<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 0-28052
EN POINTE TECHNOLOGIES, INC
(Exact name of registrant as specified in its charter)
State or other jurisdiction of I.R.S. Employer I. D.
incorporation or organization: Delaware Number: 75-2467002
5245 Pacific Concourse Drive, Suite 200
Los Angeles, California 90045
(Address of principal executive offices) (ZIP CODE)
Registrant's telephone number, including area code: (310) 725-5200
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 ___
As of August 9, 1996 5,607,500 shares of Common Stock of the Registrant were
issued and outstanding.
<PAGE>
INDEX
EN POINTE TECHNOLOGIES, INC.
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets - June 30, 1996 and September 30, 1995
Condensed Statements of Operations - Three and nine months ended
June 30, 1996 and 1995
Condensed Statements of Cash Flows - Nine months ended June 30, 1996
and 1995
Notes to Condensed Financial Statements - June 30, 1996
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
EN POINTE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------------ ------------------
(Unaudited)
ASSETS:
<S> <C> <C>
Current assets:
Cash $ 734,830 $ 290,181
Restricted cash 1,761,000 1,116,000
Accounts and other receivables, net of allowances
for returns and doubtful accounts of $961,613 and
$511,613, respectively 47,534,819 31,928,669
Inventories 2,490,300 1,631,709
Deferred tax asset 239,945 239,945
Prepaid expenses and other current assets 507,216 306,869
------------------ ------------------
Total current assets 53,268,110 35,513,373
Property and equipment, net of accumulated
depreciation 2,291,931 1,278,895
------------------ ------------------
Total assets $ 55,560,041 $ 36,792,268
------------------ ------------------
------------------ ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable - stockholder $ -- $ 150,000
Current portion of notes payable -- 1,579,471
Borrowings under lines of credit 29,722,394 27,472,952
Accounts payable 2,309,690 1,097,173
Accrued liabilities 2,213,316 2,314,870
Other current liabilities 1,536,232 612,988
------------------ ------------------
Total current liabilities 35,781,632 33,227,454
Notes payable - allied distributors -- 1,733,186
Litigation settlement 373,304 --
------------------ ------------------
Total liabilities 36,154,936 34,960,640
Stockholders' equity:
Common stock 5,600 3,350
Additional paid-in capital 16,686,503 958,770
Retained earnings 2,713,002 869,508
------------------ ------------------
Total stockholders' equity: 19,405,105 1,831,628
------------------ ------------------
Total liabilities and stockholders' equity $ 55,560,041 $ 36,792,268
------------------ ------------------
------------------ ------------------
</TABLE>
See Notes to Condensed Financial Statements
3
<PAGE>
EN POINTE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
---------------------------------- ----------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 88,937,516 $ 56,851,999 $ 245,846,428 $ 142,432,318
Cost of sales 81,465,113 52,426,793 225,674,019 130,956,687
-------------- -------------- -------------- --------------
Gross profit 7,472,403 4,425,206 20,172,409 11,475,631
Selling and marketing expenses 4,032,411 2,415,919 10,636,518 6,571,151
General and administrative expenses 1,729,527 992,356 3,733,703 2,682,730
Litigation defense and settlement, net 576,548 42,724 1,168,755 199,544
-------------- -------------- -------------- --------------
Operating income 1,133,917 974,207 4,633,433 2,022,206
Interest expense 349,923 461,086 1,490,977 1,300,450
Other income, net (32,913) (19,527) (81,951) (45,713)
-------------- -------------- -------------- --------------
Income before income taxes 816,907 532,648 3,224,407 767,469
Provision for income taxes 357,960 218,515 1,380,914 314,848
-------------- -------------- -------------- --------------
Net income $ 458,947 $ 314,133 $ 1,843,493 $ 452,621
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Net income per share, primary
and fully diluted $ 0.10 $ 0.09 $ 0.48 $ 0.13
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average shares outstanding 4,755,668 3,391,493 3,821,850 3,391,493
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
See Notes to Condensed Financial Statements
4
<PAGE>
EN POINTE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
June 30,
------------------------------
1996 1995
------------ ------------
Net cash used by operating activities $ (12,671,541) $ (11,373,433)
Cash used by investing activities:
EPIC system software development (396,174) (141,665)
Purchase of property and equipment (1,004,404) (395,230)
------------ ------------
Net cash used by investing activities (1,400,578) (536,896)
Cash provided by financing activities:
Book overdraft -- (126,761)
Net borrowings under lines of credit 2,249,442 11,528,328
Stockholder loans -- 537,923
Payment on notes payable to stockholders (150,000) --
Payment on notes payable (3,312,657) --
Proceeds from public offering 15,729,983 --
------------ ------------
Net cash provided by financing activities 14,516,768 11,939,490
Increase (decrease) in cash $ 444,649 $ 29,161
------------ ------------
------------ ------------
Supplemental disclosures of cash flow
information:
Interest paid $ 1,527,788 $ 1,287,224
------------ ------------
------------ ------------
Income taxes paid $ 2,310,380 $ 59,311
------------ ------------
------------ ------------
See Notes to Condensed Financial Statements
5
<PAGE>
EN POINTE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation and General Information
The accompanying unaudited financial statements of En Pointe Technologies, Inc.
(the "Company" or "En Pointe") have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
September 30, 1996. For further information, refer to the financial statements
and footnotes thereto included in the Company's Initial Public Offering
Prospectus, dated May 8, 1996.
Note 2 - Sale of Equity Securities
On May 8, 1996 the Company successfully completed its Initial Public Offering
(IPO) of 2,250,000 shares. Proceeds from the IPO were used principally to
pay off notes payable to allied distributors and to reduce the balance
outstanding under the IBM Credit Corporation line of credit.
Note 3 - Stock Options
The Company has a qualified (Incentive Stock Option Plan) and non-qualified
stock option plan which provides that options for a maximum of 360,000 shares of
common stock may be granted to directors, officers, and key employees over a
period not to exceed ten years. The qualified stock options are exercisable at
fair market value at the date of grant and the non-qualified stock options are
exercisable at 80% of the fair market value at the date of grant.
<TABLE>
<CAPTION>
Stock Options
-----------------------------------------------
Total Price
Non Exercise Range
Incentive Incentive Value Per Share
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Granted, May 13, 1996 104,000 170,000 $1,920,000 $8.00-$6.40
Exercised -- -- --
Canceled (7,000) -- (56,000) $8.00
------------- ------------ -------------
Outstanding at June 30, 1996 97,000 170,000 $1,864,000 $8.00-$6.40
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Note 4 - Employee Stock Plan
The Company also has an Employee Stock Purchase Plan (the "Plan") under which
there remains authorized and available for sale to employees an aggregate of
250,000 shares of the Company's common stock. The Plan, which is intended to
qualify under Section 423 of the Code, permits eligible employees to purchase
common stock, subject to certain limitations, up to 20% of compensation.
Purchases of stock under the Plan are made twice annually from amounts withheld
from payroll at 85% of the lower of the fair market value of the common stock at
the beginning or end of the six month offering period. Assuming the initial
public offering price of $8, when the Plan commenced, to be lower than the
price at the end of the offering period, the Company estimates that
approximately 84,000 shares of stock will be purchased on October 31, 1996 at
$6.80 per share.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth certain financial data as a percentage of net
sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
-------------------------------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales. . . . . . . . . . . . . . . . . . . 91.6 92.2 91.8 91.9
---------- ---------- ---------- ----------
Gross profit. . . . . . . . . . . . . . . . . 8.4 7.8 8.2 8.1
Selling and marketing expenses . . . . . . . . . . 4.6 4.3 4.3 4.7
General and administrative expenses. . . . . . . . 1.9 1.7 1.5 1.9
Litigation defense . . . . . . . . . . . . . . . . 0.6 0.1 0.5 0.1
---------- ---------- ---------- ----------
Operating income. . . . . . . . . . . . . . . 1.3 1.7 1.9 1.4
Interest expense . . . . . . . . . . . . . . . . . 0.4 0.8 0.6 0.9
Other income, net. . . . . . . . . . . . . . . . . 0.0 0.0 0.0 0.0
---------- ---------- ---------- ----------
Income before income taxes. . . . . . . . . . 0.9 0.9 1.3 0.5
Provision for income taxes . . . . . . . . . . . . 0.4 0.5 0.7 0.3
---------- ---------- ---------- ----------
Net income. . . . . . . . . . . . . . . . . . 0.5 % 0.4 % 0.6 % 0.2 %
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
COMPARISON OF THE QUARTER AND NINE MONTHS ENDED JUNE 30, 1996 AND 1995
All comparisons within the following discussion are related to the same period
of the previous year.
Net sales. Revenues for the quarter and nine months ended June 30, 1996 were
$88.9 and $245.8 million, an increase of $32.1 million (56.4%) and $103.4
million (72.6%) respectively over prior periods. Of the $32.1 million
increase for the quarter, $11.8 million was attributable to sales related to the
IBM contract, $8.2 was attributable to sales from the Texas branch office, with
the remaining $12.1 million due to an overall increase in sales to new and
existing customers.
Gross profit. Gross profit as a percentage of sales increased from 7.8% to
8.4% for the three-month period and increased from 8.1% to 8.2% for the nine
month period. The quarterly increase was attributable to improved purchasing
terms.
Selling and marketing expenses. Selling and marketing expenses for the quarter
ended June 30, 1996 were $4.0 million, an increase of $1.7 million, or 66.9%,
compared to the $2.4 million for the prior year's quarter, primarily as a result
of increased variable sales costs as a result of increased sales volume. As a
percentage of sales, selling and marketing expenses increased only marginally
from 4.2% to 4.5% for the quarter ended June 30, 1996 due to fixed costs
being spread over a higher volume of sales.
General and administrative expenses. General and administrative expenses for
the quarter ended June 30, 1996 were $1.7 million, an increase of $0.7 million,
or 74.3%, compared to $1.0 million for the quarter ended June 30, 1995,
primarily as a result of increased staff and other administrative functions
necessary to support the increase in sales volume. The marginal increase in
general and administrative expenses as a percentage of sales was due to
fixed costs being spread over a higher volume of sales.
Litigation defense and settlement, net. Legal defense and net settlement
related to the Lam litigation was $0.6 million for the quarter ended June 30,
1996, an increase of $0.5 million, or 1,249.5%, compared to the $0.1 million for
the quarter ended June 30, 1995, due to the increase in legal activity leading
to the settlement of the case in April 1996. Netted in the $0.6 million amount
is a $0.7 million advance deposit from an insurance claim that is in litigation.
See Part II, legal proceedings section for a full description of the matter.
Interest expense. Interest expense for the quarter ended June 30, 1996 was $0.3
million, a decrease of $0.2 million, or 24.1%, compared to $0.5 million for the
quarter ended June 30, 1995. The decrease in interest expense was primarily due
to the payoff of debt and credit lines from the proceeds of the public offering.
Net income. Net income for the quarter ended June 30, 1996 was $0.5 million,
an increase of $0.2 million, or 46.1%, compared to $0.3 million for the quarter
ended June 30, 1995. Net income increased primarily as a result of the increase
in sales and a decline in operating expenses as a percentage of sales due to the
fixed expenses being spread over a higher volume of sales.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash totaling $12.7 million during the nine months
ended June 30, 1996. Net cash used in operating activities has been significant
due to the working capital requirements resulting from the rapid growth of the
Company and, more specifically, the financing of increasing accounts receivable
balances that are a direct result of increased sales. Restricted cash,
representing amounts on deposit with financial institutions pursuant to certain
credit arrangements, increased $.6 million for the nine months ended June 30,
1996, due to lender requirements corresponding to increases in the amount of
credit made available to the Company. Accounts and other receivables increased
$15.6 million and inventories increased $.9 million as of June 30, 1996.
Increases in accounts and other receivables and inventories were the result of
sales growth.
Investing activities used cash totaling $1.4 million during the nine months
ended June 30, 1996. The investing activities primarily related to the
acquisition of additional furniture and equipment ($1.0 million) and the
completion of the quote module portion of the EPIC software system ($.4
million). The quote module was completed on June 1, 1996 at a cost of $0.6
million and will be amortized over three years.
Financing activities provided net cash totaling $14.5 million during the nine
months ended June 30, 1996. The primary source of cash was from the public
offering ($15.7 million) and secondarily from net borrowings under lines of
credit ($2.2 million, net of $11.4 million payment after completion of the
public offering) which have been used primarily to finance accounts receivable.
Outstanding notes payable to allied distributors were paid in full ($3.3
million) from proceeds from the public offering. The Company's accounts
receivable balance at June 30, 1996 and September 30, 1995 was $47.5 and $31.9
million. The number of days' sales outstanding in accounts receivable was 53 and
56 days as of June 30, 1996 and September 30, 1995, respectively. The reduction
in days' sales outstanding was a result of increased focus on collection
activities and the adoption of financial incentives offered to sales and support
personnel for prompt collection of accounts receivable.
As of June 30, 1996, the Company had approximately $0.7 million in cash, $1.8
million in restricted cash, and $17.5 million in working capital. The Company
has several revolving credit facilities collateralized by accounts receivable
and all other assets of the Company, including a $40 million line with IBM
Credit Corporation ("IBM Credit"). As of June 30, 1996, such lines of credit
provided for maximum aggregate borrowings of approximately $48 million, of which
$29.7 million was outstanding. Because the lines of credit are primarily
collateralized by accounts receivable, the available credit and credit limit are
dependent upon the amount of accounts receivable at any given point in time.
Outstanding borrowings on the lines of credit bear interest at prime plus 1%.
The lines of credit are automatically renewable on an annual basis unless
notification of an election not to renew is made by either the Company or
creditor on or prior to the annual renewal date. Borrowings are collateralized
by substantially all of the Company's assets. In addition, the lines of credit
contain certain financing and operating covenants relating to net worth,
liquidity, profitability, repurchase of indebtedness and prohibition on payment
of dividends.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1996 the Company, Bob Din and Naureen Din entered into a
settlement agreement with a former employee of the Company, pursuant to
which the former employee has released the Company from any and all claims
with respect to the Company's use of certain computerized information
system software originally developed by the former employee prior to his
employment with the Company (the "Settlement Agreement"). As consideration
for entering into the Settlement Agreement, the Company has agreed to pay
the former employee installment payments of cash and stock which have the
equivalent present value of $1.1 million. Legal fees incurred in
connection with the Settlement Agreement and related litigation were
expensed as incurred by the Company.
The Company has filed suit against its insurance carrier in order to recoup
both legal costs incurred by the Company in connection with its defense of
the foregoing litigation as well as for amounts paid to the former employee
pursuant to the settlement. Although the Company has prevailed in a
summary judgment motion against its insurance carrier, in which the court
held that such insurance carrier had a duty to defend the Company in
connection with the aforementioned litigation and that the insurance
carrier breached such duty, there can be no assurance that the Company will
prevail in its action to recover such fees. However, the insurance carrier
has made an advance payment of $750,000 (with reservation of appeal rights)
to apply toward recovery of undisputed legal costs incurred in connection
with the foregoing litigation. The Company believes based on the advice of
its counsel that the probability of this advance payment being refunded is
remote.
While the Company, and its counsel, believe it will prevail in its action
against its insurance carrier, in the event the Company is unable to
recover a significant portion of its defense costs from its insurance
carrier, the payment of the aforementioned settlement costs and expenses,
without the recovery offset, would have a material adverse effect on the
Company's results from operations.
The Company and the Company's senior management is, and may in the future
be, involved in other suits and actions incidental to the Company's
business. The Company does not believe that the resolution of any of the
current suits or actions will result in any material adverse effect on the
financial condition or operations of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit
Number Description
------- -----------
11 Computation of Earnings Per Common Share
27 Financial Data Schedule for the quarter ended June 30, 1996
b. The Company did not file any reports on Form 8-K during the three
months ended June 30, 1996.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
En Pointe Technologies, Inc.
----------------------------
(REGISTRANT)
Date: August 9, 1996 By: /s/ Robert A. Mercer
-----------------------------------------
Robert A. Mercer, Chief Financial Officer
10
<PAGE>
<TABLE>
<CAPTION>
En Pointe Technoligies, Inc. Computation of Earnings per Common Share Exhibit 11
Three Months
------------
Primary Fully Diluted
------- -------------
<S> <C> <C>
Beginning balance at 03/31/96 3,391,493 3,391,493
Less: reversal of beginning CSE, dilutive effect (34,000) (34,000)
New shares issued weighted - see computation below 1,398,174 1,395,346
---------- ----------
06/30/96 Weighted average shares outstanding>>: 4,755,667 4,752,839
---------- ----------
---------- ----------
Net income $458,947 $458,947
---------- ----------
---------- ----------
Net income per share $0.10 $0.10
---------- ----------
---------- ----------
Public offering 5/8/96 2,250,000 2,250,000
Common Stock Equivalents, dilutive effect - see below 106,183 101,416
---------- ----------
Total shares to be weighted by time outstanding 2,356,183 2,351,416
Days Time
Beginning Ending Outstanding Weighting
------------------------------------------
05/07/96 06/30/96 54
03/31/96 06/30/96 91 59.34% 59.34% 59.34%
---------- ----------
Weighted shares issued for period 1,398,174 1,395,346
---------- ----------
---------- ----------
Third Quarter Ended 6/30/96: Primary Fully Diluted
------- -------------
Proceeds - Non Qualfied 170,000 x $6.40 $1,088,000 $1,088,000
Qualified 104,000 x $8 $832,000 $832,000
Ending Treasury Stock Computation of Stock
Option Dilutive Effect:
Average Price Last Price
Non Qualified Option
shares issued 170,000 170,000
Shrs acquired from
above proceeds $11.44 $11.13 (95,097) (97,798)
Qualified Option
shares issued 104,000 104,000
Shrs acquired from
above proceeds $11.44 $11.13 (72,721) (74,787)
---------- ----------
Ending CSE dilutive effect 106,183 101,416
---------- ----------
---------- ----------
Nine Months
-----------
Primary Fully Diluted
------- -------------
Beginning balance at 03/31/96 3,391,493 3,391,493
Less: reversal of beginning CSE, dilutive effect (34,000) (34,000)
New shares issued weighted - see computation below 464,357 463,418
---------- ----------
06/30/96 Weighted average shares outstanding>>: 3,821,850 3,820,911
---------- ----------
---------- ----------
Net income $1,843,493 $1,843,493
---------- ----------
---------- ----------
Net income per share $0.48 $0.48
---------- ----------
---------- ----------
Public offering 5/8/96 2,250,000 2,250,000
Common Stock Equivalents, dilutive effect - see below 106,183 101,416
---------- ----------
Total shares to be weighted by time outstanding 2,356,183 2,351,416
---------- ----------
---------- ----------
Days Time
Beginning Ending Outstanding Weighting
-----------------------------------------
05/07/96 06/30/96 54
09/30/95 06/30/96 274 19.71% 19.71% 19.71%
---------- ----------
Weighted shares issued for period 464,357 463,418
---------- ----------
---------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 735
<SECURITIES> 0
<RECEIVABLES> 47,396
<ALLOWANCES> 962
<INVENTORY> 2,490
<CURRENT-ASSETS> 53,268
<PP&E> 3,186
<DEPRECIATION> 895
<TOTAL-ASSETS> 55,560
<CURRENT-LIABILITIES> 35,782
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 19,400
<TOTAL-LIABILITY-AND-EQUITY> 55,560
<SALES> 88,938
<TOTAL-REVENUES> 88,938
<CGS> 81,465
<TOTAL-COSTS> 87,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 350
<INCOME-PRETAX> 817
<INCOME-TAX> 358
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 459
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
