<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, 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 9
Item 3 Quantative and Qualitive Disclosure About Market Risk 12
PART II OTHER INFORMATION 13
SIGNATURES 14
</TABLE>
2
<PAGE>
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
======================= =======================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY:
<S> <C> <C>
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 4,151 5,325
Stockholders' equity:
Common stock 6 6
Additional paid-in capital 32,514 32,083
Unearned compensation (1,393) (1,486)
(Accumulated deficit) retained earnings (9,514) (4,332)
----------------------- -----------------------
Total stockholders' equity: 21,613 26,271
----------------------- -----------------------
Total liabilities and stockholders' equity $ 138,365 $ 133,609
======================= =======================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
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 (1,174) --
------------------ ------------------
(Loss) Income before income taxes (5,513) (147)
Benefit for income taxes (331) (60)
------------------ ------------------
Net (loss) $ (5,182) $ (87)
================== ==================
Net (loss) per share:
Basic $ (0.85) $ (0.01)
================== ==================
Diluted $ (0.85) $ (0.01)
================== ==================
Weighted average shares outstanding:
Basic 6,109 5,924
================== ==================
Diluted 6,109 5,924
================== ==================
Comprehensive (loss) income:
Net (loss) $ (5,182) $ (87)
Other Comprehensive income
Unrecognized holding gains -- 1,593
------------------ -----------------
Comprehensive (loss) income $ (5,182) $ 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 $ (5,182) $ (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 (1,174) --
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
<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, 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
<PAGE>
NOTE 2 - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
(In Thousands Except Per Share Amounts)
Three Months Ended December 31,
------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Net (loss) income $ (5,182) $ (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 $ (0.85) $ (0.01)
=================== ===================
Diluted (loss) income per share $ (0.85) $ (0.01)
=================== ===================
</TABLE>
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
7
<PAGE>
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.
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 about reported segments for the
three month period ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
EN POINTE SUPPLY MINORITY
TECHNOLOGIES FIRSTSOURCE ACCESS 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 (Loss) $ (945) $ (4,104) $ (1,638) $ 1,174 $ (5,513)
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>
8
<PAGE>
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 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.
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,
----------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Net sales ......................... 100.0 % 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 (loss) income .... (4.5) 0.4
Interest expense .................. 0.4 0.5
Other income, net ................. 0.0 0.0
Minority interest ................. (0.9) --
-------------- --------------
Loss before income taxes.. (4.0) (0.1)
Benefit for income taxes .......... (0.2) 0.0
-------------- --------------
Net loss ................... (3.8)% (0.1) %
============== ==============
</TABLE>
9
<PAGE>
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 difficulties
encountered during En Pointe's 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 for 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
10
<PAGE>
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. 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 28.6% allocable portion of
the subsidiary's loss since the ownership change on July 28, 1999.
NET (LOSS). Net loss increased $5.1 million, to a net loss of $5.2
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 $1.2 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
11
<PAGE>
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 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
is in the process of obtaining 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. QUANTITATIVE 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' prime 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 fiscal year 2000 as compared to fiscal year 1999.
12
<PAGE>
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims that
arise in the normal course of business. While the outcome of
these proceedings and claims cannot be predicted with
certainty, after consulting with counsel, management does not
believe that the outcome of any of these matters will have a
material adverse effect on the Company's business, financial
position, results of operations or cash flows. 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 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.
</TABLE>
13
<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 14, 2000 By: /s/ Javed Latif
------------------------------------
Javed Latif, Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
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0
0
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</TABLE>
