k0907.htm 10-K 1 k0907.htm 10-K FOR 9/30/07


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K
 
þ
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the Fiscal Year Ended September 30, 2007
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 incorporation or
 
(I.R.S. Employer Identification No.)
organization)
 
 
 
18701 S. FIGUEROA STREET, GARDENA, CALIFORNIA 90248
(310) 337-5200
_________________________________
 
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.001 per share Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
__________________________________
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ
 
 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
        Large accelerated filer o     Accelerated Filer o     Non-accelerated filer 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
 
The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sales price of the Common Stock as of March 31, 2007, was approximately $14,825,671.  The number of outstanding shares of the Registrant’s Common Stock as of December 14, 2007 was 7,159,193
 
DOCUMENTS INCORPORATED BY REFERENCE
 
PORTIONS OF REGISTRANT’S PROXY STATEMENT FOR THE 2008 ANNUAL MEETING OF STOCKHOLDERS (TO BE
FILED WITH THE COMMISSION ON OR BEFORE JANUARY 28, 2008): PART III, ITEMS 10-14.





 
EN POINTE TECHNOLOGIES, INC.
FORM 10-K
YEAR ENDED SEPTEMBER 30, 2007
 
Table of Contents
 
PART I
 
 
 
 
 
2
 
 
 
ITEM 1.
 
 
 
2
 
 
 
ITEM 1A.
 
 
 
10
 
 
 
ITEM 1B.
 
 
 
16
 
 
 
ITEM 2.
 
 
 
16
 
 
 
ITEM 3.
 
 
 
17
 
 
 
ITEM 4.
 
 
 
18
 
 
 
 
 
 
 
 
 
 
 
 
PART II
 
 
 
 
18
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 5.
 
 
 
18
 
 
 
ITEM 6.
 
 
 
19
 
 
 
ITEM 7.
 
 
 
21
 
 
 
ITEM 7A.
 
 
 
31
 
 
 
ITEM 8.
 
 
 
31
 
 
 
ITEM 9.
 
 
 
31
 
 
 
ITEM 9A
 
 
 
31
 
 
 
ITEM 9B
 
 
 
32
 
 
 
 
 
 
 
 
 
 
 
 
PART III
 
 
 
 
32
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 10.
 
 
 
32
 
 
 
ITEM 11.
 
 
 
32
 
 
 
ITEM 12.
 
 
 
32
 
 
 
ITEM 13.
 
 
 
33
 
 
 
ITEM 14.
 
 
 
33
 
 
 
 
 
 
 
 
 
 
 
 
PART IV
 
 
 
 
33
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 15
 
 
 
33
 
 
 
 
 
 
 
 
 
 
 
 
SIGNATURES
 
 
 
 
 
 
 
 
CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER, AND DIRECTORS
 
 
 
 
 
 
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 23.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
 


1


PART I
  
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 AND THE COMPANY INTENDS THAT SUCH FORWARD-LOOKING STATEMENTS BE SUBJECT TO THE SAFE HARBORS CREATED THEREBY.  THE FORWARD-LOOKING STATEMENTS RELATE TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY INCLUDING, BUT NOT LIMITED TO, STATEMENTS CONTAINED IN: ‘‘ITEM 1. BUSINESS,” “ITEM 1A. RISK FACTORS’’ AND ‘‘ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.” READERS ARE CAUTIONED THAT SUCH STATEMENTS, WHICH MAY BE IDENTIFIED BY WORDS INCLUDING ‘‘ANTICIPATES,’’ ‘‘BELIEVES,’’ ‘‘INTENDS,’’ ‘‘ESTIMATES,’’ ‘‘EXPECTS,’’ AND SIMILAR EXPRESSIONS, ARE ONLY PREDICTIONS OR ESTIMATIONS AND ARE SUBJECT TO KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. IN EVALUATING SUCH STATEMENTS, READERS SHOULD CONSIDER THE VARIOUS FACTORS IDENTIFIED IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING MATTERS SET FORTH IN ‘‘ITEM 1A. RISK FACTORS,’’ WHICH COULD CAUSE ACTUAL EVENTS, PERFORMANCE OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH STATEMENTS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING INFORMATION INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT ITS OBJECTIVES OR PLANS WILL BE ACHIEVED.  THE COMPANY DOES NOT UNDERTAKE AND SPECIFICALLY DECLINES ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS OR TO PUBLICLY ANNOUNCE THE RESULTS OF ANY REVISIONS TO ANY STATEMENTS TO REFLECT NEW INFORMATION OR FUTURE EVENTS OR DEVELOPMENTS.
  
References made in this Annual Report on Form 10-K to ‘‘En Pointe Technologies,’’ ‘‘En Pointe,’’ the ‘‘Company,’’ “we,” “us,” or “our” refer to En Pointe Technologies, Inc. and its subsidiaries, En Pointe Technologies Sales, Inc., En Pointe Gov, Inc. (formerly En Pointe Technologies Ventures, Inc.,), The Xyphen Corporation (dba ContentWare),  En Pointe Technologies Canada, Inc., Ovex Technologies (Private) Limited, En Pointe Technologies India Pvt. Ltd., and its affiliate, Premier BPO, Inc., a variable interest entity and its wholly-owned Chinese subsidiary, Premier BPO Tianjin Co., LTD.  En Pointe Technologies and the Building Blocks design are registered trademarks of the Company and are mentioned or referred to in this Annual Report.
 
ITEM 1. BUSINESS

GENERAL

En Pointe Technologies, Inc. was originally incorporated in Texas on January 25, 1993 and reincorporated in Delaware on February 6, 1996 and serves as a holding company and a provider of administrative services to its subsidiaries.  We are a national provider of information technology products (hardware and software) and value-added services with a customer base consisting primarily of large and medium sized companies and government entities.  We use proprietary and non-proprietary software and systems to drop-ship information technology products to our customers through an electronically linked network of suppliers that include distributors and certain manufacturers in the United States.  This software allows us to serve as an electronic clearinghouse of computers and computer related products without many of the risks and costs associated with maintaining significant inventory. In addition to seeking efficiencies and growth in our traditional large-enterprise focused core business, we continue to devote resources to the development of our managed and professional services infrastructure.  En Pointe is represented in approximately 17 sales and service markets throughout the United States.  In addition, we maintain a value-added integration center that we recently moved to in October 2006 in Rancho Cucamonga, California that is ISO 9001:2000 certified.
 
We provide our customers with cost effective electronic commerce tools that help them to maximize their purchasing power when searching for and acquiring computer equipment and other technology products.  One of our available tools, AccessPointetm, is a uniquely powerful and flexible Internet procurement system that is electronically linked to the extensive warehousing, purchasing and distribution functions of our suppliers.  AccessPointetm provides ease-of-use, real-time accuracy, and the power to control the purchasing process, from paperless requisition creation to line-item detail delivery tracking.  The direct links to our suppliers enhance our capacity to provide our customers with automated direct access to an extensive range of products at competitive prices.

2


 
BUSINESS MODEL
 
Our business model covers hardware and software fulfillment and value-added services.  Hardware fulfillment extends beyond efficient delivery to include pre-deployment services that we perform prior to shipment, including imaging and image management, configurations, asset tagging, inventory management and master packing.  The procurement process is vital to hardware fulfillment and we try to make this process as efficient as possible for our customers.  Value-added services include ongoing managed services such as management of information technology infrastructure as well as professional services that provide specific information technology solutions for our customers. Software fulfillment includes presales consulting, monitoring license compliance and managing software publishers’ relationships.
 
The hardware fulfillment business relies on our virtual inventory model that has been developed and enhanced over time, but since our inception in 1993, our core concepts have remained the same.  The virtual inventory model’s essential elements are (i) a low cost overhead structure resulting from the automation of many management and operating functions; (ii) effective electronic information systems; and (iii) reduced working capital requirements due to the limited amount of physical inventory that we hold and our allied distributor relationships. Our sophisticated and customized enterprise resource planning system, referred to as SAP, allows us to monitor sales, product returns, inventories, profitability and accounts receivable at the sales representative and customer level.  Additionally, we have integrated product purchasing and customer invoicing into our information systems to expedite procurement and billing. AccessPointeTM, an eBusiness platform, provides us and our customers with up-to-date product information and streamlines the procurement process.  The completely integrated eBusiness information technology architecture helps us maintain effective online communication links with our sales representatives, selected suppliers, and many of our customers.  AccessPointetm is provided free of charge to our customers to better enable them to execute transactions and research their orders online with us.
 
We continue to focus on cost control and strive to maintain a low-cost overhead structure through the automation of many of our management and operating functions. In fiscal 2003, we introduced another low-cost overhead element to our business model by relocating many of our “back-office” functions to a service provider in Islamabad, Pakistan.  Effective October 1, 2006, we continued our cost control focus by acquiring a 70% ownership interest of that service provider in Pakistan, Ovex Technologies (Private) Limited, or Ovex.
 
The day-to-day customer support function is shared between a centralized staff at headquarters, back-office contract workers in Pakistan, and local account management.  This helps us improve field response yet maintains direct access to all back-office functions and senior management. Increased local coverage has fueled efforts to identify new opportunities. We believe that time in front of customers is the top priority for all account managers, account executives, and senior management to build long lasting relationships and identify business solutions for existing and new customers.
 
Our product sales are conducted principally from both traditional branch offices as well as from virtual offices which are located in approximately 15 metropolitan markets in 11 states. Our service business is offered nationally and is managed and staffed by our in-house technicians using, when necessary, limited engagements of contracted third party service providers. We believe in seeking out new markets wherever there is a business case to support the incurring of additional personnel expense or whenever specific account opportunities arise.
 
We have been and continue to be, since May, 2002, certified as a minority-controlled company by the National Minority Supplier Development Council. The certification is considered valuable because many large buying organizations, private enterprise accounts and state and local government agencies have supplier diversity initiatives that may require certain purchases to be made from certified minority controlled companies.
 
An integral component of our business model is our ability to access an extensive inventory of information technology products stocked by our suppliers through our integrated supply chain information systems that are key features of AccessPointeTM.  Additionally, the intelligent purchasing feature of our software allows our purchasing department to place multiple line item orders automatically from multiple sources at the lowest possible price, maximizing the fill rate and increasing the potential profitability on each order.
 

3



The data provided by our customized information system allows our sales representatives to design each customer’s orders according to their particular needs. Product can be delivered directly from suppliers to the customer or processed through our configuration facility located in Rancho Cucamonga, California.  We simplify the ordering, staging, and delivery process through supply chain management for any size order.  Our configuration facility is located close to our major suppliers’ warehouse locations for convenient same day pick-up of orders. This provides the configuration facility with the flexibility to meet stringent service level agreements and still function economically by limiting inventory to customer ordered product.  Once our configuration facility tests and loads systems with predefined customer images, systems are then shipped ready-to-install, saving customers money in downstream deployment costs.  Just-in-time configuration is well supported by our information system that identifies which of our suppliers can supply the desired product at the best price when needed from different products offered from multiple suppliers.
 
A distinct advantage of our business model is the economy achieved by the conservation of working capital through leveraging our virtual inventory model that engages the extensive warehousing, purchasing, distribution, marketing and information-technology functions of our suppliers.  Since inception, we have been an innovator in using the drop shipping capabilities of our suppliers whenever product configuration is not required.  Drop shipping avoids the costs and risks associated with maintaining inventory, enabling us to quickly adapt our product offerings to changing market demands.  As product proliferation has occurred, we believe that our limited inventory position has given us a competitive advantage with respect to price and availability on a broad range of products.  We do, however, still maintain and stage inventory for our customers, as necessary, whenever it’s economical and fulfills a business purpose.  We believe our business model allows us to have the capacity to increase sales with minimal additional capital investment.
 
Our value-added services business, by offering certain essential and highly individualized services, principally the optimization and management of customer’s information technology infrastructure, caters to multi-year service contracts, which constitutes the majority of our service business.  Our service agreements are designed exclusively for the Windows/Intel/Cisco operating environment, which is the dominant industry platform.  Our services include life cycle management which encompasses hardware configuration, customer customization, deployment, install/move/add/change, maintenance, asset management and help desk.  Our customer base is broad and encompasses both large national accounts as well as small to medium businesses and governmental agencies.  Various service fee arrangements are available from which customers are supported by certified technical engineers that are trained on each customer’s specific requirements.  The fee arrangements range from fixed-price in which our personnel may be shared to cost-plus for dedicated on-site personnel, or a combination of both, depending on the customer’s needs.
 
We also offer an array of value-added professional services that include needs assessment, design solutions, deployment and post deployment support, and help desk for our customers.  In addition, we provide at our ISO 9001:2000 certified integration facility configuration services, including hardware configuration, software installation and custom imaging services, testing, aggregation, and asset tagging.
 
Whether customers buy their products from us or others, we can provide them with extensive logistics support. In support of that growing part of our business, during the later half of fiscal 2005, we completed the development of the Logistics Management System, or LMS, software program.  The LMS program is integrated with SAP and allows us to more efficiently work with our customers and common carriers. The LMS program’s single system environment has the capability to manage and track logistic activities, providing customers with detailed asset reporting as well as asset life cycle management.  The LMS program has the following benefits:
 
 
overall customer project planning;
 
detailed planning and scheduling of customer assets to be serviced;
 
receipt confirmation of customer assets and subsequent tracking ability;
 
periodic detailed customer asset reporting by serial number; and
 
management of customer life cycle process to include:
 
 
–  reconditioning and packaging,
 
 
–  redeployment, and
 
 
    –  liquidation, identification of leased assets and compliance with lease terms, and work order history by serial number of each customer asset.
  
The software licensing business employs highly skilled personnel to provide comprehensive solutions to customers needing software solutions.  This specialized group provides value to customers in their presales consulting, monitoring license compliance and managing software publishers’ relationships.
 

4



Although we have been for several years an authorized Microsoft Large Account Reseller as well as an authorized agent for many other software publishers, we had not fully developed the operational and system capabilities to expand sales opportunities. In early fiscal year 2005, recognizing that need, we began the process of enhancing the capabilities of SAP and AccessPointeTM to improve upon presales consulting, monitoring license compliance and managing software publishers’ relationships.  Upon completion of the software upgrades in June 2005, we now believe that we have a more efficient software selling process that has produced and will continue to produce noticed improvements for our customers’ ordering and maintenance needs.  The program provides the following benefits:
 
 
maintains software agreements for all major software publishers;
 
incorporates a dynamic data model that simplifies reporting processes to allow improved identification of customer trends, sales opportunities, and customer milestones;
 
provides real-time product configuration that reduces time for sales representatives to identify customer requested software products;
 
restricts the data entry to a structured format that ensures adherence to vendor and publisher rules, thereby avoiding the costly retroactive correction of errors in processing;
 
manages software agreements to offer customers the ability to purchase software more efficiently by increasing their awareness of software agreement terms, purchasing history, and needs;
 
identifies software products for compliance with customer software agreements;