10-Q/A 1 a52537a1e10vqza.htm AMENDMENT TO FORM 10-Q e10vqza
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q/A
Amendment No. 1
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934
For the quarterly period ended December 31, 2008
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-28052
 
EN POINTE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
     
Delaware   75-2467002
(State or other jurisdiction of   (I.R.S. Employer Identification No.)
incorporation or organization)    
     
18701 S. Figueroa Street    
Gardena, California   90248
(Address of principal executive offices)   (Zip Code)
(310) 337-5200
(Registrant’s telephone number, including area code)
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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o    Accelerated filer o    Non-accelerated filer   o
(Do not check if a smaller reporting company)		   Smaller reporting company þ 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of February 17, 2009, 7,181,941 shares of common stock of the Registrant were issued and outstanding.
 
 

 

 

INDEX
En Pointe Technologies, Inc.
     
PART I FINANCIAL INFORMATION
    
 
    
Item 1. Financial Statements
    
  3
  4
  5
  6
 
    
  10
 
    
  19
 
    
   
 
    
  20
  20
  20
 EX-31.1
 EX-31.2
 EX-32.1
Item 3 of Part I and Item 1A of Part II have been omitted based on the Company’s status as a “smaller reporting company.” Items 2, 3, 4 and 5 of Part II have been omitted because they are not applicable with respect to the current reporting period.

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EXPLANATORY NOTE
     This Amendment No. 1 on Form 10-Q/A (this “Amendment”) amends and restates in its entirety the Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2008 filed on February 17, 2009 (the “Initial 10-Q”). This Amendment revises disclosures concerning (i) beginning and ending cash balances in the Condensed Consolidated Statement of Cash Flows in Part I, Item 1, (ii) disclosure controls and procedures in Part I, Item 4T, and (iii) the date of the settlement agreement with Church Gardens, LLC in Part II, Item 1. Except as otherwise stated herein, no other information contained in the Initial 10-Q, as previously amended, has been updated by this Amendment, and no disclosures have been updated to reflect events that occurred at a later date.

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En Pointe Technologies, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In Thousands Except Share and Per Share Amounts)
                 
    December     September  
    31,     30,  
    2008     2008  
ASSETS:
                
Current assets:
                
Cash
   $ 9,677     $ 3,691  
Restricted cash
     10       10  
Accounts receivable, net
     35,568       35,448  
Due from affiliate
     —       3,586  
Inventories, net
     6,805       5,858  
Prepaid expenses and other current assets
     1,570       1,294  
 
            
Total current assets
     53,630       49,887  
 
                
Property and equipment, net of accumulated depreciation and amortization
     4,289       4,202  
 
                
Other assets
                
Due from affiliate
     3,936       —  
Equitable securities held in escrow
     4,232       7,955  
Other
     5,647       5,754  
 
            
Total other assets
     13,815       13,709  
 
            
Total assets
   $ 71,734     $ 67,798  
 
            
 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY:
                
Current liabilities:
                
Accounts payable, trade
   $ 22,230     $ 15,817  
Borrowings under line of credit
     9,069       7,840  
Short-term borrowings and current maturities of long-term debt
      222        375  
Accrued liabilities
     10,820       11,153  
Accrued taxes and other liabilities
     5,462       4,522  
 
            
Total current liabilities
     47,803       39,707  
Long term liabilities
     428       475  
 
            
Total liabilities
     48,231       40,182  
 
            
 
                
Noncontrolling interest
     1,943       1,962  
 
            
 
                
Stockholders’ equity:
                
Preferred stock, $.001 par value:
                
Shares authorized—5,000,000
                
No shares issued or outstanding
     —       —  
Common stock, $.001 par value:
                
Shares authorized—15,000,000; with 7,182,643 and 7,162,643 shares issued
     7       7  
Additional paid-in capital
     43,643       43,616  
Treasury stock, 702 shares
     (1 )     (1 )
Accumulated other comprehensive loss
     (4,388 )     (659 )
Accumulated deficit
     (17,701 )     (17,309 )
 
            
Total stockholders’ equity
     21,560       25,654  
 
            
Total liabilities and stockholders’ equity
   $ 71,734     $ 67,798  
 
            
See Notes to Condensed Consolidated Financial Statements.

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En Pointe Technologies, Inc.
Condensed Consolidated Statements of Operations
and Comprehensive Income
(Unaudited)
(In Thousands, Except Per Share Amounts)
                 
    Three months ended  
    December 31,  
    2008     2007  
Net sales:
                
Product
   $ 52,393     $ 74,148  
Service
     2,494       12,734  
 
            
Total net sales
     54,887       86,882  
 
            
Cost of sales:
                
Product
     46,353       67,922  
Service
     1,707       7,066  
 
            
Total cost of sales
     48,060       74,988  
 
            
Gross profit:
                
Product
     6,040       6,226  
Service
      787       5,668  
 
            
Total gross profit
     6,827       11,894  
 
            
 
                
Selling and marketing expenses
     4,930       8,828  
General and administrative expenses
     2,368       3,076  
 
            
Operating loss
     (471 )     (10 )
 
            
 
                
Interest income, net
     20       66  
Other (expense) income, net
     (29 )     61  
 
            
(Loss) income before income taxes and other items
     (480 )     117  
(Benefit) provision for income taxes
     (26 )     31  
 
            
(Loss) income before allocated income in equity investment and noncontrolling interest allocation
     (454 )     86  
Allocated income in equity investment
     43          
Allocated loss (income) to noncontrolling interest
     19       (43 )
 
            
Net (loss) income
     (392 )     43  
Other comprehensive income (loss)
                
Foreign currency translation adjustment
     10       (25 )
Valuation adjustment for equity positions
     (3,739 )        
 
            
Comprehensive (loss) income
   $ (4,121 )   $ 18  
 
            
 
                
Net (loss) income per share:
                
Basic
   $ (0.05 )   $ 0.01  
 
            
Diluted
   $ (0.05 )   $ 0.01  
 
            
 
                
Weighted average shares outstanding:
                
Basic
     7,182       7,158  
 
            
Diluted
     7,182       7,371  
 
            
See Notes to Condensed Consolidated Financial Statements.

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En Pointe Technologies, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
                 
    Three months ended  
    December 31,  
    2008     2007  
Cash flows from operating activities:
                
Net (loss) income
   $ (392 )   $ 43  
Adjustments to reconcile net (loss) income to net cash provided by operations:
                
Depreciation and amortization
      513        697  
Allowances (recovery) for doubtful accounts, returns, and inventory
     (702 )     99  
Loss on disposal of assets
     65       —  
Allocated income in equity investment
     (43 )     —  
Allocation of loss (income) to noncontrolling interest
     (19 )     44  
Net change in operating assets and liabilities
     6,095       16,925  
 
            
Net cash provided by operating activities
     5,517       17,808  
 
            
 
                
Cash flows from investing activities:
                
Disposition of short-term cash investment
     —       989  
Purchase of property and equipment
     (475 )     (1,023 )
 
            
Net cash used by investing activities
     (475 )     (34 )
 
            
 
                
Cash flows from financing activities:
                
Net borrowings (repayments) under line of credit
     1,229       (15,790 )
Net borrowings under short-term financing
      237       344  
Proceeds from exercise of employee stock options
     27       —  
Payment on long term liabilities
     (549 )     (160 )
 
            
Net cash provided (used) by financing activities
     944       (15,606 )
 
            
 
Increase in cash
     5,986       2,168  
Beginning cash
     3,691       6,000  
Ending cash
   $ 9,677     $ 8,168  
 
            
 
                
Supplemental disclosures of cash flow information:
                
Interest paid
   $ 241     $ 75  
 
            
Income taxes paid
   $ 384     $ 44  
 
            
Capitalized leases
   $ 112     $ 55  
 
            
See Notes to Condensed Consolidated Financial Statements.

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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 sheets of En Pointe Technologies, Inc., including (i) its wholly-owned subsidiaries En Pointe Technologies Sales, Inc., En Pointe Gov, Inc., En Pointe Technologies Canada, Inc., The Xyphen Corporation, and En Pointe Europe, Inc. Limited (ii) its majority-owned subsidiary Ovex Technologies (Private) Limited, En Pointe Technologies India Pvt. Ltd., and (iii) its minority-owned affiliate Premier BPO, Inc. (a “Variable Interest Entity”) and its wholly-owned Chinese subsidiary, Premier BPO Tianjin Co., Ltd. (collectively, referred to as “we,” “us” “our” or similar terms), at December 31, 2008, and the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows for the three months ended December 31, 2008 and 2007, respectively, include all adjustments (consisting only of normal recurring adjustments) necessary to fairly state these financial statements in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting.
     Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the SEC. The year-end balance sheet data were derived from audited financial statements, but do not include disclosures required by generally accepted accounting principles. Operating results for the three months ended December 31, 2008 are not necessarily indicative of the results that may be expected for the year ending September 30, 2009. It is suggested that these condensed financial statements be read in conjunction with our most recent Form 10-K for the fiscal year ended September 30, 2008.
     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. On an on-going basis, management evaluates its estimates and judgments, including those related to customer bad debts, product returns, vendor returns, rebate reserves, inventories, other contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Note 2 – Computation of Earnings Per Share
          The following table sets forth the computation of basic and diluted net income per share (in thousands, except for per share amounts):
                 
    Three Months Ended  
    December 31,  
    2008     2007  
Net (loss) income
   $ (392 )   $ 43  
 
            
 
                
Weighted average shares outstanding
     7,182       7,158  
Effect of dilutive securities:
                
Dilutive potential of options
     0       213  
 
            
Weighted average shares and share equivalents outstanding
     7,182       7,371  
 
            
 
                
Basic (loss) income per share
   $ (0.05 )   $ 0.01  
 
            
Diluted (loss) income per share
   $ (0.05 )   $ 0.01  
 
            

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Accounting pronouncements adopted:
          In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115, which is effective for us in fiscal years beginning after July 1, 2008. This statement permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. We adopted this accounting pronouncement effective October 1, 2008 and the adoption has not had a material effect on our consolidated financial statements.
     In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN No. 48”). This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The provisions of FIN No. 48 are effective for fiscal years beginning after December 15, 2006. We adopted this accounting pronouncement effective October 1, 2007and the adoption has not had a material effect on our consolidated financial statements.
     In September 2006, the FASB issued FAS 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. We adopted this accounting pronouncement effective October 1, 2008 and the adoption has not had a material effect on our consolidated financial statements.
Accounting pronouncements pending adoption:
     In March 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about a company’s derivative and hedging activities. These enhanced disclosures will discuss (a) how and why a company uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect a company’s financial position, results of operations and cash flows. SFAS No. 161 is effective for fiscal years beginning on or after November 15, 2008, with earlier adoption allowed. We do not anticipate that the adoption of this accounting pronouncement will have a material effect on our consolidated financial statements.
     In February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. Therefore, we will delay application of SFAS 157 to our nonfinancial assets and nonfinancial liabilities. We do not anticipate that the delayed adoption of this accounting pronouncement will have a material effect on our consolidated financial statements.
     In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and SFAS No. 160, Accounting and Reporting of Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. These new standards will significantly change the financial accounting and reporting of business combination transactions and noncontrolling (or minority) interests in consolidated financial statements. SFAS 141(R) is required to be adopted concurrently with SFAS 160 and is effective for business combination transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is prohibited. We do not anticipate that the adoption of this accounting pronouncement will have a material effect on our consolidated financial statements.
Note 4 – Segment Reporting
          The provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, require public companies to report financial and descriptive information about their reportable operating segments. We identify reportable segments based on how management internally evaluates separate financial information, business activities and management responsibility. In fiscal year 2007, we began operating initially in two segments until the fourth quarter of fiscal year 2007 when the China business process services was added. The following table provides information as to how the segments contributed to our operations and assets (in thousands):

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    As of and for the Quarter Ended December 31, 2008
    US   Pakistan   China            
    Sales of   Business   Business            
    Product   Process   Process   En Pointe   Intersegment   Consolidated
    and Services   Services   Services   Europe   Eliminations   Total
Sales from non affiliated customers
   $ 54,389     $ 333     $ 165     $ —     $ —     $ 54,887  
Intersegment sales
   $ 0     $ 1,812     $ —     $ —     $ (1,812 )   $ 0  
Depreciation and amortization
   $ 380     $ 124     $ 8     $ 1     $ —     $ 513  
Segment (loss) profit
   $ (359 )   $ (67 )   $ 35     $ (1 )   $ —     $ (392 )
Segment assets
   $ 67,922     $ 4,295     $ 212     $ 17     $ (712 )   $ 71,734  
                                                 
    As of and for the Quarter Ended December 31, 2007
    US   Pakistan   China            
    Sales of   Business   Business            
    Product   Process   Process   En Pointe   Intersegment   Consolidated
    and Services   Services   Services   Europe   Eliminations   Total
Sales from non affiliated customers
   $ 86,590     $ 125     $ 167     $ —     $ —     $ 86,882  
Intersegment sales
   $ 95     $ 1,973     $ —     $ —     $ (2,068 )   $ 0  
Depreciation and amortization
   $ 575     $ 114     $ 8     $ —     $ —     $ 697  
Segment (loss) profit
   $ (135 )   $ 186     $ 35     $ —     $ (43 )   $ 43  
Segment assets
   $ 75,811     $ 4,646     $ 211     $ —     $ (1,295 )   $ 79,373  

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     In January 2008, in order to avoid the cost of ongoing litigation, we reached a settlement agreement with Church Gardens, LLC (“Church”) relating to an action that was brought against us in July 2006 in San Bernardino County Superior Court, Case No. RCV096518. The complaint centered on certain furniture, fixtures, equipment and leasehold improvements that were sold to, and leased back to us , by Church’s predecessor in 1999 when we still occupied its former leased configuration facility in Ontario, California. Church alleged, among other things, that a portion of the leased-back property was sold, destroyed, altered, or removed from the premises, and demanded both an inspection and an accounting of the property remaining and for the court to provide damages to the extent that we may have breached our contract. Under terms of the settlement agreement, Church released to us certain furniture and equipment being warehoused by them and we paid Church $450,000. The full amount of the settlement payment was recognized in the September 2008 quarterly financial statements. The settlement was a business decision and in entering into the settlement, we made no admission of liability.
     On July 25, 2008, the Circuit Court for the City of Norfolk, Virginia granted leave to Softchoice Corporation to amend its Complaint in Case Number CL07-5777 against certain of our employees who were former Softchoice Corporation employees to add us and our subsidiary, En Pointe Technologies Sales, Inc., as defendants therein. We have not yet filed a responsive pleading and vigorously dispute liability.
     There are various other claims and litigation proceedings in which we are involved in the ordinary course of business. We provide for costs related to contingencies when a loss is probable and the amount is reasonably determinable. While the outcome of the foregoing and other claims and proceedings cannot be predicted with certainty, after consulting with legal counsel, management does not believe that it is reasonably possible that any ongoing or pending litigation will result in an unfavorable outcome or have a material adverse affect on our business, financial position and results of operations or cash flows.
Note 6 — Fair Value Measurements
     Effective October 1, 2008, the Company adopted Statement of Financial Accounting Standard No. 157, Fair Value Measurements (“FAS 157”). This standard establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. FAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. SFAS 157 also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:
     
Level 1
  quoted prices in active markets for identical assets or liabilities;
 
    
Level 2
  quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or
 
    
Level 3
  unobservable inputs, such as discounted cash flow models or valuations.
     The following is a listing of the Company’s assets and liabilities required to be measured at fair value on a recurring basis as of December 31, 2008 (in thousands):
                                 
    Level 1     Level 2     Level 3     Total  
Marketable equities
   $ 859     $ 4,232     $ —     $ 5,091  
 
                        
Note 7 — Equity Investment
     For the December 2008 quarter, the financial results of En Pointe Global Services LLC, in which the Company has a 19.5% equity interest was as follows:
         
    (In Thousands)  
    Quarter Ended  
    December 31, 2008  
Statement of Operations
        
Net service revenues
   $ 10,208  
Cost of revenues
     5,981  
 
      
Total gross profit
     4,227  
Selling, marketing and administration
     4,009  
 
      
Net income allocatable to partners
   $ 218  
En Pointe percentage ownership
     19.50 %
 
      
Allocated to En Pointe
   $ 43  
 
      

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    (In Thousands)  
    Quarter Ended  
    December 31, 2008  
Balance Sheet
        
Cash
   $ 107  
Accounts receivable, net
     6,817  
Other current assets
     447  
 
      
Total current assets
     7,371  
Property and equipment, net
     1,104  
 
      
Total Assets
   $ 8,475  
 
      
 
        
Accounts payable
   $ 265  
Accrued liabilities
     1,859  
Due En Pointe
     3,936  
 
      
Total current liabilities
     6,060  
Member equity
     2,415  
 
      
Total Liabilities and Member Equity
   $ 8,475  
 
      
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     En Pointe Technologies, Inc., including its wholly-owned subsidiaries En Pointe Technologies Sales, Inc., En Pointe Gov, Inc., En Pointe Technologies Canada, Inc., The Xyphen Corporation, and En Pointe Europe, Inc. Limited, its majority-owned subsidiaries En Pointe Technologies India Pvt. Ltd., Ovex Technologies (Private) Limited , and its minority-owned affiliate Premier BPO, Inc. (a Variable Interest Entity referred to as “PBPO”) and its wholly-owned Chinese subsidiary, Premier BPO Tianjin Co., Ltd. are collectively referred to as “we,” “us” “our” or similar terms.
     The following statements are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995:
(i) any statements contained or incorporated herein regarding possible or assumed future results of operations of our business, anticipated cost savings or other synergies, the markets for our services and products, anticipated capital expenditures, regulatory developments or competition; (ii) any statements preceded by, followed by or that include the words “intends,” “estimates,” “believes,” “expects,” “anticipates,” “should,” “could,” “projects,” “potential,” or similar expressions; and (iii) other statements contained or incorporated by reference herein regarding matters that are not historical facts.
     Such forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, included in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-Q, which reflect management’s best judgment based on factors currently known, 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 us 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:
(i) a significant portion of our sales continuing to be to certain large customers, (ii) continued dependence by us on certain allied distributors, (iii) continued downward pricing pressures in the information technology market, (iv) our ability to maintain inventory and accounts receivable financing on acceptable terms, (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) our dependence on key personnel, (xii) potential influence by executive officers and principal stockholders, (xiii) volatility of our stock price, (xiv) delays in the receipt of orders or in the shipment of products, (xv) any delay in execution and implementation of our system development plans, (xvi) loss of minority ownership status, (xvii) planned or unplanned changes in the quantity and/or quality of the suppliers available for our products, (xviii) changes in the costs or availability of products, (xix) interruptions in transport or distribution, (xx) general business conditions in the economy, (xxi) our ability to prevail in litigation, and (xxii) losses from foreign currency fluctuation, limitations on foreign asset transfers and changes in foreign regulations and political turmoil.
     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

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may cause us to alter our marketing, capital expenditure or other budgets, which may in turn affect our 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 our most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2008. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.
Critical Accounting Policies
     There have been no major changes to our critical accounting policies since the disclosure of critical accounting policies made in the September 30, 2008 Annual Report on Form 10-K.

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     The following table sets forth certain financial data as a percentage of net sales for the periods indicated:
                 
    Three Months Ended
    December 31,
    2008   2007
Net sales:
                
Product
     95.5 %     85.3 %
Services
     4.5       14.7  
 
                
Total net sales
     100.0       100.0  
Gross profit:
                
Product
     11.0       7.2  
Services
     1.4       6.5  
 
                
Total gross profit
     12.4       13.7  
Selling and marketing expenses
     9.0       10.3  
General and administrative expenses
     4.3       3.5  
 
                
Operating loss
     (0.9 )     (0.1 )
Interest income, net
     0.0       0.1  
Other (loss) income, net
     (0.0 )     0.1  
 
                
(Loss) income before taxes and other items
     (0.9 )     0.1  
(Benefit) provision for income taxes
     (0.1 )     0.0  
 
                
(Loss) income before other items
     (0.8 )     0.1  
Allocated income in equity investment
     0.1       —  
Allocated loss (income) to noncontrolling interest
     0.0       (0.1 )
 
                
Net loss
     (0.7 )%     0.0 %
 
                
Comparison of the Results of Operations for the Three Months Ended December 31, 2008 and 2007
     NET SALES
NET SALES COMPARISONS
(table in millions except percentages)
                         
            Three Months Ended  
            December 31,  
Period-to-Period Comparison   Change     2008     2007  
Net sales:
                        
Product
   $ (21.8 )   $ 52.4     $ 74.2  
Services
   $ (10.2 )   $ 2.5     $ 12.7  
 
                  
Total
   $ (32.0 )   $ 54.9     $ 86.9  
 
                  
Percentage change
     (36.8 )%                
 
                      
 
            December 31,     September 30,  
Sequential Comparison   Change     2008     2008  
Net sales:
                        
Product
   $ (7.8 )   $ 52.4     $ 60.2  
Services
   $ (0.4 )   $ 2.5     $ 2.9  
 
                  
Total
   $ (8.2 )   $ 54.9     $ 63.1  
 
                  
Percentage change
     (13.0 )%                
 
                      
     Net sales decreased $32.0 million, or 36.8%, in the December 2008 quarter as compared to the December 2007 quarter, with decreases in net sales of both product and services. Of the $32.0 million decline in net sales, $10.2 million in service revenue decline for the quarter was anticipated as a result of the divestiture of the IT services business in July 2008 (see “Note 7 - Equity Investment”). The $21.8 million decline in net product sales is reflective of the loss of major customers, including those customers that were adversely affected by the banking crisis, as well as sharp reductions in spending by other major customers.
     Software sales in the December 2008 quarter were 33.4% of total net sales as compared with 21.2% of total net sales in the December 2007 quarter. Software sales, including licenses, maintenance, and agency commissions related thereto, in the

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December 2008 quarter decreased $0.3 million in the December 2008 quarter to $18.9 million from $19.2 million in the December 2007 quarter.
     The Company’s non-core net sales (defined as sales of business process outsourcing services and product and service revenue from foreign subsidiaries) were essentially flat with $1.9 million of revenues recorded in the December 2008 quarter as compared with $1.6 million revenues in the December 2007 quarter.
     On a sequential basis, net sales decreased $8.2 million, or 13.0%, when compared with the September 2008 quarter, primarily as a result of decreased product revenue.
     While net sales to any one customer did not exceed 10% in the December 2008 quarter, there was nevertheless a concentration of net sales in the top ten regular customers which amounted to $21.4 million, or 39.0% of total net sales in the December 2008 quarter. This was a decline from the December 2007 quarter’s concentration of net sales in the top ten customers of $36.5 million, or 42.0% and indicative of the cutbacks in purchasing by the large customers.
     GROSS PROFIT
GROSS PROFIT COMPARISONS
(table in millions except percentages)
                         
            Three Months Ended  
            December 31,  
Period-to-Period Comparison   Change     2008     2007  
Gross profit:
                        
Product
   $ (0.2 )   $ 6.0     $ 6.2  
Services
   $ (4.9 )   $ 0.8     $ 5.7  
 
                  
Total
   $ (5.1 )   $ 6.8     $ 11.9  
 
                  
Percentage change
     (42.9 )%                
 
                      
 
                        
Gross margin percentage:
                        
Product
     3.1 %     11.5 %     8.4 %
Services
     (12.9 )%     32.0 %     44.9 %
Combined gross margin percentage
     (1.3 )%     12.4 %     13.7 %
 
            December 31,     September 30,  
Sequential Comparison   Change     2008     2008  
Gross profit:
                        
Product
   $ (0.3 )   $ 6.0     $ 6.3  
Services
   $ (0.5 )   $ 0.8     $ 1.3  
 
                  
Total
   $ (0.8 )   $ 6.8     $ 7.6  
 
                  
Percentage change
     (10.5 )%                
 
                      
Gross margin percentage:
                        
Product
     2.9 %     11.5 %     8.6 %
Services
     21.7 %     32.0 %     10.3 %
Combined gross margin percentage
     3.7 %     12.4 %     8.7 %
     Gross profits decreased $5.1 million in the December 2008 quarter, or 42.9%, to $6.8 million as compared with the $11.9 million in the December 2007 quarter. The majority of the decrease in gross profits was attributable to the decline in service revenues resulting from the divestiture of the IT service business in the fourth quarter of fiscal 2008. The $4.9 million decline in service gross profits approximates the $4.2 million of service revenues recognized by the IT service business transferred to En Pointe Global Services, LLC (see “Note 7 — Equity Investment”). Product gross profits for the December 2008 quarter decreased $0.2 million to $6.0 million from the December 2007 quarter at $6.2 million. In spite of a $21.8 million decrease in product net sales, gross profits experienced less of a decline due to the 2.9% increase in the gross margin percentage to 11.5% from 8.4% in the December 2007 quarter that resulted, in part, from the outsourcing of the configuration process.

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     Software agency commissions, provided chiefly by Microsoft, Inc., are recorded net of costs and have a major influence on gross profits. However, the increase in software agency commissions for the December 2008 quarter was relatively minor, increasing $0.1 million to $1.2 million over the December 2007 quarter. Furthermore, as a result of recent announcements from Microsoft, Inc., the Company anticipates future erosion of the agency commission fee structure. Software gross profits combined with agency commissions amounted to $1.9 million of the $6.8 million total gross profits for the December 2008 quarter.
     SELLING AND MARKETING EXPENSES. Selling and marketing expenses decreased $3.9 million, or 44.2%, to $4.9 million in the December 2008 quarter, from $8.8 million in the December 2007 quarter. Most of the $3.9 million decrease is attributed to the absence of selling and marketing expenses for expenses related to the services business.
     Selling and marketing expenses as a percentage of net sales likewise decreased 1.3% to 9.0% in the December 2008 quarter from the 10.3% recorded in the December 2007 quarter. On a sequential basis, selling and marketing expenses decreased $5.0 million in the December 2008 quarter from the $10.0 million incurred in the September 2008 quarter. The sequential decrease is due to the September 2008 quarter having been burdened by a series of non-recurring expenses including, a large bad debt provision increase, an increase in the reserve for sales and business tax audits, legal settlement costs, and transactional bonuses related to the sale of the services business that together approximated $5.0 million.
          GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased $0.7 million, or 23.0%, to $2.4 million in the December 2008 quarter from the $3.1 million in the December 2007 quarter. The decrease was principally from the absence of general and administrative expenses related to the services business.
     On a sequential basis, general and administrative expenses decreased $2.2 million in the December 2008 quarter from the $4.6 million incurred in the September 2008 quarter. The sequential decrease is due to the September 2008 quarter having been burdened by a series of non-recurring expenses including $1.8 million in transactional bonuses related to the sale of the services business. Expressed as a percentage of net sales, general and administrative expenses increased 0.8% to 4.3%. The percentage increase was caused by the decrease in net sales base to spread the costs.
     OPERATING LOSS. The operating loss increased to $471,000 in the December 2008 quarter compared with a $10,000 of operating loss in the December 2007 quarter. The increase in the operating loss was a result of the decrease in gross profits of $5.1 million partially offset by a $4.6 million decrease in operating expenses.
     INTEREST INCOME, NET. At December 31, 2008 and 2007 net interest income was comprised of the following (in thousands):
                 
    Three Months Ended  
    December 31,  
    2008     2007  
Interest income
   $ 57     $ 141  
Interest expense
     (37 )     (75 )
 
            
 
   $ 20     $ 66  
 
            
     Interest income results principally from short-term money market investments earned from excess cash holdings and short-term cash investments. Interest expense results principally from lease financing.
     BENEFIT FOR INCOME TAXES. For the December 2008 quarter, we estimated a net income tax benefit of $26,000 for the quarter. The tax benefit reflects the potential of a federal tax refund from the $114,000 of federal income taxes paid in the prior fiscal year.
     As of December 31, 2008, there were no available federal net operating loss carry forwards as all net operating loss carryforwards were applied in full in the prior fiscal year.
     ALLOCATED LOSS (INCOME) TO NONCONTROLLING INTERESTS. Under FIN 46 and other recent changes in consolidation principles, certain noncontrolling interests are required to be consolidated. The Company owns an approximate 30% voting interest in PBPO as of December 31, 2008 and under FIN 46 is required to consolidate PBPO’s financial results in our financial statements. In the first quarter of fiscal 2009, PBPO was profitable and no profits were allocated to the noncontrolling interest. This was due to prior period PBPO losses that were allocated disproportionately to us and which were in excess of our investment in PBPO. As a result of the excess losses taken by us, under Accounting Research Bulletin 51, when future earnings materialize, we can recover those losses taken in full before any allocation is made to the noncontrolling investors. In the quarter ended December 31, 2007, PBPO incurred a loss that was allocated to noncontrolling investors based on their remaining “at risk” capital and percentage of ownership.

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     Ovex, which is 70% owned by us, incurred a loss for the first quarter of fiscal 2009 of which 30% has been allocated to noncontrolling interest based on “at risk” capital. However, Ovex incurred a profit in the first quarter of fiscal 2008 of which 30% has been allocated to the noncontrolling interest.
     Noncontrolling interest in thousands allocated by each affiliate for the three months ended December 31, 2008 and 2007 was as follows:
                 
    Three Months Ended  
    December 31,  
    2008     2007  
PBPO
   $ —     $ 21  
Ovex
     19       (64 )
 
            
Loss (profit) allocations
   $ 19     $ (43 )
 
            
     NET (LOSS) INCOME. For the December 2008 quarter there was a $392,000 net loss as compared with net income of $43,000 in the December 2007 quarter. The increase approximate $0.4 million net loss for the December 2008 quarter was due primarily to the decrease in operating income of $0.5 million reduced by a $0.1 million increase in non-operating income.
     Expressed as a percentage of net sales, the net loss in the December 2008 quarter was 0.7% of net sales.

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Liquidity and Capital Resources
     Sources of liquidity for us include cash and cash equivalents, cash flow from operations, and amounts available under our GE and IBM financing facilities. These sources have been adequate for day-to-day operations and for capital expenditures. Although there can be no assurance, management believes that the remaining cash balances, cash flows from operations, and availability of funds under our financing facilities will be sufficient to satisfy our operating requirements for the next fiscal year. As of December 31, 2008, we had approximately $9.7 million in cash and working capital of $5.8 million.
Cash flows from operating activities:
     During the three months ended December 2008, operating activities provided cash totaling $5.5 million as compared with $17.8 million in the December 2007 quarter. The primary reason for the $12.3 million net decrease in cash from operating activities was the presence of a $7.7 million reduction of accounts receivable that generated cash in the December 2007 quarter whereas in the December 2008 quarter there was a $0.5 million increase in accounts receivable. In addition, the combined effect of increases in inventory and decreases in accounts payable had a $5.4 million adverse effect on operating cash when comparing the December 2008 and 2007 quarters.
     Accounts receivable, net of allowances for returns and doubtful accounts, at December 31, 2008 and 2007, was $35.6 million and $53.6 million, respectively, a decrease of $18.0 million for the 2008 period. The number of days’ sales outstanding in accounts receivable was 59 and 56, as of December 31, 2008 and 2007, respectively.
     Cash flows from investing activities:
          Investing activities used cash totaling $0.5 million during the three months ended December 2008, an increase of $0.4 million from that of the prior fiscal year period. The $0.4 million increase resulted principally from the absence in the December 2008 quarter of cash that was provided by the disposition of a short-term cash investment of $1.0 million in the December 2007 quarter offset, in part, by the $0.6 million decline in the purchase of property and equipment in the December 2008 quarter.
     Cash flows from financing activities:
          Financing activities provided net cash totaling $1.0 million in the three months ended December 2008, $16.6 million more than the $15.6 million of net cash that was used from financing activities in the prior year period. Most of the $16.6 million increase in cash provided in the fiscal 2008 period was from the reversal of a net repayment of $15.8 million in the debt under our line of credit in the December 2007 quarter to the net borrowing of $1.2 million in the December 2008 quarter, which had a total effect of $17.0 million in our cash flows from financing activities.
Credit facilities:
     The Company’s two primary information technology sales subsidiaries, En Pointe Technologies Sales, Inc. and En Pointe Gov, Inc., and GE Commercial Distribution Finance Corporation (“GE”) are parties to that certain Business Financing Agreement and that certain Agreement for Wholesale Financing dated June 25, 2004 with various subsequent amendments to date (collectively, the “Agreements”). En Pointe Technologies, Inc. is the guarantor of the obligations under the Agreements. Under the flooring arrangement, the two subsidiaries may purchase and finance information technology products from GE-approved vendors on terms that depend upon certain variable factors. The two subsidiaries may borrow up to 85% of their collective eligible accounts receivable at an interest rate of prime plus 1.0% per annum, subject to a minimum rate of 5.0%. Such purchases from GE-approved vendors have historically been on terms that allow interest-free flooring.
     An addendum, effective July 25, 2007 provides for a $45.0 million accounts receivable and flooring facility. The addendum also provides an extension of the term of the facility for a period of three years from August 1, 2007 and for successive one-year renewal periods thereafter, subject to termination at the end of any such period on at least sixty days prior written notice by any party to the other parties. Effective September 25, 2007, the parties entered into another addendum to delete all prior financial covenants contained in the Agreements and to restate them effective for the last day of each calendar quarter as follows (as such terms are defined in the Agreements):
  •   Tangible Net Worth and Subordinated Debt in the combined amount of not less than $12,750,000.
 
  •   Total Funded Indebtedness to EBITDA for the preceding four fiscal quarters then ended, shall be no more than 3.00:1.00.
     The Company was in compliance with all of the debt covenants under the GE Agreements, as amended and supplemented to date, as of December 31, 2008.
     The GE facility is collateralized by accounts receivable, inventory and substantially all of our other assets. As of December 31, 2008, approximately $9.1 million in borrowings were outstanding under the $45.0 million financing facility. At

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December 31, 2008, there were additional borrowings available of approximately $18.7 million after taking into consideration the borrowing limitations under the Agreements, as amended to date.
     In addition to the GE facility, on March 26, 2008 En Pointe Technologies Sales, Inc. entered into an agreement for inventory financing with IBM that may only be used to finance sales to International Business Machines Corporation and/or IBM Global Services. Under the agreement the subsidiary may borrow up to $25 million of certain eligible accounts receivable and inventory. Interest free financing is provided with the number of days of interest free financing depending on the vendor and product purchased. Beyond the interest free financing period, interest is charged at the prime rate plus 6.5% per annum. The agreement is collateralized by accounts receivable, inventory and substantially all other assets. En Pointe Technologies, Inc., has provided its guarantee to IBM for the inventory financing Agreement. In conjunction with this financing Agreement, GE and IBM, have signed Intercreditor Agreements. The IBM financing agreement contains numerous covenants including the method of financial reporting to IBM. In addition there are two financial covenants:
Total subordinated debt and tangible net worth (both as defined under the Agreement) must be equal to or greater than $12,250,000.
Funded debt (as defined under the Agreement) divided by EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) must be less than or equal to 3.5:1.0
     The Company was in compliance with all of the debt covenants under the IBM financing agreement as of December 31, 2008.
Off-Balance Sheet Arrangements
     The Company does not currently have any off-balance sheet arrangements within the meaning of Item 303(a)(4) of Regulation S-K.

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Item 4T. Controls and Procedures
     We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
  (a) Evaluation of disclosure controls and procedures
     Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) of the Securities Exchange Act of 1934. Based on this evaluation and solely because we were unable to complete the required management’s report on internal control over financial reporting in our Annual Report on Form 10-K for the fiscal year ended September 30, 2008 due to our limited resources at the time, which failure was not remedied prior to the end of the fiscal quarter covered by the Initial 10-Q, our principal executive officer and principal financial officer concluded that, as of December 31, 2008, the Company’s disclosure controls and procedures were not effective. On April 30, 2009, we filed an amendment to our Annual Report on Form 10-K for the fiscal year ended September 30, 2008 that included a complete management’s report on internal control over financial reporting and indicated that we believed that, as of April 28, 2009, we had corrected all material weaknesses in our internal control over financial reporting identified in such report.
     A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all our control issues have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
  (b) Changes in internal controls
     There were no changes to internal controls over financial reporting during the quarter ended December 31, 2008 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
     In January 2009, in order to avoid the cost of ongoing litigation, we reached a settlement agreement with Church Gardens, LLC (“Church”) relating to an action that was brought against us in July 2006 in San Bernardino County Superior Court, Case No. RCV096518. The complaint centered on certain furniture, fixtures, equipment and leasehold improvements that were sold to, and leased back to us , by Church’s predecessor in 1999 when we still occupied its former leased configuration facility in Ontario, California. Church alleged, among other things, that a portion of the leased-back property was sold, destroyed, altered, or removed from the premises, and demanded both an inspection and an accounting of the property remaining and for the court to provide damages to the extent that we may have breached our contract. Under terms of the settlement agreement, Church released to us certain furniture and equipment being warehoused by them and we paid Church $450,000. The full amount of the settlement payment was recognized in the September 2008 quarterly financial statements. The settlement was a business decision and in entering into the settlement, we made no admission of liability.
Item 6. Exhibits
  31.1   Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
  31.2   Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
  32.1   Certification of the Chief Executive and Chief Financial Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Signatures
     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to Form 10-Q/A to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  En Pointe Technologies, Inc.
 		  
  By:   /s/ Javed Latif    
    Senior Vice President and Chief Financial Officer   
    (Duly Authorized Officer and Principal Financial Officer)   
 
Date: May 14, 2009

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