of the Registrant

3.2* Bylaws of the Registrant

4.1 Form of Common Stock Certificate

4.2 Form of Stockholder Rights Agreement between Registrant
and _________________.

5.1 Opinion of Hunton & Williams

8.1 Tax Opinion of Hunton & Williams

10.1* Share Exchange Agreement, dated August 12, 1998, between
Executone, Registrant and Watertone Holdings L.P., Cooper Life
Sciences, Inc., John C. Shaw, Richard Bartlett, Jerry M. Seslowe,
10-26 S. William Street Associates, Louis K. Adler and Resource
Holdings Ltd.

10.1(a)** Amendment, dated December 22, 1998, to Share Exchange Agreement dated
August 12, 1998, between Executone, Registrant and Watertone
Holdings L.P., Cooper Life Sciences, Inc., John C. Shaw, Richard
Bartlett, Jerry M. Seslowe, 10-26 S. William Street Associates, Louis
K. Adler and Resource Holdings Ltd.

10.2* Form of Reorganization Agreement between Registrant and Executone

10.3* Form of Master Services Agreement between Registrant and Executone

10.4* Form of Tax Sharing Agreement between Registrant and Executone

10.6* eLottery, Inc. Stock Option Plan

10.7* Employment Agreement, dated August 31, 1998, between Registrant and
Michael W. Yacenda

10.8* Employment Agreement, dated August 31, 1998, between Registrant and
Robert W. Hopwood

10.9* Employment Agreement, dated August 31, 1998, between Registrant and
Charles A. Degliomini

10.10* Transition and Retention Plan of Michael W. Yacenda

10.11* Transition and Retention Plan of Robert W. Hopwood

10.12* NIL Agreement, dated January 16, 1995, between UniStar Entertainment
and the National Indian Lottery

10.14 Financial Advisory Agreement, dated _______, between Registrant and
Resource Holdings Ltd.

10.15* Securities Purchase Agreement, dated September 5, 1996, between
UniStar Entertainment, Inc. and Virtual Gaming Technologies, Inc.
(formerly Internet Gaming Technologies, Inc.).

10.16* Common Stock Purchase Warrant for the purchase of up to 200,000
shares of common stock, $.00001 par value, of Virtual Gaming
Technologies, Inc.

10.17* Agreement, dated February 11, 19997, between UniStar Entertainment,
Inc. and CasinoWorld Holdings, Ltd.

21.1* Subsidiaries of eLottery

23.1* Consent of Hunton & Williams

23.2** Consent of Arthur Andersen LLP

24.1 Power of Attorney (included on signature page)

27.1* Financial Data Schedule for the Six-Month Period Ended June 30, 1998

27.2* Financial Data Schedule for the Year Ended December 31, 1997

99.1* Consent of Robert A. Berman to be named as a Director nominee

99.2* Consent of Stanley M. Blau to be named as a Director nominee

99.3* Consent of Alan Kessman to be named as a Director nominee

99.4* Consent of Jerry M. Seslowe to be named as a Director nominee

99.5* Consent of Michael W. Yacenda to be named as a Director nominee

99.6** Consent of Philip Gunn to be named as a Director nominee

* Previously Filed
**Filed herewith

II-6

Exhibit 10.1(a)

AMENDMENT TO SHARE EXCHANGE AGREEMENT

THIS AMENDMENT to the Share Exchange Agreement (the "Agreement") entered
into on August 12, 1998, by and between EXECUTONE Information Systems, Inc., a
Virginia corporation ("Executone"), Unistar Gaming Corp., a Delaware corporation
and wholly-owned subsidiary of Executone ("Unistar"), and Watertone Holdings,
L.P., Cooper Life Sciences, Inc., John C. Shaw, Richard Bartlett, Jerry M.
Seslowe, 10-26 S. William St. Associates, Louis K. Adler and Resource Holdings
Associates (together, the "Shareholders") is entered into as of this 22nd day of
December, 1998.

In accordance with the provisions of Section 8.2 of Article VIII of the
Agreement, the parties hereto agree to amend the Agreement as follows:

1. In the introductory paragraph of the Agreement, the name "Watertone,
L.P." is deleted and the name "Watertone Holdings, L.P." is substituted
therefor.

2. In the line 1 of the chart following Paragraph A of the "RECITALS"
section of the Agreement, the name "Watertone, L.P." is deleted and the name
"Watertone Holdings, L.P." is substituted therefor.

3. Paragraphs B, C and D of the "RECITALS" section of the Agreement are
deleted, and the following are substituted therefor:

B Executone intends to terminate Executone's ownership of Unistar by the
exchange of its shares of common stock of Unistar (the "Unistar Common Stock")
for the Executone Preferred Stock pursuant to this Agreement and the
distribution (the "Distribution") to the holders of Executone common stock (the
"Executone Common Stock") of 85% of the outstanding shares of Unistar Common
Stock.

C. The Shareholders wish to continue to participate in the growth of
Unistar, if any, following the Distribution, and Executone and Unistar believe
that it is in the best interests of each company to permit the Shareholders to
continue such participation.

D. Executone, Unistar and the Shareholders have agreed to a share exchange
whereby the Shareholders will exchange their shares of Executone Preferred Stock
for shares of Unistar Common Stock and shares of Unistar's Cumulative
Convertible Preferred Stock, Series A (the "Unistar Preferred Stock"), pursuant
to the terms and conditions of this Agreement.

4. The following definition is added in Article I of the Agreement:

"Distribution Date" shall have the meaning set forth in Section
2.1(b).

5. The definition of "Registration Statement" in Article I of the
Agreement is deleted and the following is substituted therefor:

"Registration Statement" means the Registration Statement with
respect to the Unistar Common Stock that will be distributed in the
Distribution.
<PAGE>
6. The heading title of Article II and Section 2.1 of Article II of the
Agreement are deleted and the following is substituted therefor:

ARTICLE II

SEPARATION

2.1. Mechanics of Separation.

(a) Executone agrees to consummate the Distribution in
accordance with the terms and subject to the conditions set forth in
the Reorganization Agreement between Executone and Unistar, a draft
of which is attached as Exhibit B hereto.

(b) The Distribution will take the form of a distribution to
the holders of Executone Common Stock of shares of Unistar Common
Stock not delivered to the Shareholders pursuant to the Agreement,
which shares shall constitute 85% of the outstanding shares of
Unistar Common Stock as of the date of consummation of the
Distribution (the "Distribution Date").

7. In the first line of Section 2.2 of Article II of the Agreement, the
words "Rights Offering" are deleted and the word "Distribution" is substituted
therefor.

8. In the first sentence of Section 3.1(a) of Article III of the
Agreement, in subsection (i) the words "date of closing (the "Separation Date")
of the Rights Offering" are deleted and the words "Distribution Date" are
substituted therefor and the words "exclusive of any shares acquired by the
Shareholders pursuant to the Standby Agreement," are deleted; and in subsection
(ii) the words "Series A" are deleted.

9. The existing paragraph under Section 3.2 of Article III of the
Agreement shall become Section 3.2(a) and, in the third line of Section 3.2(a)
of Article III of the Agreement, the words "Rights Offering" are deleted and the
word "Distribution" is substituted therefor.

10. The following new Section 3.2(b) is added to Article III of the
Agreement:

(b) Cooper Life Sciences, Inc. and 10-26 S. William St.
Associates will receive a total of $125,000 concurrent with their
signing of the Agreement, to be allocated on a pro-rata basis
consistent with their respective percentage ownership interests in
the Executone Preferred Stock, in settlement of all claims against
Executone or Unistar of any kind, regardless of basis, arising on or
prior to the Distribution Date.

11. In the second sentence of Section 4.1(b) of Article IV of the
Agreement, the words "to the Rights Offering" are deleted and the words "the
Distribution" are substituted therefor; and the words "exclusive of any shares
acquired pursuant to the Standby Agreement," are deleted.
<PAGE>
12. In the third line of Section 4.1(c) of Article IV of the Agreement,
the words "Rights Offering" are deleted and the word "Distribution" is
substituted therefor.

13. In the third line of Section 4.2(b) of Article IV of the Agreement,
the words "Rights Offering" are deleted and the word "Distribution" is
substituted therefor.

14. In the first line of Section 5.2 of Article V of the Agreement, the
words "Rights Offering" are deleted and the word "Distribution" is substituted
therefor.

15. In the fifth and twelfth lines of Section 5.3(b) of Article V of the
Agreement, the words "Executone Common Stock and" are deleted.

16. In the third line of Section 5.5 of Article V of the Agreement, the
name "Watertone, L.P." is deleted and the name "Watertone Holdings, L.P." is
substituted therefor.

17. Section 5.6 of Article V of the Agreement is deleted and the following
new Section 5.6 is substituted therefor:

5.6. Capital Contribution.

At the Closing Date, in addition to the funding provided under
Section 5.5 hereof, Executone will provide Unistar with $3.0 million in
cash, plus an additional amount in cash based upon when the Distribution
is consummated as follows:

Distribution Consummated Cash Payable by
By: Executone
------------------------ ---------------
March 31, 1999 $2.5 million
April 30, 1999 $2.0 million
May 31, 1999 $1.5 million
June 30, 1999 $1.0 million

If the distribution is consummated after June 30, 1999, then the
additional amount of cash shall be $500,000, provided that the Agreement
is not terminated prior thereto. At the Closing Date, Executone also will
assume responsibility for, and pay when due, expenses incurred by Unistar
but not yet paid, provided, however, that the maximum of such expenses
shall not exceed $500,000 based on Executone's undertaking to keep current
on Unistar's liabilities.

18. In the first line of Section 5.7 of Article V of the Agreement, the
word "Separation" is deleted and the word "Distribution" is substituted
therefor; and in the fourth line of Section 5.7, the words "reasonably
exercised" are deleted.

19. In the third line of the first paragraph of Section 5.8 of Article V
of the Agreement, the word "Separation" is deleted and the word "Distribution"
is substituted therefor.
<PAGE>
20. The following language is deleted from the end of the first sentence
of Section 5.8(a) of Article V of the Agreement:

", provided that the Employees must pledge, in addition to shares of
Executone capital stock pledged under the Plan as of the Separation Date
(the "Pledged Executone Stock"), any equity interest in Unistar held by
them as a result of the exercise of Rights attributable to the Pledged
Executone Stock to secure any loan guaranteed by Executone"

21. In the second and fifth lines of Section 5.8(b) of Article V of the
Agreement, the word "Separation" is deleted and the word "Distribution" is
substituted therefor.

22. In the signature block for Watertone, L.P., the name "Watertone, L.P."
is deleted and the name "Watertone Holdings, L.P." is substituted therefor, and
the zip code 10019 is deleted and the zip code 10038 is substituted therefor.

23. All of the remaining terms and conditions of the Agreement shall
remain in full force and effect:

IN WITNESS WHEREOF, the undersigned hereby agree to this amendment of the
Agreement as of this 22nd day of December, 1998.

EXECUTONE INFORMATION SYSTEMS, INC.

By: /s/ Stanley J. Kabala
------------------------------------
Name: Stanley J. Kabala
Title: President and Chief Executive Officer
Date: December 22nd, 1998
Address: 478 Wheelers Farms Road
Milford, Connecticut 06460

eLOTTERY, INC.

By: /s/ Michael W. Yacenda
---------------------------------
Name: Michael W. Yacenda
Title: President and Chief Executive Officer
Date: December 22nd, 1998
Address: 478 Wheelers Farms Road
Milford, Connecticut 06460
<PAGE>
WATERTONE HOLDINGS, L.P.

By: /s/ Robert A. Berman
--------------------------------------
Name: Robert A. Berman
Title: Managing Director
Date: December 22nd, 1998
Address: 730 Fifth Avenue
New York, New York 10038

<PAGE>

COOPER LIFE SCIENCES, INC.

By: /s/ Steven Rosenberg
--------------------------------
Name: Steven Rosenberg
Title:
Date: December 22nd, 1998
Address: 160 Broadway
New York, New York 10038

By: /s/ John C. Shaw
-----------------------------
Name: John C. Shaw
Date: December 22nd, 1998
Address: 8 Indian Drive
Old Greenwich, CT 06870

By: /s/ Richard Bartlett
----------------------------------
Name: Richard Bartlett
Date: December 22nd, 1998
Address: 15 West 81st Street
New York, New York

By: /s/ Jerry M. Seslowe
-----------------------------------
Name: Jerry M. Seslowe
Date: December 22nd, 1998
Address: 2 Chanticlare Drive
Mannasset, NY 11030

10-26 S. WILLIAM ST. ASSOCIATES

By: /s/ Steven Rosenberg
----------------------------------
Name: Steven Rosenberg
Title:
Date: December 22nd, 1998
Address:

<PAGE>

By: /s/ Louis K. Adler
---------------------------------
Name: Louis K. Adler
Date: December 22nd, 1998
Address:

RESOURCE HOLDINGS ASSOCIATES

By: /s/ Jerry M. Seslowe
-----------------------------------
Name: Jerry M. Seslowe
Title: Managing Director
Date: December 22nd, 1998
Address: 520 Madison Avenue, 40th Floor
New York, New York 10022

Exhibit 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Stamford, Connecticut
January 21, 1999

EXHIBIT 99.6

CONSENT OF PHILIP GUNN TO BE NAMED AS DIRECTOR NOMINEE

January 22, 1999

eLottery, Inc.
478 Wheelers Farms Road
Milford, Connecticut 06460

REGISTRATION STATEMENT ON FORM S-1
9,967,824 SHARES OF COMMON STOCK

Gentlemen:

I, Philip Gunn, hereby consent to be named as a director nominee of
eLottery, Inc., a Delaware corporation (the "Company"), in the Company's
Amendment No. 2 to its Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
in connection with the Company's registration of 9,967,824 shares of common
stock, $0.01 par value, of the Company.

Very truly yours,

/s/ Philip Gunn
-------------------------------
Philip Gunn