<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
                                   (MARK ONE)

  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1999

              [ ] 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 $.01 PER SHARE

   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, 1999
                                WERE $14,444,000

       THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY
     NONAFFILIATES OF THE REGISTRANT AS OF MARCH 31, 2000, WAS $18,071,000

           THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON
                   STOCK AS OF MARCH 31, 2000, WAS 10,266,401

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE
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ITEM 1. BUSINESS

     GENERAL

         On-Point Technology Systems, Inc., (the "Company" or "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 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 and, to a lessor
         extent, 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:

         -        Instant ticket and debit card vending and dispensing products
                  (Product Segment);

         -        Financing, which we provide to our customers in the form of
                  both operating and finance leases (Financing Segment); and,

         -        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 and in Notes to Consolidated Financial Statements.

         In 1999, our goals were to:

         -        continue the development and begin the marketing of our next
                  generation lottery products;

         -        develop new market opportunities for these products;

         -        establish strategic relationships with other companies to
                  leverage the advantages of the new products;

         -        transition On-Point's business (primarily production, field
                  service and administration) to include On-Point's next
                  generation lottery product offerings;

         -        reevaluate On-Point's existing non-lottery products and
                  determine future strategic plans; and,

         -        begin to evaluate a diversification program that could enable
                  us to incorporate other technologies for the development of
                  other new product offerings and markets.

         We believe that we made significant progress in achieving our goals for
         1999 by the introduction of our next generation lottery products at the
         North American State and Provincial Lottery conference. Our next
         generation lottery products not only expand our product offerings to
         our lottery customers, they provide enhanced features, such as the
         ability to dispense instant tickets in conjunction with central
         computer processing of those tickets. We believe that 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.

         On-Point also continued evaluating strategic alliances during 1999 to
         leverage the advantages of its new lottery products. During 1999,
         management entered into a number of discussions with companies in the
         lottery industry regarding strategic alternatives. Although the focus
         of those discussions were initially for strategic alliances, those
         discussions ultimately resulted in entering into extensive negotiations
         with GTECH Corporation (NYSE: GTK) for the acquisition of On-Point by
         GTECH. Management also held discussions with other companies for the
         acquisition of On-Point in order to ensure that we were maximizing
         stockholder value.

         The negotiations with GTECH ultimately resulted in a definitive
         agreement on January 7, 2000 (see

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         Notes to Consolidated Financial Statements herein for a further
         description of the transaction). The agreement was subject to a number
         of conditions, including the approval of the transaction by the
         stockholders of On-Point. Subsequent to the execution of the agreement
         with GTECH

         -        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.

         -        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, as operating
                  leases rather than sales-type leases.

         -        Two 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.

         In April 2000, GTECH sent notice of termination of the January
         agreement and has entered into discussions with On-Point for a new
         agreement encompassing any issues resulting from the events occurring
         after the January agreement. Although we are continuing to engage in
         discussions with GTECH, with respect to a potential merger or other
         strategic arrangements, we cannot assure you that we will be able to
         enter into any agreement with GTECH or that, if we enter into an
         agreement with GTECH, either we or our stockholders will receive the
         same benefits as under the January agreement.

         Our goals for 2000 are to:

         -        complete the development and industrialization of our next
                  generation lottery products;

         -        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;

                  Subject to new arrangements with GTECH or other merger and/or
                  acquisition events:

         -        develop and implement a financing strategy to fund the growth
                  plans of On-Point;

         -        begin the marketing of On-Point's patented product for the
                  deployment of centrally-host computer activated instant
                  scratch tickets in the lottery industry;

         -        continue to reevaluate On-Point's existing non-lottery
                  products and determine future strategic plans for those
                  products;

         -        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.

         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 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

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         limited to, continued acceptance of our products and services in the
         marketplace, our negotiation of a new agreement with GTECH, 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 financing as required for the
         development of our business, 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:

         -        Our dependence on a small number of major customers;

         -        Relatively long sales cycles;

         -        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;

         -        Changes in customer budgets; and

         -        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.

         WE WILL NEED ADDITIONAL FINANCING.

         Although On-Point has extended its line of credit for three years, in
         order to successfully market its new product and develop other
         products, On-Point will 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.

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

         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. The market for ITR's has grown rapidly since first deployed to
         serve instant lotteries in 1991. As of December 31, 1999, 37 states,
         the District of Columbia and eight international jurisdictions used
         ITR's as part of their instant ticket distribution system. We leased or
         sold ITR's in 5 of those states and in one international jurisdiction.
         Similarly, the use of DCR's to distribute prepaid telephone calling
         cards has grown significantly over the past five years. However, the
         popularity of instant lottery games and prepaid telephone calling cards
         and the demand for ITR's and DCR's may not continue and, as a result,
         we may not be able to successfully market and sell our products. It is
         critical to our continued success that we develop relationships with
         additional lotteries


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         and telephone companies and that additional states authorize instant
         lotteries.

         WE DEPEND 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. This can cause
         our revenues and earnings to fluctuate between quarters based on the
         timing of orders and realization of revenues from these orders.
         Further, 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.

         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 1999 and 1998. 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.

         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.

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         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. If the ability to provide ITR's and DCR's internationally
         becomes a competitive advantage in the instant ticket lottery and
         prepaid calling card industries, we will have to expand our presence
         internationally or risk a competitive disadvantage relative to our
         competitors. 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 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 only 106 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 would likely have a material adverse effect on our
         current business, any new product development efforts and future
         business prospects.

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

         In 1999 and 1998, 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:

         -        Customizing our products for use in international countries;

         -        Longer accounts receivable payment cycles;

         -        Difficulties in managing international operations;

         -        Availability of trained personnel to install and implement our
                  systems;

         -        Exchange rate fluctuations;

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         -        Political instability;

         -        Tariffs and other trade barriers;

         -        Potentially adverse tax obligations;

         -        Restrictions on the repatriation of earnings; and

         -        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
         NEGATIVELY AFFECT US.

         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 also could make it
         more difficult for us to raise funds through future offerings.

         OUR REPORTABLE BUSINESS SEGMENTS

         On-Point 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

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         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 1999, lotteries were operated in 38 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 60% 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 40%
         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 up to 30 different games simultaneously.
         Notwithstanding the current prevalence of on-line games, We believe
         that instant ticket games continue to offer a significant potential for
         market growth. 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 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 1999, 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, 1999,
         On-Point has sold or leased approximately 15,000 ITR terminals, of
         which approximately 850 were sold or leased during 1999. Since 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. An order has been received from the French
         Lottery, the largest instant ticket lottery in the world, to provide
         for up to 2,500 terminals, with an initial shipment of 500 in 1999.
         This order 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).

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         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-bin ITR terminal and
         developed the 8 bin 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 20 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. However, 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
         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 games. The units are available in
         counter-top and stand alone models (the latter incorporating a security
         storage cabinet). All models accept bills in $1, $5, $10, and $20
         denominations and can be manufactured to accommodate coins or foreign
         currency.

         The customer inserts a bill in 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

                                       9
<PAGE>   10
         machines, marketed principally for the resale of prepaid phone cards.
         On-Point is seeking to augment this business with vending machines to
         dispense such items as smart cards, credit cards, combination cellular
         phone and prepaid phone card dispensing units.

         THE 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 has increased dramatically since
         then. We believe dispensing machines have become an important element
         of the distribution network of prepaid phone cards, 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 bin terminals in
         response to the specific application needs of our customers.

         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 is providing 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. To
         date, these terminals have been placed in many different types of
         establishments where there is a market for prepaid phone or debit
         cards. Company sales of DCR products and services totaled $660,000 and
         $1.1 million for the years ended December 31, 1999 and 1998
         respectively. Those sales were primarily to foreign customers in each
         year.

         THE DCR TERMINAL On-Point believes that the DCR terminal substantially
         expands the distribution potential of prepaid phone cards. 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


                                       10
<PAGE>   11
         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 bin 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-bin 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
         management underwent a reevaluation process for the potential of the
         DCR market both domestically and internationally. As a result of our
         focus primarily on our next generation lottery products, no significant
         developments were made to the DCR products in 1999 and sales decreased.
         We plan to continue our evaluation of the DCR products in 2000 to
         determine whether new developments may be necessary to stay competitive
         and attain a continuing market share.

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, has indefinitely delayed further
progress with e-Cel. As a result, we discontinued our efforts with e-Cel in the
United Kingdom. However, we continue to evaluate our strategies for other
automated electronic solutions in the global retail market.

FINANCING SEGMENT

On-Point 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.

                                       11
<PAGE>   12
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 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, telephone service and power.

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 its 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
         prepaid phone card market.

         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,

                                       12
<PAGE>   13
         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 detailed financial and historical information concerning their
         business operations and principals, and certain employees must consent
         to background investigations.

         MARKETING OF DCR TERMINALS Three distinct groups of potential customers
         have been 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 future efforts will be limited to vertical distributorship
         and joint venture relationships that will increase its presence in the
         DCR market place with 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 1999 and 1998 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.

RESEARCH AND DEVELOPMENT

         General research and development expenditures totaled $ .7 million and
         $1.4 million in 1999 and 1998, respectively. The 1999 and 1998
         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.

                                       13
<PAGE>   14
         These include:

         On-Line  Instant Ticket, Patent 5,772,510 - awarded June 1998

         -        Other patents filed through December 1999 but still pending:

         -        Ticket Dispenser and Vending Machine, 3345-2130

         -        Ticket Distribution System and Method, 3345-2140

         -        Ticket Dispensing Module and Method, 3345-2170

         -        Gaming Device and Method, 3345-2180

         -        Pre-Paid Mobile Telephone Airtime Supply System and Method,
                  3345-2190

         -        Ticket Dispensing Device, Installation and Displays, 3345-2210

         -        CheckWriter Design, 3345-2212

         All of the patents pending have been designed to protect On-Point's
         proprietary designs from use by competitors. 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 and speech functions, 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, which 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, 2000, On-Point had 106 full-time employees, of whom 18
         were in executive or administrative positions, 19 in quality control
         and production, 3 in research and development, 59 in field service, 6
         in the warehouse and 1 in maintenance. In addition, we employed 20
         people on a part-time basis in its field service department. None of
         our employees are currently represented by a union, and we believe that
         relations with our employees are good.

                                       14
<PAGE>   15
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 $15,663 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.

OTHER BUSINESS INFORMATION

BACKLOG

         On-Point's potential backlog of orders at December 31, 1999 totaled
         approximately 3,500 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 possesses a strong competitive position in
         the sale of lottery terminals. We have 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. While we believe
         that it possesses a strong competitive position by virtue of its
         previous proprietary position, installed base and reputation, there can
         be no assurance that a better capitalized competitor will not
         successfully establish itself in the market or develop a machine which
         renders our technology obsolete. 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 are relatively new. Consequently, it is difficult to
         identify all the competitors in this market. Nonetheless, we believe we
         possess a strong competitive position in the sale of DCR terminals
         within the United States and overseas. At present, our principal
         competitors are Marketing & Vending Concepts, ILI, VendTek and Opal, in
         addition 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. While we
         believe we possess an advantage in obtaining future customers by virtue
         of our proprietary position and installed base, there can be no
         assurance that a better-capitalized competitor will not successfully
         establish itself in the market or develop a machine, which renders our
         technology obsolete. 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


                                       15
<PAGE>   16
         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 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. Vermont prohibits the sale of these cards from any
         venue. In addition, some states subject DCR terminals and machines to
         use or similar taxes.

ITEM 2. DESCRIPTION OF PROPERTIES

         At March 1, 2000 On-Point had the following properties under lease:

         Office, manufacturing, R & D and warehouse space in San Marcos,
         California
         Office, repair depot and warehouse space in Syracuse, New York
         Office, repair depot and warehouse space in Arnold, Missouri
         Office, repair depot and warehouse space in Richmond, Virginia

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 April 21, 2000, an action was filed against On-Point in U.S.
         District Court, Southern District of Ohio, by Interlott Technologies,
         Inc.(ILI). 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-Points new
         PlayPoint technology. We believe ILI's suit to be without merit.
         On-Point is in the process of preparing a response to the action and
         will contest it vigorously.

                                       16
<PAGE>   17
         On April 20, 2000, a shareholder class action was filed against
         On-Point and Frederick Sandvick 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. On-Point has been
         informed that a similar action was also filed but we have not been
         served with any additional actions at this time. On-Point intends to
         vigorously defend against these claims and is in the process of
         preparing a response to the action filed.

         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 will seek dismissal of this action since
         GTECH has provided notice of termination of the agreement upon which
         the action was based.

         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 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 assert that Solutioneering has breached the Agreement and has
         claimed damages of approximately $9 million. Solutioneering
         subsequently sought bankruptcy protection in 1999 and we are pursuing
         our claim with the bankruptcy court. The financing lender to
         Solutioneering has raised a claim that it has 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. We believe the arrangement with
         Solutioneering was clearly a lease and that the financing lender's
         claim to be without merit. On-Point's net balance sheet carrying value
         of the Solutioneering leased machines at December 31, 1998 and 1999 was
         approximately $3.3 million and $2.5 million, respectively. We believe
         we will recover the assets and that the underlying value of our
         equipment at Solutioneering 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.

         ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

         None.

                                       17
<PAGE>   18
PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         On-Point's common stock is traded in the over-the-counter market
         (NASDAQ 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.

<TABLE>
<CAPTION>
                                                   1999                                1998
                                          High              Low               High              Low
         -------------------------- ----------------- ----------------- ----------------- -----------------
<S>                                 <C>               <C>               <C>               <C>
         First Quarter                       $ 2.563           $ 1.688           $ 3.813           $ 1.750
         Second Quarter                      $ 3.500           $ 1.750           $ 3.000           $ 1.750
         Third Quarter                       $ 2.875           $ 1.375           $ 2.063           $ 1.281
         Fourth Quarter                      $ 3.000           $ 1.438           $ 2.563           $ 1.000
         -------------------------- ----------------- ----------------- ----------------- -----------------
</TABLE>

         The number of stockholders of record of On-Point's common stock, par
         value $.01 per share, as of March 31, 2000, 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.

         -    In January 1997, Frederick Sandvick, Chief Executive Officer of
              On-Point, received a warrant to purchase 500,000 shares of
              On-Point's Common Stock at $.63 per share pursuant to his personal
              guaranty and indemnity in connection with a $2,000,000 performance
              bond. The warrant has a five-year term and became exercisable in
              January 1997.

         -    In January 1997, Vanguard Strategies, Inc. received a warrant to
              purchase 250,000 shares of On-Point's Common Stock at $.72 per
              share pursuant to a consulting agreement entered into with
              On-Point. The warrant has a five-year term and became exercisable
              in January 1997.

         -    In January 1997, S & H Systems, Inc. received a warrant to
              purchase 4,000 shares of On-Point's Common Stock at $1.00 per
              share pursuant to a consulting agreement entered into with
              On-Point. The warrant has a four-year term and became exercisable
              in January 1997.

         -    In May 1997, GMB Capital Partners received a warrant to purchase
              45,000 shares of On-Point's Common Stock at $2.52 per share in
              consideration for facilitating financing for On-Point. The warrant
              as a three-year term and became exercisable in May 1997.

         -    In May 1997, Coast Business Credit received a warrant to purchase
              50,000 shares of On-Point's Common Stock at $2.00 per share
              pursuant to a financing agreement entered into with On-Point. The
              warrant has a three-year term and became exercisable in May 1997.

         -    In May 1997, Capital Structures Corporation and Colliers Iliff
              Thorn each received a warrant to purchase 25,000 shares of
              On-Point's Common Stock at $1.24 per share pursuant to a
              commission

                                       18
<PAGE>   19
              settlement agreement entered into with On-Point. The warrants had
              a one-year term and have been exercised.

         -    In January 1998, Vanguard Strategies, Inc. and Mr. Robert L. Burr,
              former Chairman of the Board and former President and Chief
              Executive Officer, were each granted stock options for 50,000
              shares of On-Point's Common Stock at $2.88 per share pursuant to
              an agreement to terminate their respective rights in On-Point's
              international operations. The options expire on December 31, 2002
              and vest the earlier of 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.

         -    In April 1998, Darius Anderson and James Bouskos each received an
              option to purchase 10,000 shares of On-Point's Common Stock at
              $2.09 per share pursuant to their appointment as Advisory
              Directors. Mr. Anderson's options have subsequently been
              terminated. Mr. Bouskos' options vest by April 1999 and expire in
              April 2001.

         -    In May 1998, Allan Halladay and Brian Roberts each received an
              option to purchase 50,000 shares of On-Point's Common Stock at
              $2.09 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. The options expire on December 31, 2001.

         -    In July 1998, Coast Business Credit received a warrant to purchase
              10,000 shares of On-Point's Common Stock at $1.63 per share
              pursuant to an amendment to a financing agreement entered into
              with On-Point. The warrant became exercisable in July 1998 and
              expires on July 5, 2000, as amended.

         -    In September 1998, Elizabeth Williams received an option to
              purchase 5,000 shares of On-Point's Common Stock at $1.66 per
              share pursuant to a consulting agreement entered into with
              On-Point. The option vests over 2 1/2 years and expires on
              September 30, 2003.

         -    In October 1998, Robert Burr received an option to purchase 50,000
              shares of On-Point's Common Stock at $2.00 per share pursuant to
              his consulting agreement with On-Point. The option vests on March
              31, 2001, or earlier, if certain conditions are met. The option
              expires on September 30, 2001.

         -    In July 1999, James Bouskos and Miles Scully received options to
              purchase 20,000 shares and 10,000 shares, respectively, of
              On-Point's common stock at $1.97 per share pursuant to their
              arrangements as Advisory Directors. The options vest in one year
              and expire in three years from date of grant.

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

         GENERAL On-Point's revenues through 1999 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


                                       19
<PAGE>   20
         terminals over the past three years through our line of credit,
         existing cash flow and private placement financing.

RESULTS OF OPERATIONS - 1999 COMPARED TO 1998

         The results of operations are based, where applicable, on segment
         information, which is included in Note 2 to the Financial Statements.
         1999 revenues decreased by approximately $1.3 million or 9% from 1998.
         The decrease was due to the combination of (1) a $1.0 million increase
         in product sales resulting from an increase in the number of units
         sold, (2) a $1.9 million decrease in financing revenue resulting from a
         decrease in the number of new units leased or renewed, and (3) a $700
         thousand decrease in service revenue resulting primarily from the loss
         of a service contract for the State of Washington. 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.

         Cost of sales, as a percentage of sales, increased by 15% from 68% in
         1998 to 83% in 1999 due to the combination of the following: (1)
         product cost of sales as a percentage of revenues increased 21% from
         63% in 1998 to 84% in 1999; (2) financing cost of sales increased 29
         percentage points, as a percentage of revenues, from 41% in 1998 to 70%
         in 1999; and (3) service cost of sales decreased 8 percentage points as
         a percentage of revenues from 94% in 1998 to 86% in 1999. 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, 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 1999 as compared to 1998. 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.
         Subject to those and other factors, we anticipate that 2000 margins
         will improve. However, the 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.
         We developed the next generation lottery products in order to gain
         greater market share and ultimately achieve 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 1999 and 1998 is depreciation of $741
         thousand and $652 thousand, respectively, from non-performing equipment
         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. On-Point is pursuing its rights to recover all the
         equipment held under the lease with Solutioneering so the equipment can
         be redeployed or sold to other customers. Until the equipment is
         recovered or otherwise held for sale, it is anticipated that On-Point
         will continue to depreciate the equipment as part of cost of sales. We
         are currently in negotiations with third parties to recover and
         redeploy the equipment; however, no assurances can be given that the
         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 1999, gross profit
         decreased by $2.4 million, from $4.7 million in 1998 to $2.3 million in
         1999.

                                       20
<PAGE>   21
         Operating expenses, as a percentage of sales, decreased by 14
         percentage points as a result a combination of the following: (1) a
         $1.6 million reduction in selling, general and administrative expenses,
         and (2) a $.7 million reduction in general research and development
         costs. The reduction in selling, general and administrative expenses
         resulted from: (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) a decrease in legal and
         outside professional fees; and (iii) a decrease in bad debt expense.
         Bad debt expenses in 1998 included $206 from Fone America and $649 from
         US Telecard, all related to sales made in prior years. General research
         and development costs decreased as a result of the completion of some
         of the overall development aspects of On-Point's next generation
         lottery products. We anticipate continued development efforts in 2000
         as On-Point receives marketing feedback on prototype 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 $279 thousand, from $254 thousand in
         1998 to $533 thousand in 1999, as average borrowings increased during
         1999.

         As a net result of the above-described factors, On-Point incurred a net
         loss of $721 thousand in 1999, versus a net loss of $404 in 1998.

         LIQUIDITY AND CAPITAL RESOURCES In 1999, On-Point used approximately
         $2.0 million of net cash provided by financing activities to fund
         approximately $1.8 million in operating activities and $.2 million in
         investing activities. Included in operating activities in 1999 was an
         increase to inventories of approximately $2.6 million and an increase
         of approximately $1.0 of predevelopment costs relating to a previously
         awarded contract. In 1998, On-Point generated approximately $1.1million
         of net cash from operating activities that was used in combination with
         the $2.2 million provided by financing activities to finance $3.5
         million in investing activities. Working capital was approximately $5.7
         million at December 31, 1999 an increase of approximately $1.7 million
         from the $4 million in working capital at December 31, 1998. The 1999
         working capital included an increase in inventory of approximately $2.6
         million primarily due to additional finished goods from contract orders
         on hand at the end of the year, additional materials ordered to begin
         production for On-Point's new next generation lottery products, and
         additional used units on hand at the end of the year that were returned
         from expiration of lease arrangements.

         On May 5, 1997, On-Point entered into a Loan and Security Agreement for
         a revolving line of credit whereby On-Point could borrow up to $3
         million. Such agreement was amended on July 7, 1998 to increase the
         borrowing limit to $5 million and further amended on July 2, 1999 to
         increase the borrowing limit to $6 million. The loan bears interest at
         prime plus 2%, which is reduced by .5% annually if On-Point meets
         certain performance benchmarks, matures on July 31, 2000 and is secured
         by virtually all of On-Point's assets. At December 31, 1999, On-Point
         had borrowed approximately $4.7 million under this Agreement which was
         approximately the availability under the line of credit as of that
         date. In April 2000, On-Point extended the maturity date of the line
         three years (from July 2000 to July 2003) and increased the borrowing
         limit from $6 million to $10 million. The borrowing availability under
         the line is subject to a number of restrictions (see Note 4 of Notes to
         Consolidated Financial Statements).

         During 1999, On-Point received $1 million from GTECH and issued GTECH a
         note that matures on August 15, 2000 with interest at prime plus 3% per
         annum. Subsequent to December 31, 1999, On-Point received another $.5
         million from GTECH under the same terms as the original note. On-Point
         and GTECH are in discussions regarding the potential acquisition of
         On-Point.

                                       21
<PAGE>   22
         On-Point also received $.8 million from Galt Asset Management
         subsequent to December 31, 1999 pursuant to a note that matures in
         September 2000 with interest at 10% per annum. On-Point is pursuing a
         private equity placement in which it would receive another $1 million
         and convert the existing debt from Galt into the private placement. The
         terms and completion of the private placement are subject to the
         results of discussions with GTECH.

         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 accommodate recent
         contract awards from the French, Missouri, Illinois and California
         lotteries for up to 6,000 ITR's with a potential value of $28 million
         over the next three years, together with other growth related
         opportunities in 2000 and beyond, On-Point will require additional
         financing. Therefore, we plan to seek additional financing for these
         purposes during 2000.

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 April 22, 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. Remaining costs to be incurred in 2000, if any,
are not expected to be material.

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

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

                                       22
<PAGE>   23
                          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 sheets of On-Point
Technology Systems, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the two years in the period ended December 31, 1999.
These financial statements are the responsibility of On-Point's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits 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 audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of On-Point Technology Systems, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the two years in the period 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

                                       23
<PAGE>   24



ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998



<TABLE>
<CAPTION>
                                                                                   1999            1998
<S>                                                                             <C>             <C>
Assets Thousands of dollars, except share amounts
Cash and cash equivalents                                                        $    157        $    129
Accounts receivable, net                                                              883           2,744
Inventories                                                                         6,325           3,143
Net investment in sales-type leases                                                 1,619           1,359
Other current assets                                                                  199             122
                                                                                 --------        --------
Total current assets                                                                9,183           7,497
                                                                                 --------        --------

Plant, property and equipment, net                                                    565             422
Net investment in sales-type leases                                                 2,402           2,723
Property under operating leases, net                                                  275           1,852
Property under lease agreement with Solutioneering, net                             2,513           3,255
Other assets                                                                        1,712             595
                                                                                 --------        --------
Total assets                                                                     $ 16,650        $ 16,344
                                                                                 ========        ========


Liabilities and shareholders' equity

Accounts Payable                                                                 $  1,793        $  1,190

Notes Payable                                                                       1,000             104
Accrued expenses & current liabilities                                                706           2,372
                                                                                 --------        --------
Total current liabilities                                                           3,499           3,666
                                                                                 --------        --------

Long-term debt                                                                      4,730           3,872
                                                                                 --------        --------

Shareholders' equity:
       Preferred stock, no par value, 2,000,000 shares
           Authorized, no shares issued or outstanding                                 --             --
       Common stock, $.01 par value, 20,000,000 shares
           Authorized, 10,266,401 and 10,094,826 shares issued and                    103             101
           outstanding,  respectively
       Additional paid-in capital                                                  31,590          31,256
       Accumulated deficit                                                        (23,272)        (22,551)
                                                                                 --------        --------
Total shareholders' equity                                                          8,421           8,806
                                                                                 --------        --------
Total liabilities and shareholders' equity                                       $ 16,650        $ 16,344
                                                                                 ========        ========

</TABLE>


         See accompanying notes to consolidated financial statements.



                                       24
<PAGE>   25


 ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998



<TABLE>
<CAPTION>
                                                             1999                 1998
 THOUSANDS OF DOLLARS/SHARES, EXCEPT PER SHARE AMOUNTS
<S>                                                       <C>                  <C>
Revenues                                                  $ 13,481             $ 14,768
Cost of sales                                               11,144               10,044
                                                          --------             --------
Gross profit                                                 2,337                4,724
                                                          --------             --------
Operating expenses:
     Selling, general and administrative                     1,801                3,449
     Research and development                                  724                1,405
                                                          --------             --------
Total operating expenses                                     2,525                4,854
                                                          --------             --------
Loss from operations                                          (188)                (130)
                                                          --------             --------
Other expenses:
     Interest expense                                          519                  237
    Other                                                       14                   17
                                                          --------             --------
Total other expenses                                           533                  254
                                                          --------             --------
Loss before provision for income tax                          (721)                (384)
Provision for income taxes current                                                   20

Net loss                                                  $   (721)            $   (404)
                                                          ========             ========
Basic and diluted loss per share:
                  Loss per share                          ($  0.07)            ($  0.04)
                                                          ========             ========
                  Weighted average shares                   10,190                9,882
                                                          ========             ========
</TABLE>





               See accompanying notes to consolidated financial statements.



                                       25
<PAGE>   26





             ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
             FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998



<TABLE>
<CAPTION>
                                                         Common Stock        Additional
   Thousands shares/dollars                           ---------------------   Paid in     Accumulated
                                                      Shares      Amount      Capital       Deficit        Total
<S>                                                  <C>          <C>        <C>          <C>              <C>
   BALANCE, JANUARY 1, 1998                              9,421          $94     $30,227      ($22,147)        $8,174
                                                       -------------------------------------------------------------

   Exercise of stock warrants                              669            7         904                          911
   Exercise of stock options                                 5                        5                            5
   Issuance of stock options and warrants
        for services provided                                                       120                          120
   Net loss                                                                                      (404)         (404)
                                                       -------------------------------------------------------------
   BALANCE, DECEMBER 31, 1998                           10,095          101      31,256       (22,551)         8,806
                                                       -------------------------------------------------------------
   Exercise of stock warrants                               60            1         119                          120
   Exercise of stock options                               111            1         115                          116
   Issuance of stock options and warrants
        for services provided                                                       100                          100
   Net loss                                                                                      (721)         (721)
                                                       -------------------------------------------------------------
   BALANCE, DECEMBER 31, 1999                           10,266         $103     $31,590      ($23,272)        $8,421
                                                       =============================================================
</TABLE>


           See accompanying notes to consolidated financial statements




                                       26
<PAGE>   27




  ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998



<TABLE>
<CAPTION>
THOUSAND OF DOLLARS                                                               1999                 1998
<S>                                                                             <C>                 <C>
Cash flows from operating activities:

         Net loss                                                                ($721)               ($404)
         Adjustments to reconcile net loss to net cash
             provided by (used in)operating activities:
             Depreciation and amortization                                        1,921               2,000

             Issuance of options and warrants for services provided                 100                 120
             Provision for doubtful accounts                                       (281)                713
             Changes in assets and liabilities:
                  Accounts receivable                                             2,143                (960)
                  Inventories                                                    (2,634)               (210)
                  Other current assets                                              (77)                299
                  Other assets                                                   (1,196)
                  Accounts payable                                                  603                  72
                  Accrued expenses                                               (1,666)               (490)
                  Deferred income                                                   505                  --
                                                                                -------             -------
Net cash provided by (used in) operating activities                               1,808               1,140
                                                                                -------             -------
Cash flows used in investing activities:
         Purchases of plant, property and equipment                                (445)               (283)
         Net investment in sales type leases                                        256              (1,890)
         Investment in property under operating leases                                                 (224)
         Investment in property under lease agreement with
              Solutioneering                                                                         (1,212)
         Loss on Fixed asset disposals                                               35                  81
                                                                                -------             -------
Net cash (used in) provided by investing activities                                (154)              (3,528)
                                                                                -------             -------

Cash flows from financing activities:
       Proceeds from issuance of common stock upon
             exercise of warrants and options                                       236                 916
         Proceeds from line of credit, net                                          858               1,605
         Proceeds from notes payable, net                                           896                (277)
                                                                                -------             -------
Net cash provided by financing activities                                         1,990               2,244
                                                                                -------             -------
Increase (Decrease) in cash and cash equivalents                                     28                (144)
                                                                                -------             -------
Cash and cash equivalents at beginning of year                                      129                 273
                                                                                -------             -------
Cash and cash equivalents at end of year                                        $   157             $   129
                                                                                =======             =======

Supplemental cash flow information:
         Cash paid during the period for interest                               $   451             $   306
         Cash paid during the period for income taxes                                               $   117
Supplemental disclosure of non cash activities:
         Costbasis of machines returned from Fone America
             transferred from net investment in sales type leases to
             property under lease agreement with Solutioneering                                      $   23
         Increase (decrease) of reserves for inventory obsolescence             $    96               ($368)
</TABLE>





                                       27
<PAGE>   28






ON-POINT TECHNOLOGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization. On-Point Technology Systems, Inc. and subsidiaries, formerly
Lottery Enterprises, Inc. (collectively, the "Company" or "On-Point") designs,
manufactures, and services vending terminals for retail sale and leasing. Its
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.

Basis of Presentation. The accompanying consolidated financial statements have
been prepared on a going concern basis. As of December 31, 1999, the Company has
a note payable to GTECH Corporation in the amount of $1.0 million which is due
August 15, 2000. Subsequent to December 31, 1999, an additional $500,000 was
advanced to the Company from GTECH under the same terms. Also subsequent to
December 31, 1999, $850,000 was advanced to the Company from a note payable from
Galt Asset Management which bears interest at 10% and is due September 30, 2000.
In the event the Company is unable to successfully generate sufficient cash flow
from operations to payoff these notes payable or renegotiate the term of the
notes payable, the lenders thereunder have the right to exercise their remedies
under these agreements.

Although the Company believes that they will be able to generate sufficient cash
flow to realize its assets and discharge its liabilities in the normal course of
business, there can be no assurances that the Company will generate sufficient
cash flows. The Company has increased its revolving line of credit and extended
its maturity date to July 2003 and continues to manage its expenses. The
accompanying consolidated financial statements do not include any adjustments
related to the recoverability and classification of recorded assets or its
classifications of recorded liabilities that might be necessary should the
Company be unable to continue as a going concern.

Principles of Consolidation. The consolidated financial statements include the
accounts of On-Point and all majority owned subsidiaries after elimination of
significant inter-company 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.

Accounts Receivable. Accounts receivable consists of amounts due to On-Point
from its normal business activities. On-Point maintains an allowance for
doubtful accounts to reflect the expected uncollectibility of accounts
receivable based on collection history.

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.
Depreciation is provided using the straight-line method, over estimated useful
lives of 2 to 10 years. Maintenance and repairs are expensed as incurred.

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 3. 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-


                                       28
<PAGE>   29



     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.

     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, Illinois, New York and Missouri individually accounted
for 20%, 29%, 12% and 11% respectively, of total revenue in 1999. Revenues from
the state lotteries of Virginia, Illinois and Washington individually totaled
23%, 23% and 12% , respectively of total revenue in 1998. These customers
accounted for 29% and 18% of On-Point's receivables at December 31, 1999 and
1998. No DCR customers accounted for 10% or more of revenues in either 1999 or
1998. Foreign sales amounted to approximately $2 million in 1999 (15% of total
revenues), substantially all of which was for shipments to the French Lottery,
and $800 thousand in 1998 (5% of total revenues), of which $622 thousand was for
Hong Kong.

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 2,200,530 and 2,083,835 shares of On-Point's Common Stock
and warrants to purchase 1,580,000 and 2,911,958 shares of On-Point's Common
Stock were outstanding during 1999 and 1998, respectively, but were not included
in the computation of diluted EPS because On-Point incurred a net loss in 1999
and 1998.

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.



                                       29
<PAGE>   30




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, 1999 and 1998 is a reasonable estimate of its fair value based on a review
of borrowing rates available to On-Point at December 31, 1999 and 1998 for loans
with similar terms and average maturities.

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.

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.

Recently Issued Accounting Standards. In June 1997, the FASB issued SFAS No. 130
"Reporting Comprehensive Income," which establishes standards for reporting and
the display of comprehensive income and its components in a full set of
general-purpose financial statements. This Statement requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a balance sheet. This Statement is effective for fiscal years
beginning after December 15, 1997. On-Point does not have any items of other
comprehensive income. As such, the implementation of SFAS 130 will not have an
impact on the financial statements.

In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires the entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in fair value of these derivatives
("hedge accounting") depends on the intended use and designation. An entity that
elects to apply hedge accounting is required to establish at the inception of
its hedge the method it will use for assessing the effectiveness of the hedging
derivative and the measurement approach for determining the ineffective aspects
of the hedge. These methods must be consistent with the entity's approach to
managing risk. On-Point has not yet evaluated the effect of adopting SFAS 133.

Estimates. The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. 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. This includes the use of standard costs for product sales;
establishment of reserves for inventory obsolescence and reserves for bad
debts. Actual results could differ from those estimates.

Reclassifications. Certain balances in the 1998 financial statements have been
reclassified to conform to 1999 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>
($000)                                                                                          Non-Allocated
                                                   Products       Financing        Service                       Total
<S>                                                <C>            <C>             <C>           <C>              <C>
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)

BALANCE SHEET DATA  (AT END OF PERIOD):
</TABLE>


                                       30
<PAGE>   31


<TABLE>
<CAPTION>
<S>                                                <C>            <C>             <C>           <C>           <C>
Assets (allocated by segment)                         5,673           8,227          1,187          2,06       17,155

CASH FLOW INFORMATION:

Depreciation and amortization                          $338          $1,574            $10                      $1,921
Capital expenditures                                   $445                                                       $445

1998
OPERATING DATA:
Revenues                                             $5,870          $3,823         $5,075                     $14,768
Gross profit                                          2,177           2,252            295                       4,724
Income (loss) from operations                          (78)           (160)            108                       (130)

BALANCE SHEET DATA  (AT END OF PERIOD):
Assets (allocated by segment)                        $4,883          $9,766         $1,076          $619       $16,344
CASH FLOW INFORMATION:
Depreciation and amortization                          $342          $1,571            $87                      $2,000
Capital expenditures                                   $283                                                       $283

</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.

3. OTHER FINANCIAL DATA.

Details concerning certain balance sheet accounts and operating income detail as
of December 31, 1999 and 1998 follows (in thousands):

<TABLE>
<CAPTION>
                                                                           1999                1998
<S>                                                                       <C>                 <C>
Accounts receivable:
     Trade accounts receivable                                            $  993              $2,896
     Less allowance for doubtful accounts                                   (110)               (152)
                                                                          ------              ------
     Total                                                                $  883              $2,744
                                                                          ======              ======
Inventories:
     Materials                                                            $3,301              $2,843
     Work in process                                                         738                 274
     Finished goods                                                        2,926                 619
     Reserve for obsolescence                                               (640)               (593)
                                                                          ------              ------
     Total                                                                $6,325              $3,143
                                                                          ======              ======
Property, plant and equipment:
     Computers and equipment                                              $1,418              $1,236
     Furniture and fixtures                                                  331                 325
     Tooling                                                                 392                 248
     Building and improvements                                                76                  51
                                                                          ------              ------
                                                                          $2,217               1,860
     Less accumulated depreciation                                        (1,652)             (1,438)
                                                                          ------              ------
     Total                                                                  $565                $422
                                                                          ======              ======
Other assets:
     Patents                                                                $852                $715
     Deposits                                                                 99                 134
     Predevelopment contract costs                                           992
     Other, net of reserves of $475 in 1999 and $867  in 1998                625                 425
                                                                          ------              ------
                                                                           2,568               1,274
     Less accumulated amortization                                          (856)               (679)
                                                                          ------              ------
     Total                                                                $1,712                $595
                                                                          ======              ======
</TABLE>


                                       31
<PAGE>   32



4. DEBT Debt consists of the following as of December 31, 1999 and 1998 (in
   thousands):

<TABLE>
<CAPTION>
                                                      1999                 1998
<S>                                                 <C>                   <C>
Revolving line of credit                            $4,730                $3,872
Notes payable                                        1,000                   104
                                                    ------                ------
Total debt                                          $5,730                $3,976
 Less current portion                                1,000                   104
                                                    ------                ------
 Long Term Debt                                     $4,730                $3,872
                                                    ======                ======
</TABLE>


On-Point entered into a loan and security agreement on May 5, 1997, which
provided for a revolving credit line of up to $3,000,000, which was amended on
July 7, 1998 to increase the borrowing limit to $5,000,000 and further amended
on July 2, 1999, to increase the revolving credit line to $6,000,000. In April
2000, the loan was amended to provide for a three year extension and an increase
in the borrowing limit to $10,000,000. The line bears interest at the prime rate
which was 8.5% at December 31,1999 plus 2% over prime. The rate is reduced by
 .5% annually if On-Point meets certain performance benchmarks. The loan matures
on July 31, 2003 and is secured by virtually all of On-Point's assets.. As of
December 31, 1999 the line requires On-Point to maintain a minimum of $5.5
million of equity, as defined. On-Point was in compliance with this debt
covenant at December 31, 1999. 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 of monthly cash
flows. As of December 31, 1999, On-Point had available approximately $4.8
million under the credit line of which approximately $4.7 million had been
borrowed.

Notes payable at December 31, 1999 consists of a note payable to GTECH
Corporation in the amount of $1 million which bears interest at prime plus 3%
due August 15, 2000. As of December 31, 1998, notes payable consisted of a note
to a financial institution in the amount of $104 thousand that was fully paid
during 1999. Subsequent to December 31, 1999, On-Point received another $.5
million from GTECH under the same terms as the original note. On-Point also
received $.8 million from Galt Asset Management in March 2000 pursuant to a
note that bears interest at 10% per annum and matures in September 2000.
On-Point is pursuing a private equity placement in which it would receive
another $1 million and convert the existing debt from Galt into the private
placement.

Future principal payments on debt as of December 31, 1999, are as follows (in
thousands):

<TABLE>
<CAPTION>
      Year ending December 31,
<S>                                  <C>
            2000                      $1,000
            2001                           0
            2002                           0
            2003                       4,730
</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, 1999 and 1998 consisted of approximately
$727 thousand and $4.9 million, respectively, less accumulated depreciation of
approximately $452 thousand and $3.1 million at December 31, 1999 and 1998,
respectively.

Approximate future minimum lease payments receivable by On-Point under operating
leases as of December 31, 1999, are as follows (in thousands):

<TABLE>
<CAPTION>
      Year ending December 31,
<S>                                     <C>
            2000                         $ 449
            2001                           229
</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, 1999 and 1998.

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 $2.3 million and $1.9 million of revenues related to sales-type


                                       32
<PAGE>   33

leases for the years ended December 31, 1999 and 1998, respectively. These
non-cancelable leases expire over the next one to three years.

The following lists the components of the net investment in sales-type leases as
of December 31, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                  1999               1998


<S>                                                              <C>             <C>
      Net minimum lease payments receivable                      $ 3,077              $3,118
      Estimated unguaranteed residual value                        1,251               1,278
      Less unearned interest income                                 (307)               (314)
                                                                 -------             -------

      Net investment in sales type leases                        $ 4,021             $ 4,082
                                                                 =======             =======

Sales type leases consist of:
     Net investment in sales type leases - short term            $ 1,619              $1,359
     Net investment in sales type leases - long term               2,402               2,723
                                                                 -------             -------
     Net investment in sales type leases, as above               $ 4,021             $ 4,082
                                                                 =======             =======
</TABLE>


The minimum lease payments are recorded net of future estimated service and
warranty costs of $ 930 thousand in 1999 and $828 thousand in 1998, 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, 1999, are as follows (in
thousands):

<TABLE>
<CAPTION>
      Year ending December 31,
<S>                                                           <C>
            2000                                              $ 1,769
            2001                                                  857
            2002                                                  451
                                                              -------
                                                               $3,077
                                                              =======
</TABLE>


     The amortization of unearned income for sales-type leases amounted to
approximately $323 thousand and $330 thousand for the years ended December 31,
1999 and 1998, respectively.

7. PROPERTY 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 2000 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 assests 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, 1999 and 1998. 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.

In 1997 and 1998, On-Point shipped a total of 2033 DCR terminals to
Solutioneering. Of the terminals shipped in 1997 and 1998, 1198 were refurbished
machines that had been previously returned to On-Point from another DCR
customer, Fone America.

The vending machines leased to Solutioneering have been classified as "Property
under lease agreement with Solutioneering" as the property is non-performing and
unavailable for lease. This property is being depreciated over a five-year
estimated useful life. The depreciation expense is classified as cost of sales,
consistent with other operating leases. On-Point is in the process of attempting
to recover its equipment.




                                       33
<PAGE>   34



The activity in the Property under Lease agreements with Solutioneering is
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                      1999                1998
<S>                                                 <C>                 <C>
Cost Balance - beginning of year                    $ 4,136             $ 2,644
Additions:
     DCR's returned from Fone America                                        23
     Manufactured and other                                               1,469
                                                    -------             -------

Cost Balance - end of year                            4,136               4,136
Less: accumulated depreciation                       (1,623)               (881)
                                                    -------             -------
Net Balance - end of year                           $ 2,513             $ 3,255
                                                    =======             =======
</TABLE>


Fone America returned 1,266 DCR terminals during 1997 and 1998 under an
agreement with On-Point to partially satisfy their outstanding receivable
balance. The Fone America net receivable balance was $2.4 million at December
31, 1996, which consisted of the net unamortized balance of net investment in
sales type leases for prior years' sales to Fone America, less reserves for
refurbishment costs and bad debt

A bad debt reserve was established as of December 31, 1997 of $284 thousand. As
Fone America returned terminals, On-Point reduced the Fone America receivable
balance with an estimated cost basis per terminal. This estimated cost basis
represented the lower of cost or fair value of the returned terminals. The
resulting cost basis ranged from $1,340 for a 2-bin terminal to $2,386 for a
4-bin terminal. The balance of $206 thousand, after all machines were returned,
was charged to bad debts in 1998. During 1999, $184 thousand of amounts charged
to bad debts in 1998 were reversed.


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>
                                                                          1999             1998

<S>                                                                      <C>               <C>
Tax expense (benefit) computed at the statutory federal rate
     rate of 34%                                                         $(245)            $(131)
State income tax expense, net of federal income tax effect                  (0)               20
Expenses not deductible for income tax purposes                              8                (6)
Change in valuation allowances for deferred income tax assets              237               137
                                                                         -----             -----
Provision for income taxes - current                                     $   0             $  20
                                                                         =====             =====
</TABLE>

The components of the income tax expense for the year ended December 31, 1999
and 1998 consists of the following


<TABLE>
<CAPTION>
                                                           1999            1998
<S>                                                        <C>             <C>
Current:
     Federal                                                                 $--
     State                                                  $ 0               20
                                                            ---              ---
                                                                              20
Deferred:
     Federal                                                 --               --
     State                                                   --               --
                                                            ---              ---
                                                             --               --
                                                            ---              ---
Provision for income taxes - current                        $ 0              $20
                                                            ===              ===
</TABLE>




Deferred income tax assets and the related valuation allowance as of December
31, 1999 and 1998, result from the following temporary differences:

<TABLE>
<CAPTION>
                                              1999               1998
<S>                                         <C>                 <C>
Net operating loss carryforwards            $ 5,503             $ 5,475
Inventory and other reserves                  1,076                 868
Valuation allowance                          (6,579)             (6,343)
                                            -------             -------
Net deferred income tax assets              $    --             $    --
                                            =======             =======
</TABLE>


                                       34
<PAGE>   35



Due to significant losses for income tax reporting purposes prior to 1999 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, 1999, On-Point has $15.4 million of operating loss available to
offset future federal taxable income, which expire during the years 2011 through
2018.

9. SHAREHOLDERS' EQUITY

Private Placement   On-Point completed an equity financing and a debt financing
in 1997. The equity financing, which was subsequently registered with the SEC,
was a private placement of $800 thousand of equity Units. The Units consisted of
one share of Common stock of On-Point per $0.75 of equity investment, one-half
Class A Warrant per $1.00 of equity investment and one Class B Warrant per $1.00
of equity investment. Each Class A Warrant was exercisable to purchase one share
of Common Stock at a price of $1.25 per share for a period of one year while
each Class B Warrant was exercisable to purchase one share of Common Stock at a
price of $2.00 per share expiring March 18, 1999.

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.

Stock Warrants Exercised   In 1998, various warrants were exercised to purchase
On-Point's Common Stock for total proceeds of $911 thousand. Warrants from the
private placement, discussed above, were exercised in 1998 to purchase 540,986
shares of On-Point's Common Stock at $1.25 per share. Other warrants were
exercised in 1998 to purchase 25,000, 37,500 and 65,000 shares of On-Point's
Common Stock at $1.24, $1.25 and $.69 per share, respectively. In 1999, warrants
from the private placement were exercised to purchase 60,000 shares of
On-Point's common stock at a price of $2 per share.

Stock Option Plans   On-Point has two employee stock option plans whereby
options to purchase 1,972,500 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 525,000 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 295,000 and 424,000 shares as of
December 31, 1999 and 1998, respectively, follows:


<TABLE>
<CAPTION>
                                                                     1999                                      1998
                                                                                    Weighted                                Weighted
                                                                                    Average                                 Average
                                                                                    Exercise                                Exercise
                                                              Shares                 Price             Shares                 Price
<S>                                                         <C>                   <C>                <C>                   <C>
Outstanding at January 1                                    2,083,835             $   1.61           1,280,380             $   1.44
     Granted                                                  543,500             $   1.73             882,000             $   1.88
     Exercised                                               (111,575)            $   1.04              (5,085)            $   0.90
     Expired                                                       --                --                (50,000)            $   2.00
     Forfeited                                               (315,230)            $  (1.95)            (23,460)            $   2.21
                                                            ---------             --------           ---------             --------
Outstanding at December 31                                  2,200,530             $   1.63           2,083,835             $   1.61
                                                            =========             ========           =========             ========

Options exercisable at year end                             1,560,530             $   1.15           1,095,376             $   1.47
Weighted average fair value per share of options
granted during the year                                                           $   0.97                                 $   0.76
</TABLE>





                                       35








<PAGE>   36

The following table summarizes information about fixed-price stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
                                   Options Outstanding                            Options Exercisable
                    ----------------------------------------------------   --------------------------------
                        Number         Weighted Ave         Weighted-          Number          Weighted-
      Range of      Outstanding at      Remaining            Average       Outstanding at       Average
  Exercise Prices      12/31/99      Contractual Life    Exercise Price       12/31/99       Exercise Price
  ---------------      --------      ----------------    --------------       --------       --------------
<S>                 <C>              <C>                 <C>               <C>               <C>
   $0.80 - 1.00            937,395         3.59                   $0.81           913,395             $0.80
    1.41 - 1.81            680,000         4.33                   $1.53           558,000             $1.53
    1.97 - 2.09            383,135         2.78                   $2.02            46,635             $2.03
    2.25 - 2.88            100,000         2.36                   $2.67            42,500             $2.50
       7.45                100,000         4.75                   $7.45
                    --------------   ----------------   ----------------   ---------------   ---------------
    $0.80 - 7.45         2,200,530         3.67                   $1.63         1,560,530             $1.15
                    ==============   ================   ================   ===============   ===============
</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 and 1998 consistent with the
provisions of SFAS No. 123, On-Point's net earnings (loss) and earnings (loss)
per share would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                1999                            1998
                                -----                           ----
                        Net           Per Share         Net          Per Share
                       Loss       Basic    Diluted     Loss       Basic    Diluted
                       ----       -----    -------     ----       -----    -------
<S>                   <C>       <C>        <C>        <C>       <C>        <C>
        As Reported   $ (721)   $ (0.07)   $ (0.07)   $ (404)   $ (0.04)   $ (0.04)
                      =======   ========   ========   =======   ========   ========

        Pro Forma     $ (877)   $ (0.09)   $ (0.09)   $ (484)   $ (0.05)   $ (0.05)
                      =======   ========   ========   =======   ========   ========
</TABLE>

In 1999 the fair value of options granted to employees is estimated as
approximately $0.97 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 lives of 4.84 years. In 1998 the fair value of
options granted to employees is estimated as approximately $0.71 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 51%; risk free interest rate of 4.68%; and expected
lives of 4.65 years.

In July 1999, two advisory board members of On-Point each received three-year
options to purchase 20,000 shares and 10,000 shares, respectively, of On-Point's
common stock at $1.97 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 of which was expensed to selling, general and
administrative expense in 1999 and the remainder will be expensed over the
expected term of the respective advisory director.

In October 1998, Robert Burr, a former Chairman of the Board, President and CEO
of On-Point, received a three-year option to purchase 50,000 shares of
On-Point's Common Stock at $2.00 per share pursuant to his consulting agreement
with On-Point. The option vests 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 $2 thousand and $21 thousand were expensed to selling,
general and administrative expense during the years ended December 31, 1998 and
1999, respectively. The remainder will be expensed over 22 months.

In September 1998, a consultant received an option to purchase 5,000 shares of
On-Point's Common Stock at $1.66 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 $1 thousand and $2
thousand were expensed to selling, general and administrative expense during the
years ended December 31, 1998 and 1999. The remainder will be expensed to
selling, general and administrative expense over the remaining 14-month term of
the consulting agreement.

In May 1998, two individuals, one of whom is an officer of On-Point, each
received an option to purchase 50,000 shares of On-Point's Common Stock at $2.09
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 10,000 shares of On-Point's Common Stock at $2.88 per share pursuant
to his appointment as an Advisory Director. Subsequent to his appointment, the
advisory director resigned and the options were terminated. Prior to the
termination of the options, $7


                                       36
<PAGE>   37
thousand was expensed to selling, general and administrative expense during the
year ended December 31, 1998 representing that portion of the fair value of the
options prior to termination.

In March 1998, Vanguard Strategies, Inc. (VSI)and Mr. Robert L. Burr, a former
chairman and chief executive officer of On-Point, were each granted five-year
stock options for 50,000 shares of On-Point's Common Stock at $2.88 per share
pursuant to an agreement to terminate their respective rights in On-Point's
international operations. The options would have vested at the earlier of 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, the options were
terminated effective January 1, 1999. Prior to the termination of the options,
$18 thousand was expensed to selling, general and administrative expense during
the year ended December 31, 1998 representing that portion of the fair value of
the options prior to termination.

In January 1998, a consultant received an option to purchase 10,000 shares of
On-Point's Common Stock at $2.09 per share pursuant to a consulting agreement.
The option vests over two years. The fair value of the options at December 31,
1999 totaled $9 thousand, of which $4 thousand and $5 thousand were expensed to
selling, general and administrative expense in 1998 and 1999, respectively.

Stock Warrants

In July 1998, Coast Business Credit received a warrant to purchase 10,000 shares
of On-Point's Common Stock at $1.63 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. The fair value of the warrant totaled $5 thousand at
the date of grant of which $1 thousand and $2 thousand were expensed to selling,
general and administrative expense during 1998 and 1999, respectively. The
remaining balance will be expensed over 6 months.

In May 1997, Coast Business Credit and a consultant received warrants to
purchase 50,000 shares and 45,000 shares, respectively, of On-Point's common
stock at $2.00 per share and $2.52 per share, respectively, in consideration for
the debt financing. The warrants each have a three-year term and became
exercisable in May 1997. The fair value of the warrants totaled $79 thousand,
which is being expensed over 36 months. On-Point expensed $26 thousand to
financing costs in both 1998 and 1999.

In January 1997, the Chairman and Chief Executive Officer of the Company
received a warrant to purchase 500,000 shares of the Company's Common Stock at
$.63 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 selling,
general and administrative expense in each of the years ended December 31, 1999
and 1998.

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
$272 thousand and $244 thousand for the years ended December 31, 1999 and 1998,
respectively. Future minimum rentals under noncancelable operating leases as of
December 31, 1999 are as follows (in thousands):

<TABLE>
<S>                                                             <C>
        2000                                                    $  244
        2001                                                       245
        2002                                                       238
        2003                                                       211
        2004                                                       211
        Thereafter                                                 861
                                                                ======
                                                                $2,010
</TABLE>


Customer Dispute Since 1994, On-Point had sought reimbursement from the
California State Lottery ("CSL") for the supply and installation of
out-of-warranty spare parts and related sales tax pursuant to its service
contract. The claim was estimated at more than $1.9 million. The CSL had refused
to honor the claim and had responded with a claim of $1.7 million in liquidated
damages for On-Point's alleged delay in responding to service calls in 1994 and
1995. Further, the CSL withheld payment of more that $300 thousand in
outstanding invoices for products and services from On-Point. No amounts related
to this receivable were recorded in the accompanying financial statements as of
December 31, 1997. During 1998, On-Point amicably resolved the dispute and
received a payment of approximately $350,000 from the CSL.


                                       37
<PAGE>   38
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
Technologies, Inc. (ILI) alleging 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. Management
believes that ILI's suit is without merit, and On-Point is in the process of
preparing a response to the matter.

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. On-Point has been informed that a similar action was also
filed but has not been served with any additional actions at this time. On-Point
intends to vigorously defend against these claims and is in the process of
preparing a response to the action filed.

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 Corporation for
all of On-Point's stock pursuant to an agreement entered into by On-Point and
GTECH in January 2000 was inadequate and that the directors breached their
fiduciary duties relating to the proposed sale of On-Point to GTECH. On-Point
will seek dismissal of this action since GTECH has provided notice of
termination of the agreement upon which the action was based.

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 has breached the Agreement and has claimed damages
of approximately $9 million. Solutioneering subsequently sought bankruptcy
protection in 1999. On-Point is now pursuing its claim to the leased machines
through the bankruptcy court. The financing lender to Solutioneering has raised
a claim that it has 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. We believe the arrangement with
Solutioneering was clearly a lease and that the financing lender's claim to be
without merit. On-Point's net balance sheet carrying value of the Solutioneering
leased machines at December 31, 1999 was approximately $2.5 million. Management
expects to recover the assets and believes the underlying value of On-Point's
equipment at Solutioneering exceeds the carrying value on On-Point's books.

On January 23, 1996, ILI filed an action against On-Point in the Common Pleas
Court of Hamilton County, Ohio arising from an agreement in principle between
ILI and On-Point, which was signed on March 23, 1995 regarding a proposed
merger transaction. In the action, ILI contended that, under the agreement in
principle, On-Point was responsible to pay ILI's reasonable fees and expenses
in connection with the proposed merger because the transaction did not proceed
due to On-Point's actions. In addition, ILI contended that another provision of
the agreement in principle obligated On-Point to pay a "break-up fee" in the
event On-Point entered into a "binding commitment to engage in a
recapitalization, debt issuance or working capital financing other than in the
ordinary course of business within one year of the public announcement of such
abandonment or termination of the proposed merger transaction." In the action,
ILI sought reimbursement of alleged fees and expenses of $240 thousand, payment
of a break-up fee in the amount of $989 thousand and reasonable attorney's
fees. On-Point removed ILI's action to the United States District Court for the
Southern District of Ohio on February 26, 1996. On March 4, 1996 On-Point filed
an answer denying all liability to ILI. On-Point also asserted a counterclaim
against ILI seeking a declaratory judgment that the break-up fee had not been
triggered under the terms of the agreement in principle, seeking to recover
On-Point's own costs and expenses in connection with the proposed merger
agreement and seeking compensatory damages from ILI for unfair competition and
tortuous interference with business relations. The parties reached a full and
complete settlement of the action on March 4, 1999 by the payment of On-Point
of approximately $600,000, which was accrued over 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
On-Point's Chief Executive Officer (the "CEO") for a three-year term commencing
January 9, 1996, which automatically extends annually an additional year unless
notice has otherwise been given by On-Point. As of December 31, 1999, the term
expires on December 2001. While On-


                                       38
<PAGE>   39
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 of
On-Point's pre-tax income and 7% thereafter, only $138 thousand and $177
thousand was paid to Mr. Sandvick in salary in 1999 and 1998, respectively, and
no bonuses were paid to Mr. Sandvick in either year. Mr. Sandvick waived all
accrued bonuses and unpaid wages effective December 31, 1999. The amount of
accrued wages waived amounted to $169 thousand.

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 250,000
shares of On-Point's common stock at a price of $.72 pursuant to the extension
of a loan with U.S. Mortgage Bankers Corp.(USMBC), a company wholly-owned by a
director of On-Point and relative of On-Point's chief executive officer,
pursuant to an agreement entered into between VSI and On-Point prior any
relation between On-Point and VSI, On-Point's chief executive officer or USMBC.
The warrant has a five-year term and became exercisable in January 1997. The
fair value of this warrant totaled $102 thousand at the date of grant, which was
expensed during the year ended December 31, 1997.

In connection with the engagement of VSI 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 original agreement with VSI
referred to above was terminated. Pursuant to the termination agreement and for
future consulting service, VSI and Mr. Burr were each granted options to
purchase 50,000 shares of On-Point's common stock at $2.88 per share, the
closing market price of On-Point's common stock on such date. The options would
have expired 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, the options were terminated
effective January 1, 1999 (see Note 10).

12. RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)

As previously reported in the Company's 1998 Annual Report included in Form
10-KSB/A filed on March 30, 2000, On-Point determined that long-term leases of
vending machines to Solutioneering, Inc. should have been recorded as operating
leases, rather than as sales type leases. In 1997, On-Point and Solutioneering
entered into a long-term lease arrangement pursuant to which On-Point furnished
Solutioneering with 2,033 vending machines during 1997 and 1998, including
1,198 refurbished machines that had been previously returned to On-Point from
another DCR customer, Fone America. On-Point's management has concluded that
based on the financial condition of Solutioneering at the inception of the
lease, the lease should have been accounted for as an operating lease, as the
collectibility of the lease payments was not reasonably predictable.

Revenues previously recorded as sales-type transactions of $1.9 million in 1998
and $3.5 million in 1997, have been reversed, the leased equipment has been
capitalized, depreciation is being taken over the estimated useful life of the
assets, and operating lease revenue has been recorded only to the extent of cash
receipts from Solutioneering of $205 thousand in 1997. The net impact of all
adjustments to Solutioneering was a decrease in net income of $741 thousand in
1999 and $2.1 million in 1998. On-Point's net balance sheet carrying value of
the Solutioneering leased machines at December 31, 1999 is approximately $2.5
million. The leased vending machines have been separately classified as
"Property under lease agreement with Solutioneering" as a non-current asset,
since the assets are non-performing and are not available for sale or lease. See
also Note 7.

In addition, On-Point has reclassified $855 thousand in 1998 from cost of sales
to selling, general and administrative expense for amounts representing bad debt
expenses. Interest income, attributable to sales-type lease financing of $330
thousand in 1998 was also reclassified from other (income) expenses to revenues.


                                       39
<PAGE>   40
Additionally, On-Point has applied the provisions of SFAS 123, "Accounting for
Stock Based Compensation" to options and warrants granted to the Chief Executive
Officer and to Vanguard Securities, a company wholly owned by him, as
transactions not related to normal employee duties and to options and warrants
granted for services to other outside parties in fiscal years 1996 through 1999.
The additional expense in 1999 and 1998 was $100 thousand and $120 thousand,
respectively, of which $50 thousand and $70 thousand, respectively, were
attributable to grants to the Chief Executive Officer, including Vanguard
Securities (See Note 11 of the Financial Statements).

As a result, the 1999 and 1998 quarterly condensed consolidated financial
statements have been restated from amounts previously reported to properly
reflect these transactions and reclassifications. A summary of the significant
effects of the restatement is as follows (in thousands, except per share data):


<TABLE>
<CAPTION>
                                                                      1999                         1998
                                                                      ----                         ----
                                                          As Previously                 As Previously
                                                            Reported      As Restated     Reported      As Restated
                                                            --------      -----------     --------      -----------
THREE MONTHS ENDED MARCH 31:
----------------------------
<S>                                                       <C>             <C>           <C>             <C>
Revenues                                                    $  5,294       $  4,975       $  4,278       $  3,776
Cost of sales                                                  3,606          3,634          2,974          2,776
-----------------------------------------------------------------------------------------------------------------
Gross profit                                                   1,688          1,341          1,304          1,000
Operating expenses                                               985          1,010            859            750
-----------------------------------------------------------------------------------------------------------------
Income from operations                                           703            331            445            250
Other income (expense)                                           (29)          (119)           108           (150)
-----------------------------------------------------------------------------------------------------------------
Income before income taxes                                       674            212            553            100
Provision for income taxes                                         0              0              0              0
-----------------------------------------------------------------------------------------------------------------
Net income                                                  $    674       $    212       $    553           100
=================================================================================================================

Net income  per share - basic                               $   0.07       $   0.02       $   0.06       $   0.01
Net income  per share - diluted                             $   0.06       $   0.02       $   0.05       $   0.01

MARCH 31:
Current assets:
Cash and cash equivalents                                   $     47       $     47       $      8       $      8
Accounts receivable, net                                       2,333          2,333          2,558          2,558
Inventories                                                    2,811          2,968          2,304          2,304
Net investment in sales-type leases                            1,700          1,700          1,894          1,894
Other current assets                                             173            153            132            132
-----------------------------------------------------------------------------------------------------------------
Total current assets                                           7,064          7,201          6,896          6,896
Plant, property and equipment, net                               449            449            596            596
Net investment in sales-type leases                            9,369          3,181          5,832          1,657
Property under operating leases, net                           1,887          1,726          2,405          2,223
Property under lease agreement with
    Solutioneering, net                                                       3,070                         2,835
Other assets                                                   1,061            538            346            212
-----------------------------------------------------------------------------------------------------------------
Total assets                                                $ 19,830       $ 16,165       $ 16,075       $ 14,419
=================================================================================================================
Liabilities and shareholders' equity:
Accounts payable                                               1,617          1,617          1,005          1,005
Current portion of long-term debt                                 60             60            207            207
Accrued expenses                                               1,564          1,535          1,948          1,919
-----------------------------------------------------------------------------------------------------------------
Total current liabilities                                      3,241          3,212          3,160          3,131
Other liabilities                                                100            100            832            832
Long-term debt                                                 3,686          3,686          1,638          1,638
Shareholders' equity                                          12,803          9,167         10,445          8,818
-----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                  $ 19,830       $ 16,165       $ 16,075       $ 14,419
=================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                      1999                          1998
                                                                      ----                          ----
                                                          As Previously                 As Previously
                                                            Reported      As Restated     Reported      As Restated
                                                            --------      -----------     --------      -----------
THREE MONTHS ENDED JUNE 30:
---------------------------
<S>                                                       <C>             <C>           <C>             <C>
Revenues                                                    $  5,135        $  5,162      $  4,144        $  3,056
Cost of sales                                                  3,770           3,906         2,651           2,024
------------------------------------------------------------------------------------------------------------------
Gross profit                                                   1,365           1,256         1,493           1,032
</TABLE>


                                       40
<PAGE>   41
<TABLE>
<S>                                                       <C>             <C>           <C>             <C>
Operating expenses                                               746             771         1,088           1,118
------------------------------------------------------------------------------------------------------------------
Income (loss) from operations                                    619             485           405             (86)
Other income (expense)                                           (54)           (144)          138             (93)
------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                565             341           543            (179)
Provision for income taxes                                         0               0             0               0
------------------------------------------------------------------------------------------------------------------
Net income (loss)                                           $    565        $    341      $    543        $   (179)
==================================================================================================================

Net income (loss) per share - basic                         $   0.06        $   0.03      $   0.05        $  (0.02)
Net income (loss) per share - diluted                       $   0.05        $   0.03      $   0.05        $  (0.02)

==================================================================================================================


JUNE 30:
Current assets:
Cash and cash equivalents                                   $    190        $    190      $    269        $    269
Accounts receivable, net                                       4,361           4,311         5,148           5,148
Inventories                                                    2,563           2,770         2,245           2,245
Net investment in sales-type leases                            1,769           1,769         2,103           2,103
Other current assets                                             230             197           134             134
------------------------------------------------------------------------------------------------------------------
Total current assets                                           9,113           9,237         9,899           9,899
Plant, property and equipment, net                               429             429           531             531
Net investment in sales-type leases                            9,440           3,252         5,927             433
Property under operating leases, net                           1,715           1,554         2,256           2,081
Property under lease agreement with                                            2,884
    Solutioneering, net                                                                                      3,455
Other assets                                                   1,360             837           394             260
------------------------------------------------------------------------------------------------------------------
Total assets                                                $ 22,057        $ 18,193      $ 19,007        $ 16,659
==================================================================================================================
Liabilities and shareholders' equity:
Accounts payable                                            $  2,003        $  2,003      $    893        $    893
Current portion of long-term debt                                 30              30           181             181
Accrued expenses                                               1,559           1,530         3,136           3,107
------------------------------------------------------------------------------------------------------------------
Total current liabilities                                      3,592           3,563         4,210           4,181
Other liabilities                                                100             100           899             899
Long-term debt                                                 4,930           4,930         2,635           2,635
Shareholders' equity                                          13,435           9,600        11,263           8,944
------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                  $ 22,057        $ 18,193      $ 19,007        $ 16,659
==================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                      1999                          1998
                                                                      ----                          ----
                                                          As Previously                 As Previously
                                                            Reported      As Restated     Reported      As Restated
                                                            --------      -----------     --------      -----------
THREE MONTHS ENDED SEPTEMBER 30:
--------------------------------
<S>                                                       <C>             <C>           <C>             <C>
Revenues                                                    $  3,465        $  2,062      $  3,828        $  3,689
Cost of sales                                                  2,691           1,913         2,446           2,463
------------------------------------------------------------------------------------------------------------------
Gross profit                                                     774             149         1,382           1,226
Operating expenses                                               652             725         1,130           1,160
------------------------------------------------------------------------------------------------------------------
Income (loss) from operations                                    122            (576)          252              66
Other income (expense)                                           (27)           (124)          167            (195)
------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                 95            (700)          419            (129)
Provision for income taxes                                         0               0             0               0
------------------------------------------------------------------------------------------------------------------
Net income (loss)                                           $     95        $   (700)     $    419        $   (129)
==================================================================================================================

Net income (loss) per share - basic                         $   0.01        $  (0.07)     $   0.04        $  (0.01)
Net income (loss) per share - diluted                       $   0.01        $  (0.06)     $   0.04        $  (0.01)

SEPTEMBER 30:
Current assets:
Cash and cash equivalents                                   $    166        $    166      $     92        $     92
</TABLE>


                                       41
<PAGE>   42
<TABLE>
<S>                                                       <C>             <C>           <C>             <C>
Accounts receivable, net                                       4,076           2,541         3,246           3,246
Inventories                                                    4,776           5,931         2,827           2,827
Net investment in sales-type leases                            1,904           1,904         2,711           2,711
Other current assets                                             308             275           126             126
------------------------------------------------------------------------------------------------------------------
Total current assets                                          11,230          10,817         9,002           9,002
Plant, property and equipment, net                               529             529           428             428
Net investment in sales-type leases                            8,905           2,669         6,661             666
Property under operating leases, net                             529             368         2,100           1,932
Property under lease agreement with                                            2,699
    Solutioneering, net                                                                                      3,431
Other assets                                                   1,548           1,025           423             289
------------------------------------------------------------------------------------------------------------------
Total assets                                                $ 22,741        $ 18,107      $ 18,614        $ 15,748
==================================================================================================================
Liabilities and shareholders' equity:
Accounts payable                                            $  2,111        $  2,111      $    710        $    710
Current portion of long-term debt                              5,498           5,498           149             149
Accrued expenses                                               1,542           1,513         2,126           2,097
------------------------------------------------------------------------------------------------------------------
Total current liabilities                                      9,151           9,122         2,985           2,956
Other liabilities                                                 50              50           821             821
Long-term debt                                                                               2,999           2,999
Shareholders' equity                                          13,540           8,935        11,809           8,972
------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                  $ 22,741        $ 18,107      $ 18,614        $ 15,748
==================================================================================================================
</TABLE>



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

         None


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:

<TABLE>
<CAPTION>
         Name                         Age     Position
         --------------------         ---     -------------------------------------------------
<S>                                   <C>     <C>
         Frederick Sandvick            42     Chief Executive Officer and Chairman of the Board
         John H. Olbrich(2)(3)         37     Director
         Richard Mahan(2)(3)           47     Director
         Arthur Lipper III(2)(3)(4)    68     Director
         Samuel W. Stearman            60     Chief Financial Officer, Secretary and Treasurer
         Brian J. Roberts              52     Senior Vice President
</TABLE>

         (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.
         (4)   Appointment effective May 30, 2000

                                       42
<PAGE>   43
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.

Richard Mahan has been the chief executive officer and managing partner of Mahan
& Nash, a full service management consulting firm, since 1989. Prior to forming
Mahan & Nash, Mr. Mahan served a Vice President and Assistant to the Chairman of
the Board of Shapell Industries, one of the largest real estate developers in
the United States. From 1982 through 1986, Mr. Mahan served as Executive
Director of California's "Little Hoover Commission," which develops and presents
recommendations to state and local governments on how they can benefit from
applying private sector business principles to their organizations. Mr. Mahan
did not file a Form 5, Annual Statement of Changes in Beneficial Ownership, for
1999 in connection with a grant of options to purchase 20,000 shares of On-Point
Common Stock under the 1994 Stock Option Plan for Directors that vest one year
from date of grant. Mr. Mahan has not purchased or sold any shares of On-Point
common stock in his capacity as a director, nor does he own any shares of
On-Point common stock. He has informed the Company that he overlooked the filing
of such Form in connection with the stock options and that he intends to file it
by June 1, 2000.

Arthur Lipper III was appointed to the Board of Directors on May 22, 2000,
effective May 30, 2000. Mr Lipper is Chairman of British Far East Holdings,
Ltd. and president of Communications Management Associates, privately owned
companies which provide and arrange financial and management advisory services.
Mr Lipper has been associated with the international financial community since
1954 and currently serves as an officer to: Officer, Director or Advisor. Lion
Brothers (world's oldest/largest embroidered emblem manufacturer), Access
Direct systems (Mass market, laser printing lettershop), DKS Technologies
(diesel engine performance enhancement), Waterside Productions (multimedia
literary agency), Innovest Value Dynametrics (ecological risk evaluation
services), Gazelles, Inc. and Master of Business Dynamics program (relevant
executive education), Cavion.COM Inc, (Serving the electronic communications
and processing needs of credit unions), ArrayComm (intelligent base station
antennas), Zi Corporation (ZICA) (enables typing Chinese and other ideographic
languages), Electropure (electrodeionization technology and Laserpure water
purify measurement), Manhattan Scientifics (MHTX)(technology incubator),
Pacific Datavision (management command software), MeterNet Corporation (set top
box providing Internet access for tv sets), Magellan University (virtual
education delivery system)...Pan America Capital Group (investment banking
services) Wired Retail Network (proprietary, interactive, shopping mall consumer
information units), Auto Life (engine cleaning equipment). Cargo4less.com
(Internet marketed international freight forwarding service matching customer
bids and service offerings), AcuMatch LLC ( Internet introduction New
Relationships.com for individuals, a program using proprietary algorithm for
preference weighting)... Inprint.com (electronic distribution of out of print
and short run titles) Woodward Labs (anti-microbial health
products)...InPrint.com (exploitation of literary rights & printing on
demand)... Deal Management Systems(document and process management).

Samuel W. Stearman has been a certified public accountant with his own
consulting practice since 1990. Mr. Stearman also was the chief financial and
operating officer of Choice Technologies, Inc., a development stage marketing
and software company, from 1996 to 1997.

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.

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, 1999, 1998 and 1997. 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 1999, 1998 and 1997 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                    Long-Term Compensation Awards
                            ------------------------------------   ---------------------------------------------------
                                                       Other                    Securities   Long-Term        All
     Name and                                          Annual      Restricted   Underlying   Incentive       Other
     Principal                                      Compensation     Stock       Options/       Plan      Compensation
     Position        Year   Salary($)    Bonus($)    ($)(1)(2)      Awards($)    SAR's(#)    Payouts($)       ($)
     --------        ----   ---------    --------    ---------      ---------    --------    ----------       ---

<S>                  <C>    <C>          <C>        <C>            <C>          <C>          <C>          <C>
Frederick Sandvick   1999   138,461(4)         0        59,000             0     250,000              0         0
                     1998   176,909(4)         0        70,006             0     290,000(3)           0         0
                     1997   141,000            0       168,012             0     750,000(2)           0         0
</TABLE>

(1)  Includes a $7,243 car allowance in 1997 to cover automobile expenses.

(2)  Includes options to purchase 870,000 shares of common stock which vested
     pursuant to Mr. Sandvick's employment agreement, warrants to purchase
     500,000 shares of common stock in connection with a guarantee of a
     performance bond in 1997 and warrants to purchase 700,000 shares of common
     stock in 1996 and 250,000 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 d $70,006 in 1998 and
     $160,769 in 1997.



                                       43
<PAGE>   44
(3)  Includes options to purchase 240,000 shares of common stock granted to Mr.
     Sandvick and options to purchase 50,000 shares of common stock granted to
     Vanguard Strategies, Inc (see "Certain Relationships and Related
     Compensation" herein); the options to purchase 50,000 shares of common
     stock to Vanguard Strategies, Inc. have been terminated.

(4)  While the terms of the employment contract called for an annual salary of
     $300,000 and $255,000 in 1999 and 1998, respectively, only $138,451 and
     $176,909 were paid to Mr. Sandvick in 1999 and 1998, respectively. Mr.
     Sandvick waived all accrued pay and bonuses as of December 31, 1999.

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
870,000 shares of On-Point's common stock at a price of $.80 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 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. On January 27, 1997, On-Point hired
Michael Wright to serve as On-Point's President. Mr. Wright served as President
from January 27 to December 25, 1997 during which time Mr. Sandvick's annual
salary was reduced by $84,000. Mr. Sandvick also voluntarily reduced his salary
in 1998 and 1999.

OPTION GRANTS IN FISCAL 1999

The following table represents certain information regarding stock option grants
to each of the Named Executive Officers during the fiscal year ended December
31, 1999.

<TABLE>
<CAPTION>
                                                  Individual Grants
                        -------------------------------------------------------------------------
                          Number of         Percent of Total
                          Securities        Options Granted
                          Underlying        To Employees in    Exercise of Base
Name                    Options Granted       Fiscal Year       Price ($/Share)   Expiration Date
----                    ---------------       -----------       ---------------   ---------------
<S>                     <C>                 <C>                <C>                <C>
Frederick Sandvick         250,000                53                1.63              9/08/04
</TABLE>

OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES


                                       44
<PAGE>   45
The following table presents certain information regarding stock option
exercises during fiscal 1999.

<TABLE>
<CAPTION>
                         Shares
                        Acquired      Value         Number of Securities         Value of Unexercised
                      on Exercise   Realized       Underlying Unexercised      In-the-Money Options/SARS at
         Name             (#)         ($)          Options/SARs at FY-End                FY-End
         ----             ---         ---          ----------------------                ------
                                                 Exercisable   Unexercisable   Exercisable    Unexercisable
                                                 -----------   -------------   -----------    -------------
<S>                   <C>           <C>          <C>           <C>             <C>            <C>
Frederick Sandvick          0          0           2,810,000         0          $4,645,000          0
</TABLE>

(1)  Includes options to purchase 870,000 shares of common stock which vested
     pursuant to Mr. Sandvick's employment agreement, warrants to purchase
     500,000 shares of common stock in connection with a guarantee of a
     performance bond, options to purchase 490,000 shares of common stock
     pursuant to annual employee grants, and warrants to purchase 950,000 shares
     of common stock granted to Vanguard Strategies, Inc. (see "Certain
     Relationships and Related Transactions" herein).

COMPENSATION OF DIRECTORS

         During 1999, 1998 and 1997 each outside director was automatically
granted 10,000 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. Mr. 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 472,500 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, 1999, 312,635 options have been granted under this
Plan.

1994 STOCK OPTION PLAN

 On April 21, 1994, On-Point adopted the 1994 Stock Option Plan (the "Plan")
under which 525,000 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 1,500,000. Such amendment was approved by the
stockholders on July 26, 1996. 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, 1999, 1,500,000 options have been granted under
this plan.


                                       45
<PAGE>   46
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 525,000 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, 1999, 100,000 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 10,0000 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 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 10,000 share in lieu of regular cash
compensation of serving as director. These options become exercisable on the
date of the next annual meeting of shareholders and have a three year life.

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 and $108 thousand in
1999 and 1998, respectively. No cash bonuses were paid to the Chief Executive
Officer.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 31, 2000, 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>
                                                      Number of Shares    Percentage
                                                        Beneficially          Of
         Name and Address of Beneficial Owner             Owned(1)          Class
         ------------------------------------             --------          -----
<S>                                                   <C>                 <C>
         Frederick Sandvick(2)
         108 Ivy Street
         San Diego, CA 92101                              2,850,000         21.3%

         John H. Olbrich(3)
         3256 Loma Vista Drive
         Jamul, CA 91935                                   271,667           2.0%

         Richard Mahan                                        -               -
         4640 Admiralty Way, Suite 216
         Marina Del Ray, CA 90292

         All directors and executive officers as a        3,259,400         24.3%
         group(5 persons)
</TABLE>


                                       46
<PAGE>   47
(1)  Unless otherwise indicated, all shares are owned beneficially and of
     record.

(2)  Of the shares of common stock reflected in the table above, 40,000 are
     registered in Mr. Sandvick's name. The table includes options to purchase
     870,000 shares of common stock which vested pursuant to Mr. Sandvick's
     employment agreement, warrants to purchase 500,000 shares of common stock
     in connection with a guarantee of a performance bond and warrants to
     purchase 950,000 shares of common stock granted to Vanguard Strategies,
     Inc. (see "Certain Relationships and Related Transactions" herein). The
     table also includes options to purchase 240,000 and 250,000 shares of
     common stock granted to Mr. Sandvick in 1998 and 1999, respectively.

(3)  Of the shares of common stock reflected in the table above, 201,667 are
     registered in Mr. Olbrich's name. The table includes options to purchase
     70,000 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 450,000
shares of common stock of On-Point at a price of $0.60 per share exercisable for
five years. In July 1996, VSI was granted an additional warrant to purchase
250,000 shares of On-Point's common stock at a price of $0.69 pursuant to the
extension of the USMBC promissory note under this agreement. In January 1997,
VSI was granted an additional warrant to purchase 250,000 shares of On-Point's
common stock at a price of $.72 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 original agreement with VSI referred to above was
terminated. Pursuant to the termination agreement, VSI and Mr. Burr were each
granted options to purchase 50,000 shares of On-Point's common stock at $2.88
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, VSI's options were
subsequently terminated.


                                       47
<PAGE>   48
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

A) EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Numbers   Description of Documents
-------   ------------------------

<S>       <C>
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)

3.2       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)

4.2       Form of Representative's Warrant(C)

10.1      Employment Agreement dated July 1, 1991, between Registrant and Robert
             L. Burr, and the January 11 and April 21, 1993, amendments thereto(A)

10.2      Employment Agreement dated July 1, 1991, between Registrant and John
             F. Winchester, and the April 21, 1993, amendment thereto(A)

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)

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

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

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

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

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

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

10.4      ITR Sales and Service Agreements dated March 21, 1991 between
             Registrant and the Commonwealth of Virginia, as amended (C)

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

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

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

10.5      ITR Sales Agreement dated August 13, 1992 between Registrant and the
             California State Lottery, as amended(A)

10.5.1    Extension of ITR Sales Agreement between Registrant and the California
             Lottery(C)

10.5.2    ITR Lease machines and Purchase Parts Agreement for the California
             State Lottery dated September 16, 1998 between the Registrant and
             GTECH.

10.6      ITR Sale and Lease Agreement, dated as of April 9, 1993, between
             Registrant and the State of Washington(A)

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)

10.9      Line of Credit Agreement between Registrant and the Bank of America(A)

10.10     Technology Transfer Agreement, dated as of April 9, 1993, between the
             Registrant and certain of
</TABLE>


                                       48
<PAGE>   49
<TABLE>
<S>       <C>
             its shareholders (confidential treatment requested as to certain
             portions)(B)

10.11     Agreement to Purchase and Sale of Assets, dated February 9, 1993,
             between Registrant, CVS and Michael C. Brown (confidential
             treatment requested as to certain portions)(B)

10.12     Documents relating to purchase of ITR terminals by the Province of
             Ontario(B)

10.13     Stock Option Agreement between Robert L. Burr and the Trust, as
             amended(C)

10.14     Lease with regard to 9190 Activity Road, San Diego, CA premises(D)

10.15     1993 Stock Option Plan(D)

10.16     1994 Stock Option Plan(E)

10.17     1994 Stock Option Plan for Directors(E)

10.18     Agreement to acquire 50% of LEI Mexico(E)

10.19     Agreement to sell machines to LEI Mexico(E)

10.20     John Robinson Note(F)

10.21     Employment agreement with Frederick Sandvick(G)

10.22     Loan Agreement between Registrant and U.S. Mortgage Bankers
             Corporation(I)

10.23     Employment Agreement with Michael Wright(I)

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.*

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*

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.

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)

10.32     Stipulated judgment against US Telecard, Inc., dated November 12,
             1999.*

24.1      Power of attorney (reference is made to Page II-5 of the Registration
             Statement as originally filed.)(A)
</TABLE>


                                       49
<PAGE>   50
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.

(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


*Included herein

B) REPORTS ON FORM 8-K

February 18, 2000 - Form 8K was filed, reporting that On-Point was in the
process of restating its financial statements for 1997 and 1998. No exhibits or
financial statements were attached.



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<PAGE>   51
                                   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:  May 24, 2000                 By: /s/Frederick Sandvick
                                        ---------------------------------
                                          Frederick Sandvick
                                          Chief Executive Officer and
                                          Chairman of the Board of Directors

Dated:  May 24, 2000                 By: /s/Samuel W. Stearman
                                        ---------------------------------
                                          Samuel  W. Stearman
                                          Chief Financial and Accounting 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:  May 24, 2000                By:  /s/John H. Olbrich
                                       ---------------------------
                                         John H. Olbrich, Director



Dated: May 24, 2000                 By:  /s/Richard Mahan
                                       ---------------------------
                                          Richard Mahan, Director




                                       51