SAN MARCOS, Calif., April 2, 2001 (PRIMEZONE) -- On-Point Technology Systems, Inc. (Nasdaq:ONPT) reported on its plans to strategically transition the Company into new market directions in 2001, as well as its results of operations for the year ended December 31, 2000. It also announced that it has reached a settlement agreement with the shareholder class action suits filed in 2000, according to Frederick Sandvick, chairman and chief executive officer.
Revenues for 2000 were $10,293,000 versus $13,481,000 for 1999. The net loss was $2,824,000 compared to a net loss of $721,000 last year. The loss for 2000 included: a $1.0 million charge to earnings for the accrual of the settlement of the shareholder class actions filed in 2000; $1.1 million of research and development charges, a 47% increase over the prior year's research and development charges, as On-Point readied its next generation lottery technology for market; $400,000 in non-cash charges related to non-performing equipment previously held under a lease to a former customer; $500,000 in increases in legal costs and other reserves and expenses; and, $400,000 in income on the termination of a merger agreement with GTECH Corp.
Despite the negative impact that the above charges had on results, the Company improved its working capital from approximately $5.2 million at December 31, 1999 to approximately $6.6 million at December 31, 2000.
The settlement agreement for the shareholder class actions provides that On-Point will contribute $50,000 in cash and 316,667 shares, subject to adjustment after 15 months if the number of shares and cash has an aggregate value of less than $1 million. On-Point has accrued as a non-cash expense in 2000 the estimated value of the shares to be issued. Although management believes the suits were without merit, the agreement allows On-Point to settle the matter with no significant effect to On-Point's cash resources and liquidity. Therefore, management believes it was in the best interests of the Company to settle the suits quickly in this manner in order to enable On-Point to proceed on its new strategic plans without significant distraction, which the suits would have otherwise caused.
The research and development costs of $1.1 million in 2000 were significantly higher than the Company would generally need to sustain operations because the Company was focused on launching its next generation lottery products. Once these products are fully launched, the on-going costs relating to their development is expected to be significantly reduced. On-Point's next generation lottery products are currently undergoing beta tests in numerous states.
The results in 2000 were not only negatively impacted by the charges described above, but also by the termination of merger discussions with GTECH Corp. Although the Company recognized income on the termination, because of the investment in time and resources associated with the merger discussions and details for over almost a year, the termination of the merger was a major setback and, as such, the Company's results were affected.
Another setback was the liquidation in a bankruptcy of Solutioneering, Inc., a major customer of On-Point who had leased a significant number of On-Point's prepaid phone card machines in 1997 and 1998. Not only did On-Point incur $400,000 of non-cash charges related to the equipment in 2000, for all of 2000 the equipment leased to Solutioneering lay idle. On-Point expects to make progress in 2001 with repossessing and re-deploying the equipment for productive use. On-Point has already entered into arrangements for the lease of some of these machines and is currently pursuing plans for the sale, lease, and other revenue-sharing arrangement of the remaining equipment.
Company Transition
As a result of all these events, the Company's business in 2000 was significantly affected. According to Sandvick, "Despite those setbacks, the Company has now made tremendous progress in reestablishing its strategic plans and in achieving its goals that it originally set for 2000. Those goals were to:
-- Complete the development and industrialization of our next
generation lottery products;
-- 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;
-- Develop and implement a financing strategy to fund the growth
plans of On-Point;
-- Begin marketing On-Point's patented product for the deployment of
central-host computer activated instant winner tickets in the
lottery industry;
-- Transition On-Point's business (primarily production, field
service and administration) to include our next generation lottery
product offerings;
-- Reevaluate existing non-lottery products and determine future
strategic plans for those products; and
-- Evaluate a diversification program that could enable us to
incorporate other technologies for the development of other new
product offerings and markets, specifically for high-volume cash
oriented transactions."
"We made significant progress with respect to all our goals for 2000, despite the events that negatively impacted the Company during that time period. Because of that progress, we are now in the process of a major transition."
Strategic Initiatives For 2001
Sandvick continued, "We have set forth on a series of planned actions intended to transform the Company; and, to strategically place its business interests into larger, more diversified markets.
"First, as previously announced, we have entered into an agreement with Interlott Technologies, Inc. (Interlott) to sell all of the Company's assets used in our existing lottery business, relating to the manufacture, sale, lease, and service of instant ticket vending machines in exchange for up to $28.5 million, including cash of $13.5 million at closing, subject to adjustments, deferred payments of up to $9 million, subject to adjustments, and earnout payments of up to $6 million.
"The terms of the agreement provide us the liquidity and up-front cash needed to move forward with new market opportunities. It also enables us to continue to benefit from all our research and development efforts over the last five years by providing deferred and earnout payments. The agreement also provides for a strategic arrangement which gives us the right to market our patented design for the world's first central-host computer activated instant winner lottery ticket. On-Point will retain certain gross profit and royalty rights to this intellectual property subsequent to the sale of the lottery assets to Interlott. We believe, with the combined efforts of Interlott and On-Point, we can accelerate the time to market of deploying this technology, which clearly has worldwide application.
"Second, the Company previously entered into a strategic relationship with Victor Chandler International Limited (VCI), based in Gibraltar and one of the world's largest independent full service gaming companies, in order to jointly promote each others expertise while pursuing potential international projects. We are pursuing discussions with VCI for the acquisition of rights to develop certain on-line lotteries and we are currently in preliminary negotiations for at least one such opportunity in a foreign country. We believe VCI, which was part of a private equity offering for the Company in October 2000, can assist our development of our on-line technology designs.
"Finally, the Company continues to move forward with the development of plans to provide solutions to the market for high-volume, cash-oriented transactions, such as prepaid telephony, bill payments, prepaid debit processes, consumer entertainment, and public access mediums, using the latest in Web-enabled technology. In line with our plans, as we previously announced, we entered into a definitive agreement to acquire assets of a privately-held Web-enabled systems company. We believe the Web-enabled systems will be beneficial in accelerating and realizing our strategic plans to develop electronic solutions to high-volume, cash-oriented transactions. The assets we would acquire, subject to our final due diligence, include proprietary delivery systems, strategic arrangements for content delivery, contractual rights and equipment. In addition, we expect members of that company's management team to join our management team."
Sandvick concluded, "Management believes we are now positioned to move forward with our plans to diversify the Company and redirect our attention into these new market opportunities. We plan to continue to evaluate the best strategies to enhance shareholder value in 2001. Although On-Point faces considerable changes, opportunities and challenges ahead, we are excited about the future."
About On-Point
On-Point provides effective technologies for transaction automation. On-Point pioneered the development of the instant ticket vending machine for lotteries worldwide and is one of the world's largest providers of these and other high-security vending products. On-Point designs, sells, leases and services high-security vending machines both domestically and internationally and has begun to explore the development of automated electronic solutions for high-volume, cash-oriented transactions. On-Point has entered into an agreement to sell its assets relating to its existing lottery business and is transitioning into new market opportunities. On-Point is also in the process of negotiating for the rights to operate on-line and Internet lotteries.
Any forward-looking statements in this release are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Act of 1995. Investors are cautioned that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including, but not limited to, successful completion of proposed funding raises, which may be necessary for us to implement plans to develop new market opportunities, continued acceptance of the Company's products and services in the marketplace, new products and technological changes, the Company's successful entry into new markets, the Company's successful transition to its next generation product line, the Company's ability to increase its customer base, as well as general political and other uncertainties related to customer purchases, the Company's ability to obtain the rights to on-line lotteries and its ability to generate income for such operations, the Company's ability to generate cash flow sufficient to sustain operating activities and other risks detailed in the company's periodic filings with the Securities and Exchange Commission.
On-Point Technology Systems, Inc.
Selected Financial Information
(In thousands, except per share data)
Year Ended December 31
2000 1999
----- ----
Revenues $10,293 $13,481
Net Loss $(2,824) $(721)
Loss Per Share - Basic $(0.78)(a) $(0.21)
Weighted Average Shares
Outstanding - Basic 3,623 3,397
(a) The loss includes $1 million charge for the settlement of
shareholder class actions previously filed in 2000