##### Table of Contents









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,
    2004                                            
|  
|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 organization)                                                                                                                                |  | (I.R.S. Employer
    Identification No.)
|100 NORTH SEPULVEDA BOULEVARD, 19TH FLOOR, EL
    SEGUNDO, CALIFORNIA 90245(Address of principal executive
    offices)Registrants telephone
    number, including area code:
    (310) 725-5200



---

Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, par value $.001 per
share


(Title of Class)




---

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.     YES o          NO þ

Indicate by check
mark whether the Registrant is an accelerated filer (as defined
in Rule 12b-2 of the
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, 2004, was approximately $12,233,364.

The number of
outstanding shares of the Registrants Common Stock as of
December 20, 2004 was 6,817,330.

DOCUMENTS INCORPORATED BY REFERENCE

PORTIONS OF
REGISTRANTS PROXY STATEMENT FOR THE 2005 ANNUAL MEETING OF
STOCKHOLDERS (TO BE FILED WITH THE COMMISSION ON OR BEFORE
JANUARY 28, 2005): PART III, ITEMS 10-14.



---






---










EN POINTE TECHNOLOGIES, INC.

FORM 10-K

Year Ended September 30, 2004


TABLE OF CONTENTS

|               |  |                                                                                                        |  |                                                                     |  |    
|-------------- |  | ------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------- |  | ---
|PART I        
|Item 1.        |  | Business                                                                                               |  | 2                                                                  
|Item 2.        |  | Properties                                                                                             |  | 16                                                                 
|Item 3.        |  | Legal Proceedings                                                                                      |  | 17                                                                 
|Item 4.        |  | Submission of Matters to a
    Vote of Security Holders                                                |  | 18                                                                 
|PART II       
|Item 5.        |  | Market for Registrants
    Common Equity and Related Stockholder Matters                              |  | 18                                                                 
|Item 6.        |  | Selected Financial Data                                                                                |  | 19                                                                 
|Item 7.        |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations              |  | 20                                                                 
|Item 7A.       |  | Quantitative and Qualitative
    Disclosures About Market Risk                                         |  | 28                                                                 
|Item 8.        |  | Financial Statements and
    Supplementary Data                                                        |  | 28                                                                 
|Item 9.        |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosures              |  | 28                                                                 
|Item 9A.       |  | Controls and Procedures                                                                                |  | 28                                                                 
|Item 9B.       |  | Other Information                                                                                      |  | 29                                                                 
|PART III      
|Item 10.       |  | Directors and Executive
    Officers of the Registrant                                                 |  | 29                                                                 
|Item 11.       |  | Executive Compensation                                                                                 |  | 29                                                                 
|Item 12.       |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |  | 29                                                                 
|Item 13.       |  | Certain Relationships and
    Related Transactions                                                     |  | 30                                                                 
|Item 14.       |  | Principal Accountant Fees
    and Services                                                             |  | 30                                                                 
|PART IV       
|Item 15.       |  | Exhibits and Financial
    Statement Schedules                                                         |  | 30                                                                 
|               |  |                                                                                                        |  | Consolidated Financial
    Statements                               |  | F-1
|SIGNATURES     |  |                                                                                                       
|               |  |                                                                                                        |  | Chief Executive Officer, Chief Financial Officer,
    and Directors |  |    
|CERTIFICATIONS |  |                                                                                                       
|               |  |                                                                                                        |  | Chief Executive Officer and Chief Financial
    Officer             |  |    
|Exhibit 21.1  
|Exhibit 23.1  
|Exhibit 31.1  
|Exhibit 31.2  
|Exhibit 32.1  
|Exhibit 32.2  



1



---



##### Table of Contents






PART I

THIS ANNUAL REPORT ON FORM 10-K CONTAINS
FORWARD-LOOKING STATEMENTS RELATING TO FUTURE EVENTS OR THE
FUTURE FINANCIAL PERFORMANCE OF THE COMPANY INCLUDING, BUT NOT
LIMITED TO, STATEMENTS CONTAINED IN: ITEM 1.
BUSINESS  FACTORS WHICH MAY AFFECT FUTURE OPERATING
RESULTS 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 FACTORS WHICH MAY AFFECT
FUTURE OPERATING RESULTS, WHICH COULD CAUSE ACTUAL EVENTS,
PERFORMANCE OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED
BY SUCH STATEMENTS.

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 wholly-owned
subsidiaries, En Pointe Technologies Sales, Inc.,
En Pointe Technologies Canada, Inc., En Pointe Gov,
Inc. (formerly En Pointe Technologies Ventures, Inc.,) and
The Xyphen Corporation (dba ContentWare). The following
registered trademarks of the Company are mentioned or referred
to in this Annual Report: En Pointe Technologies® and
the Building Blocks design.






|        |         
|------- | --------
|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. 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 professional services infrastructure.
En Pointe is represented in approximately 17 sales and
service markets throughout the United States, and maintains a
value-added ISO 9001:2000 certified integration operation
in Ontario, California.

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.

Business Model

Our virtual inventory business model has been
developed and enhanced over time, but since our inception in
1993, our core concepts have remained the same. The 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
leveraging of our virtual inventory model and our allied
distributor relationships. Our highly sophisticated and
customized enterprise resource planning system, SAP, allows us
to monitor sales, product returns, inventories, profitability

2



---



##### Table of Contents



and accounts receivable at the sales
representative and customer level. Additionally, we have tightly
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. Additionally,
AccessPointeTM can be licensed for a fee as a hosted
or non-hosted solution to complement our customers
existing procurement processes.


We continue to focus on cost control in our
business model and strive to maintain a low-cost overhead
structure through the automation of many of our management and
operating functions. 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 to
improve field response yet maintain 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.

In the third quarter of fiscal 2003, we
introduced another low-cost overhead element to our business
model strategy by relocating many of our back-office
functions to service providers in Islamabad, Pakistan. These
back-office functions include, among others, customer support,
purchasing, credit and collections, accounts payable,
accounting, help desk support, information technology support
and other administrative and support functions. We contracted
with two firms, Taseer Hadi Khalid & Co., a Pakistani
member firm of KPMG, and Ovex Technologies (Private) Limited, to
provide this support. Taseer Hadi Khalid & Co. provides
accounting and payroll support while Ovex Technologies (Private)
Limited provides support for the other operational functions.
These two firms combined employed approximately 215 people, as
of September 30, 2004, dedicated to supporting
En Pointe Technologies. This has allowed us to increase the
level of support we provide our customers while also keeping us
cost competitive.

Our product sales are conducted from both
traditional branch offices as well as home-office locations,
which are located in approximately 17 metropolitan markets in 14
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 continued 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.

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
Ontario, 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

3



---



##### Table of Contents



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.


In addition to providing a broad array of
configuration services, including hardware configuration,
software installation and custom imaging services, testing,
aggregation, asset tagging and more, we also provide extensive
logistics support. Our logistics offerings include all of our
standard configuration offerings along with recovery of a
customers current assets, testing of those assets,
inventory management, redeployment and disposal. These services
are made available to customers without regard to the source of
their new purchases, we offer the ability to manage and deploy a
customers new equipment even if not purchased directly
from us.

A distinct advantage of our business model is the
economy achieved by the conservation of working capital through
leveraging a 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, our limited inventory
position has given us a competitive advantage with respect to
price and availability on a broad range of products. We believe
our business model allows us to have the capacity to increase
sales with minimal capital investment.

We also offer managed services that usually
involve multi-year desktop and server support contracts for
specified periods of time. We provide such services to several
large national accounts by dedicated on-site resources trained
and certified to provide network operations support,
installations, moves, adds, changes, desktop and server support,
and break fix services. We use a multi million-dollar customer
relationship management system to manage our help desk
operations and track our service level performance for parts
tracking, onsite arrival and call resolutions.

In 2003, we started a sales department dedicated
solely to software licensing. Highly skilled personnel were
hired with the charter of providing comprehensive solutions to
customers related to software procurement. This specialized
group provides value to customers by providing presales
consulting, monitoring license compliance and managing software
publishers relationships. We believe that there is
considerable opportunity in software licensing and with that in
mind, in fiscal year 2005 we began investing in further upgrades
to our software solutions for software licensing.

Although we have been for several years an
authorized Microsoft Large Account Reseller as well as an
authorized agent for certain 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 targeted for mid-2005, we
believe that we will have a more efficient software selling
process that will have noticed improvements for our
customers ordering and maintenance needs. To accomplish
the software improvements, we hired additional personnel and
contracted with an Indian-based privately-held firm.

eBusiness

Our eBusiness offering is supported by our
Internet procurement system, AccessPointeTM, service
management tools and back-office systems, each of which are
integral parts of our business. The continuing development and
function of our information systems is therefore crucial to our
success.

AccessPointeTM allows us to integrate
with other companies procurement systems and provide real
time links to content, price and availability of products.
AccessPointeTM electronically links our back-office
systems to our suppliers and customers. The application provides
direct on-line access to hundreds of millions of dollars of
information-technology inventory, representing over 75,000 items
from hundreds of manufacturers, and can be used to set up
private exchanges across a range of information-technology
categories. AccessPointeTM is available to customers
as a tool to access information and procure
information-technology products and services from us.

4



---



##### Table of Contents



Service management tools are built on a Clarify
platform. This customer relationship management application
allows us to manage complex projects efficiently. Not only can
we control and manage our services engagements, but Clarify also
makes service information available to our customers via the web.

The back office is built around the highly
scalable SAP enterprise resource planning system that has been
customized to accommodate our needs. The system provides the
kind of detailed and complex information necessary to manage a
national sales organization.

Managed and Professional Services

We provide a full range of information technology
life-cycle services, including the following:



| |   |                                     
| | - | ------------------------------------
| |  | Needs assessment                    
|
| |  | Solution design                     
|
| |  | Image development                   
|
| |  | Configuration                       
|
| |  | Deployment                          
|
| |  | System refresh and disposal services
|
| |  | Post deployment support             
|
| |  | Help desk                           

We employ best practices to provide high quality,
low cost service solutions that address client information
technology infrastructure needs, from the desktop to the wide
area network. A team dedicated to sales of services complements
the larger general sales staff to uncover opportunities within
existing accounts and to seek new business For the three fiscal
years ended in 2004, net sales from services provided 15.2% in
fiscal 2004, 12.9% in fiscal 2003 and 10.5% in fiscal 2002,
respectively, of our total net sales.

We have historically focused more on our managed
services business than our professional services opportunities
because managed services usually involve multi-year desktop and
server support contracts for specified periods of time. These
engagements typically result in relatively consistent revenue
streams that enable us to make strategic long-term investments
to expand our service offerings and organizational
infrastructure. Professional services, on the other hand, tend
to require higher levels of investment without the relative
predictability of managed services agreements.

We provide managed services to large national
accounts by dedicated on-site staff trained and certified to
provide installations, moves, adds, changes, desktop and server
support, and break-fix services. We do our own technical
recruiting for these positions, to better control the quality of
our staff and to provide timely and cost competitive
alternatives suitable for the varying skill and/or geographic
requirements of our customers. As an integral part of some of
our managed services, we provide storage of inventory for
customers at our Ontario configuration and logistics center.
Seven large customers accounted for approximately 59.4% of our
total service revenues for the 2004 fiscal year.

Our enterprise help desk services are offered
either on-site at the customer location or through our
centralized call center. We maintain a technically trained staff
that resolves problems during the initial phone call, thereby
decreasing customer down time and increasing end user
productivity. This also reduces the need to dispatch technicians
for on-site visits, which reduces the overall costs of customer
support.

Included in our professional service offerings
are: desktop and server design; messaging; storage; wireless,
broadband and other network support; and security. With system
security being of such concern, we are requiring our engineers
and consultants to become security certified. We plan that
service engagements offered by us will include a security focus
that will differentiate our professional services offerings from
those of our competitors While we have not invested
significantly in this area relative to our managed services,
customer demand for these services appears to be increasing and
we will respond to opportunities when we can leverage our
existing infrastructure or when it complements an existing
customer support agreement.

5



---



##### Table of Contents



One area in which we continue to expand is in
offerings to customers of return on investment
consulting. We assist customers to maximize the return on their
information technology investment dollars by moving to new
hardware platforms, consolidating servers and storage, and
efficiently managing human resources with our expertise in
Active Directory, a Microsoft program that allows organizations
to manage information about network resources and users. We also
have helped customers implement technologies that allow them to
fix end-users computers remotely, without having to
dispatch an onsite engineer, and compute for them the savings
they realize by minimizing their down time.

We use Clarify, an industry-leading customer
relationship management system, to create and track our service
calls and to manage service parts. This system measures and
reports initial response times, on-site arrival times, and call
closure or resolution times. From voluminous call ticket data,
this system compiles and calculates the corresponding service
levels so that we can be measured against industry standards,
our company objectives, and customer commitments. This enables
us to improve our processes to achieve greater levels of
customer satisfaction.

Products

The majority of our sales are information
technology products. We currently make available to our
customers an extensive selection of products at what we believe
to be a competitive combination of price and availability. We
currently offer over 75,000 information technology products from
hundreds of manufacturers, including International Business
Machines Corporation (IBM), Hewlett-Packard Company
(HP), Dell Computer Corporation (Dell),
Cisco Systems, Inc., Fujitsu Limited, Apple Computer, Inc., 3Com
Corporation, Microsoft Corporation (Microsoft),
Toshiba Corporation, Kingston Technology Corporation, Lexmark
International, Inc., Sony Corporation, Symantec Corporation,
Avaya, Inc., Altiris, Inc. and Nortel Networks Corporation. We
are also one of a limited number of Microsoft Certified Large
Account Resellers. Products that we offer include desktop and
laptop computers, servers, monitors, memory, peripherals and
accessories, operating systems, application software,
consumables and supplies. Products manufactured by HP and Dell
accounted for approximately 28% and 15%, respectively, of our
product sales in fiscal 2004.

Business Processing Outsourcing
Investment

During fiscal year 2004, we invested $509,000 for
an approximate 38% ownership interest in a privately-held
corporation formed in October 2003, Premier BPO, Inc. (formerly
En Pointe Global Services, Inc.). Premier BPO, Inc.
(PBPO) is a business process outsourcing company
headquartered in Clarksville, Tennessee. In addition, we
provided PBPO with a $600,000 five-year 6% interest-bearing note
for working capital that we subsequently converted into
Series A non-voting convertible preferred stock in October
2004. PBPO is considered a related party because of our equity
interest in PBPO as well as the interrelationship of several of
the investors with us. One of our board members owns
approximately 22% of PBPO and also serves as its Chairman of the
Board and Chief Executive Officer. In addition, the owners of
Ovex Technologies (Private) Limited (Ovex), the
Pakistani company in Islamabad that performs the operational
side of our outsourcing, owns collectively approximately 22% of
PBPO. Because of the substantial investment that we made in
PBPO, the related party nature of the investment, as well as
other factors, when we evaluated our acquired interest in PBPO,
we determined that PBPO met the tests of a Variable Interest
Entity under FIN 46 and PBPO has thus been consolidated
with our financial statements since inception.

PBPO has sales representatives in Nashville, New
York City, Dallas, Northern California, and Eastern
Pennsylvania. At September 30, 2004, PBPO had ten employees
in the U.S., 5 in sales and marketing, 2 in operations and 3 in
administration. In addition, PBPO had contracted the services of
workers in Islamabad, Pakistan, that perform data entry and
accounts receivable functions for customers in the cable and
medical industries. Ovex provided the contract workers to PBPO
as well as the use of its facility, which is also shared
concurrently with En Pointe and our respective contracted
workers.

In September 2004, PBPO initiated its outsourcing
services with the acquisition of its first customer. Services
are provided contractually with customers accepting a stated
monthly fee schedule for each dedicated contract worker that
PBPO provides. Customers are then billed monthly as services are
performed.

Subsequent to year end, PBPO acquired five
additional customers that commenced using its outsourcing
services. As sales continue to ramp up, it is anticipated that
PBPO will need to increase its staff. To accommodate PBPOs
growth expectations, it has identified the health care and cable
industries as business opportunities based on potential labor
cost savings. Other industries of interest for outsourcing
potential

6



---



##### Table of Contents



include customer care, computer resellers,
software helpdesks, information technology software development
and financial services. In October 2004, PBPO entered into
another agreement to provide contract workers in New Delhi,
India.


Competition

We operate in the highly competitive sales
segment of the information technology industry, and compete with
a large number and variety of resellers of information
technology products and services. Our competition also includes
hardware and software manufacturers and national computer
retailers that market directly to end-users. Many of these
companies compete principally on the basis of price and may have
lower costs than us, allowing them to offer the same products
and services for less. Many of our competitors are of equal size
or smaller and sell to regional markets, or are larger, and sell
nationally with substantially greater financial, technical, and
marketing resources available to them.

On the services side, we compete with several
large service providers, some of whom provide products and
services and others who only provide services. Those that
provide services only include BancTec, Inc., Barrister Global
Services Network, Inc. and Halifax Corporation. We also partner
with service only providers in several areas including dispatch,
install, move, add and change support services.

Dell and Gateway, Inc. (Gateway)
initially launched the manufacturer direct model and
were successful in gaining market share. Other manufacturers
(e.g. IBM and HP) have adopted a direct model to actively market
products directly to customers. This has had the effect of
reducing the role of distributors and resellers, particularly in
the enterprise accounts, which is a large percentage of our
traditional target market. The direct business model
also infringes on some of the traditional value-added reseller
capabilities in the areas of multi-vendor solutions, integration
and image loading, and web-enabled procurement processes, once
again reducing the available market share.

Our business model emphasizes comprehensive
solution offerings with services wrapped around hardware and
software products, attracting mainly enterprise organizations,
government and to a lesser extent, mid-market customers. With
the sales channel continuing to consolidate, absorbing those
companies that combine face-to-face direct selling with
web-based models; we believe that our dual business model will
survive, as it embraces both comprehensive and web-based types
of selling methods, allowing us to cater to various customer
preferences. We believe that we differentiate ourselves from our
competitors through our eBusiness systems, services flexibility,
and the scalability of our operations to meet our
customers needs.

Getting Product to the Customer

The distribution of information technology
products requires considerable investment in inventory,
production control systems, and the development and maintenance
of distribution channels. Resellers who assume these functions
incur capital costs associated with the warehousing of products,
including the costs of leasing warehouse space, maintaining
inventory and tracking systems, and employing personnel to
perform all the associated tasks. Furthermore, resellers who
stock inventory risk obsolescence costs, which we believe may be
significant due to the rapid product innovation that
characterizes this market. These overhead and touch
costs require expenses that we believe more than offset the
lower price advantages offered for purchasing at volume
discounts and holding for future sale.

Our business model eliminates many overhead and
touch costs and substantial risks by leveraging the
operational strengths of our suppliers, who have developed
extensive warehousing, purchasing and distribution functions. As
a result, our continuing strategy is to limit our product
inventory and the associated capital costs, allowing us to
accept lower gross profit margins than many of our competitors.

By relying on the processing strengths of our
suppliers, we are able to concentrate on developing our
information systems and focus on more customer-oriented
activities: researching, specifying, and delivering solutions.
After helping a customer select the most appropriate technology,
our sales staff use our information systems to determine the
best combination of price and availability for a wide variety of
information technology products.

Our ability to fill and deliver orders with a
high level of speed and accuracy is a key benefit of our
business model. Our sophisticated systems, which include all
order processing functions, enable us to review, approve,

7



---



##### Table of Contents



and electronically transmit orders to the proper
supplier(s) within minutes of receiving them from customers.
Most orders for in-stock product are picked, staged, and
drop-shipped directly to the customer from the suppliers within
24 hours of receipt of an order, and on the same business
day for orders received by 1 p.m. Pacific Time. We usually
electronically obtain order delivery information the day
following shipment from our major suppliers. We then use that
information to produce an invoice, which is often sent to the
customer electronically. The standard delivery, based on product
availability, is within two to three business days. Custom
configuration usually adds a few more business days to the
shipping time.


Getting Product from the Supplier

Our staff has the ability to access the current
inventory and availability records of our suppliers, so we can
quickly determine which supplier can best fill an order at a
given price. Furthermore, if any one supplier is unable to fill
all of a customers requirements, we are generally able to
split the order among multiple sources. This increases the
same-day fill rate, reduces back orders, and shrinks the time to
complete an order. Our suppliers maintain warehouses throughout
the country, and their individual stocking levels are updated
and readily available through our systems. This allows our staff
to determine where the product is available for shipment, better
gauging the delivery time to the customers door.

We and our suppliers utilize various carriers,
including industry giants United Parcel Service, Inc. and
Federal Express Corporation, to deliver product. Again taking
advantage of a vendors particular expertise, we integrate
the carriers tracking system facility into our own systems
to closely monitor shipments and provide delivery status for our
customers. This provides an audit trail for the customer to
update order status, by tying the customer purchase order to an
En Pointe invoice and a subsequent proof of delivery.

We purchase most of our products from major
distributors such as SYNNEX Corporation (SYNNEX),
Tech Data Corporation (Tech Data), and Ingram Micro
Inc. (Ingram Micro), and directly from large
manufacturers such as IBM, HP (including the former Compaq),
Dell and Microsoft. These are suppliers who have the requisite
system strengths and integration capabilities that enable our
automated systems to function efficiently. We have successfully
implemented our business strategy due in large part to these
system synergies and to our close relationships with our
suppliers. Equally significant to the success of our supplier
relationships has been the volume of business we generate, as
this volume has allowed us to negotiate more favorable terms
with our suppliers. See Business  Factors Which
May Affect Future Operating Results  We Risk
Depending on a Few Distributors and Manufacturers Who Could
Compete With Us or Limit Our Access to Their Product Line.

Intellectual Property

Our ability to effectively compete in our market
will depend significantly on our ability to protect our
intellectual property. We do not have patents on any of our
technology, which we believe to be material to our future
success. We rely primarily on trade secrets, proprietary
knowledge and confidentiality agreements to establish and
protect our rights in intellectual property, and to maintain our
competitive position. There can be no assurance that others may
not independently develop similar or superior intellectual
property, gain access to our trade secrets or knowledge, or that
any confidentiality agreements between us and our employees will
provide meaningful protection for us in the event of any
unauthorized use or disclosure of our proprietary information.

In September 2001, SupplyAccess, Inc.
(SupplyAccess), a former affiliate of ours granted
us a limited, exclusive license to use its
AccessPointeTM web site and content. Upon liquidation
of SupplyAccess in February 2002, we were able to acquire full
rights to AccessPointeTM as well as the intellectual
property rights to all of SupplyAccesss software,
copyrights, trade secrets and other proprietary technology.

We conduct our business under the trademark and
service mark En Pointe Technologies as well as our
logo, AccessPointeTM and other marks. We
have been issued registrations for our En Pointe
Technologies and Building Blocks marks in the
United States and have pending registrations in Canada, Mexico
and the European Community. We do not believe that our
operations are dependent upon any of our trademarks or service
marks. We also sell products and provide services under various
trademarks, service marks, and trade names that are the
properties of others. These owners have reserved all rights with
respect to their respective trademarks, service marks, and trade
names.

8



---



##### Table of Contents



Segment Information

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. For the years
ended September 30, 2004, 2003 and 2002, we operated in
only one segment.

Employees

As of September 30, 2004, we employed
approximately 434 individuals including approximately 146 sales,
marketing and related support personnel, 208 service and support
personnel, 32 warehousing, manufacturing, and logistic personnel
and 48 employees in administration and finance. In addition,
PBPO, a consolidated affiliate of ours, employed 10 individuals,
5 in sales and marketing, 2 in operations, and 3 in
administration. We believe that our ability to recruit and
retain highly skilled technical and other management personnel
will be critical to our ability to execute our business model
and growth strategy. None of our employees are represented by a
labor union or are subject to a collective bargaining agreement.
We believe that our relations with our employees are good.

In addition to our U.S. employees, we have
contracted with two companies in Islamabad, Pakistan to provide
back-office support. As of September 30, 2004, these two
firms employed approximately 232 people dedicated to supporting
En Pointe and our affiliate, PBPO. Approximately 48 people
provided accounting and administrative support while the
remaining 184 provided support to the customer support,
purchasing, operations, help desk and information technology
functions. These individuals under contract are employees of
Taseer Hadi Khalid & Co., a Pakistani member firm of
KPMG, and Ovex Technologies (Private) Limited.

Factors Which May Affect Future Operating
Results

This Annual Report on Form 10-K contains
forward-looking statements within the meaning of
Section 27A of the Securities Exchange Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. In
light of the important factors that can materially affect
results, including those set forth in this paragraph and below,
the inclusion of forward-looking information herein should not
be regarded as a representation by us or any other person that
our objectives or plans will be achieved; we may encounter
competitive, technological, financial, economic and business
challenges making it more difficult than expected to continue to
sell our products and services; we 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 the economy, or in our operations or
business; and any or all of these factors may affect our ability
to continue our current sales rate 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:



| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our past downward sales trend exacerbated by a
    soft and spotty business economy with tight corporate capital
    spending budgets;                                                            
|
| |  | our prior two years of operating losses that
    strained capital and borrowing resources and put us under risk
    of breaking loan covenants related to minimal acceptable
    operating levels;
|
| |  | limited availability of alternative credit
    facilities;                                                                                                                                        
|
| |  | low margin business;                                                                                                                                                                              
|
| |  | a portion of our sales concentrated in one large
    customer; and                                                                                                                                
|
| |  | future funding required to sustain our investment
    in PBPO and the absorption of related losses until PBPO becomes
    profitable, if at all.                                                  

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 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

9



---



##### Table of Contents



therefore cautioned not to place undue reliance
on forward-looking statements contained herein, which speak as
of the date of this Annual Report on Form 10-K.


The reader should carefully consider the
following risks. In addition, keep in mind that the risks
described below are not the only risks faced. The risks
described below are only the risks that we currently believe are
material to our business. However, additional risks not
presently known, or risks that are currently believed to be
immaterial, may also impair business operations.

There are Risks in Conducting Our Daily
Business Plans and Strategy

For our first six years since inception, we
experienced rapid growth in net sales, employees and branch
offices. Beginning in fiscal year 2000, and for the following
two fiscal years, we saw net sales declines of approximately 27%
in each of the three fiscal years. The effort to reverse the
past contraction of net sales or to supplement the loss of sales
with higher margin products or services has and will continue to
put strains on our management, operational and financial
resources. To execute our recovery strategy, we expect to
require the addition of new management personnel, including
sales and technical services personnel, and the development of
additional expertise by existing personnel. Our ability to
manage our recovery effectively will require us to continue to
implement and improve our operational, financial and sales
systems at both the national and local level, to develop the
skills of our managers and supervisors and to hire, train,
motivate, retain and effectively manage our employees. There can
be no assurance that we will be successful in such recovery, and
the failure to do so could materially adversely affect our
business, financial position, results of operations and cash
flows.

There are Risks Outside of Our Control of
Unfavorable Economic Conditions That Could Negatively Impact on
Our Revenues and Profits

Revenue growth depends on the overall demand for
information technology spending. While economic recovery in the
United States appears to be underway, there can be no assurance
that the recovery will continue or that it will be sufficiently
robust to compensate for the past severe contraction. Any
resumption in the downturn in the United States economy
may result in cutbacks by customers in the purchase of
information technology products and services, postponed or
canceled orders, longer sales cycles and lower average selling
prices. To the extent that a downturn resumes or increases in
severity, we believe demand for our products and services, and
therefore future revenues, could be further adversely impacted.

There is a Risk We Could Lose Our Asset Based
Financing Line Without Being Able to 
 Readily Replace it

Our business requires significant capital to
finance accounts receivable and, to a lesser extent, product
inventories. In order to obtain necessary working capital, we
rely primarily on a line of credit that is collateralized by
substantially all of our assets. As a result, the amount of
credit available to us may be adversely affected by numerous
factors beyond our control, such as delays in collection or
deterioration in the quality of our accounts receivable,
economic trends in the information technology industry, interest
rate fluctuations and the lending policies of our creditors. Any
decrease or material limitation on the amount of capital
available to us under our line of credit and other financing
arrangements, particularly our interest-free flooring, may limit
our ability to fill existing sales orders or expand our sales
levels and, therefore, may have a material adverse effect on our
business, financial position, results of operations and cash
flows. In addition, any significant increases in interest rates
may increase the cost of financing for us and have a material
adverse effect on our business, financial position, results of
operations and cash flows. We are dependent on the availability
of accounts receivable financing on reasonable terms and at
levels that are high relative to our equity base in order to
maintain and increase our sales. There can be no assurance that
such financing will continue to be available to us in the future
or available under terms acceptable to us. Our inability to have
continuous access to such financing at reasonable costs could
materially adversely impact our business, financial position,
results of operations and cash flows. As of September 30,
2004, we had outstanding borrowings under our credit facility of
$18.3 million out of a total credit facility of
$30.0 million.

See Managements Discussion and
Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources.

10



---



##### Table of Contents



Our Low Margins Expose Us to Risks from Minor
Adversities

Our overall gross profit percentages for the past
three fiscal years ended September 30, 2004 were 12.3%,
12.4%, and 10.7%, respectively, with gross margin from product
sales being 7.4% in fiscal 2004, 7.7% in fiscal 2003, and 7.6%
in fiscal 2002, respectively. Our gross profit margins on
product and software sales are low compared to many other
resellers of information technology products and have continued
to shrink. Given the significant levels of competition that
characterize the reseller market, as well as the lower gross
profit margins that we generate as a result of our reliance on
purchasing information technology products from our suppliers,
it is unlikely that we will be able to increase product gross
profit margins appreciably in our core business of reselling
information technology products. Moreover, in order to attract
and retain many of our larger customers, we frequently must
agree to pricing and maximum allowable mark-ups that serve to
limit the profitability of product sales to such customers.
Accordingly, to the extent that our sales to such customers
increase, our gross profit margins may be reduced, and therefore
any future increases in net income will have to be derived from
net sales growth, effective expansion into higher margin
business segments or a reduction in operating expenses as a
percentage of net sales, none of which can be assured.
Furthermore, low gross profit margins increase the sensitivity
of our business to increases in costs of financing, because
financing costs to carry a receivable can be relatively high
compared to the low dollar amount of gross profit on the sale
underlying the receivable itself. Low gross profit margins also
increase the sensitivity of the business to any increase in
product returns and bad debt write-offs, as the impact resulting
from the inability to collect the full amount for products sold
will be relatively high compared to the low amount of gross
profit on the sale of such product. Any failure by us to
maintain our gross profit margins and sales levels could have a
material adverse effect on our business, financial position,
results of operations and cash flows.

There is Risk That a Large Customer Could be
Lost Without Being Able to Find a Ready Replacement

For the year ended September 30, 2004, one
customer, Los Angeles County, accounted for 11% of our total net
sales, two of our largest customers accounted for a combined 18%
of total net sales. In the preceding fiscal year 2003, no one
customer accounted for more than 10% of total net sales, while
two our largest customers accounted for 18% of total net sales.
In fiscal year 2002, two of our customers accounted for 21% of
total net sales. For the year ended September 30, 2004, our
service sales were also highly concentrated with seven large
customers accounting for 59.4% of total service sales while in
the prior fiscal year six large customers accounted for 58.5% of
total service sales. Our contracts for the provision of products
or services are generally non-exclusive agreements that are
terminable by either party upon 30 days notice.
Either the loss of any large customer, or the failure of any
large customer to pay its accounts receivable on a timely basis,
or a material reduction in the amount of purchases made by any
large customer could have a material adverse effect on our
business, financial position, results of operations and cash
flows.

With Our Fast Changing Industry Evolution We
Risk Being Outmoded or Excluded From the Distribution
Channel

The personal computer industry is undergoing
significant change. In addition, in recent years a number of
new, cost-effective channels of distribution have developed in
the industry, such as the Internet, computer superstores,
consumer electronic and office supply superstores, national
direct marketers and mass merchants. Computer resellers are
consolidating operations and acquiring or merging with other
resellers and/or direct marketers to achieve economies of scale
and increased efficiency. The current industry reconfiguration
and the trend towards consolidation could cause the industry to
become even more competitive, further increase pricing pressures
and make it more difficult for us to maintain our operating
margins or to increase or maintain the same level of net sales
or gross profit. Declining prices, resulting in part from
technological changes, may require us to sell a greater number
of products to achieve the same level of net sales and gross
profit. Such a trend could make it more difficult for us to
continue to increase our net sales and earnings growth. In
addition, growth in the personal computer market has slowed. If
the growth rate of the personal computer market were to further
decrease, our business, financial condition and operating
results could be adversely affected.

11



---



##### Table of Contents



The segment of the information technology
industry in which we operate is highly competitive. We compete
with a large number and wide variety of resellers and providers
of information technology products and services, including:



| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | traditional personal computer retailers,                                       
|
| |  | computer superstores,                                                          
|
| |  | consumer electronics and office supply
    superstores,                        
|
| |  | mass merchandisers,                                                            
|
| |  | corporate resellers,                                                           
|
| |  | value-added resellers,                                                         
|
| |  | specialty retailers,                                                           
|
| |  | distributors,                                                                  
|
| |  | franchisers,                                                                   
|
| |  | mail-order and web-order companies,                                            
|
| |  | national computer retailers,                                                   
|
| |  | service-only providers, and                                                    
|
| |  | manufacturers that have their own direct
    marketing operations to end-users.

Many of these companies compete principally on
the basis of price and may have lower costs than us, which allow
them to offer the same products and services at lower prices.
Many of our competitors are larger, have substantially greater
financial, technical, marketing and other resources and offer a
broader range of value-added services than we do. We compete
with, among others, CompuCom Systems, Inc., Dell, Gateway,
Pomeroy Computer Resources, Inc., CDW Computer Centers, Inc.,
IBM, HP/ Compaq, Insight Enterprises, Inc., PC Mall, Inc., GTSI
Corp., Zones, Inc., PC Connection, Inc., and certain
distributors. We expect to face additional competition from new
market entrants in the future.

Competitive factors include price, service and
support, the variety of products and value-added services
offered, and marketing and sales capabilities. While we believe
that we compete successfully with respect to most, if not all of
these factors, there can be no assurance that we will continue
to do so in the future. The information technology industry has
come to be characterized by aggressive price-cutting and we
expect pricing pressures will continue in the foreseeable
future. In addition, the information technology products
industry is characterized by abrupt changes in technology and
associated inventory and product obsolescence, rapid changes in
consumer preferences, short product life cycles and evolving
industry standards. We will need to continue to provide
competitive prices, superior product selection and quick
delivery response time in addition to developing a core
competency in performing value-added services in order to remain
competitive. If we were to fail to compete favorably with
respect to any of these factors, our business, financial
position, results of operations and cash flows would be
materially and adversely affected. See
Business  Competition.

We Risk Depending on a Few Distributors and
Manufacturers Who Could Compete with Us or Limit Our Access to
Their Product Line

A key element of our past success and future
business strategy involves the maintaining of alliances with
certain suppliers of information technology products and
services, including, Tech Data, Dell, Synnex and Microsoft.
These alliances enable us to make available to our customers a
wide selection of products without subjecting us to many of the
costs and risks associated with maintaining large amounts of
inventory. Products and services purchased from four suppliers,
Tech Data, Dell, Synnex and Microsoft accounted for 73% of our
aggregate purchases in fiscal 2004. Certain suppliers provide us
with substantial incentives in the form of allowances passed
through from manufacturers, discounts, credits and cooperative
advertising, which incentives directly affect our operating
income. There can be no assurance that we will continue to
receive such incentives in the future and any reduction in the
amount of these incentives could have a material adverse

12



---



##### Table of Contents



effect on our business, financial position,
results of operations and cash flows. Furthermore, we compete
with certain suppliers for many of the same customers.
Therefore, there can be no assurance that any such allied
distributor will not use its position as a key supplier to
pressure us from directly competing with them. Substantially all
of our contracts with our suppliers are terminable by either
party upon 30 days notice or less and several contain
minimum purchase volume requirements as a condition to providing
discounts to us. The termination or interruption of our
relationships with any of the suppliers, modification of the
terms or discontinuance of agreements with any of the suppliers,
failure to meet minimum purchase volume requirements, or the
failure to maintain a good working relationship with any
significant new distributor of information technology products
could materially adversely affect our business, financial
position, results of operations and cash flows. See
Business  Getting Product to the Customer.


Certain of the products we offer are subject to
manufacturer allocations, which limit the number of units of
such products available to the suppliers, which in turn may
limit the number of units available to us for resale to our
customers. Because of these limitations, there can be no
assurance that we will be able to offer popular new products or
product enhancements to our customers in sufficient quantity or
in a timely manner to meet demand. In order to offer the
products of most manufacturers, we are required to obtain
authorizations from such manufacturers to act as a reseller of
such products, which authorizations may be terminated at the
discretion of the suppliers. As well, certain manufacturers
provide us with substantial incentives in the form of
allowances, training, financing, rebates, discounts, credits and
cooperative advertising, which incentives directly affect our
operating income. There can be no assurance that we will
continue to receive such incentives and authorizations in the
future and any reduction in these incentives could have a
material adverse effect on our business, financial position,
results of operations and cash flows. There can also be no
assurance that we will be able to obtain or maintain
authorizations to offer products, directly or indirectly, from
new or existing manufacturers.

Termination of our rights to act as a reseller of
the products of one or more significant manufacturers or our
failure to gain sufficient access to such new products or
product enhancements could have a material adverse effect on our
business, financial position, results of operations and cash
flows.

Evolution of the distribution process in the
information technology industry has put pressure on gross profit
margins, and has adversely affected a number of distributors of
information technology products, including certain suppliers.
There can be no assurance that the continuing evolution of the
information technology industry will not further adversely
affect our distributors. Because our overall business strategy
depends on our relationships with our suppliers, our business,
financial position, results of operations and cash flows would
be materially adversely affected in the event that distributors
in general and suppliers in particular continue to suffer
adverse consequences due to ongoing changes in the information
technology industry. There has been a consolidation trend in the
information technology industry, including consolidation among
distributors of information technology products. Because our
business model is dependent upon the availability of a number of
information technology product distributors, any further
consolidation would result in fewer distributors available to
supply products to us, which could have a material adverse
impact on our business, financial position, results of
operations and cash flows.

We Risk Losing Communications with Our
Back-Office Operation in Pakistan

In the third quarter of fiscal 2003, we began a
business transformation that relocated many of our
back-office functions to service providers in
Islamabad, Pakistan. These back-office functions include, among
others, customer support, purchasing, credit and collections,
accounts payable, accounting and other administrative and
support functions. We established both voice and data
communications between our corporate headquarters in El Segundo,
California and Pakistan. However, there can be no assurance that
these lines of communication will not be interrupted. Should we
have interruptions with Pakistan, any such interruption could
have a material adverse impact on our business, financial
position, results of operations and cash flows.

13



---



##### Table of Contents



We Have the Risk of Losing Our Senior
Management and Other Key Personnel Upon 
 Whom We Depend

We believe that our success has been and will
continue to be dependent on the services and efforts of our
existing senior management and other key personnel. The loss of
the services of one or more of any of our existing senior
management and other key personnel would have a material adverse
effect on our business, financial position, results of
operations and cash flows.

Our success and plans for future growth also
depend on our ability to attract and retain highly skilled
personnel in all areas of our business, including application
development, sales and technical services. Competition for
qualified personnel in the information technology industry is
intense, and although we believe that we have thus far been
successful in attracting and retaining qualified personnel for
our business, the inability to attract and retain qualified
personnel in the future could have a material adverse effect
upon our business, financial position, results of operations and
cash flows.

We Risk Failure to Integrate Acquisitions and/
or Investments Into Our Business That Could Cause Future
Losses

One element of our growth strategy may include
expanding our business through strategic acquisitions and
investments in complementary businesses. During fiscal year
2004, we invested $509,000 for an approximate 38% ownership
interest in PBPO, a privately-held corporation formed in October
2003. PBPO is a business process outsourcing company
headquartered in Clarksville, Tennessee. In addition, we
provided PBPO with a $600,000 five-year 6% interest-bearing note
for working capital that we converted into Series A
non-voting preferred stock in October 2004. Because PBPO is
considered a Variable Interest Entity under FIN 46, we are
required to consolidate our interest in PBPO. There can be no
assurance that we will be able provide any future funding
required to sustain our investment in PBPO and that we will be
able to absorb any related losses until PBPO becomes profitable,
if at all.

We have not had significant acquisition or
investment experience, and there can be no assurance that we
will be able to continue to successfully identify suitable
acquisition or investment candidates, complete acquisitions or
investments, or successfully integrate acquired businesses into
our operations. Acquisitions and investments involve numerous
risks, including but not limited to:



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | failure to achieve anticipated operating results,                                                                                        
|
| |  | difficulties in the assimilation of the
    operations, services, products, vendor agreements, and personnel
    of the acquired company,
|
| |  | the diversion of managements attention and
    other resources from other business concerns,                                            
|
| |  | entry into markets in which we have little or no
    prior experience, and                                                               
|
| |  | the potential loss of key employees, customers,
    or contracts of the acquired company.                                                

Acquisition and investments could also conflict
with restrictions in our agreements with existing or future
lenders, distributors or manufacturers. We are unable to predict
whether or when any prospective acquisition or investment
candidate will become available or the likelihood that any
acquisition or investment will be completed or successfully
integrated. Our failure to successfully manage any potential
acquisitions or investments in complementary businesses, or
PBPOs failure to make profitable business decisions while
it is characterized as a Variable Interest Entity, could have a
material adverse effect on our business, financial position,
results of operations and cash flows.

We Risk Business Interruption From Our
Dependence on Centralized Operations

We believe that our success to date has been, and
future results of operations will be, dependent in large part
upon our ability to provide prompt and efficient service to our
customers. As a result, a substantial disruption of our
day-to-day operations could have a material adverse effect upon
our business, financial position, results of operations and cash
flows. In addition, our success is largely dependent on the
accuracy, quality and utilization of the information generated
by our information systems, which are primarily based in Ontario
and El Segundo, California. Repairs, replacement, relocation or
a substantial interruption in these

14



---



##### Table of Contents



systems or in our telephone or data
communications systems, servers or power could have a material
adverse effect on our business, financial position, results of
operations and cash flows. Although we have business
interruption insurance, an uninsurable loss could have a
material adverse effect on our business, financial position,
results of operations and cash flows. Our current use of a
single configuration facility in Ontario, California also makes
us more vulnerable to dramatic changes in freight rates than a
competitor with multiple, geographically dispersed sites. Losses
in excess of insurance coverage, an uninsurable loss, or change
in freight rates could have a material adverse effect on our
business, financial position, results of operations and cash
flows.


With the 36% Concentration of Ownership of Our
Stock Held by a Small Group of Directors and Officers There Are
Risks They Can Exert Significant Influence Over Corporate
Matters

The directors, executive officers and principal
stockholders of En Pointe and their affiliates beneficially own,
in the aggregate, approximately 36% of our outstanding common
stock. As a result, these stockholders acting together will be
able to exert considerable influence over the election of our
directors and the outcome of most corporate actions requiring
stockholder approval. Additionally, the directors and executive
officers have significant influence over the policies and
operations of our management and the conduct of our business.
Such concentration of ownership may have the effect of delaying,
deferring or preventing a change of control of En Pointe and
consequently could affect the market price of our common stock.

There Are Risks Quarterly Operating Results
Can Vary From Past Results and 
 Become Volatile and Unpredictable

Our quarterly net sales and operating results may
vary significantly as a result of a variety of factors,
including:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | the demand for information technology products
    and value-added services;                     
|
| |  | adoption of internet commerce models;                                                            
|
| |  | introduction of new hardware and software
    technologies;                                      
|
| |  | introduction of new value-added services by us
    and our competitors;                          
|
| |  | changes in manufacturers prices or price
    protection policies;                               
|
| |  | changes in shipping rates; disruption of
    warehousing or shipping channels;                   
|
| |  | changes in the level of operating expenses,
    including costs from turnover of sales personnel;
|
| |  | the timing of major marketing or other service
    projects;                                     
|
| |  | product supply shortages; inventory adjustments;                                                 
|
| |  | changes in product mix; entry into new geographic
    markets;                                   
|
| |  | the timing and integration of acquisitions or
    investments;                                   
|
| |  | difficulty in managing margins; the loss of
    significant customer contracts;                  
|
| |  | the necessity to write-off a significant amount
    of accounts receivable or inventory; and     
|
| |  | general competitive and economic conditions.                                                     

In addition, a substantial portion of our net
sales in each quarter results from orders booked in such
quarter. Accordingly, we believe that period-to-period
comparisons of our operating results are not necessarily
meaningful and should not be relied upon as an indication of
future performance.

As has occurred in the past it is possible that
in future periods, our operating results may be below the
expectations of public market analysts and investors. In such
event, the market price of our common stock would likely be
materially adversely affected. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations.

15



---



##### Table of Contents



Our Stock Tends To Be Volatile With Large
Percentage Price Moves Which Can Expose Investors To
Unanticipated Losses

Factors such as the announcement of acquisitions
by us or our competitors, quarter-to-quarter variations in our
operating results, changes in earnings estimates by analysts,
governmental regulatory action, general trends and market
conditions in the information technology industry, as well as
other factors, may have a significant impact on the market price
of our common stock. Moreover, trading volumes in our common
stock has been low historically and could exacerbate price
fluctuations in the common stock. Further, the stock market has
recently and in other periods experienced extreme price and
volume fluctuations, which have particularly affected the market
prices of the equity securities of many companies and which have
often been unrelated to the operating performance of such
companies. These broad market fluctuations may materially and
adversely affect the market price of our common stock. See
Market for Registrants Common Equity and Related
Stockholder Matters.

If Our Internal Controls Prove To Be
Ineffective That Could Negatively Impact Investors and 
 Cause Our Stock to Drop

Changing laws, regulations and standards relating
to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002 and related regulations implemented
by the Securities and Exchange Commission, or SEC, and the
Nasdaq Exchange, or NASD, are creating uncertainty for public
companies, increasing legal and financial compliance costs and
making some activities more time consuming. We will be
evaluating our internal controls systems to allow management to
report on, and our independent auditors to attest to, our
internal controls. We will be performing the system and process
evaluation and testing (and any necessary remediation) required
to comply with the management certification and auditor
attestation requirements of Section 404 of the
Sarbanes-Oxley Act. As a result, we expect to incur substantial
additional expenses and diversion of managements time.
While we anticipate being able to fully implement the
requirements relating to internal controls and all other aspects
of Section 404 by our September 30, 2005 deadline, we
cannot be certain as to the timing of completion of our
evaluation, testing and remediation actions or the impact of the
same on our operations since there is presently no precedent
available by which to measure compliance adequacy. If we are not
able to implement the requirements of Section 404 in a
timely manner or with adequate compliance, we may not be able to
accurately report our financial results or prevent fraud and
might be subject to sanctions or investigation by regulatory
authorities, such as the SEC or the NASD. Any such action could
harm our business or investors confidence in our company,
and could cause our stock price to fall.

If Preferred Stock is Ever Issued as an
Anti-Takeover Measure, There is a Risk That Common Stockholders
Could be Adversely Affected

Our Board of Directors has the authority to issue
up to 5,000,000 shares of preferred stock and to determine
the price, rights, preferences, qualifications, limitations and
restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The rights of
the holders of common stock will be subject to, and may be
adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance
of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate
purposes, could have the effect of delaying or preventing a
third party from acquiring a majority of our outstanding voting
stock. Further, Section 203 of the General Corporation Law
of Delaware prohibits us from engaging in certain business
combinations with interested stockholders. These provisions may
have the effect of delaying or preventing a change in control of
En Pointe without action by our stockholders, and therefore
could adversely affect the market price of our common stock.






|        |           
|------- | ----------
|Item 2. | Properties

We lease approximately 24,000 square feet of
office space for our headquarters in El Segundo, California,
under a lease expiring June 30, 2006. We also lease an
approximately 126,000 square foot facility in Ontario,
California, which is primarily used for configuration and
maintenance services. This facility has been operational since
July 1, 1998. At the time the Ontario configuration
facility was planned, we believed that there would be an
emerging channel assembly market for resellers, such
as us, of computer products. However, instead, certain
manufacturers began requiring distributors to
co-locate their final assembly

16



---



##### Table of Contents



operations at the manufacturers facility
instead of outsourcing final assembly at separate sites. In
reaction to the change in this emerging market, in January 1999,
our Board of Directors authorized us to sell and leaseback the
Ontario facility, while continuing the product configuration
operation at that location. The sale-leaseback transaction was
concluded in June 1999 and the resulting lease expires in 2014.
As a result of these shifts in the industry the Ontario facility
has more capacity and space than usable for current
configuration services. In consequence we incurred a special
charge of $6.2 million associated therewith. The charge was
determined using the held for use model contained in
SFAS No. 121. In April 2002, we subleased
approximately 45% of the facility space to an unrelated company.


Currently we operate from branch offices in the
following cities:



| |   |                                     
| | - | ------------------------------------
| |  | San Francisco and Irvine, California
|
| |  | Chicago, Illinois;                  
|
| |  | Denver and Boulder, Colorado;       
|
| |  | Draper, Utah;                       
|
| |  | Boise, Idaho;                       
|
| |  | Walpole, Massachusetts;             
|
| |  | Atlanta, Georgia;                   
|
| |  | Portland and Tigard, Oregon; and    
|
| |  | Issaquah, Washington.               

Our affiliate, PBPO, has its main offices in
Clarksville, Tennessee.

Management believes our headquarters, sales
offices and configuration facility are adequate to support our
current level of operations.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

In March 2000, an action was brought against us
in the Orange County Superior Court, Case No. 00CC03948
contending fraud and breach of contract arising from the
purchase by a former subsidiary of the Company of certain assets
from a company formerly known as First Source International
(FSI). The lawsuit is filed by RLC, Inc. Assignee
for the benefit of creditors of a defunct corporation, Paragon
Solutions, Inc, formerly known as FSI. It is contended that FSI
was unable to obtain their contingent earn-out under the
agreement because of faulty software provided by the Company.
Damages sought range between $0.8 to $3.5 million with the
plaintiff seeking punitive damages of $10 million. We were
successful in compelling the action to be moved to arbitration,
but since November 17, 2000 when the Court of Appeals
rejected the request by the plaintiff to prohibit arbitration,
no arbitration proceedings have commenced. We vigorously deny
the charges and contend that full disclosure was made as to any
problems with the software and that the former subsidiary to
this date has not produced net income. The case has remained
dormant for the past four years. Legal counsel is currently
unable to predict the outcome of this litigation.

On or about September 18, 2000, a claim for
arbitration was submitted by First Union Securities to the New
York Stock Exchange against, among others, us and our President
and Chief Executive Officer, Attiazaz Din (the En Pointe
defendants). First Union alleges that we and Din violated
federal and state securities laws in connection with the
promotion and sale of En Pointe stock in the last half of 1999
and the first half of 2000. The En Pointe defendants dispute
jurisdiction and intend to vigorously defend the allegations.

In December 2000, we and certain current and
former directors and officers along with several unrelated
parties were named in a complaint alleging that the defendants
made misrepresentations regarding the Company and that the
individual defendants improperly benefited from the sales of
shares of the our common stock and seeking a recovery by our
shareholders of the damages sustained as a result of such
activities (Crosby V. En Pointe Technologies, it al., Superior
Court of California, County of San Diego, No. GIC
759905). The parties have stipulated to a stay of the case
pending the class action. The En Pointe defendants intend to
vigorously defend the allegations.

17



---



##### Table of Contents



In February 2001, we and five of our directors,
one current officer, and certain former officers along with
seven unrelated parties were named in a stockholder class action
complaint alleging that the defendants made misrepresentations
regarding our Company and that the individual defendants
improperly benefited from the sales of shares of our common
stock and seeking a recovery by our stockholders of the damages
sustained as a result of such activities (In Re En Pointe
Technologies Securities Litigation, United States District
Court, Southern District of California Case No. 01CV0205L
(CGA)). In an amended complaint, the plaintiffs limited their
claims us and our Chief Executive Officer. In response to a
motion to dismiss, the Court further limited plaintiffs
claims to allegations of market manipulation and insider
trading. The En Pointe defendants have answered the amended and
limited complaint and intend to vigorously defend the litigation.

In February 2002, we entered into a settlement
agreement and release with NovaQuest InfoSystems, now known as
WebVision, Inc. The settling parties agreed to stipulate to
reverse and vacate a November 7, 2001 Superior Court
judgment relating to certain litigation in which we owed and
accrued on our books $1,375,000 along with accrued interest of
$293,000. Under the terms of the settlement agreement, we made
various payments to representative parties of the plaintiff
totaling $1,200,000 in discharge of the litigation claim. We
recorded the settlement of this litigation as a charge (income)
less certain other litigation related income from insurance
reimbursement that resulted in a total recovery of $848,000.

There are various other claims and litigation
proceedings in which we are involved in the ordinary course of
business. While the outcome of these claims and proceedings
cannot be predicted with certainty, after consulting with legal
counsel, management does not believe that the outcome of any of
these matters will have a material adverse affect on our
business, financial position and results of operations or cash
flows.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

Not applicable.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Our common stock, par value $0.001 per
share, began trading on the NASDAQ SmallCap Market on
June 2, 2003 under the symbol ENPT. During the
periods presented below that were prior to June 2, 2003,
our common stock was traded on the NASDAQ National Market. The
following table sets forth, for the period indicated, the high
and low sale prices for the common stock as reported by the
NASDAQ National Market or the NASDAQ SmallCap Market, as
applicable.

|            |                                  |      |   |       |  |  |   |       | 
|----------- | -------------------------------- | ---- | - | ----- |  |  | - | ----- | 
|            |                                  | High |   | Low  
|            |                                  |      |   |      
|Fiscal 2003 |                                  |      |   |       |  |  |   |      
|            | First quarter                    |      | $ | 1.150 |  |  | $ | 0.320 | 
|            | Second quarter                   |      |   | 0.990 |  |  |   | 0.430 | 
|            | Third quarter                    |      |   | 0.900 |  |  |   | 0.310 | 
|            | Fourth quarter                   |      |   | 1.050 |  |  |   | 0.430 | 
|Fiscal 2004 |                                  |      |   |       |  |  |   |      
|            | First quarter                    |      | $ | 4.050 |  |  | $ | 0.850 | 
|            | Second quarter                   |      |   | 3.980 |  |  |   | 1.490 | 
|            | Third quarter                    |      |   | 2.920 |  |  |   | 1.590 | 
|            | Fourth quarter                   |      |   | 2.400 |  |  |   | 1.450 | 
|Fiscal 2005 |                                  |      |   |       |  |  |   |      
|            | First quarter (through 12/20/04) |      | $ | 3.490 |  |  | $ | 1.710 | 

On December 20, 2004, the closing sale price
for the common stock on the NASDAQ SmallCap Market was
$2.79 per share. As of December 20, 2004, there were
72 stockholders of record of the common stock.

We have never declared or paid any cash dividends
on our common stock. We currently anticipate that we will retain
all available funds for use in the operation of our business,
and do not intend to pay any cash

18



---



##### Table of Contents



dividends in the foreseeable future. The payment
of any future dividends will be at the discretion of our Board
of Directors and will depend upon, among other factors, future
earnings, operations, capital requirements, our general
financial condition and general business conditions. Our ability
to pay cash dividends is currently restricted by our credit
facility, and the terms of future credit facilities or other
agreements may contain similar restrictions.







|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected financial data as of
September 30, 2004 and 2003 and for the years ended
September 30, 2004, 2003 and 2002, respectively, have been
derived from our Consolidated Financial Statements and the
related notes thereto that have been audited by
PricewaterhouseCoopers LLP, independent accountants, which
financial statements and report thereon appear in
Item 8. Financial Statements and Supplementary
Data of this Annual Report on Form 10-K. All other
financial data included in Item 6. Selected Financial
Data presented in this Form 10-K have been derived
from our audited financial statements.

The data set forth below should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and our
Consolidated Financial Statements and the Notes thereto included
elsewhere in this Annual Report on Form 10-K. During the
June quarter of 2000, we deconsolidated our former affiliates,
firstsource corp. and SupplyAccess, Inc.

|                                                                  |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |         |         |  
|----------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------------- | ------- | ------------------------------------- | ----- | ---- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------- | ------- | -
|                                                                  |                                                                  |                                
|                                                                  |                                                                  | Fiscal Year Ended September 30,
|                                                                  |                                                                  |                                
|                                                                  |                                                                  | 2004                            |         | 2003                                  |       | 2002 |         | 2001   |        | 2000
|                                                                  |                                                                  |                                 |         |                                       |       |      |         |        |        |     
|                                                                  |                                                                  |                                 |         |                                       |       |     
|                                                                  |                                                                  |                                 |         | (In thousands, except per share data) |       |     
|Statement of Operations Data:                                     |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        
|Net sales                                                         |                                                                  | $                               | 279,234 |                                       |       | $    | 289,811 |        |        | $    | 257,043 |        |        | $ | 365,280 |        |        | $ | 494,421 |        
|Cost of sales                                                     |                                                                  |                                 | 244,758 |                                       |       |      | 253,771 |        |        |      | 229,505 |        |        |   | 325,792 |        |        |   | 445,865 |        
|                                                                  |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        
|                                                                  | Gross profit                                                     |                                 |         | 34,476                                |       |      |         | 36,040 |        |      |         | 27,538 |        |   |         | 39,488 |        |   |         | 48,556  |        
|Operating expenses:                                               |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        
|                                                                  | Selling and marketing expenses                                   |                                 |         | 22,930                                |       |      |         | 27,556 |        |      |         | 23,631 |        |   |         | 29,957 |        |   |         | 45,308  |        
|                                                                  | General and administrative expenses                              |                                 |         | 10,048                                |       |      |         | 9,998  |        |      |         | 10,783 |        |   |         | 10,931 |        |   |         | 18,892  |        
|                                                                  | Charges (income)                                                 |                                 |         |                                      |       |      |         | 393    |        |      |         | (918   | )      |   |         | 846    |        |   |         | 2,717   |        
|                                                                  |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        
|                                                                  |                                                                  | Operating income (loss)         |         |                                       | 1,499 |      |         |        | (1,907 | )    |         |        | (5,958 | ) |         |        | (2,246 | ) |         |         | (22,299 | )
|Interest expense                                                  |                                                                  |                                 | 749     |                                       |       |      | 871     |        |        |      | 686     |        |        |   | 970     |        |        |   | 1,718   |        
|Other income, net                                                 |                                                                  |                                 | (646    | )                                     |       |      | (238    | )      |        |      | (364    | )      |        |   | (269    | )      |        |   | (348    | )      
|Minority interests                                                |                                                                  |                                 | (136    | )                                     |       |      |        |        |        |      |        |        |        |   |        |        |        |   | (512    | )      
|                                                                  |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        
|                                                                  | Income (loss) before taxes and income (loss) from
    affiliates |                                 |         | 1,532                                 |       |      |         | (2,540 | )      |      |         | (6,280 | )      |   |         | (2,947 | )      |   |         | (19,218 | )      
|(Benefit) provision for income taxes                              |                                                                  |                                 | 131     |                                       |       |      |        |        |        |      | (2,182  | )      |        |   | 86      |        |        |   | (535    | )      
|Income (loss) from affiliates                                     |                                                                  |                                 |        |                                       |       |      | 143     |        |        |      | 674     |        |        |   | 8,392   |        |        |   | (702    | )      
|                                                                  |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        
|                                                                  |                                                                  | Net (loss) income               |         | $                                     | 1,401 |      |         | $      | (2,397 | )    |         | $      | (3,424 | ) |         | $      | 5,359  |   |         | $       | (19,385 | )
|                                                                  |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        
|Net (loss) income per share:                                      |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        
|                                                                  | Basic                                                            |                                 | $       | .21                                   |       |      | $       | (.36   | )      |      | $       | (.51   | )      |   | $       | .81    |        |   | $       | (3.02   | )      
|                                                                  |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        
|                                                                  | Diluted                                                          |                                 | $       | .20                                   |       |      | $       | (.36   | )      |      | $       | (.51   | )      |   | $       | .80    |        |   | $       | (3.02   | )      
|                                                                  |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        
|Weighted average shares and share equivalents
    outstanding(1): |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        
|                                                                  | Basic                                                            |                                 |         | 6,737                                 |       |      |         | 6,720  |        |      |         | 6,666  |        |   |         | 6,597  |        |   |         | 6,419   |        
|                                                                  |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        
|                                                                  | Diluted                                                          |                                 |         | 6,854                                 |       |      |         | 6,720  |        |      |         | 6,666  |        |   |         | 6,685  |        |   |         | 6,419   |        
|                                                                  |                                                                  |                                 |         |                                       |       |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        

19



---



##### Table of Contents



|                                              |  |                     |        |                |  |      |        |      |  |      |        |  |  |   |        |  |  |   |         | 
|--------------------------------------------- |  | ------------------- | ------ | -------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                              |  |                    
|                                              |  | As of September 30,
|                                              |  |                    
|                                              |  | 2004                |        | 2003           |  | 2002 |        | 2001 |  | 2000
|                                              |  |                     |        |                |  |      |        |      |  |     
|                                              |  |                     |        |                |  |     
|                                              |  |                     |        | (In thousands) |  |     
|Balance Sheet Data:                           |  |                     |        |                |  |      |        |      |  |      |        |  |  |   |        |  |  |   |         | 
|Working capital                               |  | $                   | 17,878 |                |  | $    | 14,732 |      |  | $    | 16,846 |  |  | $ | 20,229 |  |  | $ | 22,252  | 
|Total assets                                  |  | $                   | 61,432 |                |  | $    | 51,655 |      |  | $    | 52,200 |  |  | $ | 56,015 |  |  | $ | 101,688 | 
|Borrowings under lines of credit and flooring |  | $                   | 18,309 |                |  | $    | 11,326 |      |  | $    | 12,421 |  |  | $ | 9,440  |  |  | $ | 41,251  | 
|Long term liabilities                         |  | $                   | 5,628  |                |  | $    | 5,391  |      |  | $    | 5,433  |  |  | $ | 5,431  |  |  | $ | 5,463   | 
|Stockholders equity                          |  | $                   | 17,978 |                |  | $    | 16,426 |      |  | $    | 18,823 |  |  | $ | 22,037 |  |  | $ | 16,507  | 



---



|    |                                                              
|--- | -------------------------------------------------------------
|(1) | See Note 1 of Notes to Consolidated
    Financial Statements.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Significant Factors in Performance

For an understanding of the significant factors
that influenced our performance during the past three fiscal
years, this financial discussion should be read in conjunction
with the Consolidated Financial Statements presented in this
Form  10-K.

Critical Accounting Policies

Management believes the following critical
accounting policies, among others, affect its more significant
judgments and estimates used in the preparation of our
consolidated financial statements:

Revenue Recognition.We apply the provisions of the Securities and Exchange
Commission (SEC) Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition in Financial
Statements, which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements
filed with the SEC. SAB No. 104 outlines the basic
criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies.
In general, we recognize revenue when (i) persuasive
evidence of an arrangement exists, (ii) shipment of
products has occurred or services have been rendered,
(iii) the sales price charged is fixed or determinable and
(iv) collection is reasonably assured.

We provide an allowance for sales returns, which
is based on historical experience. For all product sales shipped
directly from suppliers to customers, we take title to the
products sold upon shipment, bearing the credit risk, and
inventory risk for returned customer products that are not
successfully returned to suppliers, although some of these risks
are mitigated through arrangements with our shippers and
suppliers.

Service revenues are recognized based on
contracted hourly rates, as services are rendered, or upon
completion of specified contracted services. Net sales consist
of product and service revenues, less discounts and estimated
allowances for sales returns. Cost of sales include the cost of
product and services sold and current and estimated allowances
for product returns that will not be accepted by our suppliers,
less rebates.

Deferred revenues result from prepaid maintenance
contracts to be performed over future periods of time. Income is
recognized on such contracts ratably over the period of the
contract.

Allowance for Doubtful
Accounts.We estimate our allowance
for doubtful accounts related to trade receivables by two
methods. First, we evaluate specific accounts over 90 days
outstanding and apply various levels of risk analysis to these
accounts to determine a satisfactory risk category to which
given percentages are applied to establish a reserve. Second, a
general reserve is established for all other accounts, exclusive
of the accounts identified for the specific reserve, in which a
percentage is applied that is supportable by historic collection
patterns.

Product Returns.In
general, we follow a strict policy of duplicating the terms of
our vendor or manufacturers product return policies.
However, in certain cases we must deviate from this policy in
order to satisfy the requirements of certain sales contracts
and/or to satisfy or maintain customer relations. To establish a
reserve for returns, outstanding Return Merchandise
Authorizations (RMA) are reviewed. Those RMAs issued
for which the related product has not been returned by the
customer are considered

20



---



##### Table of Contents



future sale reversals and are fully reserved. In
addition, an estimate, based on historical return patterns, is
provided for probable future RMAs that relate to past sales.


Vendor Returns.After product has been returned to vendors under authenticated
RMAs, we review such outstanding receivables from our vendors
and establish a reserve on product that will not qualify for
refund based on a review of specific vendor receivables.

Rebates and Cooperative Advertising
Allowances.We receive incentives from
suppliers related to cooperative advertising allowances, volume
rebates and other incentive agreements. These incentives are
generally under quarterly, semi-annual or annual agreements with
the suppliers; however, some of these incentives are product
driven or are provided to support specific programs established
by the supplier. Suppliers generally require that we use their
cooperative advertising allowances exclusively for advertising
or other marketing programs. These restricted cooperative
advertising allowances are recognized as a reduction of
operating expense or as gross profit, as the related expenses
are recognized.

As rebates are earned, we record the rebate
receivables with a corresponding reduction of cost of goods
sold. Any amounts received from suppliers related to cooperative
advertising allowances, are deferred until earned. Rebate
programs are subject to audit as to whether the requirements of
the rebates were actually met. We establish reserves to cover
any collectibility risks including subsequent supplier audits.

Inventory.Although
we employ a virtual inventory model that generally limits its
exposure to inventory losses, with certain large customers we
contractually obligate ourselves to product availability terms
that require maintaining physical inventory, as well as
configured product. Such inventory is generally confined to a
very limited range of product that applies to specific customers
or contracts. Included in our inventory is product that has been
returned by customers but is not acceptable as returnable by the
vendor. As a result, we expose ourselves to losses from such
inventory that requires reserves for losses to be established.
We record varying reserves based upon the class of inventory
(i.e. held for resale or returned from customers) and age of
inventory.

Overview

We initially began our operations in March of
1993 as a reseller of information technology products. In fiscal
1999, we began offering value-added services to our customers.
Gradually value-added services represented a larger percentage
of total net sales, accounting for 15.2% and 12.9% of our net
sales in fiscal years 2004 and 2003, respectively. The gross
profit margins on the value-added services that we currently
offer are significantly higher than the gross profit margins on
our information technology product business, but require
additional overhead expense for supervision, idle time, and
other expenses related to service offerings that offset a
portion of the increased margin.

In our initial operating years from fiscal 1994
to fiscal 1999 with the aid of a robust economy and information
technology market that accommodated our business model, our net
sales increased at a compound annual growth rate of 35.1%.
Seasonal trends were never prominent in our business, although
March quarters were historically regarded as one of the least
promising quarters. However, in fiscal 2000 we experienced our
first annual net sales decline of 26%, or $173.8 million,
from our net sales in fiscal 1999 due to a softer information
technology market and difficulties in transitioning to a new ERP
business system. A declining trend resumed in fiscal years 2001
and 2002 with declines of 26.1% and 29.6%, respectively. The
trend was temporarily reversed or stalled in fiscal 2003 when
net sales increased 12.7% from that of the prior year. For
fiscal year 2004, net sales were marginally lower by 3.6% from
fiscal year 2003.

Even with the above mentioned lower net sales and
related gross profits, we were able to increase net income for
the current fiscal year from a $2.4 million loss in fiscal
2003 to a $1.4 million gain in fiscal 2004. That resulted
from a $5.1 million reduction in operating expenses for the
fiscal year 2004, that was inclusive of $1.1 million of
start-up operating costs of PBPO which when excluded brings the
core operating cost reduction to $6.2 million total.

Because our business model involves the resale of
information technology products held in inventory by certain
distributors, we do not maintain significant amounts of
inventory on hand for resale. We typically do not place an order
for product purchases from distributors until it has received a
customer purchase order. Inventory is then drop-shipped by the
distributor to either the customer or shipped to our
configuration center

21



---



##### Table of Contents



in Ontario, California. The distributor typically
ships products within 24 hours following receipt of a
purchase order and, consequently, substantially all of our net
sales in any quarter result from orders received in that
quarter. Although we maintain a relatively small amount of
inventory in stock for resale, we record as inventory any
merchandise being configured and any products purchased from
distributors and shipped, but not yet received and accepted by
our customers.


Product revenues are generally recognized upon
shipment. Service revenues are recognized based on contractual
hourly rates as services are rendered or upon completion of
specified contract services. Net sales consist of product and
service revenues, less discounts. Cost of sales includes product
and service costs and current and estimated allowances for
returns of products that are not accepted by our distributors or
manufacturers, less any incentive credits.

Results of Operations

The following table sets forth certain financial
data as a percentage of net sales for the periods indicated.

|                                               |                                                                  |                   |       |      |   |      |       |      |    |  |       |      |   
|---------------------------------------------- | ---------------------------------------------------------------- | ----------------- | ----- | ---- | - | ---- | ----- | ---- | -- |  | ----- | ---- | --
|                                               |                                                                  |                  
|                                               |                                                                  | Fiscal Year Ended
|                                               |                                                                  | September 30,    
|                                               |                                                                  |                  
|                                               |                                                                  | 2004              |       | 2003 |   | 2002
|                                               |                                                                  |                   |       |      |   |     
|Net sales                                      |                                                                  |                   | 100.0 | %    |   |      | 100.0 | %    |    |  | 100.0 | %   
|Cost of sales                                  |                                                                  |                   | 87.7  |      |   |      | 87.6  |      |    |  | 89.3  |     
|                                               |                                                                  |                   |       |      |   |      |       |      |    |  |       |     
|                                               | Gross profit                                                     |                   |       | 12.3 |   |      |       | 12.4 |    |  |       | 10.7 |   
|Selling and marketing expenses                 |                                                                  |                   | 8.2   |      |   |      | 9.5   |      |    |  | 9.2   |     
|General and administrative expenses            |                                                                  |                   | 3.6   |      |   |      | 3.5   |      |    |  | 4.2   |     
|Special charges (income)                       |                                                                  |                   |      |      |   |      | .1    |      |    |  | (.4   | )   
|                                               |                                                                  |                   |       |      |   |      |       |      |    |  |       |     
|                                               | Operating income (loss)                                          |                   |       | 0.5  |   |      |       | (.7  | )  |  |       | (2.3 | ) 
|Interest expense, net                          |                                                                  |                   | .2    |      |   |      | .3    |      |    |  | .3    |     
|Other income, net                              |                                                                  |                   | (.2   | )    |   |      | (.1   | )    |    |  | (.1   | )   
|Minority interest                              |                                                                  |                   | 0.0   |      |   |      |      |      |    |  |      |     
|                                               |                                                                  |                   |       |      |   |      |       |      |    |  |       |     
|                                               | Income (loss) before income taxes and income from
    affiliates |                   |       | 0.5  |   |      |       | (.9  | )  |  |       | (2.5 | ) 
|Benefit for income taxes                       |                                                                  |                   | 0.0   |      |   |      |      |      |    |  | (.9   | )   
|Income from reversal of losses from affiliates |                                                                  |                   |      |      |   |      | .1    |      |    |  | .3    |     
|                                               |                                                                  |                   |       |      |   |      |       |      |    |  |       |     
|                                               | Net income (loss)                                                |                   |       | 0.5  | % |      |       | (.8  | )% |  |       | (1.3 | )%
|                                               |                                                                  |                   |       |      |   |      |       |      |    |  |       |     

Comparison of Fiscal Years Ended
September 30, 2004 and 2003

Net Sales.Net sales
decreased $10.6 million, or 3.6%, to $279.2 million in
fiscal 2004 from $289.8 million in fiscal 2002. The
decrease in net sales was product related, as we maintained
margins by shifting our emphasis from lower-margin product sales
to higher-margin service sales. A decline in net sales prevailed
in each quarter of fiscal 2004, except for the June quarter that
benefited from a large increase in governmental sales. For the
year ended September 30, 2004, one customer accounted for
11.1% of our net sales and 9.7% of our accounts receivable.

Product sales in fiscal 2004 declined
$15.8 million, or 6.3% from fiscal 2003. Service sales, on
the other hand, increased $5.2 million, or 14.0% from that
of the prior fiscal year. Growth in service sales lagged the
fiscal year 2003 increase of $10.2 million, or 37.8% over
the fiscal year 2002 results, attributed, in part, to several
projects that favorably impacted the second half of fiscal 2003
that wound down in early fiscal 2004 and the loss of a major
service customer at the end of the June 2004 quarter.

Gross Profit.Gross
profits decreased $1.5 million, or 4.3%, to
$34.5 million in fiscal 2004 from $36.0 million for
fiscal year 2003. All of the $1.5 million decrease in gross
profits can be attributed to decreased product sales as well as
decreased product margins. Product gross profit percentage of
sales margins slipped from 7.7% in fiscal year 2003 to 7.4% in
fiscal year 2004.

22



---



##### Table of Contents



Expressed as a percentage of net sales, the
service gross profit percentage in fiscal 2004 decreased 4.8%
from the prior fiscal year to 39.7%, which is more in line with
our anticipated 35% to 40% range for services. Even with the
4.8% decline in service margins, service gross profits managed
an increased of $0.3 million, or 1.7%, due to the
additional volume provided by the $5.2 million service
revenue increase in fiscal 2004. Strength in services allowed
gross margins for both product and service to remain relatively
constant in fiscal years 2004 and 2003 at 12.3% and 12.4%,
respectively.

Selling and Marketing
Expenses.Selling and marketing
expenses decreased $4.7 million, or 16.8%, to
$22.9 million in fiscal 2004, from $27.6 million in
fiscal 2003. The $4.7 million decrease is inclusive of
PBPOs initial fiscal year selling and marketing expenses
of $0.8 million. Excluding PBPOs portion of the
combined selling and marketing expense, our core selling and
marketing expenses decreased to $5.5 million, or 20.0%, as
compared to the fiscal 2003 results. Most of the decrease in
selling and marketing expense can be traced to a reduction of
employee related expense of $5.1 million.

To accomplish the employee related expense
decrease of $5.1 million, in part, we incurred
$1.3 million in expense for our program to outsource our
back-office sales support offshore, which, in effect,
contributed to the $3.8 million net expense reduction
benefit. We also had a favorable $0.7 million reduction in
connectivity and rent related expenses. Expressed as a
percentage of net sales, selling and marketing expense decreased
1.3% from 9.5% in fiscal year 2003 to 8.2% in fiscal year 2004.

General and Administrative
Expenses.General and administrative
expenses remained relatively constant at $10.0 million in
fiscal 2004 and 2003. The current years $10.0 million
of general and administrative expenses includes
$0.3 million of expense from our affiliate, PBPO, whose
operations were not present in fiscal 2003.

The major increases to general and administrative
expenses for fiscal year 2004 included an increase in employee
related expenses of $0.4 million. This was due to increased
information technology wages, executive bonuses, and employee
benefits of $1.1 million, less reduced accounting and
finance wages of $0.7 million. Our reduction in accounting
and finance wages resulted principally from our efforts to
outsource offshore, in which we incurred an additional
$0.4 million of outsourcing expense, that resulted in a
savings of $0.3 million. In addition, there were
$0.6 million in reduced attorney fees and $0.3 million
in reduced software maintenance and support expenses related to
our SAP license.

When general and administrative expenses are
expressed as a percentage of net sales, there was a small
increase of 0.1% to 3.6% in fiscal year 2004 from 3.5% in fiscal
year 2003.

Operating Income
(Loss).Operating income improved
$3.4 million, from a $1.9 million loss in fiscal year
2003 to $1.5 million income in fiscal year 2004. The
improvement can be attributed to the reduction in selling and
marketing expenses of $4.7 million discussed above that
more than made up for the $1.5 million decline in gross
profits. Operating income expressed as a percentage of net
sales, improved to 0.5% in fiscal year 2004 from a negative 0.7%
in fiscal year 2003.

Interest Expense.Interest expense of $0.7 million is net of interest income
of $0.1 million. Interest expense decreased
$0.2 million from $0.9 million in fiscal year 2003.
Most of the interest expense, $0.5 million, incurred by us
represents interest expense related to our Ontario facility that
is being treated as a financing lease and is presently carried
as a long-term liability. Interest expense incurred under our
previous lender, whose financing arrangement was replaced by GE
in June 2004, amounted to $0.3 million.

Minority Interest.Under FIN 46 and other recent changes in consolidation
principles, certain minority interests are required to be
consolidated. We own approximately 38% of PBPO and under
FIN 46 are required to consolidate PBPOs financial
results in our financial statements. As a result, we allocate
certain losses to the other shareholders of PBPO who
collectively own approximately 62% of PBPO. Losses so allocated
to the minority interest are not based upon the
percentage of ownership, but upon the at risk
capital of those owners. Once the minority interest at
risk capital has been absorbed by losses, all remaining
losses are allocated to us, without regard for the amount of
capital that we hold at risk.

Provision (Benefit) for Income
Taxes.We provided a $0.1 million
tax provision for fiscal year 2004. Approximately 71% of that
provision was for state income tax for California, where we are
domiciled and where net operating losses (NOL) have
temporarily been suspended. The remainder of the
$0.1 million

23



---



##### Table of Contents



provision is for federal income tax. We had a
$10.8 million NOL carry-forward from which
$1.9 million has been applied to our current years
federal taxable income, leaving an $8.9 million NOL
carry-forward available for future periods. While we are not
subject to the regular 34% corporate federal income tax rates
because our NOL carry-forwards exceed our taxable income, we are
nevertheless subject to the Alternative Minimum Tax
(AMT) that bears a 20% rate and limits NOL
carry-forwards to 90%, thereby mandating that at least 10% of
our taxable income becomes subject to the AMT tax.


We file a consolidated federal income tax return,
while for many of our state tax returns we file separately under
the name of our wholly-owned sales subsidiary (En Pointe
Technologies Sales, Inc.) that is qualified to do business in
all fifty states. Our consolidated return excludes PBPO because
our investment is less than the required 80% to consolidate
under federal tax law. Thus, none of the losses generated by
PBPO are available for the reduction of income taxes.

As of September 30, 2004, we had
$8.9 million of NOL carry-forwards for which a 100%
valuation allowance has been provided. The NOL carry-forwards
are scheduled to expire at various dates through fiscal year
2023. Section 382 of the Internal Revenue Code could limit
the future use of some or all of the NOL carry-forwards if the
ownership of our common stock changes by more than
50 percentage points in certain circumstances over a three
year testing period. Of the total $8.9 million NOL
carry-forwards, $4.7 million will be considered an
adjustment to additional paid-in capital and will not benefit
future earnings, since those losses were attributable to the
exercise of employee stock options, which had been recognized as
expense for tax purposes but not for financial statement
purposes.

Net Income (Loss).Net income increased $3.8 million to $1.4 million from
a net loss of $2.4 million in prior fiscal year 2003. The
principal reason for our improvement in the net income was due
to the reduction in selling and marketing expenses of
$4.7 million discussed above. As a percentage of net sales,
net income was 0.5% in fiscal 2004, as compared with 0.8% net
loss in fiscal 2003.

Comparison of Fiscal Years Ended
September 30, 2003 and 2002

Net Sales.Net sales
increased $32.8 million, or 12.7%, to $289.8 million
in fiscal 2003 from $257.0 million in fiscal 2002. The
increase in net sales was steady throughout the fiscal year, as
net sales increased in each quarter of fiscal year 2003 over
those reported in the respective quarters of the prior fiscal
year. The Tabin Corporation acquisition that was made in October
2002 provided approximately $16.4 million of the
$32.8 million increase in net sales, or 50.1%. For the year
ended September 30, 2003, net sales were less concentrated
than in previous fiscal years with no customer accounting for
10% or more of total net sales.

While product sales led service sales in
registering the largest dollar increase, service sales easily
outpaced product sales in terms of percentage growth from that
of the prior fiscal year. Product net sales increased
$22.5 million, or 9.8%, to $252.5 million in fiscal
2003 from $230.0 million in fiscal 2002. Service revenues
increased $10.2 million, or 37.8%, to $37.3 million in
fiscal 2003 from $27.1 million in fiscal 2002. A portion of
the strong growth in service revenues can be attributed to
several projects that favorably impacted the second half of
fiscal 2003 that wound down in early fiscal 2004.

Gross Profit.Gross
profits increased $8.5 million or 30.9% to
$36.0 million in fiscal 2003 from $27.5 million for
fiscal year 2002. Of the $8.5 million increase in gross
profits, $6.3 million can be attributed to increased sales
volume, with the balance, $2.2 million, resulting from
improved margins, chiefly those of services. Sales of product
contributed $2.0 million to the increase in gross profits,
or, 11.3%, while service sales contributed most of the gross
profit increase, $6.5 million, or, 64.7%.

Expressed as a percentage of net sales, the gross
profit percentage increased 1.7% to 12.4% from the 10.7%
recorded in the prior fiscal year. All of the growth in gross
profit margins is attributable to services whose gross profit
margins increased 7.3% to 44.5% from the 37.2% recorded in the
prior fiscal year. The service profit margin increase is
attributable to a small number of short-term projects and is not
necessarily considered representative of anticipated future
service margins. Product gross profit margins held steady at
7.7%, up a marginal tenth of a percent from that of the prior
fiscal year.

24



---



##### Table of Contents



Selling and Marketing
Expenses.Selling and marketing
expenses increased $4.0 million, or 16.6%, to
$27.6 million in fiscal 2003, from $23.6 million in
fiscal 2002. The expense increase related to selling and
marketing expenses arising from our commitment that commenced
late in fiscal 2002 to reverse past sales declines by
selectively increasing the size of its direct sales force.
Therefore, most of the increase in selling and marketing
expenses relates to commissions, salaries and wage related
benefits. To mitigate the costs associated with increasing the
direct sales force and to boost productivity, we, late in the
June 2003 fiscal quarter, initiated an offshore outsourcing
program for much of our back-office sales support.

The increase in selling and marketing expenses
was decidedly less when expressed as a percentage of net sales
because of the improvement in net sales. Increased sales
provided a larger base for spreading certain fixed elements of
selling and marketing expense. As a result, selling and
marketing expenses increased only 0.3% to 9.5% in 2003 from 9.2%
in 2002.

General and Administrative
Expenses.General and administrative
expenses decreased $0.8 million or 7.3% to
$10.0 million in fiscal 2003, from $10.8 million in
fiscal 2002. Factors responsible for the reduction in general
and administrative expenses included reduced wage related
expenses of $1.0 million and reduced facilities related
expense of $0.7 million. The offshore outsourcing program
that began in the June 2003 fiscal quarter contributed to the
reduction in wages as did the reduction in wages from the
decline in the number of personnel employed. Rent reduction
resulted from the finalization of the closure of certain branch
offices that were no longer operational as well as the prior
years renegotiation of the headquarters lease in May of
2002. The benefits of the reduction of expense related to wages
and facilities were reduced by the $0.9 million increase in
legal expense. When general and administrative expenses are
expressed as a percentage of net sales, there was a decrease of
0.7% from 4.2% to 3.5% in fiscal 2003.

Charges (Income).Charges of $0.4 million in fiscal 2003 primarily resulted
from the February 2003 settlement of a litigation claim. The
court approved the dismissal and settlement of the stockholder
derivative litigation, Fredrick V. Din, et al. As a part of
the stipulation of the parties, it was agreed that the
defendants would pay the plaintiffs attorney fees of
approximately $0.4 million. After a review by selected
members of our Board of Directors who were not defendants in the
litigation, and based on the Boards review and
recommendation, we paid the settlement and charged the full
amount to expense.

Operating Loss.Operating loss decreased $4.1 million, or 68.0%, to a loss
of $1.9 million in fiscal 2003 from a $6.0 million
operating loss in fiscal 2002. The decrease was attributed to an
$8.5 million increase in gross profits reduced by an
increase of $4.4 million in operating expenses. The
operating loss when expressed as a percentage of net sales
decreased 1.6% to 0.7% in 2003 from 2.3% in 2002.

Interest Expense.Interest expense is net of interest income of $0.1 million.
Interest expense incurred under the Foothill Capital Corporation
(Foothill) financing agreement consisted principally
of 1%-1.25% charges for acting as guarantor to IBM Credit
Corporation (IBMCC) in order for IBMCC to provide us
with 30-day interest-free flooring. In addition to the guarantee
charge, Foothill charged from 6% to 6.5% per annum for use
of their line and for float and 0.3% per annum for any
unused credit line. Total interest and related charges paid to
Foothill amounted to $0.4 million. Most of the interest
expense, $0.5 million, incurred by us represents interest
expense related to the Ontario facility lease that is being
treated as a financing lease and is presently carried as a
long-term liability.

Income from Reversal of Losses from
Affiliates.As a result of the
deconsolidation of two previously consolidated subsidiaries, in
the June quarter of 2002 we began using the equity method of
accounting to record our interest in the losses related to the
two affiliates. Because we had guaranteed certain debts of our
affiliates and were responsible under certain other obligations,
losses in excess of our investment in our affiliates were
recorded. The majority of the income from the reversal of
losses, $8.4 million was reversed in fiscal 2001, with
$0.7 million reversed in fiscal 2002 and the remaining
balance of $0.1 million reversed in the first quarter of
fiscal year 2003.

(Benefit) Provision for Income
Taxes.We have not recorded a tax
benefit in the current year as it is likely that any tax
benefits will not be realized in the near future. During the
second quarter of fiscal 2002, we recognized an unanticipated
net $1.5 million of federal income tax benefit. The
Job Creation and Worker Assistance Act of 2002 tax
bill allowed us to carry back net operating losses
(NOLs) arising from the

25



---



##### Table of Contents



current fiscal year as well as from the prior
fiscal year to recover taxes from the two fiscal years ended
September 30, 1997 and 1996 that were previously closed to
such carry backs.


We file consolidated federal income tax returns,
while for many of our state tax returns we file separately under
the name of our wholly-owned sales subsidiary (En Pointe
Technologies Sales, Inc.) that is qualified to do business in
all fifty states.

In carrying tax losses back to prior years we
have exhausted all of our benefits from recovery of taxes paid
in prior years so that any future losses will have to be carried
forward to apply to future income years. As of
September 30, 2003 we had $10.8 million of such net
operating losses (NOLs) that may be carried forward
of which $4.7 million NOL will be considered an adjustment
to additional paid-in capital and will not benefit future
earnings, since that portion of the NOL was attributable to the
exercise of stock options by employees which had not been
recognized as expense for financial statement purposes.

Net
(Loss) Income.The net loss
decreased $1.0 million, or 30.0%, to $2.4 million from
the $3.4 million in the prior fiscal year. The decrease in
the net loss is due to the increase in gross profits of
$8.5 million offset, in part, by an increase in operating
expenses of $4.4 million, which when combined reduced the
operating loss by $4.1 million. However, the
$4.1 million reduced operating loss was offset by increased
interest expense and decreased other income of $0.4 million
and $2.7 million less tax benefit and less income from the
reversal of losses of affiliates than was recognized in fiscal
year 2002. As a percentage of net sales, the net loss was 0.8%,
as compared with 1.3% in fiscal 2002.

Liquidity and Capital Resources

During fiscal 2004, our operating activities
provided cash totaling $6.5 million, $5.5 million more
than the $1.0 million provided in the prior fiscal year.
The lead contributor to the $5.5 million net increase in
cash from operating activities was the $7.0 million
decrease in accounts receivable, as accounts receivable, with
the decline in sales, decreased $3.4 million in fiscal 2004
while rising $3.6 million in fiscal 2003. Another factor
contributing to the improvement in cash operations was net
income, which rose to $1.4 million, or $3.8 million
more than the net loss of $2.4 million in fiscal year 2003.

Our accounts receivable balance, net of
allowances for returns and doubtful accounts, at
September 30, 2004 and 2003, was $31.6 million and
$35.1 million, respectively. The number of days sales
outstanding in accounts receivable decreased slightly to
41 days from 44 days, as of September 30, 2004
and 2003, respectively.

Investing activities used cash totaling
$1.0 million for fiscal 2004, a decrease of
$0.1 million from the prior fiscal year. While we purchased
$0.8 million more in equipment in fiscal year 2004 than
2003, in fiscal year 2003 we expended $0.9 million more
than fiscal 2004 for the acquisition of Tabin Corporation.

Financing activities provided net cash totaling
$7.4 million in fiscal 2004, or $8.6 million more than
the $1.2 million of net cash used in fiscal 2003. Most of
the $8.6 million increase in cash from financing activities
came from $8.1 million of additional net borrowings made
under our line of credit.

As of September 30, 2004, we had
approximately $16.1 million in cash and working capital of
$17.9 million. To improve our financing flexibility and
reduce costs, in June 2004 we closed a $30.0 million
replacement working capital financing facility with GE
Commercial Distribution Finance Corporation (GE).
The term of the facility is for a period of three years, except
that either party may terminate the agreement upon 60 days
written notice to the other party. Additionally, GE may
terminate the facility at any time upon the occurrence of, and
subsequent failure to cure in certain instances, an Event
of Default as such term in defined in such agreement.
Under the financing facility, we may borrow up to 85% of the
eligible accounts receivable at an interest rate of prime plus
1.0% per annum, subject to a minimum rate of 5.0%. In
addition, we may purchase and finance information technology
products from GE-approved vendors on terms that depend upon
certain variable factors. We anticipate that a substantial
portion of such purchases from GE approved vendors will be on
terms that allow interest-free flooring. The financing
agreements contain various liquidity financial covenants,
including, without limitation, that EBITDA be sufficient to
cover a multiple of 1.25 times interest expense for a rolling
twelve month period ending on the last day of each fiscal
quarter. We were in compliance with all of our debt covenants as
of September 30, 2004.

26



---



##### Table of Contents



The GE facility is collateralized by accounts
receivable, inventory and all of our other assets. As of
September 30, 2004, approximately $18.3 million in
borrowings were outstanding under our $30.0 million
financing facility. At September 30, 2004, we had
additional borrowings available of approximately
$7.0 million after taking into consideration the available
collateral and borrowing limitations under the agreements.

As discussed in the Overview section above, the
recent five marginally profitable quarters have seen the
beginning of a reversal of the loss trend that was so prevalent
for four of our past five years of operations. To accomplish
that, in the second quarter of fiscal year 2002, our Chairman
and CEO changed key executives and resumed his role as our
President with day-to-day responsibilities. He refocused our
sales strategy to a more aggressive face-to-face style,
encouraged selling of higher margin managed services, and
enhanced our sales opportunities by qualifying us as a
minority-owned business. We evaluated smaller
competitors that could be accretive to our earnings as potential
acquisition candidates. To return us to the low cost operational
overhead model under which we had previously succeeded, we
contracted with off-shore firms to provide back-office
operational and accounting related services at rates
substantially discounted to those available in the U.S.

Management believes its turn around plans will
continue to be successful in improving our sales and
profitability. However, if we are unable to maintain compliance
with our loan covenants and if such noncompliance is not waived
by GE, the working capital line of credit could be revoked prior
to its expiration date. In such eventuality, we believe that we
have sufficient working capital to enable us to continue to
operate through at least September 30, 2005. However, we
would be required to significantly scale down our business plans
if we were unable to obtain alternative sources of financing.

Recently Issued Accounting Standards

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities (FIN 46), which clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements. FIN 46 requires variable
interest entities (VIE) to be consolidated by a
company if that company is subject to a majority of the risk of
loss from the VIE activities or entitled to receive a majority
of the entitys residual returns or both. A company that
consolidates a VIE is called the primary beneficiary of that
entity. FIN 46 also requires disclosures about VIE that a
company is not required to consolidate but in which it has a
significant variable interest. The provisions of this
interpretation apply immediately to VIE created after
January 31, 2003 and apply to existing VIE in the first
fiscal year or interim period ending after December 15,
2003. We adopted FIN 46 for the quarter ended
December 31, 2003, which adversely affected our operating
results due to substantial losses from our VIE investment, PBPO,
being consolidated.

In December 2003, the FASB issued Interpretation
No. 46 (Revised 2003) Consolidation of Variable
Interest Entities (FIN 46(R)), which
partially deferred the effective date of FIN 46 for certain
entities and makes other changes to FIN 46, including a
more complete definition of variable interest and an exemption
for many entities defined as businesses.

In March 2004, the FASBs Emerging Issues
Task Force (EITF) finalized new guidance on
other-than-temporary impairment of debt and equity securities.
The impairment evaluation guidance in Issue No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, is effective for
reporting periods beginning after June 15, 2004. We had
previously been evaluating impairments of debt and equity
securities using much of the guidance incorporated into this new
EITF Issue. The implementation of this guidance does not
significantly change our procedures for evaluating impairments.

27



---



##### Table of Contents



Obligations and Commitments

As of September 30, 2004, the Company had
the following obligations and commitments to make future
payments, contracts, contractual obligations and commercial
commitments:

|                             |  |                        |        |           |  |       |        |       |  |         |     |  |  |   |   |  |  |   |     | 
|---------------------------- |  | ---------------------- | ------ | --------- |  | ----- | ------ | ----- |  | ------- | --- |  |  | - | - |  |  | - | --- | 
|                             |  |                       
|                             |  | Payments Due by Period
|                             |  |                       
|                             |  |                        |        | Less Than |  | 1-3   |        | 4-5   |  | After 5
|Contractual Cash Obligations |  | Total                  |        | 1 Year    |  | Years |        | Years |  | Years  
|                             |  |                        |        |           |  |       |        |       |  |        
|                             |  |                       
|                             |  | (In thousands)        
|Capital leases               |  | $                      | 1,363  |           |  | $     | 763    |       |  | $       | 600 |  |  | $ |  |  |  | $ |    | 
|Operating leases             |  | $                      | 1,852  |           |  | $     | 1,174  |       |  | $       | 678 |  |  | $ |  |  |  | $ |    | 
|Line of credit               |  | $                      | 18,309 |           |  | $     | 18,309 |       |  | $       |    |  |  | $ |  |  |  | $ |    | 
|PBPO Note payable*           |  | $                      | 600    |           |  | $     |       |       |  | $       |    |  |  | $ |  |  |  | $ | 600 | 



---



|  |                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The PBPO note payable was subsequently, in
    October 2004, fully satisfied through conversion to
    Series A non-voting convertible preferred stock.






|         |                                                              
|-------- | -------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure
    About Market Risk

We presently have limited exposure to market risk
from changes in interest rates from borrowings under our line of
credit with GE. While GEs lending agreement provides for
interest at 1% over prime per annum with a minimum rate of 5.0%,
effectively with the interest-free flooring that has been made
available, we incur little or no interest expense.

We are also committed to certain off-balance
sheet obligations represented by operating leases for office
facilities and various types of office equipment which are fully
disclosed in the financial statement footnotes. We have no
commercial paper, derivatives, swaps, hedges, joint ventures
and/or partnerships, or currency fluctuation to disclose and
evaluate for market risks.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The financial statements are listed in the Index
to Financial Statements on page F-1.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

Not Applicable






|         |                        
|-------- | -----------------------
|Item 9A. | 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, as amended, (the Exchange
Act)) that are designed to ensure that information
required to be disclosed in our reports under the Exchange Act,
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.

An evaluation as of the end of the period covered
by this annual report was carried out under the supervision and
with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation our disclosure
controls and procedures, as such term is defined under
Rules 13a-15(e) and 15d-15(e) promulgated under the
Exchange Act. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective.

Our management, including our Chief Executive
Officer and Chief Financial Officer, have evaluated any changes
in the companys internal control over financial reporting
that occurred during the quarterly period covered by this
report, and have concluded that there was no change during the
fourth quarter of our 2004 fiscal year that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

28



---



##### Table of Contents








|         |                  
|-------- | -----------------
|Item 9B. | Other Information

Not Applicable.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

There is hereby incorporated by reference the
information appearing under the captions Directors,
Executive Officers, Audit Committee,
Audit Committee Financial Experts and
Section 16(a) Beneficial Ownership Reporting
Compliance from our definitive proxy statement for the
2005 Annual Meeting of the Stockholders to be filed with the
Commission on or before January 28, 2005.

We adopted a Code of Ethics pursuant to
Section 406 of the Sarbanes-Oxley Act of 2002 during the
first quarter of 2004, which applies to our principal executive
officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions
and other designated officers and employees. We posted the Code
of Ethics on our website at www.enpointe.com. Any amendment or
waiver to our Code of Ethics that applies to our directors or
executive officers will be posted on our website or in a report
filed with the SEC on Form 8-K.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

There is hereby incorporated by reference
information appearing under the captions EXECUTIVE
COMPENSATION, Directors Compensation,
and STOCK PERFORMANCE GRAPH from our definitive
proxy statement for the 2005 Annual Meeting of Stockholders to
be filed with the Commission on or before January 28, 2005.






|         |                                                                       
|-------- | ----------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and

Related Stockholder Matters


There is hereby incorporated by reference the
information appearing under the caption Security Ownership
of Certain Beneficial Owners and Management from our
definitive proxy statement for the 2005 Annual Meeting of
Stockholders to be filed with the Commission on or before
January 28, 2005.

Equity Compensation Plan Information

The following table sets forth information
regarding outstanding options, warrants and rights and shares
reserved for future issuance under our existing equity
compensation plans as of September 30, 2004. Our sole
stockholder approved equity compensation plan is the 1996 Stock
Incentive Plan. The Employee Stock Purchase Plan was also
approved by our stockholders, and is listed separately below. We
do not have any non-stockholder approved equity compensation
plans.

|                                                               |  |                         |           |                   |  |                           |      |  |  |  |         | 
|-------------------------------------------------------------- |  | ----------------------- | --------- | ----------------- |  | ------------------------- | ---- |  |  |  | ------- | 
|                                                               |  |                         |           |                   |  | Number of Securities     
|                                                               |  |                         |           |                   |  | Remaining Available for  
|                                                               |  | Number of Securities to |           | Weighted-Average  |  | Future Issuance Under    
|                                                               |  | be Issued Upon Exercise |           | Exercise Price of |  | Equity Compensation Plans
|                                                               |  | of Outstanding Options, |           | Outstanding       |  | as of September 30, 2004 
|                                                               |  | Warrants and Rights as  |           | Options, Warrants |  | (Excluding Securities    
|                                                               |  | of September 30, 2004   |           | and Rights        |  | Reflected in Column (a)) 
|Plan Category                                                  |  | (a)                     |           | (b)               |  | (c)                      
|                                                               |  |                         |           |                   |  |                          
|Equity compensation plans approved by security
    holders:    |  |                         |           |                   |  |                           |      |  |  |  |         | 
|1996 Stock Incentive Plan                                      |  |                         | 1,495,388 |                   |  | $                         | 3.52 |  |  |  | 545,475 | 
|Employee Stock Purchase Plan                                   |  |                         | N/A       |                   |  |                           | N/A  |  |  |  | 350,007 | 
|Equity compensation plans not approved by
    security holders |  |                         |          |                   |  |                           |     |  |  |  |        | 
|                                                               |  |                         |           |                   |  |                           |      |  |  |  |         | 
|Total                                                          |  |                         | 1,495,388 |                   |  | $                         | 3.52 |  |  |  | 895,482 | 
|                                                               |  |                         |           |                   |  |                           |      |  |  |  |         | 

29



---



##### Table of Contents








|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

There is hereby incorporated by reference the
information appearing under the caption Certain
Transactions from our definitive proxy statement for the
2005 Annual Meeting of Stockholders to be filed with the
Commission on or before January 28, 2005.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

There is hereby incorporated by reference the
information appearing under the caption PRINCIPAL
ACCOUNTANT FEES AND SERVICES from our definitive proxy
statement for the 2005 Annual Meeting of Stockholders to be
filed with the Commission on or before January 28, 2005.




PART IV






|         |                                               
|-------- | ----------------------------------------------
|Item 15. | Exhibits and Financial Statement
    Schedules

(a) The following documents are filed as
part of this report:



| |                         
| | ------------------------
| | (1) Financial Statements



| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The list of financial statements contained in the
    accompanying Index to Financial Statements covered by Report of
    Independent Accountants is herein incorporated by reference.



| |                                  
| | ---------------------------------
| | (2) Financial Statement Schedules



| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The list of financial statements schedules
    contained in the accompanying Index to Financial Statements
    covered by Report of Independent Accountants is herein
    incorporated by reference.
|
| | All other schedules are omitted because they are
    not applicable or the required information is shown in the
    financial statements or notes thereto.                                          

(b) Exhibits

The list of exhibits on the accompanying
Exhibit Index is herein incorporated by reference.

30



---



##### Table of Contents



EN POINTE TECHNOLOGIES, INC.



INDEX TO FINANCIAL STATEMENTS


|                                                                                                                           |  |      |      | 
|-------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                           |  | Page
|                                                                                                                           |  |     
|Report of Independent
    Registered Public Accounting Firm                                                                |  |      | F-2  | 
|Consolidated Balance Sheets
    as of September 30, 2004 and 2003                                                          |  |      | F-3  | 
|Consolidated Statements of
    Operations for each of the Three Years in the Period Ended
    September 30, 2004           |  |      | F-4  | 
|Consolidated Statements of
    Stockholders Equity for each of the Three Years in the
    Period Ended September 30, 2004 |  |      | F-5  | 
|Consolidated Statements of
    Cash Flows for each of the Three Years in the Period Ended
    September 30, 2004           |  |      | F-6  | 
|Notes to Consolidated
    Financial Statements                                                                             |  |      | F-7  | 
|Schedule II 
    Valuation and Qualifying Accounts                                                                        |  |      | F-25 | 

F-1



---



##### Table of Contents






INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

Board of Directors and Stockholders

En Pointe Technologies, Inc.


In our opinion, the consolidated financial
statements listed in the accompanying index present fairly, in
all material respects, the consolidated financial position of En
Pointe Technologies, Inc. and its subsidiaries at
September 30, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years
in the period ended September 30, 2004, in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in
all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements. These consolidated financial statements and
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule based on our audits. We conducted our audits
of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.



| |                               
| | ------------------------------
| | /S/ PRICEWATERHOUSECOOPERS LLP

Los Angeles, California

December 27, 2004


F-2



---



##### Table of Contents






EN POINTE TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

|                                                                             |                                                                                                                |                                                                                                |       |         |        |  |       |         |        | 
|---------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ----- | ------- | ------ |  | ----- | ------- | ------ | 
|                                                                             |                                                                                                                |                                                                                               
|                                                                             |                                                                                                                | September 30,                                                                                 
|                                                                             |                                                                                                                |                                                                                               
|                                                                             |                                                                                                                | 2004                                                                                           |       | 2003   
|                                                                             |                                                                                                                |                                                                                                |       |        
|                                                                             |                                                                                                                |                                                                                               
|                                                                             |                                                                                                                | (In thousands except                                                                          
|                                                                             |                                                                                                                | share and per share                                                                           
|                                                                             |                                                                                                                | amounts)                                                                                      
|ASSETS                                                                      
|Current assets:                                                              |                                                                                                                |                                                                                                |       |         |        |  |       |        
|                                                                             | Cash                                                                                                           |                                                                                                | $     | 16,072  |        |  | $     | 3,218   |       
|                                                                             | Restricted cash                                                                                                |                                                                                                |       | 71      |        |  |       | 70      |       
|                                                                             | Accounts receivable, net of allowance for returns
    and doubtful accounts of $1,044 and $1,102, respectively |                                                                                                |       | 31,571  |        |  |       | 35,123  |       
|                                                                             | Inventories, net of allowances of $354 and $316,
    respectively                                              |                                                                                                |       | 7,105   |        |  |       | 5,746   |       
|                                                                             | Prepaid expenses and other current assets                                                                      |                                                                                                |       | 578     |        |  |       | 413     |       
|                                                                             |                                                                                                                |                                                                                                |       |         |        |  |       |        
|                                                                             |                                                                                                                | Total current assets                                                                           |       |         | 55,397 |  |       |         | 44,570 | 
|Property and equipment, net of accumulated
    depreciation and amortization |                                                                                                                |                                                                                                | 5,346 |         |        |  | 5,988 |        
|Other assets                                                                 |                                                                                                                |                                                                                                | 689   |         |        |  | 1,097 |        
|                                                                             |                                                                                                                |                                                                                                |       |         |        |  |       |        
|                                                                             |                                                                                                                | Total assets                                                                                   |       | $       | 61,432 |  |       | $       | 51,655 | 
|                                                                             |                                                                                                                |                                                                                                |       |         |        |  |       |        
|                                                                            
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                    
|Current liabilities:                                                         |                                                                                                                |                                                                                                |       |         |        |  |       |        
|                                                                             | Accounts payable, trade                                                                                        |                                                                                                | $     | 13,971  |        |  | $     | 12,642  |       
|                                                                             | Borrowings under lines of credit                                                                               |                                                                                                |       | 18,309  |        |  |       | 11,326  |       
|                                                                             | Accrued employee compensation and benefits                                                                     |                                                                                                |       | 2,406   |        |  |       | 2,540   |       
|                                                                             | Other accrued liabilities                                                                                      |                                                                                                |       | 1,681   |        |  |       | 2,169   |       
|                                                                             | Deferred service revenues                                                                                      |                                                                                                |       | 77      |        |  |       | 477     |       
|                                                                             | Other current liabilities                                                                                      |                                                                                                |       | 1,074   |        |  |       | 684     |       
|                                                                             |                                                                                                                |                                                                                                |       |         |        |  |       |        
|                                                                             |                                                                                                                | Total current liabilities                                                                      |       |         | 37,518 |  |       |         | 29,838 | 
|Long term liabilities                                                        |                                                                                                                |                                                                                                | 5,628 |         |        |  | 5,391 |        
|                                                                             |                                                                                                                |                                                                                                |       |         |        |  |       |        
|                                                                             |                                                                                                                | Total liabilities                                                                              |       |         | 43,146 |  |       |         | 35,229 | 
|                                                                             |                                                                                                                |                                                                                                |       |         |        |  |       |        
|Minority interest                                                            |                                                                                                                |                                                                                                | 308   |         |        |  |      |        
|                                                                             |                                                                                                                |                                                                                                |       |         |        |  |       |        
|Commitments and contingencies (Note 7)                                       |                                                                                                                |                                                                                                |       |         |        |  |       |        
|Stockholders equity:                                                        |                                                                                                                |                                                                                                |       |         |        |  |       |        
|                                                                             | Preferred stock, $.001 par value:                                                                              |                                                                                                |       |         |        |  |       |         |       
|                                                                             |                                                                                                                | Shares authorized  5,000,000                                                                  |       |         |        |  |       |         |        | 
|                                                                             |                                                                                                                | No shares issued or outstanding                                                                |       |         |       |  |       |         |       | 
|                                                                             | Common stock, $.001 par value:                                                                                 |                                                                                                |       |         |        |  |       |         |       
|                                                                             |                                                                                                                | Shares authorized  40,000,000; with
    6,814,336 and 6,721,827 shares issued and outstanding |       |         | 7      |  |       |         | 7      | 
|                                                                             | Additional paid-in capital                                                                                     |                                                                                                |       | 41,390  |        |  |       | 41,241  |       
|                                                                             | Treasury stock, at cost; 702 and
    1,952 shares in 2004 and 2003                                             |                                                                                                |       | (1      | )      |  |       | (4      | )     
|                                                                             | Accumulated deficit                                                                                            |                                                                                                |       | (23,418 | )      |  |       | (24,818 | )     
|                                                                             |                                                                                                                |                                                                                                |       |         |        |  |       |        
|                                                                             | Total stockholders equity                                                                                     |                                                                                                |       | 17,978  |        |  |       | 16,426  |       
|                                                                             |                                                                                                                |                                                                                                |       |         |        |  |       |        
|                                                                             |                                                                                                                | Total liabilities and stockholders equity                                                     |       | $       | 61,432 |  |       | $       | 51,655 | 
|                                                                             |                                                                                                                |                                                                                                |       |         |        |  |       |        

See Notes to Consolidated Financial Statements.

F-3



---



##### Table of Contents



EN POINTE TECHNOLOGIES, INC.



CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |         |         |       |  
|---------------------------------------------------------------- | ----------------------- | -------------------------------------------------------------- | ------- | ------- | ------- | ----- | ------ | ------- | ------- | ----- | ------ | ------- | ------- | ----- | -
|                                                                 |                         |                                                               
|                                                                 |                         | Year Ended September 30,                                      
|                                                                 |                         |                                                               
|                                                                 |                         | 2004                                                           |         | 2003    |         | 2002 
|                                                                 |                         |                                                                |         |         |         |      
|                                                                 |                         |                                                               
|                                                                 |                         | (In thousands except per                                      
|                                                                 |                         | share amounts)                                                
|Net sales                                                        |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|                                                                 | Product                 |                                                                | $       | 236,707 |         |       | $      | 252,493 |         |       | $      | 229,967 |        
|                                                                 | Service                 |                                                                |         | 42,527  |         |       |        | 37,318  |         |       |        | 27,076  |        
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|                                                                 |                         | Total net sales                                                |         |         | 279,234 |       |        |         | 289,811 |       |        |         | 257,043 |      
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|Cost of sales                                                    |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|                                                                 | Product                 |                                                                |         | 219,125 |         |       |        | 233,059 |         |       |        | 212,512 |        
|                                                                 | Service                 |                                                                |         | 25,633  |         |       |        | 20,712  |         |       |        | 16,993  |        
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|                                                                 |                         | Total cost of sales                                            |         |         | 244,758 |       |        |         | 253,771 |       |        |         | 229,505 |      
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|Gross profit                                                     |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|                                                                 | Product                 |                                                                |         | 17,582  |         |       |        | 19,434  |         |       |        | 17,455  |        
|                                                                 | Service                 |                                                                |         | 16,894  |         |       |        | 16,606  |         |       |        | 10,083  |        
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|                                                                 |                         | Total gross profit                                             |         |         | 34,476  |       |        |         | 36,040  |       |        |         | 27,538  |      
|Selling and marketing expenses                                   |                         |                                                                | 22,930  |         |         |       | 27,556 |         |         |       | 23,631 |        
|General and administrative expenses                              |                         |                                                                | 10,048  |         |         |       | 9,998  |         |         |       | 10,783 |        
|Special charges (income)                                         |                         |                                                                |        |         |         |       | 393    |         |         |       | (918   | )      
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|                                                                 | Operating income (loss) |                                                                |         | 1,499   |         |       |        | (1,907  | )       |       |        | (5,958  | )      
|Interest expense, net                                            |                         |                                                                | 749     |         |         |       | 871    |         |         |       | 686    |        
|Other income, net                                                |                         |                                                                | (646    | )       |         |       | (238   | )       |         |       | (364   | )      
|Minority interests                                               |                         |                                                                | (136    | )       |         |       |       |         |         |       |       |        
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|Income (loss) before income taxes and income from
    affiliates |                         |                                                                | 1,532   |         |         |       | (2,540 | )       |         |       | (6,280 | )      
|Provision (benefit) for income taxes                             |                         |                                                                | 131     |         |         |       |       |         |         |       | (2,182 | )      
|Income from reversal of losses from affiliates                   |                         |                                                                |         |         |         |       | 143    |         |         |       | 674    |        
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|                                                                 | Net income (loss)       |                                                                | $       | 1,401   |         |       | $      | (2,397  | )       |       | $      | (3,424  | )      
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|                                                                 |                         | Net income (loss) per share:                                   |         |         |         |       |        |         |         |       |        |         |         |      
|                                                                 |                         |                                                                | Basic   |         | $       | .21   |        |         | $       | (.36  | )      |         | $       | (.51  | )
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|                                                                 |                         |                                                                | Diluted |         | $       | .20   |        |         | $       | (.36  | )      |         | $       | (.51  | )
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|                                                                 |                         | Weighted average shares and share equivalents
    outstanding: |         |         |         |       |        |         |         |       |        |         |         |      
|                                                                 |                         |                                                                | Basic   |         |         | 6,737 |        |         |         | 6,720 |        |         |         | 6,666 |  
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        
|                                                                 |                         |                                                                | Diluted |         |         | 6,854 |        |         |         | 6,720 |        |         |         | 6,666 |  
|                                                                 |                         |                                                                |         |         |         |       |        |         |         |       |        |        

See Notes to Consolidated Financial Statements.

F-4



---



##### Table of Contents



EN POINTE TECHNOLOGIES, INC.




CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                              |                                                    |                |       |            |  |          |   |          |  |              |        |          |  |       |      |     |  |   |     |    |  |   |         |        |   |   |        |        |  
|----------------------------- | -------------------------------------------------- | -------------- | ----- | ---------- |  | -------- | - | -------- |  | ------------ | ------ | -------- |  | ----- | ---- | --- |  | - | --- | -- |  | - | ------- | ------ | - | - | ------ | ------ | -
|                              |                                                    |                |       |            |  |          |   |          |  |              |        |         
|                              |                                                    | Common Stock   |       | Additional |  |          |   |          |  |              |        |         
|                              |                                                    |                |       | Paid-In    |  | Treasury |   | Unearned |  | (Accumulated |        |         
|                              |                                                    | Shares         |       | Amount     |  | Capital  |   | Stock    |  | Compensation |        | Deficit) |  | Total
|                              |                                                    |                |       |            |  |          |   |          |  |              |        |          |  |      
|                              |                                                    |               
|                              |                                                    | (In thousands)
|Balance at September 30, 2001 |                                                    |                | 6,656 |            |  | $        | 7 |          |  | $            | 41,182 |          |  | $     | (214 | )   |  | $ | (16 | )  |  | $ | (18,922 | )      |   | $ | 22,037 |       
|                              | Issuance of common stock under stock purchase plan |                |       | 65         |  |          |   |         |  |              |        | 59       |  |       |      |    |  |   |     |   |  |   |         |       |   |   |        | 59     |  
|                              | Amortization of deferred compensation              |                |       |           |  |          |   |         |  |              |        |         |  |       |      |     |  |   |     | 16 |  |   |         |       |   |   |        | 16     |  
|                              | Treasury stock issued under stock plans            |                |       |           |  |          |   |         |  |              |        |         |  |       |      | 210 |  |   |     |   |  |   |         | (75    | ) |   |        | 135    |  
|                              | Net loss                                           |                |       |           |  |          |   |         |  |              |        |         |  |       |      |    |  |   |     |   |  |   |         | (3,424 | ) |   |        | (3,424 | )
|                              |                                                    |                |       |            |  |          |   |          |  |              |        |          |  |       |      |     |  |   |     |    |  |   |         |        |   |   |        |       
|Balance at September 30, 2002 |                                                    |                | 6,721 |            |  | $        | 7 |          |  | $            | 41,241 |          |  | $     | (4   | )   |  | $ |    |    |  | $ | (22,421 | )      |   | $ | 18,823 |       
|                              | Net loss                                           |                |       |           |  |          |   |         |  |              |        |         |  |       |      |    |  |   |     |   |  |   |         | (2,397 | ) |   |        | (2,397 | )
|                              |                                                    |                |       |            |  |          |   |          |  |              |        |          |  |       |      |     |  |   |     |    |  |   |         |        |   |   |        |       
|Balance at September 30, 2003 |                                                    |                | 6,721 |            |  | $        | 7 |          |  | $            | 41,241 |          |  | $     | (4   | )   |  | $ |    |    |  | $ | (24,818 | )      |   | $ | 16,426 |       
|                              | Issuance of common stock under stock option plan   |                |       | 93         |  |          |   |         |  |              |        | 149      |  |       |      |     |  |   |     |    |  |   |         |        |   |   |        | 149    |  
|                              | Treasury stock issued under stock plans            |                |       |            |  |          |   |          |  |              |        |          |  |       |      | 3   |  |   |     |    |  |   |         | (1     | ) |   |        | 2      |  
|                              | Net income                                         |                |       |            |  |          |   |          |  |              |        |          |  |       |      |     |  |   |     |    |  |   |         | 1,401  |   |   |        | 1,401  |  
|                              |                                                    |                |       |            |  |          |   |          |  |              |        |          |  |       |      |     |  |   |     |    |  |   |         |        |   |   |        |       
|Balance at September 30, 2004 |                                                    |                | 6,814 |            |  | $        | 7 |          |  | $            | 41,390 |          |  | $     | (1   | )   |  | $ |    |    |  | $ | (23,418 | )      |   | $ | 17,978 |       
|                              |                                                    |                |       |            |  |          |   |          |  |              |        |          |  |       |      |     |  |   |     |    |  |   |         |        |   |   |        |       

See Notes to Consolidated Financial Statements.

F-5



---



##### Table of Contents



EN POINTE TECHNOLOGIES, INC.




CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                   |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |        |       |  
|---------------------------------------------------------------------------------- | --------------------------------------------------------------- | ---------------------------------------------------- | ------ | ------ | ----- | ---- | ------ | ------ | ------ | - | ------ | ------ | ----- | -
|                                                                                   |                                                                 |                                                     
|                                                                                   |                                                                 | Year Ended September 30,                            
|                                                                                   |                                                                 |                                                     
|                                                                                   |                                                                 | 2004                                                 |        | 2003   |       | 2002
|                                                                                   |                                                                 |                                                      |        |        |       |     
|                                                                                   |                                                                 |                                                     
|                                                                                   |                                                                 | (In thousands)                                      
|Net income (loss )                                                                 |                                                                 | $                                                    | 1,401  |        |       | $    | (2,397 | )      |        | $ | (3,424 | )     
|Adjustments to reconcile net income (loss) to net
    cash provided by operations: |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|                                                                                   | Depreciation and amortization                                   |                                                      |        | 1,884  |       |      |        | 1,788  |        |   |        | 1,818  |      
|                                                                                   | Allowance for doubtful accounts                                 |                                                      |        | 145    |       |      |        | 199    |        |   |        | 514    |      
|                                                                                   | Allowance (reduction) for returns and other
    allowances      |                                                      |        | 91     |       |      |        | 70     |        |   |        | (280   | )    
|                                                                                   | Allowance (reduction) for inventory
    obsolescense            |                                                      |        | 38     |       |      |        | 169    |        |   |        | (249   | )    
|                                                                                   | Amortization of deferred compensation                           |                                                      |        |       |       |      |        |       |        |   |        | 16     |      
|                                                                                   | Loss reversal income from affiliates                            |                                                      |        |       |       |      |        | (143   | )      |   |        | (674   | )    
|                                                                                   | Minority interest in loss of subsidiary                         |                                                      |        | (136   | )     |      |        |       |        |   |        |       |      
|Changes in operating assets and liabilities:                                       |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|                                                                                   | Restricted cash                                                 |                                                      |        |       |       |      |        |       |        |   |        | 6      |      
|                                                                                   | Accounts receivable                                             |                                                      |        | 3,407  |       |      |        | (3,644 | )      |   |        | 4,787  |      
|                                                                                   | Inventories                                                     |                                                      |        | (1,397 | )     |      |        | (228   | )      |   |        | 1,034  |      
|                                                                                   | Recoverable taxes                                               |                                                      |        |       |       |      |        | 1,800  |        |   |        | 42     |      
|                                                                                   | Prepaid expenses and other current assets                       |                                                      |        | 215    |       |      |        | 200    |        |   |        | 427    |      
|                                                                                   | Other assets                                                    |                                                      |        | 129    |       |      |        | 60     |        |   |        | (338   | )    
|                                                                                   | Accounts payable, trade                                         |                                                      |        | 1,329  |       |      |        | 2,782  |        |   |        | 1,608  |      
|                                                                                   | Accrued expenses                                                |                                                      |        | (622   | )     |      |        | 718    |        |   |        | (4,008 | )    
|                                                                                   | Other current liabilities and deferred revenues                 |                                                      |        | (233   | )     |      |        | (411   | )      |   |        | (417   | )    
|                                                                                   |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|                                                                                   |                                                                 | Net cash provided by operating activities            |        |        | 6,251 |      |        |        | 963    |   |        |        | 862   |  
|                                                                                   |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|                                                                                   | Acquisition of business                                         |                                                      |        |       |       |      |        | (921   | )      |   |        |       |      
|                                                                                   | Purchase of property and equipment                              |                                                      |        | (765   | )     |      |        | (227   | )      |   |        | (901   | )    
|                                                                                   |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|                                                                                   |                                                                 | Net cash used by investing activities                |        |        | (765  | )    |        |        | (1,148 | ) |        |        | (901  | )
|                                                                                   |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|                                                                                   | Net (repayments) borrowings under lines of
    credit           |                                                      |        | 6,983  |       |      |        | (1,095 | )      |   |        | 2,981  |      
|                                                                                   | Payment on notes payable                                        |                                                      |        | (210   | )     |      |        | (131   | )      |   |        | (91    | )    
|                                                                                   | Net proceeds from sale of common stock under
    employee plans |                                                      |        | 151    |       |      |        |       |        |   |        | 194    |      
|                                                                                   | Capital contributed by minority interest                        |                                                      |        | 444    |       |      |        |       |        |   |        |       |      
|                                                                                   |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|                                                                                   |                                                                 | Net cash provided (used) by financing
    activities |        |        | 7,368 |      |        |        | (1,226 | ) |        |        | 3,084 |  
|                                                                                   |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|Increase (decrease) in cash                                                        |                                                                 |                                                      | 12,854 |        |       |      | (1,411 | )      |        |   | 3,045  |       
|Cash at beginning of year                                                          |                                                                 |                                                      | 3,218  |        |       |      | 4,629  |        |        |   | 1,584  |       
|                                                                                   |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|Cash at end of year                                                                |                                                                 | $                                                    | 16,072 |        |       | $    | 3,218  |        |        | $ | 4,629  |       
|                                                                                   |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|Supplemental disclosures of cash flow information:                                 |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|                                                                                   | Interest paid                                                   |                                                      | $      | 750    |       |      | $      | 917    |        |   | $      | 741    |      
|                                                                                   |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|                                                                                   | Income taxes (refunded)                                         |                                                      | $      |       |       |      | $      | (1,958 | )      |   | $      | (1,767 | )    
|                                                                                   |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|Supplemental schedule of non-cash financing and
    investing activities:          |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       
|                                                                                   | Capitalized lease                                               |                                                      | $      | 69     |       |      | $      | 133    |        |   | $      |       |      
|                                                                                   |                                                                 |                                                      |        |        |       |      |        |        |        |   |        |       

See Notes to Consolidated Financial Statements.

F-6



---



##### Table of Contents








|  |                                                                
|- | ---------------------------------------------------------------
|1 | Organization and Summary of Significant
    Accounting Policies



| |             
| | ------------
| | Organization

The Company is a reseller of information
technology products and a provider of value-added services to
large and medium sized companies and government entities with
sales and service personnel in 17 markets located throughout the
United States. The Company is headquartered in El Segundo,
California and was originally incorporated in Texas in 1993 and
reincorporated in Delaware in 1996.



| |                                   
| | ----------------------------------
| | Liquidity and Management
    Plans

The recent five marginally profitable quarters
have seen the beginning of a reversal of the loss trend that was
so prevalent for four of the past five years of operations. To
accomplish that, in the second quarter of fiscal year 2002, the
Chairman and CEO changed key executives and resumed his role as
President with day-to-day responsibilities. He refocused the
sales strategy to a more aggressive face-to-face style,
encouraged selling of higher margin managed services, and
enhanced sales opportunities by qualifying us as a
minority-owned business. The Company evaluated
smaller competitors that could be accretive to its earnings as
potential acquisition candidates. To return the Company to the
low cost operational overhead model under which it had
previously succeeded, it contracted with off-shore firms to
provide back-office operational and accounting related services
at rates substantially discounted to those available in the U.S.

While sales and gross profits for the fiscal year
ended September 30, 2004 lagged the results of the prior
fiscal year, the marked reduction in operating costs aided, in
part, by the shifting of back-office operations off-shore
provided a $4.8 million cost reduction and a turnaround in
earnings. The $4.8 million reduction in operating costs
includes $1.1 million of start-up operating costs of
Premier BPO, Inc. (PBPO), which when excluded brings
the core operating cost reduction to $5.9 million total.

As of September 30, 2004, the Company had
approximately $16.1 million in cash and working capital of
$17.9 million. As discussed in Note 3, in June 2004,
the Company closed a $30.0 million replacement working
capital financing facility with GE Commercial Distribution
Finance Corporation (GE). The term of the facility
is for a period of three years, except that either party may
terminate the agreement upon 60 days written notice to the
other party. As of September 30, 2004, credit line
borrowings amounted to $18.3 million, all subject to the
interest-free flooring agreement. The Company had additional
borrowings available of approximately $7.0 million after
taking into consideration the available collateral and borrowing
limitations under its agreements. Borrowings under the financing
agreement are collateralized by substantially all of the
Companys assets. The financing agreements contain various
liquidity financial covenants, including, without limitation,
that EBITDA be sufficient to cover a multiple of 1.25 times
interest expense for a rolling twelve month period ending on the
last day of each fiscal quarter. The Company was in compliance
with all of its debt covenants as of September 30, 2004.

Management believes that the financing available
under the Companys financing facility, together with the
Companys working capital resources (at September 30,
2004, the Company had net working capital of approximately
$17.9 million) will provide sufficient working capital to
finance operations through at least the fiscal year ended
September 30, 2005.

Management further believes its turn around plans
will continue to be successful in improving the Companys
sales and profitability. However, if the Company is unable to
maintain compliance with its loan covenants and if such
noncompliance is not waived by its lender, the working capital
line of credit could be revoked prior to its expiration date. In
such eventuality, management believes that it has sufficient
working capital to enable it to continue to operate through at
least September 30, 2005. However, the Company would be
required to significantly scale down its business plans if it
were unable to obtain alternative sources of financing.



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the
Companys accounts and those of its wholly-owned
subsidiaries as well as PBPO, an approximate 38% owned Variable
Interest Entity. All intercompany accounts

F-7



---



##### Table of Contents



and transactions have been eliminated in the
consolidated financial statements. Since there are other
stockholders of PBPO who collectively represent approximately
62% ownership, both their majority ownership interest and their
entitlement to share in losses is reflected in the
Companys consolidated balance sheet and statement of
operations as minority interest. Losses allocated to
the 62% owners of PBPO are not based upon the percentage of
ownership, but upon the at risk capital of each of
those owners. Losses in excess of their at risk
capital are allocated to the Company without regard for capital
at risk.




| |                                    
| | -----------------------------------
| | Investment in Premier PBO,
    Inc.

During fiscal year 2004 in a series of two
private stock offerings, the Company invested $509,000 for an
approximate 38% ownership interest in a privately-held
corporation formed in October 2003, PBPO (formerly En Pointe
Global Services, Inc.). PBPO is a business process outsourcing
company headquartered in Clarksville, Tennessee. In addition,
the Company provided PBPO with a $600,000 five-year 6%
interest-bearing note for working capital that was subsequently
converted to Series A non-voting convertible preferred
stock in October 2004. PBPO is considered a related party
because of the Companys equity interest in PBPO as well as
the interrelationship of several of the PBPO investors with the
Company. One of the Companys board members owns
approximately 22% of PBPO and also serves as its Chairman of the
Board and Chief Executive Officer. In addition, the owners of
Ovex Technologies (Private) Limited (Ovex), the
Pakistani company in Islamabad that performs the operational
side of the Companys outsourcing, owns collectively
approximately 22% of PBPO. Because of the substantial investment
that the Company made in PBPO, the related party nature of the
investment, as well as other factors, when the Company evaluated
its acquired interest in PBPO, the Company determined that it
met the tests of a Variable Interest Entity under FIN 46
and has thus consolidated its interest in PBPO since inception.

PBPO has contracted for the services of workers
in Islamabad, Pakistan, to perform data entry and accounts
receivable functions for their customers. Ovex provided the
contract workers to PBPO as well as the use of their facility,
which is also shared concurrently with En Pointe and its
contracted workers. The owners of Ovex have collectively an
approximate 22% ownership interest in PBPO and a $600,000
five-year 6% interest-bearing note for working capital from PBPO
that was subsequently converted to Series A non-voting
convertible preferred stock in October 2004.

In October 2003, PBPO obtained a five year option
agreement whereby PBPO may purchase all of the equity of Ovex
for $2.0 million.



| |                                            
| | -------------------------------------------
| | Investment in Unconsolidated
    Affiliates

The Company had recognized accumulated losses in
excess of its ownership interest in two former subsidiaries
during the periods in which the former subsidiaries were
consolidated. As of September 30, 2003 and 2002, the
Companys adjusted basis under the equity method of
accounting had been reduced to zero. In accordance with the
equity method of accounting, when the Companys former
subsidiaries were deconsolidated and became affiliates, the
Company suspended recognition of equity method losses after its
adjusted basis was reduced to zero. Because the Company had
guaranteed certain debt of its affiliates and was responsible
under certain other obligations, losses in excess of the
Companys investment in its affiliates were recorded.
During the years ended September 30, 2003 and 2002, the
Company recognized income from reversal of excess losses
previously recognized from affiliates of $143,000 and $674,000,
respectively. As a result of that recognition of income from
reversal of excess losses from former affiliates, no additional
excess losses from affiliates remains on the Companys
balance sheet.

Both affiliates have discontinued operations. On
April 10, 2001, Firstsource ceased operations entirely and
all of its assets were assigned to Sherwood Partners, Inc.,
(unaffiliated with the Company), as an assignee for the benefit
of creditors. In January 2002, a majority of the shareholders of
SupplyAccess approved the transfer of the assets of SupplyAccess
to a liquidator for the benefit of creditors.

F-8



---



##### Table of Contents





| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts 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 reporting period. Actual
results could differ from those estimates.



| |                    
| | -------------------
| | Revenue Recognition

The Company applies the provisions of the
Securities and Exchange Commission (SEC) Staff Accounting
Bulletin (SAB) No. 104, Revenue Recognition in
Financial Statements, which provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB No. 104 outlines
the basic criteria that must be met to recognize revenue and
provides guidance for disclosure related to revenue recognition
policies. In general, the Company recognizes revenue when
(i) persuasive evidence of an arrangement exists,
(ii) shipment of products has occurred or services have
been rendered, (iii) the sales price charged is fixed or
determinable and (iv) collection is reasonably assured.

Product revenues are recognized upon transfer of
title and risk of loss and satisfaction of significant
obligations, if any. The Company generally considers this to
occur upon receipt of products by the customer, although some
customers accept title upon shipment. The Company provides an
allowance for sales returns, which is based on historical
experience. For all product sales shipped directly from
suppliers to customers, the Company takes title to the products
sold upon shipment, bears credit risk, and bears inventory risk
for returned products that are not successfully returned to
suppliers, although some of these risks are mitigated through
arrangements with its shippers and suppliers.

Service revenues are recognized based on
contracted hourly rates, as services are rendered, or upon
completion of specified contracted services. Net sales consist
of product and service revenues, less discounts and estimated
allowances for sales returns. Cost of sales include the cost of
product and services sold and current and estimated allowances
for product returns that will not be accepted by the
Companys suppliers, less rebates.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

For purposes of the statement of cash flows, the
Company considers all time deposits and highly liquid
investments with original maturities of three months or less to
be cash equivalents. The Company has bank balances, including
cash equivalents, which at times may exceed federally insured
limits. The Company has not experienced any losses in such
accounts and believes that it is not exposed to significant risk
on cash and cash equivalents



| |                
| | ---------------
| | Restricted Cash

Restricted cash at September 30, 2004 and
2003 represents deposits maintained for certain government tax
agencies.



| |            
| | -----------
| | Inventories

Inventories consist principally of merchandise
being configured for customer orders and merchandise purchased
by us that has been drop shipped, but not yet received and
accepted by the customer and are stated at the lower of cost
(specific identification method) or market. On an ongoing basis,
inventories are reviewed and written down for estimated
obsolescence or unmarketable inventories equal to the difference
between the cost of inventories and the estimated net realizable
value. Changes to increase inventory reserves are recorded as an
increase in cost of goods sold.

F-9



---



##### Table of Contents





| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are stated at cost and are
depreciated using the straight-line method over their estimated
useful lives of three to seven years. Assets acquired under
capital lease arrangements are recorded at the present value of
the minimum lease payments and are amortized using the
straight-line method over the life of the asset or term of the
lease, whichever is shorter. Such amortization expense is
included in depreciation expense. Leasehold improvements are
amortized using the straight-line method over the shorter of the
lease terms or the useful lives of the improvements. Expenses
for repairs and maintenance are charged to expense as incurred,
while renewals and betterments are capitalized. Gains or losses
on the sale or disposal of property and equipment are reflected
in operating income.

The Company accounts for computer software costs
developed for internal use in accordance with Statement of
Position 98-1 (SOP 98-1), Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use,
which requires companies to capitalize certain qualifying costs
incurred during the application development stage of the related
software development project. This software will be used
primarily internally and, accordingly, such capitalized software
development costs will be amortized on a straight-line basis
over the economic lives of the related products not to exceed
three years. The Companys machinery and equipment (see
Note 2) includes $203,000 of capitalized software
development costs as of September 30, 2004 and none in
prior years The Company has not begun amortizing the capitalized
development costs as the development of the software has not
reached completion.



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

The carrying amounts of financial instruments
including cash and cash equivalents, restricted cash, accounts
receivable and payable, accrued and other current liabilities
and current maturities of long-term debt approximate fair value
due to their short maturity. The carrying amount of the
Companys long-term liabilities also approximates fair
value based on interest rates currently available to us for debt
of similar terms and remaining maturities.



| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    Assets

The Company periodically assesses potential
impairments of its long-lived assets in accordance with the
provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets. An impairment
review is performed whenever events or changes in circumstances
indicate that the carrying value of the assets may not be
recoverable. Factors the Company considers include, but are not
limited to, significant underperformance relative to expected
historical or projected future operating results; significant
changes in the manner of use of the acquired assets or the
strategy for the overall business; and significant negative
industry or economic trends. When the carrying value of a
long-lived asset may not be recoverable based upon the existence
of one or more of the above indicators of impairment, the
Company estimates the future undiscounted cash flows expected to
result from the use of the asset and its eventual disposition.
If the sum of the expected future undiscounted cash flows and
eventual disposition is less than the carrying amount of the
asset, the Company recognizes an impairment loss. An impairment
loss is reflected as the amount by which the carrying amount of
the asset exceeds the fair value of the asset, based on the fair
market value if available, or discounted cash flows, if not. To
date, the Company has not recognized an impairment charge
related to the write-down of long-lived assets.



| |                                   
| | ----------------------------------
| | Goodwill and Intangible
    Assets

Effective January 1, 2002, the Company
adopted Statement of Financial Accounting Standard
(SFAS) No. 142, Goodwill and Other Intangible
Assets, which requires, among other things, the use of a
nonamortization approach for purchased goodwill and certain
intangibles. Under a nonamortization approach, goodwill and
intangibles having an indefinite life are not amortized, but
instead will be reviewed for impairment at least annually or if
an event occurs or circumstances indicate that the carrying
amount may be impaired. Events or circumstances which could
indicate an impairment include a significant change in the
business climate, economic and industry trends, legal factors,
negative operating performance indicators,

F-10



---



##### Table of Contents



significant competition, changes in strategy or
disposition of a reporting unit or a portion thereof. Goodwill
impairment testing is performed at the reporting unit level.


SFAS 142 requires that goodwill be tested
for impairment using a two-step process. The first step of the
goodwill impairment test, used to identify potential impairment,
compares the fair value of a reporting unit with its carrying
amount, including goodwill. If the fair value of a reporting
unit exceeds its carrying amount, goodwill of the reporting unit
is not considered to be impaired and the second step of the
impairment test is unnecessary. If the carrying amount of a
reporting unit exceeds its fair value, the second step of the
goodwill impairment test must be performed to measure the amount
of impairment loss, if any. The second step of the goodwill
impairment test compares the implied fair value of reporting
unit goodwill with the carrying amount of that goodwill. The
implied fair value of goodwill is determined in the same manner
as the amount of goodwill recognized in a business combination.
If the carrying amount of the reporting unit goodwill exceeds
the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess.

Application of the goodwill impairment test
requires judgment, including the identification of reporting
units, assignment of assets and liabilities to reporting units,
assignment of goodwill to reporting units, and determination of
the fair value of each reporting unit. The fair value of each
reporting unit is estimated using a discounted cash flow
methodology. This requires significant judgments including
estimation of future cash flows, which is dependent on internal
forecasts, estimation of the long-term rate of growth for the
Companys business, the useful life over which cash flows
will occur, and determination of the weighted average cost of
capital. Changes in these estimates and assumptions could
materially affect the determination of fair value and/or
goodwill impairment for each reporting unit.

In accordance with SFAS 142, the Company
selected September 30 as the date on which the Company will
perform its annual goodwill impairment test. Based on its
valuation of goodwill, no impairment charges related to the
write-down of goodwill were recognized for the years ended
September 30, 2004 and 2003.

In connection with the Companys acquisition
subsequent to July 1, 2001, the Company has applied the
provisions of SFAS No. 141 Business
Combinations, using the purchase method of accounting. The
assets and liabilities assumed were recorded at their estimated
fair values as determined by management and were based on
information currently available and current assumptions as to
future operations. The excess purchase price over those fair
values was recorded as goodwill. The Companys goodwill
balance during the years ended September 30, 2004 and 2003
was $230,000 and was included in other assets in the
accompanying consolidated balance sheet.

Separable intangible assets that have finite
useful lives are amortized over their useful lives. An impaired
asset is written down to fair value. Intangible assets with
finite useful lives consist primarily of customer relationships
and are amortized over the expected period of benefit of five
years using the straight-line method. Such intangible assets
amount to $470,000 less accumulated amortization of $188,000 and
$94,000 at September 30, 2004 and 2003, respectively, and
are included in other assets in the accompanying consolidated
balance sheets.



| |                                                
| | -----------------------------------------------
| | Advertising and Shipping and Handling
    Costs

The Company reports the costs of all advertising
in the periods in which those costs are incurred. For the fiscal
years ended September 30, 2004, 2003, and 2002 advertising
expense was approximately $265,000, $549,000 and $349,000
respectively. Shipping and handling costs incurred by us are
included in cost of sales.



| |             
| | ------------
| | Income Taxes

The Company accounts for income taxes under the
liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws which will be
in effect when the differences are expected to reverse.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized.
Income tax expense represents the tax payable for the period and
the change during the period in deferred tax assets and
liabilities.

F-11



---



##### Table of Contents





| |                                                                 
| | ----------------------------------------------------------------
| | Concentration of Credit Risk and Major
    Customers and Vendors

Financial instruments that potentially subject us
to significant concentrations of credit risk consist principally
of cash deposits and trade accounts receivable. The
Companys cash deposits are placed with various financial
institutions; at times such balances with any one financial
institution may be in excess of the FDIC insurance limits.

Those customers that accounted for more than 10%
of net sales were as follows with their respective percentage of
outstanding accounts receivable at fiscal year end:

|           |  |                                                   |    |             |  |       |    |             |  |       |   |             |  |  |   |  |  |  |    |  |  |  |    | 
|---------- |  | ------------------------------------------------- | -- | ----------- |  | ----- | -- | ----------- |  | ----- | - | ----------- |  |  | - |  |  |  | -- |  |  |  | -- | 
|           |  |                                                  
|           |  | Years Ended September 30, and as of September 30,
|           |  |                                                  
|           |  |                                                   |    |             |  |      
|           |  | 2004                                              |    | 2003        |  | 2002 
|           |  |                                                   |    |             |  |      
|           |  | % Net                                             |    | % Trade     |  | % Net |    | % Trade     |  | % Net |   | % Trade    
|           |  | Sales                                             |    | Receivables |  | Sales |    | Receivables |  | Sales |   | Receivables
|           |  |                                                   |    |             |  |       |    |             |  |       |   |            
|Customer 1 |  |                                                   | 11 | %           |  |       | 10 | %           |  |       |  |             |  |  |  |  |  |  | 11 |  |  |  | 16 | 
|Customer 2 |  |                                                   |   |             |  |       |   |             |  |       |  |             |  |  |  |  |  |  | 10 |  |  |  | 10 | 
|           |  |                                                   |    |             |  |       |    |             |  |       |   |             |  |  |   |  |  |  |    |  |  |  |    | 
|           |  |                                                   | 11 | %           |  |       | 10 | %           |  |       |  |             |  |  |  |  |  |  | 21 |  |  |  | 26 | 
|           |  |                                                   |    |             |  |       |    |             |  |       |   |             |  |  |   |  |  |  |    |  |  |  |    | 

The Company performs periodic credit evaluations
of the financial condition of its customers, monitor collections
and payments from customers, and generally do not require
collateral. Receivables are generally due within 45 days.
The Company provides for the possible inability to collect
accounts receivable by recording an allowance for doubtful
accounts. The Company writes off an account when it is
considered to be uncollectible. The Company estimates its
allowance for doubtful accounts based on historical experience,
aging of accounts receivable, and information regarding the
creditworthiness of its customers. To date, losses have been
within the range of managements expectations.

The Company contract with various suppliers.
Although there are a limited number of suppliers capable of
supplying its inventory needs, the Company believes that any
shortfalls from existing suppliers would be absorbed from other
suppliers on comparable terms. However, a change in suppliers
could cause a delay in sales and adversely effect results.

Purchases from the Companys three largest
vendors during the years ended September 30, 2004, 2003,
and 2002, comprised, 56%, 53%, and 63% respectively, of its
total purchases of inventory and supplies purchases.



| |               
| | --------------
| | Treasury Stock

The Company uses the specific identification
method for accounting for treasury stock. During the 2001 fiscal
year, the Company purchased 120,000 shares for $253,000,
and subsequently, issued 64,000 shares for employee stock
benefit plans for $163,000. During the 2004 and 2002 fiscal
years, the Company issued 1,000 and 100,000 additional shares
respectively for employee stock benefit plans amounting to
$2,000 and $135,000 respectively. At September 30, 2004 and
2003, there remained approximately 1,000 and 2,000 respectively
treasury shares, with a cost of $1,000 and $4,000 respectively.



| |                         
| | ------------------------
| | Stock Based Compensation

The Company accounts for grants of options to
purchase its common stock to key personnel in accordance with
SFAS No. 123, Accounting for Stock-Based
Compensation. In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure,
effective for fiscal years ending after December 15, 2002.
SFAS No. 148 amends SFAS No. 123 to provide
alternative methods of transition to the fair value method of
accounting for stock-based employee compensation.
SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 to require disclosure in the summary of
significant accounting policies of the effects of an
entitys accounting policy with respect to stock-based
employee compensation on reported net income and earnings per
share in annual and interim financial statements.
SFAS No. 148 does not amend SFAS No. 123 to
require companies to account for their employee

F-12



---



##### Table of Contents



stock-based awards using the fair value method.
The disclosure provisions are required, however, for all
companies with stock-based employee compensation, regardless of
whether they utilize the fair value method of accounting
described in SFAS No. 123 or the intrinsic value
method described in Accounting Principles Board
(APB) Opinion No. 25, Accounting for
Stock Issued to Employees.


The Company adopted the disclosure requirements
of SFAS No. 148 effective January 1, 2003. The
adoption of this standard did not have a significant impact on
its financial condition or operating results.

The Company accounts for grants of options to
employees to purchase its common stock using the intrinsic value
method in accordance with APB Opinion No. 25 and
FIN No. 44, Accounting for Certain Transactions
Involving Stock Compensation. As permitted by
SFAS No. 123 and as amended by SFAS No. 148,
the Company has chosen to continue to account for such option
grants under APB Opinion No. 25 and provide the expanded
disclosures specified in SFAS No. 123, as amended by
SFAS No. 148.

Had compensation cost for the Companys
option grants been determined based on their fair value at the
grant date for awards consistent with the provisions of
SFAS No. 123, its net income (loss) and net income
(loss) per share would have been reduced to the pro forma
amounts indicated below (in thousands, except per share amounts):

|                                          |                                                                                                         |                          |       |      |   |      |        |      |   |   |        |        |  
|----------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------------ | ----- | ---- | - | ---- | ------ | ---- | - | - | ------ | ------ | -
|                                          |                                                                                                         |                         
|                                          |                                                                                                         | Year Ended September 30,
|                                          |                                                                                                         |                         
|                                          |                                                                                                         | 2004                     |       | 2003 |   | 2002
|                                          |                                                                                                         |                          |       |      |   |     
|Net income (loss) as reported             |                                                                                                         | $                        | 1,401 |      |   | $    | (2,397 | )    |   | $ | (3,424 | )     
|                                          | Stock based compensation cost, net of related tax
    effects, using the fair value method of reporting |                          |       | (684 | ) |      |        | (769 | ) |   |        | (1,156 | )
|                                          |                                                                                                         |                          |       |      |   |      |        |      |   |   |        |       
|Pro forma net income (loss)               |                                                                                                         | $                        | 717   |      |   | $    | (3,166 | )    |   | $ | (4,580 | )     
|                                          |                                                                                                         |                          |       |      |   |      |        |      |   |   |        |       
|Basic earnings (loss) per common share:   |                                                                                                         |                          |       |      |   |      |        |      |   |   |        |       
|                                          | As reported                                                                                             |                          | $     | .21  |   |      | $      | (.36 | ) |   | $      | (.51   | )
|                                          |                                                                                                         |                          |       |      |   |      |        |      |   |   |        |       
|                                          | Pro forma                                                                                               |                          | $     | .11  |   |      | $      | (.47 | ) |   | $      | (.69   | )
|                                          |                                                                                                         |                          |       |      |   |      |        |      |   |   |        |       
|Diluted earnings (loss) per common share: |                                                                                                         |                          |       |      |   |      |        |      |   |   |        |       
|                                          | As reported                                                                                             |                          | $     | .20  |   |      | $      | (.36 | ) |   | $      | (.51   | )
|                                          |                                                                                                         |                          |       |      |   |      |        |      |   |   |        |       
|                                          | Pro forma                                                                                               |                          | $     | .10  |   |      | $      | (.47 | ) |   | $      | (.69   | )
|                                          |                                                                                                         |                          |       |      |   |      |        |      |   |   |        |       



| |                
| | ---------------
| | Vendor Programs

The Company receives incentives from suppliers
related to cooperative advertising allowances, volume rebates
and other incentive agreements. These incentives are generally
under quarterly, semi-annual or annual agreements with the
suppliers; however, some of these incentives are product driven
or are provided to support specific programs established by the
supplier. Suppliers generally require that the Company uses
their cooperative advertising allowances exclusively for
advertising or other marketing programs. These restricted
cooperative advertising allowances are recognized as a reduction
of operating expense or cost of goods sold in accordance with
Emerging Issues Task Force Issue No. 02-16, as the related
marketing expenses are recognized.

As rebates are earned, the Company records the
income as a reduction of cost of goods sold. Any amounts
received from suppliers related to cooperative advertising
allowances, are deferred until earned. Rebate programs are
subject to audit as to whether the requirements of the rebates
were actually met. The Company establishes reserves to cover any
collectibility risks including subsequent supplier audits.



| |                   
| | ------------------
| | Earnings per Share

The Company accounts for earnings per common
share in accordance with SFAS 128 Earnings per
Share. Basic net income (loss) per share is computed by
dividing the net income (loss) for the period by the

F-13



---



##### Table of Contents



weighted average number of common shares
outstanding during the period. Diluted net income (loss) per
share is computed by dividing the net income (loss) for the
period by the weighted average number of common shares and
common share equivalents outstanding during the period. Common
share equivalents, consisting of stock options, are not included
in the calculation to the extent they are antidilutive.




| |                     
| | --------------------
| | Comprehensive Income

SFAS No. 130, Reporting
Comprehensive Income. establishes standards for reporting
and displaying comprehensive income and its components in
financial statements. SFAS No. 130 requires that all
items that are required to be reported under accounting
standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence
as other financial statements. The Company does not have any
components of comprehensive income for fiscal years ended
September 30, 2004, 2003 and 2002.



| |                  
| | -----------------
| | 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. The Company identifies reportable segments based on
how management internally evaluates separate financial
information, business activities and management responsibility.
For the years ended September 30, 2004, 2003 and 2002, the
Company operated in only one segment.

The Company recognizes revenues in geographic
areas based on the location to which the product was shipped or
services have been rendered. Operations outside the United
States of America have been immaterial to date.



| |                                         
| | ----------------------------------------
| | Recently Issued Accounting
    Standards

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities (FIN 46), which clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements. FIN 46 requires variable
interest entities (VIE) to be consolidated by a
company if that company is subject to a majority of the risk of
loss from the VIE activities or entitled to receive a majority
of the entitys residual returns or both. A company that
consolidates a VIE is called the primary beneficiary of that
entity. FIN 46 also requires disclosures about VIE that a
company is not required to consolidate but in which it has a
significant variable interest. The provisions of this
interpretation apply immediately to VIE created after
January 31, 2003 and apply to existing VIE in the first
fiscal year or interim period ending after December 15,
2003. We adopted FIN 46 for the quarter ended
December 31, 2003, which adversely affected our operating
results due to substantial losses from our VIE investment, PBPO,
being consolidated

In December 2003, the FASB issued Interpretation
No. 46 (Revised 2003) Consolidation of Variable
Interest Entities (FIN 46(R)), which
partially deferred the effective date of FIN 46 for certain
entities and makes other changes to FIN 46, including a
more complete definition of variable interest and an exemption
for many entities defined as businesses.

In March 2004, the FASBs Emerging Issues
Task Force (EITF) finalized new guidance on
other-than-temporary impairment of debt and equity securities.
The impairment evaluation guidance in Issue No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, is effective for
reporting periods beginning after June 15, 2004. We had
previously been evaluating impairments of debt and equity
securities using much of the guidance incorporated into this new
EITF Issue. The implementation of this guidance does not
significantly change our procedures for evaluating impairments.

F-14



---



##### Table of Contents





|  |                       
|- | ----------------------
|2 | Property and Equipment

Property and equipment consist of the following
(in thousands):

|                                                |  |               |        |      |  |   |        |  
|----------------------------------------------- |  | ------------- | ------ | ---- |  | - | ------ | -
|                                                |  |              
|                                                |  | September 30,
|                                                |  |              
|                                                |  | 2004          |        | 2003
|                                                |  |               |        |     
|Software under development                      |  | $             | 203    |      |  | $ |       |  
|Computer equipment and software                 |  |               | 7,870  |      |  |   | 8,373  |  
|Office equipment and other                      |  |               | 963    |      |  |   | 1,019  |  
|Leasehold improvements                          |  |               | 439    |      |  |   | 434    |  
|Capitalized leases (see Note 6)                 |  |               | 5,279  |      |  |   | 5,210  |  
|                                                |  |               |        |      |  |   |        |  
|                                                |  |               | 14,754 |      |  |   | 15,036 |  
|Less: Accumulated depreciation and amortization |  |               | (9,407 | )    |  |   | (9,048 | )
|                                                |  |               |        |      |  |   |        |  
|                                                |  | $             | 5,346  |      |  | $ | 5,988  |  
|                                                |  |               |        |      |  |   |        |  

Depreciation and amortization expense was $1,574,
$1,788 and $1,818 for the years ended September 30, 2004,
2003, and 2002 respectively. Accumulated amortization on
capitalized leases was $777 and $604 at September 30, 2004
and 2003, respectively.



|  |                
|- | ---------------
|3 | Lines of Credit

At September 30, 2004 and 2003, the Company
had outstanding borrowings of $18,309,000 and $11,326,000
respectively, under lines of credit with various financial
institutions. At September 30, 2004 and 2003, the line of
credit agreements provide financing for cash advances and
flooring of up to $30.0 million.

In June 2004, the Company closed a
$30.0 million replacement working capital financing
facility with GE. The term of the facility is for a period of
three years, except that either party may terminate the
agreement upon 60 days written notice to the other party.
Borrowings under the line of credit agreement are collateralized
by 85% of eligible accounts receivable (as defined in the
agreement) and substantially all of the Companys assets.
At September 30, 2004, the Company had additional
borrowings available of approximately $7.0 million after
taking into consideration the available collateral and borrowing
limitations under the agreement. Borrowings are limited to
specific percentages of the Companys accounts receivable
and inventory balances.

The financing agreement contains the following
liquidity financial covenants:



| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. EBITDA must be sufficient to cover a
    multiple of 1.25 times interest expense for a rolling twelve
    month period ending on the last day of each fiscal quarter.
|
| | 2. Tangible net worth and subordinated debt
    must equal or exceed $14.0 million.                                                                                     
|
| | 3. The ratio of debt minus subordinated debt
    to tangible net worth and subordinated debt must not exceed 3.5
    to one.                                            
|
| | 4. The ratio of current tangible assets to
    current liabilities must not be less than 1.2 to one.                                                                    

The prime rate of interest was 4.75%, and 4.00%
at September 30, 2004 and 2003, respectively, and the
weighted average interest rates incurred under line of credit
borrowings for the years ended September 30, 2004, 2003 and
2002 were 1.00%, 3.00%, and 1.00%, respectively. The 1.00%
weighted average interest rate for the 2004 fiscal year,
resulted from most borrowings being financed under the
Companys former interest-free flooring agreement that
required a 1% guarantee fee to be paid to the primary lender.
Since the Company replaced its working capital financing
facility in June 2004, no interest expense has been incurred on
borrowings. Interest expense, the majority of which was for the
Ontario facility lease (See Note 7) for the years ended
September 30, 2004, 2003 and 2002 was $805, $937, and $823
respectively.

F-15



---



##### Table of Contents





|  |                   
|- | ------------------
|4 | Charges and Income

Charges of $0.4 million were incurred for
the fiscal year ended September 30, 2003. The charges
relate to a February 2003 court derivative litigation, Fredrick
V. Din, et al. As a part of the stipulation of the parties,
it was agreed that the defendants would pay the plaintiffs
attorney fees of approximately $0.4 million. After a review
by selected members of the Companys board of directors who
were not defendants in the litigation, and based on the
boards review and recommendation, the Company paid the
settlement and charged the full amount to expense.

Income of $0.9 million primarily resulted
from the settlement of a litigation claim, $0.8 million. In
the settled litigation claim, the Company was liable for a total
of $1.6 million under various Court decisions (including
accrued interest) and settled for $1.2 million. In
addition, there was a recovery of $0.8 million of insurance
reimbursement relating to previously expensed legal fees offset
by other legal costs of $0.4 million.

In June 2001, the Company underwent its second
restructuring, part of its plan to convert from fixed sales
offices to virtual sales offices. In executing the restructure,
the workforce was reduced by 64 employees and 9 rental
locations were either closed and converted to virtual sales
locations or were reduced in size. In connection with the
restructuring, we recorded restructuring charges of $1,263,000.
The following table summarizes the restructuring charges and the
remaining reserves associated with the restructuring in
thousands:

|                              |               |   |       |      |  
|----------------------------- | ------------- | - | ----- | ---- | -
|Balance at October 1, 2001    |               | $ | 1,263 |     
|                              | Adjustments   |   |       | (70  | )
|                              | Cash payments |   |       | (990 | )
|                              |               |   |       |     
|Balance at September 30, 2002 |               |   | 203   |     
|                              | Cash payments |   |       | (181 | )
|                              |               |   |       |     
|Balance at September 30, 2003 |               |   | 22    |     
|                              | Adjustments   |   |       | (22  | )
|                              |               |   |       |     
|Balance at September 30, 2004 |               | $ |      |     
|                              |               |   |       |     



|  |                      
|- | ---------------------
|5 | Employee Benefit Plan

The Company has an employee savings plan (the
401(k) Plan) that covers substantially all full-time
employees who are twenty-one years of age or older. The
Companys contributions to the 401(k) Plan are at the
discretion of the Board of Directors and vest over seven years
of service. To date the Company has made no contributions to the
401(k) Plan.

F-16



---



##### Table of Contents





|  |             
|- | ------------
|6 | Income Taxes

The components of the income tax provision
(benefit) are as follows (in thousands):

|         |         |                          |     |      |  |      |   |   |  |  |        |        |  
|-------- | ------- | ------------------------ | --- | ---- |  | ---- | - | - |  |  | ------ | ------ | -
|         |         |                         
|         |         | Year Ended September 30,
|         |         |                         
|         |         | 2004                     |     | 2003 |  | 2002
|         |         |                          |     |      |  |     
|Current: |         |                          |     |      |  |      |   |   |  |  |        |       
|         | Federal |                          | $   | 38   |  |      | $ |  |  |  | $      | (2,227 | )
|         | State   |                          |     | 93   |  |      |   |  |  |  |        | 45     |  
|         |         |                          |     |      |  |      |   |   |  |  |        |       
|         |         |                          | 131 |      |  |      |  |   |  |  | (2,182 | )     
|         |         |                          |     |      |  |      |   |   |  |  |        |       

The provision (benefit) for income taxes differs
from the amount computed by applying the federal statutory rate
to income (loss) before provision (benefit) for income taxes as
follows:

|                                                              |  |               |     |      |  |      |     |    |  |  |     |   
|------------------------------------------------------------- |  | ------------- | --- | ---- |  | ---- | --- | -- |  |  | --- | --
|                                                              |  |              
|                                                              |  | Year Ended   
|                                                              |  | September 30,
|                                                              |  |              
|                                                              |  | 2004          |     | 2003 |  | 2002
|                                                              |  |               |     |      |  |     
|Federal statutory rate                                        |  |               | 35  | %    |  |      | (35 | )% |  |  | (35 | )%
|State taxes, net of federal benefits                          |  |               | 4   |      |  |      | 2   |    |  |  | 1   |   
|Expenses not deductible                                       |  |               | 2   |      |  |      |    |    |  |  |    |   
|Losses providing no tax benefits                              |  |               | 26  |      |  |      |    |    |  |  | 7   |   
|Minority interest                                             |  |               | (3  | )    |  |      |    |    |  |  |    |   
|Net operating loss carryforward                               |  |               | (37 | )    |  |      |    |    |  |  |    |   
|Affiliate income not subject to tax                           |  |               |    |      |  |      |    |    |  |  | (4  | ) 
|Benefit from tax law change related to prior
    fiscal years |  |               |    |      |  |      |    |    |  |  | (8  | ) 
|Valuation allowances                                          |  |               | (18 | )    |  |      | 33  |    |  |  |    |   
|                                                              |  |               |     |      |  |      |     |    |  |  |     |   
|                                                              |  |               | 9   | %    |  |      |    | %  |  |  | (39 | )%
|                                                              |  |               |     |      |  |      |     |    |  |  |     |   

Deferred income taxes reflect the tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Due to the uncertainty surrounding
the realization of the net deferred tax asset of
$5.6 million, management has provided a full valuation
allowance. Significant components of deferred taxes are as
follows (in thousands):

|                                              |  |               |        |      |  |   |        |  
|--------------------------------------------- |  | ------------- | ------ | ---- |  | - | ------ | -
|                                              |  |              
|                                              |  | September 30,
|                                              |  |              
|                                              |  | 2004          |        | 2003
|                                              |  |               |        |     
|Deferred tax assets:                          |  |               |        |      |  |   |        |  
|Accounts receivable and allowance for returns |  | $             | 706    |      |  | $ | 759    |  
|Expenses not currently deductible             |  |               | 655    |      |  |   | 919    |  
|Depreciation                                  |  |               | 725    |      |  |   | 643    |  
|Federal net operating loss                    |  |               | 3,127  |      |  |   | 3,775  |  
|State net operating loss                      |  |               | 563    |      |  |   | 678    |  
|                                              |  |               |        |      |  |   |        |  
|                                              |  |               | 5,776  |      |  |   | 6,774  |  
|Deferred tax liabilities                      |  |               |       |      |  |   |       |  
|                                              |  |               |        |      |  |   |        |  
|Net deferred tax asset                        |  |               | 5,776  |      |  |   | 6,774  |  
|Valuation allowance                           |  |               | (5,776 | )    |  |   | (6,774 | )
|                                              |  |               |        |      |  |   |        |  
|Deferred tax liability/asset                  |  | $             |       |      |  | $ |       |  
|                                              |  |               |        |      |  |   |        |  

F-17



---



##### Table of Contents



The Company had the following Federal net
operating losses (NOL) available:

|                  |      |                |  |            |       |  |  |  |      | 
|----------------- | ---- | -------------- |  | ---------- | ----- |  |  |  | ---- | 
|                  |      |                |  | Expiration
|Year NOL Incurred |      | NOL Amount     |  | Date      
|                  |      |                |  |           
|                  |      | (In thousands) |  |           
|                  | 2000 |                |  | $          | 2,860 |  |  |  | 2020 | 
|                  | 2002 |                |  |            | 4,036 |  |  |  | 2022 | 
|                  | 2003 |                |  |            | 2,038 |  |  |  | 2023 | 
|                  |      |                |  |            |       |  |  |  |      | 
|                  |      |                |  | $          | 8,934 |  |  |  |      | 
|                  |      |                |  |            |       |  |  |  |      | 

Only a portion of the above $8.9 million NOL
carry forward will benefit earnings, as $4.7 million was
attributable to the exercise of stock options and will be
considered an adjustment to additional paid-in capital and will
not benefit future earnings.



|  |                              
|- | -----------------------------
|7 | Commitments and Contingencies

The Company leases office facilities and various
types of office equipment. These leases vary in duration and
many contain renewal options and/or escalation clauses. Sublease
income results principally from the subletting of the
Companys Ontario facility and former branch sales offices
that were closed but have remaining lease obligations. Estimated
future minimum lease payments under leases having initial or
remaining non-cancelable lease terms in excess of one year at
September 30, 2004 were approximately as follows (in
thousands):

|                                                                   |           |                              |   |          |       |             |   |     |     |   |       |       |       | 
|------------------------------------------------------------------ | --------- | ---------------------------- | - | -------- | ----- | ----------- | - | --- | --- | - | ----- | ----- | ----- | 
|                                                                   |           | Minimum Lease                |   | Sublease |       | Capitalized
|                                                                   |           | Payments                     |   | Income   |       | Leases     
|                                                                   |           |                              |   |          |       |            
|                                                                   | 2005      |                              | $ | 1,174    |       |             | $ | 222 |     |   | $     | 763   |      
|                                                                   | 2006      |                              |   | 655      |       |             |   | 111 |     |   |       | 577   |      
|                                                                   | 2007      |                              |   | 23       |       |             |   |    |     |   |       | 23    |      
|                                                                   |           |                              |   |          |       |             |   |     |     |   |       |      
|                                                                   |           | Total minimum lease payments |   | $        | 1,852 |             |   | $   | 333 |   |       |       | 1,363 | 
|                                                                   |           |                              |   |          |       |             |   |     |     |   |       |      
|Additional long-term lease payments required in
    sale-leaseback |           |                              |   |          |       |             |   |     |     |   | 4,744 |      
|                                                                   |           |                              |   |          |       |             |   |     |     |   |       |      
|                                                                   |           |                              |   |          |       |             |   |     |     |   | 6,107 |      
|Less amount representing interest                                  |           |                              |   |          |       |             |   |     |     |   | (906  | )    
|                                                                   |           |                              |   |          |       |             |   |     |     |   |       |      
|                                                                   |           |                              |   |          |       |             |   |     |     | $ | 5,201 |      
|                                                                   |           |                              |   |          |       |             |   |     |     |   |       |      
|                                                                   | Current   |                              |   |          |       |             |   |     |     |   |       | 236   |      
|                                                                   | Long-term |                              |   |          |       |             |   |     |     |   |       | 4,965 |      
|                                                                   |           |                              |   |          |       |             |   |     |     |   |       |      
|                                                                   |           |                              |   |          |       |             |   |     |     | $ | 5,201 |      
|                                                                   |           |                              |   |          |       |             |   |     |     |   |       |      

On June 24 1999, the Company entered into a
sale-leaseback arrangement. Under the arrangement, the Company
sold its Ontario facility for $5.5 million and leased it
back under a triple net lease term of 15 years. The base
rent was $544,000 the first year with 3% increases in each of
the following 15 years. The terms of the lease permit
termination of the lease, at no cost or penalty, at the end of
the seventh and tenth years, on May 30, 2006 and 2009,
respectively.

The Company currently occupies approximately 55%
of the facility and planned and accomplished the subleasing of
the remaining space in February of 2002. However, under
SFAS No. 98 Accounting for Leases,
subleasing space in excess of 10% is considered retaining a
financial interest in the property and requires that the
property remain on the financial statements. The balance sheet
therefore reflects the property and equipment at its estimated
fair value and related liability until the lease qualifies as a
normal leaseback under SFAS No. 98.

F-18



---



##### Table of Contents



Rent expense for the years ended
September 30, 2004, 2003, and 2002 under all operating
leases was approximately $1,294,000, $1,731,000 and $2,072,000
respectively.

For the year ended September 30, 2004, 2003
and 2002, Ontario facility rent expense, which is characterized
as a financing lease under SFAS No. 98 and reported as
interest expense, was approximately $534,000, $547,000 and
$558,000 respectively.



|  |                                           
|- | ------------------------------------------
|8 | Earnings per Share and Preferred
    Stock

The following table sets forth the computation of
basic and diluted net income (loss) per share (in thousands,
except per share amounts):

|                                                              |                                     |                                            |       |       |     |      |        |       |   |   |        |       |   | 
|------------------------------------------------------------- | ----------------------------------- | ------------------------------------------ | ----- | ----- | --- | ---- | ------ | ----- | - | - | ------ | ----- | - | 
|                                                              |                                     |                                           
|                                                              |                                     | Year Ended September 30,                  
|                                                              |                                     |                                           
|                                                              |                                     | 2004                                       |       | 2003  |     | 2002
|                                                              |                                     |                                            |       |       |     |     
|Net income (loss)                                             |                                     | $                                          | 1,401 |       |     | $    | (2,397 | )     |   | $ | (3,424 | )    
|                                                              |                                     |                                            |       |       |     |      |        |       |   |   |        |      
|Denominator:                                                  |                                     |                                            |       |       |     |      |        |       |   |   |        |      
|                                                              | Weighted-average shares outstanding |                                            |       | 6,737 |     |      |        | 6,720 |   |   |        | 6,666 |  
|                                                              | Effect of dilutive securities:      |                                            |       |       |     |      |        |       |   |   |        |       |  
|                                                              |                                     | Dilutive potential of options and warrants |       |       | 117 |      |        |       |  |   |        |       |  | 
|                                                              |                                     |                                            |       |       |     |      |        |       |   |   |        |      
|Weighted-average shares and share equivalents
    outstanding |                                     |                                            | 6,854 |       |     |      | 6,720  |       |   |   | 6,666  |      
|                                                              |                                     |                                            |       |       |     |      |        |       |   |   |        |      
|Basic income (loss) per share                                 |                                     | $                                          | .21   |       |     | $    | (.36   | )     |   | $ | (.51   | )    
|                                                              |                                     |                                            |       |       |     |      |        |       |   |   |        |      
|Diluted income (loss) per share                               |                                     | $                                          | .20   |       |     | $    | (.36   | )     |   | $ | (.51   | )    
|                                                              |                                     |                                            |       |       |     |      |        |       |   |   |        |      

The dilutive potential of stock options, which
include 5,819,000 shares for the years ended
September 30, 2002, has been excluded from the calculation
of diluted loss per share because the effect of their inclusion
would have been anti-dilutive.

The Company has an anti-takeover provision that
grants its Board of Directors the authority to issue up to
5,000,000 shares of preferred stock and to determine the
price, rights, preferences, qualifications, limitations and
restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The rights of
the holders of common stock will be subject to, and may be
adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance
of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate
purposes, could have the effect of delaying or preventing a
third party from acquiring a majority of the Companys
outstanding voting stock. Further, Section 203 of the
General Corporation Law of Delaware prohibits the Company from
engaging in certain business combinations with interested
stockholders. These provisions may have the effect of delaying
or preventing a change in the Companys control without
action by the stockholders, and therefore could adversely affect
the market price of its common stock.



|  |              
|- | -------------
|9 | Stock Options

In March 1996, the Company instituted a qualified
and non-qualified stock option plan which provides currently
that options for a maximum of 2,760,000 shares of common
stock may be granted to directors, officers, and key employees
with an exercise period not to exceed ten years. The stock
options are generally exercisable at fair market value at the
date of grant and generally vest on a pro-rata basis ending on
the third, ninth and twenty-seventh months following the grant
date or 25% in six months with the remaining 75% vesting
quarterly over three and one half years. As of
September 30, 2004 and 2003, the shares available for grant
under the plan were 545,475 and 801,689, respectively.

During the year ended September 30, 2004,
the Company granted options to purchase 450,000 shares
of our common stock to directors and employees with an exercise
price ranging from $1.74 to $3.38 per share. The options
vest over four years and expire ten years from the date of
grant. A compensation charge was not

F-19



---



##### Table of Contents



recorded in connection with the issuance of such
options as the exercise price of the stock options granted was
not less than the fair market value of the Companys stock
price as of the date of grant.


The following is a summary of stock option
activity:

|                                  |           |               |         |           |   |                |         |          |   |  |       |        |  
|--------------------------------- | --------- | ------------- | ------- | --------- | - | -------------- | ------- | -------- | - |  | ----- | ------ | -
|                                  |           |               |         |           |   | Total Exercise
|                                  |           | Non-Qualified |         | Incentive |   | Value         
|                                  |           |               |         |           |   |               
|                                  |           |               |         |           |   | (In thousands)
|Outstanding at September 30, 2001 |           |               | 887,667 |           |   |                | 759,060 |          |   |  | 6,089 |       
|                                  | Granted   |               |         | 250,000   |   |                |         | 90,000   |   |  |       | 505    |  
|                                  | Exercised |               |         |          |   |                |         | (25,000  | ) |  |       | (48    | )
|                                  | Cancelled |               |         | (566,000  | ) |                |         | (153,711 | ) |  |       | (1,503 | )
|                                  |           |               |         |           |   |                |         |          |   |  |       |       
|Outstanding at September 30, 2002 |           |               | 571,667 |           |   |                | 670,349 |          |   |  | 5,043 |       
|                                  | Granted   |               |         |          |   |                |         | 236,250  |   |  |       | 295    |  
|                                  | Exercised |               |         |          |   |                |         |         |   |  |       |       |  
|                                  | Cancelled |               |         | (50,000   | ) |                |         | (95,333  | ) |  |       | (506   | )
|                                  |           |               |         |           |   |                |         |          |   |  |       |       
|Outstanding at September 30, 2003 |           |               | 521,667 |           |   |                | 811,266 |          |   |  | 4,832 |       
|                                  | Granted   |               |         | 150,000   |   |                |         | 300,000  |   |  |       | 1,309  |  
|                                  | Exercised |               |         | (25,900   | ) |                |         | (67,859  | ) |  |       | (150   | )
|                                  | Cancelled |               |         | (29,100   | ) |                |         | (164,686 | ) |  |       | (734   | )
|                                  |           |               |         |           |   |                |         |          |   |  |       |       
|Outstanding at September 30, 2004 |           |               | 616,667 |           |   |                | 878,721 |          |   |  | 5,257 |       
|                                  |           |               |         |           |   |                |         |          |   |  |       |       

|                   |  |             |         |                |  |             |      |  |  |  |      | 
|------------------ |  | ----------- | ------- | -------------- |  | ----------- | ---- |  |  |  | ---- | 
|                   |  |             |         | Weighted       |  | Remaining  
|                   |  | Options     |         | Average        |  | Contractual
|                   |  | Exercisable |         | Exercise Price |  | Life       
|                   |  |             |         |                |  |            
|September 30, 2002 |  |             | 635,151 |                |  | $           | 5.42 |  |  |  | 7.22 | 
|September 30, 2003 |  |             | 803,539 |                |  | $           | 4.43 |  |  |  | 6.79 | 
|September 30, 2004 |  |             | 877,719 |                |  | $           | 3.88 |  |  |  | 6.21 | 

The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for
grants in 2004, 2003 and 2002:

|                              |  |          |   |            |  |           |     |          |  |  |      |   |  |  |     | 
|----------------------------- |  | -------- | - | ---------- |  | --------- | --- | -------- |  |  | ---- | - |  |  | --- | 
|                              |  | Expected |   |            |  | Risk Free |     |         
|                              |  | Dividend |   | Expected   |  | Interest  |     | Expected
|                              |  | Yield    |   | Volatility |  | Rate      |     | Lives   
|                              |  |          |   |            |  |           |     |         
|Year ended September 30, 2002 |  |          | 0 | %          |  |           | 98  | %        |  |  | 3.94 | % |  |  | 5.0 | 
|Year ended September 30, 2003 |  |          | 0 | %          |  |           | 98  | %        |  |  | 2.54 | % |  |  | 5.0 | 
|Year ended September 30, 2004 |  |          | 0 | %          |  |           | 101 | %        |  |  | 3.10 | % |  |  | 5.0 | 



|   |                    
|-- | -------------------
|10 | Employee Stock Plan

The Company has an Employee Stock Purchase Plan
(the Plan) under which there remains authorized and
available for sale to employees an aggregate of
350,007 shares of its common stock at September 30,
2004. The Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, permits eligible
employees to purchase common stock, subject to certain
limitations, up to 20% of their compensation. Purchases of stock
under the Plan are made twice annually from amounts withheld
from payroll at 85% of the lower of the fair market value of the
common stock at the beginning or end of the six month offering
period. In April 2002, the Company announced to its employees
that the Company was suspending its Plan until further notice.



|   |                        
|-- | -----------------------
|11 | Acquisition of Business

On October 11, 2002, the Company completed
the purchase of certain assets of Tabin Corporation, a
Chicago-based value-added reseller, providing us with an
established presence in one of the largest market

F-20



---



##### Table of Contents



places in the U.S. Based on an independent
valuation, the total purchase price of approximately $921,000
has been allocated as follows (in thousands):


|                       |  |   |     | 
|---------------------- |  | - | --- | 
|Inventory              |  | $ | 76  | 
|Depreciable assets     |  |   | 145 | 
|Customer relationships |  |   | 470 | 
|Goodwill               |  |   | 230 | 
|                       |  |   |     | 
|                       |  | $ | 921 | 
|                       |  |   |     | 

The Company allocated the purchase price to the
tangible and intangible acquired, based on their estimated fair
values. The excess purchase price over those fair values was
recorded as goodwill. The fair value assigned to the intangible
assets acquired was based on valuations prepared by an
independent third party appraisal firm using estimates and
assumptions provided by management. In accordance with
SFAS No. 142, goodwill and purchased intangibles with
indefinite lives acquired after June 30, 2001 are not
amortized but will be reviewed periodically for impairment. Of
the purchase price, approximately $470,000 has been allocated to
amortizable intangible assets related to customer relationships.
Customer relationships are existing sales contacts that relate
to underlying customer relationships pertaining to the products
and services provided by the Company.

The Company is amortizing the fair value of
customer relationships on a straight-line basis over an
estimated useful life of 5 years. At September 30,
2004, there remained a balance of $282,000 of unamortized
customer relationships, which over the next three years will be
amortized at the rate of $94,000 per year. Under terms of the
agreement, the stockholders of Tabin Corporation were eligible
to receive additional earn-out payments based upon achieving
certain profitability targets over a two-year period beginning
November 1, 2002. On July 8, 2003, the stockholders of
Tabin Corporation agreed to a modification of the agreement that
accepted a one-time payment of $5,000 as payment in full for any
sums owed under the earn-out provisions of the acquisition
agreement. The following unaudited pro forma consolidated
financial information reflects the results of operations for the
year ended September 30, 2003 and 2002 as if the
acquisition of Tabin Corporations operations had occurred
on October 1, 2002 and 2001, respectively (in thousands,
except per share data).

|                    |         |                          |         |       |   |   |         |       |  
|------------------- | ------- | ------------------------ | ------- | ----- | - | - | ------- | ----- | -
|                    |         |                         
|                    |         | Year Ended September 30,
|                    |         |                         
|                    |         | 2003                     |         | 2002 
|                    |         |                          |         |      
|Net sales           |         | $                        | 290,879 |       |   | $ | 280,650 |      
|Net loss            |         | $                        | (2,269  | )     |   | $ | (3,367  | )    
|Net loss per share: |         |                          |         |       |   |   |         |      
|                    | Basic   |                          | $       | (0.34 | ) |   | $       | (0.51 | )
|                    | Diluted |                          | $       | (0.34 | ) |   | $       | (0.51 | )



|   |           
|-- | ----------
|12 | Litigation

In March 2000, an action was brought against us
in the Orange County Superior Court, Case No. 00CC03948
contending fraud and breach of contract arising from the
purchase by a former subsidiary of the Company of certain assets
from a company formerly known as First Source International
(FSI). The lawsuit is filed by RLC, Inc. Assignee
for the benefit of creditors of a defunct corporation, Paragon
Solutions, Inc, formerly known as FSI. It is contended that FSI
was unable to obtain their contingent earn-out under the
agreement because of faulty software provided by the Company.
Damages sought range between $0.8 to $3.5 million with the
plaintiff seeking punitive damages of $10 million. The
Company was successful in compelling the action to be moved to
arbitration, but since November 17, 2000 when the Court of
Appeals rejected the request by the plaintiff to prohibit
arbitration, no arbitration proceedings have commenced. The
Company vigorously denies the charges and contends that full
disclosure was made as to any problems with the software and
that the former subsidiary to this date has not produced net
income. The case has remained dormant for the past four years.
Legal counsel is currently unable to predict the outcome of this
litigation.

F-21



---



##### Table of Contents



On or about September 18, 2000, a claim for
arbitration was submitted by First Union Securities to the New
York Stock Exchange against, among others, the Company and its
President and Chief Executive Officer, Attiazaz Din (the
En Pointe defendants). First Union alleges that the
Company and Din violated federal and state securities laws in
connection with the promotion and sale of En Pointe stock in the
last half of 1999 and the first half of 2000. The En Pointe
defendants dispute jurisdiction and intend to vigorously defend
the allegations.

In December 2000, the Company and certain current
and former directors and officers along with several unrelated
parties were named in a complaint alleging that the defendants
made misrepresentations regarding the Company and that the
individual defendants improperly benefited from the sales of
shares of the Companys common stock and seeking a recovery
by our shareholders of the damages sustained as a result of such
activities (Crosby V. En Pointe Technologies, it al., Superior
Court of California, County of San Diego, No. GIC
759905). The parties have stipulated to a stay of the case
pending the class action. The En Pointe defendants intend to
vigorously defend the allegations.

In February 2001, the Company and five of its
directors, one current officer, and certain former officers
along with seven unrelated parties were named in a stockholder
class action complaint alleging that the defendants made
misrepresentations regarding the Company and that the individual
defendants improperly benefited from the sales of shares of the
Companys common stock and seeking a recovery by the
Companys stockholders of the damages sustained as a result
of such activities (In Re En Pointe Technologies Securities
Litigation, United States District Court, Southern District of
California Case No. 01CV0205L (CGA)). In an amended
complaint, the plaintiffs limited their claims the Company and
its Chief Executive Officer. In response to a motion to dismiss,
the Court further limited plaintiffs claims to allegations
of market manipulation and insider trading. The En Pointe
defendants have answered the amended and limited complaint and
intend to vigorously defend the litigation.

In February 2002, the Company entered into a
settlement agreement and release with NovaQuest InfoSystems, now
known as WebVision, Inc. The settling parties agreed to
stipulate to reverse and vacate a November 7, 2001 Superior
Court judgment relating to certain litigation in which the
Company owed and accrued on its books $1,375,000 along with
accrued interest of $293,000. Under the terms of the settlement
agreement, the Company made various payments to representative
parties of the plaintiff totaling $1,200,000 in discharge of the
litigation claim. The Company recorded the settlement of this
litigation as a charge (income) less certain other litigation
related income from insurance reimbursement that resulted in a
total recovery of $848,000.

There are various other claims and litigation
proceedings in which the Company is involved in the ordinary
course of business. While the outcome of these claims and
proceedings cannot be predicted with certainty, after consulting
with legal counsel, management does not believe that the outcome
of any of these matters will have a material adverse affect on
the Companys business, financial position and results of
operations or cash flows.

F-22



---



##### Table of Contents





|   |                                     
|-- | ------------------------------------
|13 | Quarterly Financial Data (Unaudited)

Selected financial information for the quarterly
periods in the fiscal years ended September 30, 2004 and
2003 is presented below (in thousands, except per share amounts):

|                             |  |                           |        |      |  |       |        |          |  |   |        |  |  |   |        | 
|---------------------------- |  | ------------------------- | ------ | ---- |  | ----- | ------ | -------- |  | - | ------ |  |  | - | ------ | 
|                             |  |                          
|                             |  | Fiscal 2004 Quarter Ended
|                             |  |                          
|                             |  | September                 |        | June |  | March |        | December
|                             |  |                           |        |      |  |       |        |         
|Net sales                    |  | $                         | 71,495 |      |  | $     | 82,863 |          |  | $ | 61,268 |  |  | $ | 63,608 | 
|Gross profit                 |  |                           | 8,021  |      |  |       | 9,472  |          |  |   | 8,159  |  |  |   | 8,824  | 
|Net income                   |  |                           | 478    |      |  |       | 477    |          |  |   | 205    |  |  |   | 241    | 
|Basic net income per share   |  |                           | .07    |      |  |       | .07    |          |  |   | .03    |  |  |   | .04    | 
|Diluted net income per share |  |                           | .07    |      |  |       | .07    |          |  |   | .03    |  |  |   | .04    | 

|                                    |  |                           |        |      |  |       |        |          |  |   |        |   |  |   |        |  
|----------------------------------- |  | ------------------------- | ------ | ---- |  | ----- | ------ | -------- |  | - | ------ | - |  | - | ------ | -
|                                    |  |                          
|                                    |  | Fiscal 2003 Quarter Ended
|                                    |  |                          
|                                    |  | September                 |        | June |  | March |        | December
|                                    |  |                           |        |      |  |       |        |         
|Net sales                           |  | $                         | 72,211 |      |  | $     | 70,013 |          |  | $ | 72,011 |   |  | $ | 75,576 |  
|Gross profit                        |  |                           | 9,688  |      |  |       | 8,974  |          |  |   | 8,417  |   |  |   | 8,961  |  
|Net (loss) income                   |  |                           | 383    |      |  |       | (391   | )        |  |   | (1,656 | ) |  |   | (733   | )
|Basic net income (loss) per share   |  |                           | .06    |      |  |       | (.06   | )        |  |   | (.25   | ) |  |   | (.11   | )
|Diluted net income (loss) per share |  |                           | .06    |      |  |       | (.06   | )        |  |   | (.25   | ) |  |   | (.11   | )

|                                    |  |                           |        |      |  |       |        |          |  |   |        |  |  |   |        |  
|----------------------------------- |  | ------------------------- | ------ | ---- |  | ----- | ------ | -------- |  | - | ------ |  |  | - | ------ | -
|                                    |  |                          
|                                    |  | Fiscal 2002 Quarter Ended
|                                    |  |                          
|                                    |  | September                 |        | June |  | March |        | December
|                                    |  |                           |        |      |  |       |        |         
|Net sales                           |  | $                         | 61,508 |      |  | $     | 64,144 |          |  | $ | 57,291 |  |  | $ | 74,100 |  
|Gross profit                        |  |                           | 7,126  |      |  |       | 6,052  |          |  |   | 7,094  |  |  |   | 7,266  |  
|Net (loss) income                   |  |                           | (751   | )    |  |       | (1,936 | )        |  |   | 747    |  |  |   | (1,484 | )
|Basic net (loss) income per share   |  |                           | (.11   | )    |  |       | (.29   | )        |  |   | .11    |  |  |   | (.29   | )
|Diluted net (loss) income per share |  |                           | (.11   | )    |  |       | (.29   | )        |  |   | .11    |  |  |   | (.29   | )



|   |                 
|-- | ----------------
|14 | Subsequent Event

Effective October 1, 2004, the Company
purchased certain assets of Viablelinks, Inc., a Portland,
Oregon and Boise, Idaho-based regional reseller of technology
products and services. Based on an independent preliminary
valuation, the total purchase price of approximately $882,000
has been allocated as follows (in thousands):

|                                    |  |   |     | 
|----------------------------------- |  | - | --- | 
|Cash                                |  | $ | 4   | 
|Accounts receivable                 |  |   | 451 | 
|Depreciable assets                  |  |   | 57  | 
|Customer relationships and Goodwill |  |   | 370 | 
|                                    |  |   |     | 
|                                    |  | $ | 882 | 
|                                    |  |   |     | 

The Company allocated the purchase price to the
tangible and intangible acquired, based on their estimated fair
values. The excess purchase price over those fair values was
recorded as goodwill. The fair value assigned to the intangible
assets acquired was based on valuations prepared by an
independent third party appraisal firm using estimates and
assumptions provided by management. In accordance with
SFAS No. 142, goodwill and purchased intangibles with
indefinite lives acquired after June 30, 2001 are not
amortized but will be reviewed periodically for impairment. Of
the purchase price, $370,000 has been allocated to intangible
assets, the majority of which relates to amortizable customer
relationships. Customer relationships are existing sales
contacts that relate to underlying customer relationships
pertaining to the products and services provided by the Company.
The Company is amortizing the fair value of these assets on a
straight-line basis over an estimated useful life of
approximately 5 years.

F-23



---



##### Table of Contents



On October 1, 2004, the Companys
President and CEO was awarded 250,000 non-qualified options to
purchase common stock at an exercise price of $2.10 per
share, which represented a 5% premium to the closing sales price
as reported by the Nasdaq SmallCap Market on that date. The
options vest in their entirety on January 1, 2005, however,
under the terms of the option agreement, any shares of common
stock acquired under the Option Agreement may not be sold or
transferred until after October 1, 2006. In addition to the
option grant, on October 1, 2004 the President and CEO had
his employment contract amended. Under the terms of the
amendment, base salary increased from $500,000 to
$650,000 per year. The amendment also provides that in the
event of termination of employment, under certain circumstances
following an unapproved change in control of the Company, a
severance payout equal to four times annual base salary in a
single lump-sum payment will be made.

Subsequent to September 30, 2004, the
Company and the Saeed brothers, owners of Ovex, each converted
their $600,000 notes receivable from PBPO into $1,200,000 of
Series A non-voting convertible preferred stock.

F-24



---



##### Table of Contents






EN POINTE TECHNOLOGIES, INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

|                                                  |                                   |              |       |             |  |            |     |            |   |   |        |        |   |   |       |       | 
|------------------------------------------------- | --------------------------------- | ------------ | ----- | ----------- |  | ---------- | --- | ---------- | - | - | ------ | ------ | - | - | ----- | ----- | 
|                                                  |                                   |              |       | Charges     |  |            |     |           
|                                                  |                                   | Balance at   |       | (Reversals) |  |            |     | Balance at
|                                                  |                                   | Beginning of |       | to Cost and |  |            |     | End of    
|                                                  |                                   | Period       |       | Expenses    |  | Deductions |     | Period    
|                                                  |                                   |              |       |             |  |            |     |           
|Year Ended September 30, 2004 (in
    thousands): |                                   |              |       |             |  |            |     |            |   |   |        |        |   |   |       |      
|                                                  | Allowance for doubtful accounts   |              | $     | 1,003       |  |            | $   | 145        |   |   | $      | (203   | ) |   | $     | 945   | 
|                                                  | Allowance for returns             |              | $     | 99          |  |            | $   |           |   |   | $      |       |   |   | $     | 99    | 
|                                                  | Allowance for inventory valuation |              | $     | 316         |  |            | $   | 38         |   |   | $      |       |   |   | $     | 354   | 
|                                                  |                                   |              |       |             |  |            |     |            |   |   |        |        |   |   |       |      
|                                                  |                                   | $            | 1,418 |             |  | $          | 183 |            |   | $ | (203   | )      |   | $ | 1,398 |      
|                                                  |                                   |              |       |             |  |            |     |            |   |   |        |        |   |   |       |      
|Year Ended September 30, 2003 (in
    thousands): |                                   |              |       |             |  |            |     |            |   |   |        |        |   |   |       |      
|                                                  | Allowance for doubtful accounts   |              | $     | 1,545       |  |            | $   | 269        |   |   | $      | (811   | ) |   | $     | 1,003 | 
|                                                  | Allowance for returns             |              | $     | 99          |  |            | $   |           |   |   | $      |       |   |   | $     | 99    | 
|                                                  | Allowance for inventory valuation |              | $     | 147         |  |            | $   | 169        |   |   | $      |       |   |   | $     | 316   | 
|                                                  |                                   |              |       |             |  |            |     |            |   |   |        |        |   |   |       |      
|                                                  |                                   | $            | 1,791 |             |  | $          | 438 |            |   | $ | (811   | )      |   | $ | 1,418 |      
|                                                  |                                   |              |       |             |  |            |     |            |   |   |        |        |   |   |       |      
|Year Ended September 30, 2002 (in
    thousands): |                                   |              |       |             |  |            |     |            |   |   |        |        |   |   |       |      
|                                                  | Allowance for doubtful accounts   |              | $     | 2,281       |  |            | $   | 532        |   |   | $      | (1,268 | ) |   | $     | 1,545 | 
|                                                  | Allowance for returns             |              | $     | 303         |  |            | $   | (204       | ) |   | $      |       |   |   | $     | 99    | 
|                                                  | Allowance for price discrepancy   |              | $     | 18          |  |            | $   | (18        | ) |   | $      |       |   |   | $     |      | 
|                                                  | Allowance for inventory valuation |              | $     | 1,097       |  |            | $   | (249       | ) |   | $      | (701   | ) |   | $     | 147   | 
|                                                  |                                   |              |       |             |  |            |     |            |   |   |        |        |   |   |       |      
|                                                  |                                   | $            | 3,699 |             |  | $          | 61  |            |   | $ | (1,969 | )      |   | $ | 1,791 |      
|                                                  |                                   |              |       |             |  |            |     |            |   |   |        |        |   |   |       |      

F-25



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly
authorized.



| |                             
| | ----------------------------
| | EN POINTE TECHNOLOGIES, INC.



| |     |                       
| | --- | ----------------------
| | By: | /s/ ATTIAZAZ BOB DIN

| |                                              
| | ---------------------------------------------
| |                                              
| | Attiazaz Bob Din,                          
| | Chairman of the Board and Chief
    Executive
| | Officer (Principal Executive
    Officer)    

Dated: December 23, 2004

POWER OF ATTORNEY

We, the undersigned directors and officers of En
Pointe Technologies, Inc. do hereby constitute and appoint
Attiazaz Din and Javed Latif, or either of them, with full power
of substitution and resubstitution, our true and lawful
attorneys and agents, to do any and all acts and things in our
name and behalf in our capacities as directors and officers and
to execute any and all instruments for us and in our names in
the capacities indicated below, which said attorneys and agents,
or either of them, or their substitutes, may deem necessary or
advisable to enable said corporation to comply with the
Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange
Commission in connection with this Annual Report on
Form 10-K, including specifically, but without limitation,
power and authority to sign for us or any of us in our names and
in the capacities indicated below, any and all amendments; and
we do hereby ratify and confirm all that the said attorneys and
agents, or either of them, shall do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Annual Report on Form 10-K has
been signed below by the following persons in the capacities and
on the dates indicated.

|                                         |  |                                                                                                 |  |                   |  | 
|---------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ----------------- |  | 
|                                         |  |                                                                                                 |  |                  
|Signature                                |  | Title                                                                                           |  | Date             
|                                         |  |                                                                                                 |  |                  
|                                        
|/s/ ATTIAZAZ BOB DINAttiazaz Bob Din |  | Chairman of the Board, Chief Executive Officer,
    and President (Principal Executive Officer) |  | December 27, 2004
|                                        
|/s/ JAVED LATIFJaved Latif               |  | Chief Financial Officer
    (Principal Financial and Principal
    Accounting Officer)          |  | December 27, 2004
|                                        
|/s/ NAUREEN DINNaureen Din               |  | Director                                                                                        |  | December 27, 2004
|                                        
|/s/ ZUBAIR AHMEDZubair Ahmed             |  | Director                                                                                        |  | December 27, 2004
|                                        
|/s/ MARK BRIGGSMark Briggs               |  | Director                                                                                        |  | December 27, 2004



---



##### Table of Contents



|                                             |  |          |  |                   |  | 
|-------------------------------------------- |  | -------- |  | ----------------- |  | 
|                                             |  |          |  |                  
|Signature                                    |  | Title    |  | Date             
|                                             |  |          |  |                  
|                                            
|/s/ EDWARD O. HUNTEREdward O. Hunter         |  | Director |  | December 27, 2004
|                                            
|/s/ MANSOOR S. SHAHMansoor S. Shah           |  | Director |  | December 27, 2004
|                                            
|/s/ TIMOTHY J. LILLIGRENTimothy J. Lilligren |  | Director |  | December 27, 2004



---



##### Table of Contents



INDEX TO EXHIBITS

|        |    |             |  |                                                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .1          |  | Agreement and Plan of Merger between the
    Registrant and En Pointe Technologies, Inc., a Texas
    corporation, effective February 29, 1996 (incorporated by
    reference to the same numbered Exhibit to the Registrants
    Registration Statement on Form S-1 filed May 8, 1996).                           
|        | 3  | .1          |  | Certificate of Incorporation of Registrant
    (incorporated by reference to the same numbered Exhibit to the
    Registrants Registration Statement on Form S-1 filed
    May 8, 1996).                                                                                                                           
|        | 3  | .2          |  | Bylaws of Registrant (incorporated by reference
    to the same numbered Exhibit to the Registrants
    Registration Statement on Form S-1 filed May 8, 1996).                                                                                                                                                     
|        | 3  | .3          |  | Certificate of Amendment to Certificate of
    Incorporation of Registrant filed May 16, 2000.
    (incorporated by reference to the same numbered Exhibit to the
    Registrants Registration Statement on Form 10-K filed
    January 18, 2001).                                                                 
|        | 4  | .3          |  | Form of Common Stock Certificate (incorporated by
    reference to the same numbered Exhibit to the Registrants
    Registration Statement on Form S-1 filed May 8, 1996).                                                                                                                                         
|        | 10 | .1          |  | En Pointe Technologies, Inc. 1996 Stock Incentive
    Plan (incorporated by reference to the same numbered Exhibit to
    the Registrants Registration Statement on Form S-1
    filed May 8, 1996).                                                                                                               
|        | 10 | .2          |  | En Pointe Technologies, Inc. Employee Stock
    Purchase Plan (incorporated by reference to the same numbered
    Exhibit to the Registrants Registration Statement on
    Form S-1 filed May 8, 1996).                                                                                                            
|        | 10 | .3          |  | Form of Directors and Officers
    Indemnity Agreement (incorporated by reference to the same
    numbered Exhibit to the Registrants Registration Statement
    on Form S-1 filed May 8, 1996).                                                                                                                 
|        | 10 | .5          |  | Employment Agreement between the Registrant and
    Attiazaz Bob Din, dated March 1, 1996
    (incorporated by reference to the same numbered Exhibit to the
    Registrants Registration Statement on Form S-1 filed
    May 8, 1996).                                                                          
|        | 10 | .6          |  | Amended Employment Agreement between the
    Registrant and Attiazaz Bob Din, dated
    April  2, 1997 (incorporated by reference to the same
    numbered Exhibit to the Registrants Registration Statement
    on Form 10-K filed December 29, 1997).                                                          
|        | 10 | .18         |  | Lease dated May 1999 between U.S. Real
    Estate Consortium and the Registrant for property located at
    1040 Vintage Avenue, Ontario, California (incorporated by
    reference to the same numbered Exhibit to the Registrants
    Form 10-K filed January 13, 2000).                                         
|        | 10 | .19         |  | Lease dated April 2001 between Pacific Corporate
    Towers LLC and the Registrant for the property located at
    100 N. Sepulveda Blvd., 19th Floor,
    El Segundo, California. (incorporated by reference to the
    same numbered Exhibit to the Registrants Form 10-Q
    filed August 14, 2001).            
|        | 10 | .24         |  | Assignment and License Agreement between the
    Registrant and SupplyAccess, Inc., dated September 21,
    2001. (incorporated by reference to the same numbered Exhibit to
    the Registrants Form 10-K filed December 31,
    2001).                                                                           
|        | 10 | .25         |  | Loan and Security Agreement by and among En
    Pointe Technologies Sales, Inc., the lenders named therein and
    Foothill Capital Corporation, dated December 28, 2001.
    (incorporated by reference to the same numbered Exhibit to the
    Registrants Form 10-K filed December 31, 2001).                   
|        | 10 | .26         |  | Inventory Financing Agreement between En Pointe
    Technologies Sales, Inc. and IBM Credit Corporation dated
    December 28, 2001. (incorporated by reference to the same
    numbered Exhibit to the Registrants Form 10-K filed
    December 31, 2001).                                                        
|        | 10 | .27         |  | Employment Agreement between the Registrant and
    Kevin Schatzle, dated March 28, 2002. (incorporated by
    reference to the same numbered exhibit to the Registrants
    Form 10-K filed December 27, 2002).                                                                                                   
|        | 10 | .28         |  | First Amendment to Loan and Security Agreement by
    and among En Pointe Technologies Sales, Inc., the lenders named
    therein and Foothill Capital Corporation, dated July 30,
    2002. (incorporated by reference to the same numbered exhibit to
    the Registrants Form 10-K filed December 27,
    2002).
|        | 10 | .29         |  | Acknowledgment and Amendment to Financing
    Agreement by and between En Pointe Technologies Sales, Inc. and
    IBM Credit Corporation, dated August 6, 2002. (incorporated
    by reference to the same numbered exhibit to the
    Registrants Form 10-K filed December 27, 2002).                             



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                    
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .30         |  | Second Amendment to Loan and Security Agreement
    and Consent by and among En Pointe Technologies Sales, Inc., the
    lenders named therein and Foothill Capital Corporation, dated
    October 9, 2002. (incorporated by reference to the same
    numbered exhibit to the Registrants Form 10-K filed
    December 27, 2002).
|        | 10 | .31         |  | Asset Purchase Agreement entered into as of
    October 9, 2002 between Tabin Corporation and En Pointe
    Technologies Sales, Inc. (incorporated by reference to the same
    numbered exhibit to the Registrants Form 10-K filed
    December 27, 2002).                                                                       
|        | 10 | .32         |  | Amendment to Agreement for Inventory Financing by
    and between En Pointe Technologies Sales, Inc. and IBM Credit
    Corporation, dated November 21, 2002. (incorporated by
    reference to the same numbered exhibit to the Registrants
    Form 10-K filed December 27, 2002).                                              
|        | 10 | .33         |  | Amendment to Lease between Pacific Towers and the
    Registrant, dated April 30, 2001. (incorporated by
    reference to the same numbered exhibit to the Registrants
    Form 10-K filed December 27, 2002).                                                                                                                    
|        | 10 | .34         |  | Employment agreement between the Registrant and
    Kevin D. Ayers, dated March 28, 2002. (incorporated by
    reference to the same numbered exhibit to the Registrants
    Form 10-Q filed February 14, 2003).                                                                                                                  
|        | 10 | .35         |  | Employment agreement between the Registrant and
    Kathy Perez, dated April 20, 2002. (incorporated by
    reference to the same numbered exhibit to the Registrants
    Form 10-Q filed February 14, 2003).                                                                                                                     
|        | 10 | .36         |  | Employment agreement between the Registrant and
    Javed Latif, dated March 28, 2002. (incorporated by
    reference to the same numbered exhibit to the Registrants
    Form 10-Q filed February 14, 2003).                                                                                                                     
|        | 10 | .37         |  | Third Amendment to Loan and Security Agreement by
    and between En Pointe Technologies Sales, Inc. and Foothill
    Capital Corporation, as agent for the lenders, dated
    May 12, 2003. (incorporated by reference to
    Exhibit 10.34 to the Registrants Form 10-Q filed
    May  15, 2003).                               
|        | 10 | .38         |  | Amendment to Agreement for Inventory Financing by
    and between En Pointe Technologies Sales, Inc. and IBM Credit
    LLC (formerly IBM Credit Corporation), dated May 7, 2003.
    (incorporated by reference to Exhibit 10.35 to the
    Registrants Form 10-Q filed May 15, 2003).                                           
|        | 10 | .39         |  | Employee Leasing and Licensing Agreement by and
    between En Pointe Technologies, Inc. and En Pointe Global
    Services, Inc., dated October 17, 2003. (incorporated by
    reference to the same numbered exhibit to the Registrants
    Form 10-Q filed May 17, 2004).                                                       
|        | 10 | .40         |  | Loan Agreement by and among En Pointe
    Technologies, Inc, En Pointe Global Services, Inc. and Ovex
    Technologies, Ltd., dated February 13, 2004. (incorporated
    by reference to the same numbered exhibit to the
    Registrants Form 10-Q filed May 17, 2004).                                                          
|        | 10 | .41         |  | Business Financing Agreement between En Pointe
    Technologies, Inc, and GE Commercial Distribution Finance
    Corporation, dated June 25, 2004. (incorporated by
    reference to the same numbered exhibit to the Registrants
    Form 10-Q filed August 16, 2004).                                                           
|        | 10 | .42         |  | Agreement for Wholesale Financing between En
    Pointe Technologies, Inc. and GE Commercial Distribution Finance
    Corporation, dated June 25, 2004. (incorporated by
    reference to the same numbered exhibit to the Registrants
    Form 10-Q filed August 16, 2004).                                                      
|        | 10 | .43         |  | Addendum to Business Financing Agreement and
    Agreement for Wholesale Financing between En Pointe
    Technologies, Inc. and GE Commercial Distribution Finance
    Corporation, dated June  25, 2004. (incorporated by
    reference to the same numbered exhibit to the Registrants
    Form 10-Q filed August 16, 2004).    
|        | 10 | .44         |  | Addendum to Business Financing Agreement and
    Agreement for Wholesale Financing between En Pointe
    Technologies, Inc. and GE Commercial Distribution Finance
    Corporation, dated July  27, 2004. (incorporated by
    reference to the same numbered exhibit to the Registrants
    Form 10-Q filed August 16, 2004).    
|        | 21 | .1          |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                                                        
|        | 23 | .1          |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                             
|        | 31 | .1          |  | Certification of the Chief Executive Officer, as
    required by Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                    



---



##### Table of Contents



|        |    |             |  |                                                                                                                
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 31 | .2          |  | Certification of the Chief Financial Officer, as
    required by Section 302 of the Sarbanes-Oxley Act of 2002.
|        | 32 | .1          |  | Certification of the Chief Executive Officer, as
    required by Section 906 of the Sarbanes-Oxley Act of 2002.
|        | 32 | .2          |  | Certification of the Chief Financial Officer, as
    required by Section 906 of the Sarbanes-Oxley Act of 2002.