U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-QSB xQUARTERLY REPORT UNDER
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2001 OR oTRANSITION 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. Employerincorporation or
  organization)
  Identification No.)1370
  W. SAN MARCOS BLVD. SUITE 100, SAN MARCOS, CALIFORNIA
  92069(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.  YesxNoo As
of April 30, 2001, there were 4,305,584 shares of Common Stock ($.03 par value)
outstanding.   INDEX

Part
  I.
  Financial
  InformationItem
  1.
  Financial
  StatementsCondensed
  Consolidated Balance Sheet
  March 31, 2001 (Unaudited)Condensed
  Consolidated Statements of Operations (Unaudited)
  Three Months Ended March 31, 2001 and 2000Condensed
  Consolidated Statements of Cash Flows (Unaudited)
  Three Months Ended March 31, 2001 and 2000Notes to Condensed
  Consolidated Financial Statements (Unaudited)Item
  2.
  Managements
  Discussion and Analysis of Financial
  Condition and Results of OperationsPart
  II.
  Other
  Information



On-Point Technology Systems, Inc. and
SubsidiariesCondensed Consolidated Balance
Sheet

March
  312001Assets              Thousands of dollars, except share amounts
  (Unaudited)Current assets:Cash and cash equivalents
  $553Accounts receivable, net
  572Inventories
  1,129Net assets of discontinued
  operations
  10,165Other current assets
  105Total current assets
  12,524Plant, property and
  equipment, net
  160Property held for
  operating leases, net
  28Inventory, previously
  under lease with Solutioneering
  1,825Other assets
  981Total assets
  $15,518Liabilities and
  shareholders equityCurrent liabilities:Accounts payable
  $1,398Notes payable
  1,980Accrued expenses & other
  current liabilities
  400Total current
  liabilities
  3,778Long-term debt
  3,929Shareholders equity:Preferred stock, no par value,
  2,000,000 shares authorized, no shares issued or outstandingCommon stock, $.03 par value,
  13,333,334 shares authorized, 4,305,584 shares issued and outstanding
  129Shares to be issued
  950Additional paid-in capital
  33,124Accumulated deficit
  (26,392)Total shareholders
  equity
  7,811Total liabilities and
  shareholders equity
  $15,518See accompanying notes to condensed consolidated financial
statements



On-Point Technology Systems, Inc. and
SubsidiariesCondensed Consolidated
Statements of Operations
(Unaudited)

Three
  Months Ended
  March 31Thousands of dollars/shares, except per
  share amounts
  2001
  2000Revenues
  $6
  $2Cost of revenues
  3
  1Gross profit
  3
  1Other costs and
  expenses:Selling, general and administrative
  438
  407Interest expense
  154
  173Total other costs and
  expenses
  592
  580Loss from continuing
  operations
  (589)
  (579)Income from
  discontinued operations
  294
  489Net Loss
  $(295)
  $(90)Earnings (loss) per
  share:Basic and diluted:Continuing operations
  $(0.14)
  $(0.17)Discontinued operations
  .07
  .14Net loss
  $(0.07)
  $(0.03)Weighted average shares
  4,305
  3,422See accompanying notes to condensed consolidated financial
statements



On-Point Technology Systems, Inc. and
SubsidiariesCondensed Consolidated Statements of Cash Flows(Unaudited)



Three
  months ended March 312001
  2000Thousand of dollarsCash flows from
  operating activities:Loss from continuing
  operations
  $(589)
  $(579)Income from discontinued
  operations
  294
  489Adjustments to reconcile net
  (loss) to net cash (used for) provided by operating activities:Depreciation and amortization
  215
  262Issuance of options and
  warrants for services provided
  31
  15Changes in operating assets
  and liabilities:Accounts receivable
  314
  (884)Inventories
  91
  (168)Accounts payable
  (155)
  867Accrued expenses
  and other liabilities
  (117)
  98Other current
  assets
  (80)
  (407)Net cash (used for)
  provided by operating activities
  4
  (307)Cash flows from
  investing activities:Purchases of plant, property
  and equipment
  (17)
  (35)Net investment in sales-type
  leases
  342
  (581)(Increase) decrease in other
  assets
  (21)
  (92)Investment in property held
  for operating leases
  (37)Net cash (used for)
  provided by investing activities
  267
  (708)Cash flows from
  financing activities:Proceeds from line of credit,
  net
  143
  (607)Proceeds from notes payable,
  net
  
  1,500Net cash provided by
  financing activities
  143
  893Increase (decrease) in
  cash and cash equivalents
  414
  (122)Cash and cash
  equivalents at beginning of period
  139
  157Cash and cash
  equivalents at end of period
  $553
  $35Supplemental cash flow
  information:Cash paid during the period
  for interest
  $154
  $141See accompanying notes to condensed consolidated financial
statements

ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIESNOTES
TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS(Unaudited)

1.          Basis of PresentationThe 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 months ended March 31, 2001 and 2000 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
consolidated financial statements should be read in conjunction with the
Companys December 31, 2000 audited financial statements which are included in
the Companys Annual Report on Form 10-KSB dated December 31, 2000.  The results of operations for the three
months ended March 31, 2001 are not necessarily indicative of the results to be
expected for the entire year ending December 31, 2001.

On
November 6, 2000, the Board of Directors of the Company approved a
one-for-three reverse split of the Companys common stock.  No fractional shares of common stock were
issued in connection with the reverse stock split and in instances where the
reverse split resulted in a stockholder becoming the holder of a fractional
interest in a share, then the number of shares held by such stockholder was
rounded up to the nearest whole share. 
The accompanying condensed consolidated financial statements for the
three months ended March 31, 2000 have been restated to show the effects of the
reverse stock split as if the split had occurred as of the beginning of the
respective periods.

2.          Discontinued OperationsOn February 23, 2001, the
Company executed a definitive agreement to sell to Interlott Technologies, Inc.
(Interlott) those assets used in its existing lottery business, relating to
the manufacture, sale, lease and service of instant ticket vending machines,
including the assignment of On-Points existing lottery contracts.  In exchange, On-Point will receive up to
$28.5 million, including cash of $13.5 million at closing (subject to
adjustment if inventory and accounts receivable are greater than or less than
$5 million), and deferred and earn-out amounts over five years (subject to
certain conditions) for the remainder. 
In addition, On-Point and Interlott will enter into a separate on-line
technology agreement to market a proprietary design for an on-line activated
instant lottery ticket.  On-Point will
retain its cash and all non-lottery related assets and continue to move forward
with new market opportunities.  The
Company received shareholder approval for the sale on May 18, 2001 and the
closing is subject to customary closing conditions.  The Company anticipates a gain on the sale of the lottery assets.

As
a result of the agreement, the operations related to the lottery assets have
been reflected as discontinued operations in the accompanying condensed
consolidated financial statements.  The
net income of discontinued operations for the three-months ended March 31, 2001
and 2000 was $294 thousand and $489 thousand, respectively.

The net assets of discontinued operations
expected to be disposed as of March 31, 2001 were as follows:

(in
  thousands)Current assets
  $6,293Plant, property and
  equipment, net
  119Net investment in
  sales-type leases
  1,943Property under
  operating leases, net
  631Other assets
  1,179Net assets of
  discontinued operations
  $10,165

For the three months ended March 31,
2001, cash flows provided by operating and investing activities were $1,467
thousand and $317 thousand, respectively, totaling $1,784 thousand.  For the three months ended March 31, 2000,
cash flows provided by operating activities were $221 thousand and cash flows
used in investing activities were  $720
thousand, totaling a net use of $499 thousand.

3.          ContingenciesOn April 20, 2000, a
shareholder class action was filed against On-Point and certain officers and
directors in the U.S. District Court, Southern District of California.  The action, which seeks an unspecified
amount of damages on behalf of all similarly situated shareholders, alleges
that On-Point violated federal securities laws by the dissemination of
materially false and misleading financial statements.  Subsequent cases alleging substantially the same claims, and also
filed in the same court, have all been consolidated before the same judge.  The defendants have entered into amended
settlement agreements with the class, and the court has preliminarily approved
the amended settlement agreements. 
On-Point and the other defendants have denied the liability claims as
part of the amended settlements, but believe that settling the case quickly is
in the best interests of the Company in order for management to more
effectively proceed with its strategic business plans.  Under the settlement agreement, On-Point
would be permitted to issue shares equal to $950 thousand in value on the date
the shares are required to be issued to the class, which is estimated would
occur within twelve months, and $50 thousand of cash.

On
April 21, 2000, an action was filed against On-Point in U.S. District Court,
Southern District of Ohio, by Interlott. 
The action alleges that On-Point breached a Settlement Agreement and
Mutual Release dated May 30, 1991 with Interlott in that On-Point was using
elements of Interlotts technology in On-Points new PlayPoint technology.  We believe Interlotts suit to be without
merit.  The case has been temporarily
stayed by order of the court due to the pending transaction to sell the
Company's Lottery Assets to Interlott.

4.          Provisions for Income TaxesNo provisions or benefits for federal or
state income taxes have been made for the three-month period ended March 31,
2001 and 2000.  No significant changes
have occurred to operating loss carry forwards and net deferred income tax
assets since December 31, 2000 (see Note 8 of Notes to Consolidated Financial
Statements in On-Points Form 10-KSB for the year ended December 31, 2000).

5.          Per Share InformationIn
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.  At March 31, 2001 and 2000, 1,245 thousand
and 1,241 thousand, respectively, options and warrants were not factored into
the calculation due to antidilution.

6.          Long Term DebtAs of March 31, 2001, current
notes payable consisted of notes to certain private lenders in the amount of
$1.23 million, including $130 thousand from the Companys chief executive
officer, all of which mature on February 15, 2002 with interest-only payable
quarterly at 10% per annum, and a note to GTECH Corporation in the amount of
$750 thousand, which matures with interest at 10% per annum on February 15,
2002.

As
of March 31, 2001, long-term debt consisted of amounts outstanding under a $10
million revolving line of credit.  The
available borrowings under the line are subject to a number of restrictions and
conditions (see Note 4 of Notes to Consolidated Financial Statements in the
2000 Form 10-KSB).  As of March 31,
2001, On-Point had available approximately $4.0 million under the credit line
of which approximately $3.9 million had been borrowed.

7.          Shareholders EquityThe decrease in shareholders
equity from $8.1 million at December 31, 2000 to $7.8 million at March 31, 2001
was  the result of a net loss of $295
thousand for the first quarter.

ITEM 2.            MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL
                           CONDITION AND
RESULTS OF OPERATIONS

GeneralThe Company is in the process of a major
transition.  The Company is undergoing a
series of actions designed to transform itself into a more diversified
company.  The Company has been engaged
primarily in the lottery industry over the past 10 years and is presently one
of the largest providers of vending terminals for the sale of instant-winner
lottery tickets.  As part of a planned
series of actions, on February 23, 2001, the Company executed a definitive
agreement to sell to Interlott Technologies, Inc. (Interlott) the assets used
in its existing lottery business, relating to the manufacture, sale, lease, and
service of instant lottery ticket vending machines (the Lottery Assets) in
exchange for up to $28.5 million, including cash of $13.5 million at closing
(subject to closing adjustments), and deferred and earn-out amounts (subject to
certain conditions) for the remainder. 
A more detailed description of the agreement with Interlott is under
Agreement with Interlott in the Companys Annual Report on Form 10-KSB for
the year ended December 31, 2000.  Such
sale, which was approved by the Companys shareholders on May 18, 2001, is
subject to customary closing conditions.

The
Companys revenues through March 31, 2001 had been generated from (i) sales of
vending terminals (ii) leases of vending terminals (iii) performance of service
on vending terminals (iv) upgrades to vending terminals, and (v) sales of
associated parts.  The Companys
products were sold or leased to a limited number of customers worldwide.  As a result, the Company had 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 could, at times, be relatively long due to the
lead time required for business opportunities to result in signed sales or
lease agreements.  Operating results
were 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 had been an accelerating trend by customers to lease rather
than purchase vending terminal equipment. 
Leasing vending terminals required the Company to invest capital or
otherwise finance the manufacture of the vending terminals.

Over
the past four years, the Company has undergone an extensive development program
in accordance with a comprehensive strategic product development plan for the
lottery market.  The plan envisioned the
development of a proprietary design for the worlds first central-computer
activated instant winner lottery ticket as well as the next generation of
dispensing equipment for instant winner lottery tickets capable of ultimately
dispensing the new ticket design. 
On-Point has now obtained a patent for its on-line instant ticket
concepts and has finalized most of the development of its next generation
lottery equipment.  Its next generation
equipment is now undergoing industrialization and beta tests.  On-Point has expended over $5 million since
it started its product development strategy.

As a result of the tremendous
focus and resources required over that period of time for the development of
its new next generation lottery products, results of operations have been
negatively impacted due to the expense of the development costs and the
transitional impact on the Companys revenue and gross margins.  In addition, the Company is in the process
of restructuring its operations to accommodate its new strategic plans.  This has also negatively impacted results of
operations during the transition period.

Since
our lottery business accounted for substantially all of our business in 2001
and 2000, the discussions relating to the results of operations should be read
in this context.  If the transactions
contemplated by our agreement with Interlott are completed, we will no longer
be engaged in the business of manufacturing, selling, leasing and service of
lottery vending machines subsequent to the close of the transaction.

Results of Operations

Continuing OperationsThe
Company had no significant revenue from continuing operations in 2001 and
2000.  Although the Company has non-lottery
products, substantially all of its focus in those periods were on its lottery
related business.  Once the sale of the
lottery assets is completed, the Company plans to review and implement
strategies to maximize value from its non-lottery related assets.

Selling,
general and administrative costs and expenses for the 2001 first quarter
remained relatively constant between quarters. 
Interest expense for the 2001 first quarter decreased over the prior
year comparable quarter by $19 thousand due to the effect of interest costs,
reflecting changes in borrowings.

As
a result of the above, for the 2001 three-month period the Company incurred a
net loss from continuing operations of $589 thousand versus $579 thousand for
the 2000 period.

Discontinued OperationsPrior
to the Companys change in business strategy, the Company had been primarily
engaged in the lottery industry. The Company's customer base in the lottery
business remained relatively constant between the 2001 quarter and the 2000
quarter, although revenues for the three-month period ended March 31, 2001
decreased from the prior year, primarily as a result of decreases in sales and
sales type leases of its existing lottery product line.  As previously discussed, On-Point is now in
the process of marketing its new next generation lottery products and the
decreases in sales relate to the transitioning required in the introduction of
the new products.  The decrease was
offset partially by an increase in operating leases and service revenue.

Cost
of revenues, as a percentage of sales, for the first quarter increased by 3
percentage points from 68% in 2000 to 71% in 2001.  The higher percentage of costs of revenues in 2001 versus 2000 is
primarily due to change in the product revenue mix with lower product sales,
which have a higher percent of gross profit. 
Operating expenses decreased over the prior year comparable periods by
approximately $220 thousand in the three months ended March 31, 2001.  The decreases were primarily due to
decreased research and development costs expensed in the periods.  Research and development costs decreased due
to the Companys substantial completion and field-testing of the Companys new
lottery products.

As
a result of the above, for the 2001 three-month period the Company generated
income from discontinued operations of $294 thousand versus $489 thousand for
the same period in 2000.

Liquidity and Capital
ResourcesAt
March 31, 2001, the Company had working capital of approximately $4.9 million
(not including the non current assets of the net discontinued assets) and cash
and cash equivalents of approximately $553 thousand.

At March 31, 2001, the
Company had a $10 million revolving line of credit facility with its
asset-based lender, of which $3.9 million was outstanding out of $4 million
available based on formula limitations.

The
Companys principle source of funds during the three months ended March 31,
2001, was from its investing and financing activities.  The Company used its funding for working
capital to maintain operations.

Management
believes On-Point has sufficient liquidity because of its existing stream of
contractual lease payments, its current working capital and its available
borrowings under its $10 million debt financing, to maintain its current level
of operations for 2001.  However, if
On-Point is unable to liquidate its current assets timely, then additional
capital will be required to fund existing operations.  Management believes this funding will be available through
private placement financing.

Further,
in order to proceed with the Companys plans to develop on-line lotteries and
solutions for high-volume, cash-oriented transactions, On-Point will need to
seek additional financing for those businesses.  If the Company sells its lottery assets pursuant to its agreement
with Interlott, the Company would have the necessary funding to proceed with
certain of its new market opportunities regardless of additional outside
funding availability.

PART II.  OTHER
INFORMATION

ITEM 1.LEGAL PROCEEDINGS

Reference
is made to the legal proceedings section of Note 10 of Notes to Consolidated
Financial Statements in the Companys Annual Report on Form 10-KSB for the year
ended December 31, 2000 and the legal proceedings section of the Form.  There have been no significant developments
in the litigation described in the 2000 Form 10-KSB since the date of that
report.

ITEM
  2.
  CHANGES
  IN SECURITIES(a)
  None(b)
  None(c)
  NoneITEM
  3.
  DEFAULTS
  UPON SENIOR SECURITIESNoneITEM
  4.
  SUBMISSION
  OF MATTERS TO A VOTE OF SECURITY HOLDERSN/AITEM
  5.
  OTHER
  INFORMATIONITEM
  6.
  EXHIBITS
  AND REPORTS ON FORM 8-K(a)
  ExhibitsN/A(b)
  Reports
  on Form 8-KN/A



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:  May 18, 2001
  
  /s/
  Charles R. BrozAs
  Principal Financial Officer on behalfof
  Registrant