<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB/A
                                   (Mark One)

                                  Amendment No.1

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                      FOR THE YEAR ENDED DECEMBER 31, 2000

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

         FOR THE TRANSITION PERIOD FROM _____________ TO ______________

                         COMMISSION FILE NUMBER 1-21738

                        ON-POINT TECHNOLOGY SYSTEMS, INC.
                        ---------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                       NEVADA                    33-0423037
                       ------                   -----------
            (STATE OF INCORPORATION)   (I.R.S. EMPLOYER IDENTIFICATION)

                        1370 W. SAN MARCOS BLVD, STE 100
                          SAN MARCOS, CALIFORNIA 92069
                     --------------------------------------
             (ADDRESS OF REGISTRANT'S EXECUTIVE OFFICES) (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (760) 510-4900

        SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                     COMMON STOCK, PAR VALUE $.03 PER SHARE

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

   Purpose of Amendment: Item 1 and Note 9 to Financial Statements are being
amended.

   CHECK WHETHER THE ISSUER (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY
 SECTION 13 OR 15 (d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR IF SUCH
 SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2)
       HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
                                 YES |X| NO |_|

 CHECK IF DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF REGULATION
 S-B IS NOT CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE CONTAINED, TO THE
 BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
         INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB |_|.

     THE REGISTRANT'S REVENUES FOR FISCAL YEAR ENDED DECEMBER 31, 2000 WERE
                                  $10,293,429

      THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY
      NONAFFILIATES OF THE REGISTRANT AS OF MARCH 20, 2001, WAS $5,804,525

 THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF MARCH
                            20, 2001, WAS 4,305,496

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE

<PAGE>

ITEM 1. BUSINESS

     GENERAL

     On-Point Technology Systems, Inc. (the "Company" or "On-Point") 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." Such sale, subject to shareholders' approval, certain
     other approvals, and customary closing conditions, is expected to be
     completed during the quarter ending June 30, 2001.

     As a result of the proceeds we anticipate from the sale of our Lottery
     Assets, we believe we can accelerate our entrance into a number of new
     opportunities that we have been developing. First, we can move forward, in
     a strategic arrangement with Interlott, to market and develop our patented
     design for the world's first central-computer activated instant winner
     lottery ticket. On-Point will retain certain gross profit and royalty
     rights to this intellectual property subsequent to the sale of the Lottery
     Assets to Interlott. We believe this new instant ticket concept has
     worldwide application.

     Second, the Company has entered into a strategic relationship with Victor
     Chandler International Limited (VCI), one of the world's largest
     independent full service gaming companies, in order to jointly promote each
     others expertise while pursuing potential international projects. As a
     result of the relationship, the Company is pursuing discussions with VCI
     for the acquisition of rights to develop certain on-line lotteries. VCI and
     the Company are currently in negotiations for at least one such opportunity
     in a foreign country; however, we cannot give any assurance that the
     Company will be successful in entering into any agreements to develop
     on-line lotteries.

     And, third, the Company continued to move forward with the development of
     plans to provide solutions to the market for high-volume, cash-oriented
     transactions, such as prepaid telephony, bill payments, prepaid debit
     processes, consumer entertainment, and public access mediums, using the
     latest in Web-enabled technology. In line with our plans, we entered into a
     definitive agreement in January 2001 to acquire assets of a privately-held
     Web-enabled systems company, which has not yet generated any significant
     revenues from operations. We believe that the Web-enabled systems will be
     beneficial in accelerating and realizing our strategic plans to develop
     electronic solutions to high-volume, cash-oriented transactions. The assets
     that we would acquire include proprietary delivery systems, strategic
     arrangements for content delivery, contractual rights and equipment. In
     addition, we expect members of the company's management team to join our
     management team. The agreement is subject to a number of conditions,
     including final due diligence by On-Point.

     The above series of planned actions are intended to transform the Company
     and to strategically place its business interests into larger, more
     diversified markets.

     Prior to the above series of actions, we had set certain goals to be
     achieved in 2000, which were to:

     o    complete the development and industrialization of our next generation
          lottery products;
     o    fully explore merger, acquisition and strategic alliance arrangements
          with other companies that would provide greater resources for us to
          achieve our strategic plans and enhance shareholder value;
     o    develop and implement a financing strategy to fund the growth plans of
          On-Point;
     o    begin the marketing of On-Point's patented product for the deployment
          of central-host


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          computer activated instant scratch tickets in the lottery industry;
     o    continue to transition On-Point's business to include On-Point's next
          generation lottery product offerings;
     o    continue to reevaluate On-Point's existing non-lottery products and
          determine future strategic plans for those products;
     o    continue to evaluate a diversification program that could enable us to
          incorporate other technologies for the development of other new
          product offerings and markets, specifically for high volume
          cash-oriented transactions.

     We believe that we made significant progress with respect to all our goals
     for 2000, despite certain events during 2000 that negatively impacted the
     Company. In moving forward with our goals, first, we continued our
     development efforts towards the completion and industrialization of our
     next generation lottery products and expended approximately $1 million in
     that effort. Over the past four years the Company has expended over $5
     million towards the development of its next generation lottery products,
     not only to expand our product offerings to our lottery customers, but to
     provide enhanced features, such as the ability to dispense instant tickets
     in conjunction with central computer processing of those tickets (referred
     to as "on-line instant tickets"). We believe this feature, which is patent
     protected, is not presently available in the lottery industry. Our next
     generation lottery products include PlayPoint, our new automated instant
     ticket vending terminal, and CounterPoint, our new instant ticket
     dispensing product that is uniquely suited for retail countertop
     installation. These new products can provide lotteries with the platform on
     which dynamic new features, such as progressive jackpots, can be designed
     into instant ticket games. Under the terms of the sale of the Company's
     Lottery Assets, the Company would retain the right to market its on-line
     instant ticket design, but not to manufacture the dispensing equipment, and
     receive an on-going royalty payment for revenue generated from its patented
     design.

     In January 2000, after moving forward with our goal of exploring merger and
     acquisition possibilities, we had entered into an agreement to be acquired
     by GTECH Corporation (GTECH). However, subsequent to the execution of the
     agreement with GTECH:

     o    An action was filed by a shareholder claiming, among other things,
          that the price for On-Point was too low and that the board of
          directors breached its fiduciary duties in reaching its agreement with
          GTECH at such a price.
     o    We restated our prior year financial statements primarily to record
          leases of equipment to Solutioneering, Inc, a non-lottery customer in
          the prepaid phone card business that filed for bankruptcy protection
          during 1999 and was liquidated during 2000, as operating leases rather
          than sales-type leases.
     o    Certain class actions were commenced against us and some of our
          officers and directors, alleging violations of securities laws
          resulting from the restatement of our financial statements. As more
          fully described under "Item 3. Legal Proceedings", settlement
          agreements have now been filed with the court relating to those
          actions.
     o    Nasdaq suspended trading of our stock for a period of three days
          after we announced the revision of our earnings.

     In April 2000, the agreement with GTECH was terminated and, in July 2000,
     discussions regarding a new agreement were discontinued. Prior to the
     discontinuation of discussions, the Company was restricted from
     aggressively pursuing its other goals, especially with respect to
     financing, marketing of its next generation products, and development of
     new market areas. As a result, the Company experienced a significant
     negative affect on its business in 2000. However, once discussions were
     discontinued, we began to refocus our efforts back to our overall strategic
     plans as outlined in our goals for 2000.

     Subsequent to July 2000, the Company continued to explore merger,
     acquisition and strategic alliance discussions that resulted in the action
     plans described above. With respect to the sale of our Lottery Assets, the
     Company entered into the definitive agreement with Interlott on February
     23, 2001 after several months of negotiations. If completed, the Company
     will receive up to $28.5 million, including cash of $13.5 million at
     closing (subject to closing adjustments), a deferred amount of up to $9
     million,


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     payable evenly, subject to adjustment, over five years, and an earn-out
     amount of up to $6 million tied to certain future revenues. The manner in
     which these amounts may be adjusted downward are described under "Agreement
     with Interlott." Under the agreement, the Company will retain its cash and
     all non-lottery related assets and continue to move forward with its new
     market opportunities, including the development of on-line lotteries. In
     addition, at the closing, the Company and Interlott will enter into a
     separate agreement pursuant to which the Company retains the nonexclusive
     perpetual royalty-free right to sell, lease, license, market, distribute or
     otherwise deal with, but not manufacture, is on-line technology which is
     based on claims included in the patents for on-line technology which the
     Company is transferring to Interlott. This technology relates to the
     enhancement of instant ticket vending machines in order to enable the point
     of sale automated on-line activation and validation of instant winner
     lottery tickets. This agreement is described in more detail under
     "Agreement with Interlott".

     During 2000, the Company implemented a new financing strategy in order to
     proceed with its business plans. The Company restructured its short-term
     debt obligations to long-term, completed a $1 million private placement,
     and extended its line of credit through 2003. The private placement was
     done with Investa AG, an international fund manager based in Europe,
     together with a syndicate of accredited investors, including VCI.

     Based on the completion of the agreement with Interlott, the Company is now
     positioned to move forward in 2001 with its plans to diversify the business
     and redirect its attention into these new market opportunities.

     CURRENT EXISTING BUSINESS

     Currently, On-Point designs, manufactures, sells, leases, and services
     high-security automated point of sale transaction vending terminals for the
     sale of instant-winner lottery tickets (the "Instant Ticket Retailer" or
     "ITR"), and prepaid phone card vending terminals (the "Debit Card Retailer"
     or "DCR"). Our ITR and DCR terminals accept bills and/or coins of various
     denominations; provide a secure means of product distribution; and include
     software, which automatically accounts for product sales and inventories.
     The ITR terminals have been sold or leased to state and provincial
     governments primarily in the United States as well as in Canada and Europe.
     The DCR terminals are sold or leased principally to commercial customers in
     the United States and, to a lesser extent, to governmental entities and
     their licensees in Asia and South America.

     We have three reportable business segments:

     o    Instant ticket and debit card vending and dispensing products (Product
          Segment);
     o    Financing, which we provide to our customers in the form of both
          operating and finance leases (Financing Segment); and,
     o    Servicing, which we provide primarily to our instant ticket vending
          customers (Service Segment).

     The description and operating results of these segments are more fully
     described herein.

     ABOUT ON-POINT

     We are a Nevada Corporation organized in March 1990. Our executive offices
     are located at 1370 W. San Marcos Blvd, Ste 100, San Marcos, California,
     telephone (760) 510-4900.

     FORWARD-LOOKING STATEMENTS

     SOME OF THE STATEMENTS IN THIS REPORT ARE FORWARD LOOKING STATEMENTS ABOUT
     WHAT MAY HAPPEN IN THE FUTURE. THEY INCLUDE STATEMENTS REGARDING OUR
     CURRENT BELIEFS, PLANS, EXPECTATIONS AND ASSUMPTIONS ABOUT MATTERS SUCH AS
     OUR EXPECTED FINANCIAL POSITION AND OPERATING RESULTS, OUR BUSINESS
     STRATEGY AND OUR FINANCING PLANS. THESE STATEMENTS CAN SOMETIMES BE
     IDENTIFIED BY OUR USE OF FORWARD LOOKING WORDS SUCH AS "ANTICIPATE,"
     "BELIEVE," ESTIMATE," "EXPECT," "INTEND," "PLAN," "SEEK," "SHOULD," AND
     SIMILAR


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     EXPRESSIONS. WE CANNOT GUARANTEE THAT OUR FORWARD-LOOKING STATEMENTS WILL
     TURN OUT TO BE CORRECT OR THAT OUR BELIEFS, PLANS, EXPECTATIONS AND
     ASSUMPTIONS WILL NOT CHANGE. ANY FORWARD-LOOKING STATEMENTS IN THIS RELEASE
     ARE MADE PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
     LITIGATION ACT OF 1995. INVESTORS ARE CAUTIONED THAT ACTUAL RESULTS MAY
     DIFFER SUBSTANTIALLY FROM SUCH FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING
     STATEMENTS INVOLVE RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO,
     THE SUCCESSFUL COMPLETION OF PROPOSED FUNDING RAISES, WHICH MAY BE
     NECESSARY FOR US TO IMPLEMENT OUR PLANS TO DEVELOP NEW MARKET
     OPPORTUNITIES, CONTINUED ACCEPTANCE OF OUR PRODUCTS AND SERVICES IN THE
     MARKETPLACE, COMPETITIVE FACTORS, NEW PRODUCTS AND TECHNOLOGICAL CHANGES,
     OUR SUCCESSFUL ENTRY INTO NEW MARKETS, OUR SUCCESSFUL TRANSITION TO OUR
     NEXT GENERATION PRODUCT LINE, OUR ABILITY TO INCREASE OUR CUSTOMER BASE, AS
     WELL AS GENERAL POLITICAL AND OTHER UNCERTAINTIES RELATED TO CUSTOMER
     PURCHASES, OUR ABILITY TO OBTAIN THE RIGHTS TO ON-LINE LOTTERIES AND THEIR
     ABILITIES TO GENERATE INCOME FOR SUCH OPERATIONS, OUR ABILITY TO SUSTAIN
     ADEQUATE CASH FLOW FROM OPERATIONS, AND OTHER RISKS DESCRIBED IN "RISK
     FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT.

     RISK FACTORS

     The following risk factors apply to On-Point and its business segments. If
     any of the following risks actually occurs, On-Point's business, financial
     condition or results of operations could be materially adversely affected.

     WE MAY EXPERIENCE FLUCTUATIONS IN OUR FINANCIAL RESULTS AND, AS A RESULT,
     OUR STOCK PRICE.

     In the past, we have experienced significant fluctuations in our financial
     results. Our revenues, capital expenditures and operating results can vary
     significantly due to:

     o    Our dependence on a small number of major customers;
     o    Relatively long sales cycles;
     o    The unpredictable timing and amount of contracts awarded by state
          lotteries and telephone companies; the extended time between the award
          of a contract and the receipt of revenues from the sale or lease of
          ITR's and DCR's;
     o    Changes in customer budgets; and
     o    Working capital required for manufacturing ITR's and DCR's pursuant to
          new orders.

     These factors may make it difficult to forecast revenues and expenditures
     over extended periods. Consequently, our operating results for any period
     could be below the expectations of securities analysts and investors. This
     in turn could lead to sudden and sometimes dramatic declines in the market
     price of our stock. Since the Company had insignificant revenue from its
     DCR product line in the last two years, there can be no certainty that
     additional revenue can be generated from this or other new product lines in
     the future.

     WE MAY NEED ADDITIONAL FINANCING.

     Although On-Point has restructured its debt and obtained additional equity
     capital, in order to successfully market its new product and develop other
     products, On-Point may require additional funding. Unless its new products
     receive early market acceptance, it may only be possible to raise
     additional capital on terms that are dilutive to On-Point stockholders, and
     future stock sales may hurt the On-Point stock price. We presently have a
     credit agreement which provides for a maximum borrowings of $10 million,
     subject to a borrowing base formula, which contains financial covenants,
     including a new worth covenant. Although On-Point is in compliance with all
     covenants, there can be no assurances that On-Point will maintain
     compliance with all its covenants in the future.


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     OUR CURRENT BUSINESS WILL DEPEND UPON CONTINUED MARKET ACCEPTANCE OF ITR'S
     AND DCR'S.

     If the Interlott agreement is not completed, our ability to generate
     additional revenues and earnings will depend upon the continuation of
     existing leases of ITR's and DCR's, the distribution of ITR's and DCR's in
     additional states and international jurisdictions, the approval of
     lotteries in remaining states and international jurisdictions and increased
     future orders of ITR's and DCR's. We cannot assure you that demand for
     ITR's and DCR's will continue. Any significant decline in the market for
     these products will affect our ability to market our products.

     OUR CURRENT BUSINESS DEPENDS ON LARGE CONTRACTS FROM A LIMITED NUMBER OF
     ITR CUSTOMERS.

     We have traditionally derived a significant portion of our revenues from a
     limited number of state lottery authorities or their representatives for
     the lease, sale or service of ITR's. None of our large customers has any
     obligation to lease or purchase additional machines from us. A loss of any
     of these large contracts could have a material adverse effect on our
     business, financial condition and results of operations. It is critical to
     our continued success of our existing business that we develop
     relationships with additional lotteries and telephone companies and that
     additional states authorize instant lotteries.

     WE MAY NOT BE SUCCESSFUL IN PROTECTING OUR PROPRIETARY RIGHTS OR AVOIDING
     CLAIMS THAT WE INFRINGE THE PROPRIETARY RIGHTS OF OTHERS.

     We principally rely upon patent, copyright, trademark and trade secret
     laws, license agreements and employee nondisclosure agreements to protect
     our proprietary rights and technology. These laws and contractual
     provisions provide only limited protection. We could incur substantial
     costs and diversion of management resources in the defense of any claims
     relating to the proprietary rights of others, which could have a material
     adverse effect on our business, financial condition and results of
     operations.

     WE MAY NOT BE ABLE TO ADAPT TO CHANGES IN TECHNOLOGY, PRODUCTS AND INDUSTRY
     STANDARDS.

     The markets in which we compete are characterized by rapidly changing
     technology and evolving industry practices. Competitors may introduce other
     types of lottery, gaming and prepaid telephone calling card products. If we
     are unable to develop or obtain the rights to developing technologies and
     use such technologies to enhance our present products and develop new
     products in a timely manner, we may be unable to retain our present
     customers or attract new customers.

     OUR CONTRACTS WITH STATE LOTTERIES MAY BE TERMINATED WITH LITTLE NOTICE.

     Revenue from state and government-operated lotteries accounted for a
     substantial majority of our revenue in 2000 and 1999. Our contracts with
     lotteries, like government contracts in general, typically permit a lottery
     to terminate the contract upon 30 days written notice upon certain events.
     Our business would be impaired in the event of the termination of our
     lottery contracts. Although lease agreements cannot be cancelled without a
     breach, any changes in state policy on lotteries which reduces the need for
     new equipment could adversely affect our ability to sell or lease our
     terminals.

     ANY PAYMENT OF LIQUIDATED DAMAGES UNDER OUR LOTTERY CONTRACTS COULD IMPAIR
     OUR BUSINESS.

     Our lottery contracts impose demanding installation, performance and
     maintenance requirements and provide for substantial liquidated damages in
     the event that we fail to perform. Our business generally and our cash flow
     and reputation could be materially impaired in the event that we are
     required to pay liquidated damages under these contracts.


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     OUR LEASE CONTRACTS MAY RESULT IN LOSSES.

     Our standard ITR lease agreements provide for fixed lease payments during
     the term of the agreement and typically permit the lottery to order
     additional ITR's at any time during the lease term. If a lottery orders a
     large number of ITR's near the end of the lease term, we would incur
     significant manufacturing costs but may receive lease payments for only a
     relatively short period of time through the remainder of the lease term.

     Additionally, we are unable to pass along to the lottery any increases in
     manufacturing and service costs during the term of the lease agreement. Our
     standard lease agreements provide for a short initial term, such as one
     year, with an option for the lottery to extend the lease term for
     additional one-year periods. If the lottery does not extend the initial
     lease term, we might incur a loss on the manufacture of the ITR's if we are
     unable to re-lease or sell the ITR.

     THE ITR AND DCR MARKETS ARE VERY COMPETITIVE.

     The ITR and DCR markets are relatively new markets that have grown rapidly
     in recent years. We may not be able to compete successfully against current
     or future competitors, many of whom may have greater resources and
     experience than us. The instant ticket market also may face competition
     from other types of lottery and gaming products, particularly on-line
     lottery products. The long distance telephone market similarly may face
     competition from other types of communications products, including
     facsimile, e-mail and other on-line products. Furthermore, it may be
     necessary for us to expand our presence internationally or risk a
     competitive disadvantage relative to our competitors. We may incur
     substantial costs in such expansion with no assurance that we will recover
     those costs through increased business. In addition, increased competition
     could cause us to increase our selling and marketing expenses and research
     and development costs. We may not be able to offset the effects of any such
     increased costs through an increase in the number of lottery contracts and
     higher revenue from sales and leases of ITR's and DCR's, and we may not
     have the resources to compete successfully. These developments could have a
     material adverse effect on our business, financial condition and results of
     operation.

     OUR COMPETITORS MAY USE OUR FINANCIAL PROBLEMS AS A COMPETITIVE STRATEGY
     AGAINST US.

     In the past, competitors have used our financial difficulties in
     successfully competing against us. We anticipate that our continuing losses
     and our lack of certain liquidity may continue to place us in a competitive
     disadvantage, particularly in seeking lottery contracts with state or
     national lottery agencies.

     OUR ABILITY TO PURCHASE PRODUCTS MAY BE IMPAIRED BY OUR RELIANCE ON A
     LIMITED NUMBER OF SUPPLIERS.

     We currently purchase certain important parts, such as components of our
     ITR and DCR dispensers from limited sources. As a result, we may be subject
     to risks associated with this reliance, such as the potential
     unavailability of supplies, price increases and production delays, any of
     which could have a material adverse effect on our business, financial
     condition and results of operations.

     WE MAY NOT BE ABLE TO RETAIN OUR KEY EXECUTIVES AND RESEARCH AND
     DEVELOPMENT PERSONNEL.

     As a small company with approximately 70 employees, our success depends in
     large part on the continued service of our key management, sales, product
     development and operational personnel. Except for Mr. Sandvick, we do not
     currently have employment agreements with any of our employees. Our success
     also depends on our ability to attract and retain additional personnel with
     a variety of skills, especially engineering and marketing expertise. Our
     inability to hire and retain qualified personnel


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     would likely have a material adverse effect on our current business, any
     new product development efforts and future business prospects. Although we
     have an employment agreement with Mr. Sandvick, the agreement does not
     insure that he will remain in our employ.

     THE SUCCESS OF OUR INTERNATIONAL ACTIVITIES IS SUBJECT TO MANY
     UNCERTAINTIES.

     In 2000 and 1999, our sales and leases of ITR's and DCR's outside the
     United States represented a small portion of our total revenues. However,
     we intend to increase our marketing activities in international
     jurisdictions, including expansion into several countries. Our ability to
     expand our business into international markets may be adversely affected by
     the following:

     o    Customizing our products for use in international countries;
     o    Longer accounts receivable payment cycles;
     o    Difficulties in managing international operations;
     o    Availability of trained personnel to install and implement our
          systems;
     o    Exchange rate fluctuations;
     o    Political instability;
     o    Tariffs and other trade barriers;
     o    Potentially adverse tax obligations;
     o    Restrictions on the repatriation of earnings; and
     o    The burdens of complying with a wide variety of international laws and
          regulations.

     In addition, the laws of some countries do not protect our intellectual
     property rights to as great an extent as the laws of the United States.
     Such factors could have a material adverse effect on our international
     revenues and earnings and our overall financial performance.

     OUR INDUSTRY IS SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION THAT COULD
     REDUCE THE MARKET FOR OUR PRODUCTS OR INCREASE OUR COSTS.

     State and local governments strictly regulate the operation of lotteries
     and the sales and leasing of ITR's. Further, international jurisdictions
     that operate lotteries impose strict regulations which may vary from those
     in the United States. Any adverse change in the lottery laws of any
     jurisdiction in which we sell and lease ITR's could impose burdensome
     requirements or requirements that we may be unable to satisfy. Our failure
     to comply with changing lottery-related laws and regulations could have a
     material adverse effect on our business, financial condition and results of
     operation.

     In addition, state laws provide for background investigations on each of
     the lottery's vendors and their affiliates, subcontractors, officers,
     directors, employees and principal stockholders. The failure of any of
     these parties associated with us to obtain or retain approval in any
     jurisdiction could have a material adverse effect on our business,
     financial condition and results of operation.

     FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY
     AFFECT OUR STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK
     OFFERINGS.

     The market price of our common stock could drop as a result of sales of
     large numbers of shares in the market, or the perception that such sales
     could occur. This is particularly true due to our relatively small number
     of stockholders and the resulting low trading volume of our common stock in
     the public market. These factors, together with the low price of our common
     stock, also could make it more difficult for us to raise funds through
     future offerings.


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<PAGE>

     AGREEMENT WITH INTERLOTT

     On February 23, 2001, we entered into the asset purchase agreement with
     Interlott. The asset purchase agreement was filed as an exhibit to our Form
     8-K, with an event date of February 23, 2001. The following is a summary of
     the asset purchase agreement, but this summary is qualified in its entirety
     by reference to the full text of the asset purchase agreement.

     TERMS OF THE ASSET PURCHASE AGREEMENT. Pursuant to the asset purchase
     agreement, we are to sell to Interlott all of our lottery assets. These
     assets include:

     o    Our agreements with the lotteries in four states and two foreign
          countries pursuant to which we lease and service high-security
          automated point of sale transaction vending terminals for the sale of
          instant-winner lottery tickets.
     o    Our contractual rights under our agreements with our distributors.
     o    Our inventory and equipment relating to the lottery business.
     o    Our accounts receivables relating to the lottery business.
     o    Our intellectual property rights relating to the lottery business,
          including our patents, our trademarks and the name "On-Point."
     o    Our leases for our facilities relating to the lottery business, but
          not the lease for our corporate headquarters.

     In consideration for the transfer of the lottery assets, Interlott is to
     pay us:

     o    $13.5 million, subject to adjustment, at the closing.
     o    A deferred payment of $9.0 million, subject to adjustment, payable
          over a five-year period.
     o    An earnout of up to $6.0 million, based on Interlott's revenue from
          the sale of our lottery products.

     Interlott has agreed to assume our obligations that arise after the closing
     under the contracts that it assumes, but only to the extent that the
     obligations do not arise from a condition which existed on the closing
     date. We will continue to be responsible for those liabilities that existed
     on the closing date.

     ADJUSTMENTS TO THE PURCHASE PRICE; DEFERRED PAYMENT AND EARNOUT. The $13.5
     million payment that is due on the closing date is subject to upward or
     downward adjustment to the extent that our accounts receivables and
     inventory which are transferred to Interlott at the closing date have a
     value which is greater or less that $5.0 million. The adjustment is a
     dollar-for-dollar increase or reduction in the payment due on the closing
     date, based on a final audited balance sheet that will be prepared as of
     the closing date.

     Interlott has also ageed to pay us $9.0 million as a deferred payment. This
     deferred payment is payable at the rate of $150,000 per month during the
     five-year period commencing with the first full month following the
     closing. However, the amount of each payment to us is subject to
     adjustment. The asset purchase agreement sets forth benchmark gross profit
     levels from revenue derived from a combination of contract extensions and
     new orders from our existing lottery clients. These gross profit levels are
     cumulative from the beginning of the five-year period. We will receive the
     full $150,000 payment monthly payment only as long as Interlott's
     cumulative gross profit from these contract extensions or new contracts
     equals or exceeds the cumulative benchmark gross profit level. If the
     cumulative gross profit is less that the benchmark cumulative gross profit,
     the $150,000 is subject to reduction in accordance with the formula. If,
     during the five-year period when the deferred payment is being made,
     Interlott's gross profit from these sales subsequently reaches or exceeds
     the benchmark cumulative gross profit level, we will recover any previous
     reductions taken from the monthly payments. We cannot assure you that we
     will collect all or any significant portion of the $9.0 million deferred
     payment.

     Interlott also agreed to pay us an earnout of a maximum of $6.0 million.
     The earnout is payable in two


                                       9
<PAGE>

     stages during the five years following the closing date. In the first
     stage, for which the maximum earnout is $3.0 million, we receive 10% of
     Interlott's gross revenue from new sales and leases of PlayPoint,
     CounterPoint and other of our lottery equipment. The second stage begins
     after we have received $3 million from Interlott's gross revenue from these
     products. In the second stage, we are entitled to receive 10% of
     Interlott's gross revenue only from new sales and leases of CounterPoint
     products during the remainder of the five-year period. If Interlott
     generates revenue from these products and the revenue is used in the
     calculation of the deferred payment, which is described in the previous
     paragraph, we are not entitled to a payment under the earnout from that
     revenue.

     ON-LINE TECHNOLOGY AGREEMENT. Pursuant to the asset purchase agreement, we
     will transfer to Interlott our patents and technology relating to our
     on-line technology. At the closing, we will enter into an on-line
     technology agreement, pursuant to which:

     o    We retain the nonexclusive perpetual royalty-free right to sell,
          license, market, distribute or otherwise deal with, but not
          manufacture, our on-line technology which is based on claims included
          in the patents for on-line technology which are transferred to
          Interlott. This technology relates to the enhancement of instant
          ticket dispensing in order to enable the point of sale automated
          on-line activation and validation of instant winner lottery tickets.
     o    Interlott also has the right to market the on-line technology and will
          be the exclusive manufacturer of products incorporating the on-line
          technology.
     o    Interlott is to pay us a royalty based on Interlott's gross profit
          generated from the sale or lease of products that utilize the on-line
          technology. The percentage royalty payable by Interlott ranges from
          2.0% to 7.0% depending on Interlott's gross margins from those
          products.
     o    Interlott is to agree not to activate the technology on any products
          unless the end users agree to pay us a royalty equal to one-half of
          one percent of revenue derived from the use of the on-line technology.

     NONCOMPETITION AGREEMENT. At the closing, we and Mr. Frederick are to enter
     into an agreement not to compete with Interlott during the five-year period
     following the closing. The noncompetition agreement does not, however,
     prohibit us or Mr. Sandvick from owning or operating lotteries.

     INDEMNIFICATION PROVISIONS. Pursuant to the asset purchase agreement, we
     make representations and warranties concerning our financial statements,
     the operation of our business, the property, including intellectual
     property, owned by us, our compliance with applicable law and agreement to
     which we are a party and other matters relating to our business. With
     certain exceptions, our maximum liability to Interlott in the event that
     Interlott incurs any damage as a result of our breach of the
     representations and warranties is limited to $2 million from the payment
     made at closing. There is no limit to the potential amount that can be
     offset against the deferred payment or earnout.

     CLOSING CONDITIONS. The closing of the agreement is contingent upon
     satisfaction of closing conditions, including the absence of any material
     adverse change in our business and our delivery of opinions of counsel and
     an officer's certificate, the release of liens on the assets sold to
     Interlott and stockholder approval of the asset purchase agreement. Each
     party has the right to waive any of the conditions to its obligation to
     close.

     Our lottery contracts are with state and foreign lottery agencies. The
     assignment of these contracts pursuant to the asset purchase agreement
     requires the consent of the agency. One of the conditions to Interlott's
     obligation to close is our having obtained all necessary consents. Our
     failure to obtain necessary consent may impair our ability to complete the
     sale.

     The asset agreement gives Interlott the ability to terminate the agreement
     if it does not obtain financing for the acquisition or if, as a result of
     its due diligence subsequent to the execution of the asset purchase
     agreement, it elects not to proceed. However, we will receive the $1.5
     million escrow deposit if:

     o    Interlott terminates the asset purchase agreement solely because of
          its dissatisfaction with its due


                                       10
<PAGE>

          diligence investigation as long as we have provided Interlott with the
          opportunity to conduct due diligence as required by the asset purchase
          agreement.
     o    Interlott terminates the asset purchase agreement solely because of
          its not having obtained financing satisfactory to it.
     o    Interlott terminates the asset purchase agreement solely for the two
          reasons described above.

OUR REPORTABLE BUSINESS SEGMENTS FOR OUR CURRENT BUSINESS

On-Point currently has three reportable business segments: Products; Financing;
and Service. On-Point markets, manufactures and sells products to two industry
sectors: (1) State and foreign lotteries and (2) commercial customers. A
discussion of Company products in each industry sector follows:

PRODUCT SEGMENT

LOTTERY PRODUCTS

     THE INDUSTRY Lotteries are operated by state and foreign governmental
     authorities and their licensees in over 155 jurisdictions. Governments use
     lotteries primarily as a means of generating non-tax revenues. In the
     United States, lottery revenues frequently are designated for particular
     purposes, such as education, economic development, conservation,
     transportation and aid to the elderly. Many states have become increasingly
     dependent on lotteries as a significant source of funding for these
     purposes.

     While the specific amounts vary substantially from state to state, in
     general it is estimated from industry reports that about 50% of gross
     lottery revenues in the United States is returned to the public in the form
     of prizes. Approximately 33% is used to support specific public programs or
     is contributed to the state's general fund. Typically, 5% to 6% is reserved
     for point-of-purchase commissions for the retailer, and the remainder is
     used to fund lottery operations, including the cost of advertising and,
     depending upon the state and the type of lottery, amounts paid to vendors
     such as On-Point.

     As of December 2000, lotteries were operated in 37 states, the District of
     Columbia and five provinces of Canada. Lotteries are also operated in
     Europe, Asia, Central America and South America. Government lotteries can
     be categorized into three principal groups: the traditional draw-type
     games, on-line games and "instant" ticket games. Traditional lotteries, in
     which drawings are held once a week, while popular abroad, are rare in the
     United States. On-line varieties generally refer to computerized games such
     as lotto and daily pick 3/4/5/6 games, in which players make their own
     selections. Alternatively, they involve low-stakes video gambling, such as
     poker, blackjack, bingo and keno. Instant ticket games consist of
     preprinted tickets in which players scratch off a coating or pull off tabs
     to determine whether they have purchased a winning ticket.

     On-line lotteries generate significantly more revenue than both the
     draw-type and instant ticket games. We estimate from industry reports that
     on-line ticket sales account for approximately 55% of total U.S. lottery
     sales and that scratch-off games (the type of instant winner game
     predominantly used by state lotteries) hold an approximate 45% market
     share. The instant ticket games' market share has increased over the past
     several years as lottery organizations have realized that the more instant
     games being sold at one time increases sales. Some states currently offer
     more than 30 different games simultaneously. Of the states conducting
     instant ticket lotteries, 29 currently use terminals to dispense instant
     tickets. Traditionally, instant winner tickets had been manually dispensed
     by the retailer. This distribution method, in addition to being labor
     intensive, requires the retailer to maintain rigorous inventory, accounting
     and security controls, because the tickets are treated as cash equivalents.
     Our ITR terminals provide additional


                                       11
<PAGE>

     security and automate these procedures, resulting in greater efficiencies
     and flexibility to offer multiple games simultaneously.

     Recent advances in print technology have improved the security of Pull Tab
     tickets to the levels demanded by the lottery industry. As a result several
     U.S lottery jurisdictions have introduced Pull Tab ticket games. On-Point's
     PTR terminals and Versatile Ticket Retailer ("VTR") terminals, which
     dispense both instant tickets and pull tab tickets, bring the same benefits
     of increased security, automated accounting and enhanced promotion at the
     point of sales to Pull Tab tickets as the ITR terminals have provided to
     instant tickets. During 2000, we did not sell any PTR or VTR terminals and,
     to date, this market has been limited.

     INSTANT TICKET RETAILER From its inception through December 31, 2000 ,
     On-Point has sold or leased approximately 16,000 ITR terminals, of which
     approximately 950 were sold or leased during 2000. Since the time we
     received our first contract from the State of Virginia in 1991, we have
     since signed contracts to provide terminals to numerous state lottery
     customers including California, Missouri, Washington, Pennsylvania, New
     York, Illinois, Connecticut, the Provinces of Ontario and Quebec, and other
     foreign countries. We also have a contract to provide terminals to the
     French Lottery, the largest instant ticket lottery in the world, to provide
     for up to 2,500 terminals, and have already shipped 1,050 terminals through
     December 31, 2000 pursuant to the contract. The French contract provides
     for up to $10 million in revenue from 1999 to 2002. The ITR terminals have
     been placed in supermarkets, convenience stores, bowling alleys,
     restaurants with bars, and other locations. We also may enter into service
     contracts in connection with sales of ITR terminals pursuant to which it
     receives monthly maintenance fees (see "Service Segment" herein).

     ITR LOTTERY TERMINALS In 1990, On-Point introduced the ITR-7000 terminal,
     which was replaced with the upgraded ITR-7500 in August 1992. This series
     of products has been installed at sites throughout the United States. In
     1995, we introduced an esthetically updated ITR-8500 terminal. In 1996,
     On-Point developed the first 12-game ITR terminal and developed the 8 game
     slim-line terminal (which dispenses 8 games in a terminal that requires
     half the retail space of previous 8 bin models). During 1997, as a result
     of the average mean time to failure rate of our dispenser being in excess
     of nine years, we were able to initiate a program of retrofitting older
     terminals to incorporate new technologies. During 1998, On-Point began
     shipments of its ITR-8500SL terminal, which can vend as many as 15 instant
     ticket games in a smaller footprint than its previous 12-game model.

     In 1999, On-Point introduced its next generation of lottery products.
     Depending on market acceptance of these new products, we intend to
     transition the marketing of our lottery products to include not only our
     existing ITR technology but the new PlayPoint technology. We plan to
     continue offering the existing models wherever the new PlayPoint technology
     is not considered to be an advantage or where lotteries may want the
     existing models. However, management believes PlayPoint will be superior to
     any existing model and, therefore, be the preferred model of choice by the
     lotteries in the future. PlayPoint will provide advanced electronic,
     software, communication and dispensing capabilities as well as new
     ergonomically designed features. PlayPoint will be capable of dispensing
     both instant tickets and pull-tab tickets. PlayPoint will also be capable
     of dispensing up to 24 instant ticket games, another industry first for
     dispensing technology. In 1999, On-Point also introduced CounterPoint, our
     new instant ticket dispensing product that is uniquely suited for retail
     countertop installation. Management believes PlayPoint and CounterPoint
     have superior features to any existing model. During 2000, we continued to
     industrialize the PlayPoint and CounterPoint products and began significant
     field testing of the products. Although initial responses have been
     positive, no assurances can be given to the ultimate market acceptance of
     the new models.

     We believe that lottery terminals substantially expand the market for
     retail sales of instant winner lottery tickets, in that they are designed
     to streamline and enhance the operation and marketing of


                                       12
<PAGE>

     instant winner tickets by providing greater opportunity for the impulse
     purchase. The lottery terminals are designed to provide secure, high
     visibility points of presence at the point of sale while using a minimum of
     floor space. The terminals are available in several models, which house
     four to twenty-four games. All models accept bills in $1, $5, $10, and $20
     denominations and can be manufactured to accommodate coins or foreign
     currency.

     The customer inserts cash into the terminal, receives credit, and then
     selects from among any or all of the games offered by pressing the button
     located immediately under the appropriate ticket display. The terminals
     generally dispense either a single ticket or a string of uncut tickets,
     which move past a window, allowing the customer to view the purchase. Based
     on our knowledge and experience we believe that customers prefer to see the
     actual tickets being dispensed. On-Point's patented Windows feature is
     unique in this regard among similar products available to lottery
     jurisdictions. Our lottery terminals incorporate other patented features
     designed to enhance the likelihood of impulse purchases of game tickets.

     Each lottery terminal includes a display, which shows instructional and
     promotional information to the customer. The terminal can also be equipped
     with the "Grabber", a multi-color LED sign, which is mounted on top of the
     terminal and includes a built-in memory. The Grabber provides the ability
     to promote new games or winning jackpots at the point of sale. A customized
     message typically is input prior to installation of the terminals. These
     messages can be changed on-site using a hand-held remote control or from
     remote locations with our optional Shadow communication program.

COMMERCIAL PRODUCTS

     Currently the only commercial product manufactured and marketed consists of
     DCR vending machines, marketed principally for the resale of prepaid phone
     cards. As a result of On-Point's primary focus in the last several years
     into the development of its next generation lottery products, On-Point has
     not aggressively pursued the development or sale of other products.
     However, On-Point has begun plans to begin strategically evaluating this
     area further and to leverage its existing technology wherever feasible to
     develop other commercial products.

     THE PHONE CARD INDUSTRY. Prepaid phone cards are sold by telephone
     companies worldwide. These cards contain a pre-programmed amount of credit
     and can be inserted into certain pay telephones. The customer can use all
     or a portion of the credit on the card to make telephone calls. These
     card-receptive pay telephones do not hold cash, thus eliminating security
     or internal theft concerns for the owners of the telephones. The cards are
     either disposable or reusable and are sold in varying denominations. In the
     United States the industry is still in the early growth stages and card
     reader telephones are not in abundance. Therefore, most of the prepaid
     calling cards in use in the United States use an "800" number that is
     called for verification of the card by entering a PIN number located on the
     card.

     Prepaid telephone cards generally allow card purchasers to buy blocks of
     calling time at a discount. The cards are more convenient, and the use of
     prepaid cards eliminates the need to maintain cash on hand to feed the pay
     telephone when making a call. Prepaid cards also reduce the risk of credit
     card fraud or theft, since a theft of a prepaid phone card results only in
     the loss of the face value of the card less any time already used.

     It is our understanding that public awareness of prepaid phone cards was
     minimal in the early 1990's, but increased dramatically thereafter. We
     believe dispensing machines became an important element of the distribution
     network of prepaid phone cards by the mid-1990's, providing visual
     recognition and 24-hour convenient access to the product. An important
     aspect of the vending machine is that its design must promote product
     awareness to effectively sell cards, not merely dispense them. In 1997 we
     repackaged our DCR technology into a new cabinet styling. In 1998 we
     expanded our DCR product line to include 3 and 8 card terminals in response


                                       13
<PAGE>

     to the specific application needs of our customers. However, because of the
     diminishing demand for these types of new high-security vending terminals
     in 1998, partly due to saturation of the machine base by that time and the
     entry into the market of lower-cost and lower-featured vending machines
     from competitors, the Company redirected its efforts beginning in 1998 away
     from any significant further development or marketing in this area.

     In many foreign countries, especially those less developed than the United
     States, the majority of residents does not own telephones and rely on
     public pay telephones. Management estimates that commercial and government
     entities in over 100 countries now use or are in the process of evaluating
     the purchase of telephones equipped to accept prepaid phone cards. We
     believe many of these entities are looking to dispensing machines capable
     of handling prepaid phone cards to widen the acceptance and availability of
     the prepaid phone cards. The foreign market for prepaid phone card vending
     machines is in its infancy, however, and there can be no assurances that we
     will be successful in developing this market.

     In addition to prepaid phone cards, there are many other debit cards, which
     can be dispensed using the DCR terminal, including bus and subway passes.
     Several countries have begun using a multi-purpose debit card to provide
     easy access to pay telephones, gasoline pumps, subway passes, and bus
     passes. On-Point has provided terminals to both Hong Kong and Brazil that
     dispense such multi-purpose cards, or different types of cards or passes,
     including "smart cards".

     DEBIT CARD RETAILER In 1993 On-Point recognized the potential to utilize
     its lottery technology in the evolving prepaid phone card industry and
     developed its DCR-2000 debit card vending machine. Most of the Company's
     revenues in this market were generated between 1993 and 1998. To date,
     these terminals have been placed in many different types of establishments
     where there is a market for prepaid phone or debit cards. However, as
     additional companies have deployed similar machines, the market for new
     machines has diminished. In addition, since management did not expect this
     market to be significant in the future, it has focused most of its
     development and marketing efforts in the Lottery market over the past few
     years. As a result, Company sales of DCR products and services totaled only
     $36,000 and $660,000 for the years ended December 31, 2000 and 1999
     respectively. Those sales were primarily to foreign customers in each year.

     THE DCR TERMINAL Similar to the lottery terminals, the DCR terminal is
     designed to provide high security and high visibility using a minimum of
     floor or counter-top space. The terminals are available in several models,
     which house either one, two or more bins and are able to accept various
     denominations of foreign and domestic currency. The terminals can be
     manufactured to accommodate coins and to make change. The customer inserts
     a bill or coin into the DCR terminal, receives credit, and then selects the
     denomination of prepaid phone card or other card/pass by pressing the
     button located immediately under the appropriate card display. The terminal
     dispenses a single card to the buyer.

     Each card dispenser in a DCR terminal stores approximately 400 cards,
     depending on the thickness of the cards, thus providing a maximum capacity
     of about 1,600 cards in our 4-card terminal. As with the ITR terminal, the
     DCR machine includes a display that shows instructional and promotional
     messages and can also be equipped with the "Grabber," a multi-color LED
     sign, which is mounted on top of the terminal and includes a built in
     memory. A customized message typically is input prior to installation of
     the terminals. These messages can be changed on site using a hand-held
     remote control or loaded from a remote site with our optional "Shadow"
     communication program.

     Management believes that the DCR market, much like the lottery ITR market,
     has become extremely competitive. In addition, technological advances may
     modify the market over the next few years. During 1999 and 2000 management
     underwent a reevaluation process for the potential of the DCR market both
     domestically and internationally. As a result of our focus primarily on


                                       14
<PAGE>

     our next generation lottery products, no significant developments were made
     to the DCR products in 1999 or 2000 and sales decreased. We plan to
     continue our evaluation of the DCR products in 2001. As a result of a DCR
     customer liquidating in 2000 as a result of a bankruptcy, the Company has
     re-acquired a substantial number of its DCR terminals previously under
     lease with the customer. Management is evaluating the best method to
     maximize the revenue potential of redeploying this equipment, including
     sales, leases, and strategic revenue sharing arrangements for these
     terminals.

OTHER POTENTIAL PRODUCTS

In addition to the advances we have made in On-Point's lottery product
offerings, we began to develop a strategy for a diversification program in 1999
that would broaden On-Point's product offerings and markets. This
diversification was focused in the area of automated electronic solutions for
high-volume cash-oriented transactions, primarily with respect to prepaid
products and services. It is management's belief that prepaid products and
services have gained a large market share and that electronic solutions for this
market are in great demand.

In September 1999, On-Point formed e-Point Technologies, Inc. (e-Point), a
wholly owned subsidiary, for the primary purpose of developing a more defined
business strategy for this area of the market. The initial focus of e-Point has
been to develop the launch of e-Cel, a process for prepayment of cellular phone
airtime. We initially expected the launch for e-Cel to occur in the United
Kingdom by April 2000, but delays in the market and our limited capital
resources, as well as our change in overall corporate strategy respecting the
sale of On-Point to GTECH, terminated this project. As a result, we discontinued
our efforts with e-Cel in the United Kingdom. However, during 2000 we have
reevaluated this area and are moving forward with plans to develop our
strategies for other automated electronic solutions in the global retail market.
In that regard, we have signed a definitive agreement to acquire assets of a
Web-enabled systems company in order to obtain the platform for a new machine
that we would launch for this market.

FINANCING SEGMENT

On-Point currently offers in-house financing for both lottery and commercial
customers under two types of contractual arrangements: Sales-type Lease
Agreements and Operating Lease Agreements.

SALES-TYPE LEASE AGREEMENTS Under the typical Sales-type Lease Agreement, we
install and maintain lottery and/or DCR terminals and provide ancillary support
services to customers. These contracts generally provide for scaled payments,
based upon the type of terminal purchased and the total number of terminals sold
under the agreement. In addition, the Sales Agreements typically provide for the
payment of monthly service fees for product repair, routine maintenance and
customer service activities (based upon the number of terminals installed). In
many cases, the service portion of the contract extends beyond the period
provided by the contract for the sale of terminals.

OPERATING LEASE AGREEMENTS While the Operating Lease Agreements are similar to
the Sales-type Lease Agreements with respect to our installation, maintenance
and service obligations, they are for shorter terms, and ownership of the
terminals remains with On-Point after the lease term. The lease amount may or
may not include the monthly maintenance fee. Typically, the lessee is given the
option to extend the leases in one-year increments

SERVICE SEGMENT

On-Point currently provides ITR service in the states of: Illinois, Missouri,
New York, and Virginia, which are provided through service facilities at its San
Marcos, California headquarters and in each of those states. These facilities
provide installation and relocation services, perform repairs and respond to
service calls. We maintain toll-free telephone lines staffed by service
personnel to assist retailers


                                       15
<PAGE>

and, where possible, resolve minor service problems over the telephone. If the
problem cannot be resolved easily, a field technician is immediately paged and a
service call scheduled. Each agreement provides for a specified response or
service time. A function of the field service operation is to provide
installation and retailer training on the operation and use of the machine. We
generally provide a warranty period of one year on our terminals and provide an
option for an extended warranty period if purchased by the customer. Warranty
costs are generally included within our service agreements and not separately
provided in product sales.

On-Point service technicians also perform routine preventative maintenance of
machines. If required, by agreement, each terminal is subject to on-site
cleaning and diagnostic testing of key components. In addition, on-site
modifications or upgrades may be performed. Our administrative staff closely
monitors any problems with terminals in the field. Service reports are forwarded
to engineering, quality control and production on a weekly and monthly basis.
The Field Service Department is also responsible for pre-installation site
surveys to check for space, power, and telephone service, if required.

The modular designs of the terminals promote cost-effective, timely repair. All
three of the major modular components (the currency acceptor, ticket dispenser,
and electronics module) are easily removed from the terminal. Service
technicians are instructed to replace malfunctioning components if they are
unable to repair a machine within 30 minutes. Any replaced parts are sent to the
service center, where they are examined and repaired in-house or returned to the
manufacturer.

SUPPORT

MARKETING AND SALES

     On-Point markets its products domestically through an in-house marketing
     and sales staff and internationally primarily through distributorships. We
     solicit interest in the terminals primarily at trade shows and through
     direct contact with customers. The initial marketing package consists of
     product brochures and other supportive documentation, e.g., sales analysis
     of other customer installations. References from other customers using
     On-Point's terminals are routinely supplied, along with an offer to
     demonstrate and test the terminals. Where possible, print advertising is
     keyed to feature articles in trade journals, particularly advertisements
     targeting the market. We also provide comprehensive product information on
     our Web-site at www.ONPT.com.

     MARKETING TO LOTTERIES Once a state lottery has accepted vending as a
     distribution tool, the process is opened to competitive bidding. In the
     United States, lottery authorities commence the contract award process by
     issuing a request for proposal, which constitutes an invitation for bids
     from interested vendors. The requests for proposal usually stipulate
     certain requirements, such as product specifications, performance
     capabilities, delivery and service requirements. The requests also specify
     various insurance, bonding, indemnification and liquidated damage
     provisions. Each vendor's reply is evaluated on the basis of various
     criteria, including bid price, product quality, performance capability
     (measured in part by demonstrated experience in performing comparable
     projects), security, integrity, and experience. In addition, state lottery
     authorities consider the applicant's affirmative action policies and use of
     minority, handicapped, and women-owned subcontractors and suppliers.
     Lottery authorities also show a preference for vendors that use in-state
     subcontractors and suppliers. To assist it's marketing to state lotteries,
     we have employed registered lobbyists and paid consultants in certain
     states. Although we believe there remains a substantial market for lottery
     terminals, no assurances can be given that lottery authorities will award
     new contracts or order additional terminals.

     Due to the particularly sensitive nature and high profile of gambling
     activities, state lottery authorities are directed by statute to act in a
     manner, which promotes and ensures the integrity, security, honesty and
     fairness of their operations. Thus, applicants typically must provide


                                       16
<PAGE>

     detailed financial and historical information concerning their business
     operations and principals, and certain employees must consent to background
     investigations.

     MARKETING OF DCR TERMINALS During 2000, we had insignificant marketing
     efforts in this area, primarily due to our focus on the development and
     marketing of our next generation lottery products. However, if the Company
     were to resume marketing efforts, there are three distinct groups of
     potential customers that can be targeted for the sale or lease of DCR
     terminals: major telephone companies, medium-sized telephone companies and
     long-distance resellers. To our knowledge, the major telephone companies,
     AT&T, MCI and Sprint, have not yet implemented any significant marketing
     plans involving the use of vending terminals to distribute prepaid phone
     cards on a large-scale basis. However, the medium-sized telephone groups
     have been pursuing vending contracts for prepaid phone cards. Similar to
     the sales process with state lotteries, many of these companies seek
     requests for proposals from vending companies and require testing prior to
     awarding contracts. The contract process permits more flexibility and
     creativity; however, it requires greater marketing time and energy to win
     contracts. Long distance resellers, smaller telephone companies, and pay
     telephone route operators are seeking vending contracts, but these
     customers normally have limited capital. Our past efforts and plans
     required us to take significant risks because of the limited credit history
     and stability inherent in an evolving industry. As a result, the Company
     suffered from customers' inability to pay. Our future efforts will be
     limited to vertical distributorship and joint venture relationships that
     will provide more limited credit exposure; however, there can be no
     assurance that we will be successful in developing these relationships.

     INTERNATIONAL MARKETING Internationally, lottery authorities and foreign
     telephone companies do not typically use a formal bidding process, but
     rather negotiate proposals with one or more potential vendors. In 2000 and
     1999 we delivered terminals to various lotteries and telecommunication
     service providers for market testing. Nonetheless, our foreign operations
     are relatively small, and no assurance can be provided that a meaningful
     international market for our terminals will develop. In June 1995 we
     entered into a distributor agreement with a Brazilian corporation to
     distribute our products on an exclusive basis in Brazil that was
     subsequently terminated in 1999. In December 1997 we entered into a
     distributor agreement with Editec, a French Corporation, to distribute
     On-Point's products on an exclusive basis throughout most of Western
     Europe. Pursuant to this arrangement, On-Point has delivered over 1,000 ITR
     terminals to the French Lottery, the largest deployment of such machines
     outside the United States.

RESEARCH AND DEVELOPMENT

     General research and development expenditures totaled $1.0 million and $.7
     million in 2000 and 1999, respectively. The 2000 and 1999 expenditures were
     primarily directed towards the development of PlayPoint together with the
     associated development of On-Point's first counter-top dispenser,
     CounterPoint. PlayPoint features advanced electronic, software,
     communication and dispensing capabilities. We believe that our recently
     developed dispensing system, which will be incorporated into PlayPoint and
     CounterPoint, is the most advanced, space efficient and cost effective
     dispenser of instant tickets in the world. In addition, the PlayPoint
     cabinet has been ergonomically designed to not only generate increased
     impulse purchasing desires, but to fully comply with all ADA established
     guidelines.

     Patents have been filed and/or received for PlayPoint's and CounterPoint's
     proprietary features. These include:

     PlayPoint Enclosure Design, 3345-2230 - awarded July 11, 2000, D-428,060
     On-Line Instant Ticket, Patent 5,772,510 - awarded June 1998

     Other patents filed through December 2000 but still pending:

     o    Ticket Dispenser and Vending Machine, 3345-2130


                                       17
<PAGE>

     o    Ticket Distribution System and Method, 3345-2140
     o    Ticket Dispensing Module and Method, 3345-2170
     o    Gaming Device and Method, 3345-2180
     o    Ticket Dispensing Device, Installation and Displays, 3345-2210
     o    CheckWriter Design, 3345-2212

     As these products are still in development, On-Point has not yet generated
     any income from any of the patent applications filed in 1998 and 1999, nor
     from Patent 5,772,510 awarded in June 1998. None of the patent applications
     would have a material impact on future sales as currently generated by
     On-Point, if they were not awarded. Patent 5,772,510, is expected to become
     important as we begin to market patented on-line capabilities in 2000 and
     beyond. Patent pendings 3345-2170, 3345-2180, and 3345-2210 are expected to
     become important if our next generation lottery equipment gains market
     acceptance.

     None of On-Point's general research and developments costs was borne
     directly by our customers. On-Point's research and development department,
     augmented by contract employees, designs hardware and software for new
     products, and maintains hardware and software support for existing
     products. Software is continually enhanced to satisfy customer requests.
     Many new features have evolved from the sales process (e.g., access code
     requirements, security features such as alarm and theft detection, report
     capabilities, and display features). Once developed, these features
     generally are incorporated as standard items in the product line. Software
     upgrades have included diagnostics for field service and memory management
     and configuration control. Hardware enhancements included features to
     provide local control, remote control, field upgrade expansion, and memory
     upgrades for software and data storage. Other hardware developments have
     focused on the physical size, look and ergonomics of the machines, and
     conformance with the requirements of the American Disabilities Act.

MANUFACTURING AND SUPPLY

     On-Point's lottery and DCR terminals are designed in a modular form to
     facilitate manufacturing assembly and serviceability. We use vendors to
     manufacture and supply some components and sub-assemblies, including the
     bill acceptor and electronic modules. Final assembly and quality control of
     the terminals is performed by Company personnel at its San Marcos facility.
     Key vendors include California Chassis, which currently produces cabinets
     and Mars Electronics, which currently provides the majority of the bill
     acceptors. Although components and parts are available from multiple
     sources, the loss of any key vendors would have a significant impact on
     On-Point or its operations.

EMPLOYEES

     As of March 1, 2001, On-Point had 71 full-time employees, of whom 10 were
     in executive or administrative positions, 12 in quality control and
     production, 2 in research and development, 43 in field service, 3 in the
     warehouse and 1 in maintenance. In addition, we employed 12 people on a
     part-time basis in the field service department. None of our employees are
     currently represented by a union, and we believe that relations with our
     employees are good.

FACILITIES

     On-Point occupies approximately 32,000 square feet of space in San Marcos,
     California. The premises include office, manufacturing and warehouse space.
     We currently pay monthly rent of $18,196 for this space. This lease
     terminates January 31, 2009. We believe that current facilities are
     adequate to meet our anticipated needs through the term of the lease.


                                       18
<PAGE>

OTHER BUSINESS INFORMATION

BACKLOG

     On-Point's potential backlog of orders at December 31, 2000 totaled
     approximately 1,500 ITR's. The backlog consists of contracts awarded, which
     determines the pricing for a maximum number of units which may be purchased
     over the term of the contract, usually three - five years. The rate at
     which we receive orders from customers is affected from time to time by the
     nature of our market. State lottery authorities are allocated budgets on an
     annual basis, and their desire and ability to order products from vendors,
     including On-Point, can be affected by the status of the budgetary process
     at any given time. For example, a lottery which has not spent its budget as
     the end of a budgetary year approaches may be encouraged to place orders
     with vendors, whereas a lottery which has exhausted its budget may not be
     able to place orders until the beginning of a new budgetary year.

COMPETITION

     On-Point believes that it has established a reputation for providing
     quality terminals and service. As a consequence, we have been able to
     secure contracts in eleven states, in the Provinces of Ontario and Quebec,
     the country of France and other foreign countries. In addition, we
     generally enjoy repeat or renewal orders from existing customers and are
     conducting tests with overseas lottery organizations. Interlott
     Technologies, Inc. ("ILI") has sold or leased machines in twenty-two
     states, while the next largest current competitor, International Products
     of America, has sold machines pursuant to a contract with one state.
     Nevertheless, a substantial risk of new market entrants by domestic and
     foreign competitors exists. The instant ticket market may also face
     competition from other types of lottery products.

     In the United States, the prepaid phone card and, more generally, the debit
     card market involve a number of machines for many small to med-sized
     privately-held companies. Consequently, it is difficult to identify all the
     competitors in this market. Although we believe we have developed a product
     with some of the best features in the market, there are many lower-cost,
     lower featured products that have had more recent success in selling to the
     industry. At present, our principal competitors are ILI, VendTek and Opal,
     in addition to a number of smaller vending machine companies. There is also
     a substantial risk of additional market entry by domestic and foreign
     competitors, especially if the United States customer's response to the use
     of debit cards and pre-paid phone cards is favorable. The prepaid phone
     card and debit card market may also face competition from other types of
     products.

GOVERNMENT REGULATION

     Lotteries are not permitted in the United States unless expressly
     authorized by legislation in the subject jurisdiction. Once authorized, the
     award of lottery contracts and ongoing state operations are highly
     regulated. State rules and regulations specify, among other things, the
     qualifications of lottery directors, the prize structure, the allocation of
     revenue, the types of games and amounts of wagers permitted, the manner in
     which the lottery is marketed, and the procedures for selecting vendors of
     equipment and services.

     To ensure the integrity of the contract award and subsequent contract
     performance, jurisdictions typically conduct background investigations of,
     and require detailed disclosure on a continuous basis from, vendors and
     their affiliates, subcontractors, officers, directors, and principal
     shareholders (including 5% shareholders of publicly traded corporations).
     Background investigations of vendors' employees are also generally
     conducted, and most states reserve the right to require the removal of
     employees they deem to be unsuitable or whose presence they believe may
     adversely affect the operational security or integrity of the lottery.

     The Federal Gambling Devices Act of 1962 (the "Federal Act") makes it
     unlawful for a person to manufacture, deliver or receive gaming machines or
     similar devices across interstate lines


                                       19
<PAGE>

     unless that person has first registered with the Attorney General of the
     United States. On-Point has registered under the Federal Act and must renew
     its registration annually. The Federal Act also imposes various record
     keeping and equipment identification requirements. Violation of the Federal
     Act may result in seizure or forfeiture of equipment, as well as other
     penalties. As of the date of this filing, we believe we are in substantial
     compliance with these provisions.

     The international jurisdictions in which On-Point operates or intends to
     market its products have similar legislation and regulations governing
     lottery operations. In addition, restrictions are often imposed on foreign
     corporations seeking to do business in such jurisdictions. Failure to
     comply with these provisions could result in contract cancellation or the
     institution of legal proceedings.

     On-Point has employed registered lobbyists and retained paid consultants in
     certain states. Failure to comply with state regulatory provisions relating
     to the activities of our advisors could adversely affect our ability to bid
     successfully upon lottery contracts.

     It remains unclear what telecommunication regulations, if any, relate to
     the sale of prepaid phone cards or to the dispensing of those cards using
     vending machines. There appears to be a strong movement towards requiring
     certification as a reseller in states where entities sell prepaid phone
     cards. In addition, some states subject DCR terminals and machines to use
     or similar taxes.

ITEM 2. DESCRIPTION OF PROPERTIES

     On-Point leases a 32,000 sq ft facility at 1370 West San Marcos Blvd., San
     Marcos, California, where its executive offices, manufacturing, research
     and development and primary warehouse facilities are located, pursuant to a
     lease that expires in 2009. The current annual rent for this facility is
     approximately $220,000, which is subject to annual increases. On-Point also
     leases warehouse, office and repair facilities in Syracuse, New York,
     Arnold, Missouri, and Richmond,Virginia. On-Point believes that its present
     facilities are adequate for its present requirements and that additional
     space is readily available if it is required.

ITEM 3. LEGAL PROCEEDINGS

     On-Point is a party to legal proceedings in the ordinary course of its
     business; the most significant of which are described below.

     On January 14, 2000, an action was filed against On-Point and its directors
     on behalf of a stockholder in Superior Court of California, County of San
     Diego. The action alleges that the consideration to be paid by GTECH for
     all of On-Point's stock was inadequate and that the directors breached
     their fiduciary duties relating to the proposed sale of On-Point to GTECH.
     On-Point denied all claims and the class voluntarily dismissed the action
     in 2001.

     On April 20, 2000, a shareholder class action was filed against On-Point
     and Frederick Sandvick 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 is currently
     considering the parties' request to approve 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


                                       20
<PAGE>

     settlement agreement, On-Point would be permitted to issue shares equal to
     $1 million in value on the date the shares are required to be issued to the
     class, which is estimated would occur within six months.

     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 ILI in that On-Point was using elements of ILI's technology in
     On-Point's new PlayPoint technology. We believe ILI'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.

     On January 11, 1999, On-Point filed an action against Solutioneering, Inc.
     in Superior Court of California, County of San Diego. A first amended
     complaint of said action was filed on February 9, 1999. The action arises
     from the lease to Solutioneering of a total of 2,193 prepaid phone card
     vending terminals under a March 1, 1995 Master Lease Agreement and two
     amendments thereto (the "Agreement"). In the action, we asserted that
     Solutioneering had breached the Agreement and claimed damages of
     approximately $9 million. Solutioneering subsequently sought bankruptcy
     protection in 1999 and was liquidated by the bankruptcy court in mid-2000.
     The financing lender to Solutioneering raised a claim that it had a
     priority security interest over the leased machines ahead of On-Point based
     on the allegation that On-Point sold the machines to Solutioneering rather
     than leased the machines. Subsequent to the financing lender's assertion,
     On-Point and the financing lender entered into a settlement arrangement
     whereby the financing lender withdrew from claiming any rights to the
     machines in exchange for warrants to purchase up to 116,667 shares of
     On-Point's common stock at an exercise price of $3.75 per share for a three
     year period, subject to a minimum payment by On-Point of $50,000 for the
     buy-back of warrants to purchase 16,667 shares. As a result of the
     liquidation of Solutioneering, On-Point's claim against them has been
     rendered mute, although On-Point is evaluating whether further claims
     should be pursued against the former management of Solutioneering. On-Point
     now has clear title to all of the machines it leased to Solutioneering and
     is in the process of retrieving and/or selling the machines. On-Point
     currently has possession of approximately half of the machines and is in
     the process of determining the best arrangements to either retrieve the
     remaining machines or to enter into another arrangement for the deployment
     of the machines with another party.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

     On-Point's Annual Meeting of Stockholders was held on December 8, 2000. All
     of the members slated for election were elected to the Company's Board of
     Directors for the ensuing year (Frederick Sandvick, John H. Olbrich, Keith
     Cannon, and Gordon T. Graves). In addition, the following matters were
     acted upon:

<TABLE>
<CAPTION>
                Matter                             Votes For     Votes Against     Abstain
                ------                             ---------     -------------     -------
<S>                                                <C>              <C>              <C>
          Approval of the amendment
          to the 1994 Stock Option Plan            1,885,846        372,456          8,103

          Approval of the amendment
          To the Articles of Incorporation         1,998,935        247,692         19,778

          Approval of Auditors                     2,240,262         11,255         14,888

</TABLE>

     The amendment to the 1994 Stock Option Plan increased the number of shares
     of common stock authorized for issuance from .5 million to 1.5 million
     shares and the amendment to the Articles of


                                       21
<PAGE>

     Incorporation of the Company increased the number of authorized common
     shares from 6,666,667 shares to 13,333,334 shares.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     On-Point's common stock is traded on the Nasdaq National Market under the
     symbol: ONPT. The following table sets forth the high and low bid prices
     for On-Point's common stock, as reported on NASDAQ, for the quarters
     presented. The bid prices represent inter-dealer quotations, without
     adjustments for retail mark-ups, markdowns or commissions and may not
     necessarily represent actual transactions. All share and per share
     information reflects the one-for-three reverse split which became effective
     in November 2000.

<TABLE>
<CAPTION>
                                  2000                             1999
                          High            Low             High             Low
--------------------------------------------------------------------------------
<S>                      <C>             <C>             <C>              <C>
     First Quarter       $8.625          $5.063          $ 7.689          $5.064
     Second Quarter      $5.438          $1.593          $10.500          $5.250
     Third Quarter       $3.000          $0.843          $ 8.620          $4.125
     Fourth Quarter      $2.906          $1.314          $ 9.000          $4.314
--------------------------------------------------------------------------------
</TABLE>

     The number of stockholders of record of On-Point's common stock, par value
     $.03 per share, as of March 1, 2001, was 290. The approximate number of
     beneficial shareholders was 2,400.

     On-Point has never paid any cash dividends on its common stock and does not
     anticipate that it will do so in the foreseeable future. The future payment
     of dividends, if any, on the common stock is within the discretion of the
     Board of Directors and will require approval of On-Point's line of credit
     lenders, as well as depend on earnings, capital requirements, financial
     condition and other relevant factors.

     On-Point had the following unregistered sales of securities during the last
     three years. These 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.

     o In July 1999, James Bouskos and Miles Scully received options to purchase
     6,667 shares and 3,333 shares, respectively, of On-Point's common stock at
     $5.91 per share pursuant to their arrangements as Advisory Directors. The
     options vest in one year and expire in three years from date of grant.

     o In July 2000, Finova Mezzanine Capital Inc. received warrants to purchase
     116,667 shares of On-Point's Common Stock at $3.75 per share pursuant to a
     settlement agreement whereby Finova withdrew its claim to a security
     interest in the DCR machines leased by On-Point to Solutioneering, Inc. The
     warrants are immediately exercisable and expire 3 years from date of
     issuance. Finova has the option to have On-Point buy back warrants to
     purchase 16,667 shares for $50,000 after 18 months of the issuance.

     o In October 2000, Investa AG, a European money management fund, received
     five-year warrants to purchase 33,333 shares of On-Point's Common Stock at
     $3.00 per share pursuant to an agreement for the placement of a $1 million
     equity offering. Investa exercised the warrants in December 2000 and
     purchased 33,333 shares for an aggregate amount of $100,000.

     o In October 2000, Questos Ltd., a consulting company used in connection
     with the placement of the $1 million equity offering, received warrants to
     purchase 66,667 shares of On-Point's Common Stock at


                                       22
<PAGE>

     $1.50 per share pursuant to an agreement for services rendered in
     connection with the equity placement. The warrants are immediately
     exercisable and expire on October 31, 2005.

     o In December 2000, Galt Asset Management, LLC, a money management fund,
     and certain private investors received warrants to purchase 179,167 shares
     of On-Point's Common Stock at $1.80 per share in connection with the
     extension of certain debt due from On-Point.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     GENERAL On-Point's revenues through 2000 have been generated from (i) sales
     of vending terminals (ii) operating leases of vending terminals, (iv)
     financing income from sales-type leases, (iii) performance of service on
     vending terminals, and (iv) sales of associated parts. Our products are
     sold or leased to a limited number of customers worldwide. As a result, we
     have experienced fluctuations in our financial results and capital
     expenditures because of the timing of significant individual contract
     awards and customer orders as well as associated product delivery
     schedules. Our 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 require
     us to invest capital or otherwise finance the manufacture of the vending
     terminals. We have obtained the resources necessary to finance our
     expanding base of leased terminals over the past three years through our
     line of credit, existing cash flow and private placement financing.

     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
     may also negatively impact results of operations during the transition
     period. However, management believes the long-term benefits from its
     development plans far outweigh the negative short-term transitional
     effects.

     On February 23, 2001, the Company entered into an agreement to sell its
     lottery assets to Interlott. This agreement is described in Item 1 under
     the heading "Agreement with Interlott." Since our lottery business
     accounted for substantially all of our business in 2000 and 1999, 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 and
     the discussion of our operations for 2000 and 1999 will not relate to our
     ongoing business activities.


                                       23
<PAGE>

RESULTS OF OPERATIONS - 2000 COMPARED TO 1999

     The results of operations are based, where applicable, on segment
     information, which is included in Note 2 of Notes to the Consolidated
     Financial Statements.

     As shown on the financial statements, the 2000 revenues decreased by
     approximately $3.2 million from 1999. The decrease was primarily due to the
     combination of a $1.8 million decrease in product sales and a $1.2 million
     decrease in financing revenue resulting from a decrease in the number of
     new units leased or renewed. The product mix among segments is dependent
     upon new product orders received, which may vary from year to year, based
     on which lotteries place new requests for bid and on our competitive
     success. The reduction in revenues was primarily due to the impact of the
     transitional phase of the Company's product line. As explained above, the
     Company is transitioning into its next generation lottery products which
     has required it to focus most of its efforts into the marketing,
     industrialization and beta testing of these products, thereby negatively
     impacting revenues until the new products have been accepted by the
     industry.

     Cost of sales, as a percentage of sales, increased by 1% from 83% in 1999
     to 84% in 2000 due to the combination of the following: (1) product cost of
     sales as a percentage of revenues decreased 3 percentage points, from 84%
     in 1999 to 81% in 2000; (2) financing cost of sales increased 11 percentage
     points, as a percentage of revenues, from 70% in 1999 to 81% in 2000; and
     (3) service cost of sales increased 1 percentage point as a percentage of
     revenues from 86% in 1999 to 87% in 2000. Product cost of sales increased
     as a percentage of sales due to a combination of lower margins on ITR units
     resulting from competitive bidding pressures on new units sold, and
     increased depreciation expense associated with the assets under lease with
     Solutioneering more fully described below. Financing costs as a percentage
     of sales increased due primarily to the decrease in revenue recognized
     during 2000 as compared to 1999. Service costs decreased as a percentage of
     sales due to a combination of renegotiated contract pricing and of
     economies achieved from a preventative maintenance program initiated in
     1997. Future gross margins will be affected by competitive bidding
     requirements, quantities of units in production, transitioning of
     On-Point's existing products to its next generation products, and available
     resources. Future margins could be adversely impacted by higher costs
     during the initial production runs of On-Point's next generation lottery
     products should the products gain market acceptance. However, we developed
     the next generation lottery products with a view to gaining greater market
     share and ultimately achieving better gross margins. The next generation
     lottery products were unveiled in 1999 and On-Point has initiated its
     marketing efforts to gain market acceptance of the new products.

     Included in cost of sales in 2000 and 1999 is depreciation of $353 thousand
     and $741 thousand, respectively, from non-performing equipment previously
     held under lease by Solutioneering (see Note 7 of Notes to Consolidated
     Financial Statements). These non-cash charges were significant reasons for
     decreased gross margins in both years. During 1999, On-Point filed an
     action to recover amounts owed by Solutioneering and, subsequent to the
     action, Solutioneering filed for creditor protection under the U.S
     Bankruptcy Code. In 2000, On-Point obtained the rights to recover all the
     equipment held under the lease with Solutioneering so the equipment can be
     redeployed or sold to other customers. To date, about half of the equipment
     has been recovered, and we have hired a sales consultant to pursue the sale
     of the equipment not yet recovered. We are currently in negotiations with
     various third parties to recover and redeploy the equipment; however, no
     assurances can be given that the remaining equipment will be recovered and,
     if recovered, redeployed under terms favorable to On-Point. Future charges
     to expense will occur if the equipment is not recovered and redeployed or
     sold on terms favorable to On-Point.

     As a result of the decreased gross margins during 2000, gross profit
     decreased by $.6 million, from $2.3 million in 1999 to $1.7 million in
     2000.


                                       24
<PAGE>

     Operating expenses, as a percentage of sales, increased by 13 percentage
     points as a result a combination of the following: (1) a $.4 million
     increase in selling, general and administrative expenses, and (2) a $.3
     million increase in general research and development costs. The increase in
     selling, general and administrative expenses resulted from a combination of
     the following: (i) a decrease in salaries and related expenses due to
     reductions in corporate and administrative personnel and to reductions to
     the chief executive officer's salary; (ii) an increase in legal and outside
     professional fees for a number of litigation matters discussed herein; and
     (iii) an increase in bad debt expense. General research and development
     costs increased as a result of the field testing and subsequent completion
     of some of the overall development aspects of On-Point's next generation
     lottery products. We anticipate continued development efforts will be
     significantly reduced in 2001, although certain development efforts will
     continue while On-Point receives continued marketing feedback on beta test
     units and as On-Point continues to expand its product development efforts
     on other product concepts. Thereafter, the extent of On-Point's development
     efforts will depend on management's evaluation of the positioning of its
     other products.

     Total other expense increased by $761 thousand, from $533 thousand in 1999
     to $1,294 thousand in 2000, resulting from the accrual of $1 million,
     substantially representing the estimated fair value of common stock that
     the Company will issue in connection with the settlement of the shareholder
     class actions filed against the Company in 2000. Although management
     believes that the shareholder actions were without merit, we believed it
     was best to settle the actions quickly in order not to impair the progress
     of the Company's strategic business plans. Other expense was also affected
     by increased interest expense due to increased average borrowings during
     2000 and by other income of $406 thousand derived from the settlement of
     the termination of the proposed merger with GTECH in 2000.

     As a net result of the above-described factors, On-Point incurred a net
     loss of $2,824 thousand in 2000, versus a net loss of $721 thousand in
     1999.

LIQUIDITY AND CAPITAL RESOURCES

     In 2000, On-Point used approximately $1.4 million of net cash provided by
     financing activities to fund approximately $1.1 million in operating
     activities and $.3 million in investing activities. In 1999, On-Point used
     approximately $2 million of net cash provided by financing activities to
     fund approximately $1.8 million provided in operating activities and $.2
     million in investing activities. Working capital was approximately $6.7
     million at December 31, 2000 an increase of approximately $1 million from
     the $5.7 million in working capital at December 31, 1999.

     In April 2000, we amended our revolving line of credit to increase our
     availability from $6 million to $10 million and to extend the maturity date
     of the loan to July 31, 2003. At December 31, 2000, On-Point had borrowed
     approximately $3.8 million under this Agreement which was approximately the
     availability at that date under the borrowing formula. The borrowing
     formula allows for increased borrowings as receivables, inventory and lease
     streams are increased. The borrowing availability under the line is subject
     to a number of restrictions (see Note 4 of Notes to Consolidated Financial
     Statements).

     During 2000, On-Point renegotiated all its short-term note obligations (see
     Note 4 of Notes to Consolidated Financial Statements). On-Point had a $1.5
     million obligation with GTECH in connection with GTECH's proposed
     acquisition of On-Point that was reduced to $750,000 and the maturity date
     extended to August 15, 2002. On-Point also renegotiated $1.1 million of
     subordinated note obligations to certain private lenders and extended their
     maturity date to February 15, 2002. The $1.1 million of subordinated notes
     are convertible into shares of On-Point's common stock at a conversion
     price of $1.50 per share.


                                       25
<PAGE>

     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 at least 12 months. 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.

YEAR 2000 COMPLIANCE The Company's process for becoming Year 2000 ("Y2K")
compliant has been to perform an ongoing comprehensive study and review of
computer hardware, software and systems, both internal and external, and
non-computer related systems, which may be affected by certain computerized
functions. The Company completed this process in preparation for Y2K issues,
prior to the end of the year. As of December 31, 2000, the Company is not aware
of any Y2K problem in any of our corporate applications, significant service
providers, vendors, suppliers, subcontractors, financial institutions,
consultants, various government agencies or non-information technology/embedded
systems. However, the success to date of our Y2K efforts and the efforts of
third party vendors or business partners cannot guarantee that there will not be
a material adverse effect on our business should a Y2K problem manifest or
become apparent in the future.

The costs of expected modifications were estimated to be minimal and immaterial.
For the year ended December 31, 1999, approximately $105,000 was charged to
expense related to this issue. No significant costs were incurred in 2000 and no
significant costs are expected to be incurred in 2001.

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

The Consolidated Financial Statements are filed as part of this Annual Report on
Form 10-KSB.


                                       26
<PAGE>

                          INDEPENDENT AUDITORS' REPORT
                               ------------------

To the Board of Directors and Shareholders of On-Point Technology Systems, Inc.
and Subsidiaries:

We have audited the accompanying consolidated balance sheet of On-Point
Technology Systems, Inc. and Subsidiaries as of December 31, 2000, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of On-Point Technology Systems Inc.'s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In our opinion, such consolidated financial statements, refer to above, present
fairly, in all material respects, the consolidated financial position of
On-Point Technology Systems, Inc. and Subsidiaries as of December 31, 2000, and
the consolidated results of their operations and their consolidated cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.


Rothstein, Kass & Company, PC
Roseland, New Jersey
March 12, 2000


                                       27
<PAGE>

                          INDEPENDENT AUDITORS' REPORT
                               ------------------

To the Board of Directors and Shareholders of On-Point Technology Systems, Inc.
and Subsidiaries:

We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of On-Point Technology Systems, Inc. and
subsidiaries for the year ended December 31, 1999. These financial statements
are the responsibility of On-Point Technology Systems, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated results of operations and consolidated cash
flows of On-Point Technology Systems, Inc. and subsidiaries for the year ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America.


Deloitte & Touche LLP
San Diego, California
May 27, 2000


                                       28
<PAGE>

               ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                             AS OF DECEMBER 31, 2000

<TABLE>
<CAPTION>
Thousands of dollars, except share amounts                                 2000
                                                                           ----
<S>                                                                    <C>
Assets
Cash and cash equivalents                                              $    139
Accounts receivable, net                                                  1,406
Inventories                                                               5,907
Net investment in sales-type leases                                       1,189
Other current assets                                                         54
--------------------------------------------------------------------------------
Total current assets                                                      8,695
--------------------------------------------------------------------------------
Plant, property and equipment, net                                          296
Net investment in sales-type leases                                       2,352
Property under operating leases, net                                        601
Property, previously under lease agreement with                           1,825
  Solutioneering, net
Other assets                                                              2,174
--------------------------------------------------------------------------------
Total assets                                                           $ 15,943
================================================================================

Liabilities and shareholders' equity
--------------------------------------------------------------------------------
Accounts payable                                                       $  1,553
Accrued expenses and current liabilities                                    517
--------------------------------------------------------------------------------
Total current liabilities                                                 2,070
--------------------------------------------------------------------------------
Long-term debt                                                            5,766
--------------------------------------------------------------------------------
Shareholders' equity:
    Preferred stock, no par value, 2,000,000 shares
      authorized, no shares issued or outstanding
    Common stock, $.03 par value, 13,333,334 shares
      authorized, 4,305,496, issued and outstanding                         129
    Shares to be issued                                                     950
    Additional paid-in capital                                           33,124
    Accumulated deficit                                                 (26,096)
--------------------------------------------------------------------------------
Total shareholders' equity                                                8,107
--------------------------------------------------------------------------------
Total liabilities and shareholders' equity                             $ 15,943
================================================================================
</TABLE>

    See accompanying notes to consolidated financial statements.


                                       29
<PAGE>

               ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 and 1999

<TABLE>
<CAPTION>
================================================================================
                                                       2000           1999
                                                       ----           ----
--------------------------------------------------------------------------------

Thousands of dollars/shares, except per share amounts
--------------------------------------------------------------------------------
<S>                                                   <C>              <C>
Revenues                                              $ 10,293         $ 13,481
Cost of sales                                            8,586           11,144
--------------------------------------------------------------------------------
Gross profit                                             1,707            2,337
--------------------------------------------------------------------------------
Operating expenses:
    Selling, general and administrative                  2,176            1,801
    Research and development                             1,061              724
--------------------------------------------------------------------------------
Total operating expenses                                 3,237            2,525
--------------------------------------------------------------------------------
Loss from operations                                    (1,530)            (188)
--------------------------------------------------------------------------------
Other expenses (income):
    Interest expense                                       739              519
    Income related to merger termination, net             (406)
    Shareholder class action settlement                  1,000
    Other                                                  (39)              14
--------------------------------------------------------------------------------
Total other expenses                                     1,294              533
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Net loss                                              $ (2,824)        $   (721)
--------------------------------------------------------------------------------

Basic and diluted loss per share:
      Loss per share                                  $  (0.78)        $  (0.21)
--------------------------------------------------------------------------------
      Weighted average shares                            3,623            3,397
================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       30
<PAGE>

               ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2000 and 1999

<TABLE>
<CAPTION>
                                        --------------------------------------------------------------------------
                                           Common Stock           Shares     Additional
                                        -------------------        to be      Paid-in     Accumulated      Total
Thousands shares/dollars                Shares      Amount        issued      Capital         Deficit
------------------------------------------------------------------------------------------------------------------
<S>                                     <C>        <C>           <C>          <C>          <C>           <C>
BALANCES, JANUARY 1, 1999               3,365      $    101                   $ 31,256     ($22,551)     $  8,806
------------------------------------------------------------------------------------------------------------------
Exercise of stock warrants                 20             1                        119                        120
Exercise of stock options                  37             1                        115                        116
Issuance of stock options and
  warrants for services provided                                                   100                        100
Net loss                                                                                       (721)         (721)
------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1999             3,422           103                     31,590      (23,272)        8,421
------------------------------------------------------------------------------------------------------------------
Exercise of stock warrants                183             5                        365                        370
Issuance of common stock, net
  of issuance cost of $208                700            21                        944                        965
Issuance of stock options and
  warrants for services provided                                                    28                         28
Issuance of stock warrants for
  acquisition of equipment                                                          52                         52
Issuance of stock warrants for
  financing costs                                                                  145                        145
Shares to be issued in connection
  with class action settlement                                       950                                      950
Net loss                                                                                     (2,824)       (2,824)
------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 2000             4,305      $    129      $   950      $ 33,124     $(26,096)     $  8,107
------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       31
<PAGE>

               ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 and 1999

<TABLE>
<CAPTION>
THOUSAND OF DOLLARS                                       2000          1999
--------------------------------------------------------------------------------
<S>                                                     <C>          <C>
Cash flows from operating activities:
    Net loss                                            ($2,824)     ($  721)
    Adjustments to reconcile net loss to net cash
        used in operating activities:
      Depreciation and amortization                       1,015        1,921
      Issuance of stock options and warrants for
        services provided                                    28          100
      Stockholder class action settlement                   950
      Provision for doubtful accounts                       180         (281)
      Changes in operating assets and liabilities:
         Accounts receivable                               (701)       2,143
         Inventories                                        882       (2,634)
         Other current assets                               145          (77)
         Other assets                                      (332)      (1,196)
         Accounts payable                                  (240)         603
         Accrued expenses                                  (189)      (1,666)
--------------------------------------------------------------------------------
Net cash used in operating activities                    (1,086)      (1,808)
--------------------------------------------------------------------------------
Cash flows from investing activities:
    Purchases of plant, property and equipment              (37)        (445)
    Net investment in sales-type leases                      68
    Investment in property under operating leases          (332)         256
    Loss on fixed asset disposals                                         35
--------------------------------------------------------------------------------
Net cash used in investing activities                      (301)        (154)
--------------------------------------------------------------------------------
Cash flows from financing activities:
    Proceeds from issuance of common stock upon
      exercise of warrants and options                    1,334          236
    Proceeds (payments of) from line of credit, net        (945)         858
    Proceeds from notes payable, net                        980          896
--------------------------------------------------------------------------------
Net cash provided by financing activities                 1,369        1,990
--------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents            (18)          28
--------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year              157          129
--------------------------------------------------------------------------------
Cash and cash equivalents at end of year                $   139      $   157
================================================================================
Supplemental cash flow information:
    Cash paid during the years for interest             $   739      $   451
Supplemental disclosure of non-cash activities:
    Increase (decrease) of reserves for inventory
     obsolescence                                      ($    74)     $    96
    Issuance of stock warrants for acquisition of
      equipment and financing costs                     $   370           --
================================================================================
</TABLE>

See accompanying notes to consolidated financial statements


                                       32
<PAGE>

               ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2000 and 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS On-Point Technology Systems, Inc. and Subsidiaries,
(collectively, the "Company" or "On-Point") designs, manufactures, and services
vending terminals for retail sale and leasing. The Company's Instant Ticket
Retailer (ITR) product line sells or leases instant-winner lottery terminals to
state and provincial governments in the United States and Canada and to foreign
governments and their licensees. Its Debit Card Retailer (DCR) product line
sells or leases vending machines for prepaid telephone cards and other specialty
retail products generally to commercial customers in the United States and in
foreign markets. On February 23, 2001, the Company entered into a definitive
agreement to sell all its assets relating to its lottery business to Interlott
Technologies, Inc. (Interlott). However, since the sale is subject to
shareholder approval, the assets and related operations have not been shown as
discontinued on the accompanying consolidated financial statements. Revenues
from our lottery products accounted for substantially all of the Company's
revenue during the two years ended December 31, 2000.

BASIS OF PRESENTATION 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 consolidated financial statements 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.

PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of On-Point and all majority owned subsidiaries after elimination of
significant intercompany balances and transactions.

CASH AND CASH EQUIVALENTS Cash equivalents consist of highly liquid investments
purchased with original maturities of three months or less and which are readily
convertible into cash.

INVENTORIES Inventories include the cost of material, direct labor,
manufacturing overhead, parts and supplies, and terminals assembled or in the
process of assembly. Inventories are stated at the lower of cost, on a first-in,
first-out basis or market.

PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost
less accumulated depreciation and amortization. Accumulated depreciation and
amortization are provided using the straight-line method, over estimated useful
lives of 2 to 10 years. Maintenance and repairs are expensed as incurred.

PATENTS Patents are capitalized and amortized on a straight-line basis over
17 years.

LEASES Property held under lease agreements are stated at cost. Depreciation is
provided using the straight-line method, over estimated useful lives of 2- 5
years.

REVENUE RECOGNITION Under provision of SFAS No. 131, On-Point has three
reportable business segments: Products, Financing and Service. Segment
information is included as Note 2. Revenue recognition for each segment is as
follows:

     PRODUCTS

     Revenues from terminal sales are recognized upon shipment, except where
     contract terms require On-Point to provide installation prior to
     acceptance, in which cases revenue is recognized when the product is
     installed. Revenues from sales-type leases are recognized at the present
     value of the future minimum payments and are recorded as product sales.

     FINANCING

     Income from operating leases is recognized as rentals are due according to
     provisions of the leases. Units under operating leases are treated as
     depreciable assets and depreciated over their useful lives, with
     depreciation on such units charged to cost of sales.


                                       33
<PAGE>

     Interest income is recognized on sales-type leases as earned, based on
     amortization schedules. The difference between the total future minimum
     payments plus the residual value of the equipment and the present value is
     recorded as unearned income and amortized over the term of the lease so as
     to produce a constant rate of return.

     SERVICE

     On-Point employs a field service department to service ITR terminals sold
     or leased to customers. Most service agreements provide for a preventive
     maintenance visit at regular intervals (e.g. every 60 to 120 days), covers
     all labor costs, costs to repair and replace parts, and provides for
     emergency visits if the terminal is non-operational. Income is recognized
     monthly, ratably over the lease term, for all ITR sales. When a terminal
     is leased to a customer, the service fee is separately identified in the
     lease agreement or included as a component of a single lease payment. If
     service is included as a component of a single lease payment, a service
     fee is estimated and classified as deferred executory costs. All service
     revenue is recognized ratably over the service agreement. On-Point
     provides for the estimated amount of future losses on any service
     contract.

     All ITR and DCR sales include a warranty, ranging from one to three years,
     which includes free repair or replacement of defective parts and may
     include associated labor costs. Future warranty costs are estimated and
     charged to income at time of sale, unless the lease includes a service
     component, in which case the estimated costs reduces the minimum lease
     payment. On-Point has no commitment under any lease to guarantee
     performance in a manner more extensive than the typical product warranty or
     which effectively protects the lessee from obsolescence.

RESEARCH AND DEVELOPMENT General research and development costs are expensed as
incurred.

SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT Revenues from the state
lotteries of Virginia and Illinois individually accounted for 16% and 39%
respectively, of total revenue in 2000. Revenues from the state lotteries of
Virginia, Illinois, New York and Missouri individually totaled 20%, 29%, 12% and
11% , respectively of total revenue in 1999. Foreign sales amounted to
approximately $2.2 million in 2000 (22% of total revenues), substantially all of
which were for shipments to the French Lottery, and $2 million in 1999 (15% of
total revenues ) also most of which were for shipments to the French Lottery.

INCOME TAXES Deferred income taxes are recorded to reflect the tax consequences
on future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year-end. If it is more likely
than not that some portion or all of a deferred income tax asset will not be
realized, a valuation allowance is recognized.

PER SHARE INFORMATION In February 1997, the Financial Accounting Standards Board
("FASB") 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 excludes dilution and is computed using the weighted average shares of
common stock outstanding plus contingently issuable shares. Diluted EPS is
computed using the weighted average shares outstanding plus additional common
shares that would have been outstanding if dilutive potential common shares had
been issued, using the treasury stock method.

Options to purchase 658,680 and 733,510 shares of On-Point's Common Stock and
warrants to purchase 715,834 and 526,667 shares of On-Point's Common Stock were
outstanding during 2000 and 1999, respectively, but were not included in the
computation of diluted EPS because On-Point incurred a net loss in 2000 and
1999.

FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of estimated fair
value was determined by available market information and appropriate valuation
methodologies; however, considerable judgment is necessary to interpret market
data and develop the related estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that could be
realized upon disposition of the financial instruments. The use of market
assumptions and or estimation methodologies may have a material effect on
estimated fair value amounts.

Cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and deferred income carrying cost reasonably approximates their fair
value because of the short maturities of these investments.

On-Point believes that the carrying amount of its outstanding debt at December
31, 2000 is a reasonable estimate of its fair value based on a review of
borrowing rates available to On-Point at December 31, 2000 for loans with
similar terms and average maturities.


                                       34
<PAGE>

IMPAIRMENT OF LONG-LIVED ASSETS On-Point periodically assesses its ability to
recover the carrying value of its long-lived assets. If management concludes
that the carrying value will not be recovered, an impairment write down is
recorded to reduce the asset to its estimated fair value.

RECENTLY ISSUED ACCOUNTING STANDARDS In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin 101, "Revenue Recognition
in Financial Statements" ("SAB 101"). SAB 101 provides guidance on the
recognition, presentation and disclosure of revenues in financial statements and
requires adoption no later than the fourth quarter of 2000. The Company has
adopted SAB101, which has not had a material impact on the consolidated
financial statements.

PREDEVELOPMENT CONTRACT COSTS Costs related to modifications of existing
products for a specific contract are capitalized and amortized over the life of
the contract as revenues are recognized.

ESTIMATES The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

RECLASSIFICATIONS Certain balances in the 1999 financial statements have been
reclassified to conform to 2000 reporting.

2. SEGMENT INFORMATION

On-Point has adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", which changes the way On-Point reports information
about its operating segments. On-Point has three reportable segments: product
sales, financing and service. The product segment includes all products sold by
On-Point, including ITR and DCR vending machines via product sales and
sales-type lease agreements. The financing segment includes revenues and
expenses associated with (1) financing the sale of units via sales-type leases
and (2) operating leases. The service segment includes revenues and expenses
associated with its service and warranty contracts.

On-Point evaluates performance for each segment based on gross profits.

<TABLE>
<CAPTION>
THOUSANDS OF DOLLARS
                                                                                     Non-
                                           Products      Financing       Service   Allocated       Total
                                           --------      ---------       -------   ---------       -----
<S>                                       <C>           <C>           <C>                        <C>
2000
OPERATING DATA:
Revenues                                  $  5,421      $    707      $  4,165                   $ 10,293
Gross profit                                 1,021           133           553                      1,707
Income (loss) from operations               (1,049)         (751)          448         (178)       (1,530)

BALANCE SHEET DATA (AT END OF YEAR):
Assets (allocated by segment)                6,854         6,008           715        2,366        15,943

CASH FLOW INFORMATION:
Depreciation and amortization             $    243      $    757      $     15                   $  1,015
Capital expenditures                      $     37                                               $     37

1999
OPERATING DATA:
Revenues                                  $  6,889      $  2,240      $  4,352                   $ 13,481
Gross profit                                 1,102           666           569                      2,337
Income (loss) from operations                 (405)         (188)          405                       (188)

CASH FLOW INFORMATION:
Depreciation and amortization             $    338      $  1,573      $     10                   $  1,921
Capital expenditures                      $    445                                               $    445
</TABLE>

Total assets for the segments excludes cash, other current assets and other
assets, as such assets are not specifically identifiable to a particular
segment. Selling, general and administrative expense, excluding specifically
identified amounts, has been allocated based on the percentage of the total
assets of the respective segment divided by the total assets of all segments.


                                       35
<PAGE>

3. OTHER FINANCIAL DATA.

Details concerning certain balance sheet accounts and operating income detail as
of December 31, 2000 follows (in thousands):

<TABLE>
<CAPTION>
                                                         2000
                                                         ----
<S>                                                    <C>
      ACCOUNTS RECEIVABLE:
            Trade accounts receivable                  $ 1,694
            Less allowance for doubtful accounts          (288)
                                                       -------
            Total                                      $ 1,406
                                                       =======

      INVENTORIES:
            Materials                                  $ 4,146
            Work-in-process                                 75
            Finished goods                               2,252
            Reserve for obsolescence                      (566)
                                                       -------
            Total                                      $ 5,907
                                                       =======

      PROPERTY, PLANT AND EQUIPMENT:
            Computers and equipment                    $ 1,155
            Furniture and fixtures                         331
            Tooling                                        392
            Building and improvements                       76
                                                       -------
                                                         1,954
            Less accumulated depreciation and
              amortization                              (1,658)
                                                       -------
            Total                                      $   296
                                                       =======
      OTHER ASSETS:
            Patents                                    $   879
            Deposits                                        49
            Predevelopment contract costs                  992
            Other, net of reserves of $475 in 2000         951
                                                       -------
                                                         2,873
            Less accumulated amortization                 (699)
            Total                                      $ 2,174
                                                       =======
</TABLE>

4. LONG-TERM DEBT

Long-term debt consists of the following as of December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                                          2000
                                                          ----
<S>                                                     <C>
            Revolving line of credit                    $ 3,785
            Notes payable                                 1,980
                                                        -------
            Total long-term debt                          5,765
            Less current portion                             --
                                                        -------
            Long-term Debt                              $ 5,765
                                                        =======
</TABLE>

REVOLVING LINE OF CREDIT On-Point entered into a loan and security agreement on
May 5, 1997 with a financial institution, which provided for a revolving credit
line of up to $3 million, which was amended on July 7, 1998 to increase the
borrowing limit to $5 million, amended on July 2, 1999, to increase the
revolving credit line to $6 million, and further amended on April 20, 2000 to
increase the revolving credit line to $10 million. Pursuant to the April 2000
amendment, the expiration date of the line was extended through July 31, 2003.
The line bears interest at the prime rate, which was 9.5% at December 31, 2000,
plus 2%. The rate is reduced by .5% annually if On-Point meets certain
performance benchmarks. The loan is secured by virtually all of On-Point's
assets.. As of December 31, 2000 the line requires On-Point to maintain a
minimum of $8 million of equity, decreased by the amount of writedown related to
On-Point's cost of DCR equipment that was on lease with Solutioneering until
foreclosure by On-Point in 2000. The amount of writedown in 2000 was
approximately $352 thousand. The available borrowings under the revolving credit
line are subject to a number of restrictions, which are primarily related to
percentages of various assets of On-Point and multiples


                                       36
<PAGE>

of monthly cash flows. As of December 31, 2000, On-Point had available
approximately $3.9 million under the credit line of which approximately $3.8
million had been borrowed.

NOTES PAYABLE Notes payable at December 31, 2000 consists of the following:

A note payable to GTECH Corporation in the amount of $750 thousand, which bears
interest-only at 10% per annum and is due February 15, 2002. The note had
previously been for $1.5 million and was originally made in connection with a
proposed acquisition by GTECH of On-Point that was documented in an agreement
that was executed in January 2000. The acquisition discussions were terminated
in July 2000 and, as a result, the Company expensed approximately $449 thousand
for costs associated with the acquisition. In connection with the termination,
On-Point claimed that it was owed a termination fee under the agreement. During
the third quarter of 2000, the Company amicably settled the termination fee
issue with GTECH by modifying the terms of the note to GTECH which reduced the
principal amount of the note from $1.5 million to $750 thousand, eliminated all
accrued interest due through July 2000 and extended the maturity date of the
note to August 15, 2002. In consideration of the note modification, the Company
waived all claims under the terminated merger agreement with GTECH. The Company
recorded income from the merger termination agreement of $855 thousand, which,
after subtraction of the merger related costs of $449 thousand, netted $406
thousand of income for 2000.

During 2000, the Company received $1.1 million from certain private lenders
under short term subordinated loan arrangements. The loans were renegotiated
and, under the new agreements, the subordinated notes mature on February 15,
2002 with interest-only payable quarterly at a rate of 10% per annum. The notes
are convertible at anytime at the option of the lenders, in whole or in part,
prior to the maturity date at a conversion price equal to $1.50 per share. In
addition, the lenders were granted on December 28, 2000, warrants to purchase
179,167 shares of Common Stock at a per share price of $1.80 per share. The
warrants are exercisable through December 31, 2005.

During 2000, the chief executive officer of the Company loaned $130,000 to the
Company under a short term subordinated loan arrangement. The note is in the
process of renegotiation under terms similar to the notes agreed upon with the
other private lenders.

Future principal payments on debt as of December 31, 2000, are as follows (in
thousands):

<TABLE>
<CAPTION>
           Year ending December 31,
              <S>                                     <C>
              2001                                     $    0
              2002                                      1,980
              2003                                      3,785
</TABLE>

5. OPERATING LEASES

On-Point leases certain of its vending terminals to customers under agreements
accounted for as operating leases. The net investment in vending terminals held
under operating leases at December 31, 2000 consisted of approximately $1.3
million less accumulated depreciation of approximately $760 thousand at December
31, 2000.

Approximate future minimum lease payments receivable by On-Point under operating
leases as of December 31, 2000, are as follows (in thousands):

<TABLE>
<CAPTION>
          Year ending December 31,
                <S>                                     <C>
                2001                                    $   738
                2002                                      1,089
                                                        -------
                                                        $ 1,827
                                                        =======
</TABLE>

Current operating leases may be extended in one-year increments, upon expiration
of current leases. On-Point believes that the net book value is fully
recoverable through future lease receipts and the underlying value of the assets
as of December 31, 2000.


                                       37
<PAGE>

6. SALES-TYPE LEASES

On-Point leases certain of its vending terminals under agreements accounted for
as sales-type leases. Included in product sales are approximately $1.6 million
and $2.3 million of revenues related to sales-type leases for the years ended
December 31, 2000 and 1999, respectively. These non-cancelable leases expire
over the next one to five years.

The following lists the components of the net investment in sales-type leases as
of December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                                                2000
                                                              -------
<S>                                                           <C>
           Net minimum lease payments receivable              $ 2,934
           Estimated unguaranteed residual value                  852
           Less unearned interest income                         (245)
                                                              -------
           Net investment in sales-type leases                $ 3,541
                                                              =======

        SALES-TYPE LEASES CONSIST OF:
           Net investment in sales-type leases - short term   $ 1,189
           Net investment in sales-type leases - long term      2,352
                                                              -------
           Net investment in sales-type leases, as above      $ 3,541
                                                              =======
</TABLE>

The minimum lease payments are recorded net of future estimated service and
warranty costs of $ 1 million in 2000, which are deferred and recorded as income
on a monthly basis over the term of the agreement. Future minimum lease
payments, excluding service payments, due from customers under sales-type leases
as of December 31, 2000, are as follows (in thousands):

          Year ending December 31,
             2001                    $1,328
             2002                       713
             2003                       376
             2004                       310
             2005                       207
                                     ------
                                     $2,934
                                     ======

The amortization of unearned income for sales-type leases amounted to
approximately $274 thousand and $323 thousand for the years ended December 31,
2000 and 1999, respectively.

7. PROPERTY PREVIOUSLY UNDER LEASE AGREEMENT WITH SOLUTIONEERING

As part of its effort to increase its presence in the DCR marketplace in 1997,
On-Point entered into an agreement with Solutioneering, Inc. ("Solutioneering")
to provide up to an additional 2,000 DCR terminals under long-term lease
arrangements. Under the arrangement, On-Point would be Solutioneering's
exclusive DCR provider. Although On-Point realized Solutioneering was
undercapitalized, On-Point believed the deployment of the DCR terminals to
retail locations under relatively long-term lease agreements would create
adequate underlying value to support repayment of On-Point's leases should
Solutioneering fail to pay. While Solutioneering defaulted on its obligations in
1998, On-Point did not foreclose on the equipment leased to Solutioneering
primarily because management believed the underlying value of Solutioneering's
leased locations could be sold in one package for an amount in excess of the
total obligations owed by Solutioneering. On-Point also believes that it will
recover the assets and that the fair value of On-Point's leased assets held by
Solutioneering exceeded the carrying amount of the leased assets as of December
31, 2000. When Solutioneering was unwilling to accept terms offered by a
prospective buyer in early 1999, On-Point subsequently filed suit to collect the
amounts due.

The vending machines leased to Solutioneering, other than those machines which
are now back in On-Point's inventory, have been classified as "Property
previously under lease agreement with Solutioneering" as the property was
non-performing and unavailable for lease as of December 31, 1999 and segregated
for collection and/or potential overall sale to third parties as of December 31,
2000. This property while under lease agreement with Solutioneering was being
depreciated over a five-year estimated useful life. The depreciation expense is
classified as cost of sales, consistent with other operating leases. In August
2000, On-Point settled a dispute with Solutioneering's financing lender, Finova
Mezzanine Capital, Inc., and, under the settlement agreement, obtained the
undisputed rights to the property. In exchange for the settlement and the grant
to On-Point of the undisputed rights to the machines, Finova received warrants
to purchase 116,667 shares of On-Point's Common Stock at $3.75 per share
exercisable over three years from date of


                                       38
<PAGE>

issuance. The fair value of the warrants totaled $52 thousand, which was added
to the cost basis of the equipment. Subsequent to August 2000, On-Point has been
in the process of collecting and negotiating for the sale of the property.

The activity in the Property under Lease agreements with Solutioneering, for
year ended December 31, 2000, is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                              2000
                                                              ----
          <S>                                               <C>
          Cost balance - beginning of year                  $ 4,136
          Additions                                              52
          Deletions                                          (1,185)
                                                            --------
          Cost Balance - end of year                          3,003
                                                            --------

          Accumulated depreciation - beginning of year        1,623
          Additions                                             353
          Deletions                                            (798)
                                                             -------
          Accumulated depreciation - end of year              1,178
                                                             -------
          Net Balance - end of year                         $ 1,825
                                                            ========
</TABLE>

8. INCOME TAXES

Following is a reconciliation of the income tax benefit expected (based on the
statutory federal income tax rate) to the actual income tax provision recorded
(in thousands):

<TABLE>
<CAPTION>
                                                            2000        1999
                                                           -----       -----
          <S>                                              <C>         <C>
          Tax benefit computed at the statutory federal
            rate of 34%                                    $(960)      $(245)
          Expenses not deductible for income tax
            purposes                                         648           8
          Change in valuation allowances for deferred
            income tax assets                                312         237
                                                           -----------------
          Provision for income taxes - current             $   0       $   0
                                                           =================
</TABLE>

Deferred income tax assets and the related valuation allowance as of December
31, 2000, result from the following temporary differences:

<TABLE>
<CAPTION>
                                                             2000
                                                             ----
          <S>                                              <C>
          Net operating loss carryforwards                 $6,254
          Inventory and other reserves                        637
          Valuation allowance                              (6,891)
                                                           ------
          Net deferred income tax assets                   $  --
                                                           ======
</TABLE>

Due to significant losses for income tax reporting purposes prior to 2000, as
well as the other issues currently being addressed by On-Point, management has
concluded that it is more likely than not that the deferred tax assets will not
be realized and that a valuation allowance is needed to reduce the carrying
value of deferred income tax assets to zero.

At December 31, 2000, On-Point has $18.3 million of operating loss available to
offset future federal taxable income, which expires during the years 2011
through 2020.

9. SHAREHOLDERS' EQUITY

COMMON STOCK On December 8, 2000, the stockholders approved an amendment to
On-Point's Articles of Incorporation to increase the authorized shares of Common
Stock from 6,666,667 to 13,333,334.

PREFERRED STOCK On-Point is authorized to issue up to two million shares of
Preferred Stock without further shareholder approval; the rights, preferences
and privileges of which would be determined at the time of issuance. No shares
have ever been issued.

PRIVATE PLACEMENT OF COMMON STOCK On October 31, 2000, On-Point completed a
private placement for the sale of 666,668 shares of Common Stock at $1.50 per
share, the market value on the date of the agreement. Net proceeds of the


                                       39
<PAGE>

transaction aggregated $1,000,000 prior to legal fees of approximately $35,000.
In addition to the issuance of 666,668 shares, On-Point issued 33,333 shares to
Investa AG, the European fund manager acting as placement agent, as a commission
on the transaction. On-Point also issued to Investa warrants to purchase 33,333
shares of Common Stock at a price of $3.00 per share. In addition, On-Point
issued warrants to purchase 66,667 shares of Common Stock at a price of $1.50
per share to Questos Ltd., a consulting company used in connection with the
transaction. The warrants issued to Investa and Questos are immediately
exercisable and expire on October 31, 2005. In December 2000, Investa exercised
all its warrants to purchase 33,333 shares of Common Stock for an aggregate
price of $100,000.

OTHER STOCK WARRANTS EXERCISE In 1999, warrants from a private placement in 1997
were exercised to purchase 20,000 shares of On-Point's common stock at a price
of $6 per share for aggregate proceeds of $120,000. In 2000, warrants to
purchase 150,000 shares of On-Point's common stock at a price of $1.80 per share
were exercised by Vanguard Strategies, Inc.(VSI), a company wholly owned by
On-Point's chief executive officer, for aggregate proceeds of $270,000. The
warrants were granted to VSI in 1996 in connection with financing received by
On-Point during such period. The fair value of the warrants was previously
expensed in 1996.

STOCK OPTION PLANS On-Point has two employee stock option plans whereby
options to purchase 1,157,500 shares of On-Point's common stock may be
granted to certain executives and employees, and an option plan for directors
under which options for 175,000 shares of On-Point's common stock may be
issued to directors of On-Point. Information regarding these option plans,
including options outstanding for non-employees of 176,665 and 98,333 shares
as of December 31, 2000 and 1999, respectively, follows:

<TABLE>
<CAPTION>
                                              2000                     1999
                                              ----                     ----
                                                    Weighted                   Weighted
                                                    Average                    Average
                                                    Exercise                   Exercise
                                       Shares        Price       Shares         Price
                                      -------       --------     -------       --------
<S>                                   <C>           <C>         <C>            <C>
Outstanding at January 1              733,510       $   4.89     694,612       $   4.83
    Granted                            86,668           2.41     181,167           5.19
    Exercised                              --             --     (37,192)          3.12
    Forfeited                        (111,498)         (5.82)   (105,077)         (5.85)
                                      -------------------------------------------------
Outstanding at December 31            708,680       $   4.44     733,510       $   4.89
                                      =================================================

Options exercisable at year end       546,348       $   4.50     520,177       $   3.45
Weighted average fair value per
  share of options granted
  during the year                                   $   2.41                   $   2.91
</TABLE>

The following table summarizes information about fixed-price stock options
outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                               Options Outstanding          Options Exercisable
                        -------------------------------    ---------------------
                          Number    Weighted Av  Weighted-              Weighted-
         Range of      Outstanding   Remaining    Average    Number      Average
         Exercise          at       Contractual  Exercise  Outstanding  Exercise
          Prices        12/31/00       Life       Price    at 12/31/00    Price
        ------------    --------    -----------  --------  ------------ -------
<S>                      <C>           <C>       <C>         <C>          <C>
       $1.12 - $3.09     389,347       3.06      $ 2.41      312,680      $2.43
        4.23 - 5.43      195,000       3.29        4.57      175,000       4.57
        5.91 - 6.27       81,000       1.17        6.14       21,168       5.98
        6.75 - 8.64       10,000       1.41        7.44        4,167       6.90
           22.35          33,333       3.75       22.35       33,333      22.35
                         ------------------------------------------------------
       $1.12 - $22.35    708,680       2.91      $ 4.44      546,348      $4.50
                         ======================================================
</TABLE>

On-Point has adopted the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation" for employee stock options. Accordingly, no
compensation cost has been recognized for the stock option plans. Had
compensation for On-Point's three stock option plans been determined based on
the fair value at the grant date for awards in 1999 consistent with the
provisions of SFAS No. 123, On-Point's net loss and loss per share would have
been increased to the pro forma amounts indicated below:


                                       40
<PAGE>

<TABLE>
<CAPTION>
                               2000                              1999
                               ----                              ----
                                  Per Share                         Per Share
                   Net            ---------          Net            ---------
                   Loss        Basic     Diluted     Loss        Basic     Diluted
                   ----        -----     -------     ----        -----     -------
<S>              <C>           <C>        <C>        <C>         <C>        <C>
As Reported      $(2,824)      $(0.78)    $(0.78)    $(721)      $(0.21)    $(0.21)
                 -----------------------------------------------------------------
Pro Forma        $(2,964)      $(0.82)    $(0.82)    $(877)      $(0.26)    $(0.26)
                 -----------------------------------------------------------------
</TABLE>

In 2000, the fair value of options granted to employees is estimated at
approximately $2.41 per share on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
the grants: dividend yield of 0%; expected volatility of 72%; risk free
interest rate of 5.80%; and expected life of 5 years.

In 1999, the fair value of options granted to employees is estimated at
approximately $2.91 per share on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
the grants; dividend yield of 0%; expected volatility of 72%; risk free interest
rate of 5.80%; and expected life of 4.84 years.

In July 1999, two advisory board members of On-Point each received three-year
options to purchase 6,667 shares and 3,333 shares, respectively, of On-Point's
common stock at $5.91 per share. These options vest in July 2000 and October
1999, respectively. The fair value of the options at the date of grant totaled
$27,000; $8 thousand and $19 thousand of which was expensed to selling, general
and administrative expense in 1999 and 2000.

In October 1998, Robert Burr, a former Chairman of the Board, President and CEO
of On-Point, received a three-year option to purchase 16,667 shares of
On-Point's Common Stock at $6.00 per share pursuant to his consulting agreement
with On-Point. The option vests, unless terminated, on March 31, 2001, or
earlier, if certain conditions are met. The fair value of the option at December
31, 1999 totaled $64 thousand, of which $21 thousand was expensed to selling,
general and administrative expense during the year ended December 31, 1999. The
option was terminated in 2000.

In September 1998, a consultant received an option to purchase 1,667 shares of
On-Point's Common Stock at $4.98 per share pursuant to a consulting agreement
entered into with On-Point. The option vests over 2 1/2 years. The fair value of
the option at December 31, 1999 totaled $8 thousand; of which $2 thousand was
expensed to selling, general and administrative expense during the years ended
December 31, 1999 and 2000, respectively.

In May 1998, two individuals, one of whom is an officer of On-Point, each
received an option to purchase 16,667 shares of On-Point's Common Stock at $6.27
per share pursuant to their assignment of certain intellectual property to
On-Point. The options vest the earlier of April 1, 2001, or upon the
satisfaction of certain performance conditions. No expense was recorded as the
fair value of the options granted was in exchange for intellectual property.

In April 1998, an advisory board member of On-Point received a three-year option
to purchase 3,333 shares of On-Point's Common Stock at $8.64 per share pursuant
to his appointment as an Advisory Director. Subsequent to his appointment, the
advisory director resigned and the options were terminated

In January 1998, a consultant received an option to purchase 3,334 shares of
On-Point's Common Stock at $6.37 per share pursuant to a consulting agreement.
The option vested over two years. The fair value of the options at December 31,
1999 totaled $9 thousand, of which $5 thousand was expensed to selling, general
and administrative expense in 1999.

STOCK WARRANTS

In July 1998, Coast Business Credit received a warrant to purchase 3,333 shares
of On-Point's Common Stock at $4.89 per share pursuant to a financing agreement
entered into with On-Point. The warrant has a two-year term and became
exercisable in July 1998. These warrants were extended through July 2003 upon
the extension of the line of credit through that date. The fair value of the
warrant totaled $5 thousand at the date of grant which has been amortized over
the term of the agreement.

In May 1997, Coast Business Credit and a consultant received warrants to
purchase 16,667 shares and 15,000 shares, respectively, of On-Point's common
stock at $6.00 per share and $7.56 per share, respectively, in consideration for
the debt financing. The warrants each had a three-year term and became
exercisable in May 1997. The warrants to purchase 16,667 shares to Coast
Business Credit were extended through July 2003. The fair value of the warrants
totaled $79 thousand, which has been amortized to expense over the term of the
loan. On-Point expensed $26 thousand to financing costs in both 1999 and 2000.

In January 1997, the Chairman and Chief Executive Officer of the Company
received a warrant to purchase 166,667 shares of the Company's Common Stock at
$1.89 per share in connection with his personal guaranty and indemnity of a $2
million performance bond for the Company. The warrant has a five-year term and
became exercisable in January 1997. The fair value of the warrant totaled $178
thousand at the date of grant; $59 thousand of which was expensed to


                                       41
<PAGE>

selling, general and administrative expense in the year ended December 31, 1999
and the balance was expensed in prior years.

10. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS On-Point leases facilities under operating leases expiring at
various dates through January 2009. Rent expense for such facilities totaled
$323 thousand and $272 thousand for the years ended December 31, 2000 and 1999,
respectively. Future minimum rentals under noncancelable operating leases as of
December 31, 2000 are as follows (in thousands):

<TABLE>
<S>                                                 <C>
          2001                                      $298
          2002                                       249
          2003                                       242
          2004                                       250
          2005                                       258
          Thereafter                                 828
                                                   -----
                                                   $2125
                                                   =====
</TABLE>

LEGAL PROCEEDINGS On-Point is a party to legal proceedings in the ordinary
course of its business, the most significant of which are described below.

On April 21, 2000, an action was filed against On-Point in U.S. District Court,
Southern District of Ohio, by On-Point's principal competitor, Interlott
alleging 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. Management believes that
Interlott's suit is without merit. The action has currently been stayed pending
the proposed sale of On-Point's Lottery Assets to Interlott.

On April 20, 2000, a shareholder class action was filed against On-Point and its
chief executive officer, in 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 is currently considering the parties' request to approve
the amended settlement agreements. On-Point and the other defendants have denied
the liability claims as part of the amended settlements, but believe a
settlement at this time is in the best interests of the Company in order for it
to proceed with its strategic business plans. Under the settlement agreement,
On-Point would issue shares equal to $950 thousand in value on the date the
shares are required to be issued to the class. As a result of the settlement
agreement, On-Point has recorded $1 million as an expense in 2000 in the
accompanying consolidated financial statements as the settlement for the class
action and accrued as "shares to be issued" in stockholders' equity in the
amount of $950 thousand for the value of the shares of Common Stock to be issued
and an accrual of $50 thousand to the accrued expenses for cash to be paid for
the settlement.

On January 11, 1999, On-Point filed an action against Solutioneering, Inc. in
Superior Court of California, County of San Diego. A first amended complaint of
said action was filed on February 9, 1999. The action arises from the lease to
Solutioneering of a total of 2,193 prepaid phone card vending terminals (2,033
of which were shipped in 1997 - 1998) under a March 1, 1995 Master Lease
Agreement and two amendments thereto (the "Agreement"). In the action, On-Point
asserts that Solutioneering had breached the Agreement and has claimed damages
of approximately $9 million. Solutioneering subsequently sought bankruptcy
protection in 1999 and was liquidated by the bankruptcy court in mid-2000. The
financing lender to Solutioneering raised a claim that it had a priority
security interest ahead of On-Point to the leased machines based on their
allegation that On-Point sold the machines to Solutioneering rather than leased
the machines. Subsequent to the financing lender's assertion, On-Point and the
financing lender entered into a settlement arrangement whereby the financing
lender withdrew from claiming any rights to the machines in exchange for
warrants to purchase up to 116,667 shares of On-Point's Common Stock at an
exercise price of $3.75 per share for a three year period, subject to a minimum
payment by On-Point of $50 thousand for the buy-back of warrants to purchase
16,667 shares. As a result of the liquidation of Solutioneering, On-Point's
claim against them has been rendered mute, although On-Point is evaluating
whether further claims should be pursued against the former management of
Solutioneering. On-Point now has clear title to all of the machines it leased to
Solutioneering and is in the process of retrieving and/or selling the machines.
On-Point's net balance sheet carrying value of the Solutioneering leased
machines at December 31, 2000


                                       42
<PAGE>

was approximately $1.8 million. Management expects to recover the assets and
believes the underlying value of On-Point's equipment exceeds the carrying value
on On-Point's books.

On January 23, 1996, On-Point's principal competitor, Interlott Technologies,
Inc. ("ILI"), filed a civil action against On-Point in the Common Pleas Court of
Hamilton County, Ohio. The action arose from an agreement in principle between
Interlott Technologies, Inc. and On-Point, which was signed on March 23, 1995
regarding a proposed merger transaction. On-Point asserted a counterclaim
against ILI seeking declaratory judgment with regard to certain aspects of the
agreement, seeking to recover On-Point's own costs and expenses, and seeking
compensatory damages from ILI for certain competition and torturous interference
with business relations. The parties reached a full and complete settlement of
this action on March 4, 1999 by the payment of On-Point of approximately
$600,000, which had been previously accrued in the three years prior to December
31, 1998. No liability was admitted by either party pursuant to the settlement
and the settlement had no material adverse effect on On-Point's results of
operations.

EXECUTIVE COMPENSATION AGREEMENT On-Point has an employment agreement with its
Chief Executive Officer (the "CEO") for a three-year term commencing January 9,
1996, which automatically extends annually for an additional year unless notice
has otherwise been given by On-Point. As of December 31, 2000, the term expires
on December 2002. While On-Point is committed under the agreement to provide for
an annual base salary of at least $300 thousand, plus a bonus equal to 5% of the
first million dollars of On-Point's pre-tax income and 7% thereafter, only $7
thousand and $138 thousand was paid to the CEO in salary in 2000 and 1999,
respectively, and no bonuses were paid to the CEO in either year. The CEO waived
all accrued bonuses and unpaid wages for those time periods. The amount of
accrued wages waived amounted to $169 thousand in 1999 and $283 thousand in
2000.

The employment agreement with the CEO also provides for severance upon
termination by On-Point without cause or termination by the CEO for "good
reason," as defined, in the amount equal to the base salary the CEO would have
earned during the 36 month period commencing on the date of termination plus
three times the CEO's average annual bonus received over the prior three fiscal
years. The CEO would also have the right to receive all other benefits that
would have been received under his employment arrangement for that 36-month
period. Further, all shares underlying outstanding stock options granted to the
CEO would become fully exercisable for a period of 18 months after termination.

11. RELATED PARTY TRANSACTIONS

In January 1997, VSI was granted an additional warrant to purchase 83,333 shares
of On-Point's Common Stock at a price of $2.16 per share pursuant to the
extension of a loan with U.S.Mortgage Bankers Corp.(USMBC), a company
wholly-owned by On-Point's CEO's half-brother.

12. SUBSEQUENT EVENT

On February 23, 2001, On-Point entered into a definitive agreement for the sale
of those assets used in its existing lottery business, relating to the
manufacture, sale, lease, and service of instant lottery 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), a deferred amount of up to $9
million, payable evenly, subject to adjustment, over five years, and an earn-out
amount of up to $6 million tied to certain future revenues. In addition, at the
closing, 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 closing is
subject to several conditions, including review and approval by On-Point's
shareholders, other necessary consents and approvals, and customary closing
conditions. Interlott has placed a nonrefundable $1.5 million deposit ,subject
to certain conditions, with an escrow agent to secure the transaction.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

      N/A


                                       43
<PAGE>

PART III.

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT

Executive Officers and Directors

The names, ages and positions of the directors (1), executive officers and key
employees of On-Point are as follows:

      Name                     Age  Position
      ------------------       ---  ------------------------------------------
      Frederick Sandvick       43   Chief Executive Officer and Chairman of
                                    the Board
      John H. Olbrich (2)(3)   38   Director and Secretary
      Gordon T. Graves(2)      62   Director
      Keith Cannon(2)(3)       60   Director
      Michael Carlton          38   Director
      Charles R. Broz          51   Director of Finance and Treasurer
      Brian J. Roberts         53   Senior Vice President and Assistant
                                    Secretary

     (1)  Each director of On-Point holds office until the next annual meeting
          of shareholders and until a successor has been elected and qualified,
          or until his earlier resignation or removal.
     (2)  Audit Committee Member
     (3)  Compensation Committee Member

     Frederick Sandvick has been the Chief Executive Officer and Chairman of the
     Board of On-Point since January 1996. Mr. Sandvick is President and the
     principal stockholder of Vanguard Strategies, Inc., a privately held
     strategic planning company he founded in 1995. From 1990 to 1995, Mr.
     Sandvick was Executive Vice President and Chief Financial Officer of
     Jackpot Enterprises, Inc., a company listed on the NYSE and engaged in the
     gaming/entertainment industry.

     John H. Olbrich has been the owner and President of U.S. Mortgage Bankers
     Corporation, a residential mortgage brokerage firm since 1991. Mr. Olbrich
     has been in the real estate mortgage business for approximately 12 years.
     Mr. Olbrich is Mr. Sandvick's half brother. See "Certain Relationships and
     Related Transactions", herein.

     Keith Cannon has been a securities branch manager at Wilson-Davis and Co.
     since 1993 where he has supervised trading with a variety of domestic and
     international clients. Mr. Cannon has served as a financial and corporate
     financial consultant for various publicly-held companies for over 25 years.
     Mr. Cannon was appointed to the Board in August 2000.

     Gordon T. Graves has been Chairman of the Board and director of Multimedia
     Games, Inc. since 1991, and has been Chief Executive Officer since
     September 1994. Since December 1993 and from 1989 to 1990, Mr. Grave has
     been the President of Graves Management, Inc., a management consultant and
     investment company. From 1992 through December 1993, Mr. Graves was
     president and Chief Executive Officer of Arrowsmith Technologies, Inc.
     ("Arrowsmith"), a computer systems company. From 1991 to 1993, Mr. Graves
     was employed by KDT Industries,Inc., a high-tech manufacturing and services
     company and an affiliate of Arrowsmith, as, successively, Vice President of
     Corporate Development and President. From 1987 to 1989, Mr. Graves was the
     Chairman of the Board of Directors of Gamma International Ltd. (currently
     American Gaming and Entertainment, Ltd., a company co-founded by him).

     Michael Carlton was added to the Board as a result of On-Point's strategic
     international relationship with Victor Chandler International (VCI), one of
     the world's largest independent full service gaming companies. Mr. Carlton
     is responsible for the worldwide expansion of VCI's business in Europe
     and the Far East. Mr. Carlton was appointed to the Board in December 2000.

     Charles Broz became the Director of Finance at On-Point in October, 2000.
     Mr. Broz has spent the last twenty years as controller or chief financial
     officer for a variety of companies, to include serving as the chief
     financial officer for the largest fresh herb producer in the United States
     for eight years.

     Brian J. Roberts has been On-Point's Senior Vice President since July 1996.
     From December 1994 to July 1996, Mr. Roberts was On-Point's Director of
     Marketing and Business Development. From 1984 to 1994, Mr. Roberts was a
     Vice President of International Lottery and Totalizator Systems, Inc..


                                       44
<PAGE>

ITEM 10. MANAGEMENT REMUNERATION AND TRANSACTIONS

EXECUTIVE COMPENSATION

The following information relates to compensation of On-Point's Chief Executive
Officer for On-Point's fiscal years ended December 31, 2000, 1999 and 1998. No
other executive officer of On-Point received total annual salary and bonuses in
excess of $100,000 during those fiscal years.

The Compensation Committee did not have a substantial role in setting
compensation in 2000, 1999 and 1998 because the Chief Executive Officer was
engaged pursuant to an employment agreement, which fixed compensation. The role
of the Compensation Committee and its policies will continue to increase as
employment agreements expire and compensation packages are negotiated with key
executives.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                   Annual Compensation
                                     ----------------------------------------------
                                                                          Other
    Name and                                                              Annual
    Principal                                                          Compensation
    Position            Year         Salary ($)        Bonus ($)       ($) (1) (2)
------------------      ----         ----------        ---------       ------------
<S>                     <C>          <C>                    <C>           <C>
Frederick Sandvick      2000           6,923(3)             0                  0
                        1999         138,461(3)             0             59,000
                        1998         176,909(3)             0             70,006

<CAPTION>
                                                     Long-Term Compensation Awards
                                     ------------------------------------------------------------
                                                     Securities                          All
    Name and                         Restricted      Underlying      Long-Term          Other
    Principal                          Stock          Options/     Incentive Plan    Compensation
    Position            Year         Awards ($)      SAR'S (#)      Payouts ($)          ($)
------------------      ----         ----------      ---------      -----------      ------------
<S>                     <C>              <C>           <C>                <C>             <C>
Frederick Sandvick      2000             0                  0             0               0
                        1999             0             83,333             0               0
                        1998             0             96,667(2)          0               0
</TABLE>

(1)  Includes options to purchase 290,000 shares of common stock which vested
     pursuant to Mr. Sandvick's employment agreement, warrants to purchase
     166,667 shares of common stock in connection with a guarantee of a
     performance bond in 1997 and warrants to purchase 233,333 shares of common
     stock in 1996 and 83,333 shares in 1997 granted to Vanguard Strategies,
     Inc. (see "Certain Relationships and Related Transactions" herein). The
     calculated fair value of the options and warrants described above included
     in "Other Annual Compensation" was $59,000 in 1999 and $70,006 in 1998.
(2)  Includes options to purchase 80,000 shares of common stock granted to Mr.
     Sandvick and options to purchase 16,667 shares of common stock granted to
     Vanguard Strategies, Inc (see "Certain Relationships and Related
     Compensation" herein); the options to purchase 16,667 shares of common
     stock to Vanguard Strategies, Inc. have been terminated.
(3)  While the terms of the employment contract called for an annual salary of
     $300,000, $300,000 and $255,000 in 2000, 1999 and 1998 respectively, only
     $6,923, $138,451 and $176,909 were paid to Mr. Sandvick in 2000, 1999 and
     1998 respectively. Mr. Sandvick waived all accrued pay and bonuses as of
     December 31, 1999 and 2000.

EMPLOYMENT AGREEMENTS

Mr. Sandvick serves as Chairman of the Board and Chief Executive Officer of
On-Point pursuant to a three-year employment agreement commencing on January 9,
1996. The agreement has been extended for three additional years and will
terminate unless further extended or sooner terminated, on December 31, 2001.
The term of the agreement is automatically extended annually for an additional
year unless notice is given by either party that such party does not wish to
extend the agreement term. The agreement provides for an annual base salary of
$180,000 through June 30, 1996 with $30,000 annual increases thereafter. The
agreement provides for an increase in the annual base salary to at least
$300,000 per year if On-Point's pre tax income as defined, for any calendar year
equals or exceeds $2 million. Mr. Sandvick is entitled to an annual bonus equal
to 5% of the first $10 million of On-Point's pre tax income and 7% of On-Point's
pre tax income in excess of $10 million. Pursuant to the agreement, on the
commencement of employment Mr. Sandvick was granted a ten-year option to acquire
290,000 shares of On-Point's common stock at a price of $2.40 per share, such
price representing the greater of (1) the closing price on the date of stock
holder approval of the First Amendment to On-Point's 1994 Stock Option Plan or
(2) the average of the closing sales price for the 20 trading days preceding the
effective date of the agreement. One-third of the shares subject to the option
award became exercisable on January 9, 1996 and one-third of the shares became
exercisable over the next two years in equal annual increments. Mr. Sandvick is
also entitled to participate in other employee benefit plans and On-Point is
obligated to reimburse Mr. Sandvick for, or pay directly, the costs of a
personal plan of disability providing for $15,000 per month disability benefits.

The employment agreement with Mr. Sandvick also provides for severance upon
termination by On-Point without cause or termination by Mr. Sandvick for "good
reason" in the amount equal to the base salary Mr. Sandvick would have earned
during the 36 month period commencing on the date of termination plus three
times Mr. Sandvick's average


                                       45
<PAGE>

annual bonus received over the prior three fiscal years. Mr. Sandvick would also
have the right to receive all other benefits that would have been received under
his employment arrangement for that 36-month period. Further, all shares
underlying outstanding stock options granted to Mr. Sandvick would become fully
exercisable for a period of 18 months after termination. Mr. Sandvick shall have
"good reason" to terminate his employment if, among other events, (i) On-Point
fails to comply with any material provision of the employment agreement; (ii)
On-Point gives Mr. Sandvick notice of nonrenewable; or (iii) for any reason
within one year following the occurrence of a change in control, as defined.
Change in control occurs if (i) any person, excluding existing relationships,
becomes the beneficial owner of securities representing 20% or more of the
combined voting power of On-Point's then outstanding voting securities; (ii) a
change occurs in the majority of the Board of Directors; (iii) the stockholders
approve a merger in which at least 51% of On-Point's combined voting power is
given to a new entity not in On-Point's control or the effect of such merger is
that any person acquires 20% or more of the combined voting power of On-Point.
Mr. Sandvick has voluntarily reduced his salary in 1999 and 2000.

OPTION EXERCISES IN FISCAL 2000 AND FISCAL YEAR-END OPTION VALUES

The following table presents certain information regarding stock option
exercises during fiscal 1999.

<TABLE>
<CAPTION>
                       Shares                         Number of Securities
                     Acquired on      Value          Underlying Unexercised             Value of Unexercised
       Name          Exercise (#)   Realized ($)     Options/SARs at FY-End      In-the-Money Options/SARS at FY-End
       ----          ------------   ------------   ---------------------------   -----------------------------------
                                                   Exercisable   Unexercisable        Exercisable       Unexercisable
<S>                       <C>            <C>         <C>              <C>                 <C>                 <C>
Frederick  Sandvick       0              0           786,667          0                   $0                  0
</TABLE>

(1)  Includes options to purchase 290,000shares of common stock which vested
     pursuant to Mr. Sandvick's employment agreement, warrants to purchase
     166,667 shares of common stock in connection with a guarantee of a
     performance bond, options to purchase 163,333 shares of common stock
     pursuant to annual employee grants, and warrants to purchase 166,667 shares
     of common stock granted to Vanguard Strategies, Inc. (see "Certain
     Relationships and Related Transactions" herein).

COMPENSATION OF DIRECTORS

During 2000, 1999 and 1998 each outside director was automatically granted 3,334
shares of On-Point's common stock pursuant to the July 26, 1996 amendment to the
1994 Stock Option Plan for Directors which provided a formula for granting
options to outside directors. During 1999 and 1998, outside directors received
additional options for 3,334 shares each in lieu of cash compensation as a
director pursuant to amendments to the Directors Plan adopted on August 27, 1998
and July 29, 1999. During 2000, certain outside directors received additional
options of 6,666 shares and all outside directors received additional options
for 10,000 shares each in lieu of cash compensation as a director pursuant to an
amendment to the Directors' Plan adopted on December 8, 2000. John Robinson was
paid $2,500 in March 1998 for services as a Director during the period July 26,
1996 through August 27 1997 pursuant to the compensation arrangement in effect
during that service period.

1993 STOCK OPTION PLAN

On March 1, 1993, On-Point adopted the 1993 Stock Option Plan (the "Plan") under
which 157,500 shares of common stock may be issued to officers and other key
employees who have substantial responsibility for the direction and management
of On-Point. Options issued under the Plan are either incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
or non-qualified stock options, as determined in the discretion of the
Compensation Committee of the Board of Directors of On-Point at the time the
options are granted. In addition, the Compensation Committee, subject to the
provisions of the Plan, has authority to determine the employees to whom options
will be granted, the time or times at which options will issue, the exercise
price of granted options and any conditions for their exercise. The Plan
requires that the exercise price of stock options be not less than the fair
market value on the date of grant and that stock options expire not later than
ten years from the date of grant. In addition, the Plan provides that no
incentive stock options may be granted to any employee who owns more that 10% of
On-Point's voting securities unless the exercise price is a least 110% of the
fair market value of the underlying common stock and the option expires
on/before five years from the date of grant. The Plan contains an anti-dilution
provision whereby the shares of common stock, which underlie outstanding
options, are increased proportionately in the event of a stock split or
dividend. As of December 31, 2000, 104,212 options have been granted under this
Plan.


                                       46
<PAGE>

1994 STOCK OPTION PLAN

On April 21, 1994, On-Point adopted the 1994 Stock Option Plan (the "Plan")
under which 175,000 shares of common stock may be issued to officers and other
key employees who have substantial responsibility for the direction and
management of On-Point. On January 8, 1996 the plan was amended to increase the
shares available for issuance to 500,000. Such amendment was approved by the
stockholders on July 26, 1996. On December 8, 2000, an amendment was approved by
the stockholders to increase the shares available for issuance to 1,000,000.
Options issued under the Plan are either incentive stock options under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options, as determined in the discretion of the Compensation
Committee of the Board of Directors of On-Point at the time the options are
granted. In addition, the Compensation Committee, subject to the provisions of
the Plan, has authority to determine the employees to whom options will be
granted, the time or times at which options will issue, the exercise price of
granted options and any conditions for their exercise. The Plan requires that
the exercise price of stock options be not less than the fair market value on
the date of grant and that stock options expire not later than ten years from
the date of grant. In addition, the Plan provides that no incentive stock
options may be granted to any employee who owns more than 10% of On-Point's
voting securities unless the exercise price is at least 110% of the fair market
value of the underlying common stock and the option expires on or before five
years from the date of grant. The Plan contains an anti-dilution provision five
years from the date of grant. The Plan contains an anti-dilution provision
whereby the shares of common stock, which underlie outstanding options, are
increased proportionately in the event of a stock split or dividend. As of
December 31, 2000, 470,001 options have been granted under this plan.

1994 STOCK OPTION PLAN FOR DIRECTORS

On April 21, 1994, On-Point adopted the 1994 Stock Option Plan for Directors
(the "Directors' Plan") under which 175,000 shares of common stock may be issued
to Directors of On-Point. Options issued under the Directors' Plan are
non-qualified stock options. The Board of Directors, excluding outside Directors
who are eligible for the Directors' Plan, subject to the provisions of the
Directors' Plan, has authority to determine the outside Directors to whom
Options will be granted, the time or times at which options will issue, the
exercise price of granted options and any conditions for their exercise. The
Directors' Plan requires that the exercise price of stock options be not less
than the fair market value on the date of grant and that stock options expire
not later than ten years from the date of grant. The Directors' Plan contains an
anti-dilution provision whereby the shares of common stock, which underlie
outstanding options, are increased proportionately in the event of a stock split
or dividend. As of December 31, 2000, 96,670 options have been granted under
this plan.

On July 26, 1996, the Board amended the Directors' Plan to provide for the
automatic issuance of options in order to satisfy the requirements of Securities
and Exchange Commission Rule 16b-3. The Amendment provided for the automatic
issuance of stock options for 10,000 shares to each outside director on July 26,
1996 and as of each June 30 thereafter. Also, each new outside director is
automatically granted stock options for 3,334 shares as of the date of becoming
a member of the Board, unless that date falls between April 1 and June 30 of any
year. These options become exercisable six months after grant and expire three
year after date of grant. The exercise price is equal; to the fair market value
at date of grant, but not less than one dollar.

On July 29, 1999, August 28, 1998 and August 27, 1997, the Board amended the
Directors' Plan by modifying the formula for granting option to outside
directors by providing for the annual grant of a stock options for an additional
3,334 shares in lieu of regular cash compensation for serving as director. These
options become exercisable on the date of the next annual meeting of
shareholders and have a three year life. The one dollar minimum purchase price
was eliminated by an amendment dated May 31, 2000.

On December 8, 2000, the Board amended the Directors' Plan by modifying the
formula for granting options to outside directors as follows: (a) the number of
tock options automatically issued as of each June 30 or as of the date of
becoming a member of the Board as described above was kept at 10,000 shares even
after the reverse stock split, (b) certain outside directors who had been on the
Board for at least 3 months received a one-time additional grant of stock
options for 6,666 shares, (c) similar to prior amendments, outside directors
were issued stock options for 10,000 shares in lieu of regular cash compensation
for serving from December 8, 2000 to the 2001 annual meeting of shareholders,
and (d) provide for an exercise period of 5 years instead of 3 years for all
options issued on December 8, 2000.


                                       47
<PAGE>

BONUS POLICY

While On-Point has no established policy, other than as provided in the Chief
Executive Officer's employment agreement, to award cash or stock bonuses to its
officers, it may elect to pay bonuses to reward the performance of its officers.
On-Point awarded cash bonuses of approximately $16 thousand in 1999. No cash
bonuses were awarded in 2000.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 20, 2001, the shares of On-Point's
Capital Stock beneficially owned by each 5% beneficial owner, by each Director
or nominee, by each named executive officer individually, and by all Directors
and executive officers as a group:

<TABLE>
<CAPTION>
                                                                      Percentage
Name and Address of                 Number of Shares                      Of
Beneficial Owner                  Beneficially Owned (1)                Class
----------------               -----------------------------          ----------
<S>                                       <C>                            <C>
Frederick Sandvick (2)
108 Ivy Street
San Diego, CA 92101                       950,001                        19.3%

John H. Olbrich (3)
3256 Loma Vista Drive
Jamul, CA 91935                            83,889                         2.0%

Keith Cannon
2300 Shawn Court
Carlsbad, CA 92008                         73,067                         1.8%

All directors and executive
officers as a group (5 persons)         1,180,201                        23.8%
</TABLE>

(1)  Unless otherwise indicated, all shares are owned beneficially and of
     record.
(2)  Of the shares of common stock reflected in the table above, 163,334 are
     registered in Mr. Sandvick's name. The table also includes 620,000 shares
     of common stock issuable upon exercise of options, 166,667 shares of common
     stock issuable upon exercise of warrants held by Vanguard Strategies Inc.,
     of which Mr. Sandvick is President and principal stockholder.
(3)  Of the shares of common stock reflected in the table above, 67,222 are
     registered in Mr. Olbrich's name. The table includes options to purchase
     16,667 shares of common stock.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On January 8, 1996, On-Point entered into an agreement with Vanguard Strategies,
Inc. ("VSI"), a private strategic planning company, in which VSI would assist
On-Point as its exclusive consultant for at least 120 days in negotiating debt
and equity financing and in developing On-Point's strategic plans. Mr. Sandvick
is the president and principal stockholder of VSI. In January 1996 VSI assisted
On-Point in obtaining a $450,000 loan from U.S. Mortgage Bankers Corp.
("USMBC"). John Olbrich, the president of USMBC, is Mr. Sandvick's half-brother.
As compensation for these services, VSI was granted warrants, subject to
On-Point receiving financing of at least $1.5 million, to purchase up to 150,000
shares of common stock of On-Point at a price of $1.80 per share exercisable for
five years. In July 1996, VSI was granted an additional warrant to purchase
83,333 shares of On-Point's common stock at a price of $2.07 pursuant to the
extension of the USMBC promissory note under this agreement. In January 1997,
VSI was granted an additional warrant to purchase 83,333 shares of On-Point's
common stock at a price of $2.16 pursuant to the extension of the USMBC
promissory note under this agreement.

In connection with the engagement of VSI (an unaffiliated third party prior to
entering into the agreement) to raise capital for On-Point and pursue other
business restructuring alternatives and the continuing arrangements with Mr.
Burr, VSI and Mr. Burr were provided an option to purchase 80% (40% each) of a
subsidiary to be formed to carry on On-Point's international operations. The
option was provided to VSI and Mr. Burr as an incentive for them to aggressively
pursue international sales. However, on March 19, 1998 On-Point and VSI entered
into an agreement whereby the


                                       48
<PAGE>

original agreement with VSI referred to above was terminated. Pursuant to the
termination agreement, VSI and Mr. Burr were each granted options to purchase
16,667 shares of On-Point's common stock at $8.64 per share, the closing market
price of On-Point's common stock on such date. The options were to expire on
December 31, 2002 and vest at the earlier on June 30, 2002 (subject to certain
conditions) or March 31 following the fiscal year end during which cumulative
gross revenues for fiscal years beginning in 1998 from Central and South America
exceed $5,000,000; however, these options were subsequently terminated.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

A) EXHIBITS

Exhibit
Numbers   Description of Documents
-------   ------------------------

3.1       Amended and Restated Articles of Incorporation of Registrant (B)

3.1.1     Amended and Restated Articles of Incorporation dated March 1, 1993 (D)

3.1.2     Certificate of Amendment to Articles of Incorporation dated August 6,
          1996 (H)

3.1.3     Certificate of Amendment to Amended and Restated Articles of
          Incorporation dated December 22, 2000 (R)

3.2       Restated By-Laws of Registrant (C)

3.2.1     Restated By-Laws dated March 1, 1993 and Amendment thereto dated May
          27, 1993 (D)

3.3       Certificate of corporate status dated August 3, 1993 (D)

4.1       Specimen Stock Certificate (C)

4.1.1     Specimen Stock Certificate (R)

4.2       Form of Representative's Warrant (C)

10.3      ITR Sale and Lease Agreement, dated as of January 12, 1993, between
          Registrant and the State of Missouri (C)

10.3.1    ITR Sale and Lease Agreement, dated as of April 19, 1994, between
          Registrant and the State of Missouri (P)

10.3.2    Amendment No. 1 to ITR Sale and Lease Agreement between Registrant and
          the State of Missouri (P)

10.3.3    Amendment No. 2 to ITR Sale and Lease Agreement between Registrant and
          the State of Missouri (P)

10.3.4    Amendment No. 3 to ITR Sale and Lease Agreement between Registrant and
          the State of Missouri (P)

10.3.5    Amendment No. 4 to ITR Sale and Lease Agreement between Registrant and
          the State of Missouri (P)

10.3.6    Amendment No. 5 to ITR Sale and Lease Agreement between Registrant and
          the State of Missouri (P)

10.3.7    Amendment No. 6 to ITR Sale and Lease Agreement between Registrant and
          the State of Missouri (P)

10.4.1    ITR Sales and Service Agreement dated October 1, 1998 between
          Registrant and the Commonwealth Virginia(P)

10.4.2    Amendment No. 1 to ITR Sales and Lease Agreement between Registrant
          and the Commonwealth of Virginia(P)

10.4.3    Amendment No. 2 to ITR Sales and Lease Agreement between Registrant
          and the Commonwealth of Virginia(P)

10.7      Form of Indemnification Agreement between Registrant and its officers
          and directors (C)

10.8      1993 Stock Option Plan (A)

10.8.1    First Amendment to 1993 Stock Option Plan (C)

10.10     Technology Transfer Agreement, dated as of April 9, 1993, between the
          Registrant and certain of its shareholders (confidential treatment
          requested as to certain portions) (B)

10.15     1993 Stock Option Plan (D)

10.16     1994 Stock Option Plan (E)

10.16.1   Third Amendment to 1994 Stock Option Plan (R)

10.17     1994 Stock Option Plan for Directors (E)

10.17.1   Fifth Amendment to the 1994 Stock Option Plan for Directors (R)


                                       49
<PAGE>

10.17.2   Sixth Amendment to the 1994 Stock Option Plan for Directors (R)

10.21     Employment agreement with Frederick Sandvick (G)

10.24     Loan and Security Agreement between Registrant and Coast Business
          Credit (J)

10.25     Termination of Agreement between Registrant and Vanguard Strategies,
          Inc. (K)

10.26     Amendment Nos. 1, 2 and 3 to Loan and Security Agreement between
          Registrant and Coast Business Credit (L)

10.26.1   Amendment No. 4 to Loan and Security Agreement between Registrant and
          Coast Business Credit dated April 20, 2000. (P)

10.27     Master Lease Agreement dated March 1, 1995 between the Registrant and
          Solutioneering, Inc. (M)

10.27.1   Amendment No. 1 to Master Lease Agreement dated December 24, 1996 (M)

10.27.2   Amendment No. 2 to Master Lease Agreement dated December 24, 1997 (M)

10.28     Distributor Agreement between the Registrant and Editec, dated
          December 30, 1997 (M)

10.28.1   Agreement for the French Lottery Contract dated February 24, 1998
          between the Registrant and Editec (M)

10.28.2   English Translation of Contract with La Francaise Des Jeux, dated
          January 27, 1999 (P)

10.30     Service Agreement for the Illinois Lottery between the Registrant and
          IGOR, dated July 15, 1994 (M)

10.30.1   ITR Sale and Lease Agreement between the Registrant and Illinois State
          Lottery, dated July 1, 1994 (M)

10.31     Agreement and Plan of Merger, dated as of January 7, 2000 with GTECH
          Corp. (N)

10.31.1   Voting Agreement, dated as of January 7, 2000 between Robert L. Burr,
          John Olbrich, Brian J. Roberts, Frederick Sandvick and Vanguard
          Strategies, Inc. and GTECH Corp. (N)

10.31.2   Option Agreement, dated as of January 7, 2000 with GTECH Corp. (N)

10.31.3   Note Amendment and mutual release agreement with Gtech Corporation
          dated August 23, 2000 (O)

10.32     Stipulated judgment against US Telecard, Inc., dated November 12,
          1999. (P)

10.33     Asset Purchase Agreement, dated as of February 23, 2001 between
          On-Point and Interlott Technologies, Inc. (Q)

10.34     10% Convertible Note Due 2/15/02 between Registrant and Galt Asset
          Management LLC (R)

Codes for documents included by reference to previous filings
-------------------------------------------------------------

(A)  Incorporated by reference to Registrant's Registration Statement on Form
     S-2 dated April 23,1993 (Registration No. 33-61442)

(B)  Incorporated by reference to Registrant's Amendment No. 1 to the
     Registration Statement on Form S 2 filed on June 1, 1993.

(C)  Incorporated by reference to Registrant's Amendment No. 2 to the
     Registration Statement on Form S- 2 filed on June 21, 1993.

(D)  Incorporated by reference to Registrant's Annual Report on Form 10-KSB for
     the year ended December 31, 1993.

(E)  Incorporated by reference to Registrant's Annual Report on Form 10-KSB for
     the year ended December 31, 1994.

(F)  Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB
     for the quarter ended June 30, 1995.

(G)  Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB
     for the quarter ended March 31, 1996

(H)  Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB
     for the quarter ended Sep 30, 1996

(I)  Incorporated by reference to Registrant's Annual Report on Form 10-KSB for
     the year ended December 31, 1996.


                                       50
<PAGE>

(J)  Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB
     for the quarter ended June 30, 1997.

(K)  Incorporated by reference to Registrant's Annual Report on Form 10-KSB for
     the year ended December 31, 1997.

(L)  Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB
     for the quarter ended June 30, 1998

(M)  Incorporated by reference to Registrant's Annual Report on Form 10-KSBA, as
     restated on March 31, 2000 for the year ended December 31, 1998.

(N)  Incorporated by reference to SC 13D, filed by GTECH Corp on January 18,
     2000

(O)  Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB
     for the quarter ended September 30, 2000

(P)  Incorporated by reference to Registrant's Annual Report on Form 10-KSB for
     the year ended December 31, 1999

(Q)  Incorporated by reference to Registrant's Form 8-K, dated February 23, 2001

(R)  Incorporated by reference to Registrant's Annual Report on Form 10-KSB
     for the year ended December 31, 2000.

B) REPORTS ON FORM 8-K

Event Date, February 23, 2001 - Form 8K was filed that included the Asset
Purchase Agreement dated February 23, 2001 between On-Point and Interlott
Technologies, Inc.


                                       51
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment to annual report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                  ON-POINT TECHNOLOGY SYSTEMS, INC.


 Dated:  April 17, 2001           By:  /s/Frederick Sandvick
                                  ---------------------------------
                                  Frederick Sandvick
                                  Chief Executive Officer and
                                  Chairman of the Board of Directors

 Dated:  April 17, 2001           By:  /s/Charles R. Broz
                                  ---------------------------------
                                  Charles R. Broz
                                  Principal Financial Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and dates indicated.


 Dated: April 17, 2001            By:  /s/John H. Olbrich
                                  --------------------------------
                                  John H. Olbrich, Director


 Dated: April 17, 2001            By:  /s/Keith A. Cannon
                                  --------------------------
                                  Keith A. Cannon, Director


 Dated: April 17, 2001            By:  /s/Michael Carlton
                                  --------------------------
                                  Michael Carlton, Director


 Dated: April 17, 2001            By:  /s/Gordon T. Graves
                                  --------------------------
                                  Gordon T. Graves, Director


                                       52