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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
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, 2000, 6,282,765 shares of Common Stock of the Registrant were
issued and outstanding.
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<PAGE>
INDEX
EN POINTE TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
------------
<S> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1999 and September 30, 1999 3
Condensed Consolidated Statements of Operations and
Comprehensive Income - Three months ended December 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows - Three months ended December 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements - December 31, 1999 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3 Quantative and Qualitative Disclosure About Market Risk 12
PART II OTHER INFORMATION 13
SIGNATURES 14
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
EN POINTE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------------- --------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 5,039 $ 6,838
Restricted cash 121 120
Accounts receivable, net 106,367 101,707
Inventories 10,735 8,588
Refundable income taxes 1,867 1,669
Prepaid expenses and other current assets 1,186 1,005
----------------------- -----------------------
Total current assets 125,315 119,927
Property and equipment, net of accumulated
depreciation and amortization 12,855 13,114
Other assets 195 568
----------------------- -----------------------
Total assets $ 138,365 $ 133,609
======================= =======================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Borrowings under lines of credit $ 66,236 $ 62,289
Accounts payable 22,762 15,373
Accrued liabilities 10,270 10,960
Other current liabilities 7,439 7,413
Current portion of notes payable 237 278
Deferred taxes 119 119
----------------------- -----------------------
Total current liabilities 107,063 96,432
Long term liability and notes payable 5,538 5,581
----------------------- -----------------------
Total liabilities 112,601 102,013
Minority interest -- 512
Stockholders' equity:
Common stock 6 6
Additional paid-in capital 37,327 36,896
Unearned compensation (1,393) (1,486)
Accumulated deficit (10,176) (4,332)
----------------------- -----------------------
Total stockholders' equity: 25,764 31,084
----------------------- -----------------------
Total liabilities and stockholders' equity $ 138,365 $ 133,609
======================= =======================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
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EN POINTE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended
December 31
--------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Net sales $ 136,233 $ 170,607
Cost of sales 123,126 157,225
------------------ ------------------
Gross profit 13,107 13,382
Selling and marketing expenses 12,374 8,765
General and administrative expenses 6,890 3,940
------------------ ------------------
Operating (loss) income (6,157) 677
Interest expense 595 855
Other income, net (65) (31)
Minority interest (512) --
------------------ ------------------
(Loss) Income before income taxes (6,175) (147)
Benefit for income taxes (331) (60)
------------------ ------------------
Net (loss) $ (5,844) $ (87)
================== ==================
Net (loss) per share:
Basic $ (0.96) $ (0.01)
================== ==================
Diluted $ (0.96) $ (0.01)
================== ==================
Weighted average shares outstanding:
Basic 6,109 5,924
================== ==================
Diluted 6,109 5,924
================== ==================
Comprehensive (loss) income:
Net (loss) $ (5,844) (87)
Other comprehensive income
Unrecognized holding gains 1,593
------------------ ------------------
Comprehensive (loss) income $ (5,844) $ 1,506
================== ==================
</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,
---------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,844) $ (87)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation and amortization 722 686
Deferred compensation 93 --
Allowance for inventory and doubtful accounts 1,014 (142)
Minority interest in loss of subsidiary (512) --
Net change in operating assets and
liabilities (1,103) (2,200)
-------------- ---------------
Net cash (used) by operating activities (5,630) (1,743)
Cash flows from investing activities:
Purchase of property and equipment (463) (303)
------------------ ------------------
Net cash used by investing activities (463) (303)
Cash flows from financing activities:
Net borrowings (payments) under lines of credit 3,947 (508)
Proceeds from notes payable -- 2,000
Payment on notes payable (84) (229)
Proceeds from sales of stock to employees 431 129
------------------ ------------------
Net cash provided by financing activities 4,294 1,392
--------------- ---------------
Decrease in cash $ (1,799) $ (654)
============== ===============
Supplemental disclosures of cash flow information:
Interest paid $ 621 $ 855
============== ===============
Income taxes paid $ 3 $ 2,198
============== ===============
Non-cash financing and investing activities:
Unrealized gain on equity holdings, net of taxes $ -- $ 1,593
============== ===============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
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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, 1999, and the unaudited condensed consolidated statements of operations and
comprehensive income and unaudited condensed consolidated statements of cash
flows for the interim periods ended December 31, 1999 and 1998 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, 1999 are not necessarily indicative of the results that may
be expected for the year ending September 30, 2000. 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, 1999.
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, net
realizable value of rebates, and liability for legal claims and associated
costs. Actual results could differ from those estimates.
6
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NOTE 2 - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended December 31,
------------------------------------------
1999 1998
------------------ ------------------
(In Thousands Except Per Share Amounts)
<S> <C> <C>
Net (loss) income $ (5,844) $ (87)
================== ==================
Weighted-average shares outstanding 6,109 5,924
Effect of dilutive securities:
Dilutive potential of options and warrants -- --
Weighted-average shares and share equivalents ------------------ ------------------
outstanding $ 6,109 $ 5,924
================== ==================
Basic (loss) income per share $ (0.96) (0.01)
================== ==================
Diluted (loss) income per share $ (0.96) $ (0.01)
================== ==================
</TABLE>
The dilutive potential of stock options and warrants has been excluded
from the calculation of diluted loss per share in 1999 and 1998 because the
effect of their inclusion would have been anti-dilutive.
NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-up Activities". SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
Adoption of SOP No. 98-5 did not have a material impact on the Company's
financial position, results of operations or cash flows. The Company implemented
SOP No. 98-5 in the current quarter.
In June 1998, The Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". The statement
requires the recognition of all derivatives as either assets, or liabilities in
the balance sheet and the measurement of those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the planned
use of the derivative and the resulting designation. Because the Company does
not currently hold any derivative instruments or engage in hedging activities,
the impact of the adoption of SFAS No. 133 is not currently expected to have a
material impact on results of operations or financial position. SFAS No. 137
defers the effective date of SFAS No. 133 until all fiscal years beginning after
June 30, 2000.
NOTE 4 - SEGMENT INFORMATION
The Company consists primarily of three business units (companies), En
Pointe Technologies, Inc., firstsource.com, Inc., (previously Purchase Pointe.
Inc.), and SupplyAccess, Inc. En Pointe and firstsource has separate management
teams, infrastructures and facilities, while SupplyAccess, as a start up,
currently shares with En Pointe some of its management, infrastructure and
facilities.
En Pointe Technologies focuses its efforts on sales of technology products
and services to Fortune 1000 and government customers. En Pointe Technologies
utilizes both a traditional national sales force with branch offices in major
metropolitan areas along with electronic interfaces between En Pointe and its
customers and vendors.
firstsource.com focuses its efforts on the sale of technology, including
recently added general office products, and other services primarily via the
Internet to consumers and small to mid-sized businesses.
7
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SupplyAccess Inc. was incorporated November 15, 1999 as a wholly-owned
subsidiary of the Company. SupplyAccess offers a hosted business-to-business web
application integrated to a new customized SAP-based enterprise fulfillment
engine. In exchange for a $5.5 million note maturing September 30, 2004, the
Company transferred its IT department and computer equipment and software to
SupplyAccess effective October 1, 1999 and pays a flat quarterly fee of $500,000
for the IT services and access by its customers to the SupplyAccess fulfillment
engine. As a result, SupplyAccess's loss for the quarter ended December 31, 1999
is substantially the result of costs associated with personnel and assets
transferred from En Pointe.
The tables below present information (in thousands) about reported segments
for the three month period ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Inter-Co
Elimination
En Pointe and Minority
Technologies firstsource SupplyAccess Interest Total
------------ ----------- ------------- ------------- --------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Three Months Ended December 31,1999
Revenues $ 123,716 $ 12,517 $ -- $ -- $ 136,233
Gross Profit $ 12,164 $ 943 $ -- $ -- $ 13,107
Segment pretax profit (loss) $ (945) $ (4,104) $ (1,638) $ 512 $ (6,175)
Segment Assets $ 128,358 $ 7,438 $ 4,198 $ (1,629) $ 138,365
Three Months Ended December 31, 1998
Revenues $ 165,870 $ 4,737 $ -- $ -- $ 170,607
Gross Profit $ 13,163 $ 219 $ -- $ -- $ 13,382
Segment pretax profit (loss) $ 529 $ (676) $ -- $ -- $ (147)
Segment Assets $ 144,642 $ 3,915 $ -- $ (1,637) $ 146,920
</TABLE>
NOTE 5 - MINORITY INTEREST
At December 31, 1999, minority interest represents approximately 2,660,000
shares of common stock of firstsource corp., one of the Company's subsidiaries.
The financial statements have been revised for the three months ended December
31, 1999 to reduce the previous allocation of losses to the minority interests
in consolidated subsidiaries. The impact was to increase consolidated net loss
for the three months ended December 31, 1999 by $662,000 to $5,844,000 and
increase net loss per share by $0.11 to $0.96.
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. 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
8
<PAGE>
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 decision by the Company to expand its
sales force into various new geographic territories (V) Quarterly fluctuations
in results (VI) Seasonal patterns of sales and client buying behaviors (VII)
Changing economic influences in the industry (VIII) The development by
competitors of new or superior delivery technologies or entry in the market by
new competitors (IX) Dependence on intellectual property rights (X)Delays in
product development (XI)The Company's dependence on key personnel, and potential
influence by executive officers and principal stockholders (XII) Volatility of
the Company's stock price (XIII) Delays in the receipt of orders or in the
shipment of products (XIV) Any delay in execution and implementation of the
Company's system development plans (XV) Loss of minority ownership status (XVI)
Planned or unplanned changes in the quantity and/or quality of the suppliers
available for the Company's products (XVII) Changes in the costs or availability
of products (XVIII) Interruptions in transport or distribution (XIX) General
business conditions in the economy (XX) Inability to raise additional private or
public capital necessary for development of the two internet businesses to that
of a profitable enterprise.
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, 1999.
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------
1999 1998
---------- ---------
<S> <C> <C>
Net sales .......................................................... 100.00% 100.0%
Cost of sales ...................................................... 90.4 92.2
---------- ---------
Gross profit ..................................................... 9.6 7.8
Selling and marketing expenses ..................................... 9.0 5.1
General and administrative expenses ................................ 5.1 2.3
---------- ---------
Operating income ................................................. 4.5 0.4
Interest expense ................................................... 0.4 0.5
Other income, net .................................................. 0.0 0.0
Minority interest................................................... (0.4) --
---------- ---------
Income (loss) before taxes ....................................... (4.5) (0.1)
Provision (credit) for income taxes................................. (0.2) 0.0
---------- ---------
Net income (loss) ................................................ (4.3)% (0.1)%
========== =========
</TABLE>
The following table sets forth certain financial data as a percentage of net
sales for the periods indicated:
COMPARISON OF THE FIRST QUARTER ENDED DECEMBER 31, 1999 (FISCAL 2000) AND 1998
(FISCAL 1999)
NET SALES. Net sales decreased $34.4 million, or (20.1)% to $136.2 million
in the first quarter of fiscal 2000 from $170.6 million in fiscal 1999. The
decrease in sales was attributable to a $42.2 million decrease in En Pointe's
core business which was due to softness in the marketplace as a result of
concerns about the Year 2000 ("Y2K") effect on technology products. Also
contributing to the decrease were implementation
9
<PAGE>
difficulties encountered during the transition to new business systems in the
first quarter of fiscal year 2000. Partially offsetting this decrease was an
increase in net sales at firstsource.com of $7.8 million for a 164% increase
over the prior fiscal year period and a 24% increase over the prior sequential
quarter.
Service revenues increased $1.7 million, or 34% to $6.7 million in the first
quarter of fiscal 2000 from $5.0 million in the prior fiscal year quarter and
were 4.9% of total net sales versus 3.7% in the prior fiscal year quarter. Net
sales under the IBM contract were $17.6 million and accounted for 12.9% of total
net sales in the first quarter of fiscal 2000 compared with $30.5 million or
17.9% for the prior fiscal year quarter. Net sales under the IBM contract were
adversely affected by implementation difficulties in transitioning to the SAP
system, as well as an early Y2K shut-off of business for internal IBM purchases.
Net sales under the IBM contract are not anticipated to be hampered in future
quarters by such events.
GROSS PROFIT. Gross profit decreased $0.3 million, or (2.0)% to $13.1
million in the first quarter of fiscal 2000 as compared to $13.4 million in
prior fiscal year quarter because of the decline in net sales volume, which was
mitigated, in part, by an increase in margins in product and service sales. As a
percentage of net sales, gross profits increased to 9.6% from 7.8% in the prior
fiscal year quarter, and increased slightly compared with the 9.2% of the prior
sequential quarter, reflecting improvements in both product and service gross
margins. As reported in the September 30, 1999 Form 10-K, the declining trend in
gross profits in the computer industry appears to be abating and the growth in
higher margin service sales is also contributing a positive factor.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
$3.6 million, or 41.0% to $12.4 million in the first quarter of fiscal 2000,
from $8.8 million in prior fiscal year quarter. The largest contributor to the
increase was firstsource.com, who incurred $2.1 million related to advertising
expenses. In addition, En Pointe hired additional sales personnel that increased
selling and related marketing expenses by $1.5 million. The additional expenses
incurred were not accompanied by increased sales, as a result, selling and
marketing expenses as a percentage of net sales, increased to 9.1% in 2000 from
5.1% in 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $3.0 million, or 74.9% to $6.9 million in the first quarter of fiscal
2000, from $3.9 million in the prior fiscal year quarter. Most of the increase,
$2.0 million, was attributable to the build up of staff and other administrative
functions at firstsource.com. SupplyAccess was responsible for the balance of
the increase in general and administrative expenses. Of the total $2.1 million
of general and administrative expenses incurred by SupplyAccess, about $1.7
million were for expenses that would have been incurred by En Pointe that were
outsourced for a $500,000 quarterly fee. Included in the $1.7 million of costs
transferred by En Pointe were approximately $0.9 million of normal operating
expenses for payroll related costs and depreciation and amortization, and $0.8
million business processing reengineering.
Because of the additional costs noted above, general and administrative
expenses as a percentage of sales increased to 5.1% from 2.3% in the prior year
fiscal quarter. However, general and administrative expenses declined from the
unusually high 10.0% in the prior sequential quarter that was attributable to
the vesting of stock option grants by firstsource.com. Exclusive of the internet
subsidiary and SupplyAccess, general and administrative expenses for the core
business as a percentage of net sales marginally increased to 2.3% (before
consideration for the $1.7 million of operating costs transferred to
SupplyAccess) for the first quarter of fiscal 2000 from the 2.1% in the prior
year fiscal quarter.
OPERATING (LOSS) INCOME. Operating income decreased $6.9 million, to a
$6.2 million loss in the first quarter of fiscal 2000 from $0.7 million of
operating income in the prior fiscal year quarter. The increased loss in the
first quarter of fiscal 2000 was due to increases in operating expenses noted
above.
10
<PAGE>
Because of the increase in operating expenses, operating income, as a percent of
net sales, declined to a negative 4.5% in the first fiscal quarter of 2000 from
a positive 0.4% in the 1999 fiscal quarter.
The operating (loss) for the three month period decreased $6.0 million, to a
$6.2 million loss from $12.2 million loss in the prior sequential quarter when
the vesting of stock option grants by firstsource.com adversely affected
operations.
INTEREST EXPENSE. Interest expense decreased $0.3 million, or 30.4% to $0.6
million in the first quarter of fiscal 2000 from $0.9 million in the prior
fiscal year quarter. The decline in interest expense is attributed to decreased
average borrowing during the quarter under the credit lines due to the decline
in sales.
MINORITY INTEREST. firstsource.com, a formerly wholly-owned subsidiary, on
July 28, 1999 issued 2,659,886 shares of common stock in a private placement
that grossed $9.3 million and resulted in the Company's ownership declining to
71.4%. Minority interest reflects the allocable portion of the subsidiary's
loss.
NET (LOSS). Net loss increased $5.7 million, to a net loss of $5.8 million
in the first quarter of fiscal 2000 from $0.1 million net loss in the prior
fiscal year quarter. firstsource.com was responsible for $2.9 million, net of
minority interest of $0.5 million, of the consolidated net loss for the quarter.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 1999 operating activities used
cash totaling $5.6 million compared to $1.7 million cash used in the prior
fiscal year period. Most of the increase in cash used by operating activities
can be attributed to the increase in the net loss.
The Company's accounts receivable balance at December 31, 1999 and September
30, 1999, was $106.4 million and $101.7 million, respectively. The number of
days' sales outstanding in accounts receivable increased to 71 days from 56
days, as of December 31, 1999 and September 30, 1999, respectively. Much of the
increase is due to the concentration of sales in the last month of the quarter.
Over 45% of the consolidated net sales during the first quarter were generated
in December.
Inventories also increased $2.1 million, which in large part was also due to
the intensity of sales activity in the last month of the quarter.
Investing activities used cash of $0.5 million during the three months ended
December 31, 1999 compared with cash used of $0.3 million in the prior year
fiscal period. Computer equipment and software accounted for most of the $0.5
million in purchases of property and equipment.
Financing activities provided net cash totaling $4.3 million during the
three months ended December 31, 1999, of which $3.9 million was attributable to
net borrowings under the Company's lines of credit. Sale of stock to employees
provided cash of $0.4 million.
As of December 31, 1999, the Company had approximately $5.2 million in cash,
including $0.1 million in restricted cash, and working capital of $18.3 million.
The Company has several revolving credit facilities collateralized by accounts
receivable and all other assets of the Company, including an $70.0 million line
with IBM Credit Corporation. As of December 31, 1999, such lines of credit
provided for maximum aggregate borrowings of approximately $111.0 million, of
which approximately $66.2 million was outstanding.
Outstanding borrowings under the IBMCC line of credit bears interest at prime
less .25%. The line of credit
11
<PAGE>
is automatically renewable on an annual basis each April first 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 line of credit
contains certain financing and operating covenants relating to net worth,
liquidity, profitability, repurchase of indebtedness and prohibition on payment
of dividends, as well as restrictions on the use of proceeds obtained under the
line. The Company has obtained a waiver for non-compliance with two IBMCC loan
covenants at December 31, 1999 relating to minimum consolidated net income as a
percentage of sales and debt to tangible net worth.
In July 1999 firstsource.com completed a $9.3 million private placement.
Currently, both firstsource.com and SupplyAccess are seeking to raise additional
financing through private placements. There can be no assurances that the
private placements will be completed or will be completed on terms favorable to
the Company. The Company believes that any financing raised from such private
placements together with the current borrowing capacity under its lines of
credit will provide sufficient working capital for the next twelve months.
RISKS ASSOCIATED WITH POTENTIAL "YEAR 2000" LEAP-YEAR PROBLEMS
The Company was aware of the issues associated with the programming code in
existing computer systems as the year 2000 approached. As a result of the
fact that January 1, 2000 has come and gone, and as a result of the Company's
analysis of its computer programs and operations, it has reached the
conclusion that its business systems are Year 2000 compliant. A related
potential problem stems from the fact that 2000 is a rare leap year and some
have expressed concern that programmers or component designers may have
forgotten to properly take that fact into account. While there may be some
risk relating to the anomalous leap-year in 2000, management believes that
any remaining Year 2000 problems will not seriously impact or have a material
adverse effect on the Company's expenses, business, including data gathering
and interpretation, or its operations.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates,
primarily as a result of its borrowings under lines of credit. The Company's
lines of credit bear interest at the prime rate less 0.25%. Assuming an increase
of one-half a percentage point in the lenders' rate on October 1, 1999 and no
change in the outstanding borrowings under the lines of credit at September 30,
1999, interest expense would increase by approximately $105,000 for the fiscal
year 2000 as compared to fiscal year 1999.
12
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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, 1999.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit
Number Description
-------- -----------
27 Financial Data Schedule for the quarter ended
December 31, 1999
b. On December 7, 1999, the Company filed a report on Form 8-K
and announced that it was in the process of seeking funding
for a private placement of securities for its wholly-owned
subsidiary, SupplyAccess, Inc.
13
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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, thereupon duly authorized.
En Pointe Technologies, Inc.
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(REGISTRANT)
Date: August 14, 2000 By: /s/Kevin D. Ayers
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Kevin D. Ayers, Chief
Financial Officer
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