<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 December 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 February 11, 1998, 5,855,040 shares of Common Stock of the Registrant were
issued and outstanding.
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<PAGE>
INDEX
EN POINTE TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1997
and September 30, 1997 3
Condensed Consolidated Statements of Operations - Three
months ended December 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows - Three
months ended December 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements -
December 31, 1997 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II OTHER INFORMATION
Item 1 Legal Proceedings 9
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 10
</TABLE>
<PAGE>
EN POINTE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 1,266 $ 3,315
Restricted cash 415 412
Accounts receivable, net 81,326 76,875
Inventories 12,030 4,663
Prepaid expenses and other current assets 1,296 1,569
-------- --------
Total current assets 96,333 8 6,834
Property and equipment, net of accumulated
depreciation 8,549 3,278
Other assets 850 750
-------- --------
Total assets $105,732 $ 90,862
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Borrowings under lines of credit $ 51,546 $50,692
Accounts payable 8,764 3,798
Accrued liabilities 2,928 2,709
Other current liabilities 8,036 4,593
Current portion of notes payable 273 198
Deferred taxes 91 91
-------- --------
Total current liabilities 71,638 62,081
Notes payable 4,327 463
-------- --------
Total liabilities 75,965 62,544
Stockholders' equity:
Common stock 6 6
Additional paid-in capital 18,593 18,283
Retained earnings 11,168 10,029
-------- --------
Total stockholders' equity: 29,767 28,318
-------- --------
Total liabilities and stockholders' equity $105,732 $ 90,862
-------- --------
-------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
EN POINTE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
---------------------
1997 1996
--------- --------
<S> <C> <C>
Net sales $130,189 $111,666
Cost of sales 116,798 101,811
-------- --------
Gross profit 13,391 9,855
Selling and marketing expenses 8,130 5,383
General and administrative expenses 2,956 2,140
-------- --------
Operating income 2,305 2,332
Interest expense 427 332
Other income, net (53) (57)
-------- --------
Income before income taxes 1,931 2,057
Provision for income taxes 792 870
-------- --------
Net income $ 1,139 $ 1,187
-------- --------
-------- --------
Net income per share:
Basic $ 0.19 $ 0.21
-------- --------
-------- --------
Diluted $ 0.18 $ 0.21
-------- --------
-------- --------
Weighted average shares outstanding:
Basic 5,843 5,645
-------- --------
-------- --------
Diluted 6,302 5,784
-------- --------
-------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
EN POINTE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,139 $ 1,187
Adjustments to reconcile net income to
net cash used by operations:
Depreciation and amortization 372 254
Deferred compensation 7 47
Allowance for doubtful accounts 90 408
Allowance for returns -- 50
Net change in operating assets and
liabilities (3,080) (3,814)
------- -------
Net cash used by operating activities (1,472) (1,868)
Cash flows from investing activities:
Purchase of property and equipment (1,643) (515)
------- -------
Net cash used by investing activities (1,643) (515)
Cash flows from financing activities:
Net borrowings under lines of credit 854 1,409
Payment on notes payable (91) (14)
Proceeds from sales of stock to employees 303 397
------- -------
Net cash provided by financing activities 1,066 1,792
------- -------
Decrease in cash $ (2,049) $ (591)
------- -------
------- -------
Supplemental disclosures of cash flow
information:
Interest paid $ 277 $ 303
------- -------
------- -------
Income taxes paid $ 150 $ 253
------- -------
------- -------
Long-term debt acquired in purchase of plant $ 4,000
-------
-------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
EN POINTE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation and General Information
In the opinion of management, the unaudited condensed consolidated balance
sheet of En Pointe Technologies, Inc. (the "Company" or "En Pointe") at
December 31, 1997, and the unaudited condensed consolidated statements of
income and unaudited condensed consolidated statements of cash flows for the
interim periods ended December 31, 1997 and 1996 include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
these financial statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The year-end balance sheet data
was derived from audited financial statements, but does not include
disclosures required by generally accepted accounting principles. Operating
results for the three months ended December 31, 1997 are not necessarily
indicative of the results that may be expected for the year ended September
30, 1998. It is suggested that these condensed statements be read in
conjunction with the Company's most recent Form 10-K and Annual Report as of
September 30, 1997.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amount 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
reported period. Significant estimates in these financial statements include
allowances for uncollectible accounts receivable and for unreimbursed product
returns and the net realizable value of rebates. Actual results could differ
from those estimates.
This Form 10-Q contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements and their inclusion
should not be regarded as a representation by the Company or any other person
that the objectives or plans will be achieved. Factors that might cause such
a difference include, but are not limited to, competitive, technological,
financial and business challenges making it more difficult than expected to
continue to sell information technology products and services. The Company
may be unable to retain existing key sales, technical and management
personnel; there may be other material adverse changes in the information
technology industry or in the Company's operations or business, and any or
all of these factors may affect the Company's ability to continue its current
rate of sales growth or may result in lower sales volume than currently
experienced.
Certain important factors affecting the forward-looking statements made
herein include, but are not limited to (I) a significant portion of the
Company's sales continuing to be to certain large customers, (II) continued
dependence by the Company on certain Allied Distributors, (III) continued
downward pricing pressures in the information technology market, (IV) the
lack of prior experience of the Company in the provision of value-added
services and (V) the decision by the Company to expand its sales force into
various new geographic territories. Assumptions relating to budgeting,
marketing, and other management decisions are subjective in many respects and
thus susceptible to interpretations and periodic revisions based on actual
experience and business developments, the impact of which may cause the
Company to alter its marketing, capital expenditure or other budgets, which
may in turn affect the Company's business, financial position, results of
operations and cash flows. The reader is therefore cautioned not to place
undue reliance on forward-looking statements contained herein and to consider
other risks detailed more fully in the Company's most recent Form 10-K and
Annual Report as of September 30, 1997.
Note 2 - Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statement No. 128,
"Earnings per Share", which modifies the way in which earnings per share ("EPS")
is calculated and disclosed. Previously, the Company disclosed primary and
fully diluted EPS. Upon adoption of this standard for the current interim
period ending December 31, 1997, the Company is disclosing basic and diluted
EPS for fiscal 1998 and has restated all prior period EPS data presented.
The FASB issued Statement No. 130, "Reporting Comprehensive Income" which
establishes standards for the reporting and display of comprehensive income
in general-purpose financial statements. This standard is effective for
fiscal years beginning after December 15, 1997. The Company has not assessed
the impact of this Standard on its financial statements.
6
<PAGE>
The FASB issued Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes standards for the
reporting of operating segments in the financial statements. In accordance
with FASB 131, the Company has elected to apply the Standard commencing with
its fiscal September 30, 1998 annual report. The Company has not assessed
the impact of this Standard on its financial statements.
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------
1997 1996
-------- -------
<S> <C> <C>
Net sales..................................... 100.0% 100.0%
Cost of sales................................. 89.7 91.2
------ ------
Gross profit............................. 10.3 8.8
Selling and marketing expenses................ 6.2 4.8
General and administrative expenses........... 2.3 1.9
------ ------
Operating income......................... 1.8 2.1
Interest expense.............................. 0.3 0.3
Other income, net............................. -- --
------ ------
Income before income taxes............... 1.5 1.8
Provision for income taxes.................... 0.6 0.7
------ ------
Net income............................... 0.9% 1.1%
------ ------
------ ------
</TABLE>
COMPARISON OF THE FIRST QUARTER ENDED DECEMBER 31, 1997 (FISCAL 1998) AND 1996
(FISCAL 1997)
All comparisons within the following discussion are related to the same
period of the previous year.
NET SALES. Net sales increased $18.5 million, or 16.6%, to $130.2 million
in the first quarter of fiscal 1998 from $111.7 million in the corresponding
fiscal quarter of 1997. Four newly opened sales offices accounted for $13.6
million of the net sales increase. Sales under the IBM global contract
amounted to $31.4 million (24.0% of total sales) and $30.7 million (27.5% of
total sales) respectively. Service revenues were $2.6 million (2.0% of total
sales) and $.6 million (.5% of total sales) respectively.
GROSS PROFIT. Gross profit as a percentage of sales improved to 10.3% from
8.8% for the three-month period. The 1.5% improvement in margins was chiefly
attributed to improved purchasing terms and associated rebates from vendors.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
$2.7 million, or 51.0%, to $8.1 million in the first quarter of fiscal 1998
from $5.4 million in the prior fiscal quarter. As a percentage of net sales,
selling and marketing increased to 6.2% from 4.8%. Most of the increase was
wage related and reflected additional investment in the sales function,
including an increase in the service and marketing infrastructure.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $.8 million, or 38.1%, to $3.0 million in the first quarter of
fiscal 1998 from $2.1 million in the prior fiscal quarter. As a percentage
of net sales, general and administrative expenses increased to 2.3% from
1.9%. However, for the quarter ended September 30, 1997, general and
administrative expenses were already at $3.2 million or 2.4% of net sales.
Thus, the increase relates to the prior fiscal period and, as reported in
earlier quarters, was attributable to increased staff and other
administrative functions necessary to support the increase in sales volume.
INTEREST EXPENSE. Interest expense increased $.1 million, or 28.6%, to $.4
million in the first quarter of fiscal 1998 from $.3 million in the prior
fiscal quarter. As a percentage of net sales, interest expense remained
unchanged at .3%. Interest of $80 thousand relating to the Company's new
configuration facility in Ontario was capitalized, pending completion of
construction of the facility.
7
<PAGE>
NET INCOME. Net income decreased $.1 million, or 4.0%, to $1.1 million in
the first quarter of fiscal 1998 from $1.2 million in the prior fiscal
quarter. Net income decreased primarily as a result of the increase in
selling and marketing expense that exceeded the sales volume increase.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash totaling $1.5 million during the three months
ended December 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 $4.5 million, as a result of continuing sales
growth and inventories increased $7.4 million as of December 31, 1997. The
unusual increase in inventories was a result of some large orders in transit
that were not completed and shipped until early January.
The Company's accounts receivable balance at December 31, 1997 and September
30, 1997 was $82.6 and $78.0 million. The number of days' sales outstanding
in accounts receivable remained at 58 days both as of December 31, 1997 and
as of September 30, 1997.
Investing activities used cash totaling $1.6 million during the three months
ended December 31, 1997. The investing activities related to the purchase and
improvements of the Ontario configuration facility of $.8 million, upgrading
of computer equipment of $.4 million and acquisition of office furniture and
equipment of $.4 million.
Financing activities provided net cash totaling $1.1 million during the three
months ended December 31, 1997. The primary source of cash was from net
borrowings under lines of credit of $.8 million. Additionally, $.3 million
was provided by employee purchases of stock under the Company's Employee
Stock Purchase Plan.
As of December 31, 1997, the Company had approximately $1.3 million in cash,
$0.4 million in restricted cash, and $24.6 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 December 31, 1997, such
lines of credit provided for maximum aggregate borrowings of approximately
$81 million, of which $51.5 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 less .25%. The lines of credit may be renewed
annually unless notification of an election not to renew is made by either
the Company or creditor on or prior to the 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 lines of
credit and anticipated cash generated from operations will be sufficient to
satisfy the Company's currently anticipated cash requirements.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement No. 128, "Earnings
per Share", which modifies the way in which earnings per share ("EPS") is
calculated and disclosed. Previously, the Company disclosed primary and fully
diluted EPS. Upon adoption of this standard for the current interim period
ending December 31, 1997, the Company is disclosing basic and diluted EPS for
fiscal 1998 and has restated all prior period EPS data presented.
The FASB issued Statement No. 130, "Reporting Comprehensive Income" which
establishes standards for the reporting and display of comprehensive income
in general-purpose financial statements. This standard is effective for
fiscal years beginning after December 15, 1997. The Company has not assessed
the impact of this Standard on its financial statements.
The FASB issued Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes standards for the
reporting of operating segments in the financial statements. In accordance
with FASB 131, the Company has elected to apply the Standard commencing with
its fiscal September 30, 1998 annual report. The Company has not assessed
the impact of this Standard on its financial statements.
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. There have been no material changes
in the legal proceedings reported in the Company's Annual Report on Form
10-K for the year ended September 30, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------
<S> <C>
11 Computation of Earnings Per Common Share
27 Financial Data Schedule for the quarter ended December 31, 1997
</TABLE>
b. The Company did not file any reports on Form 8-K during the three
months ended December 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: February 12, 1998 By: /s/ ROBERT A. MERCER
-----------------------------------------
Robert A. Mercer, Chief Financial Officer
10
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EN POINTE TECHNOLOGIES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
EXHIBIT 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED
BASIC DECEMBER 31,
(in thousands, except per share data) --------------------
1997 1996
------- -------
<S> <C> <C>
Net income $ 1,139 $ 1,187
------- -------
------- -------
Basis for computation of basic earnings
per common:
Beginning balance of shares outstanding 5,779 5,607
Weighted average number of shares
issued during the period 64 38
------- -------
Total weighted shares outstanding during period 5,843 5,645
------- -------
------- -------
Earnings per share $ 0.19 $ 0.21
------- -------
------- -------
<CAPTION>
THREE MONTHS ENDED
DILUTED DECEMBER 31,
(in thousands, except per share data) ----------------------
1997 1996
------- -------
<S> <C> <C>
Net income $ 1,139 $ 1,187
------- -------
------- -------
Basis for computation of diluted earnings
per common and common equivalent share:
Weighted average number of shares
outstanding during period 5,843 5,645
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 459 139
------- -------
Total weighted shares 6,302 5,784
------- -------
------- -------
Earnings per share $ 0.18 $ 0.21
------- -------
------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,266
<SECURITIES> 750
<RECEIVABLES> 82,578
<ALLOWANCES> 1,252
<INVENTORY> 12,030
<CURRENT-ASSETS> 96,333
<PP&E> 11,291
<DEPRECIATION> 2,742
<TOTAL-ASSETS> 105,732
<CURRENT-LIABILITIES> 71,638
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 29,761
<TOTAL-LIABILITY-AND-EQUITY> 105,732
<SALES> 130,189
<TOTAL-REVENUES> 130,189
<CGS> 116,798
<TOTAL-COSTS> 127,884
<OTHER-EXPENSES> (53)
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 427
<INCOME-PRETAX> 1,931
<INCOME-TAX> 792
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 792
<EPS-PRIMARY> .19
<EPS-DILUTED> .18
</TABLE>
