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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
_ TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21738
ON-POINT TECHNOLOGY SYSTEMS, INC.
(Name of small business issuer in its charter)
Nevada 33-0423037
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8444 MIRALANI DR., SAN DIEGO, CALIFORNIA 92126-4349
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (619) 621-5050
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding twelve months, and (2) has
been subject to such filing requirements for the past 90 days. Yes x No_
As of July 10, 1998, 9,962,741 shares of Common Stock ($.01 par value) were
outstanding.
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<PAGE>
INDEX
Part I. Financial Information Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 (Unaudited) and
December 31, 1997 3
Condensed Consolidated Statements
of Operations (Unaudited)
Three Months and Six Months Ended
June 30, 1998 and 1997 4
Condensed Consolidated Statements
of Cash Flows (Unaudited)
Six Months Ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
Part II. Other Information 8
<PAGE>
ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
(Unaudited) December 31,
Assets Thousands of dollars, except share amounts 1998 1997
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Current assets:
Cash and cash equivalents $269 $273
Accounts receivable, net 5,148 1,961
Inventories 2,245 2,704
Net investment in sales-type leases 2,103 1,638
Other current assets 134 88
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Total current assets 9,899 6,664
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Plant, property and equipment, net 531 582
Net investment in sales-type leases 5,927 5,364
Property held for operating leases, net 2,256 2,657
Other assets 394 768
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Total assets $19,007 16,035
============================================================================
Liabilities and shareholders' equity
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Current liabilities:
Current portion of long term debt $181 $277
Accounts payable 893 1,118
Accrued expenses 3,136 2,134
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Total current liabilities 4,210 3,529
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Long-term debt 2,635 2,371
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Other liabilities 899 757
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Shareholders' equity:
Preferred stock, no par value, 2,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, $.01 par value, 20,000,000 shares
authorized, 9,962,741 and 9,421,255 shares issued and outstanding,
respectively 100 94
Additional paid-in capital 30,813 30,030
Accumulated deficit (19,650) (20,746)
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Total shareholders' equity 11,263 9,378
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Total liabilities and shareholder's equity $19,007 $16,035
============================================================================
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
On-Point Technology Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three months ended June 30 Six months ended June 30,
<S> <C> <C> <C> <C>
Thousands of dollars/shares, except per share amounts 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------
Revenues $4,144 $3,256 $8,422 $6,556
Cost of revenues 2,651 2,410 5,625 4,759
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Gross profit 1,493 846 2,797 1,797
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Operating expenses:
Selling, general and administrative 633 518 1,303 1,109
Research and development 455 60 644 174
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Total operating expenses 1,088 578 1,947 1,283
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Income from operations 405 268 850 514
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Other income (expenses):
Interest income 231 82 489 139
Interest expense (146) (60) (294) (87)
Other 53 (10) 51 (42)
Total other income 138 12 246 10
Net income $543 $280 $1,096 $524
===========================================================================================================
Earnings per share:
Basic:
Earnings per share $0.05 $0.03 $0.11 $0.06
===========================================================================================================
Weighted average shares 9,917 9,183 9,695 8,685
===========================================================================================================
Diluted:
Earnings per share $0.05 $0.03 $0.09 $0.05
===========================================================================================================
Weighted average shares 11,903 11,108 11,862 10,194
===========================================================================================================
</TABLE>
<PAGE>
<TABLE>
On-Point Technology Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six months ended June 30,
<S> <C> <C>
Thousand of dollars 1998 1997
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Cash flows from operating activities:
Net income $1,096 $524
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization 653 734
Non-cash charges, primarily changes in reserves 68 (73)
Changes in assets and liabilities:
Accounts receivable (3,221) (1,096)
Inventories 418 (430)
Accounts payable (225) (1,941)
Accrued expenses 1,070 637
Deferred income - (449)
Other 312 490
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Net cash provided by (used for) operating activities 171 (1,604)
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Cash flows from investing activities:
Purchases of plant, property and equipment (140) (65)
Net investment in sales-type leases (1,019) (730)
Investment in property held for operating leases (24) (290)
Fixed asset disposals 38 46
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Net cash used for investing activities (1,145) (1,039)
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Cash flows from financing activities:
Proceeds from equity related transactions 789 718
Proceeds from debt financing - 2,500
Proceeds from line of credit, net 351 -
Repayment of notes payable (170) (1,023)
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Net cash provided by financing activities 970 2,195
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Decrease in cash and cash equivalents (4) (448)
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Cash and cash equivalents at beginning of period 273 504
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Cash and cash equivalents at end of period $269 $56
===============================================================================
Supplemental cash flow information:
Cash paid during the period for interest $151 $101
===============================================================================
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
--------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED
-------------------------------
FINANCIAL STATEMENTS
--------------------
(Unaudited)
1. BASIS OF PRESENTATION The accounting and reporting policies of On-Point
Technology Systems, Inc. and subsidiaries (collectively referred to as the
"Company") conform to generally accepted accounting principles. The condensed
consolidated financial statements for the three and six months ended June 30,
1998 and 1997 are unaudited and do not include all information or footnotes
necessary for a complete presentation of financial condition, results of
operations and cash flows. The interim financial statements include all
adjustments, consisting only of normal recurring accruals, which in the opinion
of management are necessary in order to make the financial statements not
misleading. These financial statements should be read in conjunction with the
Company's December 31, 1997 audited financial statements which are included in
the Company's Annual Report on Form 10-KSB dated December 31, 1997 (the "1997
Form 10-KSB"). The results of operations for the three and six months ended
June 30, 1998 are not necessarily indicative of the results to be expected for
the entire year ending December 31, 1998.
2. PROVISION FOR INCOME TAXES No provisions for federal or state income
taxes has been made for the three and six month periods ended June 30, 1998. At
December 31, 1997, the Company had net operating loss carry forwards of
approximately $4.6 million for federal income tax purposes.
3. PER SHARE INFORMATION In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
128 "Earnings per Share" establishing standards for computing and presenting
Basic Earnings per Share ("Basic EPS") and Diluted Earnings Per Share ("Diluted
EPS"). Basic EPS is computed on the basis of the weighted average shares of
common stock outstanding plus contingently issuable shares. Diluted EPS is
computed on the basis of weighted average shares outstanding plus contingently
issuable shares and the additional common shares that would have been
outstanding if dilutive potential common shares had been issued, using the
treasury stock method.
4. SHAREHOLDERS' EQUITY The $1,885,000 increase in shareholders' equity
from $9,378,000 at December 31, 1997 to $11,263,000 at June 30, 1998 was
comprised of $1,096,000 of net income and $789,000 of exercised stock warrants
and options.
5. CONTINGENCIES Reference is made to the customer dispute and legal
proceedings sections of the Note 10 of Notes to Consolidated Financial
Statements in the 1997 Form 10-KSB. With respect to the customer dispute
described in the 1997 Form 10-KSB, the parties have agreed to participate in
mediation which is expected to be held within the next 60 days. No other
material developments occurred during the Company's three and six month periods
ended June 30, 1998 with respect to such matters other than as previously
disclosed.
6. On July 7, 1998, the Company entered into an amendment to its existing
Loan and Security Agreement for a revolving line of credit. Under the amended
Loan and Security Agreement, the Company can borrow up to $5,000,000 which
represents a $2,000,000 increase in borrowing capacity. The amended loan bears
interest at Prime plus 2%, which is reduced .5% annually if the Company meets
certain performance benchmarks, matures on March 31, 2000 and is secured by
virtually all of the Company's assets. At June 30, 1998, the Company had
borrowed $2,617,644 under this Agreement.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL The Company's revenues through June 30, 1998 have been generated
from (i) sales of vending terminals (ii) leases of vending terminals (iii)
performance of service on vending terminals, and (iv) sales of associated parts.
The Company's products are sold or leased to a limited number of customers
worldwide. As a result, the Company has experienced fluctuations in its
financial results and capital expenditures because of the timing of significant
individual contract awards and customer orders as well as associated product
delivery schedules. The Company's sales cycle can, at times, be relatively long
due to the lead time required for business opportunities to result in signed
sales or lease agreements. Operating results may be affected by such lead time
as well as working capital requirements associated with manufacturing vending
terminals pursuant to new orders, increased competition, and the extended time
which may elapse between the customer's firm order and the receipt of revenue
from the sale or lease of the applicable vending terminals. In addition, there
has been an accelerating trend by customers to lease rather than purchase
vending terminal equipment. Leasing vending terminals requires the Company to
invest capital or otherwise finance the manufacture of the vending terminals.
The Company has obtained the resources necessary to finance its expanding base
of leased terminals through the sale of certain leases to financing companies,
an equity financing and debt financing.
RESULTS OF OPERATIONS Revenues for the three and six month periods ended
June 30, 1998 increased by approximately $900 thousand or 27% and $1.9 million
or 28%, respectively, from the prior year. The second quarter $900 thousand
increase was comprised of approximately: $500 thousand from sales and sales-
type leases; $100 thousand from operating leases and $300 thousand from service.
The year-to-date $1.9 million increase was comprised of approximately: $1.1
million from sales and sales-type leases; $400 thousand from operating leases
and $400 thousand from service. The $900 thousand second quarter revenue
increase included approximately $700 thousand of favorable product mix
consisting of higher priced products and $100 thousand of pricing changes while
the year-to-date $1.9 million revenue increase included approximately $1.7
million favorable product mix consisting of higher priced products and $200
thousand of pricing changes. In total, the Company installed or shipped
approximately 480 and 950 units in the three and six month periods ended June
30, 1998, respectively, versus approximately 500 and 980 units, respectively,
during the same periods in 1997.
Cost of revenues, as a percentage of sales, for the second quarter declined
by 10 percentage points from 74% in 1997 to 64% in 1998. For the six month
period there was a decline of 6 percentage points from 73% in 1997 to 67% in
1998. The lower percentage cost of revenues in 1998 versus 1997 primarily
reflects an improved product sales mix consisting of higher sales value machines
which carry higher gross margins.
Operating expenses increased by $510 thousand or 88% and $664 thousand or
52% for the three and six month periods ended June 30, 1998, respectively,
compared to the same periods in the prior year. Of the operating expenses,
selling, general and administration costs increased by $115 thousand and $194
thousand for the three and six month periods, respectively, primarily as a
result of increased legal, reserves and marketing expenses partially offset by
lower compensation related costs. Research and development costs increased by
$395 thousand and $470 thousand for the three and six month periods,
respectively, as a result of increased product development efforts.
As a result of the above factors, income from operations of $405 thousand
and $850 thousand for the 1998 three and six month periods, respectively,
represent improvements of $137 thousand and $336 thousand, respectively, over
the same periods in 1997.
Total other income and expense for the three and six month periods ended
June 30, 1998 improved by $126 thousand and $236 thousand, respectively, from
the same periods in 1997 primarily due to greater amortization of unearned
income on sales-type leases partially offset by higher interest cost reflecting
increased borrowing
Second quarter net income of $543 thousand represented a $263 thousand
improvement over 1997 net income of $280 thousand. For the six month period
ended June 30, 1998, net income of $1,096 thousand was a $572 thousand
improvement over the same period in the prior year.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES During the six months ended June 30, 1998, the
Company used the net cash provided by financing activities of $970 thousand and
operating activities of $17 thousand for investing activities, principally for
the net investment in sales-type leases of approximate $1 million.
During the prior six months ended June 30, 1997, the Company used approximately
$1.6 million of net cash for operating activities principally as a result of the
reduction of approximately $1.9 million in accounts payable. Net cash provided
by financing activities was approximately $2.2 million while approximately $1
million of net cash was used for investing activities. The principal investing
activity was the net payment of costs associated with the equipment underlying
long-term lease agreements, both sales-type and operating, which totaled
approximately $1 million.
As a net result of the above cash activities, cash and cash equivalents
declined by $4 thousand and $448 thousand, respectively, during the six month
periods ended June 30, 1998 and 1997. Working capital of approximately $5.7
million at June 30, 1998 represents an increase of over $2.5 million since
December 31, 1997.
Management believes the Company has sufficient liquidity, because of its
existing stream of contractual lease payments, its current working capital, and
its available borrowings under its $5 million normal course of debt financing
(see Note 6 of Notes to Condensed Consolidated Financial Statements). However,
the Company may seek additional debt or equity financing to facilitate expansion
opportunities and potential acquisitions or for contingencies. See Note 10 of
Notes to the Consolidated Financial Statements in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1997 for potential other matters
which could affect the Company's liquidity.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 in the Registrant's Form 10-KSB for the year
ended December 31, 1997 for a description of its legal proceedings. No material
developments occurred during the Registrants' three and six month periods ended
June 30, 1998 other than as previously disclosed.
ITEM 2. CHANGES IN SECURITIES
(a) None
(b) None
(c) Sales of Unregistered Securities
The following securities were issued pursuant to Section 4(2) of
the Securities Act of 1933, as amended. No placement agent was
engaged in connection with such issuances and no commissions or
discounts were paid to any person.
In April 1998, Darius Anderson and James Bouskos each received
an option to purchase 10,000 shares of the Company's common
stock at $2.88 per share pursuant to their appointment as
Advisory Directors. The options vest by April 1999 and expire
in April 2001.
In May 1998, Allan Halladay and Brian Roberts each received an
option to purchase 50,000 shares of the Company's common stock
at $2.09 per share pursuant to their assignment of certain
intellectual property to the Company. The options vest the
earlier of April 1, 2001 or upon the satisfaction of certain
performance conditions. The options expire on December 31,
2001.
In July 1998, Coast Business Credit received a warrant to
purchase 10,000 shares of the Company's common stock pursuant
to an amendment to a financing agreement entered into with the
Company. The warrant became exercisable in July 1998 and
expires on May 5, 2000.
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.26 Amendment Number One to Loan and Security
Agreement between
Registrant and Coast Business Credit.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
In accordance with the requirements of the exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
ON-POINT TECHNOLOGY SYSTEMS, INC.
Date: July 23, 1998 /s/ Kenneth Hoitt
As Chief Financial Officer on behalf
of Registrant and as Registrant's
Principal Financial & Accounting Officer
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT, dated as Of
July 7, 1998 (this "Amendment"), amends that certain Loan and Security
Agreement, dated as of March 26, 1997 (as amended from time to time, the "Loan
Agreement"), by and between ON-POINT TECHNOLOGY SYSTEMS, INC., dba Lottery
Enterprises ("Borrower"), on the one hand, and COAST BUSINESS CREDIT, a division
of Southern Pacific Bank, a California corporation ("Coast"), on the other hand.
All initially capitalized terms used in this Amendment shall have the meanings
ascribed thereto in the Loan Agreement unless specifically defined herein.
RECITALS
WHEREAS, Borrower has requested that Coast make certain amendments to
the Loan Agreement, including (i) increasing the Credit Limit to Five Million
Dollars ($5,000,000), (ii) reducing the interest rate on the line of credit, and
(iii) permitting Borrower's acquisition of all of the capital stock of VendTek,
Inc., a corporation formed under the laws of Canada; and
WHEREAS, Coast has given its approval to such requests in Accordance
with the terms and conditions set forth in this Amendment.
NOW, THEREFORE, the parties hereto agree as follows:
AMENDMENT
Section 1. AMENDMENT TO SECTION 5.5 OF THE LOAN AGREEMENT.
Section 5.5 (b) of the Loan Agreement is hereby amended by deleting such Section
in its entirety and replacing it with the following:
"(b) acquire any assets, except (i) in the ordinary course of
business, or (ii) in a transaction or a series of transactions not
involving the payment of an aggregate amount in excess of One Hundred
Thousand Dollars ($100,000), PROVIDED HOWEVER, that Borrower shall be
permitted to acquire the capital stock of VendTek, a corporation formed
under the laws of Canada ("VendTek"), in accordance with the terms of that
certain Agreement of Purchase and Sale of Stock, dated as of-------, 1998,
by and among Borrower, Shellborn Enterprises Ltd., Dover Management Ltd.,
VendTek and certain other parties (the "VendTek Purchase Agreement") SO
LONG AS (1) no Default or Event of Default has occurred and is continuing,
or will result therefrom, and (2) Coast shall have received evidence
satisfactory to Coast that, after giving effect to the transactions
contemplated by the VendTek Purchase Agreement, the assets and capital
<PAGE>
stock of VendTek shall be free and clear of all Liens, other than Permitted
Liens, (3) Borrower, VendTek and all of VendTek's subsidiaries shall have
executed and delivered to Coast an amended and restated loan and security
agreement in the form of this Agreement, and otherwise in form and
substance satisfactory to Coast, together with such other agreements,
instruments and documents as Coast shall require in connection therewith
(including, without limitation, a joint and several borrower rider, UCC-1
Financing Statements and Fixture Filings, intellectual property security
agreements and a collateral assignment of the VendTek Purchase
Agreement), all duty executed and in form and substance satisfactory to
Coast, and (4) Coast shall have received evidence satisfactory to Coast
that all of the assets of VendTek and its subsidiaries are subject to
Coast's first priority Lien in accordance with the terms of this
Agreement."
Section 2. AMENDMENT TO SECTION 8 OF THE LOAN AGREEMENT.
Section 8 of the Loan Agreement is hereby amended by deleting the definitions of
"Applicable Amount", "Eligible Foreign Receivables", and "Eligible Receivables"
in their entirety and adding the following new definitions in Appropriate
alphabetical order:
"'Applicable Amount' means two percent (2%) per annum,
provided that the Applicable Amount shall be reduced to the per annum
percentage set forth below under Applicable Amount for each Applicable
Period if the Chief Financial Officer of Borrower delivers a certificate to
Coast no later than the first day of the Applicable Period certifying that
(i) Borrower has NPAT for the immediately preceding 12-month period equal
to or greater than the NPAT set forth below for such Applicable Period,
(ii) no Default or Event of Default has occurred and is continuing under
this Agreement and the other documents and agreements executed in
connection with this Agreement and (iii) Borrower is entitled to the
reduced Applicable Amount corresponding to the NPAT and Applicable Period
set forth below:
NPAT Applicable Applicable
Period Amount
>$2,500,000 for the prior March 31, 1998-March 31, 1999 1.5%
12-month period
ending with such
12-month period
>$3,000,000 for the prior March 31, 1999-Maturity Date 1.0%"
12-month period
ending with such
12-month period
"'ELIGIBLE FOREIGN RECEIVABLES' means Receivables arising from
Borrower's customers located outside the United States or Canada, provided
<PAGE>
that (1) the Borrower's goods are shipped backed by a letter of credit, or
(ii) the Borrower's goods are shipped to a large or rated company having
a verifiable credit history, or (iii) Borrower's goods are shipped to a
foreign subsidiary of a customer of Borrower that is a company that was
formed and has its primary place of business within the United States, or
(iv) Borrower's goods are shipped to a large foreign corporation acceptable
to Coast in its sole and absolute discretion, or (v) Borrower's goods are
shipped to a foreign company with a Dun & Bradstreet rating acceptable to
Coast in its sole and absolute discretion, or (vi) Borrower's goods are
shipped to a company that has credit insurance acceptable to Coast in its
sole and absolute discretion."
"'ELIGIBLE RECEIVABLES' means Receivables arising in the
ordinary course of Borrower's business from the sale of goods or rendition
of services to Borrower's customers in the United States and Canada, which
Coast, in its good faith business judgment exercised in a commercially
reasonable manner in accordance with industry standards, shall deem
eligible for borrowing, based on such considerations as Coast may from time
to time deem appropriate."
"'NPAT' means, for the period of determination, Borrower's
consolidated net income for such period minus the amount of Borrower's
consolidated federal, state and local income tax expense for such period,
calculated in accordance with generally accepted accounting principles,
consistently applied."
Section 3. AMENDMENT TO SECTION I OF THE SCHEDULE.
The text of Section I of the Schedule to the Loan Agreement is hereby amended by
deleting such Section in its entirety and replacing it with the following:
"Loans in a total amount at any time outstanding not to exceed
the lesser of a total of Five Million Dollars ($5,000,000) at any one time
outstanding (the "Maximum Dollar Amount"), or the sum of (a), (b), (c),
(d), (e) and (f) below:
"(a) RECEIVABLE LOANS. Loans in an amount not to exceed:
(1) sixty percent (60%), of the amount of Borrower's
Eligible Receivables (as defined in Section 8 above)
with eligibility up to ninety (90) days past invoice
date; or
(2) on and after September 1, 1997, eighty percent (80%)
of the amount of Borrower's Eligible Receivables with
eligibility up to ninety (90) days past invoice date,
if the average Dilution for the period from the date
of this Agreement to and
<PAGE>
including August 31, 1997 has been less than ten
percent (10%) of the amount of Borrower's Eligible
Receivables with eligibility up to ninety (90) days
past invoice date;
(3) sixty percent (60%), of the amount of Borrowers
Eligible Foreign Receivables, PROVIDED HOWEVER that,
in each case, the aggregate amount outstanding at any
one time based upon the Eligible Foreign Receivables
shall not exceed, at any time, $250,000, plus
"(b) INVENTORY LOANS. Loans (the "Inventory Loans") in an
amount not to exceed fifty percent (50%) of the value of Borrower's
Eligible inventory (as defined in Section 8 above), calculated at the lower
of cost or market value and determined on a first-in, first-out basis,
PROVIDED HOWEVER, that the aggregate amount of all outstanding Inventory
Loans from time to time shall not exceed $1,250,000, plus
"(c) ITR LEASE COLLECTIONS LOANS. Loans in an amount not to
exceed the lesser of:
(1) eight (8) times the average monthly lease
collections (for the rolling period of twelve (12)
consecutive months ending on the last day of each
month) on leases of the instant ticket retailer
vending terminals for instant scratch-off lottery
tickets (the "ITR's"); or
(2) seventy-five percent (75%) of the aggregate Net
Present Value of the projected rental revenues
from the lease of the ITRS, plus
"(d) ITR SERVICE COLLECTIONS LOANS. LOANS in an amount not to
exceed the lesser of:
(1) four (4) times the average monthly service collections
(for the rolling period of twelve (12) consecutive
months ending on the last day of each month) on
service agreements related to the ITRS; or
(2) fifty percent (50%) of the aggregate Net Present Value
of the projected revenues derived from the servicing
of the ITRS, plus
"(e) DCR LEASE COLLECTIONS LOANS. Loans in an amount not to
exceed the lesser of:
<PAGE>
(1) eight (8) times the average monthly lease collections
(for the rolling period of twelve (12) consecutive
months ending on the last day of each month) on leases
of debit card retailer vending terminals for prepaid
telephone calling cards (the "DCRs"), excluding any
lease collections arising from the lease of the DCRs
to Fone America ("FA"); or
(2) seventy-five percent (75%) of the aggregate Net
Present Value of the projected rental revenues from
the lease of the DCRs, excluding the projected rental
revenues from the lease of the DCRs to FA, plus
"(f) FA/NON-SUPERAGENT LEASE COLLECTIONS LOANS. Loans in an
amount not to exceed the lesser of:
(1) four (4) times the average monthly Non-SuperAgent
lease collections (for the rolling period of twelve
(12) consecutive months ending on the last day of each
month) on leases of DCR's to FA; or
(2) fifty percent (50%) of the aggregate Net Present Value
of the projected Non-SuperAgent rental revenues from
the lease of the DCRs to FA."
Section 4. AMENDMENT TO SECTION 2 OF THF- SCHEDULE.
Section 2 of the Schedule to the Loan Agreement is hereby amendment is here By
Amended by deleting such section in its entirety and replacing it with the
following:
"2. INTEREST
"Interest Rate
(Section 1.2): A rate equal to the "Prime Rate" plus
the Applicable Amount per annum,
calculated on the basis of a 360-day
year for the actual number of days
elapsed. The interest rate applicable to
all Loans shall be adjusted monthly as
of the first day of each month, and the
interest to be charged for each month
shall be based on the highest "Prime
Rate" in effect during said month, but
in no event shall the rate of interest
charged on any Loans in any month be
less than 9% per annum. "Prime Rate"
means the actual "Reference Rate" or
<PAGE>
the substitute therefor of the Bank of
America NT & SA whether or not that
rate is the lowest interest rate charged
by said bank. If the Prime Rate, as
defined, is unavailable, "Prime Rate"
shall mean the highest of the prime
rates published in the Wall Street
Journal on the first business day of the
month, as the base rate on corporate
loans at large U.S. money center
commercial banks.
"Minimum Monthly
Interest
(Section 1.2): $15,000 per month."
Section 5. AMENDMENT TO SECTION 3 OF THE SCHEDULE.
Section 3 of the Schedule to the Loan Agreement is hereby amended by deleting
such Section in its entirety and replacing it with the following:
"3. FEES
(Section 1.3):
"Loan Fee: $20,000, payable July 7, 1998.
"Facility Fee: $5,000 per quarter, payable in advance on
the date of this Agreement and on the first
day of each January, April, July and
October occurring thereafter.
"Audit Fee: $750 per audit day."
Section 6. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is expressly conditioned upon the receipt by
Coast of the following:
(a) Opinion of Borrower's Counsel. Coast shall have received a
date down opinion of Borrower's counsel with respect to this Amendment and
the warrant described below in the form-of the opinion previously rendered to
Coast from such counsel and otherwise in form and substance satisfactory to
Coast in its sole and absolute discretion;
(b) Corporate Documents. Coast shall have received copies of
the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Amendment, the warrant described below and the
other documents contemplated hereby and thereby, and authorizing the
transactions contemplated hereunder and thereunder, and authorizing specific
officers of Borrower to execute the same on behalf of Borrower, in each
<PAGE>
Case certified by the Secretary or other acceptable officer of Borrower as
of the date of this case certified Amendment;
(c) Warrant. Coast shall have received a warrant duly executed
by Borrower for the purchase of 10,000 shares of common stock of Borrower at
an exercise price equal to the closing price of Borrower's common stock on
the date of execution of this Amendment as reported in the Wall Street
Journal or similar newspaper. The warrant shall have an exercise period
expiring 5:00 p.m., Los Angeles time, on May 5, 2000, and shall be in form
of the Warrant previously issued by Borrower to Coast and shall otherwise
be in form and substance satisfactory to Coast;
(d) Amendment. Coast shall have received this Amendment duly
executed by Borrower; and
(e) Loan Fee. Coast shall have received the $20,000 Loan Fee.
Section 7. ENTIRE AGREEMENT.
The Loan Agreement, as amended hereby, embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings, relating to the subject matter thereof. Borrower represents,
warrants and agrees that in entering into the Loan Agreement and consenting to
this Amendment, it has not relied on any representation, promise, understanding
or agreement, oral or written, of, by or with, Coast or any of its agents,
employees, or counsel, except the representations, promises, understandings and
agreements specifically contained in or referred to in the Loan Agreement, as
amended hereby.
Section 8. CONFLICTING TERMS.
In the event of a conflict between the terms and provisions of this Amendment
and the terms and provisions of the Loan Agreement, the terms of this Amendment
shall govern. In all other respects, the Loan Agreement, as amended and
supplemented hereby, shall remain in full force and effect.
Section 9. MISCELLANEOUS.
This Amendment shall be governed by and construed in accordance with the laws of
the State of California. This Amendment may be
<PAGE>
executed in any number of counterparts, all of which taken together shall
constitute one agreement and any party hereto may execute this Amendment
by signing such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed by their respective officers thereunto duly authorized
as of the date first above written.
BORROWER:
ON-POINT TECHNOLOGY SYSTEMS, INC., dba
Lottery, Enterprises a Nevada Corporation
By:/s/ Frederick Sandvick
Chief Executive Officer
By:/s/ Ken Hoitt
Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
By:/s/ John Browne
Title: Vice President
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