-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SKJrWEFeDu4w2r6KQ9bKM3mkOyvV+F6yE+fNFdGu9s+bKRHstvvGiJlxi2amkPUm 4JJqqaLtUWbB8a/0fpANBA== /in/edgar/work/20000814/0000912057-00-037515/0000912057-00-037515.txt : 20000921 0000912057-00-037515.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-037515 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EN POINTE TECHNOLOGIES INC CENTRAL INDEX KEY: 0001010305 STANDARD INDUSTRIAL CLASSIFICATION: [5045 ] IRS NUMBER: 752467002 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28052 FILM NUMBER: 700867 BUSINESS ADDRESS: STREET 1: 100 N SEPULVEDA BLVD STREET 2: 19TH FL CITY: EL SEGUNDO STATE: CA ZIP: 90245- BUSINESS PHONE: 3107255200 MAIL ADDRESS: STREET 1: 100 N. SEPULVEDA BLVD. STREET 2: 19TH FLOOR CITY: EL SEGUNDO STATE: CA ZIP: 90245- 10-Q 1 a10-q.txt FORM 10Q ================================================================================ 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 June 30, 2000 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 August 14, 2000, 6,529,354 shares of Common Stock of the Registrant were issued and outstanding. ================================================================================ INDEX EN POINTE TECHNOLOGIES, INC.
PART I FINANCIAL INFORMATION Item 1 Financial Statements Condensed Consolidated Balance Sheets - June 30, 2000 (unaudited) and September 30, 1999 Condensed Consolidated Statements of Operations and Comprehensive Income - Three months and Nine Months ended June 30, 2000 and 1999 (unaudited) Condensed Consolidated Statements of Cash Flows - Nine months ended June 30, 2000 and 1999 (unaudited) Notes to Condensed Consolidated Financial Statements - June 30, 2000 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3 Quantative and Qualitative Disclosure About Market Risk PART II OTHER INFORMATION SIGNATURES
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS EN POINTE TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
June 30, September 30, 2000 1999 ----------------------- ----------------------- (Unaudited) ASSETS: Current assets: Cash $ 1,935 $ 6,838 Restricted cash 73 120 Accounts receivable, net 76,503 101,707 Inventories 10,210 8,588 Refundable income taxes 3,980 1,669 Prepaid expenses and other current assets 1,015 1,005 ----------------------- ----------------------- Total current assets 93,716 119,927 Property and equipment, net of accumulated depreciation and amortization 7,490 13,114 Other assets -- 568 ----------------------- ----------------------- Total assets $ 101,206 $ 133,609 ======================= ======================= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Borrowings under lines of credit $ 43,088 $ 62,289 Accounts payable 11,564 15,373 Accrued liabilities 10,340 10,960 Other current liabilities 7,437 7,413 Current portion of notes payable 77 278 Deferred taxes 119 119 ----------------------- ----------------------- Total current liabilities 72,625 96,432 Long term liability and notes payable 5,442 5,581 Losses in excess of investments in unconsolidated affiliates 6,858 ----------------------- ----------------------- Total liabilities 84,925 102,013 Minority Interest 512 Stockholders' equity: Common stock 6 6 Additional paid-in capital 41,690 36,896 Unearned compensation (1,486) Treasury stock (586) (Accumulated deficit) (24,829) (4,332) ----------------------- ----------------------- Total stockholders' equity: 16,281 31,084 ----------------------- ----------------------- Total liabilities and stockholders' equity $ 101,206 $ 133,609 ======================= =======================
See Notes to Condensed Consolidated Financial Statements EN POINTE TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three months ended Nine months ended June 30, June 30, --------------------------------------- ---------------------------------- 2000 1999 2000 1999 ------------------ ------------------ ---------------- ---------------- Net sales $ 118,372 $ 182,938 $ 370,741 $ 498,463 Cost of sales 107,424 169,215 335,146 460,318 ------------------ ------------------ ---------------- ---------------- Gross profit 10,948 13,723 35,595 38,145 Selling and marketing expenses 11,940 9,275 36,775 27,104 General and administrative expenses 5,045 5,369 19,136 13,881 Non-recurring charges 1,544 -- 2,717 7,917 ------------------ ------------------ ---------------- ---------------- Operating (loss) income (7,581) (921) (23,033) (10,757) Interest expense 476 624 1,814 2,395 Other income, net (498) (105) (816) (172) Gain on sale of property and securities -- (3,938) (4,428) Minority interest -- -- (512) -- ------------------ ------------------ ---------------- ---------------- (Loss) Income before income taxes (7,559) (1,440) (19,581) (8,552) and equity in loss of affiliates Benefit for income taxes (1,516) (504) (2,188) (2,993) Equity in losses of affiliates 2,960 -- 2,960 -- ------------------ ------------------ ---------------- ---------------- Net (loss) $ (9,003) $ (936) $ (20,353) $ (5,559) ================== ================== ================ ================ Net (loss) per share: Basic $ (1.38) $ (0.16) $ (3.20) (0.94) ================== ================== ================ ================ Diluted $ (1.38) $ (0.16) $ (3.20) (0.94) ================== ================== ================ ================ Weighted average shares outstanding: Basic 6,537 5,935 6,363 5,931 ================== ================== ================ ================ Diluted 6,537 5,935 6,363 5,931 ================== ================== ================ ================ Comprehensive (loss) income: Net (loss) $ (9,003) $ (936) $ (20,353) $ (5,559) Other comprehensive income Unrecognized holding gains -- -- 576 -- ------------------ ------------------ ---------------- ---------------- Comprehensive (loss) income $ (9,003) $ (936) $ (19,777) $ (5,559) ================== ================== ================ ================
See Notes to Condensed Consolidated Financial Statements EN POINTE TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Nine months ended June 30, -------------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities: Net loss $ (20,353) $ (5,559) Adjustments to reconcile net loss to net cash used by operations: Amortization of deferred compensation 233 -- Depreciation and amortization 2,415 2,262 Loss from Disposal of Assets 88 -- Impairment loss - Ontario facility -- 6,092 Allowance for inventory, doubtful accounts, and other 2,497 467 Equity in the loss of affiliates, net of tax 2,960 -- Minority interest in subsidiary loss (512) -- Net change in operating assets and liabilities 20,641 5,196 ------------ ------------ Net cash provided by operating activities 7,969 8,458 Cash flows from investing activities: Proceeds on sale of property -- 5,500 Net equity in deconsolidated subsidiaries (13,210) -- Purchase of property and equipment (2,954) (2,662) ------------ ------------ Net cash (used) provided by investing activities (16,164) 2,838 Cash flows from financing activities: Net payments under lines of credit (14,692) (5,271) Losses in excess of investment in unconsolidated affiliates 6,858 -- Net proceeds from sale of shares in subsidiaries 31,684 -- Payments on notes payable (304) (7,083) Proceeds from sales of stock to employees 3,348 315 Payments for purchases of treasury stock (999) -- ------------ ------------ Net cash provided (used) by financing activities 25,895 (12,039) ------------ ------------ Increase (Decrease) in cash $ 17,700 $ (743) ============ ============ Supplemental disclosures of cash flow information: Interest paid $ 1,814 $ 2,734 ============ ============ Income taxes (refunded) paid $ (1,419) $ 2,212 ============ ============ Non-cash financing and investing activities: Unrealized gain on equity holdings, net of taxes $ 577 ============ Tax benefit related to stock options $ 1,670 ============
See Notes to Condensed Consolidated Financial Statements 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 June 30, 2000, and the unaudited condensed consolidated statements of operations and comprehensive income and unaudited condensed consolidated statements of cash flows for the interim periods ended June 30, 2000 and 1999 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 and nine month periods ended June 30, 2000 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. NOTE 2 - COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED JUNE 30, ---------------------------------------- 2000 1999 ------------- ------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) ---------------------------------------- Net (loss) income $ (9,003) $ (936) ============= ============= Weighted-average shares outstanding 6,537 5,935 Effect of dilutive securities: Dilutive potential of options and warrants -- -- Weighted-average shares and share equivalents ------------- ------------- outstanding $ 6,537 $ 5,935 ============= ============= Basic (loss) income per share $ (1.38) $ (0.16) ============= ============= Diluted (loss) income per share $ (1.38) $ (0.16) ============= ============= NINE MONTHS ENDED JUNE 30, ---------------------------------------- 2000 1999 ------------- ------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) ---------------------------------------- Net (loss) income $ (20,353) $ (5,559) ============= ============= Weighted-average shares outstanding 6,363 5,931 Effect of dilutive securities: Dilutive potential of options and warrants -- -- Weighted-average shares and share equivalents ------------- ------------- outstanding $ 6,363 $ 5,931 ============= ============= Basic (loss) income per share $ (3.20) $ (0.94) ============= ============= Diluted (loss) income per share $ (3.20) $ (0.94) ============= =============
The dilutive potential of stock options and warrants has been excluded from the calculation of diluted loss per share in 2000 and 1999 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 quarter ended December 31, 1999. 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. In December 1999 the SEC issued Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements" which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Management believes the impact of SAB 101 will not have a material impact on the financial position or results of operations of the Company. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN No. 44"), "Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25." FIN No. 44 will be effective July 1, 2000. This interpretation provides guidance for applying APB Opinion No. 25, "Accounting for Stock issued to Employees." Management does not believe that the adoption of FIN No. 44 will have a significant impact on the Company's consolidated financial position, results of operations or cash flows. NOTE 4 - SEGMENT INFORMATION The Company consisted primarily of three business units (companies), En Pointe Technologies, Inc., firstsource corp., (previously known as firstsource.com, inc. and prior to that Purchase Pointe. Inc.), and SupplyAccess, Inc. En Pointe and firstsource have separate management teams, infrastructures and facilities. At one point, SupplyAccess, did share with En Pointe some of its 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 corp. 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 recently incorporated on November 15, 1999. It offers a hosted business-to-business web application integrated with a customized SAP-based enterprise fulfillment engine. The Company transferred its IT department and computer equipment and software to SupplyAccess effective October 1, 1999 in exchange for a $5.5 million note maturing September 30, 2004, and pays a flat quarterly fee of $500,000 for the IT services and access by its customers to the SupplyAccess fulfillment engine. Both firstsource and SupplyAccess were deconsolidated during the current June quarter (see Note 6). Thus, the segment information below presents operations for firstsource and SupplyAccess through the dates of deconsolidation of May 16, 2000 and April 4, 2000, respectively. All amounts are in thousands.
EN POINTE INTER-CO TECHNOLOGIES FIRSTSOURCE SUPPLYACCESS ELIMINATIONS TOTAL ---------------- ------------- ---------------- ---------------- ----------- IN THOUSANDS THREE MONTHS ENDED JUNE 30, 2000 Revenues $ 111,389 $ 10,181 $ -- $ (3,198) $ 118,372 Gross Profit $ 10,657 $ 949 $ -- $ (658) $ 10,948 Segment pretax profit (loss) $ (4,811) $ (1,715) $ (249) $ (784) $ (7,559) Segment Assets $ 108,570 $ -- $ -- $ -- $ 108,570 THREE MONTHS ENDED JUNE 30, 1999 Revenues $ 174,573 $ 8,365 $ -- $ -- $ 182,938 Gross Profit $ 13,095 $ 628 $ -- $ -- $ 13,723 Segment pretax profit (loss) $ 582 $ (2,022) $ -- $ -- $ (1,440) Segment Assets $ 135,987 $ 4,201 $ -- $ -- $ 140,188 NINE MONTHS ENDED JUNE 30, 2000 Revenues $ 336,557 $ 34,184 $ -- $ -- $ 370,741 Gross Profit $ 32,512 $ 3,083 $ -- $ -- $ 35,595 Segment pretax profit (loss) $ (8,468) $ (12,609) $ 512 $ 984 $ (19,581) NINE MONTHS ENDED JUNE 30, 1999 Revenues $ 478,478 $ 19,985 $ -- $ -- $ 498,463 Gross Profit $ 36,885 $ 1,260 $ -- $ -- $ 38,145 Segment pretax profit (loss) $ (4,651) $ (3,901) $ -- $ -- $ (8,552)
NOTE 5 - NON RECURRING EXPENSE - RESTRUCTURE CHARGES In June 2000, the Company underwent a restructuring as a result of reorganizing certain aspects of its business. Elements of the restructuring plan included streamlining the organization, reducing costs and expenses, and aligning resources to accelerate the growth potential in the Company's core business. In executing the restructure, the workforce was reduced by 105 employees and independent contractors at various levels and five offices were closed and converted to virtual sales locations. The following table summarizes the restructuring charges and the remaining reserves associated with the restructuring:
EXPENSED REMAINING THROUGH CASH ACCRUAL JUNE 30, 2000 PAYMENTS JUNE 30, 2000 ----------------- -------------- ------------------ (IN THOUSANDS) Separation costs for terminated employees $ 928 $ 794 $ 134 Facilities closing and downsizing 616 -- 616 ----------------- -------------- ------------------ $ 1,544 $ 794 $ 750 ================= ============== ==================
As of June 30, 2000, substantially all employee terminations as a result of the Company's restructuring have taken place and, except for related payroll taxes that were paid in the subsequent month, substantially all of the related severance payments have been made. NOTE 6 - DECONSOLIDATION On May 16, 2000, firstsource corp., a subsidiary of the Company, completed its third in a series of private placements of stock. A total of 2,388,344 shares of Series B convertible preferred stock was issued at a gross offering price of $4.19 per share. With the completion of the latest offering, the Company's voting interest has dropped to 43.5%. On April 4, 2000, SupplyAccess, Inc., another Company subsidiary, completed a supplemental private placement of stock. A total of 5,088,319 shares of Series A convertible preferred stock was issued at a gross offering price of $1.50 per share. With the completion of the April 4, 2000 offering, the Company's voting interest has dropped to 45.1%. Since April 4, 2000, an additional 5,196,000 shares of preferred stock were issued that reduced the Company's voting interest to 38.65%. During the periods prior to the reduction in the Company's voting interest to below 50%, the Company consolidated the operating results and assets and liabilities of firstsource corp. and SupplyAccess, Inc. At the date of deconsolidation, the Company has not recognized any gains for cumulative losses which have been recorded in excess of the Company's ownership interest in firstsource corp. and SupplyAccess, Inc. due primarily to the Company's continuing guarantee of certain debt facilities. NOTE 7 - INVESTMENT IN UNCONSOLIDATED AFFILIATES During the three months ended June 30, 2000, two of the Company's subsidiaries, SupplyAccess, Inc. and firstsource corp., issued additional shares of convertible preferred stock resulting in a reduction of En Pointe's voting control to less than 50%. Subsequent to the reduction in ownership the Company deconsolidated these subsidiaries and accounted for its investment in unconsolidated affiliates under the equity method of accounting. For the three months ended June 30, 2000, En Pointe recognized equity losses of unconsolidated affiliates for SupplyAccess, Inc. and firstsource corp. of approximately $1,900,000 and $1,060,000, respectively. At June 30, 2000, firstsource corp. and SupplyAccess, Inc. had loans and/ or advances from the Company, net of receivables, from En Pointe of $2,479,000 and $3,988,000, respectively. In addition, firstsource corp. has lines of credit facilities for borrowings of up to $7 million, which are guaranteed by the Company. The following summarizes the combined financial information of the unconsolidated affiliates at June 30, 2000 and for the three and nine months then ended (in thousands): Current assets $ 42,417 Non-current assets $ 11,370 Current liabilities $ 15,762 Non-current liabilities $ 1,535 Shareholder's equity $ 36,490
Three months ended Nine months ended June 30, 2000 June 30, 2000 ------------------ ----------------- Net revenues $ 17,276 $ 45,476 Net loss $ (9,788) $ (17,525)
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 achieve 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 in a virtual manner, (V) Quarterly fluctuations in results, (VI) Seasonal patterns of sales and client buying behaviors and potential fluctuation or decline in demand for the Company's products and services, (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) Planned or unplanned changes in the quantity and/or quality of the suppliers available for the Company's products, (XVI) Changes in the costs or availability of products, (XVII) Interruptions in transport or distribution, (XVIII) General business conditions in the economy. 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. As more fully described in Note 6, the Company has deconsolidated two of its internet focused subsidiaries that were previously reported in prior periods on a consolidated basis. For the current June quarter, the subsidiaries have been included in the consolidated operating results up until the period in which the Company's voting interest dropped to less than 50% and for the remainder of the period have been reported under the equity method of accounting. The following tables sets forth certain financial data as a percentage of net sales for the periods indicated and include operating results, as reported, as well as operating results adjusted to exclude the effects of deconsolidation described above:
Three Months Ended Nine Months Ended June 30, June 30, --------------------- ------------------------ 2000 1999 2000 1999 --------- --------- ---------- --------- Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 90.8 92.5 90.4 92.3 --------- --------- ---------- --------- Gross profit 9.2 7.5 9.6 7.7 Selling and marketing expenses 10.1 5.1 9.9 5.5 General and administrative expenses 4.2 2.9 5.2 2.8 Non recurring charges 1.3 0.7 1.6 --------- --------- ---------- --------- Operating (loss) (6.4) (0.5) (6.2) (2.2) Interest expense (0.4) (0.3) (0.5) (0.5) Other income, net 0.4 0.0 0.2 0.0 Gain on sale of securities -- -- 1.1 1.0 Minority interest -- -- 0.1 -- --------- --------- ---------- --------- (Loss) before taxes (6.4) (0.8) (5.3) (1.7) Benefit for income taxes (1.3) (0.3) (0.6) (0.6) Equity in losses of affiliates 2.5 0.8 --------- --------- ---------- --------- Net (loss) (7.6)% (0.5)% (5.5)% (1.1)% ========= ========= ========== ========= Normalized Earnings Excluding Deconsolidated Subsidiaries -------------------------------------------------------- Three Months Ended Nine Months Ended June 30, June 30, --------------------- ------------------------ 2000 1999 2000 1999 --------- --------- ---------- --------- Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 90.8 92.5 90.3 92.3 --------- --------- ---------- --------- Gross profit 9.2 7.5 9.7 7.7 Selling and marketing expense 9.2 4.8 9.0 5.2 General and administrative expenses 2.9 2.1 2.5 2.3 Non recurring charges 1.4 -- 0.8 1.6 --------- --------- ---------- --------- Operating (loss) income (4.3) 0.6 (2.6) (1.4) Interest expense (0.4) (0.3) (0.5) (0.5) Other income, net 0.4 0.1 0.2 0.0 Gain on sale of securities -- -- 0.9 0.9 --------- --------- ---------- --------- (Loss) income before taxes (4.3) 0.4 (2.0) (1.0) Benefit for income taxes (1.4) (0.3) (0.7) (0.6) --------- --------- ---------- --------- Net (loss) income (2.9)% 0.7 % (1.3)% (0.4)% ========= ========= ========== =========
In order to meaningfully assess underlying operating trends, management believes that the results of operations for each period should be analyzed after excluding the effects of these deconsolidated subsidiaries. As such, the following discussion and analysis focuses on amounts and trends adjusted to exclude the impact of the deconsolidated subsidiaries. COMPARISON OF THE THIRD QUARTER AND NINE MONTHS ENDED JUNE 30, 2000 (FISCAL 2000) AND 1999 (FISCAL 1999) NET SALES. Net sales decreased $63.0 million, or 36.1% to $111.4 million in the third quarter of fiscal 2000 from $174.4 million in fiscal 1999. The decrease in sales was a continuation of factors previously noted in the prior quarters, softness in the marketplace and a loss of customer base during implementation of the SAP business system. However, sales appear to have stabilized as evidenced by a 9.8% improvement in the June quarter's sales to $111.4 million compared with $101.5 million recorded in the prior sequential March quarter. Service revenues increased $.3 million, or 4.3% to $7.2 million in the third quarter of fiscal 2000 from $6.9 million in the prior fiscal year quarter and were 6.5% of total net consolidated sales versus 4.0% in the prior fiscal year quarter. Net sales under the IBM contract were $11.5 million and accounted for 10.3% of total consolidated net sales in the third quarter of fiscal 2000 compared with $34.6 million or 18.9% for the prior fiscal year quarter. Net sales under the IBM contract were adversely affected by systems implementation difficulties mentioned above. Net sales for the nine months decreased $ 141.7 million, or 29.6% to $336.6 million from $478.3 million in the prior fiscal year period. Service revenues increased $4.6 million, or 28.0% to $16.8 million from $14.2 million in the prior fiscal year period. Sales under the IBM contract were $41.0 million and accounted for 12.2% of total consolidated net sales for the nine months of fiscal 2000 compared with $96.2 million or 19.3% of total net sales in the prior fiscal year period. GROSS PROFIT. Gross profit decreased $2.8 million, or 21.4% to $10.3 million in the third quarter of fiscal 2000 as compared to $13.1 million in the prior fiscal year quarter, which was reflective of declining sales volumes. However, as a percentage of net sales, gross profits actually increased 1.7% to 9.2% from 7.5% in the prior fiscal year quarter. Of the 1.7% increase, 1.6% reflects improvement in product margins with the remainder attributable to a one time sale of equipment to SupplyAccess, Inc., an affiliate of the Company. On a sequential basis, the percentage of net sales margins declined slightly by 0.7% from the 9.9% recorded in the March quarter. Like trends were noted for the nine month comparable periods with gross profits as a percentage of net sales increasing to 9.7% from 7.7% in the prior year period. 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 $1.9 million, or 23.0% to $10.2 million in the third quarter of fiscal 2000, from $8.3 million in prior fiscal year quarter. Part of the increase is due to the additional sales personnel hired in the prior quarters that increased selling and related marketing expenses by $1.6 million. The additional selling and marketing expenses incurred were not accompanied by increased sales, as a result, selling and marketing expenses as a percentage of net sales, increased to 9.2% in 2000 from 4.8% in 1999. For the nine month period, selling and marketing expenses increased $5.0 million, or 20.1% to $30.1 million, from the $25.0 million of the prior fiscal period. As a percentage of net sales, selling and marketing expenses increased to 8.9% from 5.2% in the prior year. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased $0.4 million, or 10.8% to $3.3 million in the third quarter of fiscal 2000, from $3.7 million in the prior fiscal year quarter. As a percentage of net sales, general and administrative expenses increased .08% to 2.9% from 2.1% in the prior fiscal year quarter. All of the 0.8% increase was due to declining net sales volume. Sequentially, general and administrative expenses increased 0.7% as a percentage of net sales from the quarter ended March 2000 when general and administrative expenses were 2.2%. For the nine month period, general and administrative expenses decreased $2.5 million, or 22.9% to $8.4 million, from $10.9 million in the prior fiscal period. As a percentage of net sales, general and administrative expenses increased to 2.5% from 2.3% in the prior fiscal period. NON-RECURRING CHARGE. Restructuring charges of $1.5 million were incurred in the third quarter of the current fiscal year. See Note 5 above for an explanation of the nature of the charges involved. For the nine month period, non-recurring charges include both the above referenced restructuring charges and a $1.2 million charge related to a legal suit in which attorney fees and costs were awarded by the court. OPERATING (LOSS) INCOME. Operating loss increased $5.8 million, to a total loss of $4.8 million in the third quarter of fiscal 2000 from operating income of $1.0 million in the prior fiscal year quarter. The increased loss in the third quarter of fiscal 2000 was principally due to the decline in gross margins from revenue contraction, and increases in selling and marketing expenses and non-recurring charges. As a percentage of net sales, the operating loss widened to 4.3% of net sales in the third fiscal quarter of 2000 from operating income 0.6% in the 1999 fiscal quarter. The operating loss for the nine month period increased $1.7 million, to an $8.7 million loss from a $7.0 million loss in the prior fiscal period. As a percentage of net sales, the nine months operating loss increased to 2.6% from 1.5% in the prior fiscal period. INTEREST EXPENSE. Interest expense decreased $0.1 million, or 9.1% to $0.4 million in the third quarter of fiscal 2000 from $0.5 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. A similar decline in interest expense was noted for the nine months period as interest expense declined from $2.3 million to $1.7 million. While interest expense decreased for the current quarter, interest expense expressed as a percentage of net sales increased slightly, due to the decline in net sales from the prior period. BENEFIT FOR INCOME TAXES. The income tax benefit for the current quarter has been computed at a 34.1% rate, which approximates the federal tax rate for the carry back credits that are available to the Company. No benefit has been recognized for the losses of deconsolidated subsidiaries, since the reduced ownership of the subsidiaries prevents them from being included in the Company's consolidated tax filings. NET (LOSS) INCOME. Net loss increased $4.5 million, to a net loss of $3.3 million in the third quarter of fiscal 2000 from net income of $1.2 million in the prior fiscal year quarter. The increased loss is attributable to the $5.8 million decline in operating income discussed above. For the nine months, the net loss increased $5.8 million, to a net loss of $7.5 million from $1.7 million in the prior fiscal year period. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended June 30, 2000 operating activities provided cash totaling $8.0 million compared to $8.5 million cash provided in the prior fiscal year period. Most of the increase in cash provided by operating activities can be attributed to the decrease in accounts receivable. The Company's accounts receivable balance at June 30, 2000 and September 30, 1999, was $76.5 million and $101.7 million, respectively. The number of days' sales outstanding in accounts receivable as of June 30, 2000 and September 30, 1999 was 62 days and 56 days, respectively. Inventories also increased $1.8 million which was due mainly to a build up of intransit inventories at quarter end. Investing activities used cash of $16.2 million during the nine months ended June 30, 2000 compared with providing cash of $2.8 million in the prior year fiscal period. Computer equipment and software accounted for most of the $3.0 million in purchases of property and equipment. Financing activities provided net cash of $25.9 million during the nine months ended June 30, 2000. Net payments on lines of credit and other outstanding debt amounted to $14.7 million was the principal activity that used financing cash for the period. Proceeds from the sale of shares in subsidiaries and the sale of shares of En Pointe stock to employees provided cash of $36.7 million. As of June 30, 2000, the Company had approximately $1.9 million in cash, and working capital of $21.1 million. The Company has several revolving credit facilities collateralized by accounts receivable and all other assets of the Company, including a $50.0 million line with IBM Credit Corporation. As of June 30, 2000, such lines of credit provided for maximum aggregate borrowings of approximately $80.0 million, of which approximately $43.1 million was outstanding. Of the $80.0 million total line, the Company has guaranteed $7.0 million to one of its affiliates. 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 the June 30, 2000 quarter for non-compliance with two IBMCC loan covenant that relate to minimum consolidated net income as a percentage of net sales and debt to equity. The Company believes that current borrowing capacity under its lines of credit will provide sufficient working capital for the next twelve months. 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. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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, except as follows: in the Company's Annual Report on Forms 10-K for the fiscal year ended September 30, 1999 (as filed withthe Securities and Exchange Commission on January 13, 2000) the Company reported that in connection with that certain litigation originally filed April 29, 1997 in the Superior Court for the County of Los Angeles, under the case name Novaquest Infosystems, et. al. v. En Pointe Technologies, Inc., et al., the court had taken under submission Plaintiffs' claim for costs and attorney's fees, but had not yet ruled. The Company then stated, in connection with the claim for attorney's fees, that it did not believe that a judge would find reasonable the expending of $1,800,000 to recover $50,000.On April 27, 2000, the court issued its ruling on Plaintiffs' request for attorneys' fees and costs. The court awarded plaintiffs $1,112,853 in attorneys' fees for a recovery of $50,000, as well as $105,249 in costs. The Company intends to appeal the Court's ruling on attorneys' fees. The Company believes that an award of $1,112,853 in attorneys' fees to recover $50,000 should not be sustained. Nonetheless, in view of the ruling, the Company has recognized a charge to reported income of approximately $1.175 million for the quarter ending March 31, 2000, to provide for this potential loss. The Company is subject to other legal proceedings and claims that arise in the normal course of business. While the outcome of these other 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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits Exhibit NUMBER DESCRIPTION 27 Financial Data Schedule for the quarter ended June 30, 2000 b. On April 14, 2000, the Company filed a report on Form 8-K and announced that it's web procurement subsidiary, SupplyAccess, Inc. completed a $7.6 million supplemental private placement of Series A preferred stock. Total shares issued were 5.1 million at $1.50 each and represented 16.3% of the total shares outstanding. At the conclusion of the sale, the Company's percentage ownership in firstsource corp. was 45.1%. On May 22, 2000, the Company filed a report on Form 8-K and announced that it's internet subsidiary, firstsource corp (formerly known as firstsource.com, inc. and previously as Purchase Pointe,Inc.)., completed an additional $10 million private placement of Series A convertible preferred stock. Total shares issued were 2,388,344 million. At the conclusion of thesale, the Company's percentage ownership in SupplyAccess, Inc. was 43.5%. On June 1, 2000, the Company filed a report on Form 8-K and announced that it's web procurement subsidiary, SupplyAccess, Inc. completed a $3.8 million supplemental private placement of Series A preferred stock. Total shares issued were 2,529,334 at $1.50 each and represented 6.96% of the total shares outstanding. At the conclusion of the sale, the Company's percentage ownership in firstsource corp. was 38.65%. On June 19, 2000, the Company filed a report on Form 8-K and announced a realigned operating structure designed to streamline the organization, reduce costs and expenses, and align resources to accelerate the growth potential in the Company's core business. The Company stated that it expected to take certain non-recurring charges in the third quarter in connection with the realignment. These charges, the amounts of which were not yet finalized, would cover expected costs including severance costs attributable to work force reduction, cancellation of vendor contracts and leases,asset write-offs and other loss accruals. In aggregate, management estimated that these charges will be in the range of $2 to 2.5 million. 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: August 14, 2000 By: /s/ KEVIN D. AYERS ----------------------------------- Kevin D. Ayers, Chief Financial Officer EX-27 2 ex-27.txt EXHIBIT 27
5 0001010305 EN POINTE TECHNOLOGIES, INC. 1,000 9-MOS SEP-30-2000 OCT-01-1999 JUN-30-2000 1,935 0 79,653 3,150 10,210 93,716 13,112 5,622 101,206 72,625 0 0 0 6 16,265 72,625 370,741 370,741 335,146 393,774 (5,266) 1,237 1,814 (19,581) (2,188) 0 0 0 0 (20,353) (3.20) (3.20)
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