<PAGE>
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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 March 31, 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 June 12, 1996 5,607,500 shares of Common Stock of the Registrant were
issued and outstanding.
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INDEX
EN POINTE TECHNOLOGIES, INC.
PART I FINANCIAL INFORMATION
- ------ ---------------------
Item 1 Financial Statements
Condensed Balance Sheets - March 31, 1996 and September 30, 1995
Condensed Statements of Operations - Three and six months ended March
31, 1996 and 1995
Condensed Statements of Cash Flows - Six months ended March 31, 1996
and 1995
Notes to Condensed Financial Statements - March 31, 1996
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II OTHER INFORMATION
- ------- -----------------
Item 1 Legal Proceedings
Item 2 Other Information
Item 3 Exhibits and Reports on Form 8-K
SIGNATURES
2
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EN POINTE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
(Unaudited)
------------ ------------
ASSETS:
<S> <C> <C>
Current assets:
Cash $ 30,095 $ 290,181
Restricted cash 1,761,000 1,116,000
Accounts and other receivables, net of allowances
for returns and doubtful accounts of $811,613 and
$511,613, respectively 40,812,640 31,928,669
Inventories 2,233,919 1,631,709
Deferred tax benefit 239,945 239,945
Prepaid expenses and other current assets 580,812 306,869
------------ ------------
Total current assets 45,658,411 35,513,373
Property and equipment, net of accumulated
depreciation 1,940,144 1,278,895
------------ ------------
Total assets $ 47,598,555 $ 36,792,268
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Book overdraft $ 83,080 $ --
Notes payable - stockholder -- 150,000
Current portion of notes payable 1,657,400 1,579,471
Borrowings under lines of credit 34,893,968 27,472,952
Accounts payable 2,879,392 1,097,173
Accrued liabilities 2,386,129 2,314,870
Other current liabilities 1,823,199 612,988
------------ ------------
Total current liabilities 43,723,168 33,227,454
Notes payable - allied distributors 659,208 1,733,186
------------ ------------
Total liabilities 44,382,376 34,960,640
Stockholders' equity:
Common stock 3,350 3,350
Additional paid-in capital 958,770 958,770
Retained earnings 2,254,059 869,508
------------ ------------
Total stockholders' equity: 3,216,179 1,831,628
------------ ------------
Total liabilities and stockholders' equity $ 47,598,555 $ 36,792,268
------------ ------------
------------ ------------
</TABLE>
See Notes to Condensed Financial Statements
3
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EN POINTE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
--------------------------------- ----------------------------------
1996 1995 1996 1995
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 79,893,388 $ 41,996,736 $ 156,908,912 $ 85,580,319
Cost of sales 73,254,227 38,236,118 144,208,906 78,529,894
------------- ------------- -------------- -------------
Gross profit 6,639,161 3,760,618 12,700,006 7,050,425
Selling and marketing expenses 3,270,841 2,168,273 6,574,469 4,155,232
General and administrative expenses 1,182,744 878,953 2,033,814 1,690,374
Litigation defense 458,000 99,092 592,207 156,820
------------- ------------- -------------- -------------
Operating income 1,727,576 614,300 3,499,516 1,047,999
Interest expense 561,995 432,325 1,141,054 839,364
Other income, net (22,174) (17,479) (49,038) (26,186)
------------- ------------- -------------- -------------
Income before income taxes 1,187,755 199,454 2,407,500 234,821
Provision for income taxes 505,137 81,824 1,022,984 96,333
------------- ------------- -------------- -------------
Net income $ 682,618 $ 117,630 $ 1,384,546 $ 138,488
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Net income per share $ 0.20 $ 0.03 $ 0.41 $ 0.04
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Weighted average shares outstanding 3,389,500 3,389,500 3,389,500 3,389,500
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
</TABLE>
See Notes to Condensed Financial Statements
4
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EN POINTE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
March 31,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Net cash used by operating activities $ (5,724,497) $ (2,852,793)
Cash used by investing activities:
EPIC system software development (352,988) (64,518)
Purchase of property and equipment (540,648) (198,774)
------------- -------------
Net cash used by investing activities (893,636) (263,292)
Cash provided by financing activities:
Book overdraft 83,080 (325,263)
Net borrowings under lines of credit 7,421,016 3,763,276
Payment on notes payable to stockholders (150,000) (12,077)
Payment on notes payable (996,049) --
------------- -------------
Net cash provided by financing activities 6,358,047 3,425,936
------------- -------------
Increase (decrease) in cash $ (260,086) $ 309,851
------------- -------------
------------- -------------
Supplemental disclosures of cash flow
information:
Interest paid $ 1,150,940 $ 835,225
------------- -------------
------------- -------------
Income taxes paid $ 830,074 $ 53,536
------------- -------------
------------- -------------
</TABLE>
See Notes to Condensed Financial Statements
5
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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 six months ended March
31, 1996 are not necessarily indicative of the results that may be expected
for the year ending 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) for 2,250,000 shares. Proceeds from the IPO were used principally to
pay off notes payable to allied distributors that as of March 31, 1996
amounted to $2,316,608 and to reduce the IBM Credit Corporation line of
credit by $11.4 million.
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 Six Months Ended
March 31, March 31,
-------------------------------------
1996 1995 1996 1995
-------- ------ ------ ------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of sales . . . . . . . . . . . . . 91.7 91.0 91.9 91.8
----- ----- ----- -----
Gross profit. . . . . . . . . . . . . 8.3 9.0 8.1 8.2
Selling and marketing expenses. . . . . 4.1 5.2 4.2 4.9
General and administrative expenses . . 1.5 2.1 1.3 2.0
Litigation defense. . . . . . . . . . . 0.6 0.2 0.4 0.2
----- ----- ----- -----
Operating income. . . . . . . . . . . 2.1 1.5 2.2 1.1
Interest expense. . . . . . . . . . . . 0.7 1.0 0.7 0.9
Other income, net . . . . . . . . . . . 0.0 0.0 0.0 0.0
----- ----- ----- -----
Income before taxes . . . . . . . . . 1.4 0.5 1.5 0.2
Provision for income taxes. . . . . . . 0.6 0.2 0.7 0.1
----- ----- ----- -----
Net income. . . . . . . . . . . . . . 0.8% 0.3% 0.8% 0.1%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
COMPARISON OF THE QUARTER AND SIX MONTHS ENDED MARCH 31, 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 six months ended March 31, 1996 were
$79.9 and $156.9 million, an increase of $37.9 million (90.2%) and $71.3 million
(83.3%) respectively over prior periods. Of the $37.9 million increase
for the quarter, $21.3 million was attributable to sales related to the IBM
contract, with the remaining $16.6 million due to an overall increase in sales
to new and existing customers.
Gross profit. Gross profit as a percentage of sales declined from 9.0% to 8.3%
for the three-month period and declined from 8.2% to 8.1% for the six-month
period. The quarterly decline was attributable to an uncharacteristically high
prior year's gross profit margin from large incentive rebates and product sales.
Except for the 1995 second quarter 9.0% gross profit margin, no other quarter in
the prior fiscal year exceeded 8%.
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Selling and marketing expenses. Selling and marketing expenses for the quarter
ended March 31, 1996 were $3.3 million, an increase of $1.1 million, or 50.9%,
compared to the $2.2 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, however, selling and marketing expenses decreased from 5.2%
to 4.1% for the quarter ended March 31, 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 March 31, 1996 were $1.2 million, an increase of $0.3 million,
or 34.6%, compared to $0.9 million for the quarter ended March 31, 1995,
primarily as a result of increased staff and other administrative functions
necessary to support the increase in sales volume. The decrease in general and
administrative as a percentage of sales was due to fixed costs being spread over
a higher volume of sales.
Litigation defense. Legal expense related to the Lam litigation was $0.5
million for the quarter ended March 31, 1996, an increase of $0.4 million, or
362.2%, compared to the $0.1 million for the quarter ended March 31, 1995, due
to the increase in legal activity leading to the settlement of the case in April
1996.
Interest expense. Interest expense for the quarter ended March 31, 1996 was
$0.6 million, an increase of $0.2 million, or 30.0%, compared to $0.4 million
for the quarter ended March 31, 1995. The increase in interest expense was
primarily due to increased borrowings to support an increase in the Company's
accounts receivable balances resulting from an increase in its net sales.
Net income. Net income for the quarter ended March 31, 1996 was $0.6 million,
an increase of $0.5 million, or 480.3%, compared to $0.1 million for the quarter
ended March 31, 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.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash totaling $5.7 million, during the six months
ended March 31, 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 six
months ended March 31, 1996, due to lender requirements corresponding to
increases in the amount of credit made available to the Company. Accounts and
other receivables increased $9.2 million for the six months ended March 31,
1996. Inventories increased $.6 million for the six months ended March 31,
1996. Increases in accounts and other receivables and inventories was the
result of sales growth.
Investing activities used cash totaling $.9 million during the six months ended
March 31, 1996. The investing activities primarily related to the acquisition of
additional computer equipment and continued software development of the EPIC
system, which through March 31, 1996 amounted to $.6 million. The first module
of the EPIC system, the quote module, was released on June 1, 1996. The Company
anticipates investing further development costs, as additional modules are added
to the system.
Financing activities provided net cash totaling $6.4 million during the six
months ended March 31, 1996. The primary source of cash was net borrowings
under lines of credit which have been used primarily to finance accounts
receivable, which has grown as a result of sales increases.
The Company's accounts receivable balance at March 31, 1996 and September 30,
1995 was $40.8 and $31.9 million. The number of days' sales outstanding in
accounts receivable was 47 and 56 days as of March 31, 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 March 31, 1996, the Company had approximately $1.8 million in cash,
principally restricted cash and $1.9 million in working capital. The Company has
several revolving credit facilities collateralized by accounts receivable and
all other assets of the Company, including a $34 million line with IBM Credit
Corporation ("IBM Credit"). As of March 31, 1996, such lines of credit provided
for maximum aggregate borrowings of approximately $38.6 million, of which
$34.9 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
7
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given point in time. Outstanding borrowings on the lines of credit bear interest
at up to prime plus 2.50%. 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 and are guaranteed
by Bob and Naureen Din. 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. At September 30, 1995 and March 31, 1996, the Company was not in
compliance with a number of covenants under the Company's line of credit
agreement with IBM Credit. As a condition to granting the Company a waiver with
respect to the Company's noncompliance with such covenants, IBM Credit, among
other actions, increased the interest rate on outstanding balances under the
line to prime plus 2.75% from prime plus 2.5%. IBM Credit also indicated that
it may impose more stringent financial covenants on the Company upon the
completion of the public offering. Currently the Company is in negotiation with
IBM Credit to lower the prime plus 2.75% interest rate charged under the line
and increase the total line available.
8
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See disclosure in Form S-1 for the year ended September 30, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit
Number Description
------ -----------
27 Financial Data Schedule for the quarter ending March 31, 1996
b. The Company did not file any reports on Form 8-K during the three
months ended March 31, 1996.
9
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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: June 12, 1996 By: /s/ Robert A. Mercer
-----------------------------------------
Robert A. Mercer, Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-09-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 30
<SECURITIES> 0
<RECEIVABLES> 41,625
<ALLOWANCES> 812
<INVENTORY> 2,234
<CURRENT-ASSETS> 45,658
<PP&E> 2,679
<DEPRECIATION> 739
<TOTAL-ASSETS> 47,599
<CURRENT-LIABILITIES> 43,723
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 3,213
<TOTAL-LIABILITY-AND-EQUITY> 47,599
<SALES> 79,893
<TOTAL-REVENUES> 79,893
<CGS> 73,254
<TOTAL-COSTS> 78,166
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 562
<INCOME-PRETAX> 1,188
<INCOME-TAX> 505
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 683
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
