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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, 1999
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.)
1370 W. SAN MARCOS BLVD, SUITE 100, SAN MARCOS, CALIFORNIA 92126-4349
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (760) 510-4900
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 27, 1999, there were 10,219,341 shares of Common Stock ($.01 par
value) outstanding.
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INDEX
Part I. Financial Information Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1999 (Unaudited) and
December 31, 1998 3
Condensed Consolidated Statements
of Operations (Unaudited)
Three Months and Six Months Ended
June 30, 1999 and 1998 4
Condensed Consolidated Statements
of Cash Flows (Unaudited)
Six Months Ended June 30, 1999 and 1998 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
<TABLE>
<CAPTION>
June 30,
1999 December 31,
Assets Thousands of dollars, except share amounts (Unaudited) 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $190 $129
Accounts receivable, net 4,361 2,744
Inventories 2,563 3,143
Net investment in sales-type leases 1,769 1,586
Other current assets 230 122
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Total current assets 9,113 7,724
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Plant, property and equipment, net 429 422
Net investment in sales-type leases 9,440 8,911
Property held for operating leases, net 1,715 2,013
Other assets 1,360 502
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Total assets $22,057 $19,572
=============================================================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $2,003 $1,190
Current portion of long term debt 30 104
Accrued expenses 1,559 2,301
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Total current liabilities 3,592 3,595
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Other liabilities 100 100
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Long-term debt 4,930 3,872
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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, 10,217,746 and 10,094,826 shares
issued and outstanding, respectively 102 101
Additional paid-in capital 31,129 30,939
Accumulated deficit (17,796) (19,035)
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Total shareholders' equity 13,435 12,005
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Total liabilities and shareholder's equity $22,057 $19,572
============================================================================
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
On-Point Technology Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30,
Thousands of dollars/shares, except per share amounts 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $5,135 $4,144 $10,429 $8,422
Cost of revenues 3,770 2,651 7,376 5,625
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Gross profit 1,365 1,493 3,053 2,797
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Operating expenses:
Selling, general and administrative 617 633 1,335 1,303
Research and development 129 455 396 644
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Total operating expenses 746 1,088 1,731 1,947
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Income from operations 619 405 1,322 850
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Other income (expenses):
Interest income 77 231 148 489
Interest expense (109) (146) (194) (294)
Other (22) 53 (37) 51
Total other income (54) 138 (83) 246
Net income $565 $543 $1,239 $1,096
===============================================================================================
Earnings per share:
Basic:
Earnings per share $0.06 $0.05 $0.12 $0.11
===============================================================================================
Weighted average shares 10,185 9,917 10,147 9,695
================================================================================================
Diluted:
Earnings per share $0.05 $0.05 $0.10 $0.09
===============================================================================================
Weighted average shares 12,139 11,903 12,052 11,862
===============================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
On-Point Technology Systems, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
Thousand of dollars 1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $1,239 $1,096
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 734 653
Non-cash charges, primarily changes
in reserves 69 68
Changes in assets and liabilities:
Accounts receivable (1,617) (3,221)
Inventories 580 418
Accounts payable 813 (225)
Accrued expenses (679) 1,070
Other (1,001) 312
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Net cash provided by operating activities 138 171
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Cash flows from investing activities:
Purchases of plant, property and equipment (187) (140)
Net investment in sales-type leases (844) (1,019)
Investment in property held for operating leases (260) (24)
Fixed asset disposals 39 38
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Net cash used for investing activities (1,252) (1,145)
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Cash flows from financing activities:
Proceeds from exercise of stock warrants
and options 191 789
Proceeds from line of credit, net 1,058 351
Repayment of notes payable (74) (170)
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Net cash provided by financing activities 1,175 970
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Increase (decrease) in cash and cash equivalents 61 (4)
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Cash and cash equivalents at beginning of period 129 273
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Cash and cash equivalents at end of period $190 $269
===============================================================================
Supplemental cash flow information:
Cash paid during the period for interest $194 $151
Cash paid during the period for income taxes $4 $120
============================================================================
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, 1999 and 1998 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, 1998 audited financial statements
which are included in the Company's Annual Report on Form 10-KSB dated
December 31,1998. The results of operations for the three and six months ended
June 30, 1999 are not necessarily indicative of the results to be expected for
the entire year ending December 31, 1999.
2. CONTINGENCIES Reference is made to the legal proceedings section of the
Note 9 of Notes to Consolidated Financial Statements in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998. With respect to the
Company's legal action for breach of contract brought against Solutioneering,
Inc., Solutioneering has filed for creditor protection in a Chapter 11
bankruptcy proceeding as a result of an injunction the Company obtained against
it. The Company continues to believe that the underlying value of
Solutioneering's retail base exceeds the amount owed to its secured creditors
and is proceeding with preparing a reorganization plan to achieve that
objective.
3. PROVISIONS FOR INCOME TAXES No provisions for federal or state income
taxes have been made for the three and six-month periods ended June 30, 1999.
At December 31, 1998, the Company had $14.2 million of operating loss
carryforwards and net deferred income tax assets consisting of current federal
income tax loss carryforwards of approximately $9 million available to offset
future federal taxable income which expire during the years 2011 through 2018
and net deferred income tax assets of approximately $5.2 million.
4. 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.
5. SHAREHOLDERS' EQUITY The $1,430,000 increase in shareholders' equity
from $12,005,000 at December 31, 1998 to $13,435,000 at June 30, 1999 was
comprised of $1,239,000 of net income and $191,000 of exercised stock warrants
and options.
6. SUBSEQUENT EVENT On July 2, 1999, 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
$6,000,000, which represents a $1,000,000, 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, 1999, the
Company had borrowed $4,930,176 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, 1999 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 its line of credit, as well as through its existing
cash flow and equity financing.
The Company intends on introducing its next generation lottery products
during 1999 as well as diversifying its product lines into additional high-
volume, cash-oriented transactions. As a result, there may be a transition
phase between the introduction of the new products and the phase-out of the
older products that may negatively impact revenues and gross margins. In
addition, the Company is considering a restructuring of its operations to
accommodate its plans to introduce its new products and product lines. This may
also negatively impact results of operations during the transition period.
However, management believes the long-term benefits far outweigh any potential
negative short-term effects.
RESULTS OF OPERATIONS Revenues for the three and six month periods ended
June 30, 1999 increased by approximately $991 thousand, or 24%, and $2.0
million, or 24%, respectively, from the prior year. The second quarter $991
thousand increase was comprised of approximately $500 thousand from sales and
sales-type leases, $700 thousand from service, and was partially offset by a
$200 thousand decrease from operating leases. The year-to-date $2.0 million
increase was comprised of approximately: $1.6 million from sales and sales-type
leases, $600 thousand from service, and was partially offset by a $200 thousand
decrease from operating leases. Both the $991 thousand second quarter revenue
increase and the year to date $2.0 million dollar increase were comprised of
increased volume, due to greater vending terminal sales and sales-type lease
arrangements, rather than operating lease arrangements. The Company installed
or shipped approximately 590 and 1,300 units in the three and six month periods
ended June 30, 1999, respectively, versus approximately 480 and 950 units,
respectively, during the same periods in 1998.
Cost of revenues, as a percentage of sales, for the second quarter
increased by 9 percentage points from 64% in 1998 to 73% in 1999. For the six-
month period there was an increase of 4 percentage points from 67% in 1998 to
71% in 1999. The higher percentage costs of revenues in 1999 versus 1998
primarily reflect costs associated with the initial build of a foreign
shipment. Gross margins for the balance of the year are also expected to be
lower than normal as a result of the transition from older to new technologies.
Operating expenses decreased by $342 thousand, or 31%, and $216 thousand,
or 11%, for the three and six month periods ended June 30, 1999, respectively,
compared to the same periods in the prior year. Selling, general and
administrative expenses remained relatively consistent during both periods with
a $16 thousand, or 3%, decrease in the second quarter, and a $32 thousand, or
2%, year-to-date increase. Research and development costs which were expensed
decreased by $326 thousand, or 72%, and $248 thousand or 39%, for the three and
six month periods, respectively, primarily due to the capitalization of costs
associated with specific projects. As a percentage of sales, operating expenses
of 15%, and 17%, for the three and six month periods ended June 30, 1999,
respectively, declined 11% and 6%, respectively, from the prior year.
As a result of the above factors, income from operations of $619 thousand
and $1,322 thousand for the 1999 three and six month periods, respectively,
represent improvements of $214 thousand and $472 thousand, respectively, over
the same periods in 1998.
Total other income and expense for the three and six month periods ended
June 30, 1999 declined by $192 thousand and $329 thousand, respectively, from
the same periods in 1998 primarily due to lower amortization of unearned income
on sales-type leases, and higher interest cost reflecting increased borrowing.
Net income for the three and six month periods ended June 30, 1999 of $565
thousand and $1,239 thousand, respectively, represented a $22 thousand, or 4%,
and $143 thousand, or 13%, respectively, improvement over the same periods in
1998.
LIQUIDITY AND CAPITAL RESOURCES During the six months ended June 30, 1999,
and 1998, the Company used the net cash provided by financing activities of
$1.2 million and $970 thousand, respectively, and operating activities of $138
thousand and $171 thousand, respectively, for investing activities, principally
for the net investment in sales and operating-type leases of approximately $1.1
million and $1.0 million, respectively.
As a net result of the above cash activities, cash and cash equivalents
increased by $61 thousand during the six month period ended June 30, 1999, and
declined by $4 thousand during the comparative period in 1998. Working capital
of approximately $5.5 million at June 30, 1999 represents an increase of $1.4
million since December 31, 1998.
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 $6 million debt financing (see Note 6 of
Notes to Condensed Consolidated Financial Statements) to maintain current
Levels of operations. However, in order to accommodate recent contract awards,
together with other growth related opportunities in 1999 and beyond, the
Company plans to seek additional financing. 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, 1998 for potential other matters which could
affect the Company's liquidity. No other developments occurred during the
Registrants' quarter ended June 30, 1999 other than previously disclosed.
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. In 1997 the Company set up a committee to review its
computer software and hardware, fax machines and telephone systems 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. During 1998 the Company tested its central network system hardware and
software as well as the hardware and software of each of its computer
workstations. As a result, 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, including any
potential third party risks, relating to year 2000 issues to be minimal.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the legal proceedings section of the Note 9 of Notes
to Consolidated Financial Statements in the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1998. With respect to the Company's legal
action for breach of contract brought against Solutioneering, Inc., as
anticipated, Solutioneering has filed for creditor protection in a Chapter 11
bankruptcy proceeding as a result of an injunction the Company obtained against
it. The Company continues to believe that the underlying value of
Solutioneering's retail base exceeds the amount owed to its secured creditors
and is proceeding with preparing a reorganization plan to achieve that
objective.
ITEM 2. CHANGES IN SECURITIES
(a) None
(b) None
(c) None
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 Three 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: August 13, 1999 /s/ Sam W. Stearman
As Chief Financial Officer on behalf
of Registrant and as Registrant's
Principal Financial & Accounting Officer
<PAGE>
AMENDMENT NUMBER THREE TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER THREE TO LOAN AND SECURITY AGREEMENT, dated as of
July 2, 1999 (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, Inc. ("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.
R E C I T A L S
WHEREAS, Borrower and Coast wish to amend the Loan Agreement pursuant to
the terms and provisions set forth in this Amendment; and
NOW, THEREFORE, the parties hereto agree as follows:
A M E N D M E N T
Section 1. AMENDMENT TO SECTION 8 OF THE LOAN AGREEMENT. Section 8 of
the Loan Agreement is hereby amended by adding the following definitions in
appropriate alphabetical order:
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
Section 2. AMENDMENT TO SECTION 1 OF THE SCHEDULE. The text of
Section 1 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 Six Million Dollars ($6,000,000) at any one
time outstanding (the "Maximum Dollar Amount"), or the sum of (a),
(b), (c), (d), (e), (f), (g) and (h) 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 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 "ITRs"); 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:
(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
consecutive months ending on the last day of each
month) on leases of DCRs 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, plus
(g) Bridge Loans. Loans in an amount not to exceed Six Hundred
Thousand Dollars ($600,000) which shall be due and payable:
(1) by refinancing with the Export-Import Bank Guaranteed
Loans (as hereinafter defined), if the conditions
precedent set forth in the Schedule to the extension of
such Loans are satisfied; or
(2) if the conditions precedent set forth in the Schedule
to the extension of the Export-Import Bank Guaranteed
Loans are not satisfied, commencing on October 1, 1999
then the Bridge Loans shall be due and payable in six
(6) monthly principal installments each in an amount
equal to one-sixth of the outstanding principal
balance of the Bridge Loans as of October 1, 1999, plus
(h) Export-Import Guaranteed Loans. Loans in an amount not to
exceed One Million Two Hundred Thousand Dollars ($1,200,000)
which shall be made available only as follows:
(1) Coast shall have received, reviewed and approved all
agreements, document and instruments it may require with
respect to the provision by the Export-Import Bank of a
guaranty of such Loans, including a fee of one and one
half percent (1.5%), and providing for a 12-month term
(collectively, the "Export-Import Bank Guaranty");
(2) such Loans shall be made as advances of up to seventy
percent (70%) of the amount of invoices evidencing
Receivables arising from Borrower's delivery of
Inventory consisting of lottery ticket vending machines
(the "LFDJ Machines") to La Francaise des Jeux ("LFDJ")
in cooperation with Editec, SARL ("Editec") as
distributor;
(3) such Receivables shall be eligible for advances only
upon confirmation to Coast of installation of the
associated LFDJ Machines by Editec within 60 days of the
issuance by Borrower of its invoices to LFDJ relating
thereto;
(4) such Receivables shall remain eligible only until the
earlier of 180 days from the date of Borrower's invoice
with respect thereto or 120 days from the date of
Editec's invoice to LFDJ with respect thereto;
(5) proceeds of such Receivables shall be payable by
Editec directly to a Coast blocked account;
(6) Borrower shall cause Editec to provide to Coast within
10 days of the end of each month a schedule listing all
LFDJ Machines sold by Borrower and installed by Editec;
and
(7) such Loans shall all be due and payable upon the
termination or cancellation of, or any default under,
the Export-Import Bank Guaranty.
Section 3. AMENDMENT TO SECTION 2 OF THE SCHEDULE. The Minimum
Monthly Interest provision of Section 2 of the Schedule to the Loan Agreement
is hereby amended by deleting such provision in its entirety and replacing it
with the following:
Minimum Monthly
Interest
(Section 1.2): Interest calculated based upon
$3,000,000 of Loans outstanding.
Section 4. AMENDMENT OF STATED "MATURITY DATE" CONTAINED IN SECTION 4
OF THE SCHEDULE. The stated Maturity Date contained in Section 4 of the
Schedule to the Loan Agreement is hereby amended only by extending the date
From April 30, 2000, to July 31, 2000.
Section 5. AMENDMENT OF EARLY TERMINATION FEE PROVISION IN SECTION 4
OF THE SCHEDULE. The stated Early Termination Fee provision in Section 4 of the
Schedule to the Loan Agreement is hereby amended by deleting such provision in
its entirety and replacing it with the following:
Early Termination Fee
Section 6.2) An amount equal to 1% of the Maximum
Dollar Amount (as defined in the Schedule)
if termination occurs on or before the
Maturity Date.
Section 6. AMENDMENT OF SECTION 7 OF THE SCHEDULE. Section 7 of the
Schedule is hereby amended to read as follows:
7. Other Provisions
(Section 5.1) On and after December 31, 1998, Borrower
shall maintain book net worth of at least
Twelve Million Dollars ($12,000,000);
provided that such minimum amount shall be
decreased by the amount, if any, of the
write-down of Borrower's assets incurred in
connection with the resolution of the issues
respecting the Solutioneering assets
(currently carried on Borrower's books at
approximately $6,500,000).
Section 7. CONDITIONS PRECEDENT. The effectiveness of this Amendment
is expressly conditioned upon the receipt by Coast of the following:
(a) Warrant Amendment. Coast shall have received an amendment
to the warrant previously issued by Borrower extending the expiration of the
exercise period from 5:00 p.m., Los Angeles time, on May 5, 2000, to 5:00 p.m.,
Los Angeles time, on July 31, 2000;
(b) Amendment. Coast shall have received this Amendment duly
executed by Borrower; and
(c) Fee. Coast shall have received payment of a fee equal to
$10,000 in consideration of this Amendment.
Section 8. 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 hereof. 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 9. 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 10. MISCELLANEOUS. This Amendment shall be governed by and
construed in accordance with the laws of the State of California. This
Amendment may be 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, Inc.
By
President or Vice President
By
Secretary or Ass't Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
By
Title
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