<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 March 31, 1997
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 000-28052
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
100 N. Sepulveda Blvd., 19th Floor
El Segundo, California 90245
(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 May 12, 1997, 5,703,739 shares of Common Stock of the Registrant were
issued and outstanding.
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<PAGE>
INDEX
EN POINTE TECHNOLOGIES, INC.
PART I FINANCIAL INFORMATION Page
----
Item 1 Financial Statements
Condensed Balance Sheets - March 31, 1997 and September 30, 1996 3
Condensed Statements of Operations - Three Months and Six
months Ended March 31, 1997 and 1996 4
Condensed Statements of Cash Flows - Six Months Ended March 31,
1997 and 1996 5
Notes to Condensed Financial Statements - March 31, 1997 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
PART II OTHER INFORMATION
Item 1 Legal Proceedings 9
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 10
<PAGE>
EN POINTE TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
March 31, September 30,
1997 1996
----------- -------------
(Unaudited)
ASSETS:
Current assets:
Cash $ 2,699 $ 3,158
Restricted cash 555 610
Accounts receivable, net 69,649 55,673
Inventories 1,994 1,806
Deferred tax asset 289 289
Prepaid expenses and other
current assets 833 566
---------- ----------
Total current assets 76,019 62,102
Property and equipment, net of
accumulated depreciation 3,119 2,821
---------- ----------
Total assets $ 79,138 $ 64,923
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of notes payable $ 164 $ 164
Borrowings under lines of credit 47,340 36,504
Accounts payable 3,488 1,781
Accrued liabilities 2,108 2,425
Other current liabilities 1,901 2,890
---------- ----------
Total current liabilities 55,001 43,764
Notes payable 256 284
---------- ----------
Total liabilities 55,257 44,048
Stockholders' equity:
Common stock 6 6
Additional paid-in capital 17,165 16,670
Retained earnings 6,710 4,199
---------- ----------
Total stockholders' equity: 23,881 20,875
Total liabilities and stockholders'
equity $ 79,138 $ 64,923
---------- ----------
---------- ----------
See Notes to Condensed Financial Statements
3
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EN POINTE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- ---------------------
1997 1996 1997 1996
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $116,595 $79,893 $228,261 $156,909
Cost of sales 106,974 73,254 208,785 144,209
-------- ------- -------- --------
Gross profit 9,621 6,639 19,476 12,700
Selling and marketing expenses 4,778 3,271 10,161 6,574
General and administrative expenses 2,340 1,182 4,480 2,034
Litigation defense -- 458 -- 592
-------- ------- -------- --------
Operating income 2,503 1,728 4,835 3,500
Interest expense 283 562 615 1,141
Other income, net (71) (22) (128) (49)
-------- ------- -------- --------
Income before income taxes 2,291 1,188 4,348 2,408
Provision for income taxes 967 505 1,837 1,023
-------- ------- -------- --------
Net income $ 1,324 $ 683 $ 2,511 $ 1,385
-------- ------- -------- --------
-------- ------- -------- --------
Net income per share, primary
and fully diluted $ 0.23 $ 0.20 $ 0.43 $ 0.41
-------- ------- -------- --------
-------- ------- -------- --------
Weighted average shares
outstanding 5,817 3,390 5,807 3,390
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
See Notes to Condensed Financial Statements
4
<PAGE>
EN POINTE TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
March 31,
-------------------------
1997 1996
---------- ---------
Cash flows from operating activities:
Net income $ 2,511 $ 1,385
Adjustments to reconcile net income to
net cash used by operations:
Depreciation and amortization 558 233
Deferred compensation 95
Allowance for doubtful accounts 398 150
Allowance for returns 50 150
Net changes in operating assets and
liabilities (14,423) (7,642)
---------- ---------
Net cash used by operating activities (10,811) (5,724)
Cash flows from investing activities:
Software development -- (353)
Purchase of property and equipment (856) (541)
---------- ---------
Net cash used by investing activities (856) (894)
Cash flows from financing activities:
Book overdraft -- 83
Net borrowings under lines of credit 10,836 7,421
Payment on notes payable to stockholders -- (150)
Payment on notes payable (28) (996)
Proceeds from sales of stock to employees 400 --
---------- ---------
Net cash provided by financing
activities 11,208 6,358
---------- ---------
Decrease in cash $ (459) $ (260)
---------- ---------
---------- ---------
Supplemental disclosures of cash flow
information:
Interest paid $ 628 $ 1,151
---------- ---------
---------- ---------
Income taxes paid $ 2,995 $ 830
---------- ---------
---------- ---------
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 condensed 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 six months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ended September 30, 1997. For further information,
refer to the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The forward-looking statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations, which reflect
management's best judgment based on factors currently known, involve risks
and uncertainties. Actual results could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including but not limited to those discussed below. Forward-looking
information provided by En Pointe pursuant to the safe harbor established by
recent securities legislation should be evaluated in the context of these
factors.
The following table sets forth certain financial data as a percentage of net
sales for the periods indicated:
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------------
1997 1996 1997 1996
------- ------ ------ -----
Net sales.............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................... 91.7 91.7 91.5 91.9
----- ----- ----- -----
Gross profit...................... 8.3 8.3 8.5 8.1
Selling and marketing expenses......... 4.1 4.1 4.4 4.2
General and administrative expenses.... 2.1 1.5 2.0 1.3
Litigation defense..................... 0.6 0.4
----- ----- ----- -----
Operating income.................. 2.1 2.1 2.1 2.2
Interest expense....................... 0.2 0.7 0.3 0.7
Other income, net...................... 0.1 -- 0.1 --
----- ----- ----- -----
Income before income taxes........ 2.0 1.4 1.9 1.5
Provision for income taxes............. 0.9 0.6 0.8 0.7
----- ----- ----- -----
Net income........................ 1.1% 0.8% 1.1% 0.8%
----- ----- ----- -----
----- ----- ----- -----
COMPARISON OF THE QUARTER AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996
All comparisons within the following discussion are related to the same
periods of the previous year.
NET SALES. Revenues increased 45.9% to $116.6 million in the second fiscal
quarter of 1997 and 45.5% to $228.3 in the first half of fiscal 1997, from
$79.9 and $156.9 million in the corresponding periods of 1996. Of the $36.7
million increase in sales for the quarter, about half or $17.5 million were
sales to IBM and related customers of IBM global services. Another $7.7
million resulted from increased sales from the Southern California office.
As to the $71.4 million increase in sales for the half year, $25.0 million
resulted from increased sales to IBM and $13.0 million were from increased
sales from the Southern California office.
In April 1997 the Company announced the opening of a new sales branch in
Memphis, Tennessee and plans to open two new branch sales offices in Georgia
and North Carolina which will bring the total sales offices to fifteen.
GROSS PROFIT. Gross profit as a percentage of sales was consistent at 8.3%
when compared to the year ago quarter. While service revenues of $1.4
million contributed higher margins of 27.4%, increased IBM sales at lower
margins offset any overall tangible margin benefit. For the year-to-date,
margins improved 0.4% to 8.5% from 8.1%,
6
<PAGE>
owing mainly to the first quarter's improved purchasing terms from higher
volume sales compared with those of the first quarter of a year ago.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
46.1% to $4.8 million in the second fiscal quarter of 1997 and 54.6% to $10.2
million in the first half of fiscal 1997, from $3.3 and $6.6 million in the
corresponding periods of 1996. However, selling and marketing expenses as a
percentage of sales remained constant for the quarter, and increased only
slightly, 0.2%, for the six month period. The 0.2% increase for the six month
period was due to an increase in uncollectible accounts and the direct
write-off of a receivable owed to the catalog division (a discontinued start
up operation). The increase in the reserve allowance was provided to address
the risk associated with large balance accounts and an increasing volume of
sales and does not reflect a deterioration in the quality of the accounts.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 98.0% to $2.3 million million in the second fiscal quarter of 1997
and 120.3% to $4.5 million in the first half of fiscal 1997, from the $1.2
and $2.0 million in the corresponding periods of 1996. Of the $1.1 million
increase for the second quarter, $0.5 million was from investment in the
Company's information systems resources that was not a factor in the 1996
quarter. The remainder was due to increased staff and other administrative
functions necessary to support the Company's growth. For the six month
period, $1.0 million of the $2.4 million increase was again represented by
increased costs for information systems, with the remainder due to increased
staff and other administrative functions necessary to support the increase in
sales.
INTEREST EXPENSE. Interest expense for the quarter ended March 31, 1997
decreased 49.6% to $0.3 million, and for the six month period decreased 46.1%
to $0.5 million. The decrease in interest expense was primarily due to more
favorable financing terms as well as the paydown of debt from the proceeds of
the public offering.
NET INCOME. As a result of the factors discussed above, net income for the
quarter ended March 31, 1997 was $1.3 million, an increase of $0.6 million,
or 93.8%, compared with $0.7 million for the prior year's quarter. For the
six months net income was $2.5 million, an increase of $1.1 million, or
81.3%, compared with the $1.4 million for the prior year. 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.
As mentioned under net sales, the Company has opened one new sales branch and
is in the process of opening two additional branches. Typically sales
branches do not become profitable for the first six months of operations.
Continuation of the current levels of net income will be dependent on
successfully managing new branch offices, the successful expansion of
services based revenue, developing competitive information systems responsive
to customer needs, and the ability to maintain margins while remaining
competitive in the marketplace.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash totaling $10.8 million during the three months
ended March 31, 1997. 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.
Accounts receivable increased $14.4 million, as a result of continuing sales
growth while inventories decreased $.2 million as of March 31, 1997. The
Company's accounts receivable balance at March 31, 1997 and September 30,
1996 was $69.6 and $56.7 million. The number of days' sales outstanding in
accounts receivable was 55 and 59 days as of March 31, 1997 and September 30,
1996, respectively. The reduction in days' sales outstanding was a result of
the continued focus on collection activities.
Investing activities used cash totaling $0.9 million during the six months
ended March 31, 1997. The investing activities related to the purchase of
computer equipment and office furniture and equipment.
Financing activities provided net cash totaling $11.2 million during the six
months ended March 31, 1997. The primary source of cash was from net
borrowings under lines of credit of $10.8 million. Additionally, $.4 million
was provided by employee purchases of stock under the Company's Employee
Stock Purchase Plan.
As of March 31, 1997, the Company had approximately $2.7 million in cash,
$0.6 million in restricted cash, and $21.0 million in working capital. The
Company has several revolving credit facilities collateralized by accounts
receivable and all other assets of the Company, including a $70 million line
with IBM Credit Corporation ("IBM Credit"). As of March 31, 1997, such lines
of credit provided for maximum aggregate borrowings of approximately $79
million, of which $47.3
7
<PAGE>
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 the
prime rate. 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.
Management believes that existing cash, cash equivalents, available line of
credit and anticipated cash generated from operations will be sufficient to
satisfy the Company's currently anticipated cash requirements.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are various claims and legal actions pending against the Company.
In the opinion of management, the outcome of such claims and litigation
will not have a material adverse effect upon the Company's financial
position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit
Number Description
-------- -----------
11.2 Computation of Earnings Per Common Share
27 Financial Data Schedule for the Quarter Ended March 31, 1997
b. The Company did not file any reports on Form 8-K during the six months
ended March 31, 1997.
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: May 12, 1997 By: /s/ Robert A. Mercer
-----------------------------------------
Robert A. Mercer, Chief Financial Officer
10
<PAGE>
EN POINTE TECHNOLOGIES, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11.2
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
PRIMARY March 31, March 31,
(in thousands, except per share data) -------------------- ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $1,324 $ 683 $2,511 $1,385
------ ------ ------ ------
------ ------ ------ ------
Basis for computation of primary earnings
per common and common equivalent share:
Weighted average number of shares
outstanding during period 5,667 3,350 5,656 3,350
Weighted average (incremental) common
share equivalents after considering the effects
of options and warrants , exercised and
canceled during the period and after assumed
repurchase of treasury shares 150 40 151 40
------ ------ ------ ------
Total weighted average shares 5,817 3,390 5,807 3,390
------ ------ ------ ------
------ ------ ------ ------
Earnings per share $ 0.23 $ 0.20 $ 0.43 $ 0.41
------ ------ ------ ------
------ ------ ------ ------
<CAPTION>
Three Months Ended Six Months Ended
FULLY DILUTED March 31, March 31,
(in thousands, except per share data) -------------------- ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $1,324 $ 683 $2,511 $1,385
------ ------ ------ ------
------ ------ ------ ------
Basis for computation of primary earnings
per common and common equivalent share:
Weighted average number of shares
outstanding during period 5,667 3,370 5,656 3,350
Weighted average (incremental) common
share equivalents after considering the effects
of options and warrants, exercised and
canceled during the period and after assumed
repurchase of treasury shares 108 40 150 40
------ ------ ------ ------
Total weighted average shares 5,775 3,410 5,806 3,390
------ ------ ------ ------
------ ------ ------ ------
Earnings per share $ 0.23 $ 0.20 $ 0.43 $ 0.41
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 2,699
<SECURITIES> 0
<RECEIVABLES> 70,999
<ALLOWANCES> 1,350
<INVENTORY> 1,994
<CURRENT-ASSETS> 76,019
<PP&E> 4,806
<DEPRECIATION> 1,687
<TOTAL-ASSETS> 79,138
<CURRENT-LIABILITIES> 55,001
<BONDS> 256
0
0
<COMMON> 6
<OTHER-SE> 23,881
<TOTAL-LIABILITY-AND-EQUITY> 79,138
<SALES> 228,261
<TOTAL-REVENUES> 228,261
<CGS> 208,785
<TOTAL-COSTS> 14,641
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 699
<INTEREST-EXPENSE> 615
<INCOME-PRETAX> 4,348
<INCOME-TAX> 1,837
<INCOME-CONTINUING> 2,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,511
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
