En Pointe Technologies, Inc., including its wholly-owned subsidiaries En Pointe Technologies Sales, Inc., En Pointe Gov, Inc., En Pointe Technologies Canada, Inc., The Xyphen Corporation, and En Pointe Europe, Inc. Limited, its majority-owned subsidiaries En Pointe Technologies India Pvt. Ltd., Ovex Technologies (Private) Limited , and its minority-owned affiliate Premier BPO, Inc. (a Variable Interest Entity referred to as "PBPO") and its wholly-owned Chinese subsidiary, Premier BPO Tianjin Co., Ltd. are collectively referred to as
"we," "us" "our" or similar terms

The following statements are or may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995:

(i) any statements contained or incorporated herein regarding possible or assumed future results of operations of our business, anticipated cost savings or other synergies, the markets for our services and products, anticipated capital expenditures, regulatory developments or competition; (ii) any statements preceded by, followed by or that include the words "intends," "estimates," "believes," "expects," "anticipates," "should," "could," "projects," "potential," or similar expressions; and (iii) other statements contained or incorporated by reference herein regarding matters that are not historical facts.

Such forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, included in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-Q, which reflect management's best judgment based on factors currently known, involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements and their inclusion should not be regarded as a representation by us or any other person that the objectives or plans will be achieved. Factors that might cause such a difference include, but are not limited to:

(i) a significant portion of our sales continuing to be to certain large customers, (ii) continued dependence by us on certain allied distributors, (iii) continued downward pricing pressures in the information technology market, (iv) our ability to maintain inventory and accounts receivable financing on acceptable terms, (v) quarterly fluctuations in results, (vi) seasonal patterns of sales and client buying behaviors, (vii) changing economic influences in the industry, (viii) the development by competitors of new or superior delivery technologies or entry in the market by new competitors, (ix) dependence on intellectual property rights, (x) delays in product development, (xi) our dependence on key personnel, (xii) potential influence by executive officers and principal stockholders, (xiii) volatility of our stock price, (xiv) delays in the receipt of orders or in the shipment of products, (xv) any delay in execution and implementation of our system development plans, (xvi) loss of minority ownership status, (xvii) planned or unplanned changes in the quantity and/or quality of the suppliers available for our products, (xviii) changes in the costs or availability of products, (xix) interruptions in transport or distribution, (xx) general business conditions in the economy, (xxi) our ability to prevail in litigation, and (xxii) losses from foreign currency fluctuation, limitations on foreign asset transfers and changes in foreign regulations and political turmoil.

Assumptions relating to budgeting, marketing, and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure or other budgets, which may in turn affect our business, financial position, results of operations and cash flows. The reader is therefore cautioned not to place undue reliance on forward-looking statements contained herein and to consider other risks detailed more fully in our most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2007. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

Critical Accounting Policies

There have been no major changes to our critical accounting policies since the disclosure of critical accounting policies made in the September 30, 2007 Annual Report on Form 10-K.

Comparisons of Financial Results

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


                                               Three Months Ended           Nine Months Ended
                                                    June 30,                    June 30,
                                               2008           2007         2008           2007
Net sales:
  Product                                         84.0 %        87.9 %        84.2  %       85.6 %
  Services                                        16.0          12.1          15.8          14.4
   Total net sales                               100.0         100.0         100.0         100.0
Gross profit:
  Product                                         10.1           7.5           8.5           7.4
  Services                                         6.5           4.4           6.7           5.3
   Total gross profit                             16.6          11.9          15.2          12.7
Selling and marketing expenses                    11.6           8.5          11.6           8.9
General and administrative expenses                4.3           3.1           4.4           3.5
   Operating income (loss)                         0.7           0.3          (0.8 )         0.3
Interest income, net                               0.0           0.0           0.0           0.1
Other (expense) income, net                       (0.1 )         0.1          (0.2 )         0.1
  Income (loss) before taxes and minority
interest                                           0.6           0.4          (1.0 )         0.5
Provision for income taxes                         0.0           0.0           0.1           0.0
   Income (loss) before minority interest          0.6           0.4          (1.1 )         0.5
Noncontrolling interest                           (0.0 )        (0.0 )         0.0           0.1
   Net income (loss)                               0.6 %         0.4 %        (1.1 )%        0.4 %

Comparison of the Results of Operations for the Three Months and Nine Months
Ended June 30, 2008 and 2007

  NET SALES

NET SALES COMPARISONS
(table in millions
except percentages)               Three Months Ended                           Nine Months Ended
                                        June 30,                                    June 30,
Period-to-Period
Comparison               Change           2008           2007          Change          2008          2007
Net sales:
  Product               $   (20.7 )    $     67.2     $      87.9     $   (14.3 )    $   199.8     $   214.1
  Services              $     0.7      $     12.8     $      12.1     $     1.6      $    37.6     $    36.0
Total                   $   (20.0 )    $     80.0     $     100.0     $   (12.7 )    $   237.4     $   250.1
Percentage change           (20.0 )%                                       (5.1 )%

                                        June 30,       March 31,
Sequential Comparison    Change           2008           2008
Net sales:
  Product               $     8.7      $     67.2     $      58.5
  Services              $     0.7      $     12.8     $      12.1
Total                   $     9.4      $     80.0     $      70.6
Percentage change            13.3 %

Net sales decreased $20.0 million, or 20.0%, in the June 2008 quarter as compared to the June 2007 quarter, all of which was product related. The decline in net sales of $20.0 million in the third quarter of fiscal 2008 was mainly attributable to a decline in net sales to major local government accounts as well as to mortgage brokers adversely affected by the sub prime losses that was not replaced by increased sales from other customers. A sales contract with one of our three large government accounts expired during the June 2008 quarter and was not renewed because the customer is purchasing directly from the manufacturer. However, we believe that some of the lost sales from the loss of the large government account will be compensated for by increased gross profits from agency fees that will be received from the manufacturer.

While overall product sales have been declining, software sales, a component of product sales have been increasing. Software sales in the June 2008 quarter were 30.1% of total net sales as compared with 18.9% of total net sales in the June 2007 quarter. Software sales, including licenses, maintenance, and agency commissions related thereto, in the June 2008 quarter increased, increasing $3.3 million in the June 2008 quarter to $19.6 million from $16.3 million in the June 2007 quarter. For the nine months ended June 30, 2008, software sales increased $10.8 million to $51.3 million from $40.5 million as compared with the first nine months of fiscal 2007.

The Company's non-core net sales (defined as sales of business process outsourcing services and product and service revenue from foreign subsidiaries) were essentially flat with $2.1 million of revenues recorded in the June 2008 quarter as compared with $1.9 million revenues in the June 2007 quarter.

On a sequential basis, net sales increased $9.4 million, or 13.3%, when compared with the March 2008 quarter, which primarily as a result of increased product revenue. For the nine months ended June 30, 2008, net sales decreased $12.7 million, or 5.1%, as compared with the first nine months of fiscal 2007, which resulted from decreased product net sales.

As a result of the $20.1 million loss of net sales from a large local government account and from customers in the mortgage brokerage industry during the June 2008 quarter we did not have any single customer that exceeded $8.0 million, or 10% of our total net sales in the June 2008 quarter, as compared to two such customers accounting for an aggregate of 26.7% of our net sales in the June 2007 quarter. For the nine months year-to-date comparable periods, no customer accounted for over 10% in the June 2008 period while one customer accounted for 11.6% in the June 2007 period.

While net sales to any one customer did not exceed 10% in the June 2008 quarter, there was nevertheless a concentration of net sales in the top ten regular customers which amounted to $33.7 million, or 42.2% of total net sales in the June 2008 quarter. This was a decline from the June 2007 quarter's concentration of net sales in the top ten customers of $56.9 million, or 56.9%

GROSS PROFIT


GROSS PROFIT COMPARISONS
 (table in millions
except percentages)                 Three Months Ended                          Nine Months Ended
                                         June 30,                                   June 30,
Period-to-Period
Comparison                Change           2008           2007           Change         2008         2007
Gross profit:
  Product                $     0.6      $      8.1     $       7.5     $      1.8     $    20.4     $ 18.6
  Services               $     0.8      $      5.2     $       4.4     $      2.5     $    15.8     $ 13.3
Total                    $     1.4      $     13.3     $      11.9     $      4.3     $    36.2     $ 31.9
Percentage change             11.9 %                                         13.6 %

          Gross margin
           percentage:
  Product                      3.6 %          12.1 %           8.5 %          1.5 %        10.2 %      8.7 %
  Services                     4.3 %          40.7 %          36.4 %          5.3 %        42.1 %     36.8 %
 Combined gross margin
percentage                     4.7 %          16.6 %          11.9 %          2.5 %        15.2 %     12.7 %

                                         June 30,       March 31,
Sequential Comparison     Change           2008           2008
Gross profit:
  Product                $     2.1      $      8.1     $       6.0
  Services               $     0.2      $      5.2     $       5.0
Total                    $     2.3      $     13.3     $      11.0
Percentage change             21.1 %
Gross margin
percentage:
  Product                      1.8 %          12.1 %          10.3 %
  Services                    (0.7 )%         40.7 %          41.0 %
 Combined gross margin
percentage                     1.0 %          16.6 %          15.6 %

Gross profits increased $1.4 million in the June 2008 quarter, or 11.9%, as compared with the results of the June 2007 quarter. The increase in gross profits was attributable to improved gross margins in both product and service. Product gross margins for the June 2008 quarter were 12.1% as compared with 8.5 % in the June 2007 quarter.

Software agency commissions are recorded net of costs and have a major influence on gross profits. Software agency commissions increased $1.0 million for the June 2008 quarter over the June 2007 quarter and accounted for much of the $1.4 million gross profit increase. When such revenues are excluded from the product margins the product margins are reduced to 6.7% and 5.3% respectively for the June 2008 and 2007 quarters, reflective of more normalized gross margins for product sales.

The increase in gross profits from service gross profits amounted to $0.8 million in the June 2008 quarter over the June 2007 quarter. Of the $0.8 million increase, 84.0% was attributable to the core business operations, or approximately $0.7 million. The $0.7 million increase in service gross profits was from both the increase in service revenues of $0.7 million as well as the increase in service margins of 4.3%. The increase in service gross profits came principally from two of the largest service accounts that contributed approximately $0.5 million as well as from a new account that added another $0.2 million.

Sequentially the June 2008 quarter gross profits increased $2.3 million to $13.3 million over the March 2008 gross profits of $11.0 million. The increase in net sales of $9.4 million contributed to the increase in gross profits in the June 2008 quarter as well as the improvement of gross margins to 16.6% from 15.6% in the March 2007 quarter.

For the nine months ended June 30, 2008, gross profits increased $4.3 million, or 13.5%, as compared with the first nine months of fiscal year 2007, which was from a combined increase of both product and service gross profits.

SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased $0.8 million, or 8.7%, to $9.3 million in the June 2008 quarter, from $8.5 million in the June 2007 quarter. Ovex and PBPO together contributed $0.2 million to the increase in selling and marketing expenses with the remainder coming from core operations. Major factors contributing to the $0.6 million increase in core selling and marketing expenses were increases in wages and benefits, promotion expenses, taxes and legal expense that in combination totaled $1.1 million. Offsetting, in part, the $1.1 million increase were cost reductions in selling and marketing included reductions for employee business expenses, consulting and outsourcing expense, bad debt expense, telephone and internet connectivity, and insurance that amounted to $0.4 million.

Selling and marketing expenses as a percentage of net sales likewise increased 3.1% to 11.6% in the June 2008 quarter from the 8.5% recorded in the June 2007 quarter. On a sequential basis, selling and marketing expenses decreased $0.2 million in the June 2008 quarter from the $9.5 million incurred in the March 2008 quarter.

For the nine months ended June 30, 2008, selling and marketing expenses increased $5.4 million, or 24.2%, to $27.7 million as compared with the $22.3 million incurred in the first nine months of fiscal 2007. The majority of the increase for the nine month period was wage related.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased $0.4 million, or 12.9%, to $3.5 million in the June 2008 quarter from the $3.1 million in the June 2007 quarter. The increase was principally from increases in core general and administrative expenses that included increases in legal expense, additional compensation, and office rent.

On a sequential basis, general and administrative expenses decreased $0.4 million in the June 2008 quarter from the $3.9 million incurred in the March 2008 quarter.

For the nine months ended June 30, 2008, general and administrative expenses increased $1.6 million, or 17.4%, to $10.5 million as compared with the $8.9 million incurred in the first nine months of fiscal 2007.

OPERATING INCOME (LOSS). Operating income increased $0.2, or 109.9%, to $0.5 million in the June 2008 quarter compared with $0.3 million of operating income in the June 2007 quarter. The increase in operating income was a result of the increase in gross profits of $1.4 million that exceeded the $1.2 million increase in operating expenses.

For the nine months ended June 30, 2008, our operating loss was $1.9 million compared with $0.7 million of operating income for the first nine months of fiscal 2007. The operating loss represented a $2.6 million decline in operating income was and resulted from an increase in operating expenses of $6.9 million that exceed the $4.4 million increase in gross profits.

INTEREST INCOME, NET. At June 30, 2008, net interest income was comprised of the following (in thousands):

                                 Three Months Ended           Nine Months Ended
                                      June 30,                     June 30,
                                2008            2007          2008           2007

           Interest income    $      32       $     179     $     221       $  450
           Interest expense         (51 )           (89 )        (199 )       (228 )
                              $     (19 )     $      90     $      22       $  222

Interest income results principally from short-term money market investments earned from excess cash holdings and short-term cash investments. Interest expense results principally from lease financing.

PROVISION FOR INCOME TAXES. For the June 2008 quarter, we estimated an income tax provision of $2,000 and an income tax provision of $27,000 for the nine months ended June 30, 2008.

As of June 30, 2008, we had an available federal net operating loss carry forward of approximately $6.0 million of which $5.3 million will be considered an increase to capital and will not benefit earnings. The $5.3 million that will be considered an increase to capital and will not benefit earnings consists net operating losses generated by stock option expense which, because we elected not to expense its options when granted, are not allowable reductions in tax for GAAP purposes.

NONCONTROLLING INTEREST. Under FIN 46 and other recent changes in consolidation principles, certain noncontrolling interests are required to be consolidated. The Company owns an approximate 30% voting interest in PBPO as of March 31, 2008 and under FIN 46 is required to consolidate PBPO's financial results our financial statements. In the first quarter of fiscal 2008, PBPO incurred a loss that was allocated to the "noncontrolling interest" not based upon the percentage of ownership, but rather upon the "at risk" capital of those owners. In the second quarter of fiscal 2008, PBPO was profitable and no profits were allocated to the noncontrolling interest. This was due to prior period PBPO losses that were allocated disproportionately to us and which were in excess of our investment in PBPO. As a result of the excess losses taken by us, under Accounting Research Bulletin 51, when future earnings materialize, we can recover those losses taken in full before any allocation is made to the noncontrolling investors. In the third quarter of fiscal 2008, PBPO incurred a loss that was allocated in part to the "noncontrolling interest".

Ovex, which is 70% owned by us, incurred a profit for the first quarter of fiscal 2008 of which 30% was allocated to the noncontrolling interest but incurred losses in the second and third quarters of fiscal 2008 which have been allocated based on "at risk" capital.

Noncontrolling interest in thousands allocated by each affiliate for the three and nine months ended June 30, 2008 and 2007 was as follows:

                                            Three Months Ended          Nine Months Ended
                                                 June 30,                   June 30,
                                           2008           2007          2008           2007

  PBPO                                    $     9       $      85     $    (30 )      $   85
  Ovex                                          6             (43 )         48          (127 )
    Loss (profit) allocations             $    15       $      42     $    (18 )      $  (42 )

NET INCOME (LOSS). Net income increased $0.1 million, or 12.9%, to $0.5 million for the June 2008 quarter as compared with net income of $0.4 million in the June 2007 quarter. The increase of $0.1 million in net income for the June 2008 quarter was due primarily to the increase in operating income of $0.2 million reduced by a $0.1 million increase in non-operating income.

For the nine months ended June 30, 2008, our net loss was $2.5 million compared with $0.9 million of net income for the first nine months of fiscal 2007. The decrease of $3.4 million in net income was primarily the result of the decrease in operating income of $2.6 million as well as $0.8 reduction in non-operating income.

Expressed as a percentage of net sales, the net income in the June 2008 quarter was 0.6% of net sales compared with 0.4% of net sales in the June 2007 quarter. For the nine months ended June 30, 2008, our net loss was 1.1% of net sales while the net income for the comparable period in fiscal 2007 was 0.4% of net sales.

Sources of liquidity for us include cash and cash equivalents, cash flow from operations, and amounts available under our GE and IBM financing facilities. These sources have been adequate for day-to-day operations and for capital expenditures. Although there can be no assurance, management believes that the remaining cash balances, cash flows from operations, and availability of funds under its financing facilities will be sufficient to satisfy our operating requirements for the next fiscal year. As of June 30, 2008, we had approximately $7.0 million in cash and working capital of $11.3 million.

Cash flows from operating activities:

During the nine months ended June 2008, operating activities provided cash totaling $20.0 million as compared with using cash of $4.5 million in the June 2007 quarter. The lead contributor to the $24.5 million net increase in cash from operating activities was the decrease in accounts receivable of $30.5 million that reflected to some extent the decrease in sales for the June 2008 quarter over that of the June 2007 quarter.

Accounts receivable, net of allowances for returns and doubtful accounts, at June 30, 2008 and 2007, was $46.3 million and $62.1 million, respectively, a decrease of $15.8 million for the 2008 period. The number of days' sales outstanding in accounts receivable was 53 and 55, as of June 30, 2008 and 2007, respectively.

Cash flows from investing activities:

Investing activities used cash totaling $1.7 million during the nine months ended June 2008, a decrease of $3.1 million from that of the prior fiscal year period. The $3.1 million decrease resulted principally from the liquidation of a short-term cash investment of $0.8 million, as well as the absence of expenditures for acquisition of businesses, such as the $1.3 million acquisition related expenditure in the June 2007 period.

Cash flows from financing activities:

Financing activities used net cash totaling $17.3 million in the nine months ended June 2008, $31.6 million more than the $14.3 million of net cash that was provided from financing in the prior year period. Most of the $31.6 million increase in cash used in the fiscal 2008 period was from the repayment of $16.1 million in the debt under our line of credit and from our short term liabilities.

Credit facilities:

The Company's two primary information technology sales subsidiaries, En Pointe Technologies Sales, Inc. and En Pointe Gov, Inc., and GE Commercial Distribution Finance Corporation ("GE") are parties to that certain Business Financing Agreement and that certain Agreement for Wholesale Financing dated June 25, 2004 with various subsequent amendments to date (collectively, the "Agreements"). En Pointe Technologies, Inc. is the guarantor of the obligations under the Agreements. Under the flooring arrangement, the two subsidiaries may purchase and finance information technology products from GE-approved vendors on terms that depend upon certain variable factors. The two subsidiaries may borrow up to 85% of their collective eligible accounts receivable at an interest rate of prime plus 1.0% per annum, subject to a minimum rate of 5.0%. Such purchases from GE-approved vendors have historically been on terms that allow interest-free flooring.

An addendum, effective July 25, 2007 provides for a $45.0 million accounts receivable and flooring facility. The addendum also provides an extension of the term of the facility for a period of three years from August 1, 2007 and for successive one-year renewal periods thereafter, subject to termination at the end of any such period on at least sixty days prior written notice by any party to the other parties. Effective September 25, 2007, the parties entered into another addendum to delete all prior financial covenants contained in the Agreements and to restate them effective for the last day of each calendar quarter as follows (as such terms are defined in the Agreements):

• Tangible Net Worth and Subordinated Debt in the combined amount of not less than $12,750,000.

• Total Funded Indebtedness to EBITDA for the preceding four fiscal quarters then ended, shall be no more than 3.00:1.00.

The Company was in compliance with all of the debt covenants under the GE Agreements, as amended and supplemented to date, as of June 30, 2008.

The GE facility is collateralized by accounts receivable, inventory and substantially all of our other assets. As of June 30, 2008, approximately $14.2 million in borrowings were outstanding under the $45.0 million financing facility. At June 30, 2008, there were additional borrowings available of approximately $30.8 million after taking into consideration the borrowing limitations under the Agreements, as amended to date.

In addition to the GE facility, on March 26, 2008 En Pointe Technologies Sales, Inc. entered into an agreement for inventory financing with IBM that may only be used to finance sales to International Business Machines Corporation and/or IBM Global Services. Under the agreement the subsidiary may borrow up to $25 million of certain eligible accounts receivable and inventory. Interest free financing is provided with the number of days of interest free financing depending on the vendor and product purchased. Beyond the interest free financing period, interest is charged at the prime rate plus 6.5% per annum. The agreement is collateralized by accounts receivable, inventory and substantially all other assets. En Pointe Technologies, Inc., has provided its guarantee to IBM for the inventory financing Agreement. In conjuction with this financing Agreement, GE and IBM, have signed Intercreditor Agreements. The IBM financing agreement contains numerous covenants including the method of financial . . .