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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 November 2, 1998, 10,094,826 shares of Common Stock ($.01 par value) were
outstanding.
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<PAGE>
The September 30, 1998 Form 10-QSB is amended to correct the September 30, 1998
"plant, property an equipment, net" balance to $428 from the previously reported
balance of $42.
<PAGE>
INDEX
Part I. Financial Information Page
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1998 (Unaudited) and
December 31, 1997 3
Condensed Consolidated Statements
of Operations (Unaudited)
Three Months and Nine Months Ended
September 30, 1998 and 1997 4
Condensed Consolidated Statements
of Cash Flows (Unaudited)
Nine Months Ended September 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 9
<PAGE>
<TABLE>
<CAPTION>
On-Point Technology Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30,
1998 December 31,
Assets Thousands of dollars, except share amounts (Unaudited) 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents $92 $273
Accounts receivable, net 3,246 1,961
Inventories 2,827 2,704
Net investment in sales-type leases 2,711 1,638
Other current assets 126 88
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Total current assets 9,002 6,664
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Plant, property and equipment, net 428 582
Net investment in sales-type leases 6,661 5,364
Property held for operating leases, net 2,100 2,657
Other assets 423 768
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Total assets $18,614 $16,035
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Liabilities and shareholders' equity
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Current liabilities:
Accounts payable $710 $1,118
Current portion of long term debt 149 277
Accrued expenses 2,126 2,134
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Total current liabilities 2,985 3,529
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Other liabilities 821 757
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Long-term debt 2,999 2,371
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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,
10,094,826 and 9,421,255 shares issued
and outstanding, respectively 101 94
Additional paid-in capital 30,939 30,030
Accumulated deficit (19,231) (20,746)
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Total shareholders' equity 11,809 9,378
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Total liabilities and shareholder's equity $18,614 $16,035
========================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
On-Point Technology Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three months Nine months
ended September 30, ended September 30
Thousands of dollars/shares, except per share amounts 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Revenues $3,828 $5,299 $12,250 $11,855
Cost of revenues 2,446 3,933 8,071 8,692
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Gross profit 1,382 1,366 4,179 3,163
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Operating expenses:
Selling, general and administrative 736 614 2,038 1,723
Research and development 394 156 1,039 330
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Total operating expenses 1,130 770 3,077 2,053
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Income from operations 252 596 1,102 1,110
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Other income (expenses):
Interest income 363 126 851 265
Interest expense (163) (172) (457) (259)
Other (33) (13) 19 (55)
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Total other income (expense) 167 (59) 413 (49)
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Net income $419 $537 $1,515 $1,061
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Earnings per share:
Basic:
Earnings per share $0.04 $0.06 $0.15 $0.12
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Weighted average shares 10,035 9,296 9,810 8,889
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Diluted:
Earnings per share $0.04 $0.05 $0.13 $0.10
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Weighted average shares 11,496 11,329 11,729 10,590
====================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
On-Point Technology Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended September 30,
Thousand of dollars 1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $1,515 $1,061
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,031 1,113
Non-cash charges, primarily changes in reserves (183) (129)
Changes in assets and liabilities:
Accounts receivable (1,162) (1,382)
Inventories 511 (328)
Accounts payable (408) (1,474)
Accrued expenses (82) (251)
Deferred income - (500)
Other 273 528
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Net cash provided by (used for) operating activities 1,495 (1,362)
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Cash flows from investing activities:
Purchases of plant, property and equipment (168) (171)
Net investment in sales-type leases (2,882) (375)
Investment in property held for operating leases (125) (1,292)
Fixed asset disposals 70 116
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Net cash used for investing activities (3,105) (1,722)
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Cash flows from financing activities:
Proceeds from equity related transactions 916 862
Proceeds from debt financing - 627
Proceeds from line of credit, net 731 2,347
Repayment of notes payable (218) (1,195)
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Net cash provided by financing activities 1,429 2,641
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Decrease in cash and cash equivalents (181) (443)
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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 $92 $61
==========================================================================================
Supplemental cash flow information:
Cash paid during the period for interest $99 $183
==========================================================================================
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 nine months
ended September 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/A2
dated December 31, 1997. The results of operations for the three and nine
months ended September 30, 1998 are not necessarily indicative of the results
to be expected for the entire year ending December 31, 1998.
2. FINANCING 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 September 30, 1998, the Company
had borrowed $2,998,125 under this Agreement.
3. CONTINGENCIES Reference is made to the customer dispute and legal
proceedings sections of Note 10 of the 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 executed a settlement agreement
on September 17, 1998. The settlement agreement provided for a resolution
favorable to the Company. No other material developments occurred during the
Company's three and nine month periods ended September 30, 1998 with respect to
such matters other than as previously disclosed.
4. PROVISIONS FOR INCOME TAXES No provisions for federal or state income
taxes have been made for the three and nine month periods ended September 30,
1998. At December 31, 1997, the Company had net operating loss carry forwards
of approximately $6.9 million for federal income tax purposes.
5. 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.
6. SHAREHOLDERS' EQUITY The $2,431,000 increase in shareholders' equity
from $9,378,000 at December 31, 1997 to $11,809,000 at September 30, 1998 was
comprised of $1,515,000 of net income and $916,000 of exercised stock warrants
and options.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL The Company's revenues through September 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 Third quarter 1998 revenues declined by
approximately $1.5 million or 28% due to lower machine shipments. The
Company installed or shipped approximately 155 machines in the third quarter
of 1998 versus approximately 795 machines in the corresponding period of 1997.
The $1.5 million revenue decline included lower volume of approximately $1.6
million partially offset by approximately $100 thousand of favorable pricing
changes. Year-to-date revenues increased by approximately $400 thousand or
3% as a net result of higher operating lease and service revenues which have
offset reduced sales and sales-type lease revenues. Sales and sale-type lease
revenues declined as a result of fewer machine shipments, approximately 1105
in 1998 versus approximately 1,775 in 1997. The $400 thousand year-to-date
revenue increase included higher volume of approximately $100 thousand and
approximately $300 thousand of favorable pricing changes. The lower number
of installed and shipped units was the result of delays in individual contract
awards.
Cost of revenues, as a percentage of sales, for the third quarter
declined by 10 percentage points from 74% in 1997 to 64% in 1998. For the
nine month period there was a decline of 7 percentage points from 73% in
1997 to 66% 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 combined with improved
margins on operating leases and service.
Operating expenses increased by $360 thousand or 47% and $1 million
or 49% for the three and nine month periods ended September 30, 1998,
respectively, compared to the same periods in the prior year. Of the
operating expenses, selling, general and administration costs increased
by $122 thousand and $315 thousand for the three and nine month periods,
respectively, primarily as a result of increased legal and marketing expenses.
Research and development costs increased by $238 thousand and $709 thousand
for the three and nine month periods, respectively, as a result of increased
product development efforts.
As a result of the above factors, income from operations of $252
thousand and $1.1 million for the 1998 three and nine month periods,
respectively, represent declines of $344 thousand and $8 thousand,
respectively, over the same periods in 1997.
Total other income and expense for the three and nine month periods
ended September 30, 1998 improved by $226 thousand and $462 thousand,
respectively, from the same periods in 1997 primarily due to greater
amortization of unearned income on sales-type leases partially offset,
for the nine month period, by higher interest costs reflecting increased
borrowing.
Third quarter net income of $419 thousand represented a $118
thousand reduction from 1997 net income of $537 thousand. For the nine
month period ended September 30, 1998, net income of $1,515 thousand was
a $454 thousand improvement over the same period in the prior year.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES During the nine months ended
September 30, 1998, the Company used the net cash provided by financing
activities of $1.4 million and operating activities of $1.5 million for
investing activities, principally for the net investment in equipment for
sales-type leases of approximate $2.9 million.
During the prior year nine months ended September 30, 1997, the
Company used approximately $1.4 million of net cash for operating activities,
principally as a result of the reduction of approximately $1.5 million in
accounts payable. Net cash provided by financing activities was approximately
$2.6 million while approximately $1.7 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 $1.7 million.
As a net result of the above cash activities, cash and cash
equivalents declined by $181 thousand and $443 thousand, respectively,
during the nine month periods ended September 30, 1998 and 1997. Working
capital of approximately $6 million at September 30, 1998 represents an increase
of approximately $2.9 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 debt financing
(see Note 2 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.
YEAR 2000 COMPLIANCE As is the case with most other companies using
computers in their operations, the Company is in the process of addressing the
year 2000 problem. The Company has reviewed its current computer software and
hardware, fax machines and telephone system for year 2000 compliance.
The Company's primary accounting and operational software provider has
received year 2000 certification from the Information Technology Association of
America. Minor expenditures, under $25 thousand total cost, have been made to
upgrade certain computer hardware, PC software and fax equipment to make them
year 2000 compliant. The Company believes that it is now year 2000 compliant
with respect to its existing computer hardware, software and fax equipment and,
therefore, believes that potential risks relating to year 2000 issues are
minimal. The Company's telephone system is not year 2000 compliant and will
require upgrading in 1999 at a projected cost of $25 thousand.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the customer dispute and legal proceedings
section 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 executed a settlement agreement
on September 17, 1998. The settlement agreement provided for a
resolution favorable to the Company. No other material developments
occurred during the Company's three and nine month periods ended
September 30, 1998 with respect to such matters other than as previously
disclosed.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on August 27,
1998. The following members were elected to the Company's Board of Directors
for the ensuing year.
Nominee Favor Withheld
------- ----- --------
Frederick Sandvick 9,665,331 44,491
John H. Olbrich 9,665,331 44,491
Ed. M. Bacani 9,665,331 44,491
The stockholders voted in favor of a proposal to ratify the
appointment of Deloitte & Touche LLP as the Company's independent auditors
for the current fiscal year. The vote was: for 9,686,866; against 11,240
and abstain 12,524.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(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: November 13, 1998 /s/ Kenneth Hoitt
------------------------------------
As Chief Financial Officer on behalf
of Registrant and as Registrant's
Principal Financial & Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 92
<SECURITIES> 0
<RECEIVABLES> 3,492
<ALLOWANCES> 246
<INVENTORY> 2,829
<CURRENT-ASSETS> 9,002
<PP&E> 1,821
<DEPRECIATION> 1,393
<TOTAL-ASSETS> 18,614
<CURRENT-LIABILITIES> 2,985
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 11,708
<TOTAL-LIABILITY-AND-EQUITY> 18,614
<SALES> 12,250
<TOTAL-REVENUES> 12,250
<CGS> 8,071
<TOTAL-COSTS> 8,071
<OTHER-EXPENSES> 2,207
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 457
<INCOME-PRETAX> 1,515
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,515
<EPS-PRIMARY> .15
<EPS-DILUTED> .13
</TABLE>
